##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
    2003                                             
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-25871



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Informatica Corporation

(Exact name of registrant as specified in its
charter)


|                                                                                                |  |                                         
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                        |  | 77-0333710                              
|(State or other jurisdiction of
    incorporation or organization)                              |  | (I.R.S. Employer
    Identification No.)
|                                                                                               
|2100 Seaport Boulevard
    Redwood City, California(Address of principal executive
    offices) |  | 94063(Zip Code)                         

(650) 385-5000

(Registrants Telephone
Number, Including Area Code)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $0.001 per
share

Preferred Share Purchase Rights, par value
$0.001 per share




---

Indicate by check
mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the Act) during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.     Yes þ          No o

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 an accelerated filer (as defined
in Rule 12b-2 of the
Act).     Yes þ          No o

As of June 30,
2003, there were 80,023,167 shares of the registrants
Common Stock outstanding. The aggregate market value of the
Common Stock held by non-affiliates of the registrant (based on
the closing price for the Common Stock on the Nasdaq National
Market on June 30, 2003) was $526,455,622. Shares of the
registrants Common Stock held by each executive officer
and director have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of
February 27, 2004, there were 85,332,386 shares of the
registrants Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
registrants Proxy Statement for the registrants 2004
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 registrants fiscal year ended December 31, 2003.



---






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INFORMATICA CORPORATION

ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2003







|              |  |                                                                                               |    |      |    | 
|------------- |  | --------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                               |    | Page
|              |  |                                                                                               |    |     
|PART I       
|Item 1.       |  | Business                                                                                      |    |      | 2  | 
|Item 2.       |  | Properties                                                                                    |    |      | 8  | 
|Item 3.       |  | Legal Proceedings                                                                             |    |      | 9  | 
|Item 4.       |  | Submission of Matters to a
    Vote of Security Holders                                       |    |      | 10 | 
|              |  | Executive Officers of the
    Registrant                                                      |    |      | 10 | 
|PART II      
|Item 5.       |  | Market for Registrants
    Common Equity and Related Stockholder Matters                     |    |      | 11 | 
|Item 6.       |  | Selected Consolidated
    Financial Data                                                      |    |      | 12 | 
|Item 7.       |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations     |    |      | 13 | 
|              |  | Risk Factors                                                                                  |    |      | 29 | 
|Item 7A.      |  | Quantitative and Qualitative
    Disclosure About Market Risk                                 |    |      | 38 | 
|Item 8.       |  | Financial Statements and
    Supplementary Data                                               |    |      | 40 | 
|Item 9.       |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure      |    |      | 72 | 
|Item 9A.      |  | Control Procedures                                                                            |    |      | 72 | 
|PART III     
|Item 10.      |  | Directors and Executive
    Officers of the Registrant                                        |    |      | 72 | 
|Item 11.      |  | Executive Compensation                                                                        |    |      | 73 | 
|Item 12.      |  | Security Ownership of
    Certain Beneficial Owners and Management                            |    |      | 73 | 
|Item 13.      |  | Certain Relationships and
    Related Transactions                                            |    |      | 73 | 
|Item 14.      |  | Principal Accountant Fees
    and Services                                                    |    |      | 73 | 
|PART IV      
|Item 15.      |  | Exhibits, Financial
    Statements, Financial Statement Schedules and Reports on
    Form 8-K |    |      | 73 | 
|SIGNATURES    |  |                                                                                               | 75 |     
|EXHIBIT 3.2  
|EXHIBIT 10.23
|EXHIBIT 10.24
|EXHIBIT 21.1 
|EXHIBIT 23.2 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Informatica Corporation is a leading provider of
data integration and business intelligence software. Using
Informatica products and services, Global 2000 large to mid-size
companies can integrate and transform enterprise data from any
system into timely, accurate business insight for improving
business performance, increasing customer lifetime value,
streamlining supply chain operations and proactively managing
regulatory compliance. Our products are designed to help our
customers gain valuable insight into their business, which they
can use to help improve business performance, increase customer
satisfaction and enhance competitive advantage.

Over the last two decades, companies have made
significant investments in a variety of transactional
applications  including Enterprise Resource Planning
(ERP), Customer Relationship Management (CRM) and Supply
Chain Management (SCM) software  to automate specific
business functions, including general ledger, human resources,
customer relationships, and the supply chain. The ultimate goal
of deploying these applications is to make businesses more
efficient through automation. However, these transactional
applications generate massive volumes of information in
disparate software systems that typically do not talk to each
other or share data. Organizations are now finding that the
strategic value of information technology goes beyond process
automation. Companies are realizing that, to make better
business decisions, they need to have one unified and complete
view of all of the information about their customers, suppliers
and operations. When armed with one comprehensive view of their
business, IT and decision makers can use that information to
collaborate internally or externally with their customers,
suppliers and partners to improve performance and productivity.

We address this need with the Informatica
platform: a unified data integration and business intelligence
software solution. Our products are designed to integrate data
from the enterprises various systems for the delivery of
insight to business users across the entire organization,
helping them to make better decisions  ultimately
turning information into competitive advantage. The Informatica
platform handles a broad range of enterprise-wide integration
projects including: business intelligence/ data warehousing,
legacy migration, data synchronization, consolidation,
reconciled single view/ reference hub and real-time Business
Activity Monitoring (BAM). The Informatica platform helps enable
and accelerate data integration, metadata management and
business intelligence initiatives, allowing enterprises to
improve strategic aspects of their business performance,
including direct and indirect sales, marketing, customer
service, operations, finance, human resources, procurement,
manufacturing, and supply chain.

We recently acquired Striva Corporation, a
provider of mainframe integration solutions with whom we have
had an OEM relationship for over two years. Strivas
patented technology, which includes mainframe solutions for
high-speed bulk data movement and real-time change capture, can
help companies more effectively access the vast amounts of
enterprise data on mainframes for mission-critical business
decisions. The acquisition of Striva will permit us to fully
incorporate Strivas hi-speed mainframe data movement
technology into our existing software products. We expect this
combination to allow us to extend the reach of our enterprise
data integration and business intelligence products in order to
meet the growing customer demand for mainframe data integration
across transactional, operational and analytical systems.

We have over 1,900 customers from a wide variety
of industries ranging from high technology to manufacturing, and
from financial services to telecommunications. We market and
sell our software and services through our direct sales force in
the United States as well as Belgium, Canada, France, Germany,
the Netherlands, Switzerland and the United Kingdom. We maintain
relationships with a variety of strategic partners to jointly
develop, market, sell and/or implement our solutions. We also
have relationships with distributors in various regions,
including Asia-Pacific, Australia, Europe, Japan and Latin
America, who sublicense our products and provide service and
support within their territories. More than 40 independent
software vendors, including several of our strategic partners,
have licensed our technology for inclusion in their products.

2



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We began selling our first products in 1996. To
date, substantially all of our revenues have been derived from
our data integration products such as PowerCenter, PowerMart,
PowerConnect and related services, and to a much lesser extent,
business intelligence products and related services. We have
incurred significant net losses since our inception, including
net losses of $15.6 million and $45.0 million in 2002
and 2001, respectively. Although we were profitable in 2003, we
may not consistently achieve profitability in the future. See
Risk Factors  We have a limited operating
history and a history of losses, which makes it difficult to
evaluate our operations, products and prospects for the
future. As of December 31, 2003, we had an
accumulated deficit of $90.7 million.

Our corporate headquarters are located at
2100 Seaport Boulevard, Redwood City, California 94063, and
our 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. We were incorporated in California in February 1993 and
reincorporated in Delaware in April 1999.

A copy of our 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 Exchange Act of 1934, as
amended (the Exchange Act) are available, free of
charge, on our Web site as soon as reasonably practicable after
such material is electronically filed with the Securities and
Exchange Commission, or the SEC.

Our Products

Our products help our customers to better manage
information complexity in their organization. Our adaptive
software provides improved data integrity and greater visibility
of enterprise data and processes.

Our data integration products feature an
adaptive, high performance and scalable architecture designed to
accommodate the demanding requirements of large and growing
global organizations. Our data integration products access and
transform data from a large variety of systems and deliver it to
other transactional systems, data warehouses and analytic
applications. PowerCenter 7 is the latest release of our
data integration platform and features several innovations that
facilitate team-based development, data profiling, web services
and grid computing in a highly secure environment. In addition,
with the acquisition of Striva, we strengthened our
PowerExchange product family to enable organizations to access
batch and changed data from complex mainframe, legacy and
relational systems and deliver that data at the frequency
demanded by the business.

Our business intelligence software,
PowerAnalyzer, is an Internet-centric product designed to meet
our customers overall business intelligence requirements,
including dashboards, scorecarding, query and analysis,
reporting and advanced analytics. PowerAnalyzer is designed to
give IT staff and end users intuitive access to critical,
personalized data at the point of work. PowerAnalyzer allows
users to be alerted to, navigate through and interact with key
business metrics such as sales trends, customer order records
and supplier scorecards on a real-time basis.

The Informatica platform also includes
Informatica SuperGlue. Introduced in 2003, SuperGlue is an
enterprise metadata management solution that integrates metadata
from disparate systems and offers visualization and analysis
capabilities for enhanced understanding of an
organizations IT environment. Using SuperGlue, IT
staff and business decision makers gain cross-system visibility
that helps enable rapid impact assessment as changes occur in
the business, investigate the origins of the data driving
business decisions and identify information asset redundancies.
With SuperGlue, organizations can benefit from enhanced
corporate agility, greater confidence in their data, and
increased cost savings.

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Products included in the Informatica platform are
summarized in the table below:

|                          |  |                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                             
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                   |  | Description                                                                                                                                                                                               |  | Benefit                                                                                                                                                                                                                                     
|                          |  |                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                             
|Informatica PowerCenter   |  | Adaptive enterprise data integration software for
    accessing, integrating and delivering data  from any
    system to any system.                                                                     |  | With its adaptive architecture, enterprises can
    lower initial and ongoing costs, while enabling faster
    deployments and greater flexibility throughout the management of
    enterprise-wide information.                            
|Informatica PowerExchange |  | Robust data access software for gathering bulk
    and changed data from complex mainframe, legacy and relational
    databases and make that data available to a wide range of
    targets and projects. |  | Offers a cost-effective, secure, reliable and
    automated data acquisition method for delivering bulk and
    incrementally changed data from complex systems without the need
    for special knowledge and without exhausting resources.
|Informatica SuperGlue     |  | Enterprise metadata management software for
    integrating, visualizing and analyzing metadata from disparate
    systems.                                                                               |  | Enables cross-system visibility for rapid impact
    assessment as changes occur in enterprises.                                                                                                                                            
|Informatica PowerAnalyzer |  | A scalable platform for building and deploying
    Web-based analytic dashboards, reports, analytic workflows,
    alerts and indicators, with mobile device delivery capability.                         |  | Allows companies to deploy real- time,
    customizable analytics to a broad range of decision-makers
    across the enterprise, resulting in better-informed decisions.                                                                    

Services

We offer a comprehensive set of professional
services, including product-related customer support, consulting
services and training. Through our technical support centers in
the United States, the United Kingdom and the Netherlands, we
offer technical support on a global basis to customers and
partners over the phone, via e-mail and online via
Informaticas Customer Portal. Our consulting services
range from designing and deploying our products to data
transformation and performance tuning. Our consulting strategy
is to provide specialized expertise regarding our products to
enable our end user customers and systems integrator partners to
successfully implement our integration products. We also offer a
comprehensive curriculum of product-related training to help our
customers and strategic partners build proficiency in using our
products. In 2001, we established the Informatica Certification
Program to create a database of expert professionals with
verifiable skills in the design and administration of
Informatica-based systems.

In addition to our comprehensive services
offering, our professional services consultants use a standard
methodology/framework  Informatica
Velocity  for the implementation of our data
integration projects. Informatica Velocity covers each of the
major project phases, including Manage, Architect, Design,
Build, Deploy, and Operate. Where applicable, Velocity includes
best practices and techniques culled from our collective
experience, assisting our clients in thousands of
implementations. Informatica Velocity represents our goal of
bringing Informatica Professional Services field experience to
bear in ensuring successful implementations of our products.

Our Strategic Partners

Our strategic 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 provide complementary products and services to our joint
customers. Our systems integrator partners that generated over
$1,000,000

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each in license and services orders in 2003 were
Accenture, AMS, BearingPoint, Deloitte Consulting, EDS, IBM,
Logan Britton and Wipro. Our current OEM Partners which
generated over $500,000 each in royalties for us in 2003 are
i2 Technologies, Siebel Systems and webMethods.


Additionally, in 2003 we expanded our existing
relationship with IBM whereby the two companies will jointly
integrate, market and sell advanced business intelligence
solutions worldwide. The relationship will help us more tightly
integrate our entire product line with key IBM hardware and
software platforms, enabling customers to significantly speed
development, increase effectiveness and reduce the cost of their
integration and business intelligence environments.

Our Customers

Our customers include leading companies from a
wide range of industries and major governmental and educational
institutions. A representative sampling of our customers who
have each purchased at least $750,000 of our software and
related services since January 1999 includes:

|                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                |  |                                                                                                                                                   |  |                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Financial
    ServicesABN AMRO Bank
    American Express
    Bank of Tokyo
    Barclays
    Citigroup
    Credit Suisse First Boston
    Deutsche Bank
    Fair, Isaac
    Goldman Sachs
    JP Morgan
    Merrill Lynch
    Morgan Stanley
    Nationwide Financial Services
    Societe Generale
    UBS
    Washington Mutual |  | InsuranceAegon USA
    Allstate
    Blue Cross/ Blue Shield
    CNA
    Hartford
    Met Life
    Northwestern Mutual Insurance
    Prudential
    United Services Automobile Association |  | Manufacturing/ High TechAvnet
    Boeing
    Brocade
    Cargill
    Cisco
    ConAgra
    DaimlerChrysler
    Gateway
    General Electric
    Hewlett-Packard
    Lockheed Martin
    Motorola
    Philips
    Solectron
    Siemens
    Toyota
    Verisign |  | CommunicationsAT&T
    Bell Atlantic
    Cingular Wireless
    Deutsche Telekom
    MCI
    NTL
    Sprint
    Telcordia
    Vodafone
    Verizon |  | Pharmaceuticals/ ChemicalsAbbott Laboratories
    Amgen
    AstraZeneca
    Bristol-Meyers Squibb
    Corning
    Eli Lilly
    GlaxoSmithKline
    Johnson & Johnson
    Pfizer
    Roche

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|                                                                                                |  |                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Retail/ Consumer
    Packaged GoodsBest Buy
    EBay
    HE Butt Grocery
    Nestlé
    PepsiCo |  | Utilities/ EnergyAmerican Electric Power
    EDF GDF
    Florida Power & Light
    Pacific Gas & Electric
    TransCanada Pipelines
    Waste Management |  | GovernmentCenter for Medicare and Medical
    Services
    Federal Bureau of Investigation
    Internal Revenue Service
    National Institute of Health
    National Security Agency
    Tricare Management Activities
    US Air Force
    US Army
    US Department of Homeland Security
    US Customs Service
    US Post Office |  | OtherAmerican Home Products
    Dun & Bradstreet
    EDS
    Federal Express
    Freightliner
    Sysco
    Tetra Pak Data Systems
    Tribune
    Universal Studios
    University of Illinois
    Walt Disney

Our Market Positioning

Comprehensive Data Integration
Platform.Our strategy is to provide
our customers with a comprehensive data integration platform to
help them quickly and cost effectively implement data
integration and business intelligence solutions to maximize
their information assets and improve their IT performance and
business effectiveness. The combination of our products
PowerCenter, SuperGlue, PowerAnalyzer and PowerExchange provide
our customers with a comprehensive data integration platform,
offering low total cost of ownership, fast time to value and low
risk to business changes.

Real-Time, Highly Scalable and Flexible Data
Integration, Metadata Management and
Insight.Our products are designed to
support the needs of large global enterprises using our highly
scalable and adaptable architecture. This year we introduced the
incorporation of team-based development, data profiling, web
services and grid computing in a highly secure environment into
our data integration product offering.

In addition, our products are developed to
interoperate with major software applications, tools and
technologies. The open architecture design of our products helps
enable our customers to leverage their existing investment in
computing platforms, applications and data sources, and provide
the flexibility to adapt to future standards. Our metadata
management capabilities help enable cross-system visibility for
rapid impact assessment as changes occur in enterprises, and
provide the audit trail necessary to deliver confidence in data
lineage to IT and the business.

Our ability to access bulk and changed data from
complex mainframe, legacy, and distributed RDBMSs and combine it
with near real-time data movement capabilities enables our
products to keep disparate databases and systems synchronized
and maintain one view of the truth among different applications.
Our business intelligence software is built with modern,
intuitive dashboards, scorecards and guided analysis tools and
can be pushed out to a variety of mobile devices.

Significant Installed Customer Base and
Community of Developers.We have an
installed customer base that spans a wide range of industries.
As of December 31, 2003, over 1,900 customers around the
world and 83% of the Fortune 100 companies have licensed our
products. The Informatica Developer Network, created in 2001,
has grown to over 12,000 members in eighty countries using
Informaticas products to build

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their own data warehouses and analytic solutions.
Our success at each customer site serves to strengthen our brand
awareness while providing an opportunity to up-sell and
cross-sell additional products.


Strong Base of Leading Strategic
Partners.We have alliances and
strategic partnerships with leading enterprise software
providers, systems integrators and hardware vendors. These
alliances provide sales and marketing leverage and access to
required technology, while also providing complementary products
and services to our joint customers. More than 40 companies now
OEM our core products. In sum, more than 300 companies market
and resell our products around the world.

Research and Development

As of December 31, 2003, we employed 250
people in our research and development organization. This team
is responsible for the design, development and release of our
products. The group is organized into four disciplines:
development, quality assurance, documentation and program
management. Members from each discipline, along with a
product-marketing manager from our marketing department, form
separate product teams that work closely with sales, marketing,
services, customers and prospects to better understand market
needs and user requirements. These product teams utilize a
well-defined 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 utilize 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 to draw on third-party
resources as needed in the future.

In 2003, Informatica continued to make use
of a small offshore development team based in the Netherlands
for work on portions of our business intelligence platform. Also
in 2003 we expanded our offshore development to India to do
quality assurance and development on our data integration and
business intelligence platforms. This offshore development is
intended to increase development productivity. Our research and
development expenditures were $47.3 million in 2003,
$45.6 million in 2002, and $46.3 million in 2001.

Sales, Marketing and Distribution

We market and sell software and services through
both our direct sales force and indirect channel partners in the
United States as well as Belgium, Canada, France, Germany, the
Netherlands, Switzerland and the United Kingdom, and also
through various regions around the world. As of
December 31, 2003, we employed 267 people in our sales
and marketing organization worldwide.

Marketing programs are focused on creating
awareness as well as lead generation and customer references for
our products. These programs are targeted at key executives such
as chief executive officers, chief information officers, other
information technology managers and vice presidents of specific
functional areas, such as marketing, sales, service, finance,
human resources, manufacturing, distribution and procurement.
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
product collateral and generating qualified sales leads.

Our 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 in the
past 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 and assessing needs
prior to our introduction to the customer. 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

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expertise in vertical or functional markets. They
resell our products, bundling them, in most cases, with their
broader service offerings. In other cases, they influence 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.


Intellectual Property and Other Proprietary
Rights

Our success depends 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 seven patents
granted in the U.S., 17 patent applications pending in the U.S.,
and 40 corresponding international patent applications pending.

Competition

The market for our products is highly
competitive, quickly evolving and subject to rapidly changing
technology. Our competition consists of hand-coded, 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
Ascential Software, Embarcadero Technologies, Group 1
Software and certain privately-held companies. In addition, we
compete against business intelligence vendors that currently
offer, or may develop, products with functionalities that
compete with our products, such as Business Objects, Cognos,
Hyperion Solutions, MicroStrategy and certain privately-held
companies. We also compete against certain database and
enterprise application vendors, which offer products that
typically operate specifically with these competitors
proprietary databases. Such potential competitors include IBM,
Microsoft, Oracle, PeopleSoft, SAP and Siebel Systems.

We currently compete more on the basis of our
products functionality than on the basis of price.
Additionally, we compete on the basis of certain other factors,
including:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | product capabilities including openness,
    standards, performance, scalability, ease of use and reliability;                  
|
| |  | low total cost of ownership encompassing
    reusability, reduced training, pricing, low maintenance and
    productivity gains;
|
| |  | time to market;                                                                                                                 
|
| |  | services and support;                                                                                                           
|
| |  | relationships with strategic partners that can
    help market and sell our products; and                                       
|
| |  | proven success and experience.                                                                                                  

We believe that we currently compete favorably
with respect to the above factors. For a further discussion of
our competition, see Risk Factors  If we do
not compete effectively with companies selling data integration
and business intelligence products, our revenues may not grow
and could decline.

Employees

As of December 31, 2003, we had a total of
800 employees, including 250 people in research and
development, 267 people in sales and marketing, 181 people
in consulting, customer support and training and 102 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.






|        |           
|------- | ----------
|Item 2. | Properties

Our headquarters are located in two buildings at
the Pacific Shores Center in Redwood City, California. These
buildings comprise 290,300 square feet of office space and
are leased through July 2013. We also lease

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6,500 square feet of office space for sales
activities in New York, New York through February 2010
and 5,300 square feet of office space for sales,
professional services and product development activities in
Plano, Texas through October 2007 (with two five-year renewal
options). We occupy approximately 10,000 square feet of
office space in Maidenhead, United Kingdom for our European
headquarters leased through May 2010 and approximately
9,600 square feet of office space in Amsterdam, the
Netherlands through October 2007 (with a five-year renewal
option). We assumed operating leases as the result of our
acquisition of Striva Corporation in September 2003 for office
space in Uxbridge, England, Scotts Valley, California and
Austin, Texas, which comprise approximately 5,500 square
feet, 6,700 square feet and 11,600 square feet, and
expire in December 2004, May 2005 and July 2004, respectively.
We also lease other office space in the United States and other
various countries under operating leases.


In addition, we lease excess office space in Palo
Alto, California, Carrolton, Texas and San Francisco,
California. We lease 30,000 square feet in Palo Alto,
California under a lease that expires in July 2007, of which
23,000 square feet is subleased under two separate
subleases from October 2002 through September 2005. In November
2002, we subleased the entire 29,000 square feet in
Carrollton, Texas for the remainder of the lease term through
January 2006. In San Francisco, California we lease
approximately 19,200 square feet under a lease that expires
in March 2007, which is entirely subleased through the remainder
of the lease term. In Redwood City, California,
4,000 square feet is subleased from November 2003 to May
2005. We are still attempting to sublease our surplus properties
for the remaining lease terms. See Notes 6 and 7 of the
notes to the consolidated financial statements in Item 8.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

On November 8, 2001, a purported securities
class action complaint was filed in the United States 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, one of our current officers, and one of our former
officers (the Informatica defendants), and several
investment banking firms that served as underwriters of our
April 29, 1999 initial public offering 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 over 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.

We have decided to accept 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 which we do not
believe will occur. The settlement will require approval of the
Court, which cannot be assured, after class members are given
the opportunity to object to the settlement or opt out of the
settlement.

9



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##### Table of Contents



On July 15, 2002, we filed a patent
infringement action in U.S. District Court in Northern
California against Acta Technology, Inc.
(Acta), now known as Business Objects Data
Integration, Inc. (BODI), asserting that
certain Acta products infringe on three of our patents:
U.S. Patent No. 6,014,670, entitled Apparatus
and Method for Performing Data Transformations in Data
Warehousing; U.S. Patent No. 6,339,775, entitled
Apparatus and Method for Performing Data Transformations
in Data Warehousing (this patent is a continuation-in-part
of and claims the benefit of U.S. Patent
No. 6,014,670); and U.S. Patent No. 6,208,990,
entitled Method and Architecture for Automated
Optimization of ETL Throughput in Data Warehousing
Applications. On July 17, 2002, we filed an amended
complaint alleging that Acta products also infringe on one
additional patent: U.S. Patent No. 6,044,374, entitled
Object References for Sharing Metadata in Data
Marts. In the suit, we are seeking an injunction against
future sales of the infringing Acta/ BODI products, as well as
damages for past sales of the infringing products. We have
asserted that BODIs infringement of our patents was
willful and deliberate. On September 5, 2002, BODI answered
the complaint and filed counterclaims against us seeking a
declaration that each patent asserted is not infringed and is
invalid and unenforceable. BODI did not make any claims for
monetary relief against us. The parties presented their
respective claim constructions to the Court on
September 24, 2003 and are awaiting the Courts
ruling. The matter is currently in the discovery phase.

We are also a party to various legal proceedings
and claims, either asserted or unasserted, arising from the
normal course of business activities.

In managements opinion, resolution of any
of these matters is not expected to have a material adverse
impact on the results of operations, cash flows or our financial
position.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

Not Applicable.




Executive Officers of the Registrant

The following table sets forth certain
information concerning our executive officers as of
March 1, 2004:

|                  |  |     |    |             |  |                                                                    
|----------------- |  | --- | -- | ----------- |  | -------------------------------------------------------------------
|Name              |  | Age |    | Position(s)
|                  |  |     |    |            
|Gaurav S. Dhillon |  |     | 38 |             |  | Chief Executive Officer, President and Director                    
|Earl E. Fry       |  |     | 45 |             |  | Chief Financial Officer, Executive Vice President
    and Secretary
|Clive A. Harrison |  |     | 46 |             |  | Executive Vice President, Worldwide Field
    Operations           
|Girish Pancha     |  |     | 39 |             |  | Executive Vice President of Products                               
|Paul Albright     |  |     | 41 |             |  | Chief Marketing Officer, Executive Vice President                  

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. Dhillonis
one of our co-founders and has been our Chief Executive Officer
and a member of our Board of Directors since our inception.
Mr. Dhillon was the Secretary through July 2002. Prior to
co-founding Informatica in February 1993, Mr. Dhillon was
employed by Sterling Software from December 1991 to November
1992, where his last position was Project Manager. Prior to
that, he was a Systems Architect with Unisys Corporation.
Mr. Dhillon holds a B.S. degree in electrical engineering
from Punjab University, India.

Mr. Fryjoined
us as the Chief Financial Officer and Senior Vice President in
December 1999. In July 2002, Mr. Frye became the Secretary.
In August 2003, Mr. Frye was promoted to Executive Vice
President. 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

10



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##### Table of Contents



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 in finance and marketing from Stanford University.


Mr. Harrisonoriginally joined us as Senior Vice
President, Sales in January 1996 and served as Executive Vice
President, Worldwide Field Operations from January 1999 to
August 2001. After a one-year hiatus, Mr. Harrison returned
as Executive Vice President, Worldwide Field Operations in
August 2002. Prior to joining Informatica, Mr. Harrison
held sales management responsibilities at Oracle Corporation
from June 1995 to January 1996. From September 1989 to June
1995, he was Regional Vice President of Sales at Information
Resources, an enterprise decision support company.
Mr. Harrison holds a B.S. degree in operational research
and economics from Aston University in England.

Mr. Panchawas
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 of 2002, he
became Senior Vice President of Products, assuming
responsibility for all 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, including leading the
development of Oracles query-building and business
intelligence tools. 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. Albright,an early employee of Informatica,
originally joined us in 1995 and served as Senior Vice
President, Marketing and Channel Sales until 1998. From October
1998 to October 2002, Mr. Albright was the president and
CEO of SeeCommerce, a provider of software for supply chain
management. Mr. Albright served as an executive in
residence at Greylock, a venture capital firm, from March 2003
to January 2004. He returned to Informatica in January 2004 as
Executive Vice President and Chief Marketing Officer. Prior to
1995, Mr. Albright created and led Sybases industry
solutions group. Before Sybase, he held executive sales and
marketing positions at Tandem and at Unisys. He received a
B.S. degree in information (computer) sciences from
James Madison University.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market Information

Our common stock is listed on the Nasdaq National
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 National Market during the
last two fiscal years.

|               |  |      |       |      |  |      |      |     |  |   |       |  |  |   |      | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ---- | 
|               |  |      |       |     
|               |  | 2003 |       | 2002
|               |  |      |       |     
|               |  | High |       | Low  |  | High |      | Low
|               |  |      |       |      |  |      |      |    
|First Quarter  |  | $    | 8.00  |      |  | $    | 5.76 |     |  | $ | 13.50 |  |  | $ | 7.05 | 
|Second Quarter |  | $    | 8.00  |      |  | $    | 6.23 |     |  | $ | 9.60  |  |  | $ | 5.95 | 
|Third Quarter  |  | $    | 9.43  |      |  | $    | 6.54 |     |  | $ | 7.96  |  |  | $ | 3.10 | 
|Fourth Quarter |  | $    | 12.22 |      |  | $    | 7.44 |     |  | $ | 7.15  |  |  | $ | 3.32 | 

Holders of Common Stock

As of February 27, 2004, there were
approximately 204 stockholders of record of our common stock,
and the closing price per share of our common stock was $9.61
Because 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.

11



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##### Table of Contents



Dividends

We have never declared or paid cash dividends on
our common stock. Since we currently intend to retain all future
earnings to finance future growth, we do not anticipate paying
any cash dividends in the near future.

Recent Sales of Unregistered
Securities

On September 29, 2003, we acquired all of
the capital stock of Striva Corporation, valued at
$58.5 million, in exchange for 3,189,839 shares of our
common stock, valued at $27.8 million, and
$30.7 million in cash. In addition, we assumed all of
Strivas outstanding stock options, which became options to
purchase 345,220 shares of our common stock. Of the cash and
shares issued as part of the merger, approximately $5,116,878
and 531,750 shares of our common stock were placed into an
escrow account to provide indemnity for certain losses we may
incur in connection with the acquisition. The shares of our
common stock issued in the acquisition were not registered under
the Securities Act of 1933, as amended, in reliance upon the
exemption provided by Section 4(2) under the Securities Act
as a transaction not involving a public offering.






|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

|                                                |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |   |        |        | 
|----------------------------------------------- | ----------------- | -------------------------------------------------------- | ------------------------ | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------ | 
|                                                |                   |                                                         
|                                                |                   | Year Ended December 31,                                 
|                                                |                   |                                                         
|                                                |                   | 2003                                                     |                          | 2002 |         | 2001    |  | 2000 |         | 1999   
|                                                |                   |                                                          |                          |      |         |         |  |      |         |        
|                                                |                   |                                                         
|                                                |                   | (In thousands, except per share data)                   
|Consolidated Statements of Operations
    Data: |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |  
|                                                | Revenues:         |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |   |       
|                                                |                   | License                                                  |                          | $    | 94,590  |         |  | $    | 99,943  |         |  | $ | 119,937 |         |  | $ | 101,649 |         |  | $ | 41,184 |       
|                                                |                   | Service(1)                                               |                          |      | 110,943 |         |  |      | 95,498  |         |  |   | 80,208  |         |  |   | 54,953  |         |  |   | 21,924 |       
|                                                |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |  
|                                                |                   |                                                          | Total revenues           |      |         | 205,533 |  |      |         | 195,441 |  |   |         | 200,145 |  |   |         | 156,602 |  |   |        | 63,108 | 
|                                                | Cost of revenues: |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |   |       
|                                                |                   | License                                                  |                          |      | 3,139   |         |  |      | 6,185   |         |  |   | 4,500   |         |  |   | 2,034   |         |  |   | 686    |       
|                                                |                   | Service(1)                                               |                          |      | 38,844  |         |  |      | 39,246  |         |  |   | 42,539  |         |  |   | 31,009  |         |  |   | 11,039 |       
|                                                |                   | Amortization of acquired technology(2)                   |                          |      | 1,031   |         |  |      | 1,040   |         |  |   | 1,040   |         |  |   | 589     |         |  |   |       |       
|                                                |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |  
|                                                |                   |                                                          | Total cost of revenues   |      |         | 43,014  |  |      |         | 46,471  |  |   |         | 48,079  |  |   |         | 33,632  |  |   |        | 11,725 | 
|                                                |                   | Gross Profit                                             |                          |      | 162,519 |         |  |      | 148,970 |         |  |   | 152,066 |         |  |   | 122,970 |         |  |   | 51,383 |       
|                                                |                   | Research and development                                 |                          |      | 47,262  |         |  |      | 45,631  |         |  |   | 46,271  |         |  |   | 26,493  |         |  |   | 11,843 |       
|                                                |                   | Sales and marketing                                      |                          |      | 86,558  |         |  |      | 86,760  |         |  |   | 99,334  |         |  |   | 75,034  |         |  |   | 33,613 |       
|                                                |                   | General and administrative                               |                          |      | 20,836  |         |  |      | 20,284  |         |  |   | 19,629  |         |  |   | 11,726  |         |  |   | 5,012  |       
|                                                |                   | Merger-related costs                                     |                          |      |        |         |  |      |        |         |  |   |        |         |  |   |        |         |  |   | 2,082  |       
|                                                |                   | Amortization of stock-based compensation                 |                          |      | 817     |         |  |      | 221     |         |  |   | 1,036   |         |  |   | 1,514   |         |  |   | 742    |       
|                                                |                   | Amortization of goodwill and other intangible
    assets |                          |      | 147     |         |  |      | 100     |         |  |   | 26,336  |         |  |   | 13,574  |         |  |   |       |       
|                                                |                   | Purchased in-process research and development            |                          |      | 4,524   |         |  |      |        |         |  |   |        |         |  |   | 8,648   |         |  |   |       |       
|                                                |                   | Restructuring charges                                    |                          |      |        |         |  |      | 17,030  |         |  |   | 12,096  |         |  |   |        |         |  |   |       |       
|                                                |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |  
|                                                |                   |                                                          | Total operating expenses |      |         | 160,144 |  |      |         | 170,026 |  |   |         | 204,702 |  |   |         | 136,989 |  |   |        | 53,292 | 
|                                                |                   |                                                          |                          |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         |  |  

12



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##### Table of Contents



|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                         |  |                                      
|                                                                         |  | Year Ended December 31,              
|                                                                         |  |                                      
|                                                                         |  | 2003                                  |        | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                                         |  |                                       |        |      |  |      |         |      |  |     
|                                                                         |  |                                      
|                                                                         |  | (In thousands, except per share data)
|Income (loss) from operations                                            |  |                                       | 2,375  |      |  |      | (21,056 | )    |  |      | (52,636 | ) |  |   | (14,019 | ) |  |   | (1,909 | )
|Interest income and other, net                                           |  |                                       | 7,103  |      |  |      | 6,420   |      |  |      | 8,971   |   |  |   | 4,306   |   |  |   | 1,557  |  
|Interest expense                                                         |  |                                       | (44    | )    |  |      | (57     | )    |  |      | (11     | ) |  |   | (458    | ) |  |   | (319   | )
|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Income (loss) before income taxes                                        |  |                                       | 9,434  |      |  |      | (14,693 | )    |  |      | (43,676 | ) |  |   | (10,171 | ) |  |   | (671   | )
|Income tax provision                                                     |  |                                       | 2,124  |      |  |      | 921     |      |  |      | 1,304   |   |  |   | 3,345   |   |  |   | 824    |  
|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Net income (loss)                                                        |  | $                                     | 7,310  |      |  | $    | (15,614 | )    |  | $    | (44,980 | ) |  | $ | (13,516 | ) |  | $ | (1,495 | )
|Basic and diluted net income (loss) per
    share(3)                     |  | $                                     | 0.09   |      |  | $    | (0.20   | )    |  | $    | (0.58   | ) |  | $ | (0.19   | ) |  | $ | (0.03  | )
|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Shares used in calculation of basic net income
    (loss) per share(3)   |  |                                       | 82,049 |      |  |      | 79,753  |      |  |      | 77,599  |   |  |   | 69,758  |   |  |   | 47,565 |  
|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Shares used in calculation of diluted net income
    (loss) per share(3) |  |                                       | 85,200 |      |  |      | 79,753  |      |  |      | 77,599  |   |  |   | 69,758  |   |  |   | 47,565 |  
|                                                                         |  |                                       |        |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  

|                                    |                                             |                |   |         |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |        | 
|----------------------------------- | ------------------------------------------- | -------------- | - | ------- |  | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                    |                                             |               
|                                    |                                             | December 31,  
|                                    |                                             |               
|                                    |                                             | 2003           |   | 2002    |  | 2001 |   | 2000    |  | 1999
|                                    |                                             |                |   |         |  |      |   |         |  |     
|                                    |                                             |               
|                                    |                                             | (In thousands)
|Consolidated Balance Sheet Data(1): |                                             |                |   |         |  |      |   |         |  |      |   |         |  |  |   |         |  |  |   |       
|                                    | Cash and cash equivalents(4)                |                | $ | 82,903  |  |      | $ | 105,590 |  |      | $ | 119,664 |  |  | $ | 217,713 |  |  | $ | 57,521 | 
|                                    | Restricted cash                             |                |   | 12,166  |  |      |   | 12,166  |  |      |   | 12,166  |  |  |   | 20,282  |  |  |   |       | 
|                                    | Investments(4,5)                            |                |   | 140,890 |  |      |   | 130,285 |  |      |   | 89,555  |  |  |   |        |  |  |   |       | 
|                                    | Working capital(5)                          |                |   | 161,015 |  |      |   | 176,640 |  |      |   | 168,112 |  |  |   | 190,179 |  |  |   | 39,951 | 
|                                    | Total assets                                |                |   | 402,808 |  |      |   | 365,194 |  |      |   | 342,903 |  |  |   | 350,983 |  |  |   | 68,523 | 
|                                    | Long-term obligations, less current Portion |                |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   | 1,438  | 
|                                    | Total stockholders equity                  |                |   | 289,599 |  |      |   | 252,403 |  |      |   | 260,408 |  |  |   | 290,497 |  |  |   | 40,124 | 



---

See Note 1 of notes to consolidated
financial statements for an explanation of the determination of
the number of shares used to compute basic and diluted net loss
per share.



|    |                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Services revenues and cost of service revenues
    have been reclassified for years prior to December 31, 2002
    to reflect out-of-pocket expenses billed to customers as revenue
    rather than a reduction of the related expense. See Note 1
    of notes to consolidated financial statements.
|   
|(2) | Amortization of acquired technology has been
    reclassified for periods prior to December 31, 2003 from
    amortization of goodwill and other intangible assets.                                                                                                                                  
|   
|(3) | Amounts and per share data for the year ended
    December 31, 1999 has been restated to reflect two-for-one
    stock splits, effected in the form of stock dividends, to each
    stockholder of record as of February 18, 2000 and
    November 29, 2000.                                         
|   
|(4) | Certain cash and cash equivalents have been
    reclassified to short-term investments for periods prior to
    December 31, 2003.                                                                                                                                                                   
|   
|(5) | Long-term available-for-sale investments have
    been reclassified to short-term investments for periods prior to
    December 31, 2002.                                                                                                                                                            






| |         |                                                                                          
| | ------- | -----------------------------------------------------------------------------------------
| | Item 7. | 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 service revenues, cost of license
revenues as a percentage of license revenues, cost of service
revenues as a percentage of service

13



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##### Table of Contents



revenues and operating expenses as a percentage
of total revenues; international expansion beyond North America
and Europe; the integration of our recent acquisition of Striva
Corporation with the rest of our operations; the ability of our
products to meet customer demand; our ability to provide
continuing support to our current analytic application
customers; the extent to which we may generate revenues from the
use or sale of elements of our analytic applications; the
sufficiency of our cash balances and cash flows for the next
12 months; potential investments of cash or stock to
acquire or invest in complementary businesses, products or
technologies; the impact of recent changes in accounting
standards; 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 the heading 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 a leading provider of data integration and
business intelligence software. We generate revenues from sales
of software licenses and services, which consist of maintenance,
consulting and training. Our license revenues are derived from
our data integration and business intelligence software
products, as well as our analytic application suites and data
warehouse modules, which we ceased selling directly in July
2003. We receive software license revenues from licensing our
products directly to end users and indirectly through resellers,
distributors and OEMs. We receive service revenues from
maintenance contracts, consulting services and training that we
perform for customers that license our products either directly
or indirectly.

We license our software and provide services to
all industry sectors, including financial services,
communications, pharmaceuticals, insurance, manufacturing,
utilities, government and retail. We sell our products through
both our own direct sales forces and indirect channel partners
in the United States as well as Belgium, Canada, France,
Germany, the Netherlands, Switzerland, the United Kingdom,
Asia-Pacific, Australia, Europe, Japan and Latin America.
Substantially all of our international sales have been in
Europe. Revenue outside of Europe and North America, which
includes the United States and Canada, have been 4% or less of
total consolidated revenues during the last three years,
although we anticipate further expansion outside of these two
regions in the future.

During 2003, we launched a new version of
PowerCenter7, our core data integration product offering,
acquired Striva Corporation to enhance our ability to address
our customers mainframe data integration needs, launched
SuperGlue, our integrated metadata solution and released a fully
upgraded version of PowerAnalyzer, our business intelligence
platform. In addition, we exited the applications and data
warehouse business in July 2003 to better focus our resources on
providing infrastructure solutions and to strengthen
relationships with several of our indirect channel partners.

In 2003, revenues grew by over 5% to
$205.5 million in 2003, with much of this growth occurring
in the second half of the year. In addition, we returned to
profitability on a full-year basis, generating net income of
$7.3 million, or $0.09 per diluted share, for the
year. Contribution from our new offerings coupled with the
increase in services revenue, mostly from increased maintenance
revenue driven by strong renewals from our expanding customer
base, more than offset the loss of analytical application suite
and data warehouse module revenue. We increased our gross profit
percentage to 79% based on the combination of the increase in
total revenues and decrease in cost of revenues, particularly
royalties to third-party software providers.

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| |                                                                          
| | -------------------------------------------------------------------------
| | Adjustments to Previously Announced 2003
    Quarterly and Annual Results

In the fourth quarter of 2003, we discovered an
error in the allocation of revenues between license and service
components in accordance with Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions(SOP 98-9). This allocation had been
applied consistently from the fourth quarter of 1999. We
immediately corrected the error in the fourth quarter of 2003.
We will not be amending any of our periodic reports previously
filed with the SEC or revising any results prior to 2003.
However, we adjusted our previously reported 2003 quarterly
results in Note 16, Selected Quarterly Consolidated Financial
Data (Unaudited), in the notes to consolidated financial
statements in Item 8 to account for the error.



| |                                      
| | -------------------------------------
| | Acquisition of Striva
    Corporation

On September 29, 2003, we acquired Striva
Corporation, a privately held mainframe data integration
software vendor. The acquisition extends our data integration
and business intelligence software to include Strivas
mainframe technology for high-speed bulk data movement and
solution for real-time change data capture in legacy and
non-legacy environments. We expect this combination to allow us
to extend the reach of our enterprise data integration and
business intelligence products in order to meet the growing
customer demand for mainframe data integration across
transactional, operational and analytical systems. We believe
that it is the investment value of this synergy related to
future product offerings that principally contributed to a
purchase price that resulted in the recognition of goodwill.
Prior to the acquisition, we had an OEM relationship with Striva
whereby we integrated Strivas bulk data movement
technology as part of our product offering. We paid
$58.5 million, consisting of $30.7 million of cash and
3,189,839 shares of our common stock valued at approximately
$27.8 million, to acquire all of the outstanding common and
preferred shares of Striva, including the assumption by us of
all of the outstanding stock options issued pursuant to
Strivas stock option plan, which became options to
purchase 345,220 shares of our common stock. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the total purchase price of Striva was allocated to
the acquired assets, including goodwill and identified
intangible assets, and assumed liabilities at their fair values
as of the date of the acquisition. The results of Strivas
operations have been included in our consolidated financial
statements since the date of the acquisition. See Note 2,
Business Combinations, of the notes to consolidated financial
statements in Item 8, which contains additional information
regarding the acquisition

Critical Accounting Policies

Our consolidated financial statements are
prepared in accordance with generally accepted accounting
principals in the United States, or GAAP. These accounting
principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon
information available to us at the time that these estimates,
judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well
as the reported amounts of revenues and expenses during the
periods presented. To the extent there are material differences
between these estimates, judgments or assumptions and actual
results, our financial statements will be affected.

Our senior management has reviewed these critical
accounting policies and related disclosures with our Audit
Committee. See Note 1 of notes to consolidated financial
statements in Item 8, which contains additional information
regarding our accounting policies and other disclosures required
by GAAP. We believe our most critical accounting policies
include the following:



| |                    
| | -------------------
| | Revenue Recognition

We follow detailed revenue recognition
guidelines, which are discussed below. We recognize revenue in
accordance with GAAP guidance that has been prescribed for the
software industry. The accounting rules related to revenue
recognition are complex and are affected by interpretations of
the rules and an understanding of industry practices, both of
which are subject to change. Consequently, the revenue

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recognition accounting rules require management
to make significant judgments, such as determining if
collectibility is probable and if a customer is credit-worthy.


We recognize revenue in accordance with AICPA
Statement of Position (SOP) 97-2 Software Revenue
Recognition,as amended and modified by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions.We recognize
license revenues when a noncancelable license agreement has been
signed, the product has been shipped or we have provided the
customer with the access codes that allow for immediate
possession of the software (collectively delivered),
the fees are fixed or determinable, collectibility is probable
and vendor-specific objective evidence of fair value exists to
allocate the fee to the undelivered elements of the arrangement.
Vendor-specific objective evidence is based on the price charged
when an element is sold separately. In the case of an element
not yet sold separately, the price, which does not change before
the element is made generally available, is established by
authorized management. If an acceptance period is required, we
recognize revenue upon customer acceptance or the expiration of
the acceptance period if all other revenue recognition criteria
under SOP 97-2 have been satisfied. Credit-worthiness and
collectibility for end users are first assessed on a country
level and then, for those customers in countries deemed to have
sufficient timely payment history, customers are assessed based
on payment history and credit profile. For the data integration
products, data warehouse modules, and business intelligence
platform sold directly to end users, we recognize revenue upon
delivery when collectibility is probable, after all other
criteria for revenue recognition have been satisfied. We ceased
selling data warehouse modules in July 2003. When a customer is
not deemed credit-worthy, revenue is recognized upon cash
receipt, after all other revenue recognition criteria have been
satisfied. For our analytic application suites, which we ceased
selling directly in July 2003, we recognize both the license and
maintenance revenue ratably over the initial maintenance period,
generally one year, since we do not have VSOE of maintenance for
our analytic application suites. Our standard agreements do not
contain product return rights.

We also enter into reseller and distributor
arrangements that typically provide for sublicense or end user
license fees based on a percentage of list prices. 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. For data integration
products, data warehouse modules and business intelligence
platform sold indirectly through our resellers and distributors,
we recognize revenue upon delivery and receipt of evidence of
sell-through if the reseller or distributor has been deemed
credit-worthy. We ceased selling data warehouse modules in July
2003. Credit-worthiness and collectibility for resellers and
distributors are first assessed on a country level and then, for
resellers and distributors in countries deemed to have
sufficient timely payment history, resellers and distributors
are assessed based on established credit history consisting of
sales of at least one million dollars and with timely payment
history, generally for the last 12 months. When resellers
and distributors are not deemed credit-worthy, revenue is
recognized upon cash receipt, after all other revenue
recognition criteria have been satisfied.

We also enter into OEM arrangements that provide
for license fees based on inclusion of our products in the OEMs
products. These arrangements provide for fixed, irrevocable
royalty payments. Credit-worthiness and collectibility for OEMs
are first assessed on a country level and then, for those OEMs
in countries deemed to have sufficient timely payment history,
OEMs are assessed based on established credit history consisting
of sales of at least one million dollars and with timely payment
history, generally for the last 12 months. For
credit-worthy OEMs, royalty payments are recognized based on the
activity in the royalty report we receive from the OEM, or in
the case of OEMs with fixed royalty payments, revenue is
recognized when the related payment is due. When OEMs are not
deemed credit-worthy, revenue is recognized upon cash receipt.
In both cases, revenue is recognized after all other revenue
recognition criteria have been satisfied.

We recognize maintenance revenues, which consist
of fees for ongoing support and product updates and upgrades,
ratably over the term of the contract, typically one year.
Consulting revenues are primarily related to implementation
services and product enhancements performed on a
time-and-materials basis or, on a very infrequent basis, a fixed
fee arrangement under separate service arrangements related to
the installation and implementation of our software products.
Training revenues are generated from classes offered at our
headquarters, sales offices and customer locations. Revenues
from consulting and training services are recognized as the
services are performed. When a contract includes both license
and service elements, the

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license fee is recognized on delivery of the
software or cash collections, provided services do not include
significant customization or modification of the base product,
and are not otherwise essential to the functionality of the
software and the payment terms for licenses are not dependent on
additional acceptance criteria.


Deferred revenue includes deferred license,
maintenance, consulting and training revenue. Our practice is to
net unpaid deferred items against the related receivables
balances from those OEMs, specific resellers, distributors and
specific international customers for which we defer revenue
until payment is received.



| |                                                      
| | -----------------------------------------------------
| | Allowance for Sales Returns and Doubtful
    Accounts

We maintain allowances for sales returns on
revenue in the same period as the related revenues are recorded.
These estimates require management judgment and are based on
historical sales returns and other known factors. If these
estimates do not adequately reflect future sales returns,
revenue could be overstated.

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. In cases where we are aware of
circumstances that may impair a specific customers ability
to meet its financial obligations to us, we record a specific
allowance against amounts due to us. For all other customers, we
recognize allowances for doubtful accounts based on the length
of time the receivables are past due, industry and geographic
concentrations, the current business environment and our
historical experience. If the financial condition of our
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required. For example, we recorded an additional bad debt
expense in 2002 related to customers that filed for bankruptcy.



| |                       
| | ----------------------
| | Impairment of Goodwill

We assess goodwill for impairment in accordance
with Statement of Financial Accounting Standards No. 142
(SFAS 142), 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
SFAS 142. Consistent with our determination that we have only
one reporting segment, we have determined that there is only one
Reporting Unit, specifically the license, implementation and
support of our software products. Goodwill was tested for
impairment on the adoption of SFAS 142 on January 1,
2002 and in the annual impairment tests on October 31, 2003
and 2002 using the two-step process required by SFAS 142.
First, we reviewed 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 and the
discounted cash flows based on analyses prepared by management.
An excess carrying value compared to fair value would indicate
that goodwill may be impaired. Second, if we determine that
goodwill may be impaired, then we compare the implied fair
value of the goodwill, as defined by SFAS 142, to its
carrying amount to determine the impairment loss, if any.

Based on these estimates, we determined that as
of October 31, 2003 and 2002 there were no indications of
impairment of goodwill. Assumptions and estimates about future
values and remaining useful lives are complex and often
subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends,
and internal factors such as changes in our business strategy
and our internal forecasts. Although we believe the assumptions
and estimates we have made in the past have been reasonable and
appropriate, different assumptions and estimates could
materially impact our reported financial results. Accordingly,
future changes in market capitalization or estimates used in
discounted cash flows analyses could result in significantly
different fair values of the Reporting Unit, which may result in
impairment of goodwill.



| |                      
| | ---------------------
| | Restructuring Charges

During 2002 and 2001, we recorded significant
charges in connection with our excess facilities. The accrued
restructuring charges represent gross lease obligations and
estimated commissions and other costs (principally leasehold
improvements and asset write-offs), offset by estimated gross
sublease income expected to be received over the remaining lease
terms.

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If we determine that there is further
deterioration in the estimated sublease rates or in the expected
time to sublease our vacant space, we may incur additional
restructuring charges in the future and our cash position could
be adversely affected. For example, we recorded a restructuring
charge in 2001 related to our excess facilities and took an
additional charge in 2002 for the excess facilities based on the
continued deterioration in the real estate market and low
sublease rates. See Note 7, Restructuring Charges, of notes
to consolidated financial statements in Item 8. Future
adjustments to the charges could result from a change in the
time period that the buildings will be vacant, expected sublease
rate, expected sublease terms and the estimated time to
sublease. We will periodically assess the need to update the
original restructuring charges based on the current real estate
market information and trend analysis and executed sublease
agreements.

These liabilities include managements
estimates pertaining to sublease activities. Inherent in the
estimation of the costs related to our restructuring efforts are
assessments related to the most likely expected outcome 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 which 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.

Deferred
Taxes

We recorded a full valuation allowance to reduce
all of our deferred tax assets to the amount that is likely to
be realized. We have considered future taxable income and
ongoing tax planning strategies in assessing the need for a
valuation allowance; however, if it were determined that we
would be able to realize all or part of our deferred tax assets
in the future, an adjustment to the deferred tax asset would
increase income in the period in which such determination was
made. Likewise, if we determined that we would not be able to
realize all or part of our net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to
income in the period in which such determination was made.

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Years Ended December 31, 2003, 2002 and
2001

The following table presents certain financial
data as a percentage of total revenues:

|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |     |    |     | 
|----------------------------------------------------------------- | --------------------------------- | -------------------------------------------------------- | ------------------------ | ---- | -- | ---- | -- | --- | -- | --- | -- | --- | -- | --- | 
|                                                                  |                                   |                                                         
|                                                                  |                                   | Year Ended                                              
|                                                                  |                                   | December 31,                                            
|                                                                  |                                   |                                                         
|                                                                  |                                   | 2003                                                     |                          | 2002 |    | 2001
|                                                                  |                                   |                                                          |                          |      |    |     
|Consolidated Statements of Operations
    Data:                   |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  | Revenues:                         |                                                          |                          |      |    |      |    |     |    |     |    |     |   
|                                                                  |                                   | License                                                  |                          |      | 46 | %    |    |     | 51 | %   |    |     | 60 | %  
|                                                                  |                                   | Service                                                  |                          |      | 54 |      |    |     | 49 |     |    |     | 40 |    
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  |                                   |                                                          | Total revenues           |      |    | 100  |    |     |    | 100 |    |     |    | 100 | 
|                                                                  | Cost of revenues:                 |                                                          |                          |      |    |      |    |     |    |     |    |     |   
|                                                                  |                                   | License                                                  |                          |      | 2  |      |    |     | 3  |     |    |     | 2  |    
|                                                                  |                                   | Service                                                  |                          |      | 19 |      |    |     | 20 |     |    |     | 22 |    
|                                                                  |                                   | Amortization of acquired technology(1)                   |                          |      |   |      |    |     | 1  |     |    |     |   |    
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  |                                   |                                                          | Total cost of revenues   |      |    | 21   |    |     |    | 24  |    |     |    | 24  | 
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  | Gross profit                      |                                                          |                          | 79   |    |      |    | 76  |    |     |    | 76  |   
|                                                                  | Operating expenses:               |                                                          |                          |      |    |      |    |     |    |     |    |     |   
|                                                                  |                                   | Research and development                                 |                          |      | 23 |      |    |     | 23 |     |    |     | 23 |    
|                                                                  |                                   | Sales and marketing                                      |                          |      | 42 |      |    |     | 45 |     |    |     | 50 |    
|                                                                  |                                   | General and administrative                               |                          |      | 10 |      |    |     | 10 |     |    |     | 10 |    
|                                                                  |                                   | Amortization of stock-based compensation                 |                          |      |   |      |    |     |   |     |    |     |   |    
|                                                                  |                                   | Amortization of goodwill and other intangible
    assets |                          |      |   |      |    |     |   |     |    |     | 14 |    
|                                                                  |                                   | Purchased in-process research and development            |                          |      | 2  |      |    |     |   |     |    |     |   |    
|                                                                  |                                   | Restructuring charges                                    |                          |      |   |      |    |     | 9  |     |    |     | 5  |    
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  |                                   |                                                          | Total operating expenses |      |    | 77   |    |     |    | 87  |    |     |    | 102 | 
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  | Income (loss) from operations     |                                                          |                          | 2    |    |      |    | (11 | )  |     |    | (26 | ) 
|                                                                  | Interest income and other, net    |                                                          |                          | 3    |    |      |    | 3   |    |     |    | 4   |   
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  | Income (loss) before income taxes |                                                          |                          | 5    |    |      |    | (8  | )  |     |    | (22 | ) 
|                                                                  | Income tax provision              |                                                          |                          | 1    |    |      |    |    |    |     |    |    |   
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|                                                                  | Net income (loss)                 |                                                          |                          | 4    | %  |      |    | (8  | )% |     |    | (22 | )%
|                                                                  |                                   |                                                          |                          |      |    |      |    |     |    |     |    |    
|Cost of license revenues, as a percentage of
    license revenues |                                   |                                                          | 3                        | %    |    |      | 6  | %   |    |     | 4  | %  
|Cost of service revenues, as a percentage of
    service revenues |                                   |                                                          | 35                       | %    |    |      | 41 | %   |    |     | 53 | %  



---



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amortization of acquired technology has been
    reclassified for the two years ended December 31, 2002 from
    amortization of goodwill and other intangible assets.

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Revenues

Our total revenues increased to
$205.5 million in 2003 from $195.4 million in 2002 and
$200.1 million in 2001, representing growth of
$10.1 million or 5% in 2003 from 2002 and a decrease of
$4.7 million or 2% in 2002 from 2001.

Our license revenues decreased to
$94.6 million in 2003 from $99.9 million in 2002 and
$119.9 million in 2001, representing a decrease of
$5.3 million or 5% in 2003 from 2002 and $20.0 million
or 17% in 2002 from 2001. The decrease in license revenue from
2002 to 2003 was primarily due to the continued weak information
technology (IT) spending conditions in 2003 which
negatively impacted license revenues. In 2003 we experienced a
15% decrease in the number of end-user transactions and a
decrease in the average transaction amount, which decreased from
$265,000 in 2002 to $249,000 in 2003. Additionally, a
$3.4 million negative adjustment in 2003 to correct the
overallocation of license revenues and underallocation of
service revenues resulting from an error in the allocation of
revenue (see Adjustments to Previously Announced 2003
Quarterly and Annual Resultsabove) resulted in a further
decrease of license revenue. The $20.0 million decrease in
license revenue in 2002 from 2001 was due to weak global
economic conditions, resulting in a 27% decrease in the number
of transactions, partially offset by an increase in the average
transaction amount, which increased from $248,000 in 2001 to
$265,000 in 2002 or 7%. Our average end user transaction amounts
do not include large OEM transactions, small distributor
transactions or add-on transactions, which are not reflective of
typical end user transactions.

Service revenues increased to $110.9 million
in 2003 from $95.5 million in 2002 and $80.2 million
in 2001, representing growth of $15.4 million or 16% in
2003 from 2002 and $15.3 million or 19% in 2002 from 2001.
These increases were primarily due to increases of
$21.9 million and $15.9 in maintenance revenues in 2003 and
2002, respectively, which were associated with an increased
customer base and strong renewals of maintenance contracts.
Additionally, in 2003, we made a $2.5 million positive
adjustment to increase maintenance revenues to correct the
underallocation of maintenance revenues resulting from an error
in the allocation of revenue (see Adjustments to Previously
Announced 2003 Quarterly and Annual Resultsabove). The
increase in maintenance revenues in 2003 was partially offset by
a $6.6 million decrease in consulting and training
revenues, which was the result of fewer billable consultants
performing implementation and training services. Professional
services were relatively flat from 2001 to 2002. For 2004, we
expect maintenance revenues to slightly increase based on our
growing installed customer base, and we expect contributions
from consulting and training revenues to remain relatively
consistent with the 2003 levels.

Our international revenues were
$55.8 million in 2003, $50.3 million in 2002 and
$56.5 million in 2001, representing an increase of
$5.5 million, or 11%, in 2003 from 2002 and a decrease of
$6.2 million, or 11%, in 2002 from 2001. The
$5.5 million increase in 2003 from 2002 in international
revenues was primarily due to a 52% increase in maintenance
revenues in Europe due to a strong renewal base. International
license fees and consulting services from 2002 to 2003 remained
relatively constant. The $6.2 million decrease in 2002 from
2001 in international revenues was due primarily to a 36%
decrease in license revenues in Europe due to the weak
macroeconomic environment, partially offset by increases in
service revenues of 45% due to our expanded customer base and
strong renewals and increased consulting and training revenue.
International revenues as a percentage of total revenues were
27%, 26% and 28% for 2003, 2002 and 2001, respectively.

As a result of these license revenue trends and
continued uncertainty in IT spending by our customers and
prospects, our ability to meet our forecasted sales for 2004
will continue to be highly dependent on our success in
converting our sales pipeline into license revenues from orders
received and shipped within the year. In particular, the general
economic uncertainty has caused customer purchases to be reduced
in amount, deferred or cancelled, and therefore has reduced the
overall license pipeline conversion rates in 2002 and much of
2003 and could continue to reduce the rate of conversion of the
sales pipeline into license revenue in the future. See
Risk Factors  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.; Risk
Factors  We have experienced a reduced sales pipeline
and pipeline conversion rate, which has adversely affected the
growth of our company and the price of our common
stock.

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In July 2003, we ceased direct sales of our
analytic application suites and data warehouse modules, which we
made available to our indirect channel partners to sell. We will
not receive any future revenue from the distribution of our
analytic application suites and data warehouse modules from our
independent channel partners. We will make appropriate efforts
to provide support to our existing analytic application
customers and to encourage our existing and prospective
customers to work with our independent channel partners. We may
further use or sell elements of this technology in the future,
which may generate revenues. In December 2003, we licensed
elements of this software technology to one of our strategic
partners.

Our quarterly operating results have fluctuated
in the past and are likely to do so in the future. In
particular, our license revenues are not predictable with any
significant degree of certainty. In addition, we have
historically recognized a substantial portion of our revenues in
the last month of each quarter, and more recently, in the last
few weeks of each quarter. See Risk Factors 
We have experienced and could continue to experience
fluctuations in our quarterly operating results, especially the
amount of license revenue we recognize each quarter, and such
fluctuations have caused and could continue to cause our stock
price to decline.

Cost of Revenues

Cost of
License Revenues

Our cost of license revenues consists primarily
of software royalties, product packaging, documentation, and
production costs. Cost of license revenues was $3.1 million
in 2003, $6.2 million in 2002 and $4.5 million in
2001, representing approximately 3%, 6% and 4% of license
revenues in 2003, 2002 and 2001, respectively. The
$3.1 million or 50% decrease in 2003 from 2002 was
primarily due to decreased royalty payments, including royalty
payments to Striva, which we ceased making following our
acquisition of Striva in September 2003. In addition, we
renegotiated a royalty-bearing contract with one of our partners
to decrease the royalty fee. The $1.7 million or 38%
increase in 2002 from 2001 was due primarily to increases in our
percentage mix of royalty-bearing products. For 2004, we expect
the cost of license revenues as a percentage of license revenues
to remain relatively consistent with the 2003 level.

Cost of
Service Revenues

Our cost of service revenues is a combination of
costs of maintenance, consulting and training revenues. Our cost
of maintenance revenues consists primarily of costs associated
with customer service personnel expenses and royalty fees 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 training revenues consists primarily of the costs of
providing training classes and materials at our headquarters,
sales and training offices and customer locations. Cost of
service revenues was $38.8 million in 2003,
$39.2 million in 2002 and $42.5 million in 2001,
representing 35%, 41% and 53% of service revenues in 2003, 2002
and 2001, respectively. Cost of service revenues in absolute
dollars remained relatively flat in 2003 compared to 2002, but
as a percentage of service revenues decreased 6% primarily due
to the significant increase in maintenance revenue, which had
less cost associated with it than other types of service
revenue. The decrease of 8% in 2002 compared to 2001 resulted
primarily from a decrease in consulting service personnel costs
from headcount reductions. For 2004, we expect our cost of
service revenues as a percentage of service revenues to remain
relatively constant with the 2003 level.

Amortization
of Acquired Technology

Amortization of acquired technology is the
amortization of technologies acquired through business
combinations. See additional discussion at Amortization
of Goodwill and Other Intangible Assets below.
Amortization of acquired technology totaled $1.0 million in
each of the years ended December 31, 2003, 2002 and 2001. For
2004, we expect amortization of acquired technology to be
approximately $2.3 million, the increase resulting from our
acquisition of Striva in September 2003.

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Operating Expenses

Research and
Development

Our research and development expenses consist
primarily of salaries and other personnel-related expenses and
consulting services associated with the development of new
products, the enhancement and localization of existing products,
quality assurance and development of documentation for our
products. Research and development expenses increased to
$47.3 million in 2003 from $45.6 million in 2002. The
$1.7 million or 4% increase in 2003 from 2002 was due
primarily to increases in outside consulting services totaling
$0.8 million and personnel related costs of
$0.4 million. Research and development expenses decreased
slightly to $45.6 million in 2002 from $46.3 million
in 2001. Research and development expenses represented 23% of
total revenues in each of 2003, 2002 and 2001. To date, all
software and development costs have been expensed in the period
incurred because costs incurred subsequent to the establishment
of technological feasibility have not been significant. For
2004, we expect research and development expenses as a
percentage of total revenues to remain relatively consistent
with or slightly below the 2003 level.

Sales and
Marketing

Our sales and marketing expenses consist
primarily of personnel costs, including commissions, as well as
costs of public relations, seminars, marketing programs, lead
generation, travel and trade shows. Sales and marketing expenses
were consistent at $86.6 million in 2003 from
$86.8 million in 2002. While sales and marketing expenses
remained effectively flat from 2002 to 2003, a few components of
the expense fluctuated, including lower outside consulting
service fees of $0.6 million, offset by higher marketing
and advertising related expenses of $0.6 million. Sales and
marketing expenses decreased to $86.8 million in 2002 from
$99.3 million in 2001. The decrease of $12.5 million
or 13% from 2001 to 2002 was due primarily to decreased
personnel related costs of $10.7 million, which included
decreased commission expense of $4.4 million and
recruiting-related expenses of $1.4 million, with the
remaining personnel related decrease due to headcount
reductions. Sales and marketing expenses represented 42%, 45%
and 50% of total revenues in 2003, 2002 and 2001, respectively.
For 2004, we expect sales and marketing expenses as a percentage
of total revenues to remain relatively consistent with the 2003
level.

General and
Administrative

Our general and administrative expenses consist
primarily of personnel costs for finance, human resources, legal
and general management, as well as professional services expense
associated with recruiting, legal and accounting. General and
administrative expenses increased slightly to $20.8 million
in 2003 from $20.3 million in 2002. The $0.5 million
or 2% increase in expenses in 2003 from 2002 was primarily due
to a $0.8 million increase in personnel costs and
$0.8 million in fees paid to outside professional service
providers and other administrative fees, partially offset by a
decrease in bad debt expense totaling $1.0 million. The
decrease in the bad debt expense was a result of a significantly
decreased customer bankruptcy rate. General and administrative
expenses increased to $20.3 million in 2002 from
$19.6 million in 2001. The $0.7 million or 4% increase
was due primarily to increased outside professional service
provider fees of $1.9 million partially offset by decreased
personnel costs of $1.2 million. General and administrative
expenses represented 10% of our total revenues in fiscal years
2003, 2002 and 2001. We expect that for 2004, our general and
administrative expenses as a percentage of total revenues to
remain relatively consistent with or slightly below our level in
2003.

Amortization
of Stock-Based Compensation

Amortization of stock-based compensation amounted
to $0.8 million in 2003, $0.2 million in 2002 and
$1.0 million in 2001. The increase in 2003 was primarily
related to the amortization of the deferred compensation
recorded in connection with the September 2003 Striva
acquisition. The $0.8 million decrease in 2002 from 2001
was primarily due to amortization of $0.5 million in 2001
amortization for stock-based compensation related to the
acceleration of options for a terminated executive. We expect to
record

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$2.6 million in 2004 for the amortization of
stock-based compensation related to the fixed awards issued in
conjunction with the Striva acquisition.


In 2003, we granted a stock option to our CEO
that is based on future performance of the Company. The variable
term of the option is such that it requires us to periodically
remeasure the value of the grant based on the fair value of the
stock and record related stock-based compensation. The
stock-based compensation related to this grant for 2003 was
$84,000. If the fair market value of our common stock in 2004
were to remain consistent with the closing price at the end of
2003, we would expect to record amortization of stock-based
compensation related to this grant of approximately
$0.1 million in 2004.

Amortization
of Goodwill and Other Intangible Assets

Goodwill represents the excess of the aggregate
purchase price over the fair value of the tangible and
identifiable intangible assets we have acquired. Other
intangible assets includes patents and customer relationships.
We recorded goodwill and other intangible assets in connection
with the acquisitions of Striva Corporation in 2003, syn-T-sys
and Informatica Partners in 2001 and Delphi Solutions AG, Zimba
and QRB Developers in 2000 as well as the strategic alliance
with PricewaterhouseCoopers (PwC) in 2000.

As required by SFAS 142, we ceased
amortization of goodwill as of January 1, 2002. We will
continue to amortize other intangible assets on a straight-line
basis over their expected useful lives. Amortization of goodwill
and other intangible assets, excluding acquired technology,
amounted to $0.1 million in both 2003 and 2002 and
$26.3 million in 2001. The significant decrease in 2002
from 2001 is due to the adoption of SFAS 142, which was
effective January 1, 2002. We expect amortization expense
to be approximately $0.2 million for 2004, excluding the
amortization of acquired technology, which is recognized as a
component of cost of revenues.

It is likely that we will continue to expand our
business both through acquisitions and internal development. Any
additional acquisitions could result in additional merger and
acquisition related expenses and any impairment of goodwill and
other intangible assets could result in incremental expense.

Purchased
In-Process Research and Development

Based on our valuation of identified intangible
assets held by Striva when we acquired it in September 2003,
$4.5 million of the total purchase price was allocated to
purchased in-process research and development, which was
expensed in the quarter ended September 30, 2003, in
accordance with FIN 4. See Note 2, Business
Combinations, of notes to condensed consolidated financial
statements.

Restructuring
Charges

In September 2001, we announced a restructuring
plan and recorded restructuring charges of approximately
$12.1 million, consisting of $10.6 million related to
estimated facility lease losses and $1.5 million in
leasehold improvement and asset write-offs related to the
consolidation of excess leased facilities in the
San Francisco Bay Area and Texas.

In September 2002, we 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 timing of the restructuring accrual
adjustment was a result of negotiated and executed subleases for
our excess facilities in Dallas, Texas and Palo Alto, California
during the third quarter of 2002. These subleases included terms
that provided a lower level of sublease rates than the initial
assumptions. The terms of these new subleases were consistent
with the continued deterioration of the commercial real estate
market in these areas. In addition, cost containment measures
initiated in the same quarter, such as delayed hiring and salary
reductions, resulted in an adjustment to our estimate of
occupancy of available vacant facilities. These charges
represent adjustments to the original assumptions including, the
time period that the buildings will be vacant, expected sublease
rates, expected sublease terms and the estimated time to
sublease. We 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.

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Net cash payments for 2003, 2002 and 2001 related
to the consolidation of excess facilities amounted to
$4.5 million, $4.8 million and $1.3 million,
respectively. Actual future cash requirements may differ from
the restructuring liability balances as of December 31,
2003 if there are changes to the time period that facilities are
vacant or the actual sublease income is different from current
estimates. As of December 31, 2003, $15.2 million of
lease termination costs, net of anticipated sublease income
related to facilities to be subleased, remains accrued and is
expected to be paid by 2007.

Our results of operations were positively
affected by the decrease in rent expense, which approximates the
cash payments, and decreases to non-cash depreciation and
amortization expense for the property and equipment written-off,
totaling $0.7 million, $1.0 million and
$0.2 million for 2003, 2002 and 2001, respectively. For
2004, we expect the effect on the results of operations to
remain relatively consistent with or slightly below the 2003
level.

If we are unable to sublease any of the available
vacant facilities during the remaining lease terms from the
fourth quarter of 2004 through 2007, restructuring charges could
increase by approximately $3.2 million. We have actual
sublease agreements for our excess facilities totaling
$1.7 million from the fourth quarter of 2004 through 2007.
If we do not occupy certain available vacant facilities during
the remaining lease terms from 2008 through 2013, restructuring
charges could increase by approximately an additional $15.5
million.



| |                                                                      
| | ---------------------------------------------------------------------
| | Interest Income, Interest Expense and Other
    Income (Expense), Net

Interest income is primarily interest income
earned on our cash, cash equivalents, investments and restricted
cash. Interest income and other, net was $7.1 million in
2003, $6.4 million in 2002 and $9.0 million in 2001.
The $0.7 million or 11% increase in 2003 from 2002 was
primarily a result of a misappropriation of trade secrets
lawsuit settlement with Ascential totaling $1.6 million and
a $0.3 million decrease in losses on property and
equipment, offset by $1.2 million in lower interest earned
on our cash, cash equivalents, short-term investments and
restricted stock. The $2.6 million or 29% decrease in 2002
from 2001 was primarily due to $4.8 million in lower
interest income earned on our cash, cash equivalents, short-term
investments and restricted cash, partially offset by
$1.8 million in foreign currency gains in 2002 and a
$0.7 million decrease in losses on property and equipment.
We currently do not engage in any foreign currency hedging
activities and, therefore, are susceptible to fluctuations in
foreign exchange gains or losses in our results of operations in
future reporting periods.



| |                     
| | --------------------
| | Income Tax Provision

We recorded an income tax provision of
$2.1 million in 2003, $0.9 million in 2002 and
$1.3 million in 2001. The $1.2 million increase in
2003 from 2002 is primarily due to an overall increase in
profitability. The expected tax provision derived by applying
the federal statutory rate to our 2003 pre-tax income differed
from the income tax provision recorded primarily due to a
decrease in our valuation allowance for deferred tax assets to
the extent of tax attributes utilized, offset by foreign taxes,
alternative minimum taxes and non-deductible amortization of
deferred stock-based compensation and intangibles. The expected
tax benefit derived by applying the federal statutory rate to
our operating losses in fiscal 2002 and 2001 differed from the
income tax provision recorded primarily due to an increase in
our valuation allowance for deferred tax assets, non-deductible
amortization of deferred stock-based compensation and
merger-related expenses.



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities.SFAS 146 addresses financial accounting and reporting
for costs associated with an exit or disposal activity and
requires such costs to be recognized when the liability is
incurred. Previous guidance in EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Certain Costs
Incurred in a Restructuring)required that a liability
for an exit cost be recognized at the date of a companys
commitment to an exit plan. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated by
us after December 31, 2002. The adoption of SFAS 146
has not had a material effect on our financial position or
results of operations.

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In December 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. We adopted the
disclosure requirements of FIN 45 as of December 31,
2002. We adopted the initial recognition and measurement of the
fair value of the obligation undertaken in issuing the
guarantee, on a prospective basis, those guarantees issued or
modified after December 31, 2002. FIN 45 has not had a
material effect on our consolidated financial position or
results of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities,which was amended by
FIN 46R issued in December 2003. This interpretation of
Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statementsestablishes
accounting guidance for consolidation of a variable interest
entity (VIE), formerly referred to as special
purpose entities. FIN 46 applies to any business
enterprise, both public and private, that has a controlling
interest, contractual relationship or other business
relationship with a VIE. FIN 46 provides guidance for
determining when an entity, the Primary Beneficiary, should
consolidate another entity, a VIE, that functions to support the
activities of the Primary Beneficiary. FIN 46 applies
immediately to VIEs created after January 31, 2003. It also
applies in the first fiscal year or interim period ending after
March 15, 2004, to VIEs created before February 1,
2003 in which an enterprise holds a variable interest.
FIN 46 requires disclosure of VIEs in financial statements
issued after January 31, 2003, if it is reasonably possible
that as of the transition date: (1) the company will be the
primary beneficiary of an existing VIE that will require
consolidation or, (2) the company will hold a significant
variable interest in, or have significant involvement with, an
existing VIE. We currently have no contractual relationship or
other business relationship with a VIE and do not have any such
plans, and therefore the adoption is not expected to have an
effect on our consolidated financial position or results of
operations.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative
Instruments and Hedging Activities(SFAS 149).SFAS 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under
SFAS 133, Accounting for Derivative Instruments
and Hedging Activities.SFAS 149 is generally
effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated
after June 30, 2003. We currently do not have any
derivative instruments.



| |                                
| | -------------------------------
| | 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, we also funded our operations through
private sales of preferred equity securities and capital
equipment leases. As of December 31, 2003, we had
$223.8 million in available cash and cash equivalents and
short-term investments and $12.2 million of restricted cash
under the terms of our Pacific Shores property leases.

Operating activities provided cash of
$20.5 million in 2003, $26.2 million in 2002 and
$15.9 million in 2001. The operating cash inflows in 2003
were primarily due to the net income of $7.3 million, the
benefit of non-cash charges for depreciation and amortization,
purchased in-process research and development, and amortization
of intangible assets totaling $16.9 million, a decrease in
prepaids and other assets of $4.1 million and an increase
in accounts payable of $2.0 million. The uses of cash were
primarily due to an increase in accounts receivable of
$3.1 million and decreases in accrued restructuring charges
and deferred revenue totaling $5.9 million. The operating
cash inflows in 2002 were primarily due to an increase in
deferred revenue of $15.1 million and increases in accrued
liabilities, net of accrued compensation, and restructuring
charges totaling $16.6 million. The uses of cash were
primarily due to the net loss of $15.6 million (offset by
non-cash charges for depreciation and amortization,
restructuring charges, provision for doubtful accounts and
amortization of other intangible assets totaling
$14.7 million) and increases in accounts receivable and
prepaid expenses and other current assets totaling
$4.1 million. The operating cash inflows in 2001 were
primarily due to increases in accrued liabilities, accrued
compensation and related expenses, accrued restructuring charges
and deferred revenue totaling

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$27.7 million. The uses of cash in 2001
resulted principally from increases in prepaid expenses and
other current assets totaling $4.0 million and from the net
loss of $45.0 million (offset by non-cash charges for
depreciation and amortization and amortization of goodwill and
other intangible assets of $33.1 million).


Investing activities used cash of
$43.9 million in 2003, $47.2 million in 2002 and
$125.0 million in 2001. In 2003, $193.0 million was
associated with the purchases of short-term investments,
$30.3 million was used for the acquisition of Striva and
$2.6 million was associated with the purchase of property
and equipment, offset by $182.0 million generated from the
sale and maturities of short-term investments. Short-term
investments represent investments in high credit quality
corporate notes and bonds, municipals and U.S. Government bonds
with durations of up to two years in accordance with our
investment policy. Of the $47.2 million used in investing
activities in 2002, $240.2 million was associated with
purchases of short-term investments and $6.9 million
associated with the purchase of property and equipment,
partially offset by $199.9 million generated from the sale
and maturities of investments. Of the $125.0 million used
in investing activities in 2001, $275.9 million was
associated with purchases of investments and $30.2 million
was associated with the purchase of property and equipment,
partially offset by $186.8 million generated from the sale
and maturities of investments. Investing activities in 2001 also
included $5.7 million, net of cash acquired, associated
with the acquisition of syn-T-sys, $3.5 million, net of
cash acquired, associated with the acquisition of Informatica
Partners, $4.5 million for the second and final installment
payments in January and June 2001 associated with the
acquisition of Delphi, our distributor in Switzerland. Investing
activities in 2001 provided cash of $8.1 million due to the
July 2001 release of restricted cash associated with the
acquisition of Delphi.

Financing activities provided cash of
$0.2 million in 2003, $6.1 million in 2002 and
$11.0 million in 2001. In 2003, our financing activities
consisted of proceeds from the issuance of our common stock to
our employees totaling $11.6 million, offset by repurchases
and retirement of our common stock of $11.4 million. In
2002, financing activities provided cash of $6.1 million,
consisting of proceeds from the issuance of common stock of
$7.9 million, offset by the repurchase and retirement of
common stock of $1.8 million. Financing activities provided
cash of $11.0 million in 2001, consisting principally of
proceeds from the issuance of common stock to our employees.

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,
because our operating results may fluctuate significantly as a
result of a decrease in customer demand or the acceptance of our
products, we may not in the future be able to generate positive
cash flows from operations. If this occurred, we would require
additional funds to support our working capital requirements, or
for other purposes, and may seek to raise such additional funds
through public or private equity financings or from other
sources. We may not be able to obtain adequate or favorable
financing at that time. Any financing we obtain may dilute your
ownership interests.



| |                        
| | -----------------------
| | Contractual Obligations

The following table summarizes our significant
contractual obligations at December 31, 2003, and the
effect such obligations are expected to have on our liquidity
and cash flows in future periods. This table excludes amounts
already recorded on our balance sheet as current liabilities at
December 31, 2003.

|                                   |                                             |                        |         |           |  |       |        |       |  |         |        |     |  |   |        |  |  |   |        |  | 
|---------------------------------- | ------------------------------------------- | ---------------------- | ------- | --------- |  | ----- | ------ | ----- |  | ------- | ------ | --- |  | - | ------ |  |  | - | ------ |  | 
|                                   |                                             |                       
|                                   |                                             | Payments Due by Period
|                                   |                                             |                       
|                                   |                                             |                        |         | Less Than |  | 1-3   |        | 4-5   |  | After  
|Contractual Obligations            |                                             | Total                  |         | 1 Year    |  | Years |        | Years |  | 5 years
|                                   |                                             |                        |         |           |  |       |        |       |  |        
|Operating leases                   |                                             | $                      | 164,468 |           |  | $     | 18,351 |       |  | $       | 35,329 |     |  | $ | 32,892 |  |  | $ | 77,896 | 
|                                   | Other purchase obligations & commitments(1) |                        |         | 600       |  |       |        | 400   |  |         |        | 200 |  |   |        |  |  |   |        |  | 
|                                   |                                             |                        |         |           |  |       |        |       |  |         |        |     |  |   |        |  |  |   |        | 
|Total contractual cash obligations |                                             | $                      | 165,068 |           |  | $     | 18,751 |       |  | $       | 35,529 |     |  | $ | 32,892 |  |  | $ | 77,896 | 
|                                   |                                             |                        |         |           |  |       |        |       |  |         |        |     |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other purchase obligations and commitments
    include minimum royalty payments under license agreements and do
    not include purchase obligations discussed below.

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Purchase orders or contracts for the purchase of
certain goods and services are not included in the table above.
We are not able to determine the aggregate amount of such
purchase orders that represent contractual obligations, as
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.

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
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 noncancelable operating leases. During 2002 and 2001, we
recorded restructuring charges related to the consolidation of
excess leased facilities in the San Francisco Bay Area and
Texas. Operating lease payments in the table below include
approximately $11.2 million, net of anticipated sublease
income, for operating lease commitments for those facilities
that are included in restructuring charges. See Note 6,
Lease Obligations, to the consolidated financial statements in
Item 8.

During 2003 and 2002, we signed sublease
agreements for leased office space in Palo Alto, San Francisco
and Redwood City, California and Carrollton, Texas. Under the
sublease agreements, we will receive sublease income of
$1.1 million, $1.0 million, $0.4 million and
$0.1 million for 2004, 2005, 2006 and 2007, respectively.
In the event the sublessees are unable to fulfill their
obligations, we would be responsible for rent due under the
leases. However, we expect the sublessees will fulfill their
obligations under these leases.

In February 2000, we entered into two lease
agreements for new corporate headquarters in Redwood City,
California. We occupied the new corporate headquarters in August
2001. The lease expires in July 2013. We paid for tenant
improvements, primarily related to the exercise of build-to-suit
options under the facility lease agreement. The total cost of
leasehold improvements for this facility through its completion
in June 2002 was approximately $33.4 million. Total
expenditures for furniture, fixtures and equipment for this
facility were approximately $10.3 million. As part of these
agreements, we have purchased certificates of deposit totaling
$12.2 million as a security deposit for lease payments
until certain financial milestones are met. The letter of credit
may be reduced to an amount not less than three months of the
base rent at the then current rate if our annual revenues reach
$750 million and we have quarterly operating profits of at
least $100 million for no less than four consecutive
calendar quarters. These certificates of deposit are classified
as long-term restricted cash on the consolidated balance sheet.



| |                   
| | ------------------
| | Other Uses of Cash

In September 2002, our Board of Directors
authorized a one-year stock repurchase program for up to five
million shares of our common stock. Purchases were made from
time to time in the open market and were funded from available
working capital. The number and timing of shares purchased were
based on the level of our cash balances, general business and
market conditions, and other factors, including alternative
investment opportunities. Under this program, we repurchased
1,642,498 and 352,234 shares of our common stock for
$11.4 million and $1.8 million in 2003 and 2002,
respectively. These shares were retired and reclassified as
authorized and unissued shares of common stock. On September 30,
2003, the Companys one-year stock repurchase program
expired. We may continue to execute share repurchases from time
to time in order to take advantage of attractive share price
levels, as determined by management and approved by the Board of

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##### Table of Contents



Directors. The timing and terms of the
transactions will depend on market conditions, our liquidity and
other considerations.


A portion of our cash may be used to acquire or
invest in complementary businesses or products or to obtain the
right to use complementary technologies. From time to time, in
the ordinary course of business, we may evaluate potential
acquisitions of such businesses, products or technologies.



| |                                   
| | ----------------------------------
| | Off-Balance Sheet
    Arrangements

We do not have any off-balance sheet financing
arrangements or transactions, arrangements or relationships with
special purpose entities.

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RISK FACTORS

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.

We have experienced and could continue to
experience fluctuations in our quarterly operating results,
especially the amount of license revenue we recognize each
quarter, and such fluctuations have caused and could continue to
cause our stock price to decline.

Our quarterly operating results have fluctuated
in the past and are likely to 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 are not predictable with any significant degree
of certainty and are vulnerable to short-term shifts in customer
demand. For example, we have experienced customer order
deferrals in anticipation of future new product introductions or
product enhancements, as well as the particular budgeting and
purchase cycles of our customers. By comparison, our short-term
expenses are relatively fixed and based in part on our
expectations of future revenues.

Moreover, we do not have a substantial backlog of
license orders at the end of a fiscal period. Therefore, our
license revenues generally reflect orders shipped in the same
quarter they are received, and as a result, we do not have
significant visibility of expected results for future quarters.
Furthermore, we have recognized a substantial portion of our
license revenues in the last month of each quarter, and more
recently, in the last few weeks of each quarter. As a result, we
cannot predict the adverse impact caused by cancellations or
delays in orders until the end of each quarter.

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
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 compare 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.
Additionally, because we have historically recognized a
substantial portion of our license revenues in the last month of
each quarter, and more recently, 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 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 have experienced a reduced sales
pipeline and pipeline conversion rate, which has adversely
affected the growth of our company and the price of our common
stock.

In 2002, we experienced a reduced conversion rate
of our overall license pipeline, primarily as a result of the
general economic slowdown which caused the amount of customer
purchases to be reduced, deferred or cancelled. In the first
half of 2003, we continued to experience a decrease in our sales
pipeline as well as our pipeline conversion rate, primarily as a
result of the negative impact of the war in Iraq on the capital
spending budgets of our customers, as well as the continued
general economic slowdown. While the U.S. economy

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improved in the second half of 2003, there is
still uncertainty regarding our ability to convert potential
sales of our products into revenue. If we are unable 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.


If we do not compete effectively with
companies selling data integration and business intelligence
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. Our competition consists of hand-coded, 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
Ascential Software, Embarcadero Technologies, Group 1 Software,
Sagent Technologies and certain privately-held companies. In
addition, we compete against business intelligence vendors that
currently offer, or may develop, products with functionalities
that compete with our products, such as Brio Technology,
Business Objects, Cognos, Hyperion Solutions, MicroStrategy and
certain privately-held companies. We also compete against
certain database and enterprise application vendors, which offer
products that typically operate specifically with these
competitors proprietary databases. Such potential
competitors include IBM, Microsoft, Oracle, PeopleSoft, SAP and
Siebel Systems. Many of these competitors have longer operating
histories, substantially greater financial, technical, marketing
or other resources, or greater name recognition than we do. Our
competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to
sell additional products and services on terms favorable to us.
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 more on the basis of our products
functionality than on the basis of price. If our competitors
develop products with similar or superior functionality, we may
have difficulty competing on the basis of price.

Our current and potential competitors may make
strategic acquisitions or establish cooperative relationships
among themselves or with other solution providers, thereby
increasing the ability of their products to address the needs of
our prospective customers. 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. Additionally,
if any of our current or potential competitors consolidate their
operations, and as a result provide a broader suite of software
products or solutions, our ability to market and sell our
software products could be impaired. 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.

We may not successfully integrate
Striva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 September 2003, we acquired Striva
Corporation, a provider of mainframe data integration solutions.
The successful integration of Strivas technology,
employees and business operations will place an additional
burden on our management and infrastructure. This acquisition,
and any others we may make in the future, will subject us to a
number of risks, including:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the failure to capture the value of the business
    we acquired, including the loss of any key personnel, customers
    and business relationships;
|
| |  | any inability to generate revenue from the
    combined products that offsets the associated acquisition and
    maintenance costs; and             
|
| |  | the assumption of any contracts or agreements
    from Striva 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 Striva acquisition or any
future 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.

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
implementation costs could be adversely affected, which would
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 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 and data quality vendors, for the promotion and
implementation of our products.

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.

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 timely implement
solutions for our customers. 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 revenue, our revenues and
the price of our common stock could decline.

If the current improvement in the U.S.
economy does not result in increased sales of our products and
services, our operating results would be harmed, and the price
of our common stock could decline.

As our business has grown, we have become
increasingly subject to the risks arising from adverse changes
in the domestic and global economy. We experienced the adverse
effect of the economic slowdown in 2001, 2002 and the first six
months of 2003, 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.
In addition, the terrorist actions of September 11, 2001
and the recent military actions in Afghanistan and Iraq
magnified and prolonged the adverse effects of the economic
slowdown. Although the U.S. economy improved beginning in the
third quarter of 2003, we have not experienced any resulting
increase in our sales pipeline or improvement in our pipeline
conversion rate.

If the current improvement in the U.S. economy
does not result in increased sales of our products and services,
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. Moreover, if the current economic
conditions in Europe and Asia do not improve or if there is an
escalation in regional or global conflicts, we may fall short of
our revenue expectations for 2004. In addition, we could
experience delays in the payment obligations of our reseller
customers if they experience weakness in the end-user market,
which would increase our credit risk exposure and harm our
financial condition.

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As a result of our products lengthy
sales cycle, 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
decision to purchase our products typically requires 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. Further, our sales cycle may lengthen 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:



| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our customers budgetary constraints and
    internal acceptance review procedures;                                                                                                                                                  
|
| |  | the timing of our customers budget cycles;                                                                                                                                                                                          
|
| |  | 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;
|
| |  | our customers concerns about the
    introduction of our products or new products from our
    competitors; or                                                                                                                      
|
| |  | potential downturns in general economic or
    political conditions that could occur during the sales cycle.                                                                                                                         

If our sales cycle lengthens unexpectedly, it
could adversely affect the timing of our revenues or increase
costs, which may independently cause fluctuations in our revenue
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.

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 that enable more
effective business decision-making by helping companies
aggregate and utilize data stored throughout an organization, is
relatively new and still emerging. Substantially all of our
revenues are attributable to the sale of products and services
in this market. Our potential customers may:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | not fully value the benefits of using our
    products;                     
|
| |  | not achieve favorable results using our products;                           
|
| |  | experience technical difficulties in implementing
    our products; or      
|
| |  | use alternative methods to solve the problems
    addressed by our products.

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.

To date, substantially all of our revenues have
been derived from our data integration products such as
PowerCenter, PowerMart, PowerConnect and related services, and
to a lesser extent, our analytic application suites, data
warehouse modules, business intelligence products and related
services. Since we recently ceased direct sales of our analytic
application suites and data warehouse modules, we expect sales
of our data integration and business intelligence software and
related services to comprise substantially all of our revenues
for the foreseeable future. If any of these products do not
achieve market acceptance, our revenues and stock price could
decrease. In particular, with the completion of our Striva
acquisition, we will begin selling and

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marketing Strivas technology as part of our
complete product offering. Market acceptance for Strivas
products, as well as our current products, could be affected if,
among other things, competition substantially increases in the
enterprise analytic software marketplace 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.


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 manage our
operations and growth. We may not be able to successfully
implement 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. We may experience difficulties in
managing 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 loss of our key personnel or the
inability to attract and retain additional personnel could
adversely affect our ability to grow our company
successfully.

We believe our success depends upon our ability
to attract and retain highly skilled personnel and key members
of our management team. We currently do not have any key-man
life insurance relating to our key personnel, and their
employment is at-will and not subject to employment contracts.
We may not be successful in attracting, assimilating and
retaining key personnel in the future, which could adversely
affect our ability to grow our company successfully.

The price of our common stock fluctuates as
a result of factors other than our operating results, such as
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:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | the announcement of new products or product
    enhancements by our competitors;                           
|
| |  | quarterly variations in our competitors
    results of operations;                                        
|
| |  | changes in earnings estimates and recommendations
    by securities analysts;                              
|
| |  | developments in our industry; and                                                                          
|
| |  | changes in accounting rules, such as the
    recording of expenses related to employee stock option grants.

After periods of volatility in the market price
of a particular companys securities, securities class
action litigation has often been brought against that company.
We and certain of our officers and directors 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.

If our products are unable to interoperate
with hardware and software technologies that are 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 to

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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. If either of these risks 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.


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 which 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. For example, we issued corrective releases to
fix problems with the version of our PowerMart released in the
first quarter of 1998. As a result, we had 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
entails 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.

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 forego purchases of

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our products and purchase those of our
competitors instead. Additionally, even if we are able to
develop new products and product enhancements, we cannot assure
you 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,
which have not been deemed credit-worthy, at the time we receive
payment for our products, rather than at the time of sale. If
these customers 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 a limited operating history and a
cumulative net loss, which makes it difficult to evaluate our
operations, products and prospects for the future.

We were incorporated in 1993 and began selling
our products in 1996; therefore, we have a limited operating
history upon which investors can evaluate our operations,
products and prospects. With the exception of 2003 where we had
net income of $7.3 million, since our inception we have
incurred significant net losses, including losses of
$15.6 million and $45.0 million the fiscal years ended
2002 and 2001, respectively. We cannot assure you that we will
be able to sustain profitability in the future. If we are unable
to sustain profitability, we may fail to meet the expectations
of stock analysts and investors, and the price of our common
stock may fall.

Our international operations expose us to
greater intellectual property, collections, exchange rate
fluctuations, regulatory and other risks, which could limit our
future growth.

We have significant operations outside the United
States, including software development centers in India, the
Netherlands and the United Kingdom, sales offices in Belgium,
Canada, France, Germany, the Netherlands, Switzerland and the
United Kingdom, and customer support centers in the Netherlands
and the United Kingdom. Our international operations face
numerous risks. For example, in order to sell our products in
certain foreign countries, our products must be localized, that
is, customized to meet local user needs. Developing local
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
localizing products and in testing whether these localized
products will be accepted in the targeted countries. We cannot
assure you that our localization 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 may experience difficulties in recruiting, training and
managing an international staff.

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.

Our software development centers in India, the
Netherlands and the United Kingdom also subject our business to
certain risks, including:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                        
|
| |  | communication delays between our main development
    center in Redwood Shores, California and our development centers
    in India, 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
|
| |  | increased expenses incurred in establishing and
    maintaining office space and equipment for the development
    centers.                                                                    

Additionally, our international operations as a
whole are subject to a number of risks, including the following:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater risk of uncollectible accounts and longer
    collection cycles;                                                                                                     
|
| |  | greater risk of unexpected changes in regulatory
    practices, tariffs, and tax laws and treaties;                                                                          
|
| |  | fluctuations in exchange rates between the U.S.
    dollar and foreign currencies in markets where we do business
    because we do not engage in any hedging activities; and
|
| |  | general economic and political conditions in
    these foreign markets.                                                                                                      

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. Our failure to manage our international
operations and the associated risks effectively could limit the
future growth of our business. The expansion of our existing
international operations and entry into additional international
markets will require significant management attention and
financial resources.

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 developments, 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 six
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. We recently filed a complaint against
Ascential Software Corporation in which we asserted that
Ascential, and a number of former Informatica employees
recruited and hired by Ascential, misappropriated our trade
secrets, including sensitive products 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. In July
2003, we settled this lawsuit with Ascential. The settlement
includes a consent judgment being entered against Ascential, and
a permanent injunction enjoining Ascential from using, or
further disseminating, confidential, sensitive Informatica
information and materials. Ascential also agreed to pay
Informatica a sum of $1.6 million. The settlement is
included in other income.

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

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parties limit the scope of rights to use of the
source code, we may be unable to effectively control such
third-partys 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 in order
to protect our proprietary rights. For example, on July 15,
2002, we filed a patent infringement lawsuit against Acta
Technology, Inc. Although this lawsuit is in the early stages,
litigating claims related to the enforcement of proprietary
rights can be very expensive and can be burdensome in terms of
management time and resources, which could adversely affect our
business and operating results.

We may face 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. Third parties
could claim that our current or future products infringe their
patent or 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. 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, legal action
claiming patent infringement could be commenced against us, and
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 a third-party infringement claim include the
following:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may be forced to enter into royalty or
    licensing agreements, which may not be available on terms
    acceptable to us, or at all;          
|
| |  | we may be required to indemnify our customers or
    obtain replacement products or functionality for our customers;                              
|
| |  | we may be forced to significantly increase our
    development efforts and resources to redesign our products as a
    result of these claims; and
|
| |  | we may be forced to discontinue the sale of some
    or all of our products.                                                                      

We may engage in future acquisitions or
investments that could dilute our existing stockholders, or
cause us to incur contingent liabilities, debt or significant
expense.

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, we recently acquired Striva in September 2003, and
we invested $500,000 in a private company that is still in the
development stage of its business cycle. 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, including Striva, will
succeed.

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Delaware law, as well as our certificate of
incorporation and bylaws, contains 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. 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.

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 insert
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.

We may need to raise additional capital in
the future, which may not be available on reasonable terms to
us, if at all.

We may not generate sufficient revenue from
operations to offset our operating or other expenses. As a
result, in the future, 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. Even if we are able to do so, it may not be
on terms that are favorable or reasonable to us. If we are not
able to raise additional capital when we need it in the future,
our business could be seriously harmed.

Business interruptions could adversely
affect our business.

Our operations are vulnerable to interruption by
fire, earthquake, power loss, telecommunications failure and
other events beyond our control. We do not have a detailed
disaster recovery plan. Our facilities in the State of
California are currently subject to electrical blackouts as a
consequence of a shortage of available electrical power, which
occurred during 2001. In the event these blackouts are
reinstated, they could disrupt the operations of our affected
facilities. In connection with the shortage of available power,
prices for electricity may continue to increase in the
foreseeable future. Such price changes will increase our
operating costs, which could negatively impact our
profitability. 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.






|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
    About Market Risk

The following discusses our exposure to market
risk related to changes in interest rates and foreign currency
exchange rates. This discussion contains forward-looking
statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors
including those set forth in Risk Factors.

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 commercial

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paper, U.S. government notes and bonds, corporate
bonds and municipal securities. All investments are carried at
market value, which approximates cost.


As of December 31, 2003, the average rate of
return on our investments was 1.8%. If market interest rates
were to increase immediately and uniformly by 100 basis points
from levels as of December 31, 2003, the fair market value
of the portfolio would decline by less than $1.0 million.
Declines in interest rates will, over time, reduce our interest
income.

Foreign Currency Risk

We market and sell our software and services
through our direct sales force and indirect channel partners in
the United States as well as Belgium, Canada, France, Germany,
the Netherlands, Switzerland and the United Kingdom. We also
have relationships with indirect channel partners in various
other regions, including Asia-Pacific, Australia, Europe, Japan
and Latin America. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in foreign markets. As our
sales are primarily in U.S. dollars, a strengthening of the
dollar could make our products less competitive in foreign
markets. We translate foreign currencies into U.S. dollars for
reporting purposes and currency fluctuations may have a
quarterly impact on our financial results. To date, we have not
engaged in any foreign currency hedging activities.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The following consolidated financial statements,
and the related notes thereto, of Informatica Corporation and
the Report of Independent Auditors are filed as a part of this
Form 10-K.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                      |  |      |    | 
|----------------------------------------------------- |  | ---- | -- | 
|                                                      |  | Page
|                                                      |  |     
|Report of Ernst & Young
    LLP, Independent Auditors |  |      | 41 | 
|Consolidated Balance Sheets                           |  |      | 42 | 
|Consolidated Statements of Operations                 |  |      | 43 | 
|Consolidated Statements of Stockholders
    Equity   |  |      | 44 | 
|Consolidated Statements of Cash Flows                 |  |      | 45 | 
|Notes to Consolidated Financial Statements            |  |      | 46 | 

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REPORT OF ERNST & YOUNG
LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders 
 Informatica Corporation

We have audited the accompanying consolidated
balance sheets of Informatica Corporation as of
December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
consolidated 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
auditing standards generally accepted in the 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, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.
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 1 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Palo Alto, California

January 16, 2004


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INFORMATICA CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |         |         |         | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                        |                                                                                                                                                                                                    |                     
|                                                        |                                                                                                                                                                                                    | December 31,        
|                                                        |                                                                                                                                                                                                    |                     
|                                                        |                                                                                                                                                                                                    | 2003                 |                                            | 2002   
|                                                        |                                                                                                                                                                                                    |                      |                                            |        
|                                                        |                                                                                                                                                                                                    |                     
|                                                        |                                                                                                                                                                                                    | (In thousands,      
|                                                        |                                                                                                                                                                                                    | except share data)  
|ASSETS                                                 
|Current assets:                                         |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        | Cash and cash equivalents                                                                                                                                                                          |                      | $                                          | 82,903  |         |         | $      | 105,590 |        
|                                                        | Short-term investments                                                                                                                                                                             |                      |                                            | 140,890 |         |         |        | 130,285 |        
|                                                        | Accounts receivable, net of allowances of $1,269
    and $1,349 in 2003 and 2002, respectively                                                                                                     |                      |                                            | 34,375  |         |         |        | 29,982  |        
|                                                        | Prepaid expenses and other current assets                                                                                                                                                          |                      |                                            | 5,124   |         |         |        | 8,680   |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    | Total current assets |                                            |         | 263,292 |         |        |         | 274,537 |        
|Restricted cash                                         |                                                                                                                                                                                                    |                      | 12,166                                     |         |         |         | 12,166 |        
|Property and equipment, net                             |                                                                                                                                                                                                    |                      | 38,734                                     |         |         |         | 47,370 |        
|Goodwill                                                |                                                                                                                                                                                                    |                      | 82,186                                     |         |         |         | 30,274 |        
|Intangible assets, net                                  |                                                                                                                                                                                                    |                      | 5,325                                      |         |         |         | 517    |        
|Other assets                                            |                                                                                                                                                                                                    |                      | 1,105                                      |         |         |         | 330    |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total assets                               |         | $       | 402,808 |        |         | $       | 365,194 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY               
|Current liabilities:                                    |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        | Accounts payable                                                                                                                                                                                   |                      | $                                          | 4,458   |         |         | $      | 2,269   |        
|                                                        | Accrued liabilities                                                                                                                                                                                |                      |                                            | 25,136  |         |         |        | 24,384  |        
|                                                        | Accrued compensation and related expenses                                                                                                                                                          |                      |                                            | 14,251  |         |         |        | 12,666  |        
|                                                        | Income taxes payable                                                                                                                                                                               |                      |                                            | 1,983   |         |         |        | 2,064   |        
|                                                        | Accrued restructuring charges                                                                                                                                                                      |                      |                                            | 4,624   |         |         |        | 4,812   |        
|                                                        | Accrued merger costs                                                                                                                                                                               |                      |                                            | 543     |         |         |        |        |        
|                                                        | Deferred revenue                                                                                                                                                                                   |                      |                                            | 51,282  |         |         |        | 51,702  |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total current liabilities                  |         |         | 102,277 |        |         |         | 97,897  | 
|Accrued restructuring charges, less current
    portion |                                                                                                                                                                                                    |                      | 10,543                                     |         |         |         | 14,894 |        
|Accrued merger costs, less current portion              |                                                                                                                                                                                                    |                      | 389                                        |         |         |         |       |        
|Commitments and contingencies                           |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|Stockholders equity:                                   |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        | Preferred stock, $0.001 par value;
    2,000,000 shares authorized of which 200,000 shares
    have been designated as Series A preferred stock,
    $0.001 par value, none issued and outstanding |                      |                                            |        |         |         |        |        |        
|                                                        | Common stock, $0.001 par value;
    200,000,000 shares authorized; 84,628,679 and
    80,749,548 shares issued and outstanding at
    December 31, 2003 and 2002, respectively                     |                      |                                            | 382,555 |         |         |        | 348,631 |        
|                                                        | Deferred stock-based compensation                                                                                                                                                                  |                      |                                            | (4,058  | )       |         |        | (74     | )      
|                                                        | Accumulated deficit                                                                                                                                                                                |                      |                                            | (90,684 | )       |         |        | (97,994 | )      
|                                                        | Accumulated other comprehensive income                                                                                                                                                             |                      |                                            | 1,786   |         |         |        | 1,840   |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total stockholders equity                 |         |         | 289,599 |        |         |         | 252,403 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total liabilities and stockholders equity |         | $       | 402,808 |        |         | $       | 365,194 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        

See accompanying notes to consolidated financial
statements.

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INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |         |         | 
|--------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | 
|                                                                      |                                                          |                                      
|                                                                      |                                                          | Year Ended December 31,              
|                                                                      |                                                          |                                      
|                                                                      |                                                          | 2003                                  |         | 2002    |         | 2001
|                                                                      |                                                          |                                       |         |         |         |     
|                                                                      |                                                          |                                      
|                                                                      |                                                          | (In thousands, except per share data)
|Revenues:                                                             |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      | License                                                  |                                       | $       | 94,590  |         |      | $       | 99,943 |         |   | $       | 119,937 |        
|                                                                      | Service                                                  |                                       |         | 110,943 |         |      |         | 95,498 |         |   |         | 80,208  |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      |                                                          | Total revenues                        |         |         | 205,533 |      |         |        | 195,441 |   |         |         | 200,145 | 
|Cost of revenues:                                                     |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      | License                                                  |                                       |         | 3,139   |         |      |         | 6,185  |         |   |         | 4,500   |        
|                                                                      | Service                                                  |                                       |         | 38,844  |         |      |         | 39,246 |         |   |         | 42,539  |        
|                                                                      | Amortization of acquired technology                      |                                       |         | 1,031   |         |      |         | 1,040  |         |   |         | 1,040   |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      |                                                          | Total cost of revenues                |         |         | 43,014  |      |         |        | 46,471  |   |         |         | 48,079  | 
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Gross profit                                                          |                                                          |                                       | 162,519 |         |         |      | 148,970 |        |         |   | 152,066 |        
|Operating expenses:                                                   |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      | Research and development                                 |                                       |         | 47,262  |         |      |         | 45,631 |         |   |         | 46,271  |        
|                                                                      | Sales and marketing                                      |                                       |         | 86,558  |         |      |         | 86,760 |         |   |         | 99,334  |        
|                                                                      | General and administrative                               |                                       |         | 20,836  |         |      |         | 20,284 |         |   |         | 19,629  |        
|                                                                      | Amortization of stock-based compensation                 |                                       |         | 817     |         |      |         | 221    |         |   |         | 1,036   |        
|                                                                      | Amortization of goodwill and other intangible
    assets |                                       |         | 147     |         |      |         | 100    |         |   |         | 26,336  |        
|                                                                      | Purchased in-process research and development            |                                       |         | 4,524   |         |      |         |       |         |   |         |        |        
|                                                                      | Restructuring charges                                    |                                       |         |        |         |      |         | 17,030 |         |   |         | 12,096  |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      |                                                          | Total operating expenses              |         |         | 160,144 |      |         |        | 170,026 |   |         |         | 204,702 | 
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Income (loss) from operations                                         |                                                          |                                       | 2,375   |         |         |      | (21,056 | )      |         |   | (52,636 | )      
|Interest income                                                       |                                                          |                                       | 3,851   |         |         |      | 5,100   |        |         |   | 9,857   |        
|Other income (expense), net                                           |                                                          |                                       | 3,252   |         |         |      | 1,320   |        |         |   | (886    | )      
|Interest expense                                                      |                                                          |                                       | (44     | )       |         |      | (57     | )      |         |   | (11     | )      
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Income (loss) before income taxes                                     |                                                          |                                       | 9,434   |         |         |      | (14,693 | )      |         |   | (43,676 | )      
|Income tax provision                                                  |                                                          |                                       | 2,124   |         |         |      | 921     |        |         |   | 1,304   |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Net income (loss)                                                     |                                                          | $                                     | 7,310   |         |         | $    | (15,614 | )      |         | $ | (44,980 | )      
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Net income (loss) per share:                                          |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|                                                                      | Basic and diluted                                        |                                       | $       | 0.09    |         |      | $       | (0.20  | )       |   | $       | (0.58   | )      
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Shares used in calculation of basic net income
    (loss) per share   |                                                          |                                       | 82,049  |         |         |      | 79,753  |        |         |   | 77,599  |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        
|Shares used in calculation of diluted net income
    (loss) per share |                                                          |                                       | 85,200  |         |         |      | 79,753  |        |         |   | 77,599  |        
|                                                                      |                                                          |                                       |         |         |         |      |         |        |         |   |         |        

See accompanying notes to consolidated financial
statements.

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INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |         |  
|--------------------------------------------------------------------------------------------------- | --------------------------------------- | --------------------------------- | ---------- | ----------- |  | ------------ | ------- | ------------- |  | ------------- | ------ | ------ |  | - | ------- | ------- | - | - | ----- | ---- | - | - | ------- | ------- | -
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  | Accumulated   |        |       
|                                                                                                    |                                         |                                   |            |             |  |              |         | Other         |  |              
|                                                                                                    |                                         | Common Stock                      |            | Deferred    |  |              |         | Comprehensive |  | Total        
|                                                                                                    |                                         |                                   |            | Stock-Based |  | Accumulated  |         | Income        |  | Stockholders
|                                                                                                    |                                         | Shares                            |            | Amount      |  | Compensation |         | Deficit       |  | (Loss)        |        | Equity
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |       
|                                                                                                    |                                         |                                  
|                                                                                                    |                                         | (In thousands, except share data)
|Balances at December 31, 2000                                                                       |                                         |                                   | 75,588,185 |             |  | $            | 331,042 |               |  | $             | (3,447 | )      |  | $ | (37,400 | )       |   | $ | 302   |      |   | $ | 290,497 |        
|Components of comprehensive loss:                                                                   |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|                                                                                                    | Net loss                                |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         | (44,980 | ) |   |       |     |   |   |         | (44,980 | )
|                                                                                                    | Foreign currency translation adjustment |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | 32   |   |   |         | 32      |  
|                                                                                                    | Unrealized gains on investments         |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | 418  |   |   |         | 418     |  
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Comprehensive loss                                                                                  |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   | (44,530 | )      
|Issuance of common stock in connection with
    acquisitions                                        |                                         |                                   | 93,704     |             |  |              | 2,359   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 2,359   |        
|Common stock options exercised                                                                      |                                         |                                   | 1,936,001  |             |  |              | 5,334   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 5,334   |        
|Common stock issued under employee stock purchase
    plan                                          |                                         |                                   | 945,398    |             |  |              | 5,712   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 5,712   |        
|Deferred stock-based compensation adjustments                                                       |                                         |                                   |           |             |  |              | (2,112  | )             |  |               | 2,112  |        |  |   |        |         |   |   |      |      |   |   |        |        
|Amortization of stock-based compensation                                                            |                                         |                                   |           |             |  |              |        |               |  |               | 1,036  |        |  |   |        |         |   |   |      |      |   |   | 1,036   |        
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Balances at December 31, 2001                                                                       |                                         |                                   | 78,563,288 |             |  |              | 342,335 |               |  |               | (299   | )      |  |   | (82,380 | )       |   |   | 752   |      |   |   | 260,408 |        
|Components of comprehensive loss:                                                                   |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|                                                                                                    | Net loss                                |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         | (15,614 | ) |   |       |     |   |   |         | (15,614 | )
|                                                                                                    | Foreign currency translation adjustment |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | 783  |   |   |         | 783     |  
|                                                                                                    | Unrealized gains on investments         |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | 305  |   |   |         | 305     |  
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Comprehensive loss                                                                                  |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   | (14,526 | )      
|Common stock options exercised                                                                      |                                         |                                   | 1,591,321  |             |  |              | 2,130   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 2,130   |        
|Common stock issued under employee stock purchase
    plan                                          |                                         |                                   | 947,173    |             |  |              | 5,730   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 5,730   |        
|Compensation expense related to stock options                                                       |                                         |                                   |           |             |  |              | 190     |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 190     |        
|Repurchase and retirement of common stock                                                           |                                         |                                   | (352,234   | )           |  |              | (1,750  | )             |  |               |       |        |  |   |        |         |   |   |      |      |   |   | (1,750  | )      
|Deferred stock-based compensation adjustments                                                       |                                         |                                   |           |             |  |              | (4      | )             |  |               | 4      |        |  |   |        |         |   |   |      |      |   |   |        |        
|Amortization of stock-based compensation                                                            |                                         |                                   |           |             |  |              |        |               |  |               | 221    |        |  |   |        |         |   |   |      |      |   |   | 221     |        
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Balances at December 31, 2002                                                                       |                                         |                                   | 80,749,548 |             |  |              | 348,631 |               |  |               | (74    | )      |  |   | (97,994 | )       |   |   | 1,840 |      |   |   | 252,403 |        
|Components of comprehensive income:                                                                 |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|                                                                                                    | Net income                              |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         | 7,310   |   |   |       |     |   |   |         | 7,310   |  
|                                                                                                    | Foreign currency translation adjustment |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | 517  |   |   |         | 517     |  
|                                                                                                    | Unrealized losses on investments        |                                   |            |            |  |              |         |              |  |               |        |       |  |   |         |        |   |   |       | (571 | ) |   |         | (571    | )
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Comprehensive income                                                                                |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   | 7,256   |        
|Common stock options exercised                                                                      |                                         |                                   | 1,532,320  |             |  |              | 6,988   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 6,988   |        
|Common stock issued under employee stock purchase
    plan                                          |                                         |                                   | 788,470    |             |  |              | 4,636   |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 4,636   |        
|Compensation expense related to stock options                                                       |                                         |                                   |           |             |  |              | 47      |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 47      |        
|Issuance of common stock and assumption of stock
    options in conjunction with Striva acquisition |                                         |                                   | 3,189,839  |             |  |              | 33,543  |               |  |               | (4,719 | )      |  |   |        |         |   |   |      |      |   |   | 28,824  |        
|Common stock issued for services rendered                                                           |                                         |                                   | 11,000     |             |  |              | 76      |               |  |               |       |        |  |   |        |         |   |   |      |      |   |   | 76      |        
|Repurchase and retirement of common stock                                                           |                                         |                                   | (1,642,498 | )           |  |              | (11,448 | )             |  |               |       |        |  |   |        |         |   |   |      |      |   |   | (11,448 | )      
|Deferred stock-based compensation adjustments and
    other                                         |                                         |                                   |           |             |  |              | 82      |               |  |               | (82    | )      |  |   |        |         |   |   |      |      |   |   |        |        
|Amortization of stock-based compensation                                                            |                                         |                                   |           |             |  |              |        |               |  |               | 817    |        |  |   |        |         |   |   |      |      |   |   | 817     |        
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        
|Balances at December 31, 2003                                                                       |                                         |                                   | 84,628,679 |             |  | $            | 382,555 |               |  | $             | (4,058 | )      |  | $ | (90,684 | )       |   | $ | 1,786 |      |   | $ | 289,599 |        
|                                                                                                    |                                         |                                   |            |             |  |              |         |               |  |               |        |        |  |   |         |         |   |   |       |      |   |   |         |        

See accompanying notes to consolidated financial
statements.

44



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##### Table of Contents



INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |        |        |          |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------ | ------- | -------- | ------ | ------ | ------- | -------- | ------ | ------ | -------- | -
|                                                                                             |                                                                                              |                                          
|                                                                                             |                                                                                              | Year Ended December 31,                  
|                                                                                             |                                                                                              |                                          
|                                                                                             |                                                                                              | 2003                                      |                                           | 2002   |        | 2001   
|                                                                                             |                                                                                              |                                           |                                           |        |        |        
|                                                                                             |                                                                                              |                                          
|                                                                                             |                                                                                              | (In thousands)                           
|Operating activities                                                                         |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Net income (loss)                                                                            |                                                                                              | $                                         | 7,310                                     |        |        | $       | (15,614  | )      |        | $       | (44,980  | )     
|Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Depreciation and amortization                                                                |                                           |                                           | 11,181 |        |         |          | 10,477 |        |         |          | 5,749  |       
|                                                                                             | Sales and returns allowances                                                                 |                                           |                                           |       |        |         |          | 425    |        |         |          | 1,186  |       
|                                                                                             | Provision for doubtful accounts                                                              |                                           |                                           | 145    |        |         |          | 1,181  |        |         |          | 533    |       
|                                                                                             | Amortization of stock-based compensation                                                     |                                           |                                           | 817    |        |         |          | 221    |        |         |          | 1,036  |       
|                                                                                             | Amortization of intangible assets and goodwill                                               |                                           |                                           | 1,178  |        |         |          | 1,140  |        |         |          | 27,376 |       
|                                                                                             | Purchased in-process research and development                                                |                                           |                                           | 4,524  |        |         |          |       |        |         |          |       |       
|                                                                                             | Non-cash restructuring charges                                                               |                                           |                                           |       |        |         |          | 1,887  |        |         |          | 1,497  |       
|                                                                                             | Gain on the sale of investments                                                              |                                           |                                           | (121   | )      |         |          | (154   | )      |         |          |       |       
|                                                                                             | Loss on disposal of property and equipment                                                   |                                           |                                           | 43     |        |         |          | 357    |        |         |          | 1,048  |       
|                                                                                             | Compensation expense related to stock options                                                |                                           |                                           | 123    |        |         |          | 190    |        |         |          |       |       
|                                                                                             | Adjustment to acquisition allocation                                                         |                                           |                                           |       |        |         |          | (710   | )      |         |          |       |       
|                                                                                             | Changes in operating assets and liabilities:                                                 |                                           |                                           |        |        |         |          |        |        |         |          |        |       
|                                                                                             |                                                                                              | Accounts receivable                       |                                           |        | (3,108 | )       |          |        | (2,457 | )       |          |        | 899    |         
|                                                                                             |                                                                                              | Prepaid expenses and other current assets |                                           |        | 4,068  |         |          |        | (1,619 | )       |          |        | (3,973 | )       
|                                                                                             |                                                                                              | Other assets                              |                                           |        | (768   | )       |          |        | 595    |         |          |        | 559    |         
|                                                                                             |                                                                                              | Accounts payable                          |                                           |        | 1,986  |         |          |        | (665   | )       |          |        | (1,419 | )       
|                                                                                             |                                                                                              | Accrued liabilities                       |                                           |        | (1,513 | )       |          |        | 9,431  |         |          |        | 1,772  |         
|                                                                                             |                                                                                              | Accrued compensation and related expenses |                                           |        | 1,558  |         |          |        | (3,182 | )       |          |        | 3,803  |         
|                                                                                             |                                                                                              | Income taxes payable                      |                                           |        | (81    | )       |          |        | (810   | )       |          |        | (1,245 | )       
|                                                                                             |                                                                                              | Accrued restructuring charges             |                                           |        | (4,539 | )       |          |        | 10,374 |         |          |        | 9,332  |         
|                                                                                             |                                                                                              | Accrued merger costs                      |                                           |        | (955   | )       |          |        |       |         |          |        |       |         
|                                                                                             |                                                                                              | Deferred revenue                          |                                           |        | (1,349 | )       |          |        | 15,148 |         |          |        | 12,748 |         
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             |                                                                                              |                                           | Net cash provided by operating activities |        |        | 20,499  |          |        |        | 26,215  |          |        |        | 15,921   |  
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Investing activities                                                                         |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Purchase of property and equipment                                                           |                                                                                              |                                           | (2,569                                    | )      |        |         | (6,911   | )      |        |         | (30,207  | )     
|Purchases of investments                                                                     |                                                                                              |                                           | (193,019                                  | )      |        |         | (240,184 | )      |        |         | (275,937 | )     
|Proceeds from the sale and maturities of
    investments                                     |                                                                                              |                                           | 181,964                                   |        |        |         | 199,913  |        |        |         | 186,800  |       
|Acquisitions, net of cash acquired                                                           |                                                                                              |                                           | (30,279                                   | )      |        |         |         |        |        |         | (13,737  | )     
|Transfer from (to) restricted cash                                                           |                                                                                              |                                           |                                          |        |        |         |         |        |        |         | 8,116    |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             |                                                                                              |                                           | Net cash used in investing activities     |        |        | (43,903 | )        |        |        | (47,182 | )        |        |        | (124,965 | )
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Financing activities                                                                         |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Proceeds from issuance of common stock                                                       |                                                                                              |                                           | 11,624                                    |        |        |         | 7,860    |        |        |         | 11,046   |       
|Repurchase and retirement of common stock                                                    |                                                                                              |                                           | (11,448                                   | )      |        |         | (1,750   | )      |        |         |         |       
|Payments on capital lease obligations                                                        |                                                                                              |                                           |                                          |        |        |         |         |        |        |         | (83      | )     
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             |                                                                                              |                                           | Net cash provided by financing activities |        |        | 177     |          |        |        | 6,110   |          |        |        | 10,963   |  
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Effect of foreign exchange rate changes on cash
    and cash equivalents                     |                                                                                              |                                           | 541                                       |        |        |         | 783      |        |        |         | 32       |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Decrease in cash and cash equivalents                                                        |                                                                                              |                                           | (22,687                                   | )      |        |         | (14,074  | )      |        |         | (98,049  | )     
|Cash and cash equivalents at beginning of year                                               |                                                                                              |                                           | 105,590                                   |        |        |         | 119,664  |        |        |         | 217,713  |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Cash and cash equivalents at end of year                                                     |                                                                                              | $                                         | 82,903                                    |        |        | $       | 105,590  |        |        | $       | 119,664  |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Supplemental disclosures:                                                                    |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Interest paid                                                                                |                                           | $                                         | 6      |        |         | $        | 9      |        |         | $        | 3      |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Income taxes paid                                                                            |                                           | $                                         | 2,126  |        |         | $        | 1,943  |        |         | $        | 1,566  |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|Supplemental disclosures of non-cash investing
    and financing activities:                 |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Deferred stock-based compensation related to
    options granted and restricted stock issued |                                           | $                                         | 4,801  |        |         | $        | (4     | )      |         | $        | (2,112 | )     
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Common stock issued for acquisitions                                                         |                                           | $                                         | 27,796 |        |         | $        |       |        |         | $        | 2,359  |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       
|                                                                                             | Unrealized gain (loss) on available-for-sale
    securities                                  |                                           | $                                         | (571   | )      |         | $        | 305    |        |         | $        | 418    |       
|                                                                                             |                                                                                              |                                           |                                           |        |        |         |          |        |        |         |          |       

See accompanying notes to consolidated financial
statements.

45



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##### Table of Contents



INFORMATICA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                                                    
|-- | -----------------------------------------------------------------------------------
|1. | Description of the Company and a Summary of
    its Significant Accounting Policies



| |                           
| | --------------------------
| | Description of the Company

Informatica Corporation (the Company)
was incorporated in California in February 1993 and
reincorporated in Delaware in April 1999. The Company is a
leading provider of data integration and business intelligence
software that helps customers to integrate, visualize and track
any type of data, in any quantity, to and from any platform, in
any timeframe, for any enterprise data requirement.



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.

The functional currency of the Companys
foreign subsidiaries is the local currency. The Company
translates all assets and liabilities of foreign subsidiaries to
U.S. dollars at the current exchange rates as of the
applicable balance sheet date. Revenue and expenses are
translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation of the
foreign subsidiaries financial statements are reported as
a separate component of stockholders equity. Net gains and
losses resulting from foreign exchange transactions, amounting
to a gain (loss) of approximately $1.6 million,
$1.4 million and $(0.2) million for the years ended
December 31, 2003, 2002 and 2001, respectively, are
included in other income (expense), net in the accompanying
consolidated statements of operations.

Certain amounts in the Companys prior
years consolidated balance sheets and statements of
operations and cash flows were reclassified to conform with the
current period presentation. The reclassifications include
reimbursements received for out-of-pocket expenses, which have
been reported as service revenues as a result of the adoption of
Financial Accounting Standards Board (FASB) in
Emerging Issues Task Force No. 01-14 (EITF
01-14), Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred.In periods prior to 2002, the out-of-pocket
expenses were reported as a reduction of cost of service
revenues. As a result, the following amounts were reclassified
for 2001 (in thousands):

|                                                 |  |   |        | 
|------------------------------------------------ |  | - | ------ | 
|Service revenues, as previously reported         |  | $ | 77,415 | 
|Add: reimbursements for out-of-pocket expenses   |  |   | 2,793  | 
|                                                 |  |   |        | 
|Service revenues, reclassified                   |  | $ | 80,208 | 
|                                                 |  |   |        | 
|Cost of service revenues, as previously reported |  | $ | 39,746 | 
|Add: reimbursements for out-of-pocket expenses   |  |   | 2,793  | 
|                                                 |  |   |        | 
|Cost of service revenues, reclassified           |  | $ | 42,539 | 
|                                                 |  |   |        | 

Approximately $16.9 million and
$11.6 million in municipal securities have been
reclassified from cash and cash equivalents to short-term
investments at December 31, 2002 and 2001, respectively, to
conform to the current period presentation.

Amortization of acquired technology has been
reclassified to cost of revenues for the two years ended
December 31, 2002 from amortization of goodwill and other
intangible assets.



| |                 
| | ----------------
| | Use of Estimates

The Companys Consolidated Financial
Statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP).
These accounting principles require us to make certain
estimates, judgments and assumptions. The Company believes that
the estimates, judgments and assumptions upon which we rely are
reasonable based upon information available to us at the time
that these estimates, judgments and assumptions are made. These
estimates, judgments and assumptions can affect the

46



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reported amounts of assets and liabilities as of
the date of the financial statements as well as the reported
amounts of revenues and expenses during the periods presented.
To the extent there are material differences between these
estimates and actual results, our financial statements would
have been affected. In many cases, the accounting treatment of a
particular transaction is specifically dictated by GAAP and does
not require managements judgment in its application. There
are also areas in which managements judgment in selecting
any available alternative would not produce a materially
different result.



| |                                                  
| | -------------------------------------------------
| | Cash and Cash Equivalents and Restricted
    Cash

The Company considers highly liquid investment
securities with maturities, at date of purchase, of ninety days
or less to be cash equivalents. Cash and cash equivalents, which
primarily consist of money market funds and government
securities with insignificant interest rate risk, are stated at
cost, which approximates fair value. Restricted cash consists of
amounts held in deposits that are required as collateral under
facilities lease agreements.



| |            
| | -----------
| | Investments

Investments are comprised of marketable
securities, which consist primarily of commercial paper,
government notes and bonds, corporate bonds and municipal
securities with original maturities beyond ninety days. All
marketable securities are held in the Companys name and
maintained with 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 income or expense as incurred.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment is 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 to five 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 Statement of Financial Accounting
Standard (SFAS) No. 86, Accounting for
the Costs of Computer 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, 2003, 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 AICPA Statement of Position
(SOP) No. 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal
Use,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. Costs capitalized
relating to software developed to meet internal requirements
were $0.1 million and $4.4 million for the years ended
December 31, 2003 and 2002, respectively, and are included
in property and equipment.

47



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |         
| | --------
| | Goodwill

As required by SFAS No. 142,
(SFAS 142) Goodwill and Other
Intangible Assetsthe Company has not amortized
goodwill associated with acquisitions completed after
June 30, 2001, for any period presented, and ceased
amortization of goodwill associated with acquisitions completed
prior to July 1, 2001, effective January 1, 2002.
Prior to January 1, 2002, the Company amortized goodwill
associated with the pre-July 1, 2001 acquisitions over two
years using the straight-line method. Identifiable intangible
assets (acquired technology and patents) are currently amortized
over two to three years using the straight-line method. See
Note 2 and Note 5 for a further discussion of the
Companys goodwill and other intangible assets.

The Company assessed goodwill for impairment in
accordance with SFAS 142, 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
SFAS 142. Consistent with the Companys determination
that it has only one reporting segment, the Company has
determined that it has only one Reporting Unit, specifically the
license, implementation and support of our software
applications. Goodwill was tested for impairment on the adoption
of SFAS 142 on January 1, 2002 and in the annual
impairment tests on October 31, 2003 and 2002 using the
two-step process required by SFAS 142. First, the Company
reviewed 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 and the
discounted cash flows based on analyses prepared by the Company
and with the assistance of third-party analysts. The
Companys cash flow forecasts were based on assumptions
that are consistent with the plans and estimates being used to
manage the underlying assumptions. An excess carrying value
compared to fair value would indicate that goodwill may be
impaired. Second, if the Company determines that goodwill may be
impaired, the Company compares the implied fair
value of the goodwill, as defined by SFAS 142, to its
carrying amount to determine the impairment loss, if any. The
Company completed the annual impairment test as of
October 31, 2003 and 2002, which did not result in any
impairment charge.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

In accordance with SFAS 144, 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. The
amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | 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. We
make judgments as to our 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, we analyze
our historical collection experience and current economic
trends. If the historical data we use 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.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Revenue Recognition

The Company generates revenues from sales of
software licenses and services, which consist of maintenance,
consulting and training. The Companys license revenues are
derived from its data integration and business intelligence
software and are also derived from analytic application suites
and data warehouse modules, which the Company ceased selling
directly in July 2003. The Company receives software license
revenues from licensing its products directly to end users and
indirectly through resellers, distributors and OEMs. The Company
receives service revenues from maintenance contracts, consulting
services and training that it performs for customers that
license its products either directly from the Company or
indirectly through resellers, distributors and OEMs.

The Company recognizes revenue in accordance with
SOP 97-2 (SOP 97-2) Software
Revenue Recognition,as amended and modified by
SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions.The Company recognizes license revenues when a noncancelable
license agreement has been signed, the product has been shipped
or we have provided the customer with the access codes that
allow for immediate possession of the software, the fees are
fixed or determinable, collectibility is probable and
vendor-specific objective evidence of fair value exists to
allocate the fee to the undelivered elements of the arrangement.
Vendor-specific objective evidence is based on the price charged
when an element is sold separately. In the case of an element
not yet sold separately, the price, which does not change before
the element is made generally available, is established by
authorized management. If an acceptance period is required, the
Company recognizes revenue upon customer acceptance or the
expiration of the acceptance period if all other revenue
recognition criteria under SOP 97-2 have been satisfied.
Credit-worthiness and collectibility for end users are first
assessed on a country level and then, for those customers in
countries deemed to have sufficient timely payment history,
customers are assessed based on payment history and credit
profile. For the data integration products, data warehouse
modules and business intelligence platform sold directly to end
users, the Company recognizes revenue upon shipment when
collectibility is probable and after all other revenue
recognition criteria have been satisfied. The Company ceased
selling data warehouse modules in July 2003. When a customer is
not deemed credit-worthy, revenue is recognized upon cash
receipt, after all other revenue recognition criteria have been
satisfied. For the Companys analytic application suites,
which the Company ceased selling directly in July 2003, it
recognizes both the license and maintenance revenue ratably over
the initial maintenance period, generally one year, since the
Company does not have VSOE of maintenance for its analytic
application suites. The Companys standard agreements do
not contain product return rights.

The Company also enters into reseller and
distributor arrangements that typically provide for sublicense
or end user license fees based on a percentage of list prices.
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. For data
integration products, data warehouse modules and business
intelligence platform sold indirectly through the Companys
resellers and distributors, the Company recognizes revenue upon
shipment and receipt of evidence of sell-through if the reseller
or distributor has been deemed credit-worthy. The Company ceased
selling data warehouse modules in July 2003. Credit-worthiness
and collectibility for resellers and distributors are first
assessed on a country level and then, for those resellers and
distributors in countries deemed to have sufficient timely
payment history, resellers and distributors are assessed based
on established credit history consisting of sales of at least
one million dollars and with timely payment history, generally
for the last twelve months. When resellers and distributors are
not deemed credit-worthy, revenue is recognized upon cash
receipt; for both cases, revenue is recognized after all other
revenue recognition criteria have been satisfied.

The Company also enters into OEM arrangements
that provide for license fees based on inclusion of the
Companys products in the OEMs products. These arrangements
provide for fixed, irrevocable royalty payments.
Credit-worthiness and collectibility for OEMs are first assessed
on a country level and then, for

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

those OEMs in countries deemed to have sufficient
timely payment history, OEMs are assessed based on established
credit history consisting of sales of at least one million
dollars and with timely payment history, generally for the last
twelve months. For credit-worthy OEMs, royalty payments are
recognized based on the activity in the royalty report the
Company receives from the OEM, or in the case of OEMs with
fixed royalty payments, revenue is recognized when the related
payment is due. When OEMs are not deemed credit-worthy, revenue
is recognized upon cash receipt, after all other revenue
recognition criteria have been satisfied.

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 enhancements performed on a
time-and-materials basis or, on a very infrequent basis, a fixed
fee arrangement under separate service arrangements related to
the installation and implementation of our software products.
Training revenues are generated from classes offered at the
Companys headquarters, sales offices and customer
locations. Revenues from consulting and training services are
recognized as the services are performed. When a contract
includes both license and service elements, the license fee is
recognized on delivery of the software or cash collections,
provided services do not include significant customization or
modification of the base product, and are not otherwise
essential to the functionality of the software and the payment
terms for licenses are not dependent on additional acceptance
criteria.

Deferred revenue includes deferred license,
maintenance, consulting and training revenue The Companys
practice is to net unpaid deferred items against the related
receivables balances from those OEMs, specific resellers,
distributors and specific international customers for which we
defer revenue until payment is received.



| |                            
| | ---------------------------
| | 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 expense was $1.4 million, $0.3 million and
$0.5 million for the years ended December 31, 2003,
2002 and 2001, respectively.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

Under the provisions of SFAS No. 128,
Earnings per Share,basic net income (loss)
per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted net income
(loss) per share reflects the potential dilution of securities
by adding other common stock equivalents, primarily stock
options, 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 (loss) per share if their inclusion is antidilutive.

50



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The calculation of basic and diluted net income
(loss) per share is as follows:

|                                                                  |  |                                       |        |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                  |  |                                      
|                                                                  |  | Year Ended December 31,              
|                                                                  |  |                                      
|                                                                  |  | 2003                                  |        | 2002 |  | 2001
|                                                                  |  |                                       |        |      |  |     
|                                                                  |  |                                      
|                                                                  |  | (In thousands, except per share data)
|Net income (loss)                                                 |  | $                                     | 7,310  |      |  | $    | (15,614 | ) |  | $ | (44,980 | )
|                                                                  |  |                                       |        |      |  |      |         |   |  |   |         |  
|Weighted-average shares outstanding                               |  |                                       | 82,158 |      |  |      | 79,753  |   |  |   | 77,599  |  
|Weighted-average unvested common shares subject
    to repurchase |  |                                       | (109   | )    |  |      |        |   |  |   |        |  
|                                                                  |  |                                       |        |      |  |      |         |   |  |   |         |  
|Weighted-average basic common shares                              |  |                                       | 82,049 |      |  |      | 79,753  |   |  |   | 77,599  |  
|Effect of dilutive securities (stock options)                     |  |                                       | 3,151  |      |  |      |        |   |  |   |        |  
|                                                                  |  |                                       |        |      |  |      |         |   |  |   |         |  
|Weighted-average diluted common shares                            |  |                                       | 85,200 |      |  |      | 79,753  |   |  |   | 77,599  |  
|Net income (loss) per common share 
    basic and diluted        |  | $                                     | 0.09   |      |  | $    | (0.20   | ) |  | $ | (0.58   | )
|                                                                  |  |                                       |        |      |  |      |         |   |  |   |         |  

If the Company had reported net income in the
years ended December 31, 2002 and 2001, the calculation of
diluted earnings per share would have included the shares used
in the computation of basic net loss per share as well as an
additional 3,245,000 and 5,121,000 common equivalent shares
related to outstanding stock options not included in the
calculations above (determined using the treasury stock method),
respectively.

Stock-Based
Compensation

The Company accounts for stock issued to
employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25
(APB 25), Accounting for Stock Issued
to Employees,and complies with the disclosure
provisions of SFAS No. 123
(SFAS 123), Accounting for Stock-Based
Compensationand SFAS No. 148
(SFAS 148), Accounting for Stock-Based
Compensation  Transition and Disclosure.Under APB 25, compensation expense of fixed stock
options is based on the difference, if any, on the date of the
grant between the fair value of the Companys stock and the
exercise price of the option. The Company accounts for stock
issued to non-employees in accordance with the provisions of
SFAS 123 and EITF No. 96-18, Accounting for
Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services.

Pro forma information regarding net income and
net income per share is required by SFAS 148 as if the
Company had accounted for its employee stock options and shares
issued under the Employee Stock Purchase Plan under the fair
value method of SFAS 123. The fair value of the
Companys stock-based awards to employees was estimated
using a Black-Scholes option-pricing model.

The fair value of the Companys stock-based
awards was estimated after no expected dividends and the
following weighted-average assumptions:

|                        |  |         |     |      |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|----------------------- |  | ------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                        |  |         |     |     
|                        |  | Options |     | ESPP
|                        |  |         |     |     
|                        |  | 2003    |     | 2002 |  | 2001 |     | 2003 |  | 2002 |     | 2001
|                        |  |         |     |      |  |      |     |      |  |      |     |     
|Expected life (years)   |  |         | 3.1 |      |  |      | 2.4 |      |  |      | 3.3 |      |  |  | 0.5 |   |  |  | 0.5 |   |  |  | 0.5 |  
|Expected volatility     |  |         | 80  | %    |  |      | 97  | %    |  |      | 127 | %    |  |  | 84  | % |  |  | 97  | % |  |  | 127 | %
|Risk-free interest rate |  |         | 1.7 | %    |  |      | 3.8 | %    |  |      | 4.6 | %    |  |  | 2.0 | % |  |  | 3.8 | % |  |  | 4.6 | %

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable.
The Black-Scholes model requires the input of highly subjective
assumptions. Because the Companys stock-based awards have
characteristics significantly different from those in traded
options, and because changes in the subjective input assumptions
can materially

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its stock-based awards.

Had compensation cost for the Companys
stock-based compensation plans been determined using the fair
value at the grant dates for awards under those plans calculated
using the Black-Scholes method of SFAS 123, the
Companys net income (loss) and basic and diluted net
income (loss) per share would have been changed to the pro forma
amounts indicated below:

|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | Year Ended December 31,              
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | 2003                                  |         | 2002 |  | 2001
|                                                                                                                                     |  |                                       |         |      |  |     
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | (In thousands, except per share data)
|Net income (loss), as reported                                                                                                       |  | $                                     | 7,310   |      |  | $    | (15,614 | ) |  | $ | (44,980  | )
|Add: stock-based compensation expense included in
    reported net income (loss), net of related tax effects                         |  |                                       | 940     |      |  |      | 411     |   |  |   | 1,036    |  
|Deduct: total stock-based compensation expense
    determined under fair value method for all awards, net of
    related tax effects |  |                                       | (24,547 | )    |  |      | (47,442 | ) |  |   | (87,485  | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |          |  
|Net loss, pro forma                                                                                                                  |  | $                                     | (16,297 | )    |  | $    | (62,645 | ) |  | $ | (131,429 | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |          |  
|Basic and diluted net income (loss) per share, as
    reported                                                                       |  | $                                     | 0.09    |      |  | $    | (0.20   | ) |  | $ | (0.58    | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |          |  
|Basic and diluted net loss per share, pro forma                                                                                      |  | $                                     | (0.20   | )    |  | $    | (0.79   | ) |  | $ | (1.69    | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |          |  

These pro forma amounts may not be representative
of the effects on reported income (loss) for future years as
options vest over several years and additional awards are
generally made each year. The weighted average fair value of
options granted, which is the value assigned to the options
under SFAS 123, was $3.43, $9.29 and $13.32 for options
granted during 2003, 2002 and 2001, respectively. The
weighted-average fair value of shares issued under the Employee
Stock Purchase Plan was $2.72, $3.35 and $4.53 for 2003, 2002
and 2001, respectively.

See Note 8, Stockholders Equity, for a
complete description of the Companys stock-based plans.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

The Company reports comprehensive income or loss
in accordance with the provisions of SFAS No. 130,
Reporting Comprehensive Income, which
establishes standards for reporting comprehensive income and its
components in the financial statements. The components of other
comprehensive income (loss) consist of unrealized gains and
losses on available-for-sale securities and foreign currency
translation adjustments. Total comprehensive income (loss) and
the components of accumulated other comprehensive income are
presented in the accompanying consolidated statements of
stockholders equity. The tax effects of other
comprehensive income (loss) are not material for any period
presented.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for
Income Taxes,which requires the use of the liability
method in accounting for income taxes. Under this method,
deferred tax assets and liabilities are measured using enacted
tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are established,
when necessary, to reduce the deferred tax assets to the amounts
expected to be realized.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In July 2002, the FASB issued
SFAS No. 146 (SFAS 146),
Accounting for Costs Associated with Exit or Disposal
Activities.SFAS 146 addresses financial
accounting and reporting for costs associated with an exit or
disposal activity and requires such costs to be recognized when
the liability is incurred. Previous guidance in EITF
No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Certain Costs Incurred in a Restructuring)required that a liability for an exit cost be recognized at
the date of a companys commitment to an exit plan. The
provisions of SFAS 146 are effective for exit or disposal
activities that are initiated by a company after
December 31, 2002. The adoption of SFAS 146 has not
had a material effect on the Companys financial position
or results of operations.

In December 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness
of Others.FIN 45 elaborates on the disclosures
to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The Company adopted the disclosure requirements of
FIN 45 as of December 31, 2002. The Company adopted
the initial recognition and measurement of the fair value of the
obligation undertaken in issuing the guarantee, on a prospective
basis, those guarantees issued or modified after
December 31, 2002. FIN 45 has not had a material
effect on the Companys consolidated financial position or
results of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities,which was amended by
FIN 46R issued in December 2003. This interpretation of
Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements establishes
accounting guidance for consolidation of a variable interest
entity (VIE), formerly referred to as special
purpose entities. FIN 46 applies to any business
enterprise, both public and private, that has a controlling
interest, contractual relationship or other business
relationship with a VIE. FIN 46 provides guidance for
determining when an entity, the Primary Beneficiary, should
consolidate another entity, a VIE, that functions to support the
activities of the Primary Beneficiary. This Interpretation
applies immediately to VIEs created after January 31, 2003.
It also applies in the first fiscal year or interim period
ending after March 15, 2004, to VIEs created before
February 1, 2003 in which an enterprise holds a variable
interest. FIN 46 requires disclosure of VIEs in financial
statements issued after January 31, 2003, if it is
reasonably possible that as of the transition date: (1) the
company will be the primary beneficiary of an existing VIE that
will require consolidation or, (2) the company will hold a
significant variable interest in, or have significant
involvement with, an existing VIE.. The Company currently has no
contractual relationship or other business relationship with a
VIE and does not have any such plans, and therefore the adoption
is not expected to have an effect on the Companys
consolidated financial position or results of operations.

In April 2003, the FASB issued
SFAS No. 149 (SFAS 149),
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. SFAS 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 149 is generally effective
for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30,
2003. The Company currently does not have any derivative
instruments.



|   |                      
|-- | ---------------------
|2. | Business Combinations



| |                   
| | ------------------
| | Striva Corporation

On September 29, 2003, the Company acquired
Striva Corporation (Striva), a privately held
mainframe data integration software vendor. The acquisition
extends Informaticas data integration and

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

business intelligence software to include
Strivas mainframe technology for high-speed bulk data
movement and solution for real-time change data capture in
legacy and non-legacy environments. Management believes that it
is the investment value of this synergy related to future
product offerings that principally contributed to a purchase
price that resulted in the recognition of goodwill. The Company
paid $58.5 million, consisting of $30.7 million of
cash and 3,189,839 shares of the Companys common
stock valued at $27.8 million, to acquire all of the
outstanding common and preferred shares of Striva, including the
assumption by the Company of all of the outstanding stock
options issued pursuant to Strivas stock option plan,
which became options to purchase 345,220 shares of the
Companys common stock. The acquisition was accounted for
using the purchase method of accounting, and a summary of the
purchase price for the acquisition is as follows (in millions):

|                                                                            |       |   |      |      | 
|--------------------------------------------------------------------------- | ----- | - | ---- | ---- | 
|Cash paid and common stock issued                                           |       | $ | 58.5 |     
|Accrued merger costs                                                        |       |   | 1.9  |     
|Fair value of options assumed, net of deferred
    stock-based compensation |       |   | 1.0  |     
|Liabilities assumed                                                         |       |   | 3.4  |     
|                                                                            |       |   |      |     
|                                                                            | Total |   | $    | 64.8 | 
|                                                                            |       |   |      |     

The purchase price was allocated as follows:

|                                                                       |                                               |       |     |      |      | 
|---------------------------------------------------------------------- | --------------------------------------------- | ----- | --- | ---- | ---- | 
|Tangible assets acquired (including cash received
    of $0.4 million) |                                               | $     | 2.5 |     
|Intangible assets:                                                     |                                               |       |     |     
|                                                                       | Developed technology                          |       |     | 1.8  |     
|                                                                       | Core technology                               |       |     | 3.2  |     
|                                                                       | Customer relationships                        |       |     | 0.9  |     
|                                                                       | Purchased in-process research and development |       |     | 4.5  |     
|                                                                       | Goodwill                                      |       |     | 51.9 |     
|                                                                       |                                               |       |     |     
|                                                                       |                                               | Total |     | $    | 64.8 | 
|                                                                       |                                               |       |     |     

The amount of the total purchase price allocated
to the net tangible assets acquired of $2.5 million was
assigned based on the fair values as of the date of acquisition.
The identified intangible assets acquired were assigned fair
values in accordance with the guidelines established in
SFAS No. 141 (SFAS 141),
Business Combinations,FIN No. 4,
Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method
(FIN 4) and other relevant guidance. The
Company believes that these identified intangible assets have no
residual value. The fair values of these intangible assets were
assigned, using the discounted cash flow method, using discount
rates of 15% for developed technology and customer
relationships, 20% for core technology and 25% for purchased
in-process research and development (IPR&D). The
amortization periods were determined using the estimated
economic useful life of the asset. The developed technology is
being amortized on a straight-line basis over fifteen months,
the core technology from three to four years and the customer
relationships over five years. Of the developed technology, core
technology and customer relationships intangibles totaling
$5.9 million, the Company recorded amortization expense of
$0.6 million in 2003, and expects to record approximately
$2.5 million, $1.1 million, $1.1 million,
$0.5 million and $0.1 million in 2004, 2005, 2006,
2007 and 2008, respectively.

The fair value assigned to IPR&D represented
projects that had not reached technological feasibility and had
no alternative uses. These were classified as IPR&D and
expensed in the quarter ended September 30, 2003, which was
the quarter of acquisition, in accordance with FIN 4.

The excess of the purchase price over the
identified tangible and intangible assets was recorded as
goodwill. The Company increased the amount allocated to goodwill
by $0.4 million from the $51.5 million

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amount previously reported in the third quarter
of 2003 to $51.9 million for the year ended
December 31, 2003. The increase in goodwill was primarily a
result of adjustments to the Striva liabilities assumed and the
merger accrual. The Company anticipates that none of the
$62.3 million of the goodwill and intangible assets
recorded in connection with the Striva acquisition will be
deductible for income tax purposes.

The accrued merger costs include transaction
costs and an accrual for excess leased facilities formerly
occupied by Striva. In accordance with EITF No. 95-3,
Recognition of Liabilities in Connection with a
Business Combination, the liability associated with
this restructuring is considered a liability assumed in the
purchase price allocation. As noted above, the merger accrual
was adjusted in the fourth quarter of 2003. The Company
decreased the merger accrual by $0.2 million from the
$2.1 million amount previously reported in the third
quarter of 2003 to $1.9 million. Of the $1.9 million
accrued merger costs included in the purchase price,
$1.0 million was paid during the year ended
December 31, 2003. As of December 31, 2003,
$0.5 million was classified as current liabilities and
$0.4 million was classified as noncurrent liabilities.

The total fair value of the options assumed was
$2.3 million, of which $1.0 million was included in
purchase price. The remaining $1.3 million was classified
as deferred compensation and is being amortized over the
remaining vesting period of the underlying awards. As a result
of the acquisition, three employees of Striva granted the
Company a right to repurchase, subject to continued employment,
a certain number of shares of the Companys common stock at
a price of $0.001 per share. As a result, an additional
$3.4 million (representing the closing stock price on the
effective date of acquisition multiplied by the number of
shares) was recorded as deferred stock-based compensation and is
being amortized as the right to repurchase lapses. The Company
recorded amortization expense of $0.7 million in the year
ended December 31, 2003 related to this deferred
compensation. The Company expects to amortize stock-based
compensation of approximately $2.4 million,
$1.4 million, $0.2 million and $11,000 in 2004, 2005,
2006 and 2007, respectively.

The results of Strivas operations have been
included in the condensed consolidated financial statements
since the acquisition date.

The following unaudited pro forma adjusted
summary reflects the Companys condensed consolidated
results of operations for the years ended December 31, 2003
and 2002, assuming Striva had been acquired on January 1,
2002 and is not intended to be indicative of future results:

|                                                                       |  |                           |         |      |  |   |         |  
|---------------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                                                                       |  |                          
|                                                                       |  | Year Ended December 31,  
|                                                                       |  |                          
|                                                                       |  | 2003                      |         | 2002
|                                                                       |  |                           |         |     
|                                                                       |  |                          
|                                                                       |  | (In thousands, except per
|                                                                       |  | share data)              
|Pro forma adjusted total revenue                                       |  | $                         | 211,604 |      |  | $ | 199,233 |  
|Pro forma adjusted net income (loss)                                   |  | $                         | (1,247  | )    |  | $ | (17,906 | )
|Pro forma adjusted net income (loss) per
    share  basic and diluted |  | $                         | (0.01   | )    |  | $ | (0.22   | )
|Pro forma weighted average shares 
    basic and diluted              |  |                           | 84,809  |      |  |   | 82,630  |  
|                                                                       |  |                           |         |      |  |   |         |  



| |                   
| | ------------------
| | Other Acquisitions

In January 2001, the Company acquired syn-T-sys
B.V. and syn-T-sys N.V. (syn-T-sys), distributors of
Informatica products in the Netherlands and Belgium,
respectively. The agreement was structured as a share purchase
and accounted for as a purchase transaction. Under the terms of
the agreement, the Company issued 44,161 shares of the
Companys common stock, valued at approximately
$1.5 million, and paid cash consideration of approximately
$5.8 million in exchange for the outstanding shares of
capital stock of syn-T-sys. The purchase price of the
transaction, including related expenses, was approximately
$7.5 million, which was allocated to the acquired assets
and liabilities based on the estimated fair values as of the
date of the acquisition. Amounts allocated to goodwill of
$6.8 million were being amortized on a straight-line basis
over a two-year period. In accordance with SFAS 142,
goodwill was no longer amortized after December 2001. The

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

results of operations of syn-T-sys have been
included in the Companys results of operations since the
acquisition date. Pro forma results of operations have not been
presented since the effects of the acquisition were not material
to the Companys consolidated financial position, results
of operations or cash flows for the periods presented.

In June 2001, the Company acquired Informatica
Partners, a distributor of Informatica products in France. The
agreement was structured as a share purchase and accounted for
as a purchase transaction. Under the terms of the agreement, the
Company issued 49,543 shares of the Companys common
stock, valued at approximately $0.9 million, and paid cash
consideration of approximately $4.0 million in exchange for
the outstanding shares of capital stock of Informatica Partners.
As part of the agreement, 6,907 of the shares issued pursuant to
the acquisition were placed in escrow contingent on the
continued employment of certain employees and were not included
in the purchase price. In 2002, these 6,907 shares were
released from escrow. The purchase price of the transaction,
including related expenses, was approximately $5.0 million,
which was allocated to the acquired assets and liabilities based
on the estimated fair values as of the date of the acquisition.
Amounts allocated to goodwill of $4.8 million were being
amortized on a straight-line basis over a two-year period. In
accordance with SFAS 142, goodwill was no longer amortized
after December 2001. The results of operations of Informatica
Partners have been included in the Companys results of
operations since the acquisition date.



|   |            
|-- | -----------
|3. | Investments

The Companys marketable securities are
classified as available-for-sale as of the balance sheet date
and are reported at fair value with unrealized gains and losses
reported as a separate component of accumulated other
comprehensive income in stockholders equity, net of tax.
Realized gains and losses and permanent declines in value, if
any, on available-for-sale securities are reported in other
income or expense as incurred. The Company recognized realized
gains of $0.1 million and $0.2 million for the years
ended December 31, 2003 and 2002, respectively; the
realized gains are included in other income of the consolidated
results of operations for the respective years. No realized
gains and losses were reported for the year ended
December 31, 2001. The cost of securities sold was
determined based on the specific identification method.

The available-for-sale securities consist of the
following as of December 31, 2003:

|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 
|------------------------------- |  | -------------- | ------- | ---------- |  | ---------- | --- | ---------- |  | - | - |  |  | - | ------- | 
|                                |  |                |         | Gross      |  | Gross      |     |           
|                                |  | Amortized      |         | Unrealized |  | Unrealized |     |           
|                                |  | Cost           |         | Gains      |  | Losses     |     | Fair Value
|                                |  |                |         |            |  |            |     |           
|                                |  |               
|                                |  | (In thousands)
|Money market funds              |  | $              | 9,251   |            |  | $          |    |            |  | $ |  |  |  | $ | 9,251   | 
|Corporate notes and bonds       |  |                | 25,420  |            |  |            | 51  |            |  |   |  |  |  |   | 25,471  | 
|Municipal securities            |  |                | 53,230  |            |  |            |    |            |  |   |  |  |  |   | 53,230  | 
|U.S. Government notes and bonds |  |                | 61,637  |            |  |            | 101 |            |  |   |  |  |  |   | 61,738  | 
|Commercial paper                |  |                | 4,162   |            |  |            |    |            |  |   |  |  |  |   | 4,162   | 
|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 
|                                |  | $              | 153,700 |            |  | $          | 152 |            |  | $ |   |  |  | $ | 153,852 | 
|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 

As of December 31, 2003, investments of
$13.0 million are due within 90 days,
$77.7 million are due within one year and
$63.2 million are due within two years.

56



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The available-for-sale securities consist of the
following as of December 31, 2002:

|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 
|------------------------------- |  | -------------- | ------- | ---------- |  | ---------- | --- | ---------- |  | - | - |  |  | - | ------- | 
|                                |  |                |         | Gross      |  | Gross      |     |           
|                                |  | Amortized      |         | Unrealized |  | Unrealized |     |           
|                                |  | Cost           |         | Gains      |  | Losses     |     | Fair Value
|                                |  |                |         |            |  |            |     |           
|                                |  |               
|                                |  | (In thousands)
|Money market funds              |  | $              | 47,239  |            |  | $          |    |            |  | $ |  |  |  | $ | 47,239  | 
|Corporate notes and bonds       |  |                | 32,218  |            |  |            | 320 |            |  |   |  |  |  |   | 32,538  | 
|Municipal securities            |  |                | 26,200  |            |  |            |    |            |  |   |  |  |  |   | 26,200  | 
|U.S. Government notes and bonds |  |                | 74,144  |            |  |            | 403 |            |  |   |  |  |  |   | 74,547  | 
|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 
|                                |  | $              | 179,801 |            |  | $          | 723 |            |  | $ |  |  |  | $ | 180,524 | 
|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 

As of December 31, 2002, investments of
$67.1 million are due within 90 days,
$28.2 million are due within one year and
$85.2 million are due within two years.



|   |                       
|-- | ----------------------
|4. | Property and Equipment

Property and equipment consists of the following:

|                                                |  |                |         |      |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                |  |               
|                                                |  | December 31,  
|                                                |  |               
|                                                |  | 2003           |         | 2002
|                                                |  |                |         |     
|                                                |  |               
|                                                |  | (In thousands)
|Computer and office equipment                   |  | $              | 26,103  |      |  | $ | 24,081  |  
|Furniture and fixtures                          |  |                | 6,718   |      |  |   | 6,700   |  
|Leasehold improvements                          |  |                | 33,391  |      |  |   | 32,551  |  
|Capital work-in-progress                        |  |                | 348     |      |  |   | 187     |  
|                                                |  |                |         |      |  |   |         |  
|                                                |  |                | 66,560  |      |  |   | 63,519  |  
|Less: accumulated depreciation and amortization |  |                | (27,826 | )    |  |   | (16,149 | )
|                                                |  |                |         |      |  |   |         |  
|                                                |  | $              | 38,734  |      |  | $ | 47,370  |  
|                                                |  |                |         |      |  |   |         |  

The Company recorded charges of $1.9 million
and $1.5 million related to the write-off of leasehold
improvements and furniture and fixtures at excess facilities
during the year ended December 31, 2002 and 2001,
respectively. See Note 7, Restructuring Charges. Capital
work-in-progress consists of capitalized costs relating to
software acquired, developed or modified solely to meet the
Companys internal requirements, pursuant to SOP
No. 98-1. For the year ended December 31, 2002, the
Company placed in service $6.0 million from capital
work-in-progress as of December 31, 2001 to computer and
office equipment and began amortization.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|5. | Goodwill and Other Intangible Assets

Intangible assets consist of the following (in
thousands):

|                        |  |                   |       |                   |  |            |        |          |  |              |       |            |  |   |       |  |  |   |        |   |  |   |     | 
|----------------------- |  | ----------------- | ----- | ----------------- |  | ---------- | ------ | -------- |  | ------------ | ----- | ---------- |  | - | ----- |  |  | - | ------ | - |  | - | --- | 
|                        |  |                   |       |                  
|                        |  | December 31, 2003 |       | December 31, 2002
|                        |  |                   |       |                  
|                        |  | Gross             |       |                   |  | Net        |        | Gross    |  |              |       | Net       
|                        |  | Carrying          |       | Accumulated       |  | Intangible |        | Carrying |  | Accumulated  |       | Intangible
|                        |  | Amount            |       | Amortization      |  | Assets     |        | Amount   |  | Amortization |       | Assets    
|                        |  |                   |       |                   |  |            |        |          |  |              |       |           
|Core technology         |  | $                 | 6,355 |                   |  | $          | (3,343 | )        |  | $            | 3,012 |            |  | $ | 3,122 |  |  | $ | (2,670 | ) |  | $ | 452 | 
|Developed technology    |  |                   | 1,775 |                   |  |            | (359   | )        |  |              | 1,416 |            |  |   |      |  |  |   |       |   |  |   |    | 
|Customer relationships  |  |                   | 945   |                   |  |            | (48    | )        |  |              | 897   |            |  |   |      |  |  |   |       |   |  |   |    | 
|Patents                 |  |                   | 297   |                   |  |            | (297   | )        |  |              |      |            |  |   | 297   |  |  |   | (232   | ) |  |   | 65  | 
|                        |  |                   |       |                   |  |            |        |          |  |              |       |            |  |   |       |  |  |   |        |   |  |   |     | 
|Total intangible assets |  | $                 | 9,372 |                   |  | $          | (4,047 | )        |  | $            | 5,325 |            |  | $ | 3,419 |  |  | $ | (2,902 | ) |  | $ | 517 | 
|                        |  |                   |       |                   |  |            |        |          |  |              |       |            |  |   |       |  |  |   |        |   |  |   |     | 

Amortization expense of intangible assets was
approximately $1.2 million, $1.1 million and
$1.1 million for the years ended December 31, 2003,
2002 and 2001, respectively. The weighted-average amortization
period of the Companys core technology, developed
technology, customer relationships and patents are
3.5 years, one and one quarter years, five years and three
years, respectively. The amortization expense related to
identifiable intangible assets as of December 31, 2003 is
expected to be $2.5 million, $1.1 million,
$1.1 million, $0.5 million and $0.1 million for
the years ended December 31, 2004, 2005, 2006, 2007 and
2008, respectively.

Core technology at December 31, 2003
totaling $1.4 million, net, related to the Striva
acquisition is recorded in a European local currency therefore
the gross carrying amount and accumulated amortization are
subject to periodic translation adjustments.

In accordance with the adoption of SFAS 142,
the Company discontinued amortizing goodwill effective
January 1, 2002. Instead, goodwill is now tested for
impairment in accordance with the provisions of SFAS 142 at
least annually and more frequently upon the occurrence of
certain events.

As required by SFAS 142, the results for
year ended December 31, 2001 have not been restated. The
following table discloses the effect on net loss and basic and
diluted net loss per share as if the Company had not amortized
its goodwill and assembled workforce under SFAS 142 in 2001
(in thousands, except per share data):

|                                      |                                                               |   |         |        |  
|------------------------------------- | ------------------------------------------------------------- | - | ------- | ------ | -
|Reported net loss                     |                                                               | $ | (44,980 | )     
|Add:                                  |                                                               |   |         |       
|                                      | Goodwill and assembled workforce amortization,
    net of tax |   |         | 26,237 |  
|                                      |                                                               |   |         |       
|Adjusted net loss                     |                                                               | $ | (18,743 | )     
|                                      |                                                               |   |         |       
|Basic and diluted net loss per share: |                                                               |   |         |       
|                                      | Reported net loss per share                                   |   | $       | (0.58  | )
|Add:                                  |                                                               |   |         |       
|                                      | Goodwill and assembled workforce amortization,
    net of tax |   |         | 0.34   |  
|                                      |                                                               |   |         |       
|                                      | Adjusted basic and diluted net loss per share                 |   | $       | (0.24  | )
|                                      |                                                               |   |         |       

In 2002, the Company recorded an increase in
goodwill of $0.7 million related to acquisitions in 2001 to
reflect an adjustment to the purchase price allocation in
accordance with SFAS 142. In 2003, the Company recorded an
increase in goodwill of $51.9 million related to the Striva
acquisition  see Note 2, Business Combinations.

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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies

Lease
Obligations

In February 2000, the Company entered into two
lease agreements for new corporate headquarters in Redwood City,
California. The Company occupied the new corporate headquarters
in August 2001. The lease expires in July 2013. The Company paid
for tenant improvements, primarily related to the exercise of
build-to-suit options under the facility lease agreement. The
total cost of leasehold improvements for this facility through
its completion in June 2002 was approximately
$33.4 million. As part of these agreements, the Company
purchased certificates of deposit totaling $12.2 million as
a security deposit for lease payments until certain financial
milestones are met. The letter of credit may be reduced to an
amount not less than three months of the base rent at the then
current rate if our annual revenues reach $750 million and
we have quarterly operating profits of at least
$100 million for no less than four consecutive calendar
quarters. These certificates of deposit are classified as
long-term restricted cash on the Companys consolidated
balance sheet.

The Company leases certain office facilities
under various noncancelable 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 was
$15.4 million, $16.2 million and $15.8 million
for the years ended December 31, 2003, 2002 and 2001,
respectively. Operating lease payments in the table below
include approximately $13.0 million, net of anticipated
sublease income, for operating lease commitments for facilities
that are included in restructuring charges. See Note 7,
Restructuring Charges, for a further discussion.

Future minimum lease payments as of
December 31, 2003 under noncancelable operating leases with
original terms in excess of one year are summarized as follows
(in thousands):

|                             |      |   |         |        | 
|---------------------------- | ---- | - | ------- | ------ | 
|Years ending December 31:    |      |   |         |       
|                             | 2004 |   | $       | 17,831 | 
|                             | 2005 |   |         | 17,584 | 
|                             | 2006 |   |         | 17,615 | 
|                             | 2007 |   |         | 16,745 | 
|                             | 2008 |   |         | 16,147 | 
|Thereafter                   |      |   | 77,896  |       
|                             |      |   |         |       
|Total minimum lease payments |      | $ | 163,818 |       
|                             |      |   |         |       

During 2002, the Company signed sublease
agreements for leased office space in Palo Alto, California and
Carrollton, Texas. In 2003, the Company signed sublease
agreements for leased office space in San Francisco, Palo
Alto and Redwood City, California. Under the sublease
agreements, the Company received $0.9 million and
$0.1 million sublease income for the years ended
December 31, 2003 and 2002, respectively, and will receive
sublease income of $1.1 million, $1.0 million,
$0.4 million and $0.1 million for the years ended
December 31, 2004, 2005, 2006 and 2007, respectively.

Indemnifications

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, and liabilities from 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

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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, 2003. For several reasons,
including the lack of prior indemnification claims and the lack
of a monetary liability limit for certain infringement cases
under the Software Agreement, the Company cannot determine the
maximum amount of potential future payments, if any, related to
such indemnification provisions.



| |           
| | ----------
| | 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s SFAS No. 5, Accounting for
Contingencies.The Companys software
products media are generally warranted to be free of
defects in materials and workmanship under normal use and the
products are also generally warranted to substantially perform
as described in certain Company documentation. 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, 2003 and 2002. To
date, the Companys product warranty expense has not been
significant.



|   |                      
|-- | ---------------------
|7. | Restructuring Charges

During 2001, the Company announced a
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 timing of the restructuring accrual
adjustment was a result of negotiated and executed subleases for
the Companys excess facilities in Dallas, Texas and Palo
Alto, California during the third quarter of 2002. These
subleases included terms that provided a lower level of sublease
rates than the initial assumptions. The terms of these new
subleases were consistent with the continued deterioration of
the commercial real estate market in these areas. In addition,
cost containment measures initiated in the same quarter, such as
delayed hiring and salary reductions, resulted in an adjustment
to managements estimate of occupancy of available vacant
facilities. These charges represent adjustments to the original
assumptions including, the time period that the buildings will
be vacant, expected sublease rates, expected sublease terms and
the estimated time to sublease. 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.

Actual future cash requirements may differ from
the restructuring liability balances as of December 31,
2003 if the Company continues to be unable to sublease 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.

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

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

sublease income may vary significantly depending,
in part, on factors which may be beyond the Companys
control, such as the time periods required to locate and
contract suitable subleases and the market rates at the time of
such subleases. If the Company is unable to sublease any of the
available vacant facilities during the remaining lease terms
from the first quarter of 2005 through 2007, restructuring
charges could increase by approximately $3.2 million. If
the Company does not occupy certain available vacant facilities
during the remaining lease terms from 2008 through 2013,
restructuring charges could increase by approximately an
additional $15.5 million.

A summary of the activity of the accrued
restructuring charges for the year ended December 31, 2003
is as follows (in thousands):

|                         |  |               |        |             |  |          |   |          |  |               |        |   |  |  |   |  |  |  |        | 
|------------------------ |  | ------------- | ------ | ----------- |  | -------- | - | -------- |  | ------------- | ------ | - |  |  | - |  |  |  | ------ | 
|                         |  | Accrued       |        |             |  |          |   |          |  | Accrued      
|                         |  | Restructuring |        |             |  |          |   |          |  | Restructuring
|                         |  | Charges at    |        |             |  |          |   |          |  | Charges at   
|                         |  | December 31,  |        |             |  | Net Cash |   | Non-Cash |  | December 31, 
|                         |  | 2002          |        | Adjustments |  | Payments |   | Charges  |  | 2003         
|                         |  |               |        |             |  |          |   |          |  |              
|Excess leased facilities |  | $             | 19,706 |             |  |          |  |          |  |               | (4,539 | ) |  |  |  |  |  |  | 15,167 | 
|                         |  |               |        |             |  |          |   |          |  |               |        |   |  |  |   |  |  |  |        | 

A summary of the activity of the accrued
restructuring charges for the year ended December 31, 2002
is as follows (in thousands):

|                                  |  |               |       |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |        | 
|--------------------------------- |  | ------------- | ----- | ----------- |  | -------- | ------ | -------- |  | ------------- | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                  |  | Accrued       |       |             |  |          |        |          |  | Accrued      
|                                  |  | Restructuring |       |             |  |          |        |          |  | Restructuring
|                                  |  | Charges at    |       |             |  |          |        |          |  | Charges at   
|                                  |  | December 31,  |       |             |  | Net Cash |        | Non-Cash |  | December 31, 
|                                  |  | 2001          |       | Adjustments |  | Payments |        | Charges  |  | 2002         
|                                  |  |               |       |             |  |          |        |          |  |              
|Property and equipment write-offs |  | $             |      |             |  | $        | 1,887  |          |  | $             |       |   |  | $ | (1,887 | ) |  | $ |       | 
|Excess leased facilities          |  |               | 9,332 |             |  |          | 15,143 |          |  |               | (4,769 | ) |  |   |       |   |  |   | 19,706 | 
|                                  |  |               |       |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |        | 
|                                  |  | $             | 9,332 |             |  | $        | 17,030 |          |  | $             | (4,769 | ) |  | $ | (1,887 | ) |  | $ | 19,706 | 
|                                  |  |               |       |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |        | 

A summary of the activity of the accrued
restructuring charges for the year ended December 31, 2001
is as follows (in thousands):

|                                  |  |               |   |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |       | 
|--------------------------------- |  | ------------- | - | ----------- |  | -------- | ------ | -------- |  | ------------- | ------ | - |  | - | ------ | - |  | - | ----- | 
|                                  |  | Accrued       |   |             |  |          |        |          |  | Accrued      
|                                  |  | Restructuring |   |             |  |          |        |          |  | Restructuring
|                                  |  | Charges at    |   |             |  |          |        |          |  | Charges at   
|                                  |  | December 31,  |   |             |  | Net Cash |        | Non-Cash |  | December 31, 
|                                  |  | 2000          |   | Adjustments |  | Payments |        | Charges  |  | 2001         
|                                  |  |               |   |             |  |          |        |          |  |              
|Property and equipment write-offs |  | $             |  |             |  | $        | 1,497  |          |  | $             |       |   |  | $ | (1,497 | ) |  | $ |      | 
|Excess leased facilities          |  |               |  |             |  |          | 10,599 |          |  |               | (1,267 | ) |  |   |       |   |  |   | 9,332 | 
|                                  |  |               |   |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |       | 
|                                  |  | $             |  |             |  | $        | 12,096 |          |  | $             | (1,267 | ) |  | $ | (1,497 | ) |  | $ | 9,332 | 
|                                  |  |               |   |             |  |          |        |          |  |               |        |   |  |   |        |   |  |   |       | 

As of December 31, 2003, $4.6 million
of the $15.2 million accrued restructuring charges was
classified as current liabilities and the remaining
$10.6 million was classified as noncurrent liabilities.



|   |                     
|-- | --------------------
|8. | Stockholders Equity

Common
Stock

Repurchase
Rights

In September 2003, the Company entered into
restricted stock agreements with three Striva employees. In
connection with these agreements, upon the Companys
acquisition of Striva and the conversion of Strivas common
stock to the Companys common stock, 50% of the converted
Striva stock held by the employee is

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subject to a repurchase right by the Company. The
total number of common stock shares subject to these repurchase
rights totaled 450,149 on the day of the acquisition. If the
individual continues to be an employee of the Company, the
repurchase rights lapse ratably over periods ranging from one to
two years. In connection with these shares, the Company
recognized deferred compensation totaling $3.4 million,
which is being amortized over the respective vesting periods.

As of December 31, 2003, the Company had the
right to repurchase 381,265 shares of the restricted common
stock at $.001 per share.

Stock
Issued for Services Rendered

In June 2003, the Company granted unrestricted
common stock for consulting services rendered. The Company
issued 11,000 shares of common stock. The fair value of the
common stock on the date of issuance totaled $76,000. The fair
value was recognized as a general and administrative expense in
the year ended December 31, 2003 as there was no remaining
performance obligation.

Stock Option
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 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 ten years from the date of the grant and
generally vest over a period of four years. As of
December 31, 2003, the Company had 7,392,434 shares
available for future issuance under the 1999 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. Each
non-employee joining the Board of Directors following the
completion of the initial public offering would automatically
receive options to purchase 100,000 shares of common stock
at an exercise price per share equal to the fair market value of
the common stock. 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
24 months. In addition, 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 20,000 shares of common stock at each such
meeting. Each option will have an exercise price equal to the
fair value of the common stock on the automatic grant date and
will vest on the first anniversary of the grant date. There was
an initial grant for a new Board member totaling
60,000 shares of common stock and four automatic annual
options granted for a total of 80,000 shares of the
Companys common stock in 2003 under the Directors Plan. As
of December 31, 2003, the Company has 580,000 shares
available for future issuance under the Directors Plan.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 ten years from the date
of the grant and generally vest over a period of four years from
the date of the grant. As of December 31, 2003, the Company
had 590,979 shares available for future issuance under the
2000 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 Plan (the Assumed
Plans). No further options will be granted under the
Assumed Plans.

Stock
Option Plan Activity

A summary of the Companys stock option
activity under all plans is set forth below:

|                                 |           |           |            |                |   |   |       |       | 
|-------------------------------- | --------- | --------- | ---------- | -------------- | - | - | ----- | ----- | 
|                                 |           |           |            | Weighted-     
|                                 |           |           |            | Average       
|                                 |           | Number of |            | Exercise Price
|                                 |           | Shares    |            | per Share     
|                                 |           |           |            |               
|Outstanding at December 31, 2000 |           |           | 15,818,798 |                |   | $ | 17.73 |      
|                                 | Granted   |           |            | 3,847,350      |   |   |       | 17.75 | 
|                                 | Exercised |           |            | (1,936,001     | ) |   |       | 2.76  | 
|                                 | Canceled  |           |            | (9,995,709     | ) |   |       | 28.19 | 
|                                 |           |           |            |                |   |   |       |      
|Outstanding at December 31, 2001 |           |           | 7,734,438  |                |   |   | 7.96  |      
|                                 | Granted   |           |            | 11,848,462     |   |   |       | 7.58  | 
|                                 | Exercised |           |            | (1,591,321     | ) |   |       | 1.34  | 
|                                 | Canceled  |           |            | (3,074,259     | ) |   |       | 10.65 | 
|                                 |           |           |            |                |   |   |       |      
|Outstanding at December 31, 2002 |           |           | 14,917,320 |                |   |   | 7.81  |      
|                                 | Granted   |           |            | 4,368,235      |   |   |       | 6.59  | 
|                                 | Exercised |           |            | (1,532,320     | ) |   |       | 4.56  | 
|                                 | Canceled  |           |            | (2,168,112     | ) |   |       | 11.67 | 
|                                 |           |           |            |                |   |   |       |      
|Outstanding at December 31, 2003 |           |           | 15,585,123 |                |   | $ | 7.26  |      
|                                 |           |           |            |                |   |   |       |      

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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information
concerning currently outstanding and exercisable options as of
December 31, 2003:

|                |  |                     |            |                     |  |                |      |        |  |                |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | ---------- | ------------------- |  | -------------- | ---- | ------ |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |            |                    
|                |  | Options Outstanding |            | Options Exercisable
|                |  |                     |            |                    
|                |  |                     |            | Weighted Average    |  | Weighted-      |      |        |  | Weighted-     
|                |  |                     |            | Remaining           |  | Average        |      |        |  | Average       
|Range of        |  |                     |            | Contractual         |  | Exercise Price |      |        |  | Exercise Price
|Exercise Prices |  | Number              |            | Life (Years)        |  | per Share      |      | Number |  | per Share     
|                |  |                     |            |                     |  |                |      |        |  |               
|$0.06  $ 1.88  |  |                     | 1,657,354  |                     |  |                | 4.49 |        |  | $              | 0.80  |  |  |  | 1,504,588 |  |  | $ | 0.80  | 
|$2.10  $ 5.25  |  |                     | 1,982,410  |                     |  |                | 7.32 |        |  | $              | 3.92  |  |  |  | 1,104,181 |  |  | $ | 3.35  | 
|$5.60  $ 6.57  |  |                     | 1,690,543  |                     |  |                | 6.58 |        |  | $              | 6.53  |  |  |  | 276,965   |  |  | $ | 6.49  | 
|$6.62  $ 7.52  |  |                     | 1,720,186  |                     |  |                | 6.50 |        |  | $              | 6.85  |  |  |  | 182,103   |  |  | $ | 6.71  | 
|$7.54  $ 7.90  |  |                     | 5,364,462  |                     |  |                | 6.44 |        |  | $              | 7.89  |  |  |  | 4,363,298 |  |  | $ | 7.90  | 
|$7.91  $ 8.06  |  |                     | 1,491,783  |                     |  |                | 8.21 |        |  | $              | 8.06  |  |  |  | 645,146   |  |  | $ | 8.06  | 
|$8.07  $48.63  |  |                     | 1,678,385  |                     |  |                | 6.36 |        |  | $              | 16.02 |  |  |  | 1,033,055 |  |  | $ | 18.12 | 
|                |  |                     |            |                     |  |                |      |        |  |                |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 15,585,123 |                     |  |                | 6.53 |        |  | $              | 7.26  |  |  |  | 9,109,336 |  |  | $ | 7.28  | 
|                |  |                     |            |                     |  |                |      |        |  |                |       |  |  |  |           |  |  |   |       | 

In connection with the grant of certain stock
options to employees, the Company recorded deferred stock-based
compensation of $0.8 million in 1999 prior to the
Companys initial public offering and $2.8 million in
2000, representing the difference between the deemed fair value
of the Companys common stock and the option exercise price
at the date of grant. This deferred stock-based compensation is
being amortized to operations over a four-year vesting period
using the graded vesting method. This amount was computed using
the Black-Scholes option valuation model, and the related
amortization is being charged to operations over the related
term of these consulting agreements.

In 1999 and 2000, the Company recorded a total of
$1.9 million of deferred stock-based compensation in
conjunction with the assumption of certain stock options in the
acquisitions of Influence and Zimba, which is being amortized
over four years. In 2001, we recorded a reduction for deferred
stock-based compensation of $2.1 million of which
$1.9 million was in connection with a cancelled bonus
agreement related to cancelled stock options. During 2002, the
Company charged $0.2 million of stock-based compensation to
operations related to the modification of stock option vesting.

During 2003, the Company recorded a total of
$1.3 million of deferred stock-based compensation in
conjunction with the assumption of certain stock options in the
acquisition of Striva, which is being amortized over the
remaining vesting term of the assumed options, generally three
years. Additionally in 2003, the Company granted options to the
CEO with a variable term that is based on future performance.
The variable term of the option is such that it requires the
Company to periodically remeasure the value of the grant as
compared to the fair value of the stock and record related
stock-based compensation. The adjustment to deferred stock
compensation and related amortization of stock-based
compensation related to this grant for the year ended
December 31, 2003 was $84,000.

Deferred stock-based compensation is presented as
a reduction of stockholders equity. Amortization of
stock-based compensation related to stock options and the common
stock subject to repurchase amounted to $0.8 million,
$0.2 million and $1.0 million in 2003, 2002 and 2001,
respectively.



| |                                      
| | -------------------------------------
| | 1999 Employee Stock Purchase
    Plan

The stockholders adopted the 1999 Employee Stock
Purchase Plan (the Purchase Plan) in April 1999
under which 1,600,000 shares have been reserved for
issuance. The number of shares reserved under the Purchase Plan
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 Purchase

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Plan, eligible employees may purchase common
stock in an amount not to exceed 10% of the employees cash
compensation. The purchase price per share will be 85% of the
lesser of the common stock fair market value either at the
beginning of a rolling two-year offering period or at the end of
each six-month purchase period within the two-year offering
period. During 2003, there were 788,470 shares issued under
the Purchase Plan at a weighted-average price of $5.88 per
share. As of December 31, 2003, the Company has
4,506,309 shares available for future issuance under the
Purchase Plan.



| |                              
| | -----------------------------
| | Stock Option Exchange Program

In July 2001, the Company adopted a voluntary
stock option exchange program for its employees. Under the
program, the Companys employees were given the option to
cancel outstanding stock options previously granted in exchange
for a new non-qualified stock option grant for an equal number
of shares to be granted at a future date, at least six months
and one day from the cancellation date of the exchanged options,
which was September 14, 2001. Under the exchange program,
options to purchase approximately 7.9 million shares of the
Companys common stock were tendered and cancelled. On
March 15, 2002, replacement options were granted to
participating employees under the exchange program for
approximately 7.7 million shares of common stock. Each
participant received a one-for-one replacement option for each
option included in the exchange at an exercise price of
$7.90 per share, which was the fair market value of the
Companys common stock on March 15, 2002. The new
options have terms and conditions that are substantially the
same as those of the cancelled options. The exchange program did
not result in any additional compensation charges or variable
plan accounting.



| |                              
| | -----------------------------
| | Stockholders Rights
    Plan

In October 2001, the Board of Directors adopted
the Stockholder 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.



| |                      
| | ---------------------
| | Stock Repurchase Plan

In September 2002, the Companys Board of
Directors authorized a one-year stock repurchase program for up
to five million shares of the Companys common stock.
Purchases were made from time to time in the open market and
were funded from available working capital. The number and
timing of shares purchased were based on the level of the
Companys cash balances, general business and market
conditions, and other factors, including alternative investment
opportunities. Under this program, the Company purchased
1,642,498 and 352,234 shares of the Companys common
stock at a cost of $11.4 million and $1.8 million in
2003 and 2002, respectively. These shares were retired and
reclassified as authorized and unissued shares of common stock.
On September 30, 2003, the Companys one-year stock
repurchase program expired.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                  
|-- | -------------------------------------------------
|9. | Accumulated Other Comprehensive Income
    (Loss)

The components of accumulated other comprehensive
income (loss) as of December 31, 2003 and 2002, as
presented in the consolidated statements of stockholders
equity, are as follows (in thousands):

|                                        |  |              |       |              |  |   |       | 
|--------------------------------------- |  | ------------ | ----- | ------------ |  | - | ----- | 
|                                        |  | December 31, |       | December 31,
|                                        |  | 2003         |       | 2002        
|                                        |  |              |       |             
|Unrealized gain on investments          |  | $            | 152   |              |  | $ | 723   | 
|Foreign currency translation adjustment |  |              | 1,634 |              |  |   | 1,117 | 
|                                        |  |              |       |              |  |   |       | 
|Accumulated other comprehensive income  |  | $            | 1,786 |              |  | $ | 1,840 | 
|                                        |  |              |       |              |  |   |       | 



|    |             
|--- | ------------
|10. | Income Taxes

The federal, state and foreign income tax
provisions for the years ended December 31, 2003, 2002 and
2001 are summarized as follows:

|         |         |                         |        |       |  |      |     |     |  |   |       |       | 
|-------- | ------- | ----------------------- | ------ | ----- |  | ---- | --- | --- |  | - | ----- | ----- | 
|         |         |                        
|         |         | Year Ended December 31,
|         |         |                        
|         |         | 2003                    |        | 2002  |  | 2001
|         |         |                         |        |       |  |     
|         |         |                        
|         |         | (In thousands)         
|Current: |         |                         |        |       |  |      |     |     |  |   |       |      
|         | Federal |                         | $      | 817   |  |      | $   |    |  |   | $     | 76    | 
|         | State   |                         |        | 150   |  |      |     | 50  |  |   |       | 55    | 
|         | Foreign |                         |        | 1,157 |  |      |     | 871 |  |   |       | 1,173 | 
|         |         |                         |        |       |  |      |     |     |  |   |       |      
|         |         | $                       | $2,124 |       |  | $    | 921 |     |  | $ | 1,304 |      
|         |         |                         |        |       |  |      |     |     |  |   |       |      

The components of income (loss) before income
taxes attributable to domestic and foreign operations are as
follows:

|         |  |                         |         |      |  |      |         |   |  |   |         |  
|-------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2003                    |         | 2002 |  | 2001
|         |  |                         |         |      |  |     
|         |  |                        
|         |  | (In thousands)         
|Domestic |  | $                       | 24,905  |      |  | $    | (8,218  | ) |  | $ | (36,103 | )
|Foreign  |  |                         | (15,471 | )    |  |      | (6,475  | ) |  |   | (7,573  | )
|         |  |                         |         |      |  |      |         |   |  |   |         |  
|         |  | $                       | 9,434   |      |  | $    | (14,693 | ) |  | $ | (43,676 | )
|         |  |                         |         |      |  |      |         |   |  |   |         |  

66



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A reconciliation of the provision computed at the
statutory federal income tax rate to the Companys income
tax provision is as follows:

|                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|--------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                      |  |                        
|                                                                      |  | Year Ended December 31,
|                                                                      |  |                        
|                                                                      |  | 2003                    |        | 2002 |  | 2001
|                                                                      |  |                         |        |      |  |     
|                                                                      |  |                        
|                                                                      |  | (In thousands)         
|Income tax provision (benefit) computed at
    statutory rate         |  | $                       | 3,302  |      |  | $    | (5,143 | ) |  | $ | (15,286 | )
|Federal alternative minimum tax                                       |  |                         | 817    |      |  |      |       |   |  |   | 76      |  
|State taxes                                                           |  |                         | 98     |      |  |      | 33     |   |  |   | 36      |  
|Foreign taxes                                                         |  |                         | 1,157  |      |  |      | 871    |   |  |   | 1,173   |  
|Non-deductible purchased technology                                   |  |                         | 1,583  |      |  |      |       |   |  |   | 5,506   |  
|Amortization of deferred stock-based compensation
    and intangibles |  |                         | 508    |      |  |      | 77     |   |  |   | 363     |  
|Other                                                                 |  |                         | 293    |      |  |      | 222    |   |  |   | 712     |  
|Valuation allowance                                                   |  |                         | (5,634 | )    |  |      | 4,861  |   |  |   | 8,724   |  
|                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|                                                                      |  | $                       | 2,124  |      |  | $    | 921    |   |  | $ | 1,304   |  
|                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  

Significant components of the Companys
deferred tax assets are as follows:

|                        |                                                         |                |         |        |  |   |         |        | 
|----------------------- | ------------------------------------------------------- | -------------- | ------- | ------ |  | - | ------- | ------ | 
|                        |                                                         |               
|                        |                                                         | December 31,  
|                        |                                                         |               
|                        |                                                         | 2003           |         | 2002  
|                        |                                                         |                |         |       
|                        |                                                         |               
|                        |                                                         | (In thousands)
|Deferred tax assets:    |                                                         |                |         |        |  |   |         |       
|                        | Net operating loss carryforwards                        |                | $       | 18,394 |  |   | $       | 24,081 | 
|                        | Tax credit carryforwards                                |                |         | 10,687 |  |   |         | 8,831  | 
|                        | Deferred revenue                                        |                |         | 3,152  |  |   |         | 3,838  | 
|                        | Reserves and accrued costs not currently
    deductible |                |         | 7,254  |  |   |         | 6,609  | 
|                        | Depreciable assets                                      |                |         | 1,688  |  |   |         | 2,605  | 
|                        | Accrued restructuring costs                             |                |         | 7,170  |  |   |         | 8,554  | 
|                        | Amortization of intangibles                             |                |         | 292    |  |   |         | 2,967  | 
|                        | Capitalized research and development                    |                |         | 1,947  |  |   |         | 1,494  | 
|                        |                                                         |                |         |        |  |   |         |       
|                        |                                                         |                | 50,584  |        |  |   | 58,979  |       
|Valuation allowance     |                                                         |                | (50,584 | )      |  |   | (58,979 | )     
|                        |                                                         |                |         |        |  |   |         |       
|Net deferred tax assets |                                                         | $              |        |        |  | $ |        |       
|                        |                                                         |                |         |        |  |   |         |       

SFAS 109 provides for the recognition of
deferred tax assets if realization of such assets is more likely
than not. Based on a number of factors, which includes the
Companys historical operating performance and the reported
cumulative net losses in all prior years, the Company has
provided a full valuation allowance against its net deferred tax
assets. The valuation allowance decreased by $8.4 million
in 2003 and increased by $8.9 million and
$11.7 million during the years ended December 31,
2002, and 2001 respectively.

As of December 31, 2003, approximately
$40.5 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 of December 31, 2003, the Company has
federal net operating loss carryforwards of approximately
$49.8 million, federal research and development tax credit
carryforwards of approximately $5.2 million and foreign tax
credits of approximately $1.4 million. The net operating
loss and the aforementioned tax credit

67



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

carryforwards will expire at various times
beginning in 2010, if not utilized. The federal minimum tax
credit carryforward of $0.4 million has no expiration date.

As of December 31, 2003, the Company has
state net operating loss and research and development tax credit
carryforwards of approximately $16.4 million and
$5.6 million, respectively. The state net operating loss
carryforward will expire in 2009 and the research and
development tax credit has no expiration date. State investment
tax credits of $0.1 million will expire in 2012.

Utilization of net operating loss and tax credit
carryforwards may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitation
may result in the expiration of the net operating loss and
credit carryforwards before utilization.



|    |                     
|--- | --------------------
|11. | Employee 401(K) Plan

The Companys employee savings and
retirement 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 25% 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 $1,500 per
calendar year. The Companys match was suspended for
calendar years 2003 and 2002. The Company expensed
$0.8 million in 2001 for its matching contributions to the
Plan. Contributions made by the Company vest 100% upon
contribution. 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.



|    |                    
|--- | -------------------
|12. | Segment Information

The Company has adopted SFAS No. 131
(SFAS 131), Disclosure About Segments of
an Enterprise and Related Information. The Company
operates solely in one segment, the development and marketing of
enterprise analytics software.

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 2003, 2002 and 2001.
North America revenues include the United States and Canada.
Revenue from international customers (defined as those customers
outside of North America) accounted for 27%, 26% and 28% of
total revenue in 2003, 2002 and 2001, respectively. There were
no significant long-lived assets held outside the United States.

Revenue was derived from customers in the
following geographic areas:

|              |  |                         |         |      |  |      |         |  |  |   |         | 
|------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2003                    |         | 2002 |  | 2001
|              |  |                         |         |      |  |     
|              |  |                        
|              |  | (In thousands)         
|North America |  | $                       | 149,736 |      |  | $    | 145,178 |  |  | $ | 143,614 | 
|Europe        |  |                         | 47,778  |      |  |      | 46,132  |  |  |   | 52,252  | 
|Other         |  |                         | 8,019   |      |  |      | 4,131   |  |  |   | 4,279   | 
|              |  |                         |         |      |  |      |         |  |  |   |         | 
|              |  | $                       | 205,533 |      |  | $    | 195,441 |  |  | $ | 200,145 | 
|              |  |                         |         |      |  |      |         |  |  |   |         | 



|    |                   
|--- | ------------------
|13. | Lawsuit Settlement

In 2003, the Company filed a complaint against
Ascential Software Corporation in which the Company asserted
that Ascential, and a number of former Informatica employees
recruited and hired by Ascential,

68



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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

misappropriated our trade secrets, including
sensitive products 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. In July 2003, the Company
settled this lawsuit with Ascential. The settlement includes a
consent judgment being entered against Ascential, and a
permanent injunction enjoining Ascential from using, or further
disseminating, confidential, sensitive Informatica information
and materials. In addition, Ascential paid Informatica a sum of
$1.6 million, which is included in other income (expense),
net, for the year ended December 31, 2003.



|    |                          
|--- | -------------------------
|14. | 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, 2003, 2002 and
2001 were $0.6 million, $0.2 million and
$0.2 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.



|    |           
|--- | ----------
|15. | Litigation

On November 8, 2001, a purported securities
class action complaint was filed in the United States 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 the Companys common stock from April 29,
1999 through December 6, 2000. It names as defendants
Informatica Corporation, one of the Companys current
officers, and one of the Companys former officers (the
Informatica defendants), and several investment
banking firms that served as underwriters of the Companys
April 29, 1999 initial public offering 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 over 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 has decided to accept 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 the Company 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 which the
Company does not believe will occur. The settlement will require
approval of the Court, which cannot be assured, after class
members are given the opportunity to object to the settlement or
opt out of the settlement.

69



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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On July 15, 2002, the Company filed a patent
infringement action in U.S. District Court in Northern
California against Acta Technology, Inc.
(Acta), now known as Business Objects Data
Integration, Inc. (BODI), asserting that
certain Acta products infringe on three of our patents:
U.S. Patent No. 6,014,670, entitled Apparatus
and Method for Performing Data Transformations in Data
Warehousing; U.S. Patent No. 6,339,775, entitled
Apparatus and Method for Performing Data Transformations
in Data Warehousing (this patent is a continuation-in-part
of and claims the benefit of U.S. Patent
No. 6,014,670); and U.S. Patent No. 6,208,990,
entitled Method and Architecture for Automated
Optimization of ETL Throughput in Data Warehousing
Applications. On July 17, 2002, the Company filed an
amended complaint alleging that Acta products also infringe on
one additional patent: U.S. Patent No. 6,044,374,
entitled Object References for Sharing Metadata in Data
Marts. In the suit, the Company is seeking an injunction
against future sales of the infringing Acta/ BODI products, as
well as damages for past sales of the infringing products. The
Company has asserted that BODIs infringement of the
Informatica patents was willful and deliberate. On
September 5, 2002, BODI answered the complaint and filed
counterclaims against us seeking a declaration that each patent
asserted is not infringed and is invalid and unenforceable. BODI
did not make any claims for monetary relief against us. The
parties presented their respective claim constructions to the
Court on September 24, 2003 and are awaiting the
Courts ruling. The matter is currently in the discovery
phase.

The Company is also a party to various legal
proceedings and claims, either asserted or unasserted, arising
from the normal course of business activities.

In managements opinion, resolution of any
of these matters is not expected to have a material adverse
impact on the results of operations, cash flows or financial
position of the Company.



|    |                                                               
|--- | --------------------------------------------------------------
|16. | Selected Quarterly Consolidated Financial Data
    (Unaudited)

|                                                               |                   |                                       |        |          |  |               |        |              |  |   |        |        |   |   |        |        | 
|-------------------------------------------------------------- | ----------------- | ------------------------------------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ | ------ | - | - | ------ | ------ | 
|                                                               |                   |                                      
|                                                               |                   | Three Months Ended                   
|                                                               |                   |                                      
|                                                               |                   | March 31,                             |        | June 30, |  | September 30, |        | December 31,
|                                                               |                   |                                       |        |          |  |               |        |             
|                                                               |                   |                                      
|                                                               |                   | (In thousands, except per share data)
|2003(1):                                                       |                   |                                       |        |          |  |               |        |              |  |   |        |        |   |   |        |       
|Total revenues                                                 |                   | $                                     | 48,421 |          |  | $             | 50,619 |              |  | $ | 50,605 |        |   | $ | 55,888 |       
|Gross profit(2)                                                |                   |                                       | 38,337 |          |  |               | 40,188 |              |  |   | 39,804 |        |   |   | 44,190 |       
|Amortization of stock-based compensation                       |                   |                                       | 24     |          |  |               | 19     |              |  |   | 22     |        |   |   | 752    |       
|Amortization of other intangible assets                        |                   |                                       | 25     |          |  |               | 25     |              |  |   | 17     |        |   |   | 80     |       
|Purchased in-process research and development                  |                   |                                       |       |          |  |               |       |              |  |   | 4,524  |        |   |   |       |       
|Income (loss) from operations                                  |                   |                                       | 412    |          |  |               | 2,628  |              |  |   | (2,370 | )      |   |   | 1,705  |       
|Net income (loss)                                              |                   |                                       | 1,042  |          |  |               | 3,289  |              |  |   | (256   | )      |   |   | 3,235  |       
|Net income (loss) per share:                                   |                   |                                       |        |          |  |               |        |              |  |   |        |        |   |   |        |       
|                                                               | Basic and diluted |                                       | $      | 0.01     |  |               | $      | 0.04         |  |   | $      | (0.00  | ) |   | $      | 0.04   | 
|Shares used in calculation of net income (loss)
    per share: |                   |                                       |        |          |  |               |        |              |  |   |        |        |   |   |        |       
|                                                               | Basic             |                                       |        | 80,530   |  |               |        | 80,143       |  |   |        | 80,380 |   |   |        | 83,889 | 
|                                                               | Diluted           |                                       |        | 83,159   |  |               |        | 82,777       |  |   |        | 80,380 |   |   |        | 89,594 | 

70



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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                               |                   |                                       |        |          |   |               |        |              |  |   |         |        |   |   |        |        | 
|-------------------------------------------------------------- | ----------------- | ------------------------------------- | ------ | -------- | - | ------------- | ------ | ------------ |  | - | ------- | ------ | - | - | ------ | ------ | 
|                                                               |                   |                                      
|                                                               |                   | Three Months Ended                   
|                                                               |                   |                                      
|                                                               |                   | March 31,                             |        | June 30, |   | September 30, |        | December 31,
|                                                               |                   |                                       |        |          |   |               |        |             
|                                                               |                   |                                      
|                                                               |                   | (In thousands, except per share data)
|2002:                                                          |                   |                                       |        |          |   |               |        |              |  |   |         |        |   |   |        |       
|Total revenues                                                 |                   | $                                     | 48,527 |          |   | $             | 49,146 |              |  | $ | 47,645  |        |   | $ | 50,123 |       
|Gross profit(2)                                                |                   |                                       | 37,010 |          |   |               | 37,439 |              |  |   | 36,244  |        |   |   | 38,277 |       
|Amortization of stock-based compensation                       |                   |                                       | 73     |          |   |               | 65     |              |  |   | 52      |        |   |   | 31     |       
|Amortization of other intangible assets                        |                   |                                       | 25     |          |   |               | 25     |              |  |   | 25      |        |   |   | 25     |       
|Restructuring charges                                          |                   |                                       |       |          |   |               |       |              |  |   | 17,030  |        |   |   |       |       
|Income (loss) from operations                                  |                   |                                       | (1,556 | )        |   |               | (1,482 | )            |  |   | (18,392 | )      |   |   | 374    |       
|Net income (loss)                                              |                   |                                       | (254   | )        |   |               | 434    |              |  |   | (17,280 | )      |   |   | 1,486  |       
|Net income (loss) per share:                                   |                   |                                       |        |          |   |               |        |              |  |   |         |        |   |   |        |       
|                                                               | Basic and diluted |                                       | $      | (0.00    | ) |               | $      | 0.01         |  |   | $       | (0.22  | ) |   | $      | 0.02   | 
|Shares used in calculation of net income (loss)
    per share: |                   |                                       |        |          |   |               |        |              |  |   |         |        |   |   |        |       
|                                                               | Basic             |                                       |        | 78,963   |   |               |        | 79,308       |  |   |         | 79,999 |   |   |        | 80,720 | 
|                                                               | Diluted           |                                       |        | 78,963   |   |               |        | 82,796       |  |   |         | 79,999 |   |   |        | 83,082 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The previously reported results of operations for
    the first three quarters of 2003 were adjusted to reflect the
    correction of an error in methodology of allocating revenue
    between the license and service components of arrangements under
    SOP 98-9, which resulted in an overallocation of license
    revenues and underallocation of service revenues in those
    periods. This adjustment resulted in a decrease in license
    revenues of $715, $609 and $704 and an increase in service
    revenues of $588, $681 and $632 in the first three quarters,
    respectively. The net impact on total revenues, gross profit,
    income (loss) from operations and net income (loss) was $(127),
    $72 and $(72) for the first three quarters of 2003,
    respectively. Net income (loss) per share was not affected. An
    adjustment was also needed to reflect the remaining net
    cumulative impact of the error on the balance sheet in the
    fourth quarter. As a result, deferred revenue was increased by
    $1,375 and license revenues reduced by the same amount.
|   
|(2) | The previously reported gross profit for the
    first three quarters of 2003 was adjusted to reflect the
    reclassification of amortization of acquired technology from
    operating expenses to cost of license. This adjustment resulted
    in a decrease in gross profit of $260, $115 and $82 in the first
    three quarters of 2003 and $260 for each of the quarters in
    2002, respectively. Income (loss) from operations was not
    affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

71



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                   
|-------- | ------------------
|Item 9A. | Control 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 Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms.

(b) Changes in internal control over
financial reporting.Under relevant professional auditing
standards, significant deficiencies are referred to
as reportable conditions, which are deficiencies in
the design or operation of controls that could adversely affect
our ability to record, process, summarize and report financial
data in the financial statements. A material
weakness is a particularly serious deficiency where the
internal control component does not reduce to a relatively low
level the risk that misstatements caused by errors or fraud may
occur in amounts that would be material in relation to the
consolidated financial statements and not be detected within a
timely period by employees in the normal course of performing
their assigned functions.

In the fourth quarter of 2003, we discovered an
internal control deficiency that resulted in an error in our
allocation of revenue between the license and service
components. The error resulted in an overallocation of license
revenue and an underallocation of service revenue in certain
periods. See Note 16 to our consolidated financial statements in
Item 8. We corrected the error in the fourth quarter of
2003 and reviewed all policies governing deferral and
recognition of revenue and all related systematic or manual
detailed calculations to ensure policies were appropriate, that
the calculations were consistent with the related policies and
that the policies and calculations were in accordance with SOP
97-2, SOP 98-9 and other relevant revenue recognition accounting
guidance.Our independent auditors have informed us and
the Audit Committee that this deficiency constituted a
reportable condition, but not a material
weakness. We do not believe this deficiency had a material
impact on our consolidated financial statements.

Accordingly, there was no change in our internal
control over financial reporting that occurred during the fourth
quarter of 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information with respect to Directors is included
under the caption Proposal One  Election of
Directors in the Proxy Statement for the 2004 Annual
Meeting to be held on May 27, 2004 (the 2004 Proxy
Statement) and is incorporated herein by reference.
Information with respect to Executive Officers is included under
the heading Executive Officers of the Registrant in
Part I hereof after Item 4. Information regarding
delinquent filers pursuant to Item 405 of
Regulation S-K is included under the heading
Section 16(a) Beneficial Ownership Reporting
Compliance in the 2004 Proxy Statement and is incorporated
herein by reference.

Code of Ethics

We have adopted a Code of Ethics that applies to
our principal executive officer and senior financial and
accounting officers. You can find our Code of Ethics on our
website at http://www.informatica.com/investor and clicking on
the link Code of Ethics For Principal Executives and
Senior Financial Officers.

72



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##### Table of Contents



We will post any amendments to the Code of
Ethics, as well as any waivers that are required to be disclosed
by the rules of either the SEC or the Nasdaq Stock Market, on
our website.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is included
under the caption Proposal One  Election of
Directors  Director Compensation and
Executive Officer Compensation in the 2004 Proxy
Statement and is incorporated herein by reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this item is included
under the headings Security Ownership of Principal
Stockholders and Management and Equity Compensation
Plan Information in the 2004 Proxy Statement and is
incorporated herein by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is included
under the caption Transactions with Management in
the 2004 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 Proposal Three  Ratification
of Appointment of Independent Auditors in the 2004 Proxy
Statement and is incorporated herein by reference.




PART IV






|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as
part of this Annual Report on Form 10-K:

1. 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 Item 8 above.

3. Exhibits



| |                   
| | ------------------
| | See Exhibit Index.

(b) Reports on Form 8-K



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 7, 2003, we filed a report on
    Form 8-K pursuant to Item 2 relating to our
    acquisition of Striva Corporation on September 29, 2003.         
|
| | On October 16, 2003, we furnished a report
    on Form 8-K pursuant to Item 12 relating to our
    financial results for the quarter ended September 30, 2003.

73



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INFORMATICA CORPORATION

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                |  |                |     |            |  |            |       |             |  |   |        |   |  |   |     | 
|------------------------------- |  | -------------- | --- | ---------- |  | ---------- | ----- | ----------- |  | - | ------ | - |  | - | --- | 
|                                |  | Balances at    |     | Charged to |  |            |       | Balances at
|                                |  | Beginning      |     | Costs and  |  |            |       | End of     
|                                |  | of Period      |     | Expenses   |  | Deductions |       | Period     
|                                |  |                |     |            |  |            |       |            
|                                |  |               
|                                |  | (In thousands)
|Provision for Doubtful Accounts |  |                |     |            |  |            |       |             |  |   |        |   |  |   |     | 
|Year ended December 31, 2003    |  | $              | 461 |            |  | $          | 145   |             |  | $ | (42    | ) |  | $ | 564 | 
|Year ended December 31, 2002    |  | $              | 425 |            |  | $          | 1,181 |             |  | $ | (1,145 | ) |  | $ | 461 | 
|Year ended December 31, 2001    |  | $              | 826 |            |  | $          | 533   |             |  | $ | (934   | ) |  | $ | 425 | 

|                             |  |             |       |            |  |            |       |             |  |   |        |   |  |   |       | 
|---------------------------- |  | ----------- | ----- | ---------- |  | ---------- | ----- | ----------- |  | - | ------ | - |  | - | ----- | 
|                             |  | Balances at |       |            |  |            |       | Balances at
|                             |  | Beginning   |       | Charged to |  |            |       | End of     
|                             |  | of Period   |       | Revenue    |  | Deductions |       | Period     
|                             |  |             |       |            |  |            |       |            
|Sales and Return Allowances  |  |             |       |            |  |            |       |             |  |   |        |   |  |   |       | 
|Year ended December 31, 2003 |  | $           | 888   |            |  | $          |      |             |  | $ | (183   | ) |  | $ | 705   | 
|Year ended December 31, 2002 |  | $           | 1,870 |            |  | $          | 425   |             |  | $ | (1,407 | ) |  | $ | 888   | 
|Year ended December 31, 2001 |  | $           | 3,032 |            |  | $          | 1,186 |             |  | $ | (2,348 | ) |  | $ | 1,870 | 

74



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SIGNATURES

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, Redwood City, State of
California on this 10th day of March 2004.



| |                             
| | ----------------------------
| | INFORMATICA CORPORATION INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ GAURAV S. DHILLON

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Gaurav S. Dhillon                                  
| | Chief Executive Officer, President and
    Director

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:

|                                       |  |                                                                                                                       |  |                |  | 
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                       |  |                                                                                                                       |  |               
|Signature                              |  | Title                                                                                                                 |  | Date          
|                                       |  |                                                                                                                       |  |               
|                                      
|/s/ GAURAV S. DHILLONGaurav S. Dhillon |  | Chief Executive Officer, President and Director
    (Principal Executive Officer)                                     |  | March 10, 2004
|                                      
|/s/ EARL E. FRYEarl E. Fry             |  | Chief Financial Officer, Executive Vice
    President, and Secretary (Principal Financial and
    Accounting Officer) |  | March 10, 2004
|                                      
|/s/ DAVID W. PIDWELLDavid W. Pidwell   |  | Director                                                                                                              |  | March 10, 2004
|                                      
|/s/ A. BROOKE SEAWELLA. Brooke Seawell |  | Director                                                                                                              |  | March 10, 2004
|                                      
|/s/ JANICE D. CHAFFINJanice D. Chaffin |  | Director                                                                                                              |  | March 10, 2004
|                                      
|/s/ MARK A. BERTELSENMark A. Bertelsen |  | Director                                                                                                              |  | March 10, 2004
|                                      
|/s/ CARL J. YANKOWSKICarl J. Yankowski |  | Director                                                                                                              |  | March 10, 2004
|                                      
|/s/ SOHAIB ABBASISohaib Abbasi         |  | Director                                                                                                              |  | March 10, 2004

75



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EXHIBIT INDEX

|        |    |          |  |                                                                                                                                                                                                                                                                                                 
|------- | -- | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |         
|Number  |    | Document
|        |    |         
|        | 2  | .1       |  | Agreement and Plan of Merger, dated
    September 11, 2003, by and among Informatica Corporation, a
    Delaware corporation, Stopwatch Acquisition Corporation, a
    Delaware corporation, Striva Corporation, a Delaware
    corporation, and Pete Sinclair as Stockholder Representative.(1)
|        | 2  | .2       |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated September 22, 2003.(1)                                                                                                                                                                                                               
|        | 2  | .3       |  | Amendment No. 2 to Agreement and Plan of
    Merger, dated September 29, 2003.(1)                                                                                                                                                                                                               
|        | 3  | .1       |  | Amended and Restated Certificate of Incorporation
    of Informatica Corporation.(2)                                                                                                                                                                                                            
|        | 3  | .2       |  | Bylaws, as amended, of Informatica Corporation.                                                                                                                                                                                                                                                 
|        | 3  | .4       |  | 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.(3)                                         
|        | 3  | .5       |  | Certificate of Designation of the Rights,
    Preferences and Privileges of Series A Participating
    Preferred Stock of Informatica Corporation.(4)                                                                                                                                           
|        | 4  | .1       |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                      
|        | 4  | .2       |  | Preferred Stock Rights Agreement, dated as of
    October 17, 2001, between Informatica Corporation and
    American Stock Transfer & Trust Company.(4)                                                                                                                                         
|        | 10 | .1*      |  | Companys 2000 Employee Stock Incentive
    Plan, as amended.(5)                                                                                                                                                                                                                                
|        | 10 | .6*      |  | Form of Indemnification Agreement between the
    Company and each of its executive officers and directors.(2)                                                                                                                                                                                  
|        | 10 | .10*     |  | Companys 1996 Flexible Stock Incentive
    Plan, including forms of agreements thereunder.(6)                                                                                                                                                                                                  
|        | 10 | .11*     |  | Companys 1999 Stock Incentive Plan, as
    amended.(7)                                                                                                                                                                                                                                         
|        | 10 | .12*     |  | Companys 1999 Employee Stock Purchase Plan,
    as amended, including forms of agreements thereunder.(8)                                                                                                                                                                                       
|        | 10 | .13*     |  | Companys 1999 Non-Employee Director Stock
    Incentive Plan.(2)                                                                                                                                                                                                                               
|        | 10 | .14      |  | Lease Agreement regarding Building 1 Lease, dated
    as of February 22, 2000, by and among the Company and
    Pacific Shores Center LLC.(9)                                                                                                                                                   
|        | 10 | .15      |  | Lease Agreement regarding Building 2 Lease, dated
    as of February 22, 2000, by and among the Company and
    Pacific Shores Center LLC.(9)                                                                                                                                                   
|        | 10 | .19*     |  | Offer Letter, dated as of August 6, 2002, by
    and among the Company and Clive A. Harrison.(10)                                                                                                                                                                                               
|        | 10 | .20*     |  | Description of management arrangement with
    Earl E. Fry.(10)                                                                                                                                                                                                                                 
|        | 10 | .21*     |  | Amendment to 1999 Non-Employee Director Stock
    Incentive Plan.(11)                                                                                                                                                                                                                           
|        | 10 | .22*     |  | Agreement on the Forgiveness of Employee Loan
    dated September 13, 2001, by and among the Company and
    Earl E. Fry.(12)                                                                                                                                                                   
|        | 10 | .23*     |  | Separation Agreement and Release, dated
    January 30, 2004, by and among the Company and Sanjay
    Poonen.                                                                                                                                                                                   
|        | 10 | .24*     |  | Offer Letter, dated January 8, 2004, by and
    among the Company and Paul Albright.                                                                                                                                                                                                            
|        | 21 | .1       |  | List of Subsidiaries.                                                                                                                                                                                                                                                                           
|        | 23 | .2       |  | Consent of Ernst & Young
    LLP, Independent Auditors.                                                                                                                                                                                                                                         
|        | 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.                                                                                                      



---



|    |                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the identically
    numbered exhibit to the Companys Registration Statement on
    Form 8-K filed with the Securities and Exchange Commission
    on October 7, 2003.                                                     
|   
|(2) | Incorporated by reference to the identically
    numbered exhibit to Amendment No. 1 of the Companys
    Registration Statement on Form S-1 (Commission File
    No. 333-72677) filed with the Securities and Exchange
    Commission on April 8, 1999.



---



##### Table of Contents





|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Incorporated by reference to the identically
    numbered exhibit to the Companys Quarterly Report on
    Form 10-Q filed with the Securities and Exchange Commission
    on August 14, 2000.                                       
|   
|(4) | Incorporated by reference to the identically
    numbered exhibit to the Companys Registration Statement on
    Form 8-A filed with the Securities and Exchange Commission
    on November 6, 2001.                                 
|   
|(5) | Incorporated by reference to the identically
    numbered exhibit to the Companys Quarterly Report on
    Form 10-Q filed with the Securities and Exchange Commission
    on August 8, 2001.                                        
|   
|(6) | Incorporated by reference to the identically
    numbered exhibit to the Companys Registration Statement on
    Form S-1 (Commission File No. 333-72677) filed with
    the Securities and Exchange Commission on February 19, 1999.
|   
|(7) | Incorporated by reference to exhibit 4.3 to
    the Companys Registration Statement on Form S-8 filed
    with the Securities and Exchange Commission on August 3,
    2001.                                                        
|   
|(8) | Incorporated by reference to exhibit 4.4 to
    the Companys Registration Statement on Form S-8 filed
    with the Securities and Exchange Commission on August 3,
    2001.                                                        
|   
|(9) | Incorporated by reference to the identically
    numbered exhibit to the Annual Report on Form 10-K filed
    with the Securities and Exchange Commission on March 30,
    2000.                                                     



|     |                                                                                                                                                                                                     
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the identically
    numbered exhibit to the Companys Quarterly Report on
    Form 10-Q filed with the Securities and Exchange Commission
    on November 13, 2002.    
|    
|(11) | Incorporated by reference to the identically
    numbered exhibit to the Companys Quarterly Report on
    Form 10-Q filed with the Securities and Exchange Commission
    on August 7, 2003.       
|    
|(12) | Incorporated by reference to Exhibit 99.1 to
    Amendment No. 1 of the Companys Registration
    Statement on Form S-3 filed with the Securities and
    Exchange Commission on December 24, 2003.



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| | * | Indicates management contract or compensatory
    plan or arrangement.