##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

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,
    2002                                             
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-25871




---

INFORMATICA CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                                                |  |                                         
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                        |  | 77-0333710                              
|(State or other jurisdiction of
    incorporation or organization)                              |  | (I.R.S. Employer
    Identification No.)
|                                                                                               
|2100 Seaport Boulevard
    Redwood City, California(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, 2002, there were
approximately 79,392,800 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 28, 2002) was approximately $304,184,213. Shares of
the registrants Common Stock held by each executive
officer and director and by each entity that owns 5% or more of
the registrants Common Stock 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 28, 2003, there were
approximately 80,158,097 shares of the registrants Common
Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement
for the registrants 2003 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, 2002.



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TABLE OF CONTENTS



|             |                                                                                                |  |  |  |  |  |  | 
|------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Business                                                                              
|             | Item 2. Properties                                                                            
|             | Item 3. Legal Proceedings                                                                     
|             | Item 4. Submission of Matters to a Vote of Security Holders                                   
|PART II     
|             | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                 
|             | Item 6. Selected Consolidated Financial Data                                                  
|             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations 
|RISK FACTORS
|             | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                            
|             | Item 8. Financial Statements and Supplementary Data                                           
|             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  
|PART III    
|             | Item 10. Directors and Executive Officers of the Registrant                                   
|             | Item 11. Executive Compensation                                                               
|             | Item 12. Security Ownership of Certain Beneficial Owners and Management                       
|             | Item 13. Certain Relationships and Related Transactions                                       
|             | Item 14. Controls and Procedures                                                              
|PART IV     
|             | Item 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K
|             | SIGNATURES                                                                                    
|             | CERTIFICATIONS                                                                                
|             | SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS                                              
|EXHIBIT 21.1
|EXHIBIT 23.2
|EXHIBIT 99.1



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##### Table of Contents



INFORMATICA CORPORATION

ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2002


|               |  |                                                                                                    |    |      |    | 
|-------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|               |  |                                                                                                    |    | Page
|               |  |                                                                                                    |    |     
|PART I        
|Item 1.        |  | Business                                                                                           |    |      | 2  | 
|Item 2.        |  | Properties                                                                                         |    |      | 10 | 
|Item 3.        |  | Legal Proceedings                                                                                  |    |      | 10 | 
|Item 4.        |  | Submission of Matters to a Vote of Security
    Holders                                            |    |      | 12 | 
|               |  | Executive Officers of the Registrant                                                               |    |      | 12 | 
|PART II       
|Item 5.        |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |    |      | 13 | 
|Item 6.        |  | Selected Consolidated Financial Data                                                               |    |      | 14 | 
|Item 7.        |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |    |      | 15 | 
|               |  | Risk Factors                                                                                       |    |      | 27 | 
|Item 7A.       |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |    |      | 38 | 
|Item 8.        |  | Financial Statements and Supplementary Data                                                        |    |      | 39 | 
|Item 9.        |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |    |      | 69 | 
|PART III      
|Item 10.       |  | Directors and Executive Officers of the Registrant                                                 |    |      | 69 | 
|Item 11.       |  | Executive Compensation                                                                             |    |      | 69 | 
|Item 12.       |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |    |      | 69 | 
|Item 13.       |  | Certain Relationships and Related Transactions                                                     |    |      | 69 | 
|Item 14.       |  | Controls and Procedures                                                                            |    |      | 69 | 
|PART IV       
|Item 15.       |  | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K          |    |      | 70 | 
|SIGNATURES     |  |                                                                                                    | 71 |     
|CERTIFICATIONS |  |                                                                                                    | 72 |     

1



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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 revenues,
operating expenses and international expansion; the sufficiency
of our cash balances and cash flows for the next twelve 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 in Item 7
and elsewhere in this report. 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.




PART I






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

Overview

Informatica Corporation is a leading provider of
business analytics software that helps our customers to
accelerate the integration, analysis and delivery of critical
corporate information. Using our products, business users and IT
staff are more productive in their tasks. Business users gain
valuable insight they can use to help improve business
performance, increase customer satisfaction and enhance
competitive advantage. Senior IT personnel are equipped with
infrastructure that can help them deploy analytic solutions
faster, cheaper and with less risk than several other
alternatives in the market.

Over the last two decades, companies have made
significant investments in a variety of transactional
applications, like 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 supply chain. The ultimate goal of deploying
these applications is to make businesses more efficient through
automation. However, these transaction applications generate
massive volumes of information in disparate software systems
that typically do not talk to each other or share the data.
Organizations are now finding that the strategic value of
information technology lies beyond process automation. Companies
are realizing the need to have one unified and complete view of
all of the information about their customers, suppliers and
operations all in one place, in order to make better decisions
about their business for competitive advantage. Then, armed with
one complete view of their business, information workers can use
that information to collaborate internally or externally with
ones customers, suppliers and partners to improve
performance and productivity.

Informatica addresses this need with a
comprehensive suite of business analytic software products. Our
products are designed to integrate data from the
enterprises various systems and create analytic solutions
that deliver insight to business users across the entire
organization, helping them to make better decisions, ultimately
turning information into competitive advantage. Informatica is
the leading provider of data integration products. Our newer
data warehouse modules, which pre-package metrics and domain
knowledge from fourteen different business areas, allow an IT
buyer to build a data mart or data warehouse faster than
building it by hand. Our business intelligence platform provides
easy-to-use, broadly deployable dashboards, scorecards and
intuitive guided analysis for all business users to better
manage the performance of their organization. When combined, our
data integration products, data warehouse modules and our
business intelligence platform enable and accelerate the
deployment of custom or pre-packaged analytic application
suites, allowing enterprises to improve strategic aspects of
their business performance, including direct and

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indirect sales, marketing, customer service,
operations, finance, human resources, procurement, manufacturing
and supply chain.


We believe our products provide our customers
with the following primary benefits:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | information integrated from a wide range of
    business functions and disparate data sources into one unified,
    holistic view of the enterprise;   
|
| |  | packaged and extensible data warehouse technology
    to help organizations build their analytic infrastructure
    faster, cheaper and with less risk;
|
| |  | broad deployment of personalized, Web-based
    business intelligence to information workers across the
    enterprise; and                            
|
| |  | custom or pre-packaged analytic application
    suites that help business users manage the performance of their
    organization.                      

We have over 1,700 customers from a wide variety
of industries ranging from high technology to manufacturing, and
from financial services to telecommunications. We also maintain
relationships with a variety of strategic partners to jointly
develop, market, sell and/ or implement our solutions. Our
significant strategic partners include Accenture, BEA Systems,
BearingPoint, Deloitte Consulting, HP, i2 Technologies,
IBM, JD Edwards, Manugistics, Mitsubishi Electric,
PeopleSoft, Siebel Systems, Sybase, Teradata Division of NCR
Corporation, TIBCO, Vitria and webMethods. 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 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 twenty-five independent software
vendors, including several of our strategic partners, have
licensed our technology for inclusion in their products.

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 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.

Our Products

Our business analytics products enable our
customers to integrate data from multiple disparate systems,
implement data warehouses more quickly and deploy business
intelligence solutions and analytic applications to better
manage the performance of their organization. Our data
integration products extract, transform and load large volumes
of data from disparate sources for both analytic and operational
needs on a real-time or regularly scheduled basis. Our data
warehouse modules contain packaged analytic infrastructure and
business content that accelerate the building of enterprise data
warehouses and data marts in fourteen different subject areas,
including sales, marketing, call center, finance, human
resources, supply chain and operations  either in
modular fashion or as entire suites. Our business intelligence
platform is built on a modern, internet-centric platform for
deploying analytic dashboards, scorecards and guided analysis to
a broad range of corporate decision-makers. The Informatica
analytic application suites pre-package all three layers of our
product stack and provide a complete analytic solution in four
function specific areas: Customer Relationship Analytics, Human
Resources Analytics, Finance Analytics, and Supply Chain
Analytics.

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The following information summarizes the key
features and benefits of our products and services:

Data
Integration Products

Our data integration products feature a
high-performance, scalable architecture designed to support the
demanding requirements of global companies and rapidly growing
enterprises. Our core integration offerings, Informatica
PowerCenter RT, Informatica PowerCenter and Informatica
PowerMart, integrate and unify the diverse applications that
populate todays enterprises. Our data integration products
extract data from virtually all sources, enrich it for
analytics, catalog it for use and reuse, and deliver it to other
transactional systems, data warehouses and analytic
applications. PowerCenter RT is the latest product in the
PowerCenter series and features several innovations that
facilitate real-time data integration and connection to
Enterprise Application Integration (EAI) sources. In
addition, we offer a number of extension products that provide
technical capabilities to accelerate and simplify customer
implementation and deployment of our products, including
Informatica PowerChannel, a number of Informatica PowerConnects,
Informatica PowerPlugs and Informatica PowerBridge products.

|                                                       |  |                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                         
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                                                |  | Description                                                                                                                                                                                                                             |  | Benefit                                                                                                                                                                                                                                                 
|                                                       |  |                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                         
|Informatica PowerCenter RT                             |  | An enterprise data integration platform for
    real-time operational data integration, management of data
    warehouses and analytic solutions.                                                                                       |  | Speeds integration and simplifies management of
    enterprise-wide real-time, operational data integration and
    analytical data warehousing.                                                                                                        
|                                                      
|Informatica PowerCenter                                |  | An enterprise data integration platform for
    operational data-integration, management of data warehouses and
    analytic solutions.                                                                                                 |  | Speeds integration and simplifies management of
    enterprise-wide information by integrating analytics, enforcing
    consistent data definitions, and synchronizing and integrating
    disparate data marts, data warehouses and analytic solutions.
|                                                      
|Informatica PowerMart                                  |  | A departmental integration platform that can be
    expanded as a companys needs grow to an enterprise level
    with Informatica PowerCenter.                                                                                         |  | Speeds integration and simplifies management of
    departmental information by integrating analytics and enforcing
    consistent data definitions.                                                                                                    
|                                                      
|Informatica PowerChannel                               |  | An extension product that supports the
    interchange and integration of sensitive, high volume and
    geographically dispersed data across a wide area network within
    an enterprise, or across the Internet between enterprises. |  | Provides comprehensive and reliable integration
    of geographically distributed data, improved visibility and
    global data management and is designed to significantly save
    time and resources.                                                
|                                                      
|Informatica PowerConnects, PowerPlugs,
    PowerBridge |  | A set of extension products to provide direct
    access to various enterprise data sources and metadata,
    including SAP, PeopleSoft, Siebel, DB2, IBM MQSeries, mainframe,
    AS/400 and Hyperion.                                 |  | Simplifies access to ERP, CRM, real-time
    messaging, mainframe, AS/400 and legacy environments and allows
    the reuse of metadata in order to reduce information technology
    cost and improve system manageability.                             

Data
Warehouse Modules

Our packaged data warehouse modules are currently
comprised of fourteen different subject specific warehouse
modules or marts. They provide packaged data
warehouse technology that is fully extensible, allowing data
warehouses and data marts to be built faster, cheaper and with
less risk. The Informatica Warehouse Modules integrate data from
a variety of operational systems, such as Ariba, i2, Oracle,
PeopleSoft, SAP, Siebel Systems, legacy systems and Web servers,
and then transforms, aggregates and normalizes the data, before
presenting it to business users for business insight. The
Informatica Warehouse Modules are designed to help companies
leverage industry best practices and minimize implementation
time and cost.

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A description of our packaged data warehouse
modules and their benefits are summarized in the table below:

|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                       
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Product                       |  | Description                                                                                                                                                                                                                                                                                                                                                                                       |  | Benefit                                                                                                                               
|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                       
|Informatica Warehouse Modules |  | Subject specific packaged data marts and data
    warehouses that include pre- configured metrics and domain
    knowledge. Currently there are fourteen different warehouse
    modules comprising the following subjects: sales, marketing,
    service, Web, general ledger, receivables, payables,
    profitability, compensation, scorecard, planning, sourcing,
    inventory and quality. |  | Helps companies reduce the cost, time, and risk
    of implementing a data warehouse by using pre-packaged,
    integrated technology.

Business
Intelligence Platform

Our business intelligence platform includes
PowerAnalyzer and PowerAnalyzer Insight modules. These
internet-centric products are designed to meet our
customers end-to-end business intelligence requirements
including dashboards, scorecarding, query and analysis,
reporting, advanced analytics and visualization. PowerAnalyzer
is designed to give end users  both inside and
outside the organization  intuitive access to
critical, personalized data at the point of work. By allowing
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, PowerAnalyzer
empowers employees, suppliers and customers to make informed
decisions while in the office or on the road. This helps enable
faster reactions to trends, more responsive customer support,
more consistent decision-making and therefore, a more effective
enterprise. PowerAnalyzer Insight modules include pre-packaged
analytic dashboards and scorecards that are role-based, easily
personalized, and are integrated with alerts and enterprise
communication tools like Microsoft Exchange.

|                                              |  |                                                                                                                                                                                                                 |  |                                                                                                                                                                        
|--------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                                       |  | Description                                                                                                                                                                                                     |  | Benefit                                                                                                                                                                
|                                              |  |                                                                                                                                                                                                                 |  |                                                                                                                                                                        
|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.
|                                             
|Informatica PowerAnalyzer Insight
    Modules |  | An optional component that provides an
    application framework with quick-start business content in areas
    like CRM, Finance, Human Resources and Supply Chain for
    custom-built analytic applications. |  | Allows business users to get a fast start
    approach to their common business reports, metrics and analytic
    workflows.                                           

Analytic
Application Suites

Our analytic application suites are comprised of
a tightly integrated suite of our data integration products,
data warehouse modules and business intelligence platform that
provide key business metrics and analytic reports across a range
of business functions. Because our analytic application suites
span multiple business functions, we believe they uniquely offer
managers and executives an integrated, enterprise-wide view of
their businesses that they have not traditionally been able to
achieve. These analytic applications are designed to integrate
data from a variety of operational systems, such as Ariba, i2
Technologies, Manugistics, Oracle, PeopleSoft, SAP, Siebel
Systems, legacy systems and Web commerce servers, to provide
valuable business insight. They do this by enabling companies to
analyze and manipulate the aggregated and normalized
information. Our analytic applications are designed to help
companies leverage industry best practices and minimize
implementation time and cost for enterprise-wide analytics. They
include analytic dashboards that are role-based, easily
personalized and able to deliver information in real-time, and
are integrated with alerts and enterprise communication tools
such as Microsoft Exchange. The analytic dashboards allow full
interaction with the server, including the use of Informatica
Analytic Workflows, which aid in the discovery of

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root causes by guiding users through a series of
saved drill paths, based on business processes. These
innovations make our applications more powerful and at the same
time easier to use, especially for users who may not have
experience in business analysis. Our analytic application suites
are built on our data integration products, data warehouse
modules and business intelligence platform and can therefore be
easily modified and extended to meet the requirements of most
enterprises.


Our suites of pre-packaged analytic application
suites are summarized in the table below:

|                                                                                                                                                                      |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                                                                                                                                                               |  | Description                                                                                                                                                                                                                         |  | Benefit                                                                                                                                                                                                    
|                                                                                                                                                                      |  |                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                            
|Informatica Customer Relationship
    Analytics                                                                                                                       |  | Metrics and packaged analytics for improving the
    effectiveness of customer-facing business processes, including
    direct and indirect sales, marketing, and customer service.                                                 |  | Helps companies increase sales and customer
    profitability by attracting, retaining and better serving
    customers across all sales and distribution channels.                                        
|                                                                                                                                                                     
|Informatica Finance Analytics                                                                                                                                         |  | Metrics and packaged analytic infrastructure for
    finance.                                                                                                                                                                       |  | Enables companies to identify areas to reduce
    costs, improve responsiveness and better manage finance and
    other corporate assets in order to drive business improvements
    across the enterprise.
|                                                                                                                                                                     
|Informatica Human Resources
    Analytics                                                                                                                             |  | Metrics and packaged analytic infrastructure for
    human resources.                                                                                                                                                               |  | Enables companies to analyze worker productivity
    and improve resource allocation to better manage human resources.                                                                                     
|                                                                                                                                                                     
|Informatica Supply Chain Analytics                                                                                                                                    |  | Metrics and packaged analytics improving the
    effectiveness of procurement processes, including the
    acquisition of raw materials, components and other supplies, as
    well as supplier relationships.                      |  | Helps companies reduce direct and indirect
    procurement time and costs, improve product quality and monitor
    supplier performance.                                                                   
|                                                                                                                                                                     
|Other Informatica Analytic Suites:
     Strategic Sourcing Analytics
     Contact Center Analytics
     Bookings, Billings and Backlog
     Web Channel Analytics |  | These suites can be used by combining various
    modules of the Informatica Warehouse to solve certain problems
    for specialized roles in an organization  e.g., VP of
    Sourcing, VP of Contact Centers, VP of Finance etc. |  | Helps companies reduce procurement costs, improve
    call center performance, increase sales visibility, and help
    match demand with supply.                                                           

Services

We offer a comprehensive set of professional
services, including product-related customer support, consulting
services and training and customer support. Through our
technical support centers in the United States and the United
Kingdom, we offer high-quality technical support on a global
basis to customers over the phone, via e-mail and through the
Internet. 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 analytic solutions. Our systems integrator
partners include firms such as Accenture, BearingPoint, Cap
Gemini Ernst & Young, Computer Sciences Corporation,
Deloitte Consulting, EDS, and IBM. 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 analytic
systems.

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Our Strategic Partners and Customers

Our strategic partners include industry leaders
in enterprise and 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, access to required technology and
complementary products and services to our joint customers. In
addition to our systems integrator partners listed above, our
strategic partners include BEA Systems, EMC, Hewlett-Packard, i2
Technologies, IBM, JD Edwards, Manugistics, Mitsubishi Electric,
PeopleSoft, Siebel Systems, Sun Microsystems, Sybase, Teradata
Division of NCR Corporation, TIBCO, Vitria and webMethods. 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 purchased at
least $750,000 of our software and related services since
January 1996 includes:

|                                                                                                                                                                                                       |  |                                                                                                                                                             |  |                                                                                                                                                                  |  |                                                                                                   |  |                                                                                                                |  |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  | 
|Financial                                                                                                                                                                                              |  |                                                                                                                                                             |  | Manufacturing/                                                                                                                                                   |  |                                                                                                   |  | Pharmaceuticals/                                                                                              
|Services                                                                                                                                                                                               |  | Insurance                                                                                                                                                   |  | High Tech                                                                                                                                                        |  | Communications                                                                                    |  | Chemicals                                                                                                     
|                                                                                                                                                                                                       |  |                                                                                                                                                             |  |                                                                                                                                                                  |  |                                                                                                   |  |                                                                                                               
| ABN AMRO Bank American Express Bank of Tokyo Charles Schwab Citigroup Credit Suisse First   Boston Deutsche Bank Fair, Isaac Goldman Sachs JP Morgan Merrill Lynch UBS Washington Mutual |  |  Aegon USA AXA Blue Cross/Blue Shield CNA Hartford John Hancock Liberty Mutual Group Met Life Prudential United Services   Automobile Association |  |  Autodesk Boeing Brocade Cisco DaimlerChrysler General Electric Hewlett-Packard Lockheed Martin Motorola Philips Solectron Siemens Toyota Verisign |  |  AT&T Bell Atlantic Cingular Wireless Deutsche Telekom NTL Sprint UUNET Vodafone Verizon |  |  Abbott Laboratories Amgen Astra Zeneca Bristol-Meyers Squibb Corning GlaxoSmithKline Pfizer Pharmacia

|                                     |  |                                                                                                                            |  |                                                                                                                                                |  |                                                                                                                                         |  |  |  |  |  |  |  | 
|------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Retail/Consumer                      |  |                                                                                                                            |  |                                                                                                                                                |  |                                                                                                                                        
|Packaged Goods                       |  | Utilities/Energy                                                                                                           |  | Government                                                                                                                                     |  | Other                                                                                                                                  
|                                     |  |                                                                                                                            |  |                                                                                                                                                |  |                                                                                                                                        
| Best Buy ConAgra Nestlé PepsiCo |  |  American Electric    Power Commonwealth Edison EDF GDF Florida Power & Light TransCanada Pipelines Waste Management |  |  Internal Revenue Service National Institute of Health US Air Force US Army US Customs Service US Postal Service University of Illinois |  |  ABB Infosystems American Home Products Federal Express Freightliner Sysco Tetra Pak Data Systems Universal Studios Walt Disney

Our Market Positioning

Comprehensive Analytics Product Offering.Our strategy is to provide our
customers with a comprehensive suite of analytic products to
help them quickly and cost effectively deploy analytic solutions
to improve their business effectiveness. The combination of our
data integration products, data warehouse modules and business
intelligence platform provides the industry with the most
comprehensive analytic application suites. This full
stack helps allow us to offer our customers a highly
attractive and differentiated value proposition in terms of
lower total cost of ownership, faster time to value and lower
risk to business changes.

Real-Time, Highly Scalable and Flexible Data
Integration.Our products are capable
of supporting the needs of large global enterprises due to our
highly scalable and extensible architecture. This year we
introduced the incorporation of real-time data into our data
integration product offering. In addition, our infrastructure
products are developed to be compatible with major software
applications. Our platform and set of supporting products are
both flexible and extensible, allowing customers to build or
extend sophisticated analytic applications to meet their
specific requirements. The open architecture design of our
products enables our customers to support and inter-operate with
a wide range of computing platforms, applications and data
sources.

Modular, Plug and Play Approach to Business
Analytics.Our data warehouse modules
form the basis for analytic solutions that span the value-chain
(including CRM, Finance, HR and Supply Chain) to be

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rapidly deployed in either a modular fashion or
as a complete suite. Our data warehouse modules are based on
best-practice enterprise data warehouse design and provide one
complete view of the business for all business users in an
organization. By leveraging an integrated and comprehensive view
of their operations, our customers are better able to manage
their performance and improve their competitive position.


Broadly Deployable Business Intelligence.Our vision for the market is the
democratization of information. Our business intelligence
platform is based on an industry-standard J2EE
(internet) architecture that provides significant
scalability and manageability advantages, and allows customers
to easily deploy our product to thousands of users across the
enterprise. Our business intelligence platform is built with
modern, intuitive dashboards, scorecards and guided analysis
tools, and can be pushed out to any wireless phone, PDA, or
other handheld device. The open design of our business
intelligence platform also allows IT users to easily customize
our product to meet the specific needs of an organization.

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, 2002, our products had been licensed by
over 1,700 customers around the world, and to 79% of the Fortune
100 companies. The Informatica Developer Network, created in
2001, has grown to over 5,000 members in sixty-four countries
each using Informaticas products to build 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 our new products in our
analytic stack.

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 thirty-five companies now OEM
Informaticas core products, including i2 Technologies, JD
Edwards, PeopleSoft and Siebel Systems. In sum, more than
300 companies market and resell our products around the
world.

Research and Development

As of December 31, 2002, we employed 206
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 2002, Informatica made use of a small offshore
development team based in the Netherlands for work on portions
of our business intelligence platform. Going forward, we will
continue to explore the use of offshore development,
particularly in India, to increase development productivity. Our
research and development expenditures were $45.6 million in
2002, $46.3 million in 2001 and $26.5 million in 2000.

Sales, Marketing and Distribution

We market and sell software and services through
a direct sales force in the United States as well as Belgium,
Canada, France, Germany, the Netherlands, Switzerland and the
United Kingdom, and also through distributors in various regions
around the world. As of December 31, 2002, we employed 290
people in our sales and marketing organization worldwide.

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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, particularly the sales cycle for our
analytic application suites. 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 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 six patents
granted in the U.S., sixteen patent applications pending in the
U.S., and twenty-five corresponding international patent
applications pending.

Competition

The market for our products is highly
competitive, quickly evolving and subject to rapidly changing
technology. A large part of that market consists of custom-built
solutions that are often hand-coded. As such, Informaticas
primary competition consists of custom-built data integration,
data warehouse, business intelligence, and analytic
applications. We experience competition in the market from
Ascential Software, Business Objects S.A., Cognos Inc.,
Embarcadero Technologies, Inc. and MicroStrategy, Inc. In
addition, we compete or may compete against database vendors and
enterprise applications vendors that currently offer, or may
develop, products with some functionality that compete with our
products. Such potential competitors include IBM Corporation,
Microsoft Corporation, Oracle Corporation, PeopleSoft, SAP and
Siebel Systems.

Many of our competitors or potential 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. If our competitors develop similar or superior
functionality, we may have difficulty competing more
substantially 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

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cooperative relationships with our current or
future channel or strategic partners, thereby limiting our
ability to sell products through these channels. Competitive
pressures could reduce our market share or require us to reduce
our prices, either of which could materially and adversely
affect our business, results of operations or financial
condition.


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 factors,
including:

|                                                                                 |  |                                                                                                |  |                                                                                                    
|-------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------
| product performance
     product features
     scalability
     ease of use |  |  product reliability
     analytic capabilities
     open architecture
     time-to-market |  |  customer support
     product pricing
     integrated product stack
     low cost of ownership

We believe that we currently compete favorably
with respect to the above factors. See Risk
Factors  The market in which we sell products is
highly competitive.

Employees

As of December 31, 2002, we had a total of
796 employees, including 206 people in research and
development, 290 people in sales and marketing, 196 people
in consulting, customer support and training and 104 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 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 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 12,000
square feet is subleased from October 2002 through September
2004. 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. We are attempting to sublease our surplus properties
for the remaining lease terms. See Notes 7 and 8 of 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 now
captioned as 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.).

On or about April 19, 2002, plaintiffs
electronically served an amended complaint. The amended
complaint is 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, one of our former
officers, and several investment banking firms that served as
underwriters of our April 29, 1999 initial public offering
and September 28, 2000 secondary public offering. The
amended complaint alleges liability as to all defendants under
Sections 11 and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, on the grounds that the registration statement for the
offerings

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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 amended complaint also
alleges that false analyst reports were issued. No specific
damages are claimed.


We are aware that similar allegations have been
made in other lawsuits filed in the Southern District of New
York challenging over 300 other initial public offerings and
secondary offerings conducted in 1999 and 2000. Those cases have
been consolidated for pretrial purposes before the Honorable
Judge Shira A. Scheindlin. On July 15, 2002, we and our
affiliated individual defendants (as well as all other issuer
defendants) filed a motion to dismiss the complaint. On
February 19, 2003, the Court ruled on the motions to
dismiss. The Court denied the motions to dismiss the claims
under the Securities Act of 1933 in all but ten cases, including
the case involving Informatica. The Court denied the motion to
dismiss the claim under Section 10(a) of the Securities
Exchange Act of 1934 against Informatica and 184 other issuer
defendants. The Court denied the motion to dismiss the claims
under Section 10(a) and 20(a) of the Securities Exchange
Act of 1934 against the Informatica individual defendants and
sixty-two other individual defendants. We believe that we have
meritorious defenses to the claims against us, and we intend to
defend ourselves vigorously.

On July 15, 2002, we filed a patent
infringement action in U.S. District Court in Northern
California against Acta Technology, Inc., 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 products, as well as damages
for past sales of the infringing products. We have asserted that
Actas infringement of the Informatica patents was willful
and deliberate. Acta answered the complaint on September 5,
2002, and filed counterclaims against us seeking a declaration
that each patent asserted is not infringed and is invalid and
unenforceable. Acta did not make any claims for monetary relief
against us. The case is currently in the claim construction and
discovery phase.

We are aware that a punitive class action
complaint titled Lui v. Credit Suisse First Boston
Corporation et al, No. 03-20459, has been filed in the
United States District Court, Southern District of Florida. The
complaint purports to allege securities fraud, fraud, and
negligent misrepresentation claims against: (1) Credit
Suisse First Boston; (2) numerous companies whose initial
public offerings were underwritten by Credit Suisse First
Boston, including Informatica; and (3) certain officers or
directors of those companies, including two individuals
affiliated with Informatica at the time of the initial public
offering. No specific amount of damages is claimed.

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 our results of operations, cash flows or its financial
position. However, depending on the amount and timing, an
unfavorable resolution of these matters could materially and
adversely affect our future results of operations, cash flows or
financial position in a particular period.

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|        |                                                        
|------- | -------------------------------------------------------
|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, 2003:

|                  |  |     |    |             |  |                                                                 
|----------------- |  | --- | -- | ----------- |  | ----------------------------------------------------------------
|Name              |  | Age |    | Position(s)
|                  |  |     |    |            
|Gaurav S. Dhillon |  |     | 37 |             |  | Chief Executive Officer, President and Director                 
|Earl E. Fry       |  |     | 44 |             |  | Chief Financial Officer, Senior Vice President
    and Secretary
|Clive A. Harrison |  |     | 45 |             |  | Executive Vice President, Worldwide Field
    Operations        
|Girish Pancha     |  |     | 38 |             |  | Senior Vice President of Products                               

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,
Secretary and a member of our Board of Directors since our
inception. Prior to co-founding Informatica in
February 1993, Mr. Dhillon was employed by Sterling
Software, a software company, 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. Fryhas
been our Chief Financial Officer and Senior Vice President since
December 1999. From November 1995 to December 1999,
Mr. Fry was Vice President and Chief Financial Officer at
Omnicell Technologies, Inc. From July 1994 to November 1995, he
was Vice President and Chief Financial Officer at C*ATS
Software, Inc. Mr. Fry holds a B.B.A. degree in accounting
from the University of Hawaii and an M.B.A. degree 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 responsibility 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 to co-found Zimba, a developer of mobile
applications providing real-time access to corporate information
via voice, wireless, and Web technologies. Upon the 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. 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.

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PART II




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

Price Range of Common Stock

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.

|               |  |      |       |      |  |      |      |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | High |       | Low  |  | High |      | Low
|               |  |      |       |      |  |      |      |    
|First Quarter  |  | $    | 13.50 |      |  | $    | 7.05 |     |  | $ | 36.50 |  |  | $ | 13.31 | 
|Second Quarter |  | $    | 9.60  |      |  | $    | 5.95 |     |  | $ | 28.68 |  |  | $ | 12.13 | 
|Third Quarter  |  | $    | 7.96  |      |  | $    | 3.10 |     |  | $ | 16.30 |  |  | $ | 3.95  | 
|Fourth Quarter |  | $    | 7.15  |      |  | $    | 3.32 |     |  | $ | 15.00 |  |  | $ | 3.62  | 

Holders of Common Stock

As of December 31, 2002, there were
approximately 174 stockholders of record of our common stock,
and the closing price per share of our common stock was $5.76.
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.

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.

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Item 6.     Selected
Consolidated Financial Data

|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |        |        |        | 
|-------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                   |                                                                           |                                                         
|                                                   |                                                                           | Year Ended December 31,                                 
|                                                   |                                                                           |                                                         
|                                                   |                                                                           | 2002                                                     |                          | 2001    |        | 2000    |   | 1999    |         | 1998   
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |        
|                                                   |                                                                           |                                                         
|                                                   |                                                                           | (in thousands, except per share data)                   
|Consolidated Statements of Operations
    Data(1): |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Revenues:                                                                 |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |        |       
|                                                   |                                                                           | License                                                  |                          | $       | 99,943 |         |   | $       | 119,937 |         |   | $       | 101,649 |         |   | $      | 41,184 |        |   | $      | 21,582 |       
|                                                   |                                                                           | Service(2)                                               |                          |         | 95,498 |         |   |         | 80,208  |         |   |         | 54,953  |         |   |        | 21,924 |        |   |        | 9,216  |       
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   |                                                                           |                                                          | Total revenues           |         |        | 195,441 |   |         |         | 200,145 |   |         |         | 156,602 |   |        |        | 63,108 |   |        |        | 30,798 | 
|                                                   | Cost of revenues:                                                         |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |        |       
|                                                   |                                                                           | License                                                  |                          |         | 6,185  |         |   |         | 4,500   |         |   |         | 2,034   |         |   |        | 686    |        |   |        | 376    |       
|                                                   |                                                                           | Service(2)                                               |                          |         | 39,246 |         |   |         | 42,539  |         |   |         | 31,009  |         |   |        | 11,039 |        |   |        | 5,465  |       
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   |                                                                           |                                                          | Total cost of revenues   |         |        | 45,431  |   |         |         | 47,039  |   |         |         | 33,043  |   |        |        | 11,725 |   |        |        | 5,841  | 
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Gross profit                                                              |                                                          |                          | 150,010 |        |         |   | 153,106 |         |         |   | 123,559 |         |         |   | 51,383 |        |        |   | 24,957 |       
|                                                   | Operating expenses:                                                       |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |        |       
|                                                   |                                                                           | Research and development                                 |                          |         | 45,631 |         |   |         | 46,271  |         |   |         | 26,493  |         |   |        | 11,843 |        |   |        | 8,385  |       
|                                                   |                                                                           | Sales and marketing                                      |                          |         | 86,760 |         |   |         | 99,334  |         |   |         | 75,034  |         |   |        | 33,613 |        |   |        | 22,733 |       
|                                                   |                                                                           | General and administrative                               |                          |         | 20,284 |         |   |         | 19,629  |         |   |         | 11,726  |         |   |        | 5,012  |        |   |        | 3,132  |       
|                                                   |                                                                           | Merger-related costs                                     |                          |         |       |         |   |         |        |         |   |         |        |         |   |        | 2,082  |        |   |        |       |       
|                                                   |                                                                           | Amortization of stock-based compensation                 |                          |         | 221    |         |   |         | 1,036   |         |   |         | 1,514   |         |   |        | 742    |        |   |        | 98     |       
|                                                   |                                                                           | Amortization of goodwill and other intangible
    assets |                          |         | 1,140  |         |   |         | 27,376  |         |   |         | 14,163  |         |   |        |       |        |   |        |       |       
|                                                   |                                                                           | Purchased in-process research and development            |                          |         |       |         |   |         |        |         |   |         | 8,648   |         |   |        |       |        |   |        |       |       
|                                                   |                                                                           | Restructuring charges                                    |                          |         | 17,030 |         |   |         | 12,096  |         |   |         |        |         |   |        |       |        |   |        |       |       
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   |                                                                           |                                                          | Total operating expenses |         |        | 171,066 |   |         |         | 205,742 |   |         |         | 137,578 |   |        |        | 53,292 |   |        |        | 34,348 | 
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Loss from operations                                                      |                                                          |                          | (21,056 | )      |         |   | (52,636 | )       |         |   | (14,019 | )       |         |   | (1,909 | )      |        |   | (9,391 | )     
|                                                   | Interest income and other, net                                            |                                                          |                          | 6,420   |        |         |   | 8,971   |         |         |   | 4,306   |         |         |   | 1,557  |        |        |   | 297    |       
|                                                   | Interest expense                                                          |                                                          |                          | (57     | )      |         |   | (11     | )       |         |   | (458    | )       |         |   | (319   | )      |        |   | (191   | )     
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Loss before income taxes                                                  |                                                          |                          | (14,693 | )      |         |   | (43,676 | )       |         |   | (10,171 | )       |         |   | (671   | )      |        |   | (9,285 | )     
|                                                   | Income tax provision                                                      |                                                          |                          | 921     |        |         |   | 1,304   |         |         |   | 3,345   |         |         |   | 824    |        |        |   |       |       
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Net loss                                                                  |                                                          | $                        | (15,614 | )      |         | $ | (44,980 | )       |         | $ | (13,516 | )       |         | $ | (1,495 | )      |        | $ | (9,285 | )     
|                                                   | Basic and diluted net loss per share(3)                                   |                                                          | $                        | (0.20   | )      |         | $ | (0.58   | )       |         | $ | (0.19   | )       |         | $ | (0.03  | )      |        | $ | (0.61  | )     
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       
|                                                   | Shares used in calculation of basic and diluted
    net loss per share(3) |                                                          |                          | 79,753  |        |         |   | 77,599  |         |         |   | 69,758  |         |         |   | 47,565 |        |        |   | 15,305 |       
|                                                   |                                                                           |                                                          |                          |         |        |         |   |         |         |         |   |         |         |         |   |        |        |        |   |       

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|                                    |                                             |                |   |         |  |      |   |         |  |      |   |         |  |  |   |        |  |  |   |         |  
|----------------------------------- | ------------------------------------------- | -------------- | - | ------- |  | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------ |  |  | - | ------- | -
|                                    |                                             |               
|                                    |                                             | December 31,  
|                                    |                                             |               
|                                    |                                             | 2002           |   | 2001    |  | 2000 |   | 1999    |  | 1998
|                                    |                                             |                |   |         |  |      |   |         |  |     
|                                    |                                             |               
|                                    |                                             | (in thousands)
|Consolidated Balance Sheet Data(1): |                                             |                |   |         |  |      |   |         |  |      |   |         |  |  |   |        |  |  |   |        
|                                    | Cash and cash equivalents                   |                | $ | 122,490 |  |      | $ | 131,264 |  |      | $ | 217,713 |  |  | $ | 57,521 |  |  | $ | 7,167   |  
|                                    | Restricted cash                             |                |   | 12,166  |  |      |   | 12,166  |  |      |   | 20,282  |  |  |   |       |  |  |   |        |  
|                                    | Investments                                 |                |   | 113,385 |  |      |   | 77,955  |  |      |   |        |  |  |   |       |  |  |   |        |  
|                                    | Working capital (deficit)(4)                |                |   | 176,640 |  |      |   | 168,112 |  |      |   | 190,179 |  |  |   | 39,951 |  |  |   | (3,242  | )
|                                    | Total assets                                |                |   | 365,194 |  |      |   | 342,903 |  |      |   | 350,983 |  |  |   | 68,523 |  |  |   | 12,165  |  
|                                    | Long-term obligations, less current portion |                |   |        |  |      |   |        |  |      |   |        |  |  |   | 1,438  |  |  |   | 1,480   |  
|                                    | Redeemable convertible preferred stock      |                |   |        |  |      |   |        |  |      |   |        |  |  |   |       |  |  |   | 17,586  |  
|                                    | Total stockholders equity (deficit)        |                |   | 252,403 |  |      |   | 260,408 |  |      |   | 290,497 |  |  |   | 40,124 |  |  |   | (21,580 | )



---



|    |                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 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) | Amounts and per share data for periods prior to
    December 31, 1999 have been restated to reflect the merger
    of Influence in a pooling-of-interests transaction effective
    December 15, 1999.                                                                                               
|   
|(2) | 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.
|   
|(3) | Amounts and per share data for periods prior to
    December 31, 2000 have 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) | 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

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 business analytics
software that helps our customers to automate the integration,
analysis and delivery of critical corporate information. Using
our products, managers and executives gain valuable business
insight they can use to help improve operational performance and
enhance competitive advantage.

We sell our products through direct sales forces
in the United States as well as Belgium, Canada, France,
Germany, the Netherlands, Switzerland and the United Kingdom,
and also through distributors throughout Asia-Pacific,
Australia, Europe, Japan and Latin America. As a percent of our
total consolidated revenue, international revenues from both our
direct sales force and foreign indirect strategic partners were
26% in 2002, 28% in 2001 and 20% in 2000. Substantially all of
our international sales have been in Europe. Sales outside of
North America and Europe to date have been 2% or less of total
consolidated revenues during the last three years, although we
anticipate further expansion outside of these two regions in the
future.

Critical Accounting Policies

Our 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. 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

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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. 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
among available alternatives would not produce a materially
different result.


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 generate revenues from sales of software
licenses and services, which consist of maintenance, consulting
and training. Our license revenues are derived from our business
analytic software, which consists of data integration products
and, to a lesser extent, data warehouse modules, business
intelligence platform and analytic application suites. 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
from us or indirectly through resellers, distributors and OEMs.

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, 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 is established by our
authorized management. If an acceptance period is required, we
recognize revenue upon customer acceptance or the expiration of
the acceptance period. 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 shipment when
collectibility is probable. When a customer is not deemed
credit-worthy, revenue is recognized upon cash receipt. For our
analytic application suites, we recognize both the license and
maintenance revenue ratably over the maintenance period,
generally one year. Support for the analytic application suites
for the first year is never sold separately and in consideration
of the complexities of the implementation the customer is
entitled to receive support services that are different than the
standard annual support services of our other products. 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 shipment and receipt of evidence of
sell-through if the reseller or distributor has been deemed
credit-worthy. 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 twelve months.
When resellers and distributors are not deemed credit-worthy,
revenue is recognized upon cash receipt.

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

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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 twelve months. For credit-worthy OEMs, royalty
payments are recognized when due. When OEMs are not deemed
credit-worthy, revenue is recognized upon cash receipt.


We recognize 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 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
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. Deferred revenue
amounts do not include items that are both deferred and
unbilled. 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 assessed 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 applications.
Goodwill was tested for impairment on the adoption of
SFAS 142 on January 1, 2002 and in the annual
impairment test on October 31, 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 and with the assistance of
third-party analysts. Management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 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.

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Based on these estimates, we determined that as
of October 31, 2002 there were no indications of impairment
of goodwill. However, future changes in market capitalization or
estimates used in discounted cash flows analyses could result in
significantly different fair value 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. These liabilities include managements estimates
pertaining to sublease activities. We will continue to evaluate
the commercial real estate market conditions quarterly 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. 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. See Note 8 of
Notes to Consolidated Financial Statements in Item 8.

Deferred
Taxes

We recorded a valuation allowance to reduce 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, 2002, 2001 and
2000

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

|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |    |    |     | 
|----------------------------------------------------------------- | ------------------------------ | -------------------------------------------------------- | ------------------------ | ---- | -- | ---- | -- | --- | -- | --- | -- | -- | -- | --- | 
|                                                                  |                                |                                                         
|                                                                  |                                | Year Ended                                              
|                                                                  |                                | December 31,                                            
|                                                                  |                                |                                                         
|                                                                  |                                | 2002                                                     |                          | 2001 |    | 2000
|                                                                  |                                |                                                          |                          |      |    |     
|Consolidated Statements of Operations
    Data:                   |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  | Revenues:                      |                                                          |                          |      |    |      |    |     |    |     |    |    |   
|                                                                  |                                | License                                                  |                          |      | 51 | %    |    |     | 60 | %   |    |    | 65 | %  
|                                                                  |                                | Service                                                  |                          |      | 49 |      |    |     | 40 |     |    |    | 35 |    
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  |                                |                                                          | Total revenues           |      |    | 100  |    |     |    | 100 |    |    |    | 100 | 
|                                                                  | Cost of revenues:              |                                                          |                          |      |    |      |    |     |    |     |    |    |   
|                                                                  |                                | License                                                  |                          |      | 3  |      |    |     | 2  |     |    |    | 1  |    
|                                                                  |                                | Service                                                  |                          |      | 20 |      |    |     | 22 |     |    |    | 20 |    
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  |                                |                                                          | Total cost of revenues   |      |    | 23   |    |     |    | 24  |    |    |    | 21  | 
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  | Gross profit                   |                                                          |                          | 77   |    |      |    | 76  |    |     |    | 79 |   
|                                                                  | Operating expenses:            |                                                          |                          |      |    |      |    |     |    |     |    |    |   
|                                                                  |                                | Research and development                                 |                          |      | 23 |      |    |     | 23 |     |    |    | 17 |    
|                                                                  |                                | Sales and marketing                                      |                          |      | 45 |      |    |     | 50 |     |    |    | 48 |    
|                                                                  |                                | General and administrative                               |                          |      | 10 |      |    |     | 10 |     |    |    | 7  |    
|                                                                  |                                | Amortization of stock-based compensation                 |                          |      |   |      |    |     |   |     |    |    | 1  |    
|                                                                  |                                | Amortization of goodwill and other intangible
    assets |                          |      | 1  |      |    |     | 14 |     |    |    | 9  |    
|                                                                  |                                | Purchased in-process research and development            |                          |      |   |      |    |     |   |     |    |    | 6  |    
|                                                                  |                                | Restructuring charges                                    |                          |      | 9  |      |    |     | 5  |     |    |    |   |    
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  |                                |                                                          | Total operating expenses |      |    | 88   |    |     |    | 102 |    |    |    | 88  | 
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  | Loss from operations           |                                                          |                          | (11  | )  |      |    | (26 | )  |     |    | (9 | ) 
|                                                                  | Interest income and other, net |                                                          |                          | 3    |    |      |    | 4   |    |     |    | 3  |   
|                                                                  | Interest expense               |                                                          |                          |     |    |      |    |    |    |     |    | (1 | ) 
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  | Loss before income taxes       |                                                          |                          | (8   | )  |      |    | (22 | )  |     |    | (7 | ) 
|                                                                  | Income tax provision           |                                                          |                          |     |    |      |    |    |    |     |    | 2  |   
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|                                                                  | Net loss                       |                                                          |                          | (8   | )% |      |    | (22 | )% |     |    | (9 | )%
|                                                                  |                                |                                                          |                          |      |    |      |    |     |    |     |    |   
|Cost of license revenues, as a percentage of
    license revenues |                                |                                                          | 6                        | %    |    |      | 4  | %   |    |     | 2  | % 
|Cost of service revenues, as a percentage of
    service revenues |                                |                                                          | 41                       | %    |    |      | 53 | %   |    |     | 56 | % 

Revenues

Our total revenues were $195.4 million in
2002, $200.1 million in 2001 and $156.6 million in
2000, representing a decrease of 2% from 2001 to 2002 and an
increase of 28% from 2000 to 2001. Our license revenues
decreased to $99.9 million in 2002 from $119.9 million in
2001 and $101.6 million in 2000, representing a decrease of
17% in 2002 from 2001 and an increase of 18% in 2001 from 2000.
The decrease in 2002 from 2001 was due to a decrease in the
number of licenses sold, which we believe was caused by weak
global economic conditions, principally reflecting reduced or
delayed information technology (IT) spending by our
customers. This decrease was partially offset by a slight
increase in the average transaction size. The increase in 2001
from 2000 was due primarily to an increase in the number of
licenses sold and the average transaction size, primarily
reflecting increased acceptance of our data integration products
and, to a lesser extent, our analytic application suites as well
as expansion of our direct sales organization and reseller
channels. Service revenues increased to $95.5 million in
2002 from $80.2 million in 2001 and $55.0 million in

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2000, representing growth of 19% in 2002 from
2001 and 46% in 2001 from 2000. These increases were primarily
due to an increase in maintenance revenues associated with
strong renewal maintenance. For 2003, we expect maintenance
revenue to remain strong based on our growing installed customer
base and we expect contributions from consulting and training
services to remain relatively consistent with 2002.


Our international revenues were
$50.3 million in 2002, $56.5 million in 2001 and
$31.8 million in 2000, representing a decrease of 11% in
2002 from 2001 and an increase of 78% in 2001 from 2000. The
decrease in 2002 from 2001 was due primarily to the weak
worldwide macroeconomic environment, particularly in Europe. The
increase in 2001 from 2000 was due primarily to our expansion
throughout Europe, Asia-Pacific and Japan with increased sales
being generated by direct sales, increased volume through
existing distributors and new distributors added during the
year. International revenues as a percentage of total revenues
were 26%, 28% and 20% for 2002, 2001 and 2000, respectively. See
Note 13 of Notes to Consolidated Financial Statements in
Item 8 for additional information about revenues in
geographic areas.

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 2003
will be highly dependent on our success in converting our sales
pipeline into license revenues from orders received and shipped
within the quarter. In particular, the general economic slowdown
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 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, it may harm our
business or results of operations. and Risk
Factors  We expect seasonal trends to cause our
quarterly revenues to fluctuate. In addition, our
future prospects will be directly affected by our ability to
successfully license our data integration products and our
analytic application suites. We recently released our new
business intelligence platform and new versions of our analytic
application suites and data integration products, and we
released our data warehouse modules in the fourth quarter of
2002. The degree of market acceptance for these products is
currently uncertain. If we are not able to successfully license
our products, our net revenues and operating results would be
adversely affected. See Risk Factors 
Because we sell a limited number of products, if these products
do not achieve broad market acceptance, our revenues will be
adversely affected and Risk
Factors  Changes in our product packaging may impact
market acceptance of our products or adversely affect our
results of operations.

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 
The expected fluctuation of our quarterly results could cause
our stock price to experience significant fluctuations or
declines.

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 $6.2 million
in 2002, $4.5 million in 2001 and $2.0 million in 2000
and was approximately 6% of license revenues in 2002, 4% in 2001
and 2% in 2000. The increase in absolute dollar amount in 2002
from 2001 and 2000 was due primarily to increases in our
percentage mix of royalty-bearing products. For 2003, we expect
the cost of license revenues as a percentage of license revenues
to remain relatively consistent with the 2002 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 software upgrades, telephone and on-line support services
and on-site visits. 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

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and customer locations. Because we believe that
providing a high level of support to customers is a strategic
advantage, we have invested significantly in personnel and
infrastructure. Cost of service revenues was $39.2 million
in 2002, $42.5 million in 2001 and $31.0 million in
2000, representing 41%, 53% and 56% of service revenues,
respectively. The decrease in absolute dollar amount in 2002
from 2001 was primarily due to a decrease in personnel costs.
The increase in absolute dollar amount in 2001 from 2000
reflected the hiring of additional service personnel in response
to an increased customer base and increased demand for
consulting services. For 2003, we expect our cost of service
revenues as a percentage of service revenues to be relatively
consistent with the 2002 level.


Operating Expenses

Research and
Development

Our research and development expenses consist
primarily of salaries and other personnel-related expenses
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 decreased to $45.6 million in 2002
from $46.3 million in 2001 and increased from
$26.5 million in 2000 and was approximately 23% of total
revenues in 2002, 23% in 2001 and 17% in 2000. The decrease in
absolute dollar amount in 2002 from 2001 was due primarily to a
slight decrease in research and development personnel costs. The
increase in absolute dollar amount in 2001 from 2000 was due
primarily to an increase in personnel costs for development of
future products and enhancement of existing products. 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 2003, we expect research and development
expense as a percentage of total revenues will remain at or
slightly below the 2002 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
decreased to $86.8 million in 2002 from $99.3 million
in 2001 and increased from $75.0 million in 2000 and was
approximately 45% of total revenues in 2002, 50% in 2001 and 48%
in 2000. The decrease in absolute dollar amount from 2001 to
2002 was due primarily to decreased sales and marketing
personnel costs and decreased commission expense. The increase
in absolute dollar amount in 2001 from 2000 reflects the hiring
of additional sales and marketing personnel in connection with
building our direct, reseller, distributor and OEM channels,
higher sales commissions associated with increased sales volume,
and increased spending associated with trade shows, user
conference and other marketing programs. For 2003, we expect
sales and marketing expense as a percentage of total revenues
will remain at or slightly below the 2002 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 to $20.3 million in 2002
from $19.6 million in 2001 and from $11.7 million in
2000, representing 10% of our total revenues in 2002 and 2001
and 7% of our total revenues in 2000. The increase in expenses
in each period in absolute dollar amounts was primarily due to
increased staffing in finance, human resources, legal,
information technology and administration to manage and support
our growth and increased infrastructure as well as increased
costs paid to outside professional service providers and
increased facilities costs. We expect that for 2003, our general
and administrative expenses as a percentage of total revenues
will remain at or slightly below our level for 2002.

Bad debt expense charged to operations was
$1.2 million in 2002, $0.5 million in 2001 and
$0.2 million in 2000, representing less than 1% of total
revenues in each of these years. In 2002, $1.0 million of
the charges to bad debt expense was associated with customers
that filed for bankruptcy during the year.

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Amortization
of Stock-Based Compensation

Amortization of stock-based compensation amounted
to $0.2 million in 2002, $1.0 million in 2001 and
$1.5 million in 2000. We expect to record amortization of
stock-based compensation of approximately $70,000 in 2003.

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 include core technology and patents. We
recorded goodwill and other intangible assets in connection with
the acquisitions of 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. Amortization of goodwill and other
intangible assets associated with our business combinations and
strategic alliance has been amortized on a straight-line basis
over their expected useful lives ranging from two years to three
years.

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 amounted to $1.1 million,
$27.4 million and $14.2 million for 2002, 2001 and 2000,
respectively. The decrease is due to the adoption of SFAS 142
effective January 1, 2002. For the intangible assets that
we will continue to amortize, we expect amortization expense to
be approximately $0.5 million for 2003. 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

In connection with our strategic alliance with
PwC and the acquisitions of Zimba and QRB Developers, we
recorded charges to operations of $2.2 million,
$5.1 million and $1.3 million, respectively, for
purchased in-process research and development in 2000. The
in-process technologies had not reached technological
feasibility and had no alternative uses. The value of the
purchased in-process research and development in each
transaction was computed using a discounted cash flow analysis
based on managements estimates of future revenues, cost of
revenues and operating expenses related to the products and
technologies acquired and determined by an independent third
party.

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 related to the consolidation of excess leased
facilities as a result of continued deterioration of the
commercial real estate market in these areas. These charges
represent adjustments to the original charges recorded in
September 2001, including the time period that the buildings are
expected to be vacant, expected sublease rates and expected
sublease terms. We estimated the additional costs for
restructuring charges using current market information and trend
analysis provided by an independent commercial real estate
brokerage firm retained by us.

Net cash payments for 2002 related to the
consolidation of excess facilities amounted to
$4.8 million. Actual future cash requirements may differ
from the restructuring liability balances as of
December 31, 2002 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, 2002,
$19.7 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.
If we

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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. 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 and Other, Net; Interest
Expense

Interest income and other, net represents
primarily interest income earned on our cash, cash equivalents,
investments and restricted cash. Interest income and other, net
was $6.4 million in 2002, $9.0 million in 2001 and
$4.3 million in 2000. The decrease in 2002 from 2001 was
primarily due to lower interest income earned on our cash, cash
equivalents, investments and restricted cash, partially offset
by foreign currency gains and losses on property and equipment
disposals. The increase in 2001 from 2000 was primarily due to
an increased average cash balance as a result of the completion
of our follow-on public offering of our common stock with net
proceeds of $191.0 million in October 2000. Interest
expense was $0.01 million in 2002 and 2001 and
$0.5 million in 2000. 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
$0.9 million in 2002, $1.3 million in 2001 and
$3.3 million in 2000 primarily due to income taxes
currently payable on income generated in non-U.S. jurisdictions.
The expected tax benefit derived by applying the federal
statutory rate to our operating loss in fiscal 2002 differed
from the income tax provision recorded primarily due to an
increase in our valuation allowance for deferred tax assets and
non-deductible amortization of deferred stock compensation. The
expected tax benefit derived by applying the federal statutory
rate to our operating losses in fiscal 2001 and 2000 differed
from the income tax provision recorded primarily due to
non-deductible merger related expenses, alternative minimum tax
expense and an increase in our valuation allowance for deferred
tax assets.

As of December 31, 2002 and 2001, we had
deferred tax assets of approximately $59.0 million and
$50.0 million, respectively, which have been fully offset
by a valuation allowance. Approximately $38.2 million of
the valuation allowance for deferred taxes was attributable to
stock option deductions, the benefit of which will be credited
to equity when realized. SFAS 109 provides for the recognition
of deferred tax assets if realization of such assets is more
likely than not. Based upon the weight of available evidence,
which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have
provided a full valuation allowance against our net deferred tax
assets.

As of December 31, 2002, we had federal and
state net operating loss carryforwards of approximately
$67.6 million and $6.9 million, respectively. We also
had federal and state research and development tax credit
carryforwards of approximately $4.2 million and
$4.1 million, respectively, and foreign tax credits of
approximately $2.0 million. Our net operating loss
carryforwards and tax credit carryforwards will expire at
various times beginning in 2009, if not utilized.

Recent Accounting Pronouncements

In July 2002, the FASB issued Statement of
Financial Accounting Standards No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities which
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 94-3 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 is
not expected to have a material effect on our financial position
or results of operations.

In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting
for Stock-Based Compensation  Transition and
Disclosure. SFAS 148 amends FASB Statement
No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary

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change to the fair value based method of
accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the
method used on reported results. The transition guidance and
annual disclosure provisions of SFAS 148 are effective for
fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning
after December 15, 2002. As permitted under SFAS 148,
we adopted only the disclosure provisions of that accounting
standard in the Consolidated Financial Statements in
Item 8. The adoption of SFAS 148 is not expected to
have a material effect on our financial position and 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. We have adopted
the disclosure requirements of FIN 45 as of
December 31, 2002. In addition, we are required to adopt
the initial recognition and measurement of the fair value of the
obligation undertaken in issuing the guarantee on a prospective
basis to guarantees issued or modified after December 31,
2002. We do not believe FIN 45 will have a material effect
on our financial position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an interpretation of
Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements.
FIN 46 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. We currently have no
contractual relationship or other business relationship with a
VIE and do not have any such plans and therefore the adoption
will not have an effect on our consolidated financial position
or results of operations.

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, 2002, we had
$235.9 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.

Our operating activities resulted in net cash
inflows of $26.2 million for 2002. The operating cash
inflows were primarily due to increases in deferred revenue and
accrued liabilities. The uses of cash were primarily due to the
net loss (offset by non-cash charges for depreciation and
amortization, restructuring charges, sales and return allowances
and amortization of other intangible assets) and increases in
accounts receivable and prepaid expenses and other current
assets and a decrease in accrued compensation and related
expenses. Our operating activities resulted in net cash inflows
of $15.9 million for 2001 and $15.6 million for 2000. The
sources of cash in 2001 resulted principally from increases in
accrued liabilities, accrued compensation and related expenses,
accrued restructuring charges and deferred revenue. The sources
of cash in 2000 resulted principally from increases in accrued
liabilities, accrued compensation and related expenses and
deferred revenue. The uses of cash in 2001 resulted principally
from increases in prepaid expenses and other current assets and
were partially offset by the net loss (offset by non-cash
charges for depreciation and amortization and amortization of
goodwill and other intangible assets). The uses of cash in 2000
resulted principally from increases in accounts receivable,
prepaid expenses and other current assets, and other assets and
a decrease in accounts payable, and were partially offset by the
net loss (offset by non-cash charges for sales and return
allowances, amortization of goodwill and other intangible
assets, and purchased in-process research and development).

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Investing activities used cash of
$41.9 million in 2002, $113.4 million in 2001 and
$57.5 million in 2000. Of the $41.9 million used in
investing activities in 2002, $230.1 million was associated
with purchases of investments and $6.9 million associated
with the purchase of property and equipment, partially offset by
$195.1 million generated from the sale and maturities of
investments. Short-term investments represent investments in
high credit quality corporate notes and bonds, municipals and
U.S. Government bonds with durations of one to two years in
accordance with our investment policy. Of the
$113.4 million used in investing activities in 2001,
$264.3 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. Of the
$57.5 million used in investing activities in 2000,
$20.3 million was associated with requirements for
restricted cash, $6.3 million was primarily associated with
the acquisition of Delphi and QRB and $30.9 million was
used for the purchase of property and equipment.

Financing activities provided cash of
$6.1 million in 2002, consisting principally of proceeds
from the issuance of common stock of $7.9 million,
partially 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. Cash provided by financing
activities was $201.7 million in 2000, primarily from the
net proceeds of our secondary offering of $191.0 million as
well as proceeds from the issuance of common stock, partially
offset by final payments on notes payable to stockholders
associated with the acquisition of Influence in December 1999.

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 $16.9 million, net of anticipated sublease
income, for operating lease commitments for those facilities
that are included in restructuring charges. See Note 8 to
the Consolidated Financial Statements in Item 8.

Our future minimum lease payments as of
December 31, 2002 under noncancelable operating leases with
original terms in excess of one year are summarized as follows:

|                             |      |                |         |        | 
|---------------------------- | ---- | -------------- | ------- | ------ | 
|                             |      | Operating     
|                             |      | Leases        
|                             |      |               
|                             |      | (in thousands)
|Years ending December 31:    |      |                |         |       
|                             | 2003 |                | $       | 17,334 | 
|                             | 2004 |                |         | 17,897 | 
|                             | 2005 |                |         | 18,062 | 
|                             | 2006 |                |         | 17,969 | 
|                             | 2007 |                |         | 16,774 | 
|Thereafter                   |      |                | 93,847  |       
|                             |      |                |         |       
|Total minimum lease payments |      | $              | 181,883 |       
|                             |      |                |         |       

During 2002, we signed sublease agreements for
leased office space in Palo Alto, California and Carrollton,
Texas. Under the sublease agreements, we will receive sublease
income of $0.6 million, $0.6 million,
$0.5 million and $39,000 for the years ended
December 31, 2003, 2004, 2005 and 2006, respectively.

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

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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 covenants are met. These certificates of
deposit are classified as long-term restricted cash on the
Consolidated Balance Sheet.


Deferred revenue includes deferred license,
maintenance, consulting and training revenue. Deferred license
revenue amounts do not include items which are both deferred and
unbilled. 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.

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 will be made from
time to time in the open market and will be funded from
available working capital. The number of shares to be purchased
and the timing of purchases will be 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 352,234 shares of our common
stock for $1.8 million in 2002. These shares were retired
and reclassified as authorized and unissued shares of common
stock.

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 twelve 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.

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.

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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. The risks described below are not
the only ones we face. Additional risks not presently known to
us or that we currently believe are immaterial may also impair
our business operations. Our business could be harmed by any of
these risks. The trading price of our common stock could decline
due to any of these risks, and investors may lose all or part of
their investment. This section should be read in conjunction
with the audited Consolidated Financial Statements and Notes
thereto, and Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in this
Form 10-K.

The expected fluctuation of our quarterly
results could cause our stock price to experience significant
fluctuations or declines.

Our quarterly operating results have fluctuated
in the past and are likely to do so in the future. These
fluctuations could cause our stock price to also significantly
fluctuate or experience declines. Some of the factors that could
cause our operating results to fluctuate include:



| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the size and timing of customer orders, which can
    be affected by customer order deferrals in anticipation of
    future new product introductions or product enhancements and
    customer budgeting and purchasing cycles;
|
| |  | the length and variability of our sales cycle for
    our products, particularly our analytic application suites and
    our new business intelligence platform;                                                               
|
| |  | general economic and political conditions, which
    may affect our customers capital investment and
    information technology spending levels;                                                                              
|
| |  | market acceptance of our products;                                                                                                                                                                                             
|
| |  | the mix of our products and services sold and the
    mix of distribution channels utilized;                                                                                                                                   
|
| |  | announcement, introduction or enhancement of our
    products or our competitors products and changes in our or
    our competitors pricing policies;                                                                        
|
| |  | our ability to develop, introduce and market new
    products on a timely basis;                                                                                                                                               
|
| |  | our success with our sales and marketing programs;                                                                                                                                                                             
|
| |  | technological changes in computer systems and
    environments; and                                                                                                                                                            
|
| |  | increased competition from partnerships formed by
    our current and former partners and our competitors.                                                                                                                     

Our product revenues are not predictable with any
significant degree of certainty. Historically, we have
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. If customers cancel or delay orders it can have
a material adverse impact on our revenues and results of
operations for the quarter. To the extent any such cancellations
or delays are for large orders, this impact will be greater. To
the extent that the average size of our orders increases,
customer cancellations or delays of orders will more likely harm
our revenues and results of operations.

Our quarterly product license revenues are
difficult to forecast and are vulnerable to short-term
fluctuations in customer demand. Because we do not have a
substantial backlog of orders, our license revenues generally
reflect orders shipped in the same quarter they are received,
and certain license revenues are dependent on cash collections
from specific international customers and specific resellers.
Our product license revenues are also difficult to forecast
because the market for our products is rapidly evolving, and our
sales cycles, which may last many months, vary substantially
from customer to customer and vary in general due to a number of
factors, some of which we have little or no control over, such
as (1) size and timing of individual license transactions,
the closing of which tends to be delayed by customers until the
end of a fiscal quarter as a

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negotiating tactic, (2) potential for delay
or deferral of customer implementations of our software,
(3) changes in customer budgets, (4) seasonality of
technology purchases, (5) direct sales force effort to meet
or exceed quarterly and year-end quotas, (6) lower European
sales during the summer months, and (7) other general
economic and political conditions. By comparison, our short-term
expense levels are relatively fixed and based in part on our
expectations of future revenues.


The difficulty we have in predicting our
quarterly revenue means revenue shortfalls may occur at some
time, and our inability to adequately reduce short-term expenses
means such shortfalls will affect not only our revenue, but also
our overall business, results of operations and financial
condition. Due to the uncertainty surrounding our revenues, we
believe that quarter-to-quarter comparisons of our operating
results are not a good indication of our future performance.
Therefore, you should not take our quarterly results to be
indicative of our future performance. Moreover, our future
operating results may fall below the expectations of stock
analysts and investors. If this happens, the price of our common
stock may fall.

General economic or political conditions
may reduce our revenues and harm our business.

As our business has grown, we have become
increasingly subject to the risks arising from adverse changes
in domestic and global economic and political conditions.
Because of the economic slowdown in the United States and in
Europe, and the terrorist events of September 11, 2001,
companies in many industries are delaying or reducing technology
purchases. We experienced the impact of the September 11,
2001 events in the fourth quarter of 2001 and the economic
slowdown in 2001 and 2002 with reductions in capital
expenditures by our end-user customers, longer sales cycles,
deferral or delay of purchase commitments for our products and
increased price competition. In particular, these factors have
negatively impacted the rate of market acceptance of our
analytic applications. As a result, if the current economic
conditions in the U.S. and Europe continue or worsen, if a wider
or global economic slowdown occurs, or if there is an escalation
in regional or global conflicts, we may fall short of our
revenue expectations for the first quarter of 2003 or for the
entire year. These conditions would negatively affect our
business and results of operations. In addition, weakness in the
end-user market could negatively affect the cash flow of our
reseller customers who could, in turn, delay paying their
obligations to us. This would increase our credit risk exposure,
which would harm our financial condition.

Changes in our product packaging may impact
market acceptance of our products or adversely affect our
results of operations.

We recently unbundled our analytic application
suites in order to create smaller, modularized components, which
may be licensed to customers on an individual basis. The success
of this new product packaging initiative is subject to
significant risks, including the following:



| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customers may be confused by the change in the
    product packaging and may delay or defer purchases;                                                                                       
|
| |  | our sales and marketing efforts may not be
    successful;                                                                                                                                   
|
| |  | sales of the new product packaging may result in
    lower transaction sizes, and if there is not a corresponding
    increase in unit volume, our revenues and margins may decrease;
    and
|
| |  | we may experience difficulties in managing the
    modularization of the products in our research and development
    department or order management processes.                              

To the extent that we encounter or are unable to
successfully manage any of the risks outlined above, our
revenues and the results of our business operations may be
adversely affected.

The lengthy sales cycle and implementation
process of our products makes our revenues susceptible to
fluctuations.

Our sales cycle can be lengthy because the
expense, complexity, broad functionality and company-wide
deployment of our products, particularly our analytic
application suites, typically require executive-level approval
from our customers before they can purchase our products. In
addition, to successfully sell our

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products, we frequently must educate our
potential customers about the full benefits of our products,
which also can require significant time. Due to these factors,
the sales cycle associated with the purchase of our products is
subject to a number of significant risks over which we have
little or no control, including:




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

Further, our sales cycle may lengthen as we
continue to focus our sales efforts on large corporations. The
implementation of our products, particularly our analytic
application suites, can be a complex and time-consuming process,
the length and cost of which may be difficult to predict. If our
sales cycle and implementation process lengthens unexpectedly,
it could adversely affect the timing of our revenues or increase
costs, either of which may independently cause fluctuations in
our revenue and results of operations.

If we are unable to accurately forecast
revenues, it may harm our business or results of
operations.

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 plan or budget and
thereby adversely affect our business, financial conditions or
results of operations. In particular, the general economic
slowdown 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 could continue to
reduce the rate of conversion of the sales pipeline into license
revenue in the future.

If the market in which we sell our products
and services does not meet our expectations, it will adversely
affect our revenues.

The market for software solutions, including
enterprise analytic software, 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. If this market does not meet our forecasts at the rate
we anticipate, we will not be able to sell as much of our
software products and services, and our business, results of
operations and financial condition will be adversely affected.
One of the reasons this market might not grow as we anticipate
is that many companies are not yet fully aware of the benefits
of using these software solutions to help make business
decisions or the benefits of our specific product solutions. As
a result, we believe that only a limited number of large
companies have deployed these software solutions. Although we
have devoted and intend to continue to devote significant
resources promoting market awareness of the benefits of these
solutions, our efforts may be unsuccessful or insufficient.

The higher fees for, and potentially longer sales
cycle of, our analytic application suites could be especially
affected by the global economic slowdown, where larger
transaction sizes receive closer scrutiny by our potential
customers.

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Because we sell a limited number of
products, if these products do not achieve broad market
acceptance, our revenues will 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 platform and related
services. We expect revenues derived from these products and
related services to comprise substantially all of our revenues
for the foreseeable future. Even if the emerging software market
in which these products are sold grows substantially, if any of
these products do not achieve market acceptance, our revenues
could decrease. In particular, we recently released our new
business intelligence platform and new versions of our analytic
application suites, and the degree of market acceptance for
these products is currently uncertain. Market acceptance of our
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.

Recent terrorist activities and resulting
military and other actions could adversely affect our
business.

The terrorist attacks on September 11, 2001,
disrupted commerce throughout the world. In response to attacks
and other threats, the United States is actively contemplating
and pursuing support for further military force to pursue those
behind these attacks and is initiating broader actions against
global terrorism. The continued threat of terrorism throughout
the world, the escalation of military action in Afghanistan and,
potentially, Iraq, and heightened security measures in response
to such threats may continue to cause significant disruption to
commerce throughout the world. To the extent that such
disruptions result in instability of capital markets, the
imposition of further import and export restrictions, reductions
in capital expenditures or spending on information technology,
longer sales cycles, deferral or delay of customer orders,
reductions of engineering resources, or an inability to
effectively market our products, our business and results of
operations could be materially and adversely affected.

Difficulties we may encounter managing our
business could harm our results of operations.

In the past, we have experienced a period of
rapid and substantial growth that has placed a strain on our
administrative and operational infrastructure and, if such
growth resumes, will continue to place a strain on our
administrative and operational infrastructure. If such growth
resumes and we are unable to manage this growth effectively, our
business, results of operations or financial condition may be
significantly harmed. Our ability to manage our operations and
growth effectively requires us to continue to improve our sales,
operational, financial and management controls, reporting
systems and procedures and hiring programs.

We may not be able to successfully implement
improvements to our sales, customer support, management
information and control systems in an efficient or timely
manner, and we may discover deficiencies in existing systems and
controls. We are continually implementing improvements to our
control systems and have licensed technology from a third party
to accomplish this objective. We may experience difficulties in
the implementation process or in connection with the third-party
software, which could divert our resources, including the
attention of management.

The loss of key personnel or the inability
to attract and retain additional personnel could harm our
business, results of operations and financial
condition.

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. Specifically, Diaz
Nesamoney, one of our founders, resigned as a director and
President and Chief Operating Officer in July 2002, and Kyle
Bowker resigned as Executive Vice President, Worldwide Field
Operations, in July 2002. We hired Clive Harrison in August 2002
as our new Executive Vice President, Worldwide Field Operations.
These changes and the process of integrating Mr. Harrison
into the current management team may detract from our sales
efforts and operations and have an adverse effect on our
business, results of operations and financial condition.

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We expect seasonal trends to cause our
quarterly revenues to fluctuate.

In recent years, there has been a relatively
greater demand for our products in the fourth quarter than in
each of the first three quarters of the year, particularly the
first quarter, which often experiences less growth than other
quarters. As a result, we historically have experienced
relatively higher bookings in the fourth quarter and relatively
lighter bookings in the first quarter. We believe that these
fluctuations are caused by customer buying patterns (often
influenced by year-end budgetary pressures) and the efforts of
our direct sales force to meet or exceed year-end sales quotas.
In addition, European sales tend to be relatively lower during
the summer months than during other periods. Due to the economic
slowdown beginning in 2001, our 2001 and 2002 quarterly revenues
may not be indicative of seasonal trends that were experienced
in prior years. When the global economy recovers, we expect that
seasonal trends may continue in the foreseeable future.

Our stock price fluctuates as a result of
factors other than our operating results.

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, including our operating
results and the following:



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

In addition, stock prices for many companies in
the technology and emerging growth sectors have experienced wide
fluctuations that have often been unrelated to the operating
performance of such companies. 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 are named as defendants in a purported class action
complaint, which has been filed on behalf of certain persons who
purchased our common stock between April 29, 1999 and
December 6, 2000. The complaint seeks unspecified damages
from alleged violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. See Part II,
Item 1. Legal Proceedings. Such factors and
fluctuations, as well as general economic, political and market
conditions, may cause the market price of our common stock to
decline, which may impact our operations.

We rely on third-party technologies, and if
we are unable to use or integrate these technologies, our
product and service development may be delayed.

We intend to continue to license technologies
that are developed and maintained by third parties, including
applications used in our research and development activities and
technologies, which are integrated into our products and
services. We rely on these third parties abilities to
enhance their current technologies and to respond to emerging
industry standards and other technological changes. If we cannot
obtain, integrate or continue to license any of these
technologies, we may experience a delay in product and service
development until equivalent technology can be identified,
licensed and integrated. These technologies may not continue to
be available to us on commercially reasonable terms or at all.
Although we believe there are other sources for these
technologies, any significant interruption in the supply of
these technologies could adversely impact our business
operations unless and until we can secure another source or
develop our own equivalent technology. We may not be able to
successfully integrate any licensed technology into our products

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or services, which would harm our business and
operating results. Third-party licenses also expose us to
increased risks that include:




| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | risks of product malfunction after new technology
    is integrated;                                                            
|
| |  | the diversion of resources from the development
    of our own proprietary technology; and                                      
|
| |  | our inability to generate revenue from new
    technology sufficient to offset associated acquisition and
    maintenance costs.

Our products interoperate with a variety of
third-party technologies.

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
provide us with access to these technologies so that we can
properly test and develop our products designed 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. We may not be able to
continue to ensure that our products will interoperate with or
provide access to these third-party developed technologies
developed in the future, which may harm our business and
operating results.

The market in which we sell our products is
highly competitive.

The market for our products is highly
competitive, quickly evolving and subject to rapidly changing
technology. Many of our competitors or potential 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. Competitive
pressures could reduce our market share or require us to reduce
our prices, either of which could harm our business, results of
operations or financial condition. We compete principally
against providers of data warehousing and analytic applications.
Such competitors include Ascential Software Corporation,
Broadbase Software, Inc., E.piphany Inc. and Sagent Technology,
Inc.

In addition, we compete against business
intelligence vendors, database vendors and enterprise
application vendors that currently offer, or may develop,
products with functionalities that compete with our solutions,
such as Brio Technology, Inc., Business Objects, Cognos Inc.,
Hyperion Solutions Corporation and Microstrategy, Inc. 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.

If we do not maintain and strengthen our
relationships with our strategic partners, our ability to
generate revenue and control implementation costs will be
adversely affected.

We believe that our ability to increase the sales
of our products and our future success will depend in part upon
maintaining and strengthening successful relationships with our
current or 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

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products in the United States and
internationally. We also rely on relationships with strategic
technology partners, such as enterprise resource planning
providers and enterprise application providers, for the
promotion and implementation of our solutions.


In particular, our ability to market our products
depends substantially on our relationships with significant
strategic partners, including Accenture, Deloitte Consulting,
Hewlett-Packard, i2 Technologies, IBM, KPMG Consulting,
Mitsubishi Electric, PeopleSoft, PwC Consulting, Siebel Systems
and Sybase. In addition, our strategic partners may offer
products of 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.

We may not be able to maintain our strategic
partnerships or attract sufficient additional strategic partners
who are able to market our products effectively, who are
qualified to provide timely and cost-effective customer support
and service or who have the technical expertise and personnel
resources necessary to implement our products for our customers.
In particular, if our strategic partners do not devote 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.

Our distribution channels may create
additional risks.

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.
We have generally avoided exclusive relationships with resellers
and distributors of our products. Our discount policies, sales
commission structure and reseller licensing programs are
intended to support each distribution channel with a minimum
level of channel conflicts. Any failure to minimize potential
channel conflicts could materially and adversely affect our
business, operating results and financial condition.

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, and as a result, harm our business, results of
operations or financial condition. 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. The limitation
of liability provisions contained in our license agreements,
however, 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. If a claimant successfully brings
a product liability claim against us, it would likely
significantly harm our business, results of operations or
financial condition.

Technological advances and evolving
industry standards could adversely impact our future product
sales.

The market for our products is characterized by
continuing technological development, evolving industry
standards and changing customer requirements. 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

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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 the PowerMart product 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 our products and purchase those
of our competitors instead. Failure to develop and introduce new
products, or enhancements to existing products, in a timely
manner in response to changing market conditions or customer
requirements, will materially and adversely affect our business,
results of operations and financial condition.


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
history of losses, and we may not be able to achieve profitable
operations.

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. We have incurred significant net losses
since our inception, and we may not consistently achieve
profitability.

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

Our international operations face numerous risks.
Our products must be localized  customized to meet
local user needs  in order to be sold in particular
foreign countries. Developing local versions of our products for
foreign markets is difficult 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 and training an international staff. We must also be
able to enter into strategic relationships with companies in
international markets. If we are not able to maintain successful
strategic relationships internationally or recruit additional
companies to enter into strategic relationships, our future
success in these international markets could be limited.

Our international business is subject to a number
of risks, including the following:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | greater difficulty in staffing and managing
    foreign operations;  
|
| |  | sales seasonality;                                                   
|
| |  | greater risk of uncollectible accounts;                              
|
| |  | longer collection cycles;                                            
|
| |  | greater difficulty in protecting intellectual
    property;          
|
| |  | potential unexpected changes in regulatory
    practices and tariffs;
|
| |  | potential unexpected changes in tax laws and
    treaties;           

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| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of fluctuating 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.                                                                                                                

We may encounter difficulties predicting the
extent of the future impact of these conditions. 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.

We may expand our international operations in the
future, and as a result, we may face significant additional
risks. 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, our business could be
harmed.

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 are currently investigating whether
one or more former employees, recruited and hired by a
competitor, may have 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 the
competitor in gaining a competitive advantage against us.

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: (i) there is a bankruptcy proceeding by
or against us; (ii) we cease to do business; or
(iii) we fail to meet our support obligations. Although our
agreements with these third parties limit the scope of rights to
use of the source code, we may be unable to effectively control
such third-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. See Part II, Item 4, Legal
Proceedings. 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.

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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.                                                                      

Our business could suffer as a result of
our strategic acquisitions and investments.

In December 1999, we acquired Influence, a
developer of analytic applications. In February 2000, we
acquired Delphi, a distributor of our products in Switzerland.
In August 2000, we acquired Zimba, a provider of applications
that enable mobile professionals to have real-time access to
enterprise and external information through wireless devices,
voice recognition technologies and the Internet. In April 2000,
we acquired certain PwC intellectual property rights and
personnel. In November 2000, we acquired certain intellectual
property from QRB Developers. In January 2001, we acquired
syn-T-sys, a distributor of our products in the Netherlands and
Belgium. In June 2001, we acquired Informatica Partners, a
distributor of our products in France. Our attempts to
effectively integrate these companies, their intellectual
property, or their personnel, have placed an additional burden
on our management and infrastructure. These acquisitions will
subject us to a number of risks, including:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | the loss of key personnel, customers and business
    relationships;                                                                   
|
| |  | difficulties associated with assimilating and
    integrating the technology, new personnel and operations of the
    acquired company;
|
| |  | the potential disruption of our ongoing business;                                                                                      
|
| |  | the expense associated with maintenance of
    uniform standards, controls, procedures, employees and clients;                         
|
| |  | the risk of product malfunction after new
    technology is integrated;                                                                
|
| |  | the diversion of resources from the development
    of our own proprietary technology;                                                 
|
| |  | our inability to generate revenue from new
    technology sufficient to offset associated acquisition and
    maintenance costs; and   
|
| |  | the risk of long-lived asset impairment
    write-offs.                                                                                

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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 acquisitions. To the extent
that we are unable to successfully manage these risks, our
business, operating results or financial condition may be
negatively impacted.

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.
Future acquisitions could result in the issuance of dilutive
equity securities, the incurrence of debt or contingent
liabilities. There can be no assurance that any strategic
acquisition or investment will succeed. Any future acquisition
or investment could harm our business, financial condition and
results of operation.

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.

Our certificate of incorporation and bylaws
contain provisions that could discourage a
takeover.

Our basic corporate documents and Delaware law
contain provisions that might enable our management to resist a
takeover. These provisions 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 you and other
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 the common stock.

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 in turn hurt 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.

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

As of December 31, 2002, the average rate of
return on our investments was 2%. A hypothetical increase or
decrease in market interest rates by 10% from the market
interest rates at December 31, 2002 would not cause the
fair value of our cash and cash equivalents and investments to
change by a material amount. 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 in the United States as well as
Belgium, Canada, France, Germany, the Netherlands, Switzerland
and the United Kingdom. We also have relationships with
distributors in various 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 |  |      | 40 | 
|Consolidated Balance Sheets                           |  |      | 41 | 
|Consolidated Statements of Operations                 |  |      | 42 | 
|Consolidated Statements of Stockholders
    Equity   |  |      | 43 | 
|Consolidated Statements of Cash Flows                 |  |      | 44 | 
|Notes to Consolidated Financial Statements            |  |      | 45 | 

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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, 2002 and 2001, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2002. 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, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002, 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.



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

Palo Alto, California

January 20, 2003


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INFORMATICA CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |         |         |         | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                        |                                                                                                                                                                                                    |                     
|                                                        |                                                                                                                                                                                                    | December 31,        
|                                                        |                                                                                                                                                                                                    |                     
|                                                        |                                                                                                                                                                                                    | 2002                 |                                            | 2001   
|                                                        |                                                                                                                                                                                                    |                      |                                            |        
|ASSETS                                                 
|Current assets:                                         |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        | Cash and cash equivalents                                                                                                                                                                          |                      | $                                          | 122,490 |         |         | $      | 131,264 |        
|                                                        | Short-term investments                                                                                                                                                                             |                      |                                            | 113,385 |         |         |        | 77,955  |        
|                                                        | Accounts receivable, net of allowances of $1,349
    and $2,295 in 2002 and 2001, respectively                                                                                                     |                      |                                            | 29,982  |         |         |        | 29,131  |        
|                                                        | Prepaid expenses and other current assets                                                                                                                                                          |                      |                                            | 8,680   |         |         |        | 7,061   |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    | Total current assets |                                            |         | 274,537 |         |        |         | 245,411 |        
|Restricted cash                                         |                                                                                                                                                                                                    |                      | 12,166                                     |         |         |         | 12,166 |        
|Property and equipment, net                             |                                                                                                                                                                                                    |                      | 47,370                                     |         |         |         | 53,180 |        
|Goodwill, net                                           |                                                                                                                                                                                                    |                      | 30,274                                     |         |         |         | 29,564 |        
|Intangible assets, net                                  |                                                                                                                                                                                                    |                      | 517                                        |         |         |         | 1,657  |        
|Other assets                                            |                                                                                                                                                                                                    |                      | 330                                        |         |         |         | 925    |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total assets                               |         | $       | 365,194 |        |         | $       | 342,903 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY               
|Current liabilities:                                    |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        | Accounts payable                                                                                                                                                                                   |                      | $                                          | 2,269   |         |         | $      | 2,934   |        
|                                                        | Accrued liabilities                                                                                                                                                                                |                      |                                            | 24,384  |         |         |        | 14,953  |        
|                                                        | Accrued compensation and related expenses                                                                                                                                                          |                      |                                            | 12,666  |         |         |        | 15,848  |        
|                                                        | Income taxes payable                                                                                                                                                                               |                      |                                            | 2,064   |         |         |        | 2,874   |        
|                                                        | Accrued restructuring charges                                                                                                                                                                      |                      |                                            | 4,812   |         |         |        | 4,136   |        
|                                                        | Deferred revenue                                                                                                                                                                                   |                      |                                            | 51,702  |         |         |        | 36,554  |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total current liabilities                  |         |         | 97,897  |        |         |         | 77,299  | 
|Accrued restructuring charges, less current
    portion |                                                                                                                                                                                                    |                      | 14,894                                     |         |         |         | 5,196  |        
|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; 80,749,548 and 78,563,288 shares issued and
    outstanding at December 31, 2002 and 2001, respectively                         |                      |                                            | 348,631 |         |         |        | 342,335 |        
|                                                        | Deferred stock-based compensation                                                                                                                                                                  |                      |                                            | (74     | )       |         |        | (299    | )      
|                                                        | Accumulated deficit                                                                                                                                                                                |                      |                                            | (97,994 | )       |         |        | (82,380 | )      
|                                                        | Accumulated other comprehensive income                                                                                                                                                             |                      |                                            | 1,840   |         |         |        | 752     |        
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total stockholders equity                 |         |         | 252,403 |        |         |         | 260,408 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        
|                                                        |                                                                                                                                                                                                    |                      | Total liabilities and stockholders equity |         | $       | 365,194 |        |         | $       | 342,903 | 
|                                                        |                                                                                                                                                                                                    |                      |                                            |         |         |         |        |        

See accompanying notes to consolidated financial
statements.

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INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(in thousands, except per share
data)


|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                  |                                                          |                         
|                                                  |                                                          | Year Ended December 31, 
|                                                  |                                                          |                         
|                                                  |                                                          | 2002                     |         | 2001   |         | 2000
|                                                  |                                                          |                          |         |        |         |     
|Revenues:                                         |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  | License                                                  |                          | $       | 99,943 |         |      | $       | 119,937 |         |   | $       | 101,649 |        
|                                                  | Service                                                  |                          |         | 95,498 |         |      |         | 80,208  |         |   |         | 54,953  |        
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  |                                                          | Total revenues           |         |        | 195,441 |      |         |         | 200,145 |   |         |         | 156,602 | 
|Cost of revenues:                                 |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  | License                                                  |                          |         | 6,185  |         |      |         | 4,500   |         |   |         | 2,034   |        
|                                                  | Service                                                  |                          |         | 39,246 |         |      |         | 42,539  |         |   |         | 31,009  |        
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  |                                                          | Total cost of revenues   |         |        | 45,431  |      |         |         | 47,039  |   |         |         | 33,043  | 
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Gross profit                                      |                                                          |                          | 150,010 |        |         |      | 153,106 |         |         |   | 123,559 |        
|Operating expenses:                               |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  | Research and development                                 |                          |         | 45,631 |         |      |         | 46,271  |         |   |         | 26,493  |        
|                                                  | Sales and marketing                                      |                          |         | 86,760 |         |      |         | 99,334  |         |   |         | 75,034  |        
|                                                  | General and administrative                               |                          |         | 20,284 |         |      |         | 19,629  |         |   |         | 11,726  |        
|                                                  | Amortization of stock-based compensation                 |                          |         | 221    |         |      |         | 1,036   |         |   |         | 1,514   |        
|                                                  | Amortization of goodwill and other intangible
    assets |                          |         | 1,140  |         |      |         | 27,376  |         |   |         | 14,163  |        
|                                                  | Purchased in-process research and development            |                          |         |       |         |      |         |        |         |   |         | 8,648   |        
|                                                  | Restructuring charges                                    |                          |         | 17,030 |         |      |         | 12,096  |         |   |         |        |        
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  |                                                          | Total operating expenses |         |        | 171,066 |      |         |         | 205,742 |   |         |         | 137,578 | 
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Loss from operations                              |                                                          |                          | (21,056 | )      |         |      | (52,636 | )       |         |   | (14,019 | )      
|Interest income and other, net                    |                                                          |                          | 6,420   |        |         |      | 8,971   |         |         |   | 4,306   |        
|Interest expense                                  |                                                          |                          | (57     | )      |         |      | (11     | )       |         |   | (458    | )      
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Loss before income taxes                          |                                                          |                          | (14,693 | )      |         |      | (43,676 | )       |         |   | (10,171 | )      
|Income tax provision                              |                                                          |                          | 921     |        |         |      | 1,304   |         |         |   | 3,345   |        
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Net loss                                          |                                                          | $                        | (15,614 | )      |         | $    | (44,980 | )       |         | $ | (13,516 | )      
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Net loss per share:                               |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  | Basic and diluted                                        |                          | $       | (0.20  | )       |      | $       | (0.58   | )       |   | $       | (0.19   | )      
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|Shares used in calculation of net loss per share: |                                                          |                          |         |        |         |      |         |         |         |   |         |        
|                                                  | Basic and diluted                                        |                          |         | 79,753 |         |      |         | 77,599  |         |   |         | 69,758  |        
|                                                  |                                                          |                          |         |        |         |      |         |         |         |   |         |        

See accompanying notes to consolidated financial
statements.

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INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(in thousands, except share data)


|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   |         |         |  
|------------------------------------------------------------------------------------------------ | --------------------------------------- | ------------ | ---------- | ---------- |  | ------------ | ------- | ------------ |  | ------------- | --- | ------------- |  | ------ | ------ | - |  | - | ------- | ------- | - | - | ----- | --- |  | - | ------- | ------- | -
|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     | Accumulated   |  |       
|                                                                                                 |                                         |              |            | Notes      |  |              |         |              |  | Other         |     |              
|                                                                                                 |                                         | Common Stock |            | Receivable |  | Deferred     |         |              |  | Comprehensive |     | Total        
|                                                                                                 |                                         |              |            | From       |  | Stock-Based  |         | Accumulated  |  | Income        |     | Stockholders
|                                                                                                 |                                         | Shares       |            | Amount     |  | Stockholders |         | Compensation |  | Deficit       |     | (Loss)        |  | Equity
|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     |               |  |       
|Balances at December 31, 1999                                                                    |                                         |              | 63,997,236 |            |  | $            | 67,020  |              |  | $             | (40 | )             |  | $      | (2,888 | ) |  | $ | (23,884 | )       |   | $ | (84   | )   |  | $ | 40,124  |        
|Components of comprehensive loss:                                                                |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   |         |        
|                                                                                                 | Net loss                                |              |            |           |  |              |         |             |  |               |     |              |  |        |        |  |  |   |         | (13,516 | ) |   |       |    |  |   |         | (13,516 | )
|                                                                                                 | Foreign currency translation adjustment |              |            |           |  |              |         |             |  |               |     |              |  |        |        |  |  |   |         |        |   |   |       | 386 |  |   |         | 386     |  
|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   |         |        
|Comprehensive loss                                                                               |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   | (13,130 | )      
|Issuance of common stock in connection with
    secondary public offering, net of offering costs |                                         |              | 4,750,000  |            |  |              | 190,961 |              |  |               |    |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | 190,961 |        
|Issuance of common stock in connection with
    acquisitions                                     |                                         |              | 1,325,820  |            |  |              | 56,508  |              |  |               |    |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | 56,508  |        
|Repurchase of common stock                                                                       |                                         |              | (1,600     | )          |  |              | (3      | )            |  |               |    |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | (3      | )      
|Common stock options exercised                                                                   |                                         |              | 4,549,257  |            |  |              | 10,575  |              |  |               |    |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | 10,575  |        
|Common stock issued under employee stock purchase
    plan                                       |                                         |              | 967,472    |            |  |              | 3,908   |              |  |               |    |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | 3,908   |        
|Repayment of notes receivable from stockholders                                                  |                                         |              |           |            |  |              |        |              |  |               | 40  |               |  |        |       |   |  |   |        |         |   |   |      |     |  |   | 40      |        
|Deferred stock-based compensation                                                                |                                         |              |           |            |  |              | 2,073   |              |  |               |    |               |  |        | (2,073 | ) |  |   |        |         |   |   |      |     |  |   |        |        
|Amortization of stock-based compensation                                                         |                                         |              |           |            |  |              |        |              |  |               |    |               |  |        | 1,514  |   |  |   |        |         |   |   |      |     |  |   | 1,514   |        
|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   |         |        
|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 |        
|                                                                                                 |                                         |              |            |            |  |              |         |              |  |               |     |               |  |        |        |   |  |   |         |         |   |   |       |     |  |   |         |        

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



INFORMATICA CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |        |         |         |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------ | ------- | -------- | ------ | ------ | -------- | ------- | ------ | ------- | ------- | -
|                                                                                    |                                                                  |                                          
|                                                                                    |                                                                  | Year Ended December 31,                  
|                                                                                    |                                                                  |                                          
|                                                                                    |                                                                  | 2002                                      |                                           | 2001   |        | 2000   
|                                                                                    |                                                                  |                                           |                                           |        |        |        
|Operating activities                                                                |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Net loss                                                                            |                                                                  | $                                         | (15,614                                   | )      |        | $       | (44,980  | )      |        | $        | (13,516 | )     
|Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Depreciation and amortization                                    |                                           |                                           | 10,477 |        |         |          | 5,749  |        |          |         | 1,660  |        
|                                                                                    | Sales and returns allowances                                     |                                           |                                           | 1,181  |        |         |          | 1,186  |        |          |         | 2,506  |        
|                                                                                    | Provision for doubtful accounts                                  |                                           |                                           | 425    |        |         |          | 533    |        |          |         | 242    |        
|                                                                                    | Amortization of stock-based compensation                         |                                           |                                           | 221    |        |         |          | 1,036  |        |          |         | 1,514  |        
|                                                                                    | Amortization of goodwill and other intangible
    assets         |                                           |                                           | 1,140  |        |         |          | 27,376 |        |          |         | 14,163 |        
|                                                                                    | Purchased in-process research and development                    |                                           |                                           |       |        |         |          |       |        |          |         | 8,648  |        
|                                                                                    | Non-cash restructuring charges                                   |                                           |                                           | 1,887  |        |         |          | 1,497  |        |          |         |       |        
|                                                                                    | Gain on the sale of investments                                  |                                           |                                           | (154   | )      |         |          |       |        |          |         |       |        
|                                                                                    | Loss on disposal of property and equipment                       |                                           |                                           | 357    |        |         |          | 1,048  |        |          |         |       |        
|                                                                                    | Interest expense related to notes payable                        |                                           |                                           |       |        |         |          |       |        |          |         | 125    |        
|                                                                                    | Compensation expense related to stock options                    |                                           |                                           | 190    |        |         |          |       |        |          |         |       |        
|                                                                                    | Adjustment to acquisition allocation                             |                                           |                                           | (710   | )      |         |          |       |        |          |         |       |        
|                                                                                    | Changes in operating assets and liabilities:                     |                                           |                                           |        |        |         |          |        |        |          |         |        |        
|                                                                                    |                                                                  | Accounts receivable                       |                                           |        | (2,457 | )       |          |        | 899    |          |         |        | (24,739 | )      
|                                                                                    |                                                                  | Prepaid expenses and other current assets |                                           |        | (1,619 | )       |          |        | (3,973 | )        |         |        | (1,545  | )      
|                                                                                    |                                                                  | Other assets                              |                                           |        | 595    |         |          |        | 559    |          |         |        | (1,236  | )      
|                                                                                    |                                                                  | Accounts payable                          |                                           |        | (665   | )       |          |        | (1,419 | )        |         |        | (7,069  | )      
|                                                                                    |                                                                  | Accrued liabilities                       |                                           |        | 9,431  |         |          |        | 1,772  |          |         |        | 13,246  |        
|                                                                                    |                                                                  | Accrued compensation and related expenses |                                           |        | (3,182 | )       |          |        | 3,803  |          |         |        | 5,093   |        
|                                                                                    |                                                                  | Income taxes payable                      |                                           |        | (810   | )       |          |        | (1,245 | )        |         |        | 2,919   |        
|                                                                                    |                                                                  | Accrued restructuring charges             |                                           |        | 10,374 |         |          |        | 9,332  |          |         |        |        |        
|                                                                                    |                                                                  | Deferred revenue                          |                                           |        | 15,148 |         |          |        | 12,748 |          |         |        | 13,561  |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    |                                                                  |                                           | Net cash provided by operating activities |        |        | 26,215  |          |        |        | 15,921   |         |        |         | 15,572  |  
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Investing activities                                                                |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Purchase of property and equipment, net                                             |                                                                  |                                           | (6,911                                    | )      |        |         | (30,207  | )      |        |          | (30,854 | )     
|Purchases of investments                                                            |                                                                  |                                           | (230,084                                  | )      |        |         | (264,337 | )      |        |          |        |       
|Proceeds from the sale of investments                                               |                                                                  |                                           | 195,113                                   |        |        |         | 186,800  |        |        |          |        |       
|Acquisitions, net of cash acquired                                                  |                                                                  |                                           |                                          |        |        |         | (13,737  | )      |        |          | (6,318  | )     
|Transfer from (to) restricted cash                                                  |                                                                  |                                           |                                          |        |        |         | 8,116    |        |        |          | (20,282 | )     
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    |                                                                  |                                           | Net cash used in investing activities     |        |        | (41,882 | )        |        |        | (113,365 | )       |        |         | (57,454 | )
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Financing activities                                                                |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Proceeds from secondary public offering of common
    stock, net                    |                                                                  |                                           |                                          |        |        |         |         |        |        |          | 190,961 |       
|Proceeds from issuance of common stock, net of
    payments for repurchases         |                                                                  |                                           | 7,860                                     |        |        |         | 11,046   |        |        |          | 14,480  |       
|Repurchase and retirement of common stock                                           |                                                                  |                                           | (1,750                                    | )      |        |         |         |        |        |          |        |       
|Payments on notes payable to stockholders                                           |                                                                  |                                           |                                          |        |        |         |         |        |        |          | (3,572  | )     
|Payments on capital lease obligations                                               |                                                                  |                                           |                                          |        |        |         | (83      | )      |        |          | (221    | )     
|Repayment of notes receivable from stockholders                                     |                                                                  |                                           |                                          |        |        |         |         |        |        |          | 40      |       
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    |                                                                  |                                           | Net cash provided by financing activities |        |        | 6,110   |          |        |        | 10,963   |         |        |         | 201,688 |  
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Effect of foreign currency translation on cash
    and cash equivalents             |                                                                  |                                           | 783                                       |        |        |         | 32       |        |        |          | 386     |       
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Increase (decrease) in cash and cash
    equivalents                                |                                                                  |                                           | (8,774                                    | )      |        |         | (86,449  | )      |        |          | 160,192 |       
|Cash and cash equivalents at beginning of year                                      |                                                                  |                                           | 131,264                                   |        |        |         | 217,713  |        |        |          | 57,521  |       
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Cash and cash equivalents at end of year                                            |                                                                  | $                                         | 122,490                                   |        |        | $       | 131,264  |        |        | $        | 217,713 |       
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Supplemental disclosures:                                                           |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Interest paid                                                    |                                           | $                                         | 9      |        |         | $        | 3      |        |          | $       | 253    |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Income taxes paid                                                |                                           | $                                         | 1,943  |        |         | $        | 1,566  |        |          | $       | 163    |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|Supplemental disclosures of noncash investing
    and financing activities:         |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Deferred stock-based compensation related to
    options granted |                                           | $                                         | (4     | )      |         | $        | (2,112 | )      |          | $       | 2,073  |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Common stock issued for acquisitions                             |                                           | $                                         |       |        |         | $        | 2,359  |        |          | $       | 56,508 |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       
|                                                                                    | Unrealized gain on available-for-sale securities                 |                                           | $                                         | 305    |        |         | $        | 418    |        |          | $       |       |        
|                                                                                    |                                                                  |                                           |                                           |        |        |         |          |        |        |          |         |       

See accompanying notes to consolidated financial
statements.

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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 business analytics software that enables its
customers to automate the integration, analysis and delivery of
critical corporate information. Using the Companys
products, managers and executives gain valuable business insight
they can use to help improve operational performance and enhance
competitive advantage.



| |                      
| | ---------------------
| | 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 $1.4 million,
$(0.2) million and $(0.6) million for the years ended
December 31, 2002, 2001 and 2000, respectively, are
included in interest income and other, net in the accompanying
Consolidated Statements of Operations.

Certain amounts in the Companys prior
years Consolidated Balance Sheets and Statements of
Operations were reclassified to conform with the current period
presentation. Reimbursements received for out-of-pocket expenses
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 prior
periods, 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 and 2000 (in thousands):

|                                                 |  |              |        |              |  |   |        | 
|------------------------------------------------ |  | ------------ | ------ | ------------ |  | - | ------ | 
|                                                 |  | Year Ended   |        | Year Ended  
|                                                 |  | December 31, |        | December 31,
|                                                 |  | 2001         |        | 2000        
|                                                 |  |              |        |             
|Service revenues, as previously reported         |  | $            | 77,415 |              |  | $ | 52,409 | 
|Add: reimbursements for out-of-pocket expenses   |  |              | 2,793  |              |  |   | 2,544  | 
|                                                 |  |              |        |              |  |   |        | 
|Service revenues, reclassified                   |  | $            | 80,208 |              |  | $ | 54,953 | 
|                                                 |  |              |        |              |  |   |        | 
|Cost of service revenues, as previously reported |  | $            | 39,746 |              |  | $ | 28,465 | 
|Add: reimbursements for out-of-pocket expenses   |  |              | 2,793  |              |  |   | 2,544  | 
|                                                 |  |              |        |              |  |   |        | 
|Cost of service revenues, reclassified           |  | $            | 42,539 |              |  | $ | 31,009 | 
|                                                 |  |              |        |              |  |   |        | 

Long-term investments have been reclassified to
short-term investments to conform to the current period
presentation. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and based on the Companys intention
to have the marketable securities available to support its
current operations, the Company classifies all marketable
securities as available-for-sale and as short-term investments.

Certain identifiable intangible assets with
indefinite lives have been reclassified to goodwill to conform
to the current period presentation.

45



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | 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 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
custodied with three major financial institutions. The
Companys marketable securities 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 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 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, 2002, 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

46



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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

no substantive plans to market the software.
Costs capitalized relating to software developed to meet
internal requirements were $4.4 million and
$6.0 million for the years ended December 31, 2002 and
2001, respectively, and are included in property and equipment.



| |                                         
| | ----------------------------------------
| | Goodwill and Other Intangible
    Assets

The FASB issued SFAS No. 141 (SFAS
141), Business Combinationsand SFAS
No. 142 (SFAS 142), Goodwill and Other
Intangible Assetsin July 2001. SFAS 141 requires that
all business combinations be accounted for using the purchase
method, thereby prohibiting the pooling-of-interests method.
SFAS 141 also specifies criteria for recognizing and reporting
intangible assets apart from goodwill; however, assembled
workforce must be recognized and reported in goodwill. SFAS 142
requires that intangible assets with an indefinite life should
not be amortized until their life is determined to be finite,
and all other intangible assets must be amortized over their
useful life. SFAS 142 also requires that goodwill not be
amortized but instead tested for impairment in accordance with
the provisions of SFAS 142 at least annually and more frequently
upon the occurrence of certain events (see Impairment
of Long-Lived Assetsbelow).

The Company adopted certain provisions of these
pronouncements effective July 1, 2001, as required for
goodwill and intangible assets acquired in purchase business
combinations consummated after June 30, 2001. The Company
adopted the remaining provisions of SFAS 141 and SFAS 142
effective January 1, 2002. There was not a cumulative
transition adjustment upon adoption as of July 1, 2001 or
January 1, 2002. SFAS 141 and SFAS 142 required the Company
to perform the following as of January 1, 2002:
(i) review goodwill and intangible assets for possible
reclassifications; (ii) reassess the lives of intangible
assets; and (iii) perform a transitional goodwill
impairment test. The Company reviewed the balances of goodwill
and identifiable intangibles and reclassified $0.8 million
relating to the carrying value of assembled workforce from
identified intangibles to goodwill. The Company has also
reviewed the useful lives of its identifiable intangible assets
and determined that the original estimated lives remain
appropriate. The Company completed the transitional goodwill
impairment test and has determined that the Company did not have
an impairment of goodwill.

As required by SFAS 142, 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 6 for a further discussion of the
Companys goodwill and other intangible assets.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    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 test on October 31, 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

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2002, which did not
result in any impairment charge.

On January 1, 2002, the Company adopted SFAS
No. 144 (SFAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assetswhich supersedes certain provisions of APB Opinion
No. 30 Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactionsand
supersedes SFAS No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.There was not a cumulative transition
adjustment upon adoption. 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.



| |                                                         
| | --------------------------------------------------------
| | Concentrations of Credit Risk and Credit
    Evaluations

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 U.S., Europe
and Canada, and generally does not require collateral.
Allowances for credit risks and for estimated future returns are
provided upon shipment. Returns to date have not been material.
Actual credit losses and returns may differ from the
Companys estimates and such differences could be material
to the financial statements.



| |                    
| | -------------------
| | 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 business analytics software, which consists of
data integration products and, to a lesser extent, data
warehouse modules, business intelligence platform and analytic
application suites. 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 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, 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 is established by the Companys
authorized management. If an acceptance period is required, the
Company recognizes revenue upon customer acceptance or the
expiration of the acceptance period. 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. When a
customer is not deemed credit-worthy, revenue is recognized upon
cash receipt. For the Companys analytic application
suites, it recognizes both the license and maintenance revenue
ratably over the maintenance period, generally one

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

year. Support for the analytic application suites
for the first year is never sold separately and in consideration
of the complexities of the implementation the customer is
entitled to receive support services that are different than the
standard annual support services of the Companys other
products. 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. 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.

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 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 when due. When OEMs are not
deemed credit-worthy, revenue is recognized upon cash receipt.

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. Deferred revenue
amounts do not include items that are both deferred and
unbilled. 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 $0.3 million, $0.5 million and
$1.5 million for the years ended December 31, 2002,
2001 and 2000, respectively.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock issued to
employees 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. See Note 9 for
the pro forma disclosure required under SFAS 148. 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.



| |                   
| | ------------------
| | Net Loss Per Share

Under the provisions of SFAS No. 128,
Earnings per Share,basic net loss per share
is computed using the weighted-average number of common shares
outstanding during the period. Diluted earnings per share
reflects the potential dilution of securities by adding other
common stock equivalents, including stock options, warrants and
convertible preferred stock, 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 loss per share for all periods, as
their inclusion would be antidilutive.

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

|                                                                                                                        |  |                                       |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                        |  |                                      
|                                                                                                                        |  | Year Ended December 31,              
|                                                                                                                        |  |                                      
|                                                                                                                        |  | 2002                                  |         | 2001 |  | 2000
|                                                                                                                        |  |                                       |         |      |  |     
|                                                                                                                        |  |                                      
|                                                                                                                        |  | (in thousands, except per share data)
|Net loss                                                                                                                |  | $                                     | (15,614 | )    |  | $    | (44,980 | ) |  | $ | (13,516 | )
|                                                                                                                        |  |                                       |         |      |  |      |         |   |  |   |         |  
|Weighted-average shares of common stock
    outstanding used in calculation of basic and diluted net loss
    per share |  |                                       | 79,753  |      |  |      | 77,599  |   |  |   | 69,758  |  
|                                                                                                                        |  |                                       |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share                                                                                    |  | $                                     | (0.20   | )    |  | $    | (0.58   | ) |  | $ | (0.19   | )
|                                                                                                                        |  |                                       |         |      |  |      |         |   |  |   |         |  

If the Company had reported net income, 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, 5,121,000 and 10,654,000
common equivalent shares related to outstanding stock options
and warrants not included in the calculations above (determined
using the treasury stock method) for the years ended
December 31, 2002, 2001 and 2000, respectively.



| |                            
| | ---------------------------
| | 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 cumulative
translation adjustments. Total comprehensive loss and the
components of accumulated other comprehensive income are
presented in the accompanying Consolidated Statements of
Stockholders Equity. 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,

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



| |                                     
| | ------------------------------------
| | 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 is not expected to have a material effect on the
Companys financial position or results of operations.

In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting
for Stock-Based Compensation -Transition and
Disclosure. SFAS 148 amends SFAS 123 to
provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years
ending after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing
financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS 148 is not
expected to have a material effect on the Companys
financial position and 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 has
adopted the disclosure requirements of FIN 45 as of
December 31, 2002. In addition, the Company is required to
adopt the initial recognition and measurement of the fair value
of the obligation undertaken in issuing the guarantee on a
prospective basis to guarantees issued or modified after
December 31, 2002. As permitted under SFAS 148, the
Company adopted on the disclosure provisions of the accounting
standard in the Consolidated Financial Statements. The Company
does not believe FIN 45 will have a material effect on its
financial position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities,an interpretation of
Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements.
FIN 46 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. We currently have no
contractual relationship or other business relationship with a
VIE and do not have any such plans and therefore the adoption
will not have an effect on our consolidated financial position
or results of operations.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2.  Business Combinations

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
will no longer be amortized after December 2001. The 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 will no longer be 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.

The following unaudited pro forma adjusted
summary reflects the Companys condensed consolidated
results of operations for the year ended December 31, 2001
and 2000, assuming Informatica Partners had been acquired on
January 1, 2000 and is not intended to be indicative of
future results:

|                                                              |  |                           |         |      |  |   |         |  
|------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                                                              |  |                          
|                                                              |  | Year ended December 31,  
|                                                              |  |                          
|                                                              |  | 2001                      |         | 2000
|                                                              |  |                           |         |     
|                                                              |  |                          
|                                                              |  | (in thousands, except per
|                                                              |  | share data)              
|Pro forma adjusted total revenue                              |  | $                         | 200,624 |      |  | $ | 159,317 |  
|Pro forma adjusted net loss                                   |  | $                         | (46,604 | )    |  | $ | (15,076 | )
|Pro forma adjusted net loss per share 
    basic and diluted |  | $                         | (0.60   | )    |  | $ | (0.22   | )

In February 2000, the Company acquired Delphi
Solutions AG (Delphi), a distributor of Informatica
products in Switzerland. The agreement was structured as a share
purchase and accounted for as a purchase transaction. The
estimated purchase price of $9.2 million included payments
associated with 1999 revenues and projections for 2000 revenues.
The first payment of approximately $3.6 million was paid in
February 2000, and the second payment of approximately
$4.3 million was paid in January 2001. In June 2001, we
paid the final payment under the share purchase agreement. As a
result, the purchase price and related goodwill were reduced by
$0.6 million. Following the final payment in June 2001, the
Company is no longer required to hold a certificate of deposit
for $8.1 million, which was classified as restricted cash
on the Companys Consolidated Balance Sheet until July
2001. The purchase price of the transaction 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

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$8.4 million, net of the $0.6 million
reduction, were being amortized on a straight-line basis over a
two-year period. In accordance with SFAS 142, goodwill will
no longer be amortized after December 2001. As part of this
agreement, the Company is required to hold a certificate of
deposit for $8.1 million that was classified as restricted
cash on the Companys balance sheet until July 2001. The
results of operations of Delphi 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 impact of Delphis January 2000 results were not
material to the Companys actual results of operations for
the periods presented.

In August 2000, the Company completed the
acquisition of Zimba, a leading provider of e-business analytic
solutions that enable mobile professionals with real-time access
to corporate and external information through wireless devices,
voice recognition technology and the Internet. The transaction
was accounted for as a purchase transaction. Under the terms of
the agreement, the Company issued 507,544 shares of common stock
in exchange for the outstanding shares of common stock of Zimba.
In addition, all the outstanding options to purchase Zimba
common stock were automatically converted into options to
purchase the Companys common stock based on the conversion
ratio in the agreement with a corresponding adjustment to their
respective exercise prices. The total purchase price, including
assumed liabilities and related expenses, was
$26.0 million, of which $2.1 million was allocated to
identifiable intangible assets, including core technology of
$1.4 million, acquired workforce of $0.4 million and
patents of $0.3 million, $0.6 million was allocated to
assumed liabilities and related expenses, and the balance of
$18.2 million was allocated to goodwill. Goodwill and other
intangible assets were being amortized on a straight-line basis
over two years for the acquired workforce and over three years
for the core technology, patents and goodwill. In accordance
with SFAS 142, goodwill will no longer be amortized after
December 2001. Purchased in-process research and development of
$5.1 million was expensed in the third quarter of 2000
because the in-process technology had not reached technological
feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using
a discounted cash flow analysis based on managements
estimates of future revenues, cost of revenues and operating
expenses related to the products and technologies acquired from
Zimba. All assumed options of Zimba were valued at fair value
and included in the purchase price, net of the intrinsic value
of any unvested options, which were included in deferred
stock-based compensation as a component of stockholders
equity and are being amortized over the remaining vesting
period. The results of operations of Zimba have been included in
the Companys results of operations since the acquisition
date.

The following unaudited pro forma adjusted
summary reflects the condensed consolidated results of
operations for the year ended December 31, 2000, assuming
Zimba had been acquired on January 1, 2000 and is not
intended to be indicative of future results:

|                                                              |  |                       |         |  
|------------------------------------------------------------- |  | --------------------- | ------- | -
|                                                              |  | Year Ended           
|                                                              |  | December 31, 2000    
|                                                              |  |                      
|                                                              |  | (in thousands, except
|                                                              |  | per share data)      
|Pro forma adjusted total revenue                              |  | $                     | 156,602 |  
|Pro forma adjusted net loss                                   |  | $                     | (15,322 | )
|Pro forma adjusted net loss per share 
    basic and diluted |  | $                     | (0.22   | )

3.  Asset Acquisitions

In April 2000, the Company announced a strategic
alliance with PricewaterhouseCoopers (PwC) to
jointly develop, market, sell and support analytic application
suites. In connection with the agreement relating to the
strategic alliance, PwC received 818,276 shares of the
Companys common stock. The total purchase price, including
related expenses, was approximately $31.8 million, which was
allocated to goodwill and various identifiable intangible
assets, including goodwill of $22.9 million, core
technology of $1.7 million and acquired workforce and
consultants of $5.0 million. Goodwill and other
identifiable intangible assets were

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

being amortized on a straight-line basis over two
years for the acquired workforce and consultants and over three
years for the core technology and goodwill. In accordance with
SFAS 142, goodwill will no longer be amortized after
December 2001. Purchased in-process research and development of
$2.2 million was expensed in the second quarter of 2000
because the in-process technology had not reached technological
feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using
a discounted cash flow analysis based on managements
estimates of future revenues, cost of revenues and operating
expenses related to the products and technologies acquired from
PwC.

In November 2000, the Company completed an
intellectual property transfer agreement with certain
individuals (QRB Developers). The acquisition was
accounted for as a purchase transaction. The total purchase
price, including related expenses, was approximately
$4.1 million, of which $0.1 million was allocated to
the acquired workforce and $2.7 million was allocated to
goodwill. Goodwill and other identifiable intangible assets were
being amortized on a straight-line basis over three years for
goodwill and over two years for the acquired workforce. In
accordance with SFAS 142, goodwill will no longer be
amortized after December 2001. Purchased in-process research and
development of $1.3 million was expensed in the fourth
quarter of 2000 because the in-process technology had not
reached technological feasibility and had no alternative uses.
The value of the purchased in-process research and development
was computed using a discounted cash flow analysis based on
managements estimates of future revenues, cost of revenues
and operating expenses related to the technologies acquired from
QRB Developers.

4.  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. Realized
gains and losses and permanent declines in value, if any, on
available-for-sale securities will be reported in other income
or expense as incurred. The Company reported a realized gain of
$0.2 million for the year ended December 31, 2002. No
realized gains and losses were reported for the years ended
December 31, 2001 and 2000. 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, 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 | 
|                                |  |                |         |            |  |            |     |            |  |   |   |  |  |   |         | 

54



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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The available-for-sale securities consist of the
following as of December 31, 2001:

|                                |  |                |         |            |  |            |     |            |  |   |     |   |  |   |         | 
|------------------------------- |  | -------------- | ------- | ---------- |  | ---------- | --- | ---------- |  | - | --- | - |  | - | ------- | 
|                                |  |                |         | Gross      |  | Gross      |     |           
|                                |  | Amortized      |         | Unrealized |  | Unrealized |     |           
|                                |  | Cost           |         | Gains      |  | Losses     |     | Fair Value
|                                |  |                |         |            |  |            |     |           
|                                |  |               
|                                |  | (in thousands)
|Money market funds              |  | $              | 86,343  |            |  | $          |    |            |  | $ |    |   |  | $ | 86,343  | 
|Corporate notes and bonds       |  |                | 20,086  |            |  |            | 303 |            |  |   | (8  | ) |  |   | 20,381  | 
|Municipal securities            |  |                | 11,600  |            |  |            |    |            |  |   |    |   |  |   | 11,600  | 
|U.S. Government notes and bonds |  |                | 57,451  |            |  |            | 129 |            |  |   | (6  | ) |  |   | 57,574  | 
|                                |  |                |         |            |  |            |     |            |  |   |     |   |  |   |         | 
|                                |  | $              | 175,480 |            |  | $          | 432 |            |  | $ | (14 | ) |  | $ | 175,898 | 
|                                |  |                |         |            |  |            |     |            |  |   |     |   |  |   |         | 

As of December 31, 2002, investments of
$67.1 million are classified as cash and cash equivalents,
$28.2 million are classified as short-term investments due
within one year and $85.2 million are classified as
short-term due within two years.

5.  Property and Equipment

Property and equipment consists of the following:

|                                               |  |                |         |      |  |   |        |  
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------ | -
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2002           |         | 2001
|                                               |  |                |         |     
|                                               |  |               
|                                               |  | (in thousands)
|Computer and office equipment                  |  | $              | 24,081  |      |  | $ | 12,811 |  
|Furniture and fixtures                         |  |                | 6,700   |      |  |   | 6,675  |  
|Leasehold improvements                         |  |                | 32,551  |      |  |   | 33,994 |  
|Capital work-in-progress                       |  |                | 187     |      |  |   | 6,032  |  
|                                               |  |                |         |      |  |   |        |  
|                                               |  |                | 63,519  |      |  |   | 59,512 |  
|Less accumulated depreciation and amortization |  |                | (16,149 | )    |  |   | (6,332 | )
|                                               |  |                |         |      |  |   |        |  
|                                               |  | $              | 47,370  |      |  | $ | 53,180 |  
|                                               |  |                |         |      |  |   |        |  

Included in property and equipment are assets
acquired under capital lease obligations with an original cost
of approximately $0.9 million. As of December 31, 2002 and
2001, accumulated amortization of these assets was
$0.9 million. The related amortization is included with
depreciation expense.

The Company recorded a charge 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 8. 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)

6.  Goodwill and Other Intangible
Assets

Intangible assets consist of the following (in
thousands):

|                        |  |                   |       |                   |  |            |        |          |  |              |     |            |  |   |       |  |  |   |        |   |  |   |       | 
|----------------------- |  | ----------------- | ----- | ----------------- |  | ---------- | ------ | -------- |  | ------------ | --- | ---------- |  | - | ----- |  |  | - | ------ | - |  | - | ----- | 
|                        |  |                   |       |                  
|                        |  | December 31, 2002 |       | December 31, 2001
|                        |  |                   |       |                  
|                        |  | Gross             |       |                   |  | Net        |        | Gross    |  |              |     | Net       
|                        |  | Carrying          |       | Accumulated       |  | Intangible |        | Carrying |  | Accumulated  |     | Intangible
|                        |  | Amount            |       | Amortization      |  | Assets     |        | Amount   |  | Amortization |     | Assets    
|                        |  |                   |       |                   |  |            |        |          |  |              |     |           
|Core technology         |  | $                 | 3,122 |                   |  | $          | (2,670 | )        |  | $            | 452 |            |  | $ | 3,122 |  |  | $ | (1,630 | ) |  | $ | 1,492 | 
|Patents                 |  |                   | 297   |                   |  |            | (232   | )        |  |              | 65  |            |  |   | 297   |  |  |   | (132   | ) |  |   | 165   | 
|                        |  |                   |       |                   |  |            |        |          |  |              |     |            |  |   |       |  |  |   |        |   |  |   |       | 
|Total intangible assets |  | $                 | 3,419 |                   |  | $          | (2,902 | )        |  | $            | 517 |            |  | $ | 3,419 |  |  | $ | (1,762 | ) |  | $ | 1,657 | 
|                        |  |                   |       |                   |  |            |        |          |  |              |     |            |  |   |       |  |  |   |        |   |  |   |       | 

Amortization expense of intangible assets was
approximately $1.1 million, $1.1 million and
$0.6 million for the years ended December 31, 2002,
2001, and 2000, respectively. The amortization expense related
to identifiable intangible assets as of December 31, 2002
is expected to be $0.5 million for the year ended
December 31, 2003.

As required by SFAS 142, the results for years
ended December 31, 2001 and 2000 have not been restated.
The following table discloses the effect on net income
(loss) and basic and diluted net income (loss) per
share as if the Company had not amortized its goodwill and
assembled workforce under SFAS 142 for all periods presented (in
thousands, except per share data):

|                                      |                                                               |                         |         |       |   |      |         |        |   |   |         |        |  
|------------------------------------- | ------------------------------------------------------------- | ----------------------- | ------- | ----- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                                               |                        
|                                      |                                                               | Year Ended December 31,
|                                      |                                                               |                        
|                                      |                                                               | 2002                    |         | 2001  |   | 2000
|                                      |                                                               |                         |         |       |   |     
|Reported net loss                     |                                                               | $                       | (15,614 | )     |   | $    | (44,980 | )      |   | $ | (13,516 | )     
|Add:                                  |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|                                      | Goodwill and assembled workforce amortization,
    net of tax |                         |         |      |   |      |         | 26,237 |   |   |         | 13,540 |  
|                                      |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|Adjusted net income (loss)            |                                                               | $                       | (15,614 | )     |   | $    | (18,743 | )      |   | $ | 24      |       
|                                      |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|Basic and diluted net loss per share: |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|                                      | Reported net income (loss) per share                          |                         | $       | (0.20 | ) |      | $       | (0.58  | ) |   | $       | (0.19  | )
|Add:                                  |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|                                      | Goodwill and assembled workforce amortization,
    net of tax |                         |         |      |   |      |         | 0.34   |   |   |         | 0.19   |  
|                                      |                                                               |                         |         |       |   |      |         |        |   |   |         |       
|                                      | Adjusted basic and diluted net income
    (loss) per share    |                         | $       | (0.20 | ) |      | $       | (0.24  | ) |   | $       | 0.00   |  
|                                      |                                                               |                         |         |       |   |      |         |        |   |   |         |       

In 2002, the Company recorded an increase in
goodwill of $0.7 million related to acquisitions to reflect
an adjustment to the purchase price allocation.

7.  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
covenants are met. 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,

56



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

including property taxes, insurance and
maintenance. Rent expense was $16.2 million,
$15.8 million and $4.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Operating
lease payments in the table below include approximately
$16.9 million, net of anticipated sublease income, for
operating lease commitments for facilities that are included in
restructuring charges. See Note 8 for a further discussion.

Future minimum lease payments as of
December 31, 2002 under noncancelable operating leases with
original terms in excess of one year are summarized as follows:

|                             |      |                |         |        | 
|---------------------------- | ---- | -------------- | ------- | ------ | 
|                             |      | Operating     
|                             |      | Leases        
|                             |      |               
|                             |      | (in thousands)
|Years ending December 31:    |      |                |         |       
|                             | 2003 |                | $       | 17,334 | 
|                             | 2004 |                |         | 17,897 | 
|                             | 2005 |                |         | 18,062 | 
|                             | 2006 |                |         | 17,969 | 
|                             | 2007 |                |         | 16,774 | 
|Thereafter                   |      |                | 93,847  |       
|                             |      |                |         |       
|Total minimum lease payments |      | $              | 181,883 |       
|                             |      |                |         |       

During 2002, the Company signed sublease
agreements for leased office space in Palo Alto, California and
Carrollton, Texas. Under the sublease agreements, the Company
received $0.1 million sublease income for the year ended
December 31, 2002 and will receive sublease income of
$0.6 million, $0.6 million, $0.5 million and $39,000
for the years ended December 31, 2003, 2004, 2005 and 2006,
respectively.

8.  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 related to the consolidation of excess leased
facilities in the San Francisco Bay Area and Texas as a result
of continued deterioration of the commercial real estate market
in these areas. 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 with the assistance of current market information and
trend analysis provided by a commercial real estate brokerage
firm retained by the Company.

Net cash payments for 2002 related to the
consolidation of excess facilities amounted to
$4.8 million. Actual future cash requirements may differ
from the restructuring liability balances as of
December 31, 2002 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. As of
December 31, 2002, $19.7 million of lease termination
costs, net of related costs and anticipated sublease income
related to facilities to be subleased, remains accrued and is
expected to be utilized by 2007. If the Company is 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. 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.

57



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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      |       |             |  | Cash     |        | Non-Cash |  | December     
|                                  |  | 31, 2001      |       | Adjustments |  | Payments |        | Charges  |  | 31, 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      |   |           |  | Cash     |        | Non-Cash |  | December     
|                                  |  | 31, 2000      |   | Additions |  | Payments |        | Charges  |  | 31, 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, 2002, $4.8 million
of the $19.7 million accrued restructuring charges was
classified as current liabilities and the remaining
$14.9 million was classified as noncurrent liabilities.

9.  Stockholders
Equity



| |             
| | ------------
| | Common Stock

On October 3, 2000, the Company completed a
follow-on public offering in which it sold 4,750,000 shares of
common stock, including 750,000 shares in connection with the
exercise of the underwriters over-allotment option, at
$42.50 per share. The Company received $191.0 million in
cash, net of underwriting discounts, commissions and other
offering costs.



| |             
| | ------------
| | Stock Splits

On each of February 18, 2000 and
November 29, 2000, the Company effected a two-for-one split
of its common stock to be effected in the form of a stock
dividend. The stock split was effected by distribution of one
share of the Companys common stock for each share of
common stock held by each stockholder of record. All references
in the financial statements to number of shares and per share
amounts of the Companys common stock have been restated
for the effect of the stock splits.



| |                   
| | ------------------
| | Stock Option Plans

1993
and 1996 Flexible Stock Incentive Plans

The Companys 1993 and 1996 Flexible Stock
Incentive Plans (the Stock Plans), in effect through
our initial public offering, authorized the granting of
16,909,000 incentive and non-qualified common stock options to
employees, directors, and consultants at exercise prices no less
than 100% and 85%, respectively, of the fair market value of the
common stock on the grant date, as determined by the Board of
Directors. Options granted are exercisable over a maximum term
of ten years and generally vest over a period of up to four
years. In the event option holders cease to be employed by the
Company, all unvested options are forfeited and all

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

vested options may be exercised within a
90 day period after termination; under the restricted
portion of the plans, the Company also has the right to
repurchase at the original purchase price any unvested shares if
the holder is no longer employed by the Company. As of
December 31, 2002, no outstanding common shares were
subject to such repurchase rights. Options that are canceled
under the 1996 Stock Plan are available for future grants under
the 1999 Stock Incentive Plan. There were no shares available
for option grants under the 1996 Stock Plan at December 31,
2002.

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 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 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, 2002, the
Company had 7,864,220 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 will 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. These
options are exercisable over a maximum term of five years and
will vest in four equal annual installments on each yearly
anniversary from the date of the grant. 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, a maximum term of five years and will
vest on the first anniversary of the grant date. There were no
automatic annual options granted in 2002 under the Directors
Plan. As of December 31, 2002, the Company has 720,000
shares available for future issuance under the Directors Plan.

2000
Employee Stock Incentive Plan

In January 2000, the Board of Directors approved
the 2000 Employee Stock Incentive Plan (the 2000 Incentive
Plan) under which 1,600,000 shares have been reserved for
issuance. Under the 2000 Incentive Plan, eligible employees and
consultants may purchase stock options, stock appreciation
rights, restricted shares and stock units. The exercise price
for non-qualified options may not be less than 85% of the fair
value of common stock at the option grant date. Options granted
are exercisable over a maximum term of 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, 2002, the Company
had 492,249 shares available for future issuance under the 2000
Incentive Plan.

Influence
1996 Incentive Stock Option Plan

In connection with the acquisition of Influence
in 1999, the Company converted options to purchase shares of
Influence common stock into options to purchase 574,104 shares
of the Companys common stock.

59



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The number of shares of the Companys common
stock issuable under each option and the exercise price for each
grant were adjusted by an exchange ratio. The Company assumed
the Influence Stock Incentive Plan (Influence Plan)
under which the options had been originally granted, however, no
further options will be granted under the Influence Plan. The
converted options continue to be subject to the terms of the
Influence Plan. The Influence Plan provided for the granting of
incentive stock options and non-qualified stock options. The
exercise price of all options granted prior to the acquisition
were determined by the Influence Board of Directors and were not
less than the fair market value on the date of the grant. The
options generally expire seven years from the date of the grant
and vest over a period of four years from the date of the grant.

Zimba
1999 Stock Option Plan

In connection with the acquisition of Zimba, as
discussed in Note 2, the Company converted options to purchase
shares of Zimba common stock into options to purchase 91,176
shares of the Companys common stock. The number of shares
of the Companys common stock issuable under each option
and the exercise price for each grant were adjusted by an
exchange ratio. The Company assumed the Zimba 1999 Stock Option
Plan (Zimba Plan) under which the options had been
originally granted, however, no further options will be granted
under the Zimba Plan. The converted options continue to be
subject to the terms of the Zimba Plan. The Zimba Plan provided
for the granting of incentive stock options and non-qualified
stock options. The exercise price of all options granted prior
to the acquisition were determined by the Zimba Board of
Directors and were not less than the fair market value on the
date of the grant. Generally, options granted were immediately
exercisable and such resulting shares issued under the Zimba
Plan were subject to certain repurchase rights, also assumed by
the Company. As of December 31, 2002, there were no shares
of the Companys common stock issued pursuant to the Zimba
Plan that were subject to repurchase by the Company. These
repurchase rights generally lapse over a four-year period from
the date of grant. The options generally expire ten years from
the date of the grant.

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, 1999 |           |           | 16,413,318 |                |   | $ | 5.60  |      
|                                 | Granted   |           |            | 6,680,460      |   |   |       | 34.34 | 
|                                 | Exercised |           |            | (4,549,257     | ) |   |       | 2.32  | 
|                                 | Canceled  |           |            | (2,725,723     | ) |   |       | 11.15 | 
|                                 |           |           |            |                |   |   |       |      
|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  |      
|                                 |           |           |            |                |   |   |       |      

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information
concerning currently outstanding and exercisable options as of
December 31, 2002:

|                |                 |                     |  |                     |            |                |  |        |      |                |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- | --------------- | ------------------- |  | ------------------- | ---------- | -------------- |  | ------ | ---- | -------------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |                 |                     |  |                    
|                |                 | 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  $ 1.63 |                     |  |                     | 1,622,877  |                |  |        | 4.67 |                |  | $ | 0.75  |  |  |  | 1,612,660 |  |  | $ | 0.74  | 
|                | $ 1.75  $ 3.10 |                     |  |                     | 1,234,604  |                |  |        | 6.15 |                |  | $ | 2.60  |  |  |  | 1,158,152 |  |  | $ | 2.58  | 
|                | $ 3.23  $ 7.15 |                     |  |                     | 1,637,814  |                |  |        | 9.46 |                |  | $ | 4.95  |  |  |  | 155,414   |  |  | $ | 5.40  | 
|                | $ 7.21  $ 7.90 |                     |  |                     | 6,352,176  |                |  |        | 7.47 |                |  | $ | 7.90  |  |  |  | 3,849,981 |  |  | $ | 7.90  | 
|                | $ 7.91  $ 8.06 |                     |  |                     | 1,885,545  |                |  |        | 9.21 |                |  | $ | 8.06  |  |  |  | 423,498   |  |  | $ | 8.06  | 
|                | $ 8.07  $18.07 |                     |  |                     | 1,512,157  |                |  |        | 7.64 |                |  | $ | 13.98 |  |  |  | 762,808   |  |  | $ | 14.18 | 
|                | $18.22  $48.63 |                     |  |                     | 672,147    |                |  |        | 6.78 |                |  | $ | 25.97 |  |  |  | 534,397   |  |  | $ | 25.94 | 
|                |                 |                     |  |                     |            |                |  |        |      |                |  |   |       |  |  |  |           |  |  |   |       | 
|                |                 |                     |  |                     | 14,917,320 |                |  |        | 7.48 |                |  | $ | 7.81  |  |  |  | 8,496,910 |  |  | $ | 7.48  | 
|                |                 |                     |  |                     |            |                |  |        |      |                |  |   |       |  |  |  |           |  |  |   |       | 

Stock-Based
Compensation

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. The Company also recorded
deferred stock-based compensation of $0.3 million in 2000
relating to the issuance of options to consultants. 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. Deferred stock-based
compensation is presented as a reduction of stockholders
equity. Amortization of stock-based compensation amounted to
$0.2 million, $1.0 million and $1.5 million in 2002,
2001 and 2000, 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 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 2002, there were 947,173 shares issued under the
Purchase Plan at a weighted-average price of $6.05 per share. As
of December 31, 2002, the Company has 3,632,802 shares
available for future issuance under the Purchase Plan.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro Forma
Effect of Stock-based Compensation

Pro forma information regarding results of
operations and net loss per share is required by SFAS 123,
which also requires that the information be determined as if the
Company had accounted for its employee stock options under the
fair value method of SFAS 123.

For all grants that were granted prior to the
Companys initial public offering in April 1999, the fair
value of these options was estimated at the date of the grant
using a Black-Scholes option pricing model with the following
weighed-average assumptions: a risk-free interest rate of 5.5%
and 5.0% for 1999 and 1998, respectively; no dividend yield or
volatility factors of the expected market price of the
Companys common stock; and a weighted-average expected
life of the option of five years. The fair value for the options
granted subsequent to the Companys initial public offering
was estimated at the date of grant using a Black-Scholes option
pricing model using the following weighted-average assumptions:
a risk-free interest rate of 3.8%, 4.6% and 6.2% for 2002, 2001
and 2000, respectively; a volatility factor of the expected
market price of the Companys common stock of 97% for 2002,
127% for 2001 and 100% for 2000; no dividend yield; and a
weighted-average expected life of the option of 4.7 years
for 2002, 4.5 years for 2001 and 5 years for 2000.

The fair value of the shares granted under the
Purchase Plan is estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions: a
risk-free interest rate of 3.8%, 4.6% and 6.2% for 2002, 2001
and 2000, respectively; a volatility factor of the expected
market price of the Companys common stock of 97% for 2002,
127% for 2001 and 100% for 2000; no dividend yield and a
weighted-average expected life of approximately six months for
2002, 2001 and 2000.

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 minimum value method of SFAS 123, the
Companys net loss and basic and diluted net loss per share
would have been increased to the pro forma amounts indicated
below:

|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | Year Ended December 31,              
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | 2002                                  |         | 2001 |  | 2000
|                                                                                                                                     |  |                                       |         |      |  |     
|                                                                                                                                     |  |                                      
|                                                                                                                                     |  | (in thousands, except per share data)
|Net loss, as reported                                                                                                                |  | $                                     | (15,614 | )    |  | $    | (44,980 | ) |  | $ | (13,516 | )
|Add: stock-based compensation expense included in
    reported net loss, net of related tax effects                                  |  |                                       | 411     |      |  |      | 1,036   |   |  |   | 1,514   |  
|Deduct: total stock-based compensation expense
    determined under fair value method for all awards, net of
    related tax effects |  |                                       | (46,833 | )    |  |      | (6,626  | ) |  |   | (66,889 | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |         |  
|Net loss, pro forma                                                                                                                  |  | $                                     | (62,036 | )    |  | $    | (50,570 | ) |  | $ | (78,891 | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share, as reported                                                                                    |  | $                                     | (0.20   | )    |  | $    | (0.58   | ) |  | $ | (0.19   | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share, pro forma                                                                                      |  | $                                     | (0.78   | )    |  | $    | (0.65   | ) |  | $ | (1.13   | )
|                                                                                                                                     |  |                                       |         |      |  |      |         |   |  |   |         |  

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 $6.04, $16.23 and $23.23 for options
granted during 2002, 2001 and 2000, respectively. The
weighted-average fair value of shares granted issued under the
Purchase Plan was $3.57, $5.63 and $2.44 for 2002, 2001 and
2000, respectively.

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 will be made from time to time in the open market and
will be funded from available working capital. The number of
shares to be purchased and the timing of purchases will be based
on the level of the Companys cash balances, general
business and market conditions, and other factors, including
alternative investment opportunities. In 2002, the Company
purchased 352,234 shares at a cost of $1.8 million. These
shares were retired and reclassified as authorized and unissued
shares of common stock.

10.     Accumulated
Other Comprehensive Income (Loss)

The components of accumulated other comprehensive
income (loss) as of December 31, 2002 and 2001, as
presented in the Consolidated Statements of Stockholders
Equity, are as follows (in thousands):

|                                        |  |              |       |              |  |   |     | 
|--------------------------------------- |  | ------------ | ----- | ------------ |  | - | --- | 
|                                        |  | December 31, |       | December 31,
|                                        |  | 2002         |       | 2001        
|                                        |  |              |       |             
|Unrealized gain on investments          |  | $            | 723   |              |  | $ | 418 | 
|Foreign currency translation adjustment |  |              | 1,117 |              |  |   | 334 | 
|                                        |  |              |       |              |  |   |     | 
|Accumulated other comprehensive income  |  | $            | 1,840 |              |  | $ | 752 | 
|                                        |  |              |       |              |  |   |     | 

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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

11.     Income
Taxes

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

|         |         |                         |     |      |  |      |       |       |  |   |       |       | 
|-------- | ------- | ----------------------- | --- | ---- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|         |         |                        
|         |         | Year Ended December 31,
|         |         |                        
|         |         | 2002                    |     | 2001 |  | 2000
|         |         |                         |     |      |  |     
|         |         |                        
|         |         | (in thousands)         
|Current: |         |                         |     |      |  |      |       |       |  |   |       |      
|         | Federal |                         | $   |     |  |      | $     | 76    |  |   | $     | 2,111 | 
|         | State   |                         |     | 50   |  |      |       | 55    |  |   |       | 101   | 
|         | Foreign |                         |     | 871  |  |      |       | 1,173 |  |   |       | 1,133 | 
|         |         |                         |     |      |  |      |       |       |  |   |       |      
|         |         | $                       | 921 |      |  | $    | 1,304 |       |  | $ | 3,345 |      
|         |         |                         |     |      |  |      |       |       |  |   |       |      

The foreign income tax provision for
December 31, 2002 of $0.9 million included a benefit
of approximately $0.5 million attributable to the reversal
of foreign income taxes accrued in prior periods due to a change
in estimate.

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

|         |  |                         |         |      |  |      |         |   |  |   |         |  
|-------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2002                    |         | 2001 |  | 2000
|         |  |                         |         |      |  |     
|         |  |                        
|         |  | (in thousands)         
|Domestic |  | $                       | (8,218  | )    |  | $    | (36,103 | ) |  | $ | (12,745 | )
|Foreign  |  |                         | (6,475  | )    |  |      | (7,573  | ) |  |   | 2,574   |  
|         |  |                         |         |      |  |      |         |   |  |   |         |  
|         |  | $                       | (14,693 | )    |  | $    | (43,676 | ) |  | $ | (10,171 | )
|         |  |                         |         |      |  |      |         |   |  |   |         |  

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,
|                                              |  |                        
|                                              |  | 2002                    |        | 2001 |  | 2000
|                                              |  |                         |        |      |  |     
|                                              |  |                        
|                                              |  | (in thousands)         
|Income tax benefit computed at statutory rate |  | $                       | (5,143 | )    |  | $    | (15,286 | ) |  | $ | (3,560 | )
|Federal alternative minimum taxes             |  |                         |       |      |  |      | 76      |   |  |   | 2,794  |  
|State taxes                                   |  |                         | 33     |      |  |      | 36      |   |  |   | 65     |  
|Foreign income tax                            |  |                         | 871    |      |  |      | 1,173   |   |  |   | 1,133  |  
|Non-deductible purchased technology           |  |                         |       |      |  |      | 5,506   |   |  |   | 1,791  |  
|Non-deductible merger costs                   |  |                         |       |      |  |      |        |   |  |   | 797    |  
|Amortization of deferred stock compensation   |  |                         | 77     |      |  |      | 363     |   |  |   |       |  
|Valuation allowance                           |  |                         | 4,861  |      |  |      | 8,724   |   |  |   |       |  
|Other                                         |  |                         | 222    |      |  |      | 712     |   |  |   | 325    |  
|                                              |  |                         |        |      |  |      |         |   |  |   |        |  
|                                              |  | $                       | 921    |      |  | $    | 1,304   |   |  | $ | 3,345  |  
|                                              |  |                         |        |      |  |      |         |   |  |   |        |  

64



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                |                                                         |                |        |         |   |   |        |         |  
|------------------------------- | ------------------------------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                                |                                                         |               
|                                |                                                         | December 31,  
|                                |                                                         |               
|                                |                                                         | 2002           |        | 2001   
|                                |                                                         |                |        |        
|                                |                                                         |               
|                                |                                                         | (in thousands)
|Deferred tax assets:            |                                                         |                |        |         |   |   |        |        
|                                | Net operating loss carryforwards                        |                | $      | 24,075  |   |   | $      | 27,783  |  
|                                | Tax credit carryforwards                                |                |        | 8,831   |   |   |        | 5,180   |  
|                                | Deferred revenue                                        |                |        | 12,588  |   |   |        | 2,860   |  
|                                | Reserves and accrued costs not currently
    deductible |                |        | 9,024   |   |   |        | 10,932  |  
|                                | Amortization of intangibles                             |                |        | 2,967   |   |   |        | 1,979   |  
|                                | Capitalized research and development                    |                |        | 1,494   |   |   |        | 1,309   |  
|                                |                                                         |                |        |         |   |   |        |        
|Total gross deferred tax assets |                                                         |                | 58,979 |         |   |   | 50,043 |        
|                                | Valuation allowance                                     |                |        | (58,979 | ) |   |        | (50,043 | )
|                                |                                                         |                |        |         |   |   |        |        
|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 upon the weight of available evidence, 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 increased by
$8.9 million, $11.7 million and 25.8 million
during the years ended December 31, 2002, 2001, and 2000
respectively.

As of December 31, 2002, approximately
$38.2 million of the valuation allowance reflected above
relates to the tax benefits of stock option deductions, which
will be credited to equity when realized.

As of December 31, 2002, the Company has
federal and state net operating loss carryforwards of
approximately $67.6 million and $6.9 million,
respectively. The Company also had federal and state research
and development tax credit carryforwards of approximately
$4.2 million and $4.1 million, respectively and
foreign tax credits of approximately $2.0 million. The net
operating loss carryforwards and tax credit carryforwards will
expire at various times beginning in 2009, if not utilized.

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.

12.     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 calender year
2002. The Company expensed $0, $0.8 million and
$0.6 million in 2002, 2001 and 2000, respectively, 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.

65



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.     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 2002, 2001 or 2000.
Net revenue from international customers accounted for 26%, 28%
and 20% of total net revenue in 2002, 2001 and 2000,
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,
|              |  |                        
|              |  | 2002                    |         | 2001 |  | 2000
|              |  |                         |         |      |  |     
|              |  |                        
|              |  | (in thousands)         
|North America |  | $                       | 145,178 |      |  | $    | 143,614 |  |  | $ | 124,785 | 
|Europe        |  |                         | 46,132  |      |  |      | 52,252  |  |  |   | 30,851  | 
|Other         |  |                         | 4,131   |      |  |      | 4,279   |  |  |   | 966     | 
|              |  |                         |         |      |  |      |         |  |  |   |         | 
|              |  | $                       | 195,441 |      |  | $    | 200,145 |  |  | $ | 156,602 | 
|              |  |                         |         |      |  |      |         |  |  |   |         | 

14.     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, 2002 and 2001. To
date, the Companys product warranty expense has not been
significant.

15.     Related Party
Transaction

Mark A. Bertelsen, a director of Informatica
since September 2002, serves as a member of Wilson Sonsini
Goodrich & Rosati (WGSR), our principal outside legal
counsel. Fees paid by the Company to WSGR for legal services
rendered for the years ended December 31, 2002, 2001 and
2000 were $0.2 million, $0.2 million and $0,
respectively. The Company believes that the services rendered by
WSGR were provided on terms no more or less favorable than those
with unrelated parties.

16.     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 now
captioned as 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.).

On or about April 19, 2002, plaintiffs
electronically served an amended complaint. The amended
complaint is brought purportedly on behalf of all persons who
purchased the Companys common stock from

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INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

April 29, 1999 through December 6,
2000. It names as defendants the Company, one of the
Companys current officers; one of the Companys
former officers; and several investment banking firms that
served as underwriters of the Companys April 29, 1999
initial public offering and September 28, 2000 secondary
public offering. The amended complaint alleges liability as to
all defendants under Sections 11 and 15 of the Securities
Act of 1933 and Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, on the grounds that the registration
statement 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 amended complaint also
alleges that false analyst reports were issued. No specific
damages are claimed.

The Company is aware that similar allegations
have been made in other lawsuits filed in the Southern District
of New York challenging over 300 other initial public offerings
and secondary offerings conducted in 1999 and 2000. Those cases
have been consolidated for pretrial purposes before the
Honorable Judge Shira A. Scheindlin. On July 15, 2002, the
Company and its affiliated individual defendants (as well as all
other issuer defendants) filed a motion to dismiss the
complaint. On February 19, 2003, the Court ruled on the
motions to dismiss. The Court denied the motions to dismiss
claims under the Securities Act of 1933 in all but ten of the
cases, including the case involving the Company. The Court
denied the motion to dismiss the claim under Section 10(a)
of the Securities Exchange Act of 1934 against the Company and
184 other issuer defendants, on the basis that the respective
amended complaints alleged that the issuers had acquired
companies or conducted follow-on offerings after their initial
public offerings. The Court denied the motion to dismiss the
claims under Section 10(a) and 20(a) of the Securities
Exchange Act of 1934 against the Informatica individual
defendants and sixty-two other individual defendants, on the
basis that the respective amended complaints alleged that the
individuals sold stock. The Company believes that it has
meritorious defenses to the claims against it, and intends to
defend itself vigorously.

On July 15, 2002, the Company filed a patent
infringement action in U.S. District Court in Northern
California against Acta Technology, Inc. (Acta),
asserting that certain Acta products infringe on three of the
Companys 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 Company 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 products, as well as damages for past sales of the
infringing products. The Company has asserted that Actas
infringement of the Informatica patents was willful and
deliberate. Acta answered the complaint on September 5,
2002, and filed counterclaims against the Company seeking a
declaration that each patent asserted is not infringed and is
invalid and unenforceable. Acta did not make any claims for
monetary relief against the Company. The case is currently in
the claim construction and discovery phase.

The Company is aware that a putative class action
complaint titled Lui v. Credit Suisse First Boston
Corporation et al, No. 03-20459, has been filed in the
United States District Court, Southern District of Florida. The
complaint purports to allege securities fraud, fraud, and
negligent misrepresentation claims against: (1) Credit
Suisse First Boston; (2) numerous companies whose initial
public offerings were underwritten by Credit Suisse First
Boston, including the Company; and (3) certain officers or
directors of those companies, including two individuals
affiliated with the Company at the time of the initial public
offering. No specific amount of damages is claimed.

67



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##### Table of Contents



INFORMATICA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company is also 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 these
matters is not expected to have a material adverse impact on the
Companys results of operations, cash flows or its
financial position. However, depending on the amount and timing,
an unfavorable resolution of any of these matters could
materially and adversely affect the Companys future
results of operations, cash flows or financial position in a
particular period.



|    |                                                               
|--- | --------------------------------------------------------------
|17. | Selected Quarterly Consolidated Financial Data
    (Unaudited)

|                                                               |                   |                                       |        |          |   |               |         |              |   |   |         |        |   |   |         |        |  
|-------------------------------------------------------------- | ----------------- | ------------------------------------- | ------ | -------- | - | ------------- | ------- | ------------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                                               |                   |                                      
|                                                               |                   | 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                                                   |                   |                                       | 37,270 |          |   |               | 37,699  |              |   |   | 36,504  |        |   |   | 38,537  |       
|Amortization of stock-based compensation                       |                   |                                       | 73     |          |   |               | 65      |              |   |   | 52      |        |   |   | 31      |       
|Amortization of other intangible assets                        |                   |                                       | 285    |          |   |               | 285     |              |   |   | 285     |        |   |   | 285     |       
|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 |  
|                                                              
|2001:                                                          |                   |                                       |        |          |   |               |         |              |   |   |         |        |   |   |         |       
|Total revenues(1)                                              |                   | $                                     | 54,898 |          |   | $             | 47,824  |              |   | $ | 47,093  |        |   | $ | 50,330  |       
|Gross profit                                                   |                   |                                       | 43,323 |          |   |               | 36,547  |              |   |   | 34,968  |        |   |   | 38,268  |       
|Amortization of stock-based compensation                       |                   |                                       | 356    |          |   |               | 316     |              |   |   | 277     |        |   |   | 87      |       
|Amortization of goodwill and other intangible
    assets       |                   |                                       | 6,594  |          |   |               | 6,795   |              |   |   | 6,994   |        |   |   | 6,993   |       
|Restructuring charges                                          |                   |                                       |       |          |   |               |        |              |   |   | 12,096  |        |   |   |        |       
|Loss from operations                                           |                   |                                       | (2,939 | )        |   |               | (10,129 | )            |   |   | (29,321 | )      |   |   | (10,247 | )     
|Net loss                                                       |                   |                                       | (1,913 | )        |   |               | (7,542  | )            |   |   | (26,983 | )      |   |   | (8,542  | )     
|Net loss per share:                                            |                   |                                       |        |          |   |               |         |              |   |   |         |        |   |   |         |       
|                                                               | Basic and diluted |                                       | $      | (0.02    | ) |               | $       | (0.10        | ) |   | $       | (0.35  | ) |   | $       | (0.11  | )
|Shares used in calculation of net loss per share:              |                   |                                       |        |          |   |               |         |              |   |   |         |        |   |   |         |       
|                                                               | Basic and diluted |                                       |        | 76,628   |   |               |         | 77,307       |   |   |         | 78,038 |   |   |         | 78,400 |  



---



|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Services revenues and cost of service revenues
    have been reclassified for 2001 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.

68



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##### Table of Contents








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

Not applicable.




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 2003 Annual Meeting to be held on
May 22, 2003 (the 2003 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 2003 Proxy Statement and is incorporated
herein by reference.






|         |                       
|-------- | ----------------------
|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 2003 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 2003 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 2003 Proxy Statement and is incorporated herein by reference.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Evaluation of disclosure controls and
procedures

Our chief executive officer and our chief
financial officer, after evaluating our disclosure
controls and procedures (as defined in Securities Exchange
Act of 1934 (the Exchange Act) Rules 13a-14(c)
and 15d-14(c)) as of a date (the Evaluation Date)
within 90 days before the filing date of this Annual Report
on Form 10-K, have concluded that as of the Evaluation
Date, 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 Securities and Exchange Commission rules and forms.

(b) Changes in internal controls

Our review of our internal controls was made
within the context of the relevant professional auditing
standards defining internal controls,
significant deficiencies, and material
weaknesses. Internal controls are processes
designed to provide reasonable assurance that our transactions
are properly authorized, our assets are safeguarded against
unauthorized or improper use, and our transactions are properly
recorded and reported, all to permit the preparation of our
financial statements in conformity with generally accepted
accounting principles. Significant deficiencies are
referred to as reportable conditions, or control
issues that could have a significant adverse effect on the
ability to record, process, summarize and report financial data
in the financial statements. A material weakness is
a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that
misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and
not be detected within

69



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##### Table of Contents



a timely period by employees in the normal course
of performing their assigned functions. As part of our internal
controls procedures, we also address other, less significant
control matters that we or our auditors identify, and we
determine what revision or improvement to make, if any, in
accordance with our on-going procedures. Subsequent to the
Evaluation Date, there were no significant changes in our
internal controls or in other factors that could significantly
affect our internal controls, including any corrective actions
with regard to significant deficiencies or material weaknesses.





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

None.

70



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##### Table of Contents






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 19th day of March 2003.



| |                             
| | ----------------------------
| | 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 19, 2003
|                                      
|/s/ EARL E. FRYEarl E. Fry             |  | Chief Financial Officer, Senior Vice President,
    and Secretary (Principal Financial and Accounting Officer) |  | March 19, 2003
|                                      
|/s/ DAVID W. PIDWELLDavid W. Pidwell   |  | Director                                                                                                       |  | March 19, 2003
|                                      
|/s/ A. BROOKE SEAWELLA. Brooke Seawell |  | Director                                                                                                       |  | March 19, 2003
|                                      
|/s/ JANICE D. CHAFFINJanice D. Chaffin |  | Director                                                                                                       |  | March 19, 2003
|                                      
|/s/ MARK A. BERTELSENMark A. Bertelsen |  | Director                                                                                                       |  | March 19, 2003

71



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##### Table of Contents






CERTIFICATIONS

I, Gaurav S. Dhillon, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Informatica Corporation;                                                                                                                                                                                                                                                             
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                        



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                                          
| | -----------------------------------------
| | /s/ GAURAV S. DHILLON                    
| |                                          
| | Gaurav S. Dhillon                        
| | Chief Executive Officer and
    President

Dated: March 19, 2003

72



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##### Table of Contents



I, Earl E. Fry, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Informatica Corporation;                                                                                                                                                                                                                                                             
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                        



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                                                      
| | -----------------------------------------------------
| | /s/ EARL E. FRY                                      
| |                                                      
| | Earl E. Fry                                          
| | Chief Financial Officer and Senior Vice
    President

Dated: March 19, 2003

73



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##### Table of Contents



INFORMATICA CORPORATION






SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


(In thousands)


|                                |  |             |     |            |  |            |       |             |  |   |        |   |  |   |     | 
|------------------------------- |  | ----------- | --- | ---------- |  | ---------- | ----- | ----------- |  | - | ------ | - |  | - | --- | 
|                                |  | Balances at |     | Charged to |  |            |       | Balances at
|                                |  | Beginning   |     | Costs and  |  |            |       | End of     
|                                |  | of Period   |     | Expenses   |  | Deductions |       | Period     
|                                |  |             |     |            |  |            |       |            
|Provision for Doubtful Accounts |  |             |     |            |  |            |       |             |  |   |        |   |  |   |     | 
|Year ended December 31, 2002    |  | $           | 425 |            |  | $          | 1,181 |             |  | $ | (1,145 | ) |  | $ | 461 | 
|Year ended December 31, 2001    |  | $           | 826 |            |  | $          | 533   |             |  | $ | (934   | ) |  | $ | 425 | 
|Year ended December 31, 2000    |  | $           | 937 |            |  | $          | 242   |             |  | $ | (353   | ) |  | $ | 826 | 

|                             |  |             |       |            |  |            |       |             |  |   |        |   |  |   |       | 
|---------------------------- |  | ----------- | ----- | ---------- |  | ---------- | ----- | ----------- |  | - | ------ | - |  | - | ----- | 
|                             |  | Balances at |       |            |  |            |       | Balances at
|                             |  | Beginning   |       | Charged to |  |            |       | End of     
|                             |  | of Period   |       | Revenue    |  | Deductions |       | Period     
|                             |  |             |       |            |  |            |       |            
|Sales and Return Allowances  |  |             |       |            |  |            |       |             |  |   |        |   |  |   |       | 
|Year ended December 31, 2002 |  | $           | 1,870 |            |  | $          | 425   |             |  | $ | (1,407 | ) |  | $ | 888   | 
|Year ended December 31, 2001 |  | $           | 3,032 |            |  | $          | 1,186 |             |  | $ | (2,348 | ) |  | $ | 1,870 | 
|Year ended December 31, 2000 |  | $           | 1,040 |            |  | $          | 2,506 |             |  | $ | (514   | ) |  | $ | 3,032 | 

74



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EXHIBIT INDEX

|        |       |   |  |          |  |                                                                                                                                                                                                                                                        
|------- | ----- | - |  | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |   |  |         
|Number  |       |   |  | Document
|        |       |   |  |         
|        | 3.1   |   |  |          |  | Amended and Restated Certificate of Incorporation
    of Informatica Corporation.(1)                                                                                                                                                                   
|        | 3.2   |   |  |          |  | Bylaws, as amended, of Informatica Corporation.(1)                                                                                                                                                                                                     
|        | 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.(2)
|        | 3.5   |   |  |          |  | Certificate of Designation of the Rights,
    Preferences and Privileges of Series A Participating
    Preferred Stock of Informatica Corporation.(3)                                                                                                  
|        | 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.(3)                                                                                                
|        | 10.1  | * |  |          |  | Companys 2000 Employee Stock Incentive
    Plan, as amended.(4)                                                                                                                                                                                       
|        | 10.6  | * |  |          |  | Form of Indemnification Agreement between the
    Company and each of its executive officers and directors.(1)                                                                                                                                         
|        | 10.10 | * |  |          |  | Companys 1996 Flexible Stock Incentive
    Plan, including forms of agreements thereunder.(5)                                                                                                                                                         
|        | 10.11 | * |  |          |  | Companys 1999 Stock Incentive Plan, as
    amended.(6)                                                                                                                                                                                                
|        | 10.12 | * |  |          |  | Companys 1999 Employee Stock Purchase Plan,
    as amended, including forms of agreements thereunder.(7)                                                                                                                                              
|        | 10.13 | * |  |          |  | Companys 1999 Non-Employee Director Stock
    Incentive Plan.(1)                                                                                                                                                                                      
|        | 10.14 |   |  |          |  | Lease Agreement regarding Building 1 Lease, dated
    as of February 22, 2000, by and among the Company and
    Pacific Shores Center LLC.(8)                                                                                                          
|        | 10.15 |   |  |          |  | Lease Agreement regarding Building 2 Lease, dated
    as of February 22, 2000, by and among the Company and
    Pacific Shores Center LLC.(8)                                                                                                          
|        | 10.16 | * |  |          |  | Offer Letter, dated as of July 2, 2001, by
    and among the Company and Kyle L. Bowker. (9)                                                                                                                                                           
|        | 10.17 | * |  |          |  | Severance Agreement and Mutual Release, dated as
    of July 29, 2002, by and among the Company and Diaz H.
    Nesamoney. (10)                                                                                                                        
|        | 10.18 | * |  |          |  | Severance Agreement and Mutual Release, dated as
    of July 31, 2002, by and among the Company and Kyle L.
    Bowker. (10)                                                                                                                           
|        | 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. (8)                                                                                                                                                                                        
|        | 21.1  |   |  |          |  | List of Subsidiaries.                                                                                                                                                                                                                                  
|        | 23.2  |   |  |          |  | Consent of Ernst & Young LLP, Independent
    Auditors.                                                                                                                                                                                                
|        | 99.1  |   |  |          |  | 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.                                                             

75



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##### Table of Contents





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|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.
|   
|(2) | 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.                                                           
|   
|(3) | 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.                                                     
|   
|(4) | 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.                                                            
|   
|(5) | 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.                    
|   
|(6) | 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.                                                                            
|   
|(7) | 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.                                                                            
|   
|(8) | 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.                                                                         
|   
|(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 18,
    2002.                                                                         



|     |                                                                                                                                                                                                 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.



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

76