Table of Contents





UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


_______________




FORM
10-K


_______________




R           Annual report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the year ended December 31, 2008or£         Transition
      report pursuant to Section 13 or 15(d) of the SecuritiesExchange 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
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)




100
Cardinal Way


Redwood
City, California 94063


(Address
of principal executive offices and zip code)




(650)
385-5000


(Registrant’s
telephone number, including area code)


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




Title
      of each class
              Name
      of exchange on which registeredCommon
      Stock, par value $0.001 per share
              The
      NASDAQ Stock Market LLC(NASDAQ
      Global Select Market)




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


Preferred
Stock Purchase Rights




Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.R
Yes£
No




Indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.£
YesR
No




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




Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.R




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
accelerated filerR     Accelerated filer£     Non-accelerated filer£     Smaller reporting company£




Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).£YesR
No




The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2008 was approximately $1,323,812,000 (based on the
last reported sale price of $15.04 on June 30, 2008 on the NASDAQ Global Select
Market).




As of
January 30, 2009, there were approximately 87,175,000 shares of the registrant’s
Common Stock outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




Portions of
the registrant’s Proxy Statement for the registrant’s 2009 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 within120
days of the registrant’s fiscal year ended December 31,
2008.














INFORMATICA
CORPORATION





TABLE OF CONTENTS





Page No.PART IItem 1.
                                  Business
                                  2Item 1A.
                                  Risk Factors
                                  9Item 1B.
                                  Unresolved Staff
      Comments
                                  22Item 2.
                                  Properties
                                  22Item 3.
                                  Legal Proceedings
                                  22Item 4.
                                  Submission of Matters to a Vote
      of Security Holders
                                  22PART IIItem 5.
                                  Market for Registrant’s Common
      Equity, Related Stockholder Matters, and Issuer Purchases of Equity
      Securities
                                  23Item 6.
                                  Selected Financial
      Data
                                  25Item 7.
                                  Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                  26Item 7A.
                                  Quantitative and Qualitative Disclosures About
      Market
      Risk
                                  44Item 8.
                                  Financial Statements and Supplementary
      Data
                                  45Item 9.
                                  Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure
                                  85Item 9A.
                                  Controls and
      Procedures
                                  85Item 9B.
                                  Other
      Information
                                  85PART IIIItem 10.
                                  Directors, Executive Officers, and
      Corporate
      Governance
                                  85Item 11.
                                  Executive
      Compensation
                                  86Item 12.
                                  Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters
                                  86Item 13.
                                  Certain Relationships and Related
      Transactions, and Director
      Independence
                                  86Item 14.
                                  Principal Accountant Fees and
      Services
                                  87PART IVItem 15.
                                  Exhibits, Financial Statement
      Schedules
                                  87Signatures
                                  88EXHIBIT 10.20EXHIBIT 10.21EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1





1
 Table of Contents





PART I





ITEM 1. BUSINESS





Overview





Informatica
Corporation (“Informatica”) is the leading independent provider of enterprise
data integration and data quality software and services. Informatica’s mission
is to enable organizations to gain a competitive advantage in today’s global
information economy by empowering them to access, integrate, and rely on their
information assets. Informatica’s open, platform-neutral software accesses data
of virtually all types and makes such data accessible and usable to the people
and processes that need such information. Informatica software handles a wide
variety of complex enterprise-wide data integration initiatives, including: data
migration, data consolidation, data synchronization, data warehousing, data
quality and the establishment of data hubs, data services, cross-enterprise data
exchange, and integration competency centers. The Informatica data integration
platform is a comprehensive set of technologies for accessing, discovering,
cleansing, integrating, and delivering timely, trusted data to the extended
enterprise.





Informatica’s
platform enables and accelerates data integration initiatives, allowing
enterprises to meet new business requirements by utilizing cost-effective
information technology (IT) systems to reduce overall IT expenses by extending
and adapting IT systems and to implement best practices.





We have
also introduced solutions designed to meet the on-demand data needs of the
software-as-a-service market. Using our products, business users can gain a
holistic and consistent view of their enterprise information. IT management can
be more responsive to the business demands for information—despite dramatically
increasing data volumes and real-time delivery requirements—and IT developers
benefit from reduced time to results and significant productivity
gains.





During
the last two decades, companies have made significant investments in process
automation resulting in islands of data created by a variety of packaged
transactional applications—such as enterprise resource planning (ERP), customer
relationship management (CRM), and supply chain management (SCM) software—and
custom operational systems deployed in various departments. The ultimate goal of
deploying these applications was to make businesses more efficient through
automation. However, these applications have further increased data
fragmentation and complexity throughout the enterprise because they generate
massive volumes of data in disparate software systems that were not designed to
share data. As these systems have proliferated, the challenge of data
fragmentation has intensified, leaving companies to grapple with multiple data
silos, multiple data formats, multiple data definitions and, most notably,
highly varied data quality.





Organizations
are now finding that the strategic value of information technology goes far
beyond process automation. Companies of all sizes require information to run
their business, and most information is derived from data. Operational
activities generate a constant flow of data inside and outside the enterprise,
but unless the various data streams can be integrated, and the quality of that
data is ensured, the amount of real and useful business information derived from
such data would be limited. Companies are realizing that they must integrate a
wide variety of data—structured, semi-structured, and unstructured—to support
their business processes, such as providing a single view of the customer,
migrating away from legacy systems to new technologies, or consolidating
multiple instances of an ERP system. They are also realizing that it is
imperative to implement data quality processes to measure, monitor, track, and
improve the quality of data delivered to the business.





Today
businesses around the world continue to validate that data is a critical asset
and can be a differentiator in the market. In order for companies to keep pace
with the rapid acceleration of mergers and acquisitions as well as the
proliferation of compliance regulations, companies need to streamline their data
integration efforts to manage their data more effectively. The data must be easy
to access, reliable, and delivered in a format in which users can gain valuable
insights into their organization.





With
Informatica’s robust enterprise data integration platform, business and IT
decision makers can facilitate sophisticated information delivery across the
enterprise. In the current economic environment, companies are focused on
tightening budgets, return on investment, reduced risk, and cost effectiveness.
Based on an open, platform-neutral architecture, the Informatica platform is
designed to access, discover, cleanse, integrate, and deliver data among a large
variety of enterprise systems, in a wide variety of formats at a lower total
cost of ownership of such data than the cost associated with traditional
hand-coding. The Informatica platform addresses challenges of data integration
as a mission-critical, enterprise-wide solution to complex problems such as
migrating off of legacy systems, consolidating application instances, assisting
with compliance, and synchronizing data across multiple operational
systems.





2
 Table of Contents





In 2008,
we continued to broaden the applicability of our technology, expand our sales
coverage globally, and focus on product innovation.





We have
more than 3,450 customers worldwide, representing a variety of industries,
ranging from energy and utilities, financial services, insurance, government and
public agencies, healthcare, high technology, manufacturing, retail, services,
telecommunications, and transportation. We market and sell our software and
services through our sales operations in North and Latin America (including
Brazil, Canada, Mexico, and the United States), Europe (including Austria,
Belgium, France, Germany, Ireland, the Netherlands, Portugal, Spain,
Switzerland, and the United Kingdom), and Asia-Pacific (including Australia,
China, Hong Kong, India, Japan, the Philippines, Singapore, South Korea, and
Taiwan). We maintain relationships with a variety of strategic partners to
jointly develop, market, sell, recommend, and/or implement our solutions. We
also have relationships with distributors in various regions, including Europe,
Asia-Pacific, and Latin America, who sublicense our products and provide
services and support within their territories.





We began
selling our first products in 1996. Through December 31, 2008, substantially all
of our revenues have been derived from the sale of our data integration
products/platform (and related services): Informatica PowerCenter, Informatica
PowerExchange, Informatica Data Explorer, Informatica Data Quality, Informatica
Identity Resolution, Informatica B2B Data Exchange, Informatica B2B Data
Transformation, and Informatica On Demand.





Our
corporate headquarters are located at 100 Cardinal Way, Redwood City, California
94063, and our telephone number at that location is (650) 385-5000. We can 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.





Copies 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) are
available, free of charge, on our Web site as soon as reasonably practicable
after such material is electronically filed with the Securities and Exchange
Commission (SEC). The SEC also maintains a Web site that contains our SEC
filings. The address of the site is www.sec.gov.








Recent
Events





On
February 13, 2009, the Company acquired Applimation, Inc. (“Applimation”), a
private company incorporated in Delaware, providing application Information
Lifecycle Management (ILM) technology. The acquisition extends Informatica’s
data integration software to include Applimation’s technology. Informatica
acquired all the capital stock of Applimation in a cash merger transaction
valued at approximately $40 million.








Our
Products





Informatica
products enable organizations to gain a competitive advantage in today’s global
information economy by empowering them to access, integrate, and rely on their
information assets. These products comprise a single, comprehensive, unified,
open data integration platform that addresses data integration requirements
within the enterprise and beyond.





The
following products are included in the Informatica platform:





Informatica
PowerCenteraccesses, discovers, and
integrates data from virtually any business system, in almost any format, and
delivers that data throughout the enterprise at almost any speed to improve
operational efficiency. Highly available, high-performing, and fully scalable,
Informatica PowerCenter serves as the foundation for data integration projects
and enterprise integration initiatives. There are three editions of Informatica
PowerCenter:





●
                Informatica
      PowerCenter Standard Edition includes a high-performance data
      integration server, a global metadata infrastructure, visual tools for
      development and centralized administration, and productivity tools to
      facilitate collaboration among architects, analysts, and
      developers.





●
                  Informatica
      PowerCenter Real Time Edition extends PowerCenter Standard Edition
      with additional capabilities for integrating and provisioning
      transactional or operational data in real time. PowerCenter Real Time
      Edition provides
a





3
 Table of Contents





foundation
for developing sophisticated data services and delivering timely information as
a service to support business needs. Key features include change data capture
for relational data sources, integration with messaging systems, built-in
support for Web services, dynamic partitioning with data smart parallelism, and
process orchestration and human workflow capabilities.





●
              Informatica
      PowerCenter Advanced Editionaddresses
      requirements for organizations that are standardizing data integration at
      an enterprise level, across a number of projects and departments. It
      combines all the capabilities of PowerCenter Standard Edition and features
      additional capabilities that are ideal for data governance and integration
      competency centers, including dynamic partitioning with data smart
      parallelism and powerful capabilities in metadata analysis, team-based
      development, and Web-based data profiling and
  reporting.





Additionally,
many options are available to extend Informatica PowerCenter’s core data
integration capabilities:





1.
              PowerCenter
      Data Cleanse and Match Option features powerful, integrated
      cleansing and matching capabilities to correct and remove duplicate
      customer data.





2.
              PowerCenter
      Data Federation Option enables a combination of traditional
      physical and virtual data integration in a single
  platform.





3.
              PowerCenter
      Data Masking Option protects sensitive, private information by
      masking it in flight to reduce the risk of security and compliance
      breaches.





4.
              PowerCenter
      Enterprise Grid Option enhances scalability and delivers optimized
      performance while reducing the administrative overhead of supporting grid
      computing environments.





5.
              PowerCenter
      High Availability Option minimizes service interruptions during
      hardware and/or software outages and reduces costs associated with data
      downtime.





6.
              PowerCenter
      Metadata Exchange Options coordinate technical and business
      metadata from data modeling tools, business intelligence tools, source and
      target database catalogs, and PowerCenter
  repositories.





7.
                PowerCenter
      Partitioning Option helps IT organizations maximize their
      technology investments by enabling hardware and software to jointly scale
      to handle large volumes of data and
users.





8.
              PowerCenter
      Pushdown Optimization Option enables data transformation
      processing, where appropriate, to be “pushed down” into relational
      databases to make better use of existing database
  assets.





9.
              PowerCenter
      Team-Based Development Option facilitates collaboration among
      development, quality assurance, and production administration teams and
      across geographically disparate
teams.





10.
              PowerCenter
      Unstructured Data Option expands data access capabilities to
      include unstructured data formats, providing near universal access to all
      enterprise data formats.





Informatica
PowerExchange is a family of data access products that enable IT
organizations to access virtually all sources of enterprise data without having
to develop custom data access programs. With the ability to access
mission-critical operational data and deliver such data throughout the
enterprise, wherever and whenever needed, IT organizations can optimize limited
resources and the business value of data. Dozens of different data sources and
targets are supported, including enterprise applications, databases and data
warehouses, mainframes, midrange systems, messaging systems, and technology
standards.





Informatica
Data Explorerdelivers a complete
picture of the content, quality, and structure of enterprise data. Combining
powerful data profiling and mapping capabilities with an easy-to-use-interface,
Informatica Data Explorer empowers business information owners to investigate,
document, and resolve data quality issues.





Informatica
Data Qualityputs control of data
quality processes into the hands of business information owners. Combining
powerful data analysis, cleansing, matching, reporting, and monitoring
capabilities with an easy-to-use-interface, Informatica Data Quality empowers
business information owners to implement and manage enterprise-wide data quality
initiatives.





4
 Table of Contents








Informatica
Identity Resolutionis a robust, highly
scalable identity resolution software that enables companies and government
organizations to search and match identity data from more than 60 languages, in
both batch and real time.





Informatica
B2B Data Exchangeprovides a comprehensive
technology infrastructure for multi-enterprise data integration, partner
management, and business event monitoring. It helps companies collaborate
efficiently and cost-effectively with their extended networks of trading
partners and customers, which helps companies to reduce costs and protect and
grow revenue streams.





Informatica
B2B Data Transformation is a high-performance software that converts
structured and unstructured data to and from more broadly consumable data
formats to support business-to-business and multi-enterprise transactions. This
single, unified codeless environment supports virtually any-to-any data
transformation and is accessible to multiple business levels within the
organization: analysts, developers, and programmers.





Informatica
On Demandsolutions help companies
of almost any size and ensure that their Salesforce CRM environment is
synchronized with corporate IT business systems and maintained with a high level
of data quality. With this family of data integration solutions, companies can
integrate Salesforce CRM data with the rest of the enterprise to ensure data
accuracy, drive business decisions and operations, and derive additional value
from their Salesforce CRM investment.








Services





Informatica
offers a comprehensive set of services, including product-related customer
support, consulting services, and education services. Through strategically
located Support Centers in the United States, the United Kingdom, the
Netherlands, Japan, Brazil, and India, we support Informatica software
deployments—be it a regional installation or a geographically dispersed project.
Informatica’s Global Customer Support offers a well-engineered and comprehensive
set of support programs tailored to fit customer needs. Customers and partners
can access our 24x7 technical support over the phone using toll-free lines, via
email, and online through Informatica’s Web portal
“my.informatica.com.”





Our
consulting services range from the initial configuration of our products with
knowledge transfer to customers and partners to designing and implementing
custom data integration/transformation solutions, and from project audit and
performance tuning services to helping customers implement best practices for
their integration competency centers (ICCs). An ICC is a shared IT function that
enables project teams to complete data integration efforts rapidly and
efficiently by following best-practice processes, leveraging the expertise of
staff with integration-specific roles, and using standard technologies. Our
consulting strategy is to provide specialized expertise on our products to
enable our customers and partners to successfully implement their customized
business solutions using our data integration and data quality
products.





Informatica’s
Professional Services consultants use a services methodology called Informatica
Velocity to guide the successful implementation of our software. Our services
methodology reflects the best practices that Informatica has developed and
refined through hundreds of successful projects. Informatica Velocity covers
each of the major implementation project phases, including manage, analyze,
design, build, test, deploy, and operate. Where applicable, Informatica Velocity
includes technical white papers as well as sample project documentation and even
sample implementations (mappings) of specific technical solutions.





Informatica
also offers a comprehensive role-based curriculum of product and solution
oriented education offerings to enable our customers and strategic partners to
build proficiency in using our products. Informatica delivers education services
in more than 45 countries and offers instructor led, virtual academy, and
eLearning delivery options to make training easy and cost effective. We have
established the Informatica Certification Program for both PowerCenter and
Informatica Data Quality, which has created a database of expert professionals
with verifiable skills in the design and administration of Informatica-based
systems.








Our
Partners





Informatica’s
partners include industry leaders in enterprise software, computer hardware, and
systems integration. We offer a comprehensive strategic partner program for
major companies in these areas so that they can provide sales and marketing
leverage, have access to required technology, and can furnish complementary
products and services to our joint customers. Our partners that resold and/or
influenced more than $2,000,000 each in license orders in 2008 are Accenture,
Affecto, EDS/Hewlett-Packard, IPI Grammtech, Microstrategy, STK Consultoria,
Tata Consultancy Services, Team DNA, Teradata, and Wipro. Our original
equipment





5
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manufacturer
(OEM) partners that generated more than $400,000 each in license orders for us
in 2008 are Hewitt Associates, Oracle and SAP.








Our
Customers





More than
3,450 companies worldwide rely on Informatica for their data integration and
data quality needs. Our customers represent a wide range of corporations and
governmental and educational institutions. Our targeted markets include energy
and utilities, financial services, government and public sector, healthcare,
high technology, insurance, manufacturing, retail, services, telecommunications,
and transportation. No single customer accounted for 10% or more of our total
revenues in 2008, 2007, or 2006.








Our
Market Strategy





Broader
Enterprise Data Integration: Beyond the Data Warehouse.Our goal is to be
the market leader in the enterprise data integration market, which includes data
migration, data consolidation, data synchronization, data warehousing, the
establishment of data hubs, data services, cross-enterprise data exchange, and
data quality. Our strategy is to grow at a rate faster than the market by
leveraging our success, knowledge, and the strength of our proven products that
have helped our customers deploy thousands of large data warehouse and data
integration initiatives. We address the growing enterprise data integration
market with a product set that we believe is well-suited to rapidly deliver
value to our customers.





The Power of the
Informatica Platform.Organizations increasingly recognize the need for
an enterprise data integration platform to support the entire data integration
lifecycle. In June 2008, at our Informatica User Conference, we announced the
Informatica Data Integration Platform. The Informatica Platform is a
comprehensive, open, unified, and economical data integration platform. It
enables organizations to access, discover, cleanse, integrate, and deliver
timely, trusted data to the extended enterprise—any data, anywhere, at any time.
It supports all roles involved in the data integration process. It handles all
types of data integration and data quality projects, and it is designed to work
with all systems and processes organizations have today, or may add in the
future. Because it promotes standardization and reuse, the Informatica Platform
is particularly well-suited for IT organizations that are being tasked to “do
more with less.” It allows them to address immediate project needs with the
highest productivity and lowest cost, and rapidly scale to address other
projects as the business demands. For us, this further strengthens our strategy
to grow beyond data warehousing and establish ourselves as the data integration
standard across the enterprise.





Advancing Product
Leadership: Growth in All Product Categories.Increasingly,
information latency requirements are demanding that data be accessed and
delivered in real time. To address this growing need, we launched the
Informatica PowerCenter Real Time Edition in June 2008. This edition offers new
capabilities that enable a broad range of operational data integration projects
requiring data movement in real time. We also expanded our Data Quality product
portfolio with the acquisition of a leading identity resolution vendor, Identity
Systems, Inc. in May 2008. This new addition, Informatica Identity Resolution,
is an increasingly important part of many data integration initiatives,
including support for mergers and acquisitions, and governance, risk and
compliance efforts. Our B2B Data Exchange products play a critical role for
organizations that need to exchange data between trading partners. Across
multiple industries, our customers benefit from built-in support for a variety
of industry-specific XML standards such as HIPAA for healthcare, ACORD for
insurance and SWIFT for financial services. Lastly, in the fourth quarter, we
introduced our fourth offering for cloud computing: the Informatica On Demand
Data Synchronization Service for salesforce.com. As the adoption of cloud
computing continues to increase, organizations will need to find effective ways
to ensure they retain control of their data. We believe that our continuous
innovation in this area positions us well to take advantage of this growing
market.





Customers,
Consulting Partners, and Third-Party Developers: Leveraging Installed
Base and Community to
Extend Informatica’s Presence.We have an installed customer base that
spans a wide range of industries. As of December 31, 2008, more than 3,450
customers worldwide and 84 of the Fortune 100 companies on the Fortune 2008 list
had licensed our products. Informatica Technology Network (formerly Informatica
Developer Network), created in 2001, has grown to over 44,000 members in more
than 160 countries using our products as a platform on which to build or
customize a specific data integration solution. These developers extend
Informatica’s presence and profile in the broad data integration market and
provide a network of knowledge that can be shared to amplify our brand and its
influence.





Partnerships and
Strategic Alliances: Extending the Ecosystem.We have alliances and
strategic partnerships with leading enterprise software providers, systems
integrators, and hardware system vendors. These alliances furnish sales and
marketing support and access to required technology, while also providing
complementary products and services for our joint customers. More than
170





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companies
help market, resell, or implement Informatica’s solution around the world.
Additionally, more than 50 companies have embedded our core products into their
own, enabling their customers to benefit from the enterprise-class data
integration we provide within their products.








Sales,
Marketing, and Distribution





We market
and sell software and services through both our direct sales force and indirect
channel partners in North America, Europe, Asia-Pacific, Latin America, and
other regions around the world. As of December 31, 2008, we employed 572 people
in our sales and marketing organization worldwide.





Marketing
programs are focused on creating awareness of Informatica and its products and
services, generating interest among new customers as well as interest in new
products within existing customers, documenting compelling customer references,
and creating up-sell/cross-sell opportunities for our products. These programs
are targeted at such key executives as chief information officers, vice
presidents of IT, and vice presidents of specific functional areas such as
marketing, sales, service, finance, human resources, manufacturing,
distribution, and procurement as well as enterprise architects and other key IT
professionals focused on data integration. Our marketing personnel engage in a
variety of activities, including positioning our software products and services,
conducting public relations programs, establishing and maintaining relationships
with industry analysts, producing collateral that describes our products,
services, and solutions, and generating qualified sales leads.





Our
global sales process consists of several phases: lead generation, opportunity
qualification, needs assessment, product demonstration, proposal generation, and
contract negotiation. Although the typical sales cycle requires three to six
months, some sales cycles have lasted substantially longer. In a number of
instances, our relationships with systems integrators and other strategic
partners have reduced sales cycles by generating qualified sales leads, making
initial customer contacts, assessing needs prior to our introduction to the
customers, and endorsing our products to the customers before their product
selection. Also, partners have assisted in the creation of presentations and
demonstrations, which we believe enhances our overall value proposition and
competitive position.





In
addition to our direct sales efforts, we distribute our products through systems
integrators, resellers, distributors, and OEM partners in the United States and
internationally. Systems integrators typically have expertise in vertical or
functional markets. In some cases, they resell our products, bundling them with
their broader service offerings. In other cases, they 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.








Research
and Development





As of
December 31, 2008, we employed 439 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 product management. Members from each
discipline, along with a product-marketing manager, form focus teams that work
closely with sales, marketing, services, customers, and prospects to better
understand market needs and user requirements. These teams utilize a
well-defined software development methodology that we believe enables us to
deliver products that satisfy real business needs for the global market while
also meeting commercial quality expectations.





When
appropriate, we also use third parties to expand the capacity and technical
expertise of our internal research and development team. On occasion, we have
licensed third-party technology. We believe this approach shortens time to
market without compromising competitive position or product quality, and we plan
to continue drawing on third-party resources as needed in the
future.





Approximately
40% of Informatica’s research and development team is based in the United States
and the remainder is based in Australia, India, Ireland, Israel, the
Netherlands, and the United Kingdom. The international development teams are
focused on development and quality assurance work of our data integration, data
quality, data transformation, and identity resolution technologies. Our
international development effort is intended to increase development
productivity and deliver innovative product capabilities. Our research and
development expenditures, which are expensed as incurred, were $72.5 million in
2008, $69.9 million in 2007, and $55.0 million in 2006.











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Competition





The
market for our products is highly competitive, quickly evolving, and subject to
rapidly changing technology. Our competition consists of hand-coding,
custom-built data integration solutions developed in-house by various companies
in the industry segments that we target, as well as vendors of integration
solutions typically used for departmental deployment, including IBM (which
acquired Ascential Software, DataMirror, and Cognos), Microsoft, Oracle (which
acquired BEA Systems, Sunopsis, Hyperion Solutions, and Siebel), SAP (which
acquired Business Objects which had acquired FirstLogic), and certain privately
held companies. With regard to data quality, we compete against SAP (which
acquired Business Objects), Trillium (which is part of Harte-Hanks), and SAS
Institute, as well as various other privately held companies.





We
currently compete on the basis of the breadth and depth of our products’
functionality as well as on the basis of price. Additionally, we compete on the
basis of certain other factors, including neutrality, dependability, user
efficiency, quality of products, services, support, and versatility. We believe
that we currently compete favorably with respect to these factors. For a further
discussion of our competition, see “Risk Factors—If we do not compete effectively with companies selling
data integration products, our revenues may not grow and could decline” in
Item 1A.








Seasonality





Our
business is influenced by seasonal factors, largely due to customer buying
patterns. In recent years, we have generally had weaker demand for our software
products and services in the first and third quarters of the year and seasonally
stronger demand in the fourth quarter, though demand in the fourth quarter of
2008 was not as strong as in a typical fourth quarter. Our consulting and
education services have sometimes been negatively impacted in the fourth and
first quarters of the year due to the holiday season and internal meetings,
which result in fewer billable hours for our consultants and fewer education
classes.








Intellectual
Property and Other Proprietary Rights





Our
success depends in part upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures, and licensing arrangements to establish and protect
our proprietary rights. As part of our confidentiality procedures, we generally
enter into non-disclosure agreements with our employees, distributors, and
corporate partners and into license agreements with respect to our software,
documentation, and other proprietary information. In addition, we have 21
patents issued in the United States, 2 patents issued in the European Union, 2
patents issued in Canada, 5 patent applications pending in the United States, 9
patent applications pending in Canada, 3 patent applications pending in the
European Union and 1 patent application pending in each Australia and New
Zealand. Our issued patents are scheduled to expire at various times through
February 2024. Where appropriate, we have also entered into patent cross-license
agreements with third parties, thereby acquiring additional intellectual
property rights which preserve our ability to pursue normal business activity
and minimize our risks in entering new and adjacent technology
markets.





Nonetheless,
our intellectual property rights may not be successfully asserted in the future
or may be invalidated, circumvented, or challenged. In addition, the laws of
various foreign countries where our products are distributed do not protect our
intellectual property rights to the same extent as U.S. laws. Our inability to
protect our proprietary information could harm our business.








Employees





As of
December 31, 2008, we had a total of 1,611 employees, including 439 people in
research and development, 572 people in sales and marketing, 407 people in
consulting, customer support, and education services, and 193 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.











8
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ITEM 1A. 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 trading price of our common stock could decline due to
any of these risks, and investors may lose all or part of their
investment.








Adverse
conditions in the U.S. or global economies could negatively affect sales of
our products and
services, and could harm our operating results, which could result in a decline
in the price of our common
stock.





As our
business has grown, we have become increasingly subject to the risks arising
from adverse changes in the domestic and global economies. We have experienced
the adverse effect of economic slowdowns in the past, which resulted in a
significant reduction in capital spending by our customers, as well as longer
sales cycles, and the deferral or delay of purchases of our
products.





The
current global recession and associated global economic conditions have resulted
in a tightening of the credit markets, low levels of liquidity in many financial
markets, and extreme volatility in credit, equity and foreign currency markets.
These conditions have affected the buying patterns of our customers and
prospects and have adversely affected our overall pipeline conversion rate as
well as our revenue growth expectations. If the conditions do not improve or
should conditions worsen, our results of operations would continue to be
adversely affected and we could fail to meet the expectations of stock analysts
and investors, which could cause the price of our common stock to
decline.





We are
investing in Asia-Pacific and Latin America, and there are significant risks
with overseas investments and our growth prospects in these regions are
uncertain. In addition, we could experience delays in the payment obligations of
our worldwide reseller customers if they experience weakness in the end-user
market, which would increase our credit risk exposure and harm our financial
condition.








If we do not
compete effectively with companies selling data integration products,
our
revenues may not grow and could decline.





The
market for our products is highly competitive, quickly evolving, and subject to
rapidly changing technology. In addition, consolidation among vendors in the
software industry continues at a rapid pace. Our competition consists of
hand-coding, custom-built data integration solutions developed in-house by
various companies in the industry segments that we target, as well as other
vendors of integration software products, including IBM (which acquired
Ascential Software, DataMirror, and Cognos), Microsoft, Oracle (which acquired
BEA Systems, Sunopsis, Hyperion Solutions, and Siebel), SAP (which acquired
Business Objects which had acquired FirstLogic), and certain privately held
companies. In the past, we have competed with business intelligence vendors that
currently offer, or may develop, products with functionalities that compete with
our products, such as Business Objects, and to a lesser degree, Cognos, and
certain privately held companies. With regard to data quality, we compete
against SAP (which acquired Business Objects), Trillium (which is part of
Harte-Hanks), and SAS Institute, as well as various other privately held
companies. Many of these competitors have longer operating histories,
substantially greater financial, technical, marketing, and other resources, and
greater name recognition than we do and may be able to exert greater influence
on customer purchase decisions. Our competitors may be able to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements. Our current and potential competitors may develop and market new
technologies that render our existing or future products obsolete, unmarketable,
or less competitive.





We
believe we currently compete on the basis of the breadth and depth of our
products’ functionality, as well as on the basis of price. We may have
difficulty competing on the basis of price in circumstances where our
competitors develop and market products with similar or superior functionality
and pursue an aggressive pricing strategy or bundle data integration technology
and data quality at no cost to the customer or at deeply discounted prices.
These difficulties may increase as larger companies target the data integration
and data quality markets. As a result, increased competition and bundling
strategies could seriously impede our ability to sell additional products and
services on terms favorable to us.





Our
current and potential competitors may make strategic acquisitions, consolidate
their operations, or establish cooperative relationships among themselves or
with other solution providers, thereby increasing their ability to provide a
broader suite of software products or solutions and more effectively address the
needs of our prospective customers. Such acquisitions could cause customers to
defer their purchasing decisions. Our current and potential competitors may
establish or strengthen cooperative relationships with our





9
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current
or future strategic partners, thereby limiting our ability to sell products
through these channels. If any of this were to occur, our ability to market and
sell our software products would be impaired. In addition, competitive pressures
could reduce our market share or require us to reduce our prices, either of
which could harm our business, results of operations, and financial
condition.








Our international
operations expose us to greater risks, including but not limited to those regarding
intellectual property, collections, exchange rate fluctuations, and regulations,
which could limit our future growth.





We have
significant operations outside the United States, including software development
centers in Australia, India, Ireland, Israel, the Netherlands, and the United
Kingdom, sales offices in Europe, including France, Germany, the Netherlands,
Switzerland, and the United Kingdom, as well as in countries in Asia-Pacific,
and customer support centers in India, Brazil, the Netherlands, and the United
Kingdom. Additionally, since 2005 we have opened sales offices in Brazil, China,
India, Italy, Japan, Mexico, Portugal, South Korea, Spain, and Taiwan, and we
plan to continue to expand our international operations. Our international
operations face numerous risks. For example, to sell our products in certain
foreign countries, our products must be localized, that is, customized to meet
local user needs and to meet the requirements of certain markets, particularly
some in Asia, where our product must be enabled to support Asian language
characters. Developing internationalized versions of our products for foreign
markets is difficult, requires us to incur additional expenses, and can take
longer than we anticipate. We currently have limited experience in
internationalizing products and in testing whether these internationalized
products will be accepted in the target countries. We cannot ensure that our
internationalization efforts will be successful.





In
addition, we have only a limited history of marketing, selling, and supporting
our products and services internationally. As a result, we must hire and train
experienced personnel to staff and manage our foreign operations. However, we
have experienced difficulties in recruiting, training, managing, and retaining
an international staff, in particular related to sales management and sales
personnel, which have affected our ability to increase sales productivity, and
related to turnover rates and wage inflation in India, which have increased
costs. We may continue to experience such difficulties in the
future.





We must
also be able to enter into strategic distributor relationships with companies in
certain international markets where we do not have a local presence. If we are
not able to maintain successful strategic distributor relationships
internationally or recruit additional companies to enter into strategic
distributor relationships, our future success in these international markets
could be limited.





Business
practices in the international markets that we serve may differ from those in
North America and may require us to include terms in our software license
agreements, such as extended payment or warranty terms, or performance
obligations that may require us to defer license revenues and recognize them
ratably over the warranty term or contractual period of the agreement. Although
historically we have infrequently entered into software license agreements that
require ratable recognition of license revenue, we may enter into software
license agreements in the future that may include non-standard terms related to
payment, maintenance rates, warranties, or performance obligations.





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





●
              greater
      difficulty in protecting our ownership rights to intellectual property
      developed in foreign countries, which may have laws that materially differ
      from those in the United
States;





●
              communication
      delays between our main development center in Redwood City, California and
      our development centers in Australia, India, Ireland, Israel, the
      Netherlands, and the United Kingdom as a result of time zone differences,
      which may delay the development, testing, or release of new
      products;





●
              greater
      difficulty in relocating existing trained development personnel and
      recruiting local experienced personnel, and the costs and expenses
      associated with such activities;
and





●
              increased
      expenses incurred in establishing and maintaining office space and
      equipment for the development
centers.





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





●
                fluctuations
      in exchange rates between the U.S. dollar and foreign currencies in
      markets where we do
business;





10
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●
                  higher
      risk of unexpected changes in regulatory practices, tariffs, and tax laws
      and treaties;





●
                greater
      risk of a failure of our foreign employees to comply with both U.S. and
      foreign laws, including antitrust regulations, the U.S. Foreign Corrupt
      Practices Act, and any trade regulations ensuring fair trade
      practices;





●
                potential
      conflicts with our established distributors in countries in which we elect
      to establish a direct sales
presence;





●
                our
      limited experience in establishing a sales and marketing presence and the
      appropriate internal systems, processes, and controls in Asia-Pacific,
      especially China, Singapore, South Korea, and Taiwan;
  and





●
                general
      economic and political conditions in these foreign
  markets.





For
example, an increase in international sales would expose us to foreign currency
fluctuations where an unfavorable change in the exchange rate of foreign
currencies against the U.S. dollar would result in lower revenues when
translated into U.S. dollars although operating expenditures would be lower as
well. Historically, the effect of changes in foreign currency exchange rates on
revenue and operating expenses has been immaterial although in the fourth
quarter of 2008 the increased volatility in currency markets caused a greater
than historical impact. Beginning in the fourth quarter of 2008, we have
attempted to minimize the impact of certain foreign currency fluctuations
through hedging programs for the foreign subsidiaries where we do not have a
natural hedge. However, as our international operations grow, or if the current
dramatic fluctuations in foreign currency exchange rates continue or increase or
if our hedging programs become ineffective, the effect of changes in the foreign
currency exchange rates could become material to revenue, operating expenses,
and income. These factors and other factors could harm our ability to gain
future international revenues and, consequently, materially impact our business,
results of operations, and financial condition. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources. Our failure to
manage our international operations and the associated risks effectively could
limit the future growth of our business.








New product
introductions and product enhancements may impact market acceptance of
our
products and affect our results of operations.





We
believe that the introduction and market acceptance of new products and
enhancement of existing products are important to our continued success. New
product introductions and product enhancements have inherent risks including,
but not limited to, delayed product availability, product quality and
interoperability, and customer adoption or the delay in customer purchases. In
June 2008, we delivered the generally available version of PowerCenter 8.6,
PowerExchange 8.6, Informatica Data Quality 8.6, and the Informatica On Demand
Data Loader, a version upgrade to our entire data integration platform. New
product introductions and/or enhancements such as these have inherent risks,
including but not limited to the following:





●
              delay
      in completion, launch, delivery, or
  availability;





●
              delay
      in customer purchases in anticipation of new products not yet
      released;





●
              product
      quality issues, including the possibility of
  defects;





●
              market
      confusion based on changes to the product packaging and pricing as a
      result of a new product
release;





●
              interoperability
      issues with third-party
technologies;





●
              issues
      with migration or upgrade paths from previous product
      versions;





●
              loss
      of existing customers that choose a competitor’s product instead of
      upgrading or migrating to the new product;
and





●
              loss
      of maintenance revenues from existing customers that do not upgrade or
      migrate.





Given the
risks associated with the introduction of new products, we cannot predict their
impact on our overall sales and revenues.





11
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We have
experienced and could continue to experience fluctuations in our
quarterly operating
results, especially the amount of license revenues we recognize each
quarter,
and such fluctuations have caused and could cause our stock price to
decline.





Our
quarterly operating results, particularly our license revenues, have fluctuated
in the past and may do so in the future. These fluctuations have caused our
stock price to experience declines in the past and could cause our stock price
to significantly fluctuate or experience declines in the future. One of the
reasons why our operating results have fluctuated is that our license revenues,
which are primarily sold on a perpetual license basis, are not predictable with
any significant degree of certainty and are vulnerable to short-term shifts in
customer demand. Also, we could experience customer order deferrals in
anticipation of future new product introductions or product enhancements, as
well as a result of particular budgeting and purchase cycles of our customers.
Deteriorating global economic conditions are also likely to cause customer order
deferrals and adversely affect budgeting and purchase cycles. By comparison, our
short-term expenses are relatively fixed and based in part on our expectations
of future revenues.





Moreover,
our backlog of license orders at the end of a given fiscal period has tended to
vary. Historically, our backlog typically decreases from the prior quarter at
the end of the first and third quarters and increases from the prior quarter at
the end of the fourth quarter, although the increase was less pronounced at the
end of 2008.





Furthermore,
we generally recognize a substantial portion of our license revenues in the last
month of each quarter and, sometimes, in the last few weeks of each quarter. As
a result, we cannot predict the adverse impact caused by cancellations or delays
in orders until the end of each quarter. Moreover, the likelihood of an adverse
impact may be greater if we experience increased average transaction sizes due
to a mix of relatively larger deals in our sales pipeline.





We have
expanded our international operations and have opened new sales offices in other
countries. As a result of this international expansion, as well as the increase
in our direct sales headcount in the United States, our sales and marketing
expenses have increased. We expect these investments to increase our revenues,
sales productivity, and eventually our profitability. However, if we experience
an increase in sales personnel turnover, do not achieve expected increases in
our sales pipeline, experience a decline in our sales pipeline conversion ratio,
or do not achieve increases in productivity and efficiencies from our new sales
personnel as they gain more experience, then we may not achieve our expected
increases in revenue, sales productivity, and profitability. We have experienced
some increases in revenue and sales productivity in the United States in the
past few years. While in the past year, we have experienced increases in revenue
and sales productivity internationally, we have not yet achieved the same level
of sales productivity internationally as domestically.





Due to
the difficulty we experience in predicting our quarterly license revenues, we
believe that quarter-to-quarter comparisons of our operating results are not
necessarily a good indication of our future performance. Furthermore, our future
operating results could fail to meet the expectations of stock analysts and
investors. If this happens, the price of our common stock could
fall.








If we are unable
to accurately forecast revenues, we may fail to meet stock analysts’
and
investors’ expectations of our quarterly operating results, which could
cause our stock price
to decline.





We use a
“pipeline” system, a common industry practice, to forecast sales and trends in
our business. Our sales personnel monitor the status of all proposals, including
the date when they estimate that a customer will make a purchase decision and
the potential dollar amount of the sale. We aggregate these estimates
periodically in order to generate a sales pipeline. We assess the pipeline at
various points in time to look for trends in our business. While this pipeline
analysis may provide us with some guidance in business planning and budgeting,
these pipeline estimates are necessarily speculative and may not consistently
correlate to revenues in a particular quarter or over a longer period of time,
particularly in the current global economic recession. Additionally, because we
have historically recognized a substantial portion of our license revenues in
the last month of each quarter and sometimes in the last few weeks of each
quarter, we may not be able to adjust our cost structure in a timely manner in
response to variations in the conversion of the sales pipeline into license
revenues. Any change in the conversion rate of the pipeline into customer sales
or in the pipeline itself could cause us to improperly budget for future
expenses that are in line with our expected future revenues, which would
adversely affect our operating margins and results of operations and could cause
the price of our common stock to decline.











12
 Table of Contents





We have
experienced reduced sales pipeline and pipeline conversion rates in prior
years,
which have adversely affected the growth of our company and the price of
our common
stock.





In the
past, we have experienced a reduced conversion rate of our overall license
pipeline, primarily as a result of general economic slowdowns, which caused the
amount of customer purchases to be reduced, deferred, or cancelled. As such, we
have experienced uncertainty regarding our sales pipeline and our ability to
convert potential sales of our products into revenue. We experienced an increase
in the size of our sales pipeline and some increases in our pipeline conversion
rate subsequent to 2005 as a result of our increased investment in sales
personnel and a gradually improving IT spending environment. However, the size
of our sales pipeline and our conversion rate are not consistent on a
quarter-to-quarter basis. Our conversion rate declined in the third quarter of
2006, increased in the fourth quarter of 2006 and throughout 2007, and declined
in 2008. The global economic recession has had and will likely continue to have
an adverse effect on our conversion rate in the near future. If we are unable to
continue to increase the size of our sales pipeline and our pipeline conversion
rate, our results of operations could fail to meet the expectations of stock
analysts and investors, which could cause the price of our common stock to
decline.





We rely on our
relationships with our strategic partners. If we do not maintain and
strengthen
these relationships, our ability to generate revenue and control expenses
could be
adversely affected, which could cause a decline in the price of our
common stock.





We
believe that our ability to increase the sales of our products depends in part
upon maintaining and strengthening relationships with our current strategic
partners and any future strategic partners. In addition to our direct sales
force, we rely on established relationships with a variety of strategic
partners, such as systems integrators, resellers, and distributors, for
marketing, licensing, implementing, and supporting our products in the United
States and internationally. We also rely on relationships with strategic
technology partners, such as enterprise application providers, database vendors,
data quality vendors, and enterprise integrator vendors, for the promotion and
implementation of our products. Among others, we are partners with Cognos
(acquired by IBM), FAST (acquired by Microsoft), SAP, Oracle, Hyperion Solutions
(acquired by Oracle), and salesforce.com and have recently partnered with
NEC.





Our
strategic partners offer products from several different companies, including,
in some cases, products that compete with our products. We have limited control,
if any, as to whether these strategic partners devote adequate resources to
promoting, selling, and implementing our products as compared to our
competitors’ products.





Although
our strategic partnership with IBM’s Business Consulting Services group has been
successful in the past, IBM’s acquisition of Ascential Software, DataMirror, and
Cognos has made it critical that we strengthen our relationships with our other
strategic partners. Business Objects’ acquisition of FirstLogic, a former
strategic partner, and SAP’s acquisition of Business Objects may also make such
strengthening with other strategic partners more critical. We cannot guarantee
that we will be able to strengthen our relationships with our strategic partners
or that such relationships will be successful in generating additional
revenue.





We may
not be able to maintain our strategic partnerships or attract sufficient
additional strategic partners, who have the ability to market our products
effectively, are qualified to provide timely and cost-effective customer support
and service, or have the technical expertise and personnel resources necessary
to implement our products for our customers. In particular, if our strategic
partners do not devote sufficient resources to implement our products, we may
incur substantial additional costs associated with hiring and training
additional qualified technical personnel to implement solutions for our
customers in a timely manner. Furthermore, our relationships with our strategic
partners may not generate enough revenue to offset the significant resources
used to develop these relationships. If we are unable to leverage the strength
of our strategic partnerships to generate additional revenues, our revenues and
the price of our common stock could decline.








As a result of
our products’ lengthy sales cycles, our expected revenues are susceptible to
fluctuations, which could cause us to fail to meet stock analysts’ and
investors’
expectations, resulting in a decline in the price of our common
stock.





Due to
the expense, broad functionality, and company-wide deployment of our products,
our customers’ decisions to purchase our products typically require the approval
of their executive decision makers. In addition, we frequently must educate our
potential customers about the full benefits of our products, which also can
require significant time. This trend toward greater customer executive level
involvement and customer education is likely to increase as we expand our market
focus to broader data integration initiatives. Further, our sales cycle may
lengthen, particularly in the current economic environment, as we continue to
focus our sales efforts on large corporations. As a result of these factors, the
length of time from our initial contact with a customer to the
customer’s





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 Table of Contents





decision
to purchase our products typically ranges from three to nine months. We are
subject to a number of significant risks as a result of our lengthy sales cycle,
including:





●
              our
      customers’ budgetary constraints and internal acceptance review
      procedures;





●
              the
      timing of our customers’ budget
cycles;





●
              the
      seasonality of technology purchases, which historically has resulted in
      stronger sales of our products in the fourth quarter of the year,
      especially when compared to lighter sales in the first quarter of the
      year;





●
              our
      customers’ concerns about the introduction of our products or new products
      from our competitors; or





●
              potential
      downturns in general economic or political conditions or potential
      tightening of credit markets that could occur during the sales
      cycle.





If our
sales cycles lengthen unexpectedly, they could adversely affect the timing of
our revenues or increase costs, which may independently cause fluctuations in
our revenues and results of operations. Finally, if we are unsuccessful in
closing sales of our products after spending significant funds and management
resources, our operating margins and results of operations could be adversely
impacted, and the price of our common stock could decline.








If our products
are unable to interoperate with hardware and software technologies developed and
maintained by third parties that are not within our control, our ability to
develop and sell our products to our customers could be adversely affected, which
would result in harm to our business and operating results.





Our
products are designed to interoperate with and provide access to a wide range of
third-party developed and maintained hardware and software technologies, which
are used by our customers. The future design and development plans of the third
parties that maintain these technologies are not within our control and may not
be in line with our future product development plans. We may also rely on such
third parties, particularly certain third-party developers of database and
application software products, to provide us with access to these technologies
so that we can properly test and develop our products to interoperate with the
third-party technologies. These third parties may in the future refuse or
otherwise be unable to provide us with the necessary access to their
technologies. In addition, these third parties may decide to design or develop
their technologies in a manner that would not be interoperable with our own. The
continued consolidation in the enterprise software market may heighten these
risks. Furthermore, our expanding product line makes maintaining
interoperability more difficult as various products may have different levels of
interoperability and compatibility, which may change from version to version. If
any of the situations described above were to occur, we would not be able to
continue to market our products as interoperable with such third-party hardware
and software, which could adversely affect our ability to successfully sell our
products to our customers.








The loss of our
key personnel, an increase in our sales force personnel turnover rate, or the
inability to attract and retain additional personnel could adversely
affect our
ability to grow our company successfully and may negatively impact our
results of
operations.





We
believe our success depends upon our ability to attract and retain highly
skilled personnel and key members of our management team. We continue to
experience changes in members of our senior management team. As new senior
personnel join our company and become familiar with our business strategy and
systems, their integration could result in some disruption to our ongoing
operations.





In the
past, we also experienced an increased level of turnover in our direct sales
force. Such increase in the turnover rate impacted our ability to generate
license revenues. Although we have hired replacements in our sales force and saw
the pace of the turnover decrease in 2008, we typically experience lower
productivity from newly hired sales personnel for a period of 6 to 12 months. If
we are unable to effectively train such new personnel, or if we experience an
increase in the level of sales force turnover, our ability to generate license
revenues may be negatively impacted.





In
addition, we have experienced turnover in other areas of the business. As the
market becomes increasingly competitive and the hiring becomes more difficult
and costly, our personnel become more attractive to other companies. Our plan
for continued growth requires us to add personnel to meet our growth objectives
and places increased importance on our ability to attract, train, and retain new
personnel. If we are unable to effectively attract and train new personnel, or
if we experience an increase in the level of turnover, our results of operations
may be negatively impacted.





14
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We
currently do not have any key-man life insurance relating to our key personnel,
and the employment of the key personnel in the United States is at will and not
subject to employment contracts. We have relied on our ability to grant stock
options as one mechanism for recruiting and retaining highly skilled talent.
Accounting regulations requiring the expensing of stock options may impair our
future ability to provide these incentives without incurring significant
compensation costs. There can be no assurance that we will continue to
successfully attract and retain key personnel.








If the market in
which we sell our products and services does not grow as we anticipate, we
may not be able to increase our revenues at an acceptable rate of growth, and the
price of our common stock could decline.





The
market for software products that enable more effective business decision making
by helping companies aggregate and utilize data stored throughout an
organization continues to change. Substantially all of our historical revenues
have been attributable to the sales of products and services in the data
warehousing market. While we believe that this market is still growing, we
expect most of our growth to come from the emerging market for broader data
integration, which includes migration, data consolidation, data synchronization,
single-view projects and data quality. The use of packaged software solutions to
address the needs of the broader data integration and data quality markets is
relatively new and is still emerging. Additionally, we expect growth in the
areas of on-demand software-as-a-service (SaaS) offerings. Our potential
customers may:





●
              not
      fully value the benefits of using our
products;





●
              not
      achieve favorable results using our
products;





●
              defer
      product purchases due to the current global economic
    downturn;





●
              experience
      technical difficulties in implementing our products;
  or





●
              use
      alternative methods to solve the problems addressed by our
      products.





If this
market does not grow as we anticipate, we would not be able to sell as much of
our software products and services as we currently expect, which could result in
a decline in the price of our common stock.








We rely on the
sale of a limited number of products, and if these products do not achieve broad
market acceptance, our revenues would be adversely affected.





Historically,
a significant portion of our revenues have been derived from our data
integration products such as PowerCenter and PowerExchange and related services.
We expect sales of our data integration software and related services to
comprise a significant portion of our revenues for the foreseeable future. If
any of our products does not achieve market acceptance, our revenues and stock
price could decrease. Market acceptance for our current products could be
affected if, among other things, competition substantially increases in the
enterprise data integration market or transactional applications suppliers
integrate their products to such a degree that the utility of the data
integration functionality that our products provide is minimized or rendered
unnecessary.








Our effective tax
rate is difficult to project and changes in such tax rate oradverseresults of tax
examinations could adversely affect our operating results.





The
process of determining our anticipated tax liabilities involves many
calculations and estimates are inherently complex and make the ultimate tax
obligation determination uncertain. As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes
in each of the jurisdictions in which we operate prior to the completion and
filing of tax returns for such periods. This process requires estimating both
our geographic mix of income and our current tax exposures in each jurisdiction
where we operate. These estimates involve complex issues, require extended
periods of time to resolve, and require us to make judgments, such as
anticipating the outcomes of audits with tax authorities and the positions that
we will take on tax returns prior to our actually preparing the returns. We also
determine the need to record deferred tax liabilities and the recoverability of
deferred tax assets. A valuation allowance is established to the extent recovery
of deferred tax assets is not likely based on our estimation of future taxable
income and other factors in each jurisdiction.





15
 Table of Contents








Furthermore,
our overall effective income tax rate may be affected by various factors in our
business, including acquisitions, changes in our legal structure, changes in the
geographic mix of income and expenses, changes in valuation allowances, changes
in tax laws and applicable accounting rules including Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes(“FIN No. 48”) and Statement of Financial Accounting Standard
(“SFAS”) No. 123(R), Share-Based Payment, and
variations in the estimated and actual level of annual pre-tax income. Further,
the geographic mix of income and expense is impacted by the fluctuation in
exchange rates between the U.S. dollar and the functional currencies of our
subsidiaries.





The
Company is currently under examination by the Internal Revenue Service and some
state and foreign taxing authorities which may result in assessment(s). We may
receive an assessment related to the audit of our U.S. income tax returns or
from other domestic and foreign tax authorities that exceeds amounts provided
for by us. In the event we are unsuccessful in reducing the amount of such
assessment, our business, financial condition, or results of operations could be
adversely affected. Specifically, if additional taxes and/or penalties are
assessed as a result of these audits, there could be a material effect on our
income tax provision, operating expenses, and net income in the period or
periods for which that determination is made.








Although we
believe we currently have adequate internal control over financial reporting, we are
required to assess our internal control over financial reporting on an annual basis,
and any future adverse results from such assessment could result in a loss of
investor confidence in our financial reports and have an adverse effect
on our stock
price.








Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), and the rules and
regulations promulgated by the SEC to implement SOX 404, we are required to
furnish an annual report in our Form 10-K regarding the effectiveness of our
internal control over financial reporting. The report’s assessment of our
internal control over financial reporting as of the end of our fiscal year must
include disclosure of any material weaknesses in our internal control over
financial reporting identified by management.





Management’s
assessment of internal control over financial reporting requires management to
make subjective judgments and some of our judgments will be in areas that may be
open to interpretation.





During
the past few years, our organizational structure has increased in complexity.
For example, we have expanded our presence in the Asia-Pacific region, where
business practices can differ from those in other regions of the world and can
create internal control risks. To address potential risks, we recognize revenue
on transactions derived in this region (except for direct sales in Japan and
Australia) only when the cash has been received and all other revenue
recognition criteria have been met. We also have provided business practices
training to our sales teams. While our organizational structure has increased in
complexity as a result of our international expansion, our capital structure has
also increased in complexity as a result of the issuance of the Convertible
Notes in March 2006. Finally, our reorganization of various foreign entities in
April 2006, which required a change in some of our internal controls over
financial reporting, and the assessment of the impact for our adoption of FIN
No. 48, further add to the reporting complexity and increase the potential risks
of our ability to maintain the effectiveness of our internal controls. Overall,
the combination of our increased complexity and the ever-increasing regulatory
complexity make it more critical for us to attract and retain qualified and
technically competent finance employees.





Although
we currently believe our internal control over financial reporting is effective,
the effectiveness of our internal controls in future periods is subject to the
risk that our controls may become inadequate or may not operate
effectively.





If we are
unable to assert that our internal control over financial reporting is effective
in any future period (or if our auditors are unable to provide an attestation
report regarding the effectiveness of our internal controls, or qualify such
report or fail to provide such report in a timely manner), we could lose
investor confidence in the accuracy and completeness of our financial reports,
which would have an adverse effect on our stock price.








We may not be
able to successfully manage the growth of our business if we are unable
to improve
our internal systems, processes, and controls.





We need
to continue to improve our internal systems, processes, and controls to
effectively (1) manage our operations and growth, including our international
growth into new geographies, particularly the Asia-Pacific and Latin American
markets, and (2) realign resources from time to time to more efficiently address
market or product requirements. To the extent any realignment requires changes
to our internal systems, processes, and controls or organizational structure, we
could experience disruption in customer





16
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relationships,
increases in cost, and increased employee turnover. In addition, we may not be
able to successfully implement improvements to these systems, processes, and
controls in an efficient or timely manner, and we may discover deficiencies in
existing systems, processes, and controls. We have licensed technology from
third parties to help us accomplish this objective. The support services
available for such third-party technology may be negatively affected by mergers
and consolidation in the software industry, and support services for such
technology may not be available to us in the future. We may experience
difficulties in managing improvements to our systems, processes, and controls or
in connection with third-party software, which could disrupt existing customer
relationships, causing us to lose customers, limit us to smaller deployments of
our products, or increase our technical support costs.








The price of our
common stock fluctuates as a result of factors other than our operating
results, such as volatility in the capital markets and the actions of our
competitors and securities analysts, as well as
developments in our industry and changes in accounting
rules.





The
market price for our common stock has experienced significant fluctuations and
may continue to fluctuate significantly. The market price for our common stock
may be affected by a number of factors other than our operating results,
including:





●
              volatility
      in the capital markets;





●
              the
      announcement of new products or product enhancements by our
      competitors;





●
              quarterly
      variations in our competitors’ results of
  operations;





●
                changes
      in earnings estimates and recommendations by securities
      analysts;





●
              developments
      in our industry; and





●
              changes
      in accounting rules.





After
periods of volatility in the market price of a particular company’s securities,
securities class action litigation has often been brought against that
particular company. We and certain of our former officers have been named as
defendants in a purported class action complaint, which was filed on behalf of
certain persons who purchased our common stock between April 29, 1999 and
December 6, 2000. Such actions could cause the price of our common stock to
decline.








We rely on a
number of different distribution channels to sell and market our products. Any
conflicts that we may experience within these various distribution channels could
result in confusion for our customers and a decrease in revenue and operating
margins.





We have a
number of relationships with resellers, systems integrators, and distributors
that assist us in obtaining broad market coverage for our products and services.
Although our discount policies, sales commission structure, and reseller
licensing programs are intended to support each distribution channel with a
minimum level of channel conflicts, we may not be able to minimize these channel
conflicts in the future. Any channel conflicts that we may experience could
result in confusion for our customers and a decrease in revenue and operating
margins.








Any significant
defect in our products could cause us to lose revenue and expose us to product
liability claims.





The
software products we offer are inherently complex and, despite extensive testing
and quality control, have in the past and may in the future contain errors or
defects, especially when first introduced. These defects and errors could cause
damage to our reputation, loss of revenue, product returns, order cancellations,
or lack of market acceptance of our products. We have in the past and may in the
future need to issue corrective releases of our software products to fix these
defects or errors, which could require us to allocate significant customer
support resources to address these problems.





Our
license agreements with our customers typically contain provisions designed to
limit our exposure to potential product liability claims. However, the
limitation of liability provisions contained in our license agreements may not
be effective as a result of existing





17
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or future
national, federal, state, or local laws or ordinances or unfavorable judicial
decisions. Although we have not experienced any product liability claims to
date, the sale and support of our products entail the risk of such claims, which
could be substantial in light of the use of our products in enterprise-wide
environments. In addition, our insurance against product liability may not be
adequate to cover a potential claim.








The recognition
of share-based payments for employee stock option and employee stock
purchase
plans has adversely impacted our results of operations.





The
adoption of SFAS No. 123(R), Share-Based Payment,has had
a significant adverse impact on our consolidated results of operations as it has
increased our operating expenses and reduced our operating income, net income,
and earnings per share. The effect of share-based payment on our operating
income, net income, and earnings per share is not predictable because the
underlying assumptions, including volatility, interest rate, and expected life,
of the Black-Scholes-Merton model could vary over time.








If we are unable
to successfully respond to technological advances and evolving industry
standards, we could experience a reduction in our future product sales,
which would
cause our revenues to decline.





The
market for our products is characterized by continuing technological
development, evolving industry standards, changing customer needs, and frequent
new product introductions and enhancements. The introduction of products by our
direct competitors or others embodying new technologies, the emergence of new
industry standards, or changes in customer requirements could render our
existing products obsolete, unmarketable, or less competitive. In particular, an
industry-wide adoption of uniform open standards across heterogeneous
applications could minimize the importance of the integration functionality of
our products and materially adversely affect the competitiveness and market
acceptance of our products. Our success depends upon our ability to enhance
existing products, to respond to changing customer requirements, and to develop
and introduce in a timely manner new products that keep pace with technological
and competitive developments and emerging industry standards. We have in the
past experienced delays in releasing new products and product enhancements and
may experience similar delays in the future. As a result, in the past, some of
our customers deferred purchasing our products until the next upgrade was
released. Future delays or problems in the installation or implementation of our
new releases may cause customers to forgo purchases of our products and purchase
those of our competitors instead. Additionally, even if we are able to develop
new products and product enhancements, we cannot ensure that they will achieve
market acceptance.








We recognize
revenue from specific customers at the time we receive payment for our
products,
and if these customers do not make timely payment, our revenues could
decrease.





Based on
limited credit history, we recognize revenue from direct end users, resellers,
distributors, and OEMs that have not been deemed creditworthy when we receive
payment for our products and when all other criteria for revenue recognition
have been met, rather than at the time of sale. As our business grows, if these
customers and partners do not make timely payment for our products, our revenues
could decrease. If our revenues decrease, the price of our common stock may
fall.








The conversion
provisions of our Convertible Senior Notes and the level of debt represented by
such notes will dilute the ownership interests of stockholders, could
adversely
affect our liquidity, and could impede our ability to raise additional
capital
which may also be affected by the tightening of the capital
markets.





In March
2006, we issued $230 million aggregate principal amount of Convertible Senior
Notes due 2026. The note holders can convert the Notes into shares of our common
stock at any time before the Notes mature or we redeem or repurchase them. Upon
certain dates (March 15, 2011, March 15, 2016, and March 15, 2021) or the
occurrence of certain events including a change in control, the note holders can
require us to repurchase some or all of the Notes. Upon any conversion of the
Notes, our basic earnings per share would be expected to decrease because such
underlying shares would be included in the basic earnings per share calculation.
Given that events constituting a “change in control” can trigger such repurchase
obligations, the existence of such repurchase obligations may delay or
discourage a merger, acquisition, or other consolidation. Our ability to meet
our repurchase or repayment obligations of the Notes will depend upon our future
performance, which is subject to economic, competitive, financial, and other
factors affecting our industry and operations, some of which are beyond our
control. If we are unable to meet the obligations out of cash flows from
operations or other available funds, we may need to raise additional funds
through public or private debt or equity financings. We may





18
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not be
able to borrow money or sell more of our equity securities to meet our cash
needs for reasons including the tightening of the capital markets. Even if we
are able to do so, it may not be on terms that are favorable or reasonable to
us.








If we are not
able to adequately protect our proprietary rights, third parties could
develop and
market products that are equivalent to our own, which would harm our
sales
efforts.





Our
success depends upon our proprietary technology. We believe that our product
development, product enhancements, name recognition, and the technological and
innovative skills of our personnel are essential to establishing and maintaining
a technology leadership position. We rely on a combination of patent, copyright,
trademark, and trade secret rights, confidentiality procedures, and licensing
arrangements to establish and protect our proprietary rights.





However,
these legal rights and contractual agreements may provide only limited
protection. Our pending patent applications may not be allowed or our
competitors may successfully challenge the validity or scope of any of our
issued patents or any future issued patents. Our patents alone may not provide
us with any significant competitive advantage, and third parties may develop
technologies that are similar or superior to our technology or design around our
patents. Third parties could copy or otherwise obtain and use our products or
technology without authorization or develop similar technology independently. We
cannot easily monitor any unauthorized use of our products, and, although we are
unable to determine the extent to which piracy of our software products exists,
software piracy is a prevalent problem in our industry in general.





The risk
of not adequately protecting our proprietary technology and our exposure to
competitive pressures may be increased if a competitor should resort to unlawful
means in competing against us. For example, in July 2003, we settled a complaint
against Ascential Software Corporation in which a number of former Informatica
employees recruited and hired by Ascential misappropriated our trade secrets,
including sensitive product and marketing information and detailed sales
information regarding existing and potential customers, and unlawfully used that
information to benefit Ascential in gaining a competitive advantage against us.
Although we were ultimately successful in this lawsuit, there are no assurances
that we will be successful in protecting our proprietary technology from
competitors in the future.





We have
entered into agreements with many of our customers and partners that require us
to place the source code of our products into escrow. Such agreements generally
provide that such parties will have a limited, non-exclusive right to use such
code if: (1) there is a bankruptcy proceeding by or against us; (2) we cease to
do business; or (3) we fail to meet our support obligations. Although our
agreements with these third parties limit the scope of rights to use of the
source code, we may be unable to effectively control such third parties’
actions.





Furthermore,
effective protection of intellectual property rights is unavailable or limited
in various foreign countries. The protection of our proprietary rights may be
inadequate and our competitors could independently develop similar technology,
duplicate our products, or design around any patents or other intellectual
property rights we hold.





We may be
forced to initiate litigation to protect our proprietary rights. For example, on
July 15, 2002, we filed a patent infringement lawsuit against Acta Technology,
Inc., now known as Business Objects Data Integration, Inc. (“BODI”) (which was
subsequently acquired by SAP as part of its acquisition of Business Objects). We
received a favorable verdict in the trial against BODI in April 2007 and after a
finding by the appeals court in our favor in December 2008, BODI/SAP paid to us
the full judgment amount (including pre- and post-judgment interest and a
portion of the trial costs) of $14.5 million. See Note 16. Litigation, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report.
Litigating claims related to the enforcement of proprietary rights is very
expensive and can be burdensome in terms of management time and resources, which
could adversely affect our business and operating results.








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. As the number of software
products in our target markets increases and the functionality of these products
further overlaps, we may become increasingly subject to claims by a third party
that our technology infringes such party’s proprietary rights. In addition,
there is a growing occurrence of patent suits being brought by organizations
that use patents to generate revenue without manufacturing, promoting, or
marketing products or investing in research and development in bringing products
to market. These organizations have been increasingly active in the enterprise
software





19
 Table of Contents





market
and have targeted whole industries as defendants. For example, on August 21,
2007, Juxtacomm Technologies filed a complaint in the Eastern District of Texas
alleging patent infringement against the following defendants, including us:
Ascential Software Corporation, Business Objects SA, Business Objects America,
CA, Inc., Cognos, Inc., Cognos Corporation, DataMirror, Inc., Fiorano Software,
Inc., Hummingbird Ltd., International Business Machines Corporation, Informatica
Corporation, Information Builders, Inc., Intersystems, Inc., Iway Software
Company, Metastorm, Inc., Microsoft Corporation, Open Text Corporation, Software
AG, Software AG, Inc., Sybase, Inc., and Webmethods, Inc. More recently, on
November 24, 2008, Data Retrieval Technologies LLC filed a complaint in the
Western District of Washington against Sybase, Inc. and us, alleging patent
infringement.





Any
claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays, or require us to enter into royalty
or licensing agreements, any of which could adversely affect our business,
financial condition, and operating results. Although we do not believe that we
are currently infringing any proprietary rights of others, additional legal
action claiming patent infringement could be commenced against us. We may not
prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. The potential effects on our business that
may result from third-party infringement claims, including those claims brought
by Juxtacomm Technologies and Data Retrieval Technologies LLC, include the
following:





●
              we
      may be forced to incur significant legal costs and expenses defending the
      patent infringement suit;





●
              we
      may be forced to enter into royalty or licensing agreements, which may not
      be available on terms favorable to
us;





●
              we
      may be required to indemnify our customers or obtain replacement products
      or functionality for our
customers;





●
              we
      may be forced to significantly increase our development efforts and
      resources to redesign our products as a result of these claims;
      and





●
              we
      may be forced to discontinue the sale of some or all of our
      products.








We may engage in
future acquisitions or investments that could dilute our existing stockholders or
could cause us to incur contingent liabilities, debt, or significant
expense or
could be difficult to integrate in terms of the acquired entity’s products,
personnel, and operations.





From time
to time, in the ordinary course of business, we may evaluate potential
acquisitions of, or investments in, related businesses, products, or
technologies. For example, in January 2006, we acquired Similarity Systems
Limited, in December 2006, we acquired Itemfield, in May 2008, we acquired
Identity Systems, Inc., in October 2008, we acquired PowerData, and in February
2009, we acquired Applimation, Inc. Future acquisitions and investments like
these could result in the issuance of dilutive equity securities, the incurrence
of debt or contingent liabilities, or the payment of cash to purchase equity
securities from third parties. There can be no assurance that any strategic
acquisition or investment will succeed. Risks include difficulties in the
integration of the products, personnel, and operations of the acquired entity,
disruption of the ongoing business, potential management distraction from the
ongoing business, difficulties in the retention of key partner alliances,
potential product liability issues related to the acquired products, potential
decline in the fair value of investments, potential impairment of goodwill, and
potential impairment of other intangible assets.








We have
substantial real estate lease commitments that are currently subleased to
third
parties, and if subleases for this space are terminated or cancelled, our
operating
results and financial condition could be adversely affected.





We have
substantial real estate lease commitments in the United States and
internationally. However, we do not occupy some of these leases with the most
significant portion of our unoccupied leases being located in Silicon Valley.
Currently, we have substantially subleased these unoccupied properties to third
parties. The terms of most of these sublease agreements account for only a
portion of the period of our master leases and contain rights of the subtenant
to extend the term of the sublease. In addition, the current economic downturn
has negatively impacted commercial lease rates and terms in the Silicon Valley
area and may make it more difficult to enter into agreements with existing
subtenants on sublease renewals or prospective subtenants with sublease rates or
terms comparable to those contracted for in the past. To the extent that (1) our
subtenants do not renew their subleases at the end of the initial term and we
are unable to enter into new subleases with other parties at comparable rates,
or (2) our subtenants are unable to pay the sublease rent amounts in a timely
manner, our cash flow would be negatively impacted and our operating results and
financial





20
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condition
could be adversely affected. See Note 11. Facilities Restructuring Charges,of Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.








Delaware law and
our certificate of incorporation and bylaws contain provisions that could deter
potential acquisition bids, which may adversely affect the market price
of our
common stock, discourage merger offers, and prevent changes in our
management or Board of
Directors.





Our basic
corporate documents and Delaware law contain provisions that might discourage,
delay, or prevent a change in the control of Informatica or a change in our
management. Our bylaws provide that we have a classified Board of Directors,
with each class of directors subject to re-election every three years. This
classified Board has the effect of making it more difficult for third parties to
elect their representatives on our Board of Directors and gain control of
Informatica. These provisions could also discourage proxy contests and make it
more difficult for our stockholders to elect directors and take other corporate
actions. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of our common
stock.





In
addition, we have adopted a stockholder rights plan. Under the plan, we issued a
dividend of one right for each outstanding share of common stock to stockholders
of record as of November 12, 2001, and such rights will become exercisable only
upon the occurrence of certain events. Because the rights may substantially
dilute the stock ownership of a person or group attempting to take us over
without the approval of our Board of Directors, the plan could make it more
difficult for a third party to acquire us or a significant percentage of our
outstanding capital stock without first negotiating with our Board of Directors
regarding such acquisition.








We may not
successfully integrate Identity Systems, Inc.’s technologies, employees, or
business operations with our own. As a result, we may not achieve the anticipated
benefits of our acquisition, which could adversely affect our operating results
and cause the price of our common stock to decline.





In May
2008, we acquired Identity Systems, Inc., a provider of identity resolution
technology. The successful integration of Identity Systems, Inc.’s technologies,
employees, and business operations will place an additional burden on our
management and infrastructure. This acquisition, and others we may make in the
future, will subject us to a number of risks, including:





●
                the
      failure to capture the value of the business we acquired, including the
      loss of any key personnel, customers, and business
      relationships;





●
              any
      inability to generate revenue from the combined products that offsets the
      associated acquisition and maintenance costs, including addressing issues
      related to the availability of offerings on multiple platforms and from
      cross-selling and up-selling our products to Identity Systems, Inc.’s
      installed customer base or Identity Systems, Inc.’s products to our
      installed customer base; and





●
              the
      assumption of any contracts or agreements from Identity Systems, Inc. that
      contain terms or conditions that are unfavorable to
  us.





There can
be no assurance that we will be successful in overcoming these risks or any
other problems encountered in connection with our Identity Systems, Inc.
acquisition. To the extent that we are unable to successfully manage these
risks, our business, operating results, or financial condition could be
adversely affected, and the price of our common stock could
decline.








Business
interruptions could adversely affect our business.





Our
operations are vulnerable to interruption by fire, earthquake, power loss,
telecommunications or network failure, and other events beyond our control. We
have prepared a detailed disaster recovery plan and will continue to expand the
scope over time. Some of our facilities in Asia experienced disruption as a
result of the December 2006 earthquake off the coast of Taiwan, which caused a
major fiber outage throughout the surrounding regions. The outage affected
network connectivity, which has been restored to acceptable levels. Such
disruption can negatively affect our operations given necessary interaction
among our international facilities. In the event such an earthquake reoccurs, it
could again disrupt the operations of our affected facilities. 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.





21
 Table of Contents








ITEM 1B. UNRESOLVED STAFF
COMMENTS





Not
applicable.








ITEM 2. PROPERTIES





Our
corporate headquarters are located in a leased facility at the Seaport Plaza in
Redwood City, California and consist of approximately 159,000 square feet. The
initial lease term was from December 15, 2004 to December 31, 2007 with a
three-year option to renew to December 31, 2010 at fair market value. In May
2007, the Company exercised its renewal option to extend the office lease term
to December 31, 2010. The facility is used by our administrative, sales,
marketing, product development, customer support, and services
groups.





We also
occupy additional leased facilities in the United States, including offices
located in Alpharetta, Georgia; Austin and Plano, Texas; Chicago, Illinois; Old
Greenwich, Connecticut; New York, New York; and Reston, Virginia, which are
primarily used for sales, marketing, services, and to a lesser degree, product
development. Leased facilities located outside of the United States and used
primarily for sales, marketing, customer support, and services include offices
in Toronto, Canada; Paris, France; Frankfurt, Germany; Nieuwegein, the
Netherlands; Lisboa, Portugal; Barcelona and Madrid, Spain; Maidenhead, the
United Kingdom; Sydney, Australia; Beijing, China; Mumbai and New Delhi, India;
Seoul, South Korea; Dublin, Ireland; Tel Aviv, Israel; Sao Paulo, Brazil; Tokyo,
Japan; and Singapore. We also leased facilities in Bangalore, India and Canberra
City, Australia where our offices are primarily used for product development. In
addition, we lease executive office space throughout the world for our local
sales and services needs. These leased facilities expire at various times
through October 2017. We are continually evaluating the adequacy of existing
facilities and additional facilities in new cities, and we believe that suitable
additional space will be available in the future on commercially reasonable
terms as needed.





We also
lease certain facilities that we no longer occupy because they exceed our
current requirements. Currently, we sublease these facilities to third parties.
See Note 11. Facilities
Restructuring Charges, and Note 15. Commitments and Contingencies,of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report.








ITEM 3. LEGAL PROCEEDINGS





The
information set forth in Note 16. Litigation of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report is
incorporated herein by reference.








ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS





No
matters were submitted to a vote of security holders during the quarter ended
December 31, 2008.








22
 Table of Contents





PART II





ITEM 5. MARKET FOR REGISTRANT’SCOMMON
EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES





Price
Range of Common Stock





Our
common stock is listed on the NASDAQ Global Select Market under the symbol
“INFA.” Our initial public offering was April 29, 1999 at $4.00 per share
(adjusted for stock splits in the form of stock dividends in February 2000 and
November 2000). The price range per share in the table below reflects the
highest and lowest sale prices for our stock as reported by the NASDAQ Global
Select Market during the last two fiscal years.





High
                      
                      
                      LowYear
      ended December 31, 2008:Fourth
      quarter
                      
                      $
                      14.38
                      
                      
                      $
                      11.00Third
      quarter
                      
                      $
                      17.91
                      
                      
                      $
                      12.77Second
      quarter
                      
                      $
                      18.21
                      
                      
                      $
                      15.04First
      quarter
                      
                      $
                      19.31
                      
                      
                      $
                      15.39Year
      ended December 31, 2007:Fourth
      quarter
                      
                      $
                      18.28
                      
                      
                      $
                      15.12Third
      quarter
                      
                      $
                      16.02
                      
                      
                      $
                      13.24Second
      quarter
                      
                      $
                      15.39
                      
                      
                      $
                      13.45First
      quarter
                      
                      $
                      14.25
                      
                      
                      $
                      12.29





Holders
of Record





At
January 30, 2009, there were approximately 115 stockholders of record of our
common stock, and the closing price per share of our common stock was $12.76.
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. Because we currently
intend to retain all future earnings to finance future growth, we do not
anticipate paying any cash dividends in the near future.





Purchases
of Equity Securities and Convertible Senior Notes by the Issuer and Affiliated
Purchasers





In April
2007, Informatica’s Board of Directors authorized and announced a stock
repurchase program for up to $50 million of its common stock. In April 2008,
Informatica’s Board of Directors authorized an additional $75 million of its
common stock under the stock repurchase program. Repurchases can be made from
time to time in the open market and will be funded from available working
capital. There is no expiration date for the repurchase program. The purpose of
our stock repurchase program is to enhance shareholder value, including
offsetting dilution from our stock-based incentive plans. The number of shares
acquired and the timing of the repurchases are based on several factors,
including the price of our common stock, the number of employees participating
in our stock option plans and our employee stock purchase plan, and overall
market conditions. The repurchased shares are retired and reclassified as
authorized and unissued shares of common stock.





In
October 2008, Informatica’s Board of Directors authorized, under the existing
stock repurchase program, the repurchase of a portion of its outstanding
Convertible Senior Notes (the “Notes”) due in 2026 in privately negotiated
transactions with the holders of the Notes. As of December 31, 2008, Informatica
repurchased $9.0 million of its Convertible Senior Notes at a cost of $7.8
million. See Note 6. Convertible Senior Notes and
the subsectionStock
Repurchase Planin Note 7. Stockholders’ Equity, of
Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.








23
 Table of Contents





The
following table provides information about the repurchase of our common stock
for the quarter ended December 31, 2008.





Period
              
              (1)
                Total
                Number
      of
                Shares Purchased
              
              
              Average
      Price
                Paid per
                Share
              
              
              Total Number
                of Shares
                Purchased asPart
      of
                Publicly
      Announced
                Plans
      orPrograms
              
              
              (2)
                Approximate
      Dollar
                Value
      of Shares
                That
      May Yet BePurchased
                Under
      the Plans or
                Programs(In
      thousands)October
      1 – October 31
              
              
              546,000
              
              
              $
              13.38
              
              
              
              546,000
              
              
              $
              52,876November
      1 – November 30
              
              
              976,000
              
              
              $
              12.74
              
              
              
              976,000
              
              
              $
              32,622December
      1 – December 31
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              32,622Total
              
              
              1,522,000
              
              
              $
              12.97
              
              
              
              1,522,000


____________





(1)
            All
      shares repurchased in open-market transactions under the repurchase
      programs.(2)
            The
      reduction in dollar value reflected in this amount consists of the cost of
      the repurchased shares in the amount of $12.4 million and the cost of the
      repurchased Convertible Senior Notes in the amount of $7.8 million during
      the November 1 – 30, 2008 time
period.





We will
include our performance graph that compares the five-year cumulative total
return to stockholders on our common stock for the period ended December 31,
2008, with the cumulative total return of the NASDAQ Composite Index and the
S&P Information Technology Index in our annual report to
stockholders.











24
 Table of Contents





ITEM 6. SELECTEDFINANCIAL
DATA








The
following selected consolidated financial data is qualified in its entirety by,
and should be read in conjunction with, the consolidated financial statements
and the notes thereto included in Part II, Item 8 and Management’s Discussion
and Analysis of Financial Condition and Results of Operations included in Item
7. The selected consolidated statements of income data and consolidated balance
sheet data as of and for each of the five years in the period ended December 31,
2008, have been derived from the audited consolidated financial statements. All
share and per share amounts have been adjusted to give retroactive effect to
stock splits that have occurred since our inception.





Years Ended December 31,2008
                                                
                                                
                                                2007
                                                
                                                
                                                2006
                                                
                                                
                                                2005
                                                
                                                
                                                2004(In
      thousands, except per share data)Selected
      Consolidated Statements of Operations Data:Revenues:License
                                                
                                                $
                                                195,769
                                                
                                                
                                                $
                                                175,318
                                                
                                                
                                                $
                                                146,092
                                                
                                                
                                                $
                                                120,182
                                                
                                                
                                                $
                                                97,941Service
                                                
                                                
                                                259,930
                                                
                                                
                                                
                                                215,938
                                                
                                                
                                                
                                                178,506
                                                
                                                
                                                
                                                147,249
                                                
                                                
                                                
                                                121,740Total
      revenues
                                                
                                                
                                                455,699
                                                
                                                
                                                
                                                391,256
                                                
                                                
                                                
                                                324,598
                                                
                                                
                                                
                                                267,431
                                                
                                                
                                                
                                                219,681Cost
      of revenues:License
                                                
                                                
                                                3,291
                                                
                                                
                                                
                                                3,693
                                                
                                                
                                                
                                                6,978
                                                
                                                
                                                
                                                4,465
                                                
                                                
                                                
                                                3,778Service
                                                
                                                
                                                80,287
                                                
                                                
                                                
                                                69,174
                                                
                                                
                                                
                                                58,402
                                                
                                                
                                                
                                                46,801
                                                
                                                
                                                
                                                40,346Amortization
      of acquired technology
                                                
                                                
                                                4,125
                                                
                                                
                                                
                                                2,794
                                                
                                                
                                                
                                                2,118
                                                
                                                
                                                
                                                922
                                                
                                                
                                                
                                                2,322Total
      cost of revenues
                                                
                                                
                                                87,703
                                                
                                                
                                                
                                                75,661
                                                
                                                
                                                
                                                67,498
                                                
                                                
                                                
                                                52,188
                                                
                                                
                                                
                                                46,446Gross
      profit
                                                
                                                
                                                367,996
                                                
                                                
                                                
                                                315,595
                                                
                                                
                                                
                                                257,100
                                                
                                                
                                                
                                                215,243
                                                
                                                
                                                
                                                173,235Operating
      expenses:Research
      and development
                                                
                                                
                                                72,522
                                                
                                                
                                                
                                                69,908
                                                
                                                
                                                
                                                54,997
                                                
                                                
                                                
                                                42,585
                                                
                                                
                                                
                                                51,322Sales
      and marketing
                                                
                                                
                                                177,339
                                                
                                                
                                                
                                                158,298
                                                
                                                
                                                
                                                138,851
                                                
                                                
                                                
                                                118,770
                                                
                                                
                                                
                                                94,900General
      and administrative
                                                
                                                
                                                37,411
                                                
                                                
                                                
                                                35,531
                                                
                                                
                                                
                                                28,187
                                                
                                                
                                                
                                                20,583
                                                
                                                
                                                
                                                20,755Amortization
      of intangible assets
                                                
                                                
                                                4,575
                                                
                                                
                                                
                                                1,441
                                                
                                                
                                                
                                                653
                                                
                                                
                                                
                                                188
                                                
                                                
                                                
                                                197Facilities
      restructuring charges
                                                
                                                
                                                3,018
                                                
                                                
                                                
                                                3,014
                                                
                                                
                                                
                                                3,212
                                                
                                                
                                                
                                                3,683
                                                
                                                
                                                
                                                112,636Purchased
      in-process research and development
                                                
                                                
                                                390
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                1,340
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Patent
      related litigation proceeds net of patent contingency
    accruals
                                                
                                                
                                                (11,495
                                                )
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Total
      operating expenses
                                                
                                                
                                                283,760
                                                
                                                
                                                
                                                268,192
                                                
                                                
                                                
                                                227,240
                                                
                                                
                                                
                                                185,809
                                                
                                                
                                                
                                                279,810Income
      (loss) from operations
                                                
                                                
                                                84,236
                                                
                                                
                                                
                                                47,403
                                                
                                                
                                                
                                                29,860
                                                
                                                
                                                
                                                29,434
                                                
                                                
                                                
                                                (106,575
                                                )Interest
      income and other, net
                                                
                                                
                                                7,737
                                                
                                                
                                                
                                                15,237
                                                
                                                
                                                
                                                11,823
                                                
                                                
                                                
                                                6,544
                                                
                                                
                                                
                                                3,391Income
      (loss) before income taxes
                                                
                                                
                                                91,973
                                                
                                                
                                                
                                                62,640
                                                
                                                
                                                
                                                41,683
                                                
                                                
                                                
                                                35,978
                                                
                                                
                                                
                                                (103,184
                                                )Income
      tax provision
                                                
                                                
                                                35,993
                                                
                                                
                                                
                                                8,024
                                                
                                                
                                                
                                                5,477
                                                
                                                
                                                
                                                2,174
                                                
                                                
                                                
                                                1,220Net
      income (loss) (1)
                                                
                                                $
                                                55,980
                                                
                                                
                                                $
                                                54,616
                                                
                                                
                                                $
                                                36,206
                                                
                                                
                                                $
                                                33,804
                                                
                                                
                                                $
                                                (104,404
                                                )Basic
      net income (loss) per common share (1)
                                                
                                                $
                                                0.64
                                                
                                                
                                                $
                                                0.63
                                                
                                                
                                                $
                                                0.42
                                                
                                                
                                                $
                                                0.39
                                                
                                                
                                                $
                                                (1.22
                                                )Diluted
      net income (loss) per common share (1)
                                                
                                                $
                                                0.58
                                                
                                                
                                                $
                                                0.57
                                                
                                                
                                                $
                                                0.39
                                                
                                                
                                                $
                                                0.37
                                                
                                                
                                                $
                                                (1.22
                                                )Shares
      used in computing basic net income (loss) per common share
                                                
                                                
                                                88,109
                                                
                                                
                                                
                                                87,164
                                                
                                                
                                                
                                                86,420
                                                
                                                
                                                
                                                87,242
                                                
                                                
                                                
                                                85,812Shares
      used in computing diluted net income (loss) per common
                                                  share
                                                
                                                
                                                103,278
                                                
                                                
                                                
                                                103,252
                                                
                                                
                                                
                                                92,942
                                                
                                                
                                                
                                                92,083
                                                
                                                
                                                
                                                85,812





December 31,2008
                                
                                
                                2007
                                
                                
                                2006
                                
                                
                                2005
                                
                                
                                2004(In
      thousands)Selected
      Consolidated Balance Sheet Data:Cash
      and cash equivalents
                                
                                $
                                179,874
                                
                                
                                $
                                203,661
                                
                                
                                $
                                120,491
                                
                                
                                $
                                76,545
                                
                                
                                $
                                88,941Short-term
      investments
                                
                                
                                281,055
                                
                                
                                
                                281,197
                                
                                
                                
                                280,149
                                
                                
                                
                                185,649
                                
                                
                                
                                152,160Restricted
      cash
                                
                                
                                —
                                
                                
                                
                                12,122
                                
                                
                                
                                12,016
                                
                                
                                
                                12,166
                                
                                
                                
                                12,166Working
      capital
                                
                                
                                371,552
                                
                                
                                
                                410,275
                                
                                
                                
                                311,174
                                
                                
                                
                                187,759
                                
                                
                                
                                173,816Total
      assets
                                
                                
                                863,112
                                
                                
                                
                                798,644
                                
                                
                                
                                696,765
                                
                                
                                
                                441,022
                                
                                
                                
                                409,768Long-term
      obligations, less current portion
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Total
      stockholders’ equity
                                
                                
                                355,955
                                
                                
                                
                                312,542
                                
                                
                                
                                227,163
                                
                                
                                
                                222,730
                                
                                
                                
                                195,722


____________





(1)
            Net
      income and net income per share include the impact of SFAS 123(R)
      share-based payments of $16.3 million, $16.0 million, and $14.1 million
      for the years ended December 31, 2008, 2007, and 2006, respectively, which
      are not included in years prior to 2006. See Note 8. Share-Based Payments,
      of Notes to Consolidated Financial Statements in Part II, Item 8 of this
      Report.





25
 Table of Contents





ITEM 7.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of the federal securities laws, particularly statements referencing our
expectations relating to license revenues, service revenues, international
revenues, deferred revenues, cost of license revenues, cost of service revenues,
operating expenses, amortization of acquired technology, share-based payments,
and provision for income taxes; deferred taxes; international expansion; the
ability of our products to meet customer demand; continuing impacts from our
2004 and 2001 Restructuring Plans; the sufficiency of our cash balances and cash
flows for the next 12 months; our stock repurchase program; investment and
potential investments of cash or stock to acquire or invest in complementary
businesses, products, or technologies; the impact of recent changes in
accounting standards; the acquisition of Identity Systems, Inc.; and assumptions
underlying any of the foregoing. In some cases, forward-looking statements can
be identified by the use of terminology such as “may,” “will,” “expects,”
“intends,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or
the negative thereof, or other comparable terminology. Although we believe that
the expectations reflected in the forward-looking statements contained herein
are reasonable, these expectations or any of the forward-looking statements
could prove to be incorrect, and actual results could differ materially from
those projected or assumed in the forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to risks and uncertainties, including but not limited to
the factors set forth under Part I, Item 1A Risk Factors. All forward-looking
statements and reasons why results may differ included in this Report are made
as of the date hereof, and we assume no obligation to update any such
forward-looking statements or reasons why actual results may
differ.





The
following discussion should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this
Report.








Overview





We are
the leading independent provider of enterprise data integration software. We
generate revenues from sales of software licenses for our enterprise data
integration software products, including product upgrades that are not part of
post-contract services, and from sales of services, which consist of
maintenance, consulting, and education services.





We
receive revenues from licensing our products under perpetual licenses directly
to end users and indirectly through resellers, distributors, and OEMs in the
United States and internationally. We also receive a small amount of revenues
under subscription-based licenses for on-demand offerings from customers and
partners. We receive service revenues from maintenance contracts, consulting
services, and education services that we perform for customers that license our
products either directly or indirectly. Most of our international sales have
been in Europe, and revenues outside of Europe and North America have comprised
8% or less of total consolidated revenues during the past three
years.





We
license our software and provide services to many industry sectors, including,
but not limited to, energy and utilities, financial services, insurance,
government and public agencies, healthcare, high technology, manufacturing,
retail, services, telecommunications, and transportation.





Despite
the turmoil in the financial markets, and recession in the United States and
many foreign economies, we were able to grow our total revenues in 2008 by 16%
to $455.7 million compared to $391.3 million in 2007. License revenues increased
12% year over year, primarily as a result of increases in the volume of our
transactions, and growth in international revenues. Services revenues increased
20% due to 23% growth in maintenance revenues which is attributable to the
increased size of our installed customer base. Additionally, broader use of our
existing products and the increase in new license sales resulted in a 14%
increase in our training and consulting revenues. Since our revenues have grown
at a faster pace than the increase in our operating expenses, our operating
income as a percentage of revenues has grown from 12% to 18% for the years ended
December 31, 2007 and 2008, respectively.





In May
2008, we acquired Identity Systems, Inc. (“Identity”), a provider of identity
resolution technology. Incorporation of this technology extends our enterprise
data integration platform to allow customers to perform real-time searches for
specific entities across very large data volumes and to resolve identity data
accurately and quickly.





On
February 13, 2009, the Company acquired Applimation, Inc. (“Applimation”), a
private company incorporated in Delaware, providing application Information
Lifecycle Management (ILM) technology. The acquisition extends Informatica’s
data integration software to include Applimation’s technology.





26
 Table of Contents





Due to
our dynamic market, we face both significant opportunities and challenges, and
as such, we focus on the following key factors:





●
              Macroeconomic
      Conditions:During 2008, the United States and many foreign
      economies have experienced significant adversity driven by varying
      concerns including those related to the turmoil in the credit markets and
      financial markets, concerns regarding the stability and viability of major
      financial institutions, the state of the housing and labor markets and
      volatility in fuel prices. Given the significance and widespread nature of
      the effects, the United States and global economies are in a recession and
      will remain challenged for some period in the future. These adverse
      conditions, which are beyond our control, are likely to continue to have
      an adverse effect on our
business.





●
              Competition:Inherent in our industry are risks arising from competition with
      existing software solutions, including solutions from IBM, Oracle, and
      SAP, technological advances from other vendors, and the perception of cost
      savings by solving data integration challenges through customer
      hand-coding development resources. Our prospective customers may view
      these alternative solutions as more attractive than our offerings.
      Additionally, the consolidation activity in our industry (including
      Oracle’s acquisition of BEA Systems, Sunopsis and Hyperion Solutions,
      IBM’s acquisition of DataMirror and Cognos, and SAP’s acquisition of
      Business Objects, which had previously acquired FirstLogic) could pose
      challenges as competitors market a broader suite of software products or
      solutions to our prospective
customers.





●
                    New Product
      Introductions:To address the expanding data integration and data
      integrity needs of our customers and prospective customers, we continue to
      introduce new products and technology enhancements on a regular basis. In
      October 2007, we delivered the generally available release of PowerCenter
      8.5, PowerExchange 8.5, and Informatica Data Quality 8.5. In June 2008, we
      delivered a version upgrade to our entire data integration platform by
      delivering the generally available version of PowerCenter 8.6,
      PowerExchange 8.6, and Informatica Data Quality 8.6 including identity
      resolution. In November 2008, we launched our On Demand Data
      Synchronization Service for salesforce.com. New product introductions
      and/or enhancements have inherent risks including, but not limited to,
      product availability, product quality and interoperability, and customer
      adoption or the delay in customer purchases. Given the risks and new
      nature of the products, we cannot predict their impact on our overall
      sales and
revenues.





●
              Quarterly
      and Seasonal Fluctuations:Historically, purchasing patterns in the
      software industry have followed quarterly and seasonal trends and are
      likely to do so in the future. Specifically, it is normal for us to
      recognize a substantial portion of our new license orders in the last
      month of each quarter and sometimes in the last few weeks of each quarter,
      though such fluctuations are mitigated somewhat by recognition of backlog
      orders. In recent years, the fourth quarter has had the highest level of
      license revenue and order backlog, although the increase was less
      pronounced at the end of 2008, and we have generally had weaker demand for
      our software products and services in the first and third
      quarters.





To
address these potential risks, we have focused on a number of key initiatives,
including certain cost containment measures, the strengthening of our
partnerships, the broadening of our distribution capability worldwide, and the
targeting of our sales force and distribution channel on new
products.





We have
reduced expenses in certain areas and have tempered our hiring plans. In August
2008, we implemented a one-week shutdown of our operations. Instead of our
traditional Informatica World conference in 2009, we have decided to host a more
cost-effective set of targeted events for our customers, partners, developers,
and analysts.





We are
concentrating on maintaining and strengthening our relationships with our
existing strategic partners and building relationships with additional strategic
partners. These partners include systems integrators, resellers and
distributors, and strategic technology partners, including enterprise
application providers, database vendors, and enterprise information integration
vendors, in the United States and internationally. In February 2008, we launched
our new worldwide partner program, INFORM, which is comprised of a set of
programs and services to help partners develop and promote solutions in
conjunction with Informatica. In March 2008, we announced that Wipro
Technologies selected Informatica Data Migration Suite to power its Data
Migration Services. We are partners with FAST (acquired by Microsoft), SAP,
Oracle, Hyperion Solutions (acquired by Oracle) and salesforce.com. We have also
recently partnered with NEC. See “Risk Factors—We rely on our relationships with our
strategic partners. If we do not maintain and strengthen these relationships, our
ability to generate revenue and control expenses could be adversely affected, which
could cause a decline in the price of our common stock” in Part I, Item
1A.





We have
broadened our distribution efforts, and we have continued to expand our sales
both in terms of selling data warehouse products to the enterprise level and of
selling more strategic data integration solutions beyond data warehousing,
including data quality, data migrations, data consolidations, data
synchronizations, data hubs, and cross-enterprise data integration to our
customers’





27
 Table of Contents





enterprise
architects and chief information officers. We have expanded our international
sales presence in recent years by opening new offices, increasing headcount, and
through acquisitions. As a result of this international expansion, as well as
the increase in our direct sales headcount in the United States, our sales and
marketing expenses have increased. In the long term, we expect these investments
to result in increased revenues and productivity and ultimately higher
profitability. However, if we experience an increase in sales personnel
turnover, do not achieve expected increases in our sales pipeline, experience a
decline in our sales pipeline conversion ratio, or do not achieve increases in
sales productivity and efficiencies from our new sales personnel as they gain
more experience, then it is unlikely that we will achieve our expected increases
in revenue, sales productivity, or profitability. We have experienced some
increases in revenues and sales productivity in the United States in the past
few years. During the past year, we have also experienced increases in revenues
internationally, but we have not yet achieved the same level of sales
productivity internationally as domestically.





To
address the risks of introducing new products, we have continued to invest in
programs to help train our internal sales force and our external distribution
channel on new product functionalities, key differentiations, and key business
values. These programs include user conferences for customers and partners, our
annual sales kickoff conference for all sales and key marketing personnel in
January, “Webinars” for our direct sales force and indirect distribution
channel, in-person technical seminars for our pre-sales consultants, the
building of product demonstrations, and creation and distribution of targeted
marketing collateral. We have also invested in partner enablement programs,
including product-specific briefings to partners and the inclusion of several
partners in our beta programs.








Critical
Accounting Policies and Estimates





In
preparing our consolidated financial statements, we make assumptions, judgments,
and estimates that can have a significant impact on amounts reported in our
consolidated financial statements. We base our assumptions, judgments, and
estimates on historical experience and various other factors that we believe to
be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. On a regular
basis we evaluate our assumptions, judgments, and estimates and make changes
accordingly. We also discuss our critical accounting estimates with the Audit
Committee of the Board of Directors. We believe that the assumptions, judgments,
and estimates involved in the accounting for revenue recognition, facilities
restructuring charges, income taxes, impairment of goodwill, acquisitions,
share-based payments, and allowance for doubtful accounts have the greatest
potential impact on our consolidated financial statements, so we consider these
to be our critical accounting policies. We discuss below the critical accounting
estimates associated with these policies. Historically, our assumptions,
judgments, and estimates relative to our critical accounting policies have not
differed materially from actual results. For further information on our
significant accounting policies, see the discussion in Note 2. Summary of Significant Accounting
Policies, of Notes to Consolidated Financial Statements in Part II, Item
8 of this Report.





Revenue
Recognition





We follow
detailed revenue recognition guidelines, which are discussed below. We recognize
revenue in accordance with generally accepted accounting principles (GAAP) in
the United States that have been prescribed for the software industry. The
accounting rules related to revenue recognition are complex and are affected by
interpretations of the rules, which are subject to change. Consequently, the
revenue recognition accounting rules require management to make significant
judgments, such as determining if collectibility is probable.





We derive
revenues from software license fees, maintenance fees (which entitle the
customer to receive product support and unspecified software updates), and
professional services, consisting of consulting and education services. We
follow the appropriate revenue recognition rules for each type of revenue. The
basis for recognizing software license revenue is determined by the American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP)
97-2 Software Revenue
Recognition,together with other authoritative literature including, but
not limited to, the Securities and Exchange Commission’s Staff Accounting
Bulletin (SAB) 104,
Revenue Recognition,
see the subsection Revenue Recognitionin Note 2. Summary of Significant Accounting
Policies,of Notes to Consolidated Financial Statements in Part II, Item
8 of this Report. Substantially all of our software licenses are perpetual
licenses under which the customer acquires the perpetual right to use the
software as provided and subject to the conditions of the license agreement. We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable, and collection is probable. In
applying these criteria to revenue transactions, we must exercise judgment and
use estimates to determine the amount of software, maintenance, and professional
services revenue to be recognized at each period.





We assess
whether fees are fixed or determinable prior to recognizing revenue. We must
make interpretations of our customer contracts and exercise judgments in
determining if the fees associated with a license arrangement are fixed or
determinable. We consider factors including extended payment terms, financing
arrangements, the category of customer (end-user customer or
reseller),





28
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rights of
return or refund, and our history of enforcing the terms and conditions of
customer contracts. If the fee due from a customer is not fixed or determinable
due to extended payment terms, revenue is recognized when payment becomes due or
upon cash receipt, whichever is earlier. If we determine that a fee due from a
reseller is not fixed or determinable upon shipment to the reseller, we do not
recognize the revenue until the reseller provides us with evidence of
sell-through to an end-user customer and/or upon cash receipt. Further, we make
judgment in determining the collectibility of the amounts due from our customers
that could possibly impact the timing of revenue recognition. We assess credit
worthiness and collectibility, and, when a customer is not deemed credit worthy,
revenue is recognized when payment is received.





Our
software license arrangements include the following multiple elements: license
fees from our core software products and/or product upgrades that are not part
of post-contract services, maintenance fees, consulting, and/or education
services. We use the residual method to recognize license revenue upon delivery
when the arrangement includes elements to be delivered at a future date and
vendor-specific objective evidence (VSOE) of fair value exists to allocate the
fee to the undelivered elements of the arrangement. VSOE is based on the price
charged when an element is sold separately. If VSOE does not exist for any
undelivered software product element of the arrangement, all revenue is deferred
until all elements have been delivered, or VSOE is established. If VSOE does not
exist for any undelivered services elements of the arrangement, all revenue is
recognized ratably over the period that the services are expected to be
performed. We are required to exercise judgment in determining if VSOE exists
for each undelivered element.





Consulting
services, if included as part of the software arrangement, generally do not
require significant modification or customization of the software. If, in our
judgment, the software arrangement includes significant modification or
customization of the software, then software license revenue is recognized as
the consulting services revenue is recognized.





Consulting
revenues are primarily related to implementation services and product
configurations. These services are performed on a time-and-materials basis and,
occasionally, on a fixed-fee basis. Revenue is generally recognized as these
services are performed. If uncertainty exists about our ability to complete the
project, our ability to collect the amounts due, or in the case of fixed-fee
consulting arrangements, our ability to estimate the remaining costs to be
incurred to complete the project, revenue is deferred until the uncertainty is
resolved.





Multiple
contracts with a single counterparty executed within close proximity of each
other are evaluated to determine if the contracts should be combined and
accounted for as a single arrangement.





We
recognize revenues net of applicable sales taxes, financing charges that we have
absorbed, and amounts retained by our resellers and distributors, if any. Our
agreements do not permit for returns, and historically we have not had any
significant returns or refunds; therefore, we have not established a sales
return reserve at this time.








Facilities
Restructuring Charges





During
the fourth quarter of 2004, we recorded significant charges (2004 Restructuring
Plan) related to the relocation of our corporate headquarters, to take advantage
of more favorable lease terms and reduce our operating expenses. The accrued
restructuring charges represent net present value of lease obligations and
estimated commissions and other costs (principally leasehold improvements and
asset write-offs), offset by actual and estimated gross sublease income, which
is net of estimated broker commissions and tenant improvement allowances,
expected to be received over the remaining lease terms. In addition, we
significantly increased the 2001 restructuring charges (2001 Restructuring Plan)
in the third and fourth quarters of 2004 due to changes in our assumptions used
to calculate the original charges, as a result of our decision to relocate our
corporate headquarters.





These
liabilities include management’s estimates pertaining to sublease activities.
Inherent in the assessment of the costs related to our restructuring efforts are
estimates related to the probability weighted outcomes of the significant
actions to accomplish the restructuring. We will continue to evaluate the
commercial real estate market conditions periodically to determine if our
estimates of the amount and timing of future sublease income are reasonable
based on current and expected commercial real estate market conditions. Our
estimates of sublease income may vary significantly depending, in part on
factors that may be beyond our control; such as the global economic downturn,
time periods required to locate and contract suitable subleases and market rates
at the time of subleases. Currently, we have subleased our excess facilities in
connection with our 2004 and 2001 facilities restructuring but for durations
that are generally less than the remaining lease terms.





If we
determine that there is a change in the estimated sublease rates or in the
expected time it will take us to sublease our vacant space, we may incur
additional restructuring charges in the future and our cash position could be
adversely affected. See Note 11. Facilities Restructuring Charges,of Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report. Future adjustments to the charges could result from a change in the time
period that the buildings will be vacant, expected sublease rates, expected
sublease terms, and the expected time it will take to sublease.





29
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Accounting
for Income Taxes





We use
the asset and liability method of accounting for income taxes in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 109, Accounting for Income Taxes.Under this
method, income tax expenses or benefits are recognized for the amount of taxes
payable or refundable for the current year and for deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
our consolidated financial statements or tax returns. Effective January 1, 2007,
we adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainties in
Income Taxes—an Interpretation of FASB Statement 109(“FIN No. 48”)
to account for any income tax contingencies. The measurement of current and
deferred tax assets and liabilities is based on provisions of currently enacted
tax laws. The effects of any future changes in tax laws or rates have not been
taken into account.





As part
of the process of preparing consolidated financial statements, we are required
to estimate our income taxes and tax contingencies in each of the tax
jurisdictions in which we operate prior to the completion and filing of tax
returns for such periods. This process involves estimating actual current tax
expense together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, for tax and accounting purposes.
These differences result in net deferred tax assets and liabilities. We must
then assess the likelihood that the deferred tax assets will be realizable, and
to the extent we believe that realizability is not likely, we must establish a
valuation allowance.





In
assessing the need for any additional non-share-based payments valuation
allowance, we considered all the evidence available to us both positive and
negative, including historical levels of income, legislative developments,
expectations and risks associated with estimates of future taxable income, and
ongoing prudent and feasible tax planning strategies.





As a
result of this analysis for the year ended December 31, 2008, we considered it
more likely than not that our non-stock option related deferred tax assets would
be realized. As such, the remaining valuation allowance is primarily related to
our share-based payments deferred tax assets. The benefit of these deferred tax
assets will be recorded in the stockholders’ equity as realized, and as such,
they will not reduce our effective tax rate.





Accounting
for Impairment of Goodwill





We assess
goodwill for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
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 No. 142. Consistent with our
determination that we have only one reporting segment, we have determined that
there is only one Reporting Unit. We tested goodwill for impairment in our
annual impairment tests on October 31 of each of the years 2008, 2007, and 2006,
using the two-step process required by SFAS No. 142. First, we review the
carrying amount of the Reporting Unit compared to the “fair value” of the
Reporting Unit based on quoted market prices of our common stock. Second, if
such comparison reflects potential impairment, we would then perform the
discounted cash flow analyses. These analyses are based on cash flow assumptions
that are consistent with the plans and estimates being used to manage our
business. An excess carrying value to fair value would indicate that goodwill
may be impaired. Finally, if we determined that goodwill may be impaired, then
we would compare the “implied fair value” of the goodwill, as defined by SFAS
No. 142, to its carrying amount to determine the impairment loss, if
any.





We
determined in our annual impairment tests on October 31, 2008, 2007, and 2006
that the fair value of the Reporting Unit exceeded the carrying amount and,
accordingly, goodwill had not been impaired. Assumptions and estimates about
future values and remaining useful lives are complex and often subjective. They
can be affected by a variety of factors, including external factors such as
industry and economic trends and internal factors such as changes in our
business strategy and our internal forecasts. Although we believe the
assumptions and estimates we have made in the past have been reasonable and
appropriate, different assumptions and estimates could materially impact our
reported financial results.





Accounting
for impairment of goodwill will be impacted by certain elements of SFAS No. 157,
Fair Value Measurements,related to FASB Staff Position (“FSP”) No. 157-2 for non-financial assets and
liabilities, which is effectivefor fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008.We will apply
this pronouncement to our accounting for impairment of goodwill in
2009.





30
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Acquisitions





In
accordance with SFAS No. 141, Business Combinations, we are
required to allocate the purchase price of acquired companies to the tangible
and intangible assets acquired, liabilities assumed, as well as to in-process
research and development (IPR&D) based on their estimated fair values at the
acquisition date. The purchase price allocation process requires management to
make significant estimates and assumptions, especially at acquisition date with
respect to intangible assets, support obligations assumed, estimated
restructuring liabilities, and pre-acquisition contingencies.





A number
of events could potentially affect the accuracy of our assumptions and
estimates. Although we believe the assumptions and estimates that we have made
are reasonable and appropriate, nevertheless a level of uncertainty is inherent
in all such decisions.  The following are some of the examples of
critical accounting estimates that we have applied in our
acquisitions:




●
                future
      expected cash flows from software license sales, support agreements,
      consulting contracts, other customer contracts, and acquired developed
      technologies and patents;●
                expected
      costs to develop the in-process research and development into commercially
      viable products and estimated cash flows from the projects when
      completed;●
                the
      acquired company’s brand and competitive position, as well as assumptions
      about the period of time the acquired brand will continue to be used in
      the combined company’s product portfolio; and●
                discount
      rates.







In
connection with the purchase price allocations for our acquisitions, we estimate
the fair value of the support obligations assumed. The estimated fair value of
the support obligations is determined utilizing a cost build-up approach. The
cost build-up approach determines fair value by estimating the costs related to
fulfilling the obligations plus a normal profit margin. The estimated costs to
fulfill the support obligations are based on the historical direct costs related
to providing the support services and to correct any errors in the software
products acquired. The sum of these costs and operating profit approximates, in
theory, the amount that we would be required to pay a third party to assume the
support obligation. We do not include any costs associated with selling efforts
or research and development or the related fulfillment margins on these costs.
Profit associated with any selling efforts is excluded because the acquired
entities would have concluded those selling efforts on the support contracts
prior to the acquisition date. We also do not include the estimated research and
development costs in our fair value determinations, as these costs are not
deemed to represent a legal obligation at the time of
acquisition.




In any
acquisition, we may identify certain pre-acquisition contingencies. If we are
able to determine the fair value of such contingencies during the purchase price
allocation period, we will include that amount in the purchase price allocation.
On the other hand, if as of the end of the purchase price allocation period, we
are unable to determine the fair value of a pre-acquisition contingency, we will
evaluate whether to include an amount in the purchase price allocation based on
whether it is probable a liability had been incurred and whether an amount can
be reasonably estimated. Under the provisions of SFAS No. 141, with the
exception of unresolved income tax matters and certain earn-out payments, after
the end of the purchase price allocation period, any adjustment to amounts
recorded for a pre-acquisition contingency will be included in our operating
results in the period in which the adjustment is determined.





Accounting for
business
combinations will be impacted by certain elements of SFAS No. 157,Fair
Value Measurements,related to FSP No. 157-2
fornon-financial assets and liabilities, SFAS No. 141(R), Business Combinations, and
FSP No. 142-3, Determination
of the Useful Life of Intangible Assets,which became all effective for us on January 1, 2009.We will apply these pronouncements to any business combinations
consummated in 2009.





Share-Based
Payments





We
account for share-based payments related to share-based transactions in
accordance with the provisions of SFAS No. 123(R). Under the fair value
recognition provisions of SFAS No. 123(R), share-based payment is estimated at
the grant date based on the fair value of the award and is recognized as an
expense ratably on a straight line basis over its requisite service period. It
requires a certain amount of judgment to select the appropriate fair value model
and calculate the fair value of share-based awards, including
estimating





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stock
price volatility and expected life. Further, estimates of forfeiture rates could
shift the share-based payments from one period to the next.





We have
estimated the expected volatility as an input into the Black-Scholes-Merton
valuation formula when assessing the fair value of options granted. Our current
estimate of volatility was based upon a blend of average historical and
market-based implied volatilities of our stock price that we have used
consistently since the adoption of SFAS No. 123(R) in 2006. Our volatility rates
were 38-54%, 37-41%, and 43-52% for 2008, 2007, and 2006, respectively. The
increase in 2008 from 2007 was due to fluctuations in our stock price during the
latter part of 2008. The decline in the volatility rate in 2007 compared to 2006
was primarily due to stabilization of stock prices in 2007 and a decline in the
historical component of our volatility rates. Our historical volatility in 2008
compared to 2007 remained relatively unchanged, but the historical volatility in
2007 compared to 2006 declined due to the exclusion of more volatile years from
the calculation of our historical volatility rates. Our implied volatility rates
in 2008 increased due to more volatile stock prices in the stock market, but the
implied volatility in 2007 remained relatively unchanged compared to 2006. To
the extent that the volatility rate in our stock price increases in the future,
our estimates of the fair value of options granted will increase accordingly.
For example, a 10% higher volatility rate in 2008 would have increased the fair
value of the options that we granted in that year by approximately $3.8
million.





We
derived our expected life of the options that we granted in 2008 from the
historical option exercises, post-vesting cancellations, and estimates
concerning future exercises and cancellations for vested and unvested options
that remain outstanding. We lowered our expected life estimate from 3.9 years
(in 2006) to 3.3 years (in 2007). The lower expected life of options was mainly
due to reduction in contractual term of our new grants from 10 years to 7 years
in April 2004, and also higher exercise volume due to higher stock prices during
the most recent quarters. The expected life remained unchanged at 3.3 years in
2008. A reduction in the expected life from 3.9 years to 3.3 years reduces the
fair value of the granted options by approximately 8%.





In
addition, we apply an expected forfeiture rate in determining the amount of
share-based payments. Our estimate of the forfeiture rate is based on an average
of actual forfeited options for the past four quarters. We lowered our
forfeiture rate for the quarter ended March 31, 2008, from 13% to 10% based on
the average of actual forfeited options during the four quarters in 2007, which
increased our share-based payments in the first quarter of 2008 by approximately
$0.5 million.





We
believe that the estimates that we have used for the calculation of the
variables to arrive at share-based payments are accurate. We will, however,
continue to monitor the historical performance of these variables and will
modify our methodology and assumptions in the future as needed.





Allowances
for Doubtful Accounts





We
establish allowances for doubtful accounts based on our review of credit
profiles of our customers, contractual terms and conditions, current economic
trends and historical payment, and return and discount experiences. We reassess
the allowances for doubtful accounts each quarter. However, unexpected events or
significant future changes in trends could result in a material impact to our
future statements of operations and of cash flows. Our allowance for doubtful
accounts at December 31, 2008 and 2007 were $2.6 million and $1.3 million,
respectively.








32
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Results
of Operations





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





Years Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Revenues:License
                      
                      
                      43
                      %
                      
                      
                      45
                      %
                      
                      
                      45
                      %Service
                      
                      
                      57
                      
                      
                      
                      55
                      
                      
                      
                      55Total
      revenues
                      
                      
                      100
                      
                      
                      
                      100
                      
                      
                      
                      100Cost
      of revenues:License
                      
                      
                      1
                      
                      
                      
                      1
                      
                      
                      
                      2Service
                      
                      
                      18
                      
                      
                      
                      18
                      
                      
                      
                      18Amortization
      of acquired technology
                      
                      
                      1
                      
                      
                      
                      —
                      
                      
                      
                      1Total
      cost of revenues
                      
                      
                      20
                      
                      
                      
                      19
                      
                      
                      
                      21Gross
      profit
                      
                      
                      80
                      
                      
                      
                      81
                      
                      
                      
                      79Operating
      expenses:Research
      and development
                      
                      
                      16
                      
                      
                      
                      18
                      
                      
                      
                      17Sales
      and marketing
                      
                      
                      39
                      
                      
                      
                      41
                      
                      
                      
                      43General
      and administrative
                      
                      
                      8
                      
                      
                      
                      9
                      
                      
                      
                      9Amortization
      of intangible assets
                      
                      
                      1
                      
                      
                      
                      —
                      
                      
                      
                      —Facilities
      restructuring charges
                      
                      
                      1
                      
                      
                      
                      1
                      
                      
                      
                      1Purchased
      in-process research and development
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Patent
      related litigation proceeds net of patent contingency
    accruals
                      
                      
                      (3
                      )
                      
                      
                      —
                      
                      
                      
                      —Total
      operating expenses
                      
                      
                      62
                      
                      
                      
                      69
                      
                      
                      
                      70Income
      from operations
                      
                      
                      18
                      
                      
                      
                      12
                      
                      
                      
                      9Interest
      income and other, net
                      
                      
                      2
                      
                      
                      
                      4
                      
                      
                      
                      4Income
      before income taxes
                      
                      
                      20
                      
                      
                      
                      16
                      
                      
                      
                      13Income
      tax provision
                      
                      
                      8
                      
                      
                      
                      2
                      
                      
                      
                      2Net
      income
                      
                      
                      12
                      %
                      
                      
                      14
                      %
                      
                      
                      11
                      %





Revenues





Our total
revenues were $455.7 million in 2008 compared to $391.3 million in 2007 and
$324.6 million in 2006, representing growth of $64.4 million (or 16%) in 2008
from 2007 and $66.7 million (or 21%) in 2007 from 2006.





The
following table and discussion compare our revenues by type for the three years
ended December 31, 2008:




Percentage
                                                      Change2007
                                                    
                                                    
                                                    2006Years Ended December 31,
                                                    
                                                    
                                                    to
                                                    
                                                    
                                                    to2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2006
                                                    
                                                    
                                                    2008
                                                    
                                                    
                                                    2007(In
      thousands, except percentages)License
                                                    
                                                    $
                                                    195,769
                                                    
                                                    
                                                    $
                                                    175,318
                                                    
                                                    
                                                    $
                                                    146,092
                                                    
                                                    
                                                    
                                                    12
                                                    %
                                                    
                                                    
                                                    20
                                                    %Service
      revenues:Maintenance
                                                    
                                                    
                                                    186,212
                                                    
                                                    
                                                    
                                                    151,246
                                                    
                                                    
                                                    
                                                    124,955
                                                    
                                                    
                                                    
                                                    23
                                                    %
                                                    
                                                    
                                                    21
                                                    %Consulting and education
                                                    
                                                    
                                                    73,718
                                                    
                                                    
                                                    
                                                    64,692
                                                    
                                                    
                                                    
                                                    53,551
                                                    
                                                    
                                                    
                                                    14
                                                    %
                                                    
                                                    
                                                    21
                                                    %Total
      service revenues
                                                    
                                                    
                                                    259,930
                                                    
                                                    
                                                    
                                                    215,938
                                                    
                                                    
                                                    
                                                    178,506
                                                    
                                                    
                                                    
                                                    20
                                                    %
                                                    
                                                    
                                                    21
                                                    %Total
      revenues
                                                    
                                                    $
                                                    455,699
                                                    
                                                    
                                                    $
                                                    391,256
                                                    
                                                    
                                                    $
                                                    324,598
                                                    
                                                    
                                                    
                                                    16
                                                    %
                                                    
                                                    
                                                    21
                                                    %


Our
license revenues increased to $195.8 million (or 43% of total revenues) in 2008
compared to $175.3 million (or 45% of total revenues) in 2007, and $146.1
million (or 45% of total revenues) in 2006, representing growth of $20.5 million
(or 12%) in 2008 from 2007, and $29.2 million (or 20%) in 2007 from 2006. The
increase in license revenues in 2008 from 2007 was primarily due to an increase
in the volume of transactions, partially offset by a decrease in the average
size of the transactions. The increase in license revenues in 2007 from 2006 was
primarily due to an increase in the volume of transactions and to a lesser
extent due to an increase in the average size of our transactions and an
increase in international license revenues.





We have
two types of upgrades: (1) upgrades that are not part of the post-contract
services for which we charge customers an additional fee, and (2) upgrades that
are part of the post-contract services that we provide to our customers at no
additional charge,





33
 Table of Contents





when and
if available. The average transaction amount for orders greater than $100,000 in
2008, including upgrades, for which we charge customers an additional fee,
decreased to $314,000 from $339,000 and $332,000 in 2007 and 2006, respectively.
The number of transactions greater than $1.0 million decreased to 21 in 2008
from 26 and 25, in 2007 and 2006, respectively due to the global economic
downturn. In addition, our growth in license revenues reflected the continued
market acceptance of the most recent versions of our data integration and data
quality products introduced in 2007 and 2008.








Service
Revenues





Maintenance
Revenues





Maintenance
revenues increased to $186.2 million (or 41% of total revenues) in 2008 from
$151.2 million (or 39% of total revenues) in 2007, and $125.0 million (or 39% of
total revenues) in 2006, representing growth of $35.0 million (or 23%) in 2008
from 2007, and $26.2 million (or 21%) in 2007 from 2006. The increases in
maintenance revenues in 2008 and 2007 were primarily due to the increasing size
of our customer base.





We expect
maintenance revenues to increase in 2009 from the 2008 levels due to our growing
installed customer base.





Consulting
and Education Services Revenues





Consulting
and education services revenues were $73.7 million (or 16% of total revenues) in
2008, $64.7 million (or 16% of total revenues) in 2007, and $53.6 million (or
16% of total revenues) in 2006. The $9.0 million (or 14%) increase in 2008
compared to 2007 was primarily due to a higher demand for our consulting and
education services globally. The $11.1 million (or 21%) increase in 2007
compared to 2006 was primarily due to an increase in demand for consulting and
education services in Europe and North America.





Our
utilization rates have declined recently due to the global economic slowdowns.
As a result, we expect our revenues from consulting and education services to
decline or remain the same in 2009 from the 2008 levels.








International
Revenues





Our
international revenues were $158.6 million (or 35% of total revenues) in 2008,
$127.1 million (or 32% of total revenues) in 2007, and $97.9 million (or 30% of
total revenues) in 2006, representing an increase of $31.5 million (or 25%) in
2008 from 2007, and an increase of $29.2 million (or 30%) in 2007 from
2006.





The $31.5
million (or 25%) increase in 2008 from 2007 was primarily due to an increase in
international license and service revenues as a result of a larger and growing
installed customer base. The $29.2 million (or 30%) increase in 2007 from 2006
in international revenues was primarily due to our expansion in Europe,
Asia-Pacific, and Latin America.





We expect
international revenues as a percentage of total revenues in 2009 to be
relatively consistent with 2008.








Future
Revenues (New Orders, Backlog, and Deferred Revenue)





Our
future revenues include (1) backlog consisting primarily of product license
orders that have not shipped as of the end of a given quarter, (2) orders
received from certain distributors, resellers, and OEMs, not included in
deferred revenues, where revenue is recognized based on cash receipt
(collectively (1) and (2) are “aggregate backlog”), and (3) deferred revenues.
Our deferred revenues consist primarily of the following: (1) maintenance
revenues that we recognize over the term of the contract, typically one year,
(2) license product orders that have shipped but where the terms of the license
agreement contain acceptance language or other terms that require that the
license revenues be deferred until all revenue recognition criteria are met or
recognized ratably over an extended period, and (3) consulting and education
services revenues that have been prepaid but for which services have not yet
been performed.





We
typically ship products shortly after the receipt of an order, which is common
in the software industry, and historically our backlog of license orders
awaiting shipment at the end of any given quarter has varied. However, our
backlog typically decreases from the prior quarter at the end of the first and
third quarters and increases at the end of the fourth quarter although the
increase was less pronounced at the end of 2008. Aggregate backlog and deferred
revenues at December 31, 2008 were approximately $148.1 million compared to
$140.4 million at December 31, 2007. This increase in 2008 was primarily due to
an increase in deferred license and maintenance revenues. Backlog and deferred
revenues, as of any particular date, are not necessarily indicative of future
results.





34
 Table of Contents








Cost
of Revenues





Percentage
                                    Change2007
                                  
                                  
                                  2006Years Ended December 31,
                                  
                                  
                                  to
                                  
                                  
                                  to2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006
                                  
                                  
                                  2008
                                  
                                  
                                  2007(In
      thousands, except percentages)Cost
      of license revenues
                                  
                                  $
                                  3,291
                                  
                                  
                                  $
                                  3,693
                                  
                                  
                                  $
                                  6,978
                                  
                                  
                                  
                                  (11
                                  )%
                                  
                                  
                                  (47
                                  )%Cost
      of service revenues
                                  
                                  
                                  80,287
                                  
                                  
                                  
                                  69,174
                                  
                                  
                                  
                                  58,402
                                  
                                  
                                  
                                  16
                                  %
                                  
                                  
                                  18
                                  %Amortization
      of acquired technology
                                  
                                  
                                  4,125
                                  
                                  
                                  
                                  2,794
                                  
                                  
                                  
                                  2,118
                                  
                                  
                                  
                                  48
                                  %
                                  
                                  
                                  32
                                  %Total
      cost of revenues
                                  
                                  $
                                  87,703
                                  
                                  
                                  $
                                  75,661
                                  
                                  
                                  $
                                  67,498
                                  
                                  
                                  
                                  16
                                  %
                                  
                                  
                                  12
                                  %Cost
      of license revenues, as a percentage of license revenues
                                  
                                  
                                  2
                                  %
                                  
                                  
                                  2
                                  %
                                  
                                  
                                  5
                                  %
                                  
                                  
                                  —
                                  %
                                  
                                  
                                  (3
                                  )%Cost
      of service revenues, as a percentage of service revenues
                                  
                                  
                                  31
                                  %
                                  
                                  
                                  32
                                  %
                                  
                                  
                                  33
                                  %
                                  
                                  
                                  (1
                                  )%
                                  
                                  
                                  (1
                                  )%





Cost
of License Revenues





Our cost
of license revenues consists primarily of software royalties, product packaging,
documentation, production costs and personnel costs. Cost of license revenues
was $3.3 million (or 2% of license revenues) in 2008, $3.7 million (or 2% of
license revenues) in 2007, and $7.0 million (or 5% of license revenues) in 2006.
The $0.4 million (or 11%) decrease in 2008 from 2007 was primarily due to the
smaller proportion of royalty based products being shipped in 2008. The $3.3
million (or 47%) decrease in 2007 from 2006 was primarily due to lower
transaction volumes of sales for royalty bearing products.





We expect
that our cost of license revenues in 2009, as a percentage of license
revenues, to be consistent with 2008 levels.





Cost
of Service Revenues





Our cost
of service revenues is a combination of costs of maintenance, consulting, and
education services revenues. Our cost of maintenance revenues consists mainly of
costs associated with customer service personnel expenses and royalty fees for
maintenance related to third-party software providers. Cost of consulting
revenues consists primarily of personnel costs and expenses incurred in
providing consulting services at customers’ facilities. Cost of education
services revenues consists primarily of the costs of developing course
curriculum and providing training classes and materials at our headquarters,
sales and training offices, and customer locations. Cost of service revenues was
$80.3 million (or 31% of service revenues) in 2008, $69.2 million (or 32% of
service revenues) in 2007, and $58.4 million (or 33% of service revenues) in
2006.





The $11.1
million (or 16%) increase in 2008 from 2007 was proportional to the increase in
service revenues and was primarily due to higher subcontractor fees in our
consulting services group and headcount growth primarily in the customer support
group. The headcount in customer support, professional services, and education
services groups grew from 351 in 2007 to 407 in 2008.





The $10.8
million (or 18%) increase in 2007 from 2006 was primarily due to headcount
growth in customer support, professional services, and education services
groups, which grew from 318 in 2006 to 351 in 2007.





We expect
that our cost of service revenues, in absolute dollars, to increase in 2009 from
the 2008 levels, mainly due to headcount increases associated with increased
maintenance revenues. We expect, however, the cost of service revenues in 2009,
as a percentage of service revenues, to remain relatively consistent with 2008
levels.





Amortization
of Acquired Technology





Amortization
of acquired technology is the amortization of technologies acquired through
business acquisitions and technology licenses. Amortization of acquired
technology totaled $4.1 million, $2.8 million, and $2.1 million in 2008, 2007,
and 2006, respectively. The $1.3 million (or 48%) increase in 2008 from 2007 was
the result of amortization of certain technologies that we acquired in May 2008
in connection with the Identity Systems, Inc. acquisition, offset by certain
technologies related to the Striva acquisition that were fully amortized as of
December 31, 2007. The $0.7 million (or 33%) increase in 2007 from 2006 was
primarily due to certain developed technology that we acquired in December 2006
in connection with the Itemfield acquisition.





35
 Table of Contents





We expect
the amortization of acquired technology to be approximately $5.2 million in
2009, excluding the impact of Applimation acquisition and any other acquisitions
during the same period.








Operating
Expenses





Research
and Development




Percentage
                      Change2007
                    
                    
                    2006Years Ended December 31,
                    
                    
                    to
                    
                    
                    to2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2008
                    
                    
                    2007(In
      thousands, except percentages)Research
      and development
                    
                    $
                    72,522
                    
                    
                    $
                    69,908
                    
                    
                    $
                    54,997
                    
                    
                    
                    4
                    %
                    
                    
                    27
                    %







Our
research and development expenses consist primarily of salaries and other
personnel-related expenses, consulting services, facilities, and related
overhead costs associated with the development of new products, enhancement and
localization of existing products, quality assurance, and development of
documentation for our products. Research and development expenses were $72.5
million (or 16% of total revenues), $69.9 million (or 18% of total revenues),
and $55.0 million (or 17% of total revenues) for the years ended December 31,
2008, 2007 and 2006, respectively. The research and development expenses as a
percentage of total revenues declined by 2 percentage points for the year ended
December 31, 2008, mainly due to benefits of scale, as our revenues have
increased proportionately more than our research and development expenses, as
well as implementation of certain cost containment programs. All software and
development costs have been expensed in the period incurred since the costs
incurred subsequent to the establishment of technological feasibility have not
been significant.





The $2.6
million (or 4%) increase in 2008 from 2007 was primarily due to an increase of
$6.3 million in personnel-related costs including travel-related and
equipment-related expenses, as a result of headcount increasing from 375 in 2007
to 439 in 2008 offset by a $3.6 million reduction in consulting services and
reduced legal expenses related to patent litigation.





The $14.9
million (or 27%) increase in 2007 from 2006 was primarily due to a $11.4 million
increase in personnel-related costs including travel-related and
equipment-related expense, as a result of headcount increasing from 330 in 2006
to 375 in 2007. Also contributing to this increase was a $1.2 million increase
in consulting and temporary outside services.





We expect
research and development expenses in 2009, as a percentage of total revenues, to
remain relatively consistent with or decrease slightly from 2008
levels.








Sales
and Marketing




Percentage
              Change2007
            
            
            2006Years Ended December 31,
            
            
            to
            
            
            to2008
            
            
            2007
            
            
            2006
            
            
            2008
            
            
            2007(In
      thousands, except percentages)Sales
      and marketing
            
            $
            177,339
            
            
            $
            158,298
            
            
            $
            138,851
            
            
            
            12
            %
            
            
            14
            %





Our sales
and marketing expenses consist primarily of personnel costs, including
commissions and bonuses, as well as costs of public relations, seminars,
marketing programs, lead generation, travel, and trade shows. Sales and
marketing expenses were $177.3 million (or 39% of total revenues), $158.3
million (or 41% of total revenues), and $138.9 million (or 43% of total
revenues) for the years ended December 31, 2008, 2007, and 2006, respectively.
The sales and marketing expenses as a percentage of total revenues declined by 2
percentage points, 2 percentage points, and 1 percentage point for the years
ended December 31, 2008, 2007, and 2006, respectively. The $19.0 million (or
12%) increase from 2007 to 2008 was primarily due to a $16.5 million increase in
personnel-related costs (including sales commissions) and headcount growth from
483 in 2007 to 572 in 2008. Also contributing to the increase was a $2.3 million
increase in marketing program spending. The $19.4 million (or 14%) increase from
2006 to 2007 was primarily due to an increase in personnel-related costs of
$16.5 million (including sales commissions) and headcount growth from 431 in
2006 to 483 in 2007.





36
 Table of Contents





We expect
sales and marketing expenses, as a percentage of total revenues in 2009, to
remain relatively consistent with or decrease slightly from 2008 levels. We also
expect the percentage of total revenues represented by sales and marketing
expenses to fluctuate from period to period due to the timing of hiring new
sales and marketing personnel, our spending on marketing programs, and the level
of the commission expenditures, in each period.








General
and Administrative




Percentage
              Change2007
            
            
            2006Years Ended December 31,
            
            
            to
            
            
            to2008
            
            
            2007
            
            
            2006
            
            
            2008
            
            
            2007(In
      thousands, except percentages)General
      and administrative
            
            $
            37,411
            
            
            $
            35,531
            
            
            $
            28,187
            
            
            
            5
            %
            
            
            26
            %








Our
general and administrative expenses consist primarily of personnel costs for
finance, human resources, legal, and general management, as well as professional
service expenses associated with recruiting, legal, and accounting services.
General and administrative expenses were $37.4 million (or 8% of total
revenues), $35.5 million (or 9% of total revenues), and $28.2 million (or 9% of
total revenues) for the years ended December 31, 2008, 2007, and 2006,
respectively. The general and administrative expenses as percentage of total
revenues declined by 1 percentage point for the year ended December 31, 2008
mainly due to benefits of scale as our revenues have increased proportionately
more than our general and administrative expenses, as well as implementation of
certain cost containment programs.





General
and administrative expenses increased by $1.9 million (or 5%) in 2008 from 2007.
The increase over 2007 was driven by an increase in personnel-related costs of
$1.9 million and a $1.1 million increase in the allowance for doubtful accounts.
The increase was offset by a $0.9 million reduction in outside services. The
increase in personnel-related costs of $1.9 million was primarily due to
headcount growth from 156 in 2007 to 193 in 2008.





General
and administrative expenses increased by $7.3 million (or 26%) in 2007 from
2006. The $7.3 million increase over 2006 was driven by an increase in
personnel-related costs of $4.0 million and a $2.5 million increase in outside
services. The increase in personnel-related costs of $4.0 million was primarily
due to headcount growth from 142 in 2006 to 156 in 2007. The increase in
personnel-related costs and outside services was driven by compliance with the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).





We expect
general and administrative expenses in 2009, as a percentage of total revenues,
to remain relatively consistent with, or decrease slightly from 2008
levels.








Amortization
of Intangible Assets




Percentage
                Change2007
              
              
              2006Years Ended December 31,
              
              
              to
              
              
              to2008
              
              
              2007
              
              
              2006
              
              
              2008
              
              
              2007(In
      thousands, except percentages)Amortization
      of intangible assets
              
              $
              4,575
              
              
              $
              1,441
              
              
              $
              653
              
              
              
              217
              %
              
              
              121
              %


Amortization
of intangible assets is the amortization of customer relationships acquired,
trade names, and covenants not to compete through business acquisitions.
Amortization of intangible assets were $4.6 million, $1.4 million, and $0.7
million for the years ended December 31, 2008, 2007, and 2006, respectively. The
increase of $3.2 million in amortization of intangible assets for the year ended
December 31, 2008 compared to 2007 was primarily due to certain customer
relationships acquired in 2008 related to 2008 acquisitions. The increase of
$0.7 million in amortization of intangible assets for the year ended December
31, 2007 compared to 2006, was primarily due to the Itemfield acquisition in
December 2006.





We expect
amortization of the remaining intangible assets in 2009 to be approximately $6.2
million, excluding the impact of Applimation acquisition and any other
acquisitions during the same period.











37
 Table of Contents





Facilities
Restructuring Charges




Percentage
              Change2007
            
            
            2006Years Ended December 31,
            
            
            to
            
            
            to2008
            
            
            2007
            
            
            2006
            
            
            2008
            
            
            2007(In
      thousands, except percentages)Facilities
      restructuring charges
            
            $
            3,018
            
            
            $
            3,014
            
            
            $
            3,212
            
            
            
            —
            %
            
            
            (6)
            %







In 2008,
we recorded $3.0 million of restructuring charges related to the 2004 and 2001
Restructuring Plans. These charges included primarily $3.5 million of accretion
charges, offset by an adjustment of $0.6 million due to changes in our assumed
sublease income. See Note 11. Facilities Restructuring Charges,of Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.





In 2007,
we recorded $3.0 million of restructuring charges related to the 2004 and 2001
Restructuring Plans. These charges included primarily $3.9 million of accretion
charges, offset by an adjustment of $1.0 million due to changes in our assumed
sublease income.





As of
December 31, 2008, $64.5 million of total lease termination costs, net of actual
and expected sublease income, less broker commissions and tenant improvement
costs related to facilities to be subleased, was included in accrued
restructuring charges and is expected to be paid by 2013.





2004 Restructuring Plan.Net
cash payments for facilities included in the 2004 Restructuring Plan amounted to
$11.1 million in 2008, $10.8 million in 2007, and $9.7 million in 2006. Actual
future cash requirements may differ from the restructuring liability balances as
of December 31, 2008, if there are changes to the time period that facilities
are vacant, or the actual sublease income is different from current
estimates.





2001 Restructuring Plan.Net
cash payments for facilities included in the 2001 Restructuring Plan amounted to
$1.6 million in 2008, $1.6 million in 2007, and $4.0 million in 2006. Actual
future cash requirements may differ from the restructuring liability balances as
of December 31, 2008 if we are unable to continue subleasing the excess leased
facilities, there are changes to the time period that facilities are vacant, or
the actual sublease income is different from current estimates.





Our
results of operations have been positively affected since 2004 by a significant
decrease in rent expense and decreases to non-cash depreciation and amortization
expense for the leasehold improvements and equipment written off. These combined
savings were approximately $7 to $11 million annually compared to 2004, after
accretion charges, and we anticipate that they will continue through
2013.





In
addition, we will continue to evaluate our current facilities requirements to
identify facilities that are in excess of our current and estimated future
needs. We will also evaluate the assumptions related to estimated future
sublease income for excess facilities. Accordingly, any changes to these
estimates of excess facilities costs could result in additional charges that
could materially affect our consolidated financial position and results of
operations. See Note 11. Facilities Restructuring Charges,of
Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.








Purchased
In-Process Research and Development (IPR&D)




Percentage
              Change2007
            
            
            2006Years Ended December 31,
            
            
            to
            
            
            to2008
            
            
            2007
            
            
            2006
            
            
            2008
            
            
            2007(In
      thousands, except percentages)Purchased
      in-process research and development
            
            $
            390
            
            
            $
            —
            
            
            $
            1,340
            
            
            
            *
            %
            
            
            (100)
            %




*  Percentage
is not meaningful





In 2008,
in conjunction with our acquisition of Identity Systems, Inc., we recorded
in-process research and development (IPR&D) charges of $0.4 million. In
2006, in conjunction with our acquisition of Similarity, we recorded IPR&D
charges of $1.3 million. We did not incur any IPR&D charges in relation to
the Itemfield acquisition. The IPR&D charges were associated with software
development efforts in process at the time of the business combination that had
not yet achieved technological feasibility and no future alternative uses had
been identified. We may further incur IPR&D charges if we make additional
acquisitions in the future.





38
 Table of Contents








Patent
Related Litigation Proceeds Net of Patent Contingency Accruals





We
recorded $11.5 million for patent litigation proceeds net of accruals for patent
litigation in 2008.








Interest
Income and Other, Net





Percentage
                                Change2007
                              
                              
                              2006Years Ended December 31,
                              
                              
                              to
                              
                              
                              to2008
                              
                              
                              2007
                              
                              
                              2006
                              
                              
                              2008
                              
                              
                              2007(In
      thousands, except percentages)Interest
      income
                              
                              $
                              14,092
                              
                              
                              $
                              21,820
                              
                              
                              $
                              18,188
                              
                              
                              
                              (35
                              )%
                              
                              
                              20
                              %Interest
      expense
                              
                              
                              (7,221
                              )
                              
                              
                              (7,196
                              )
                              
                              
                              (5,782
                              )
                              
                              
                              —
                              %
                              
                              
                              24
                              %Other
      income (expense), net
                              
                              
                              866
                              
                              
                              
                              613
                              
                              
                              
                              (583
                              )
                              
                              
                              41
                              %
                              
                              
                              (205
                              )%$
                              7,737
                              
                              
                              $
                              15,237
                              
                              
                              $
                              11,823
                              
                              
                              
                              (49
                              )%
                              
                              
                              29
                              %





Interest
income and other, net consists primarily of interest income earned on our cash,
cash equivalents, short-term investments, and restricted cash balances, as well
as foreign exchange transaction gains and losses and, to a lesser degree,
interest expenses. Interest income and other, net was $7.7 million, $15.2
million, and $11.8 million in 2008, 2007, and 2006, respectively.





The
decrease of $7.5 million (or 49%) in 2008 from 2007 was primarily due to a $7.7
million decrease in interest income received from lower investment yields and a
$1.2 million decline in other income, which were partially offset by an increase
of $0.4 million in foreign exchange gains and $1.0 million gain on early
extinguishment of debt.





The
increase of $3.4 million (or 29%) in 2007 from 2006 was primarily due to an
increase in cash balances resulting from an increase in cash flows from
operating activities, increase in investment yields from interest bearing
instruments, and increase in foreign exchange gains partially offset by the
interest expense related to the Convertible Senior Notes issued in March 2006.
As a result of our revised more conservative investment strategy, we expect
lower interest income in the future.





In 2003,
we made a minority equity investment in a privately held company that was
carried at a cost basis of $0.5 million and was included in other assets.
Informatica evaluated this investment in December 2004 and determined that the
carrying value of this investment was impaired. In December 2007, this privately
held company was acquired, and as a result of this acquisition, Informatica
received $125,000 and $883,700 cash proceeds for its share in the equity of the
company in 2008 and 2007, respectively. Informatica has recorded these amounts
as other income for the years ended December 31, 2008 and 2007.








Income
Tax Provision





Percentage
                              Change2007
                            
                            
                            2006Years Ended December 31,
                            
                            
                            to
                            
                            
                            to2008
                            
                            
                            2007
                            
                            
                            2006
                            
                            
                            2008
                            
                            
                            2007(In
      thousands, except percentages)Income
      tax provision
                            
                            $
                            35,993
                            
                            
                            $
                            8,024
                            
                            
                            $
                            5,477
                            
                            
                            
                            349
                            %
                            
                            
                            47
                            %Effective
      tax rate
                            
                            
                            39
                            %
                            
                            
                            13
                            %
                            
                            
                            13
                            %
                            
                            
                            26
                            %
                            
                            
                            —
                            %





Our
effective tax rates were 39%, 13% and 13% in 2008, 2007, and 2006, respectively.
The effective tax rate of 39% for 2008 differed from the federal statutory rate
of 35% primarily due to the non-deductibility of share-based payments as well as
the accrual of reserves related to uncertain tax positions offset by the tax
credits and tax rate benefits of certain earnings from our operations in
lower-tax jurisdictions throughout the world. We have not provided for residual
U.S. taxes in any of these jurisdictions since we intend to reinvest these
off-shore earnings indefinitely.





The
effective tax rate of 13% for 2007 differed from the federal statutory rate of
35% primarily due to non-deductible amortization of deferred share-based
payments, as well as the accrual of reserves pursuant to FIN No. 48, Accounting for Uncertainties in Income Taxes—an
Interpretation of FASB Statement 109(“FIN No. 48”), offset by a decrease
in our valuation allowance for deferred tax assets and foreign earnings taxed at
different rates.





39
 Table of Contents





The
effective tax rate of 13% for 2006 differed from the federal statutory rate of
35% primarily due to foreign withholding and income taxes, and non-deductible
amortization of deferred share-based payments and intangibles, offset by a
decrease in our valuation allowance for deferred tax assets to the extent of tax
attributes utilized, as well as provision to return adjustments recorded as
discrete items.





We expect
our effective tax rate to decline in 2009, but this rate is highly dependent on
the result of our international operations as well as the outcome of various tax
audits.





Liquidity
and Capital Resources





We have
funded our operations primarily through cash flows from operations and public
offerings of our common stock in the past. As of December 31, 2008, we had
$460.9 million in available cash and cash equivalents and short-term
investments. Our primary sources of cash are the collection of accounts
receivable from our customers and proceeds from the exercise of stock options
and stock purchased under our employee stock purchase plan. Our uses of cash
include payroll and payroll-related expenses and operating expenses such as
marketing programs, travel, professional services, and facilities and related
costs. We have also used cash to purchase property and equipment, repurchase
common stock from the open market to reduce the dilutive impact of stock option
issuances, repurchase our Convertible Senior Notes, and acquire businesses and
technologies to expand our product offerings.





Operating Activities: Cash
provided by operating activities in 2008 was $99.9 million, representing an
increase of $17.9 million from 2007. This increase resulted primarily from a
$1.4 million increase in net income (adjusted for non-cash expenses), an
increase in accounts receivable cash collections, an increase in income taxes
payable, and an increase in accrued liabilities. These increases were offset by
payments to reduce our accrual for excess facilities and excess tax benefits
from share-based payments. We recognized the excess tax benefits from
share-based payments for $5.1 million during the year ended December 31, 2008.
This amount is recorded as a use of operating activities and an offsetting
amount is recorded as a provision by financing activities. We made cash payments
for taxes in different jurisdictions for $25.5 million during the year ended
December 31, 2008. Our “days sales outstanding” in accounts receivable increased
from 58 days at December 31, 2007 to 64 days at December 31, 2008, due to a
higher amount of billings which occurred toward the end of 2008, compared to
2007. Deferred revenues increased primarily due to an increase in deferred
maintenance revenues resulting from a larger customer base. Our operating cash
flows will also be impacted in the future by the timing of payments to our
vendors and payments for taxes.





Cash
provided by operating activities in 2007 was $82.0 million, representing an
increase of $15.1 million from 2006. This increase resulted primarily from an
increase in net income (adjusted for non-cash expenses and increases in deferred
revenue), accrued compensation and related expenses, and income taxes payable.
These increases were offset by higher balances in accounts receivable, prepaid
expense and other assets primarily for insurance and third-party software
maintenance, payments to our vendors, and payments on our lease obligations
under our facilities restructuring accrual. Our “days sales outstanding” in
accounts receivable decreased from 65 days at December 31, 2006 to 58 days at
December 31, 2007 due to improvements in our collection program. Our deferred
revenues increased primarily due to a larger customer base and a significant
license contract that was recognized over the following 12 months.





Cash
provided by operating activities in 2006 was $66.9 million, representing an
increase of $29.0 million from 2005. This increase resulted primarily from an
increase in net income (adjusted for non-cash expenses and increases in deferred
revenue), accrued compensation and related expenses, and income taxes payable.
These increases were offset by higher accounts receivable, prepaid expense and
other assets related to insurance and third-party software maintenance, payments
to our vendors, and payments related to our lease obligations under our
facilities restructuring accrual. Our “days sales outstanding” in accounts
receivable increased from 58 days at December 31, 2005 to 65 days at December
31, 2006 due to a higher amount of billings which occurred toward the end of
2006. Deferred revenues increased primarily due to a larger customer base and
assumed deferred revenue in connection with the acquisition of Itemfield in
December 2006.





Investing Activities:We
acquire property and equipment in our normal course of business. The amount and
timing of these purchases and the related cash outflows in future periods depend
on a number of factors, including the hiring of employees, the rate of upgrade
of computer hardware and software used in our business, as well as our business
outlook.





We have
identified our investment portfolio as “available for sale” based on Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities, and our investment objectives are to
preserve principal and provide liquidity while maximizing yields without
significantly increasing risk. We may sell an investment at any time if the
quality rating of the investment declines, the yield on the investment is no
longer attractive, or we need additional cash. We invest only in
money





40
 Table of Contents





market
funds and short-term marketable securities. We believe that the purchase,
maturity, or sale of our investments has no material impact on our overall
liquidity. Our revised and more conservative investment strategy has not
impacted our liquidity.





We have
used cash to acquire businesses and technologies that enhance and expand our
product offerings, and we anticipate that we will continue to do so in the
future. Due to the nature of these transactions, it is difficult to predict the
amount and timing of such cash requirements. In March 2008, we invested $3.0
million in the preferred stock of a privately held company that we account for
on a cost basis. On May 15, 2008, we acquired all of the issued and outstanding
shares of Identity Systems, Inc., a Delaware corporation and a wholly owned
subsidiary of Intellisync Corporation, for $85.6 million in cash, including
transaction costs of $0.9 million and acquired cash of $5.8 million. On October
1, 2008, Informatica Nederland B.V., a wholly owned subsidiary of Informatica,
purchased all of the issued and outstanding shares of PowerData Iberica, S.L., a
company organized under the laws of Spain for $7.1 million in cash, including
transaction costs of $0.4 million.





As of
June 2008, we were no longer required to maintain certificates of deposits for
the $12.0 million letter of credit that a financial institution issued in 2001
for our former corporate headquarters leases at the Pacific Shores Center in
Redwood City, California. Accordingly, we classified the release of such
restricted cash associated with such certificates of deposits from investing
activities to operating activities.





Financing Activities:We
receive cash from the exercise of common stock options and the sale of common
stock under our employee stock purchase plan (ESPP). Net cash used in financing
activities in 2008 was $32.1 million due to repurchases and retirement of our
common stock for $57.0 million and our Convertible Senior Notes for $7.8
million. These repurchases were offset by the issuance of common stock to option
holders and to participants of our ESPP program for $27.6 million, and $5.1
million of excess tax benefits from share-based payments.





Net cash
provided by financing activities in 2007 was $4.2 million due to the issuance of
common stock to option holders and to participants of our ESPP program for $27.7
million, and $5.5 million of excess tax benefits from share-based payments,
which were partially offset by a $28.9 million repurchase and retirement of
common stock.





Net cash
provided by financing activities in 2006 was $169.1 million including issuance
of convertible debt for $230 million and issuance of common stock to option
holders and participants of ESPP for $23.8 million, which were partially offset
by a $78.5 million repurchase and retirement of common stock and a $6.2 million
payment of debt issuance costs. Although we expect to continue to receive some
proceeds from the issuance of common stock to option holders and participants of
ESPP in future periods, the timing and amount of such proceeds are difficult to
predict and are contingent on a number of factors, including the price of our
common stock, the number of employees participating in our stock option plans
and our employee stock purchase plan, and general market
conditions.





In March
2006, we issued and sold Convertible Senior Notes with an aggregate principal
amount of $230 million due in 2026 (“Notes”). We used approximately $50 million
of the net proceeds from the offering to fund the purchase of 3,232,000 shares
of our common stock concurrently with the offering of the Notes. We intend to
use the balance of the net proceeds for working capital and general corporate
purposes, which may include the acquisition of businesses, products, product
rights or technologies, strategic investments, or additional purchases of common
stock or Convertible Senior Notes.





In April
2006, our Board of Directors authorized a stock repurchase program of up to $30
million of our common stock at any time until April 2007. As of April 30, 2007,
we repurchased 2,238,000 shares of our common stock for $30 million. In April
2007, our Board of Directors authorized an additional repurchase of $50 million
of our common stock under the existing stock repurchase program. We repurchased
3,204,000 shares of our common stock for $50 million in 2007 and 2008. In April
2008, our Board of Directors authorized an additional repurchase of $75 million
of our common stock under the stock repurchase program. In October 2008,
Informatica’s Board of Directors authorized, under the existing stock repurchase
program, the repurchase of a portion of its outstanding Notes due in 2026 in
privately negotiated transactions with holders of the Notes. As of December 31,
2008, we repurchased 3,797,000 shares of our stock at a cost of $57.0 million,
and we retired $9.0 million of our Convertible Senior Notes at a cost of $7.8
million. We have approximately $32.6 million remaining available to repurchase
shares of our stock or Convertible Senior Notes under this program as of
December 31, 2008.  This repurchase program does not have an expiration
date.





Purchases
can be made from time to time in the open market and will be funded from our
available cash. The primary purpose of these programs is to enhance shareholder
value by partially offsetting the dilutive impact of stock based incentive
plans. The number of shares to be purchased and the timing of purchases are
based on several factors, including the price of our common stock, our liquidity
and working capital needs, general business and market conditions, and other
investment opportunities. The repurchased shares are retired and reclassified as
authorized and unissued shares of common stock. See Part II, Item 5 of this
Report for more





41
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information
regarding the stock and Convertible Senior Notes repurchase program. We may
continue to repurchase shares and Convertible Senior Notes from time to time, as
determined by management under programs approved by the Board of
Directors.





We
believe that our cash balances and the cash flows generated by operations will
be sufficient to satisfy our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. Given our cash balances,
it is less likely but still possible that we may require or desire additional
funds for purposes such as acquisitions, and we may raise such additional funds
through public or private equity or debt financing or from other sources.
Beginning on March 15, 2011 and then upon March 15, 2016, and March 15, 2021, or
upon the occurrence of certain events including a change in control, holders of
the Notes may require the Company to repurchase all or a portion of their Notes
at a purchase price in cash equal to the full principal amount of the Notes plus
any accrued and unpaid interest as of the relevant date. We may not be able to
obtain adequate or favorable financing at that time, and any financing we obtain
might be dilutive to our stockholders.








Contractual
Obligations and Operating Leases





The
following table summarizes our significant contractual obligations, including
future minimum lease payments at December 31, 2008, under non-cancelable
operating leases with original terms in excess of one year, and the effect of
such obligations on our liquidity and cash flows in the future periods (in
thousands):





Payment Due by PeriodTotal
                              
                              
                              2009
                              
                              
                              2010
                                and
                                2011
                              
                              
                              2012
                                and
                                2013
                              
                              
                              2014
                                and
                                BeyondOperating
      lease obligations:Operating
      lease payments
                              
                              $
                              100,142
                              
                              
                              $
                              24,771
                              
                              
                              $
                              43,255
                              
                              
                              $
                              31,291
                              
                              
                              $
                              825Future
      sublease income
                              
                              
                              (11,801
                              )
                              
                              
                              (2,344
                              )
                              
                              
                              (5,312
                              )
                              
                              
                              (4,145
                              )
                              
                              
                              —Net
      operating lease obligations
                              
                              
                              88,341
                              
                              
                              
                              22,427
                              
                              
                              
                              37,943
                              
                              
                              
                              27,146
                              
                              
                              
                              825Debt
      obligations:Principal
      payments*
                              
                              
                              221,000
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              221,000Interest
      payments
                              
                              
                              116,025
                              
                              
                              
                              6,630
                              
                              
                              
                              13,260
                              
                              
                              
                              13,260
                              
                              
                              
                              82,875Other
      obligations**
                              
                              
                              3,400
                              
                              
                              
                              850
                              
                              
                              
                              1,700
                              
                              
                              
                              850
                              
                              
                              
                              —$
                              428,766
                              
                              
                              $
                              29,907
                              
                              
                              $
                              52,903
                              
                              
                              $
                              41,256
                              
                              
                              $
                              304,700


____________





*
            Holders
      of the Notes may require us to repurchase all or a portion of their Notes
      at a purchase price in cash equal to the full principle amount of the
      Notes plus any accrued and unpaid interest on March 15, 2011, March 15,
      2016, and March 15, 2021, or upon the occurrence of certain events
      including a change in control. We have the right to redeem some or all of
      the Notes after March 15, 2011.**
            Other
      purchase obligations and commitments include minimum royalty payments
      under license agreements and do not include purchase obligations discussed
      below.





Our
contractual obligations at December 31, 2008 include the lease term for our
headquarters office in Redwood City, California, which is from December 15, 2004
to December 31, 2010. Minimum contractual lease payments are $4.0 million and
$4.2 million for the years ending December 31, 2009, and 2010,
respectively.





The above
commitment table does not include approximately $20.2 million of long-term
income tax liabilities recorded in accordance with FIN No. 48 because we are
unable to reasonably estimate the timing of these potential future
payments.








Contractual
Obligations





Purchase
orders or contracts for the purchase of certain goods and services are not
included in the preceding table. We cannot determine the aggregate amount of
such purchase orders that represent contractual obligations because purchase
orders may represent authorizations to purchase rather than binding agreements.
For the purposes of this table, contractual obligations for purchase of goods or
services are defined as agreements that are enforceable and legally binding and
that specify all significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum, or variable price provisions; and the approximate
timing of the transaction. Our purchase orders are based on our current needs
and are fulfilled by our vendors within short time horizons. We also enter into
contracts for outsourced services; however, the obligations under these
contracts were not significant and the contracts generally





42
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contain
clauses allowing for cancellation without significant penalty. Contractual
obligations that are contingent upon the achievement of certain milestones are
not included in the table above.





We
adopted FIN No. 48 effective January 1, 2007. We are unable to make a
reasonably reliable estimate of the timing of payments in individual years
beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a
result, this amount is not included in the table above. For further information,
see Note 13, Income
Taxes, of Notes to Consolidated Financial Statements in Part II, Item 8
of this Report.





We
estimate the expected timing of payment of the obligations discussed above on
current information. Timing of payments and actual amounts paid may be different
depending on the time of receipt of goods or services or changes to agreed-upon
amounts for some obligations.








Operating
Leases





We lease
certain office facilities and equipment under non-cancelable operating leases.
During 2004, we recorded facilities restructuring charges related to the
consolidation of excess leased facilities in Redwood City, California. Operating
lease payments in the table above include approximately $76.7 million, net of
actual sublease income, for operating lease commitments for those facilities
that are included in accrued facilities restructuring charges. See Note 11.
Facilities Restructuring
Chargesand Note 15. Commitments and Contingencies,of Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.





Of these
future minimum lease payments, we have $64.5 million recorded in accrued
facilities restructuring charges at December 31, 2008. This accrual, in addition
to minimum lease payments of $76.7 million, includes estimated operating
expenses of $23.4 million, is net of estimated sublease income of $27.5 million,
and is net of the present value impact of $8.1 million recorded in accordance
with Statement of Financial Accounting Standards Board No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (“SFAS No. 146”). We estimated sublease
income and the related timing thereof based on existing sublease agreements and
current market conditions, among other factors. Our estimates of sublease income
may vary significantly from actual amounts realized depending, in part, on
factors that may be beyond our control, such as the time periods required to
locate and contract suitable subleases and the market rates at the time of such
subleases.





In
relation to our excess facilities, we may decide to negotiate and enter into
lease termination agreements, if and when the circumstances are appropriate.
These lease termination agreements would likely require that a significant
amount of the remaining future lease payments be paid at the time of execution
of the agreement, but would release us from future lease payment obligations for
the abandoned facility. The timing of a lease termination agreement and the
corresponding payment could materially affect our cash flows in the period of
payment.





The
expected timing of payment of the obligations discussed above is estimated based
on current information. Timing of payments and actual amounts paid may be
different.





We have
sublease agreements for leased office space at the Pacific Shores Center in
Redwood City, California. In the event the sublessees are unable to fulfill
their obligations, we would be responsible for rent due under the leases. We
expect at this time that the sublessees will fulfill their obligations under the
terms of the current lease agreements.





In
February 2000, we entered into two lease agreements for two buildings at the
Pacific Shores Center in Redwood City, California (our former corporate
headquarters), which we occupied from August 2001 through December 2004. These
two lease agreements will expire in July 2013.








Other
Uses of Cash





In
October and May 2008, and January and December 2006, in connection with the
PowerData, Identity Systems, Inc, Similarity and Itemfield acquisitions, we used
approximately $7.1 million, $85.6 million, $48.3 million, and $52.1 million
cash, respectively, as part of the consideration. A portion of our cash may be
further used to acquire or invest in other complementary businesses or products
or to obtain the right to use other complementary technologies. From time to
time, in the ordinary course of business, we may evaluate potential acquisitions
of such businesses, products, or technologies. The nature of these transactions
makes it difficult to





43
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predict
the amount and timing of such cash requirements. We may also be required to
raise additional financing to complete future acquisitions.








Letters
of Credit





In 2001,
a financial institution issued a $12.0 million letter of credit, which required
us to maintain certificates of deposit as collateral until the leases expire in
2013. As of June 2008, however, we were no longer required to maintain
certificates of deposits for this letter of credit related to our former
corporate headquarters leases at the Pacific Shores Center in Redwood City,
California.








Off-Balance
Sheet Arrangements





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








Recent
Accounting Pronouncements





For
recent accounting pronouncements, see Note 2. Summary of Significant Accounting Policies,of Notes
to Consolidated Financial Statements in Part II, Item 8 of this
Report.








ITEM 7A. QUANTITATIVEAND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK





Foreign
Currency Exchange Rate Risk





We market
and sell our software and services through our direct sales force and indirect
channel partners in North America, Europe, Asia-Pacific, and Latin America.
Accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. The functional currency of our foreign subsidiaries is
their local currency, except for Informatica Cayman Ltd., which is in euros. Our
exposure to foreign exchange risk is related to the magnitude of foreign net
profits and losses denominated in foreign currencies, in particular the euro and
British pound, as well as our net position of monetary assets and monetary
liabilities in those foreign currencies. These exposures have the potential to
produce either gains or losses within our consolidated results. Our foreign
operations, however, in most instances act as a natural hedge since both
operating expenses as well as revenues are generally denominated in their
respective local currency. In these instances, although an unfavorable change in
the exchange rate of foreign currencies against the U.S. dollar will result in
lower revenues when translated into U.S. dollars, the operating expenditures
will be lower as well.




Our results of operations and cash
flows are subject to fluctuations due to changes in foreign currency exchange
rates, particularly changes in the Indian rupee,Israelishekel,euro, British pound sterling,
Canadian dollar, Japanese yen, Brazilian real, and Australian dollar. Beginning
in the fourth quarter of 2008, we have attempted to minimize the impact of
certain foreign currency fluctuations through hedging programs for the foreign
subsidiaries where we do not have a natural hedge. The purpose of these programs
is to reduce volatility of identified cash flow and earnings caused by movement
in certain foreign currency exchange rates, in particular, Indian rupee and
Israeli shekel foreign currency exchange rates. Any gain or loss from settling
these contracts is offset by the gain or loss derived from the underlying
balance sheet exposures upon payment.







Cash
Flow Hedge Activities




Beginning
in the fourth quarter of 2008, we have attempted to minimize the impact of
certain foreign currency fluctuations through initiation of certain cash flow
hedge programs. The purpose of these programs is to reduce volatility in cash
flows and earnings caused by movement in certain foreign currency exchange
rates, in particular Indian rupee and Israeli shekel foreign currency exchange
rates.





44
 Table of Contents





The table
below presents the notional amounts of the foreign exchange forward contracts
that the Company committed to purchase in the fourth quarter of 2008 for Indian
rupees and Israeli shekels (in thousands):








Functional
      currency
              
              Foreign
                Amount
              
              
              USD
                EquivalentIndian
      rupee
              
              
              332,990
              
              
              $
              6,497Israeli
      shekel
              
              
              13,105
              
              
              
              3,414$
              9,911







We record
changes in the intrinsic value of these cash flow hedges in accumulated other
comprehensive income (loss), until the forecasted transaction occurs. When the
forecasted transaction occurs, we reclassify the effective portion related gain
or loss on the cash flow hedge to operating expenditures. If the underlying
forecasted transaction does not occur for any reason, or it becomes probable
that it will not occur, we reclassify the gain or loss on the related cash flow
hedge from accumulated other comprehensive income (loss) to other income
(expense) in the consolidated statements of operations.





We did
not incur any gains or losses in the other income or expense in 2008 due to
occurrence of ineffectiveness in our previously forecasted hedging
transactions.





Interest
Rate Risk





Our
exposure to market risk for changes in interest rates relates primarily to our
investment portfolio. We do not use derivative financial instruments in our
investment portfolio. The primary objective of our investment activities is to
preserve principal while maximizing yields without significantly increasing
risk. Our investment policy specifies credit quality standards for our
investments and limits the amount of credit exposure to any single issue,
issuer, or type of investment. Our investments consist primarily of U.S.
government notes and bonds, corporate bonds, commercial paper and municipal
securities. All investments are carried at market value, which approximates
cost. See Note 3. Cash, Cash
Equivalents, and Short-Term Investments,of Notes to Consolidated
Financial Statements in Part II, Item 8 of this Report.





The
following table presents the fair value of cash equivalents and short-term
investments that are subject to interest rate risk and the average interest rate
as of December 31, 2008 and 2007 (dollars in thousands):








December 31,2008
                    
                    
                    2007Cash
      and short-term investments
                    
                    $
                    348,338
                    
                    
                    $
                    381,921Average
      rate of return
                    
                    
                    3.0
                    %
                    
                    
                    5.1
                    %





Our cash
equivalents and short-term investments are subject to interest rate risk and
will decline in value if market interest rates increase. As of December 31,
2008, we had net unrealized gains of $1.4 million associated with these
securities. If market interest rates were to change immediately and uniformly by
100 basis points from levels as of December 31, 2008, the fair market value of
the portfolio would change by approximately $1.4 million. Additionally, we have
the ability to hold our investments until maturity and, therefore, we would not
necessarily expect to realize an adverse impact on income or cash flows. At this
time, we expect our average rate of return to drop by approximately 100 to 150
basis points during 2009.








ITEM 8. FINANCIALSTATEMENTS AND
SUPPLEMENTARY DATA





The
following consolidated financial statements, and the related notes thereto, of
Informatica Corporation and the Reports of Independent Registered Public
Accounting Firm are filed as a part of this Form 10-K.








45
 Table of Contents





REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Management
of Informatica is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Informatica’s internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies
and procedures that:





●
                pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;





●
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and





●
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements due to human error, or the improper
circumvention or overriding of internal controls. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and that the
degree of compliance with the policies or procedures may change over
time.





Management
assessed the effectiveness of Informatica’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”).





Based on
its assessment of internal control over financial reporting, management has
concluded that, as of December 31, 2008, Informatica’s internal control over
financial reporting was effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.





Informatica’s
independent registered public accounting firm, Ernst & Young LLP, has issued
an attestation report on the effectiveness of Informatica’s internal control
over financial reporting. Its report appears immediately after this
report.





/s/ 
      SOHAIB ABBASISohaib
      AbbasiChief
      Executive OfficerFebruary
      25, 2009






/s/ 
      EARL FRYEarl
      FryChief Financial
      OfficerFebruary
      25, 2009


46
 Table of Contents
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Stockholders of Informatica Corporation
 
 We have
audited Informatica Corporation’s internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Informatica Corporation’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the company’s internal control over financial reporting
based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, Informatica Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Informatica
Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2008 of Informatica Corporation and our
report dated February 25, 2009 expressed an unqualified opinion
thereon.
  
 /s/  ERNST & YOUNG
LLP
 
 San
Francisco, California
 February
25, 2009
 
 
  47
 Table of Contents
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Stockholders of Informatica Corporation
 
 We have
audited the accompanying consolidated balance sheets of Informatica Corporation
as of December 31, 2008 and 2007, and the related consolidated statements of
income, stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2008. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Informatica
Corporation at December 31, 2008 and 2007, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
 
 As
discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for uncertain tax positions as of January 1,
2007.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Informatica Corporation’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 25, 2009
expressed an unqualified opinion thereon.
 
  /s/  ERNST
& YOUNG LLP
 
 San
Francisco, California
 February
25, 2009
  48
 Table of Contents
  INFORMATICA
CORPORATION
 
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands, except par value)
 
 December 31,2008
                    
                    
                    2007AssetsCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    179,874
                    
                    
                    $
                    203,661Short-term
      investments
                    
                    
                    281,055
                    
                    
                    
                    281,197Accounts
      receivable, net of allowances of $2,558 in 2008 and $1,299 in
      2007
                    
                    
                    87,492
                    
                    
                    
                    72,643Deferred
      tax assets
                    
                    
                    22,336
                    
                    
                    
                    18,294Prepaid
      expenses and other current assets
                    
                    
                    12,498
                    
                    
                    
                    14,693Total
      current assets
                    
                    
                    583,255
                    
                    
                    
                    590,488Restricted
      cash
                    
                    
                    —
                    
                    
                    
                    12,122Property
      and equipment, net
                    
                    
                    9,063
                    
                    
                    
                    10,124Goodwill
                    
                    
                    219,063
                    
                    
                    
                    166,916Other
      intangible assets, net
                    
                    
                    35,529
                    
                    
                    
                    12,399Long-term
      deferred tax assets
                    
                    
                    7,294
                    
                    
                    
                    462Other
      assets
                    
                    
                    8,908
                    
                    
                    
                    6,133Total
      assets
                    
                    $
                    863,112
                    
                    
                    $
                    798,644Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
                    
                    $
                    7,376
                    
                    
                    $
                    4,109Accrued
      liabilities
                    
                    
                    34,541
                    
                    
                    
                    25,381Accrued
      compensation and related expenses
                    
                    
                    29,365
                    
                    
                    
                    33,053Income
      taxes payable
                    
                    
                    —
                    
                    
                    
                    248Accrued
      facilities restructuring charges
                    
                    
                    19,529
                    
                    
                    
                    18,007Deferred
      revenues
                    
                    
                    120,892
                    
                    
                    
                    99,415Total
      current liabilities
                    
                    
                    211,703
                    
                    
                    
                    180,213Convertible
      senior notes
                    
                    
                    221,000
                    
                    
                    
                    230,000Accrued
      facilities restructuring charges, less current portion
                    
                    
                    44,939
                    
                    
                    
                    56,235Long-term
      deferred revenues
                    
                    
                    8,847
                    
                    
                    
                    13,686Long-term
      income taxes payable
                    
                    
                    20,668
                    
                    
                    
                    5,968Total
      liabilities
                    
                    
                    507,157
                    
                    
                    
                    486,102Commitments
      and contingencies  (Note 15)Stockholders’
      equity:Common
      stock, $0.001 par value; 200,000 shares authorized; 86,660 shares and
      87,475 shares issued and outstanding at December 31, 2008 and 2007,
      respectively
                    
                    
                    87
                    
                    
                    
                    87Additional
      paid-in capital
                    
                    
                    374,091
                    
                    
                    
                    377,277Accumulated
      other comprehensive income (loss)
                    
                    
                    (3,741
                    )
                    
                    
                    5,640Accumulated
      deficit
                    
                    
                    (14,482
                    )
                    
                    
                    (70,462
                    )Total
      stockholders’ equity
                    
                    
                    355,955
                    
                    
                    
                    312,542Total
      liabilities and stockholders’ equity
                    
                    $
                    863,112
                    
                    
                    $
                    798,644
 
 See
accompanying notes to consolidated financial statements.
  49
 Table of Contents
  INFORMATICA
CORPORATION
 
 CONSOLIDATED
STATEMENTS OF INCOME
 (In
thousands, except per share data)
 
 Years Ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006Revenues:License
                              
                              $
                              195,769
                              
                              
                              $
                              175,318
                              
                              
                              $
                              146,092Service
                              
                              
                              259,930
                              
                              
                              
                              215,938
                              
                              
                              
                              178,506Total
      revenues
                              
                              
                              455,699
                              
                              
                              
                              391,256
                              
                              
                              
                              324,598Cost
      of revenues:License
                              
                              
                              3,291
                              
                              
                              
                              3,693
                              
                              
                              
                              6,978Service
                              
                              
                              80,287
                              
                              
                              
                              69,174
                              
                              
                              
                              58,402Amortization
      of acquired technology
                              
                              
                              4,125
                              
                              
                              
                              2,794
                              
                              
                              
                              2,118Total
      cost of revenues
                              
                              
                              87,703
                              
                              
                              
                              75,661
                              
                              
                              
                              67,498Gross
      profit
                              
                              
                              367,996
                              
                              
                              
                              315,595
                              
                              
                              
                              257,100Operating
      expenses:Research
      and development
                              
                              
                              72,522
                              
                              
                              
                              69,908
                              
                              
                              
                              54,997Sales
      and marketing
                              
                              
                              177,339
                              
                              
                              
                              158,298
                              
                              
                              
                              138,851General
      and administrative
                              
                              
                              37,411
                              
                              
                              
                              35,531
                              
                              
                              
                              28,187Amortization
      of intangible assets
                              
                              
                              4,575
                              
                              
                              
                              1,441
                              
                              
                              
                              653Facilities
      restructuring charges
                              
                              
                              3,018
                              
                              
                              
                              3,014
                              
                              
                              
                              3,212Purchased
      in-process research and development
                              
                              
                              390
                              
                              
                              
                              —
                              
                              
                              
                              1,340Patent
      related litigation proceeds net of patent contingency
    accruals
                              
                              
                              (11,495
                              )
                              
                              
                              —
                              
                              
                              
                              —Total
      operating expenses
                              
                              
                              283,760
                              
                              
                              
                              268,192
                              
                              
                              
                              227,240Income
      from operations
                              
                              
                              84,236
                              
                              
                              
                              47,403
                              
                              
                              
                              29,860Interest
      income
                              
                              
                              14,092
                              
                              
                              
                              21,820
                              
                              
                              
                              18,188Interest
      expense
                              
                              
                              (7,221
                              )
                              
                              
                              (7,196
                              )
                              
                              
                              (5,782
                              )Other
      income (expense), net
                              
                              
                              866
                              
                              
                              
                              613
                              
                              
                              
                              (583
                              )Income
      before income taxes
                              
                              
                              91,973
                              
                              
                              
                              62,640
                              
                              
                              
                              41,683Income
      tax provision
                              
                              
                              35,993
                              
                              
                              
                              8,024
                              
                              
                              
                              5,477Net
      income
                              
                              $
                              55,980
                              
                              
                              $
                              54,616
                              
                              
                              $
                              36,206Basic
      net income per common share
                              
                              $
                              0.64
                              
                              
                              $
                              0.63
                              
                              
                              $
                              0.42Diluted
      net income per common share
                              
                              $
                              0.58
                              
                              
                              $
                              0.57
                              
                              
                              $
                              0.39Shares
      used in computing basic net income per common share
                              
                              
                              88,109
                              
                              
                              
                              87,164
                              
                              
                              
                              86,420Shares
      used in computing diluted net income per common share
                              
                              
                              103,278
                              
                              
                              
                              103,252
                              
                              
                              
                              92,942
 
 See
accompanying notes to consolidated financial statements.
  50
 Table of Contents
  INFORMATICA
CORPORATION
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (In
thousands)
 
 AccumulatedAdditional
                                
                                
                                Deferred
                                
                                
                                Other
                                
                                
                                
                                
                                
                                TotalCommon Stock
                                
                                
                                Paid-in
                                
                                
                                Stock-based
                                
                                
                                Comprehensive
                                
                                
                                Accumulated
                                
                                
                                Stockholders’Shares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Compensation
                                
                                
                                Income (Loss)
                                
                                
                                Deficit
                                
                                
                                EquityBalances,
      December 31, 2005
                                
                                
                                87,341
                                
                                
                                $
                                87
                                
                                
                                $
                                384,653
                                
                                
                                $
                                (187
                                )
                                
                                $
                                (539
                                )
                                
                                $
                                (161,284
                                )
                                
                                $
                                222,730Components
      of comprehensive income:Net
      income
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                36,206
                                
                                
                                
                                36,206Foreign
      currency translation adjustment
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,776
                                
                                
                                
                                —
                                
                                
                                
                                1,776Unrealized
      gain on investments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                559
                                
                                
                                
                                —
                                
                                
                                
                                559Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                38,541Common
      stock options exercised
                                
                                
                                2,709
                                
                                
                                
                                3
                                
                                
                                
                                17,019
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                17,022Common
      stock issued under employee stock purchase plan
                                
                                
                                1,126
                                
                                
                                
                                1
                                
                                
                                
                                6,814
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                6,815Issuance
      of common stock and assumption of stock options in conjunction with
      acquisitions
                                
                                
                                122
                                
                                
                                
                                —
                                
                                
                                
                                6,458
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                6,458Share-based
      payments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                14,138
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                14,138Repurchase
      and retirement of common stock
                                
                                
                                (5,365
                                )
                                
                                
                                (5
                                )
                                
                                
                                (78,536
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (78,541
                                )Deferred
      stock-based compensation adjustments and other
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (187
                                )
                                
                                
                                187
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Balances,
      December 31, 2006
                                
                                
                                85,933
                                
                                
                                
                                86
                                
                                
                                
                                350,359
                                
                                
                                
                                —
                                
                                
                                
                                1,796
                                
                                
                                
                                (125,078
                                )
                                
                                
                                227,163Components
      of comprehensive income:Net
      income
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                54,616
                                
                                
                                
                                54,616Foreign
      currency translation adjustment
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                3,480
                                
                                
                                
                                —
                                
                                
                                
                                3,480Unrealized
      gain on investments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                364
                                
                                
                                
                                —
                                
                                
                                
                                364Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                58,460Common
      stock options exercised
                                
                                
                                2,782
                                
                                
                                
                                3
                                
                                
                                
                                20,239
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                20,242Common
      stock issued under employee stock purchase plan
                                
                                
                                734
                                
                                
                                
                                1
                                
                                
                                
                                7,457
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                7,458Share-based
      payments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                15,947
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                15,947Tax
      benefit of share-based payments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                12,215
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                12,215Repurchase
      and retirement of common stock
                                
                                
                                (1,974
                                )
                                
                                
                                (3
                                )
                                
                                
                                (28,940
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (28,943
                                )Balances,
      December 31, 2007
                                
                                
                                87,475
                                
                                
                                
                                87
                                
                                
                                
                                377,277
                                
                                
                                
                                —
                                
                                
                                
                                5,640
                                
                                
                                
                                (70,462
                                )
                                
                                
                                312,542Components
      of comprehensive income:Net
      income
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                55,980
                                
                                
                                
                                55,980Foreign
      currency translation adjustment
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (10,090
                                )
                                
                                
                                —
                                
                                
                                
                                (10,090
                                )Unrealized
      gain on investments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                658
                                
                                
                                
                                —
                                
                                
                                
                                658Cash
      flow hedging gains
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                51
                                
                                
                                
                                —
                                
                                
                                
                                51Comprehensive
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                46,599Common
      stock options exercised
                                
                                
                                2,313
                                
                                
                                
                                3
                                
                                
                                
                                19,112
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                19,115Common
      stock issued under employee stock purchase plan
                                
                                
                                669
                                
                                
                                
                                1
                                
                                
                                
                                8,466
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                8,467Share-based
      payments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                16,321
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                16,321Tax
      benefit of share-based payments
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                9,907
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                9,907Repurchase
      and retirement of common stock
                                
                                
                                (3,797
                                )
                                
                                
                                (4
                                )
                                
                                
                                (56,992
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (56,996
                                )Balances,
      December 31, 2008
                                
                                
                                86,660
                                
                                
                                $
                                87
                                
                                
                                $
                                374,091
                                
                                
                                $
                                —
                                
                                
                                $
                                (3,741
                                )
                                
                                $
                                (14,482
                                )
                                
                                $
                                355,955
 
 See
accompanying notes to consolidated financial statements.
  51
 Table of Contents
  INFORMATICA
CORPORATION
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Operating
      activities:Net
      income
                          
                          $
                          55,980
                          
                          
                          $
                          54,616
                          
                          
                          $
                          36,206Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          5,618
                          
                          
                          
                          10,507
                          
                          
                          
                          10,104Allowance
      (recovery) for doubtful accounts
                          
                          
                          1,268
                          
                          
                          
                          215
                          
                          
                          
                          (32
                          )Gain
      on early extinguishment of debt
                          
                          
                          (1,015
                          )
                          
                          
                          —
                          
                          
                          
                          —Share-based
      payments
                          
                          
                          16,321
                          
                          
                          
                          15,971
                          
                          
                          
                          14,138Deferred
      income taxes
                          
                          
                          (10,874
                          )
                          
                          
                          (20,974
                          )
                          
                          
                          2,218Tax
      benefits from stock option plans
                          
                          
                          9,907
                          
                          
                          
                          12,215
                          
                          
                          
                          —Excess
      tax benefits from share-based payments
                          
                          
                          (5,094
                          )
                          
                          
                          (5,492
                          )
                          
                          
                          —Amortization
      of intangible assets and acquired technology
                          
                          
                          8,700
                          
                          
                          
                          4,235
                          
                          
                          
                          3,605Impairment
      of property and equipment
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,668In-process
      research and development
                          
                          
                          390
                          
                          
                          
                          —
                          
                          
                          
                          1,340Non-cash
      facilities restructuring charges
                          
                          
                          3,018
                          
                          
                          
                          3,014
                          
                          
                          
                          3,212Other
      non-cash items
                          
                          
                          (20
                          )
                          
                          
                          —
                          
                          
                          
                          —Changes
      in operating assets and liabilities:Accounts
      receivable
                          
                          
                          (5,959
                          )
                          
                          
                          (6,982
                          )
                          
                          
                          (11,434
                          )Prepaid
      expenses and other assets
                          
                          
                          3,298
                          
                          
                          
                          (1,974
                          )
                          
                          
                          (172
                          )Accounts
      payable and accrued liabilities
                          
                          
                          7,153
                          
                          
                          
                          (180
                          )
                          
                          
                          997Accrued
      compensation and related expenses
                          
                          
                          (4,907
                          )
                          
                          
                          7,260
                          
                          
                          
                          4,328Income
      taxes payable
                          
                          
                          13,210
                          
                          
                          
                          1,291
                          
                          
                          
                          399Accrued
      facilities restructuring charges
                          
                          
                          (12,628
                          )
                          
                          
                          (12,419
                          )
                          
                          
                          (13,772
                          )Deferred
      revenues
                          
                          
                          15,529
                          
                          
                          
                          20,702
                          
                          
                          
                          13,098Net
      cash provided by operating activities
                          
                          
                          99,895
                          
                          
                          
                          82,005
                          
                          
                          
                          66,903Investing
      activities:Purchases
      of property and equipment
                          
                          
                          (4,728
                          )
                          
                          
                          (5,926
                          )
                          
                          
                          (3,767
                          )Purchases
      of investments
                          
                          
                          (468,880
                          )
                          
                          
                          (462,566
                          )
                          
                          
                          (462,367
                          )Purchase
      of investment in equity interest
                          
                          
                          (3,000
                          )
                          
                          
                          —
                          
                          
                          
                          —Purchase
      of patent
                          
                          
                          (1,300
                          )
                          
                          
                          —
                          
                          
                          
                          —Maturities
      of investments
                          
                          
                          394,469
                          
                          
                          
                          392,578
                          
                          
                          
                          249,624Sales
      of investments
                          
                          
                          75,536
                          
                          
                          
                          69,537
                          
                          
                          
                          118,802Business
      acquisitions, net of cash acquired
                          
                          
                          (86,980
                          )
                          
                          
                          —
                          
                          
                          
                          (95,763
                          )Transfer
      from restricted cash
                          
                          
                          12,016
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      cash used in investing activities
                          
                          
                          (82,867
                          )
                          
                          
                          (6,377
                          )
                          
                          
                          (193,471
                          )Financing
      activities:Net
      proceeds from issuance of common stock
                          
                          
                          27,582
                          
                          
                          
                          27,700
                          
                          
                          
                          23,837Repurchases
      and retirement of common stock
                          
                          
                          (56,996
                          )
                          
                          
                          (28,943
                          )
                          
                          
                          (78,541
                          )Repurchases
      of convertible senior notes
                          
                          
                          (7,774
                          )
                          
                          
                          —
                          
                          
                          
                          —Excess
      tax benefits from share-based payments
                          
                          
                          5,094
                          
                          
                          
                          5,492
                          
                          
                          
                          —Issuance
      of convertible senior notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          230,000Payment
      of issuance costs on convertible senior notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (6,242
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          (32,094
                          )
                          
                          
                          4,249
                          
                          
                          
                          169,054Effect
      of foreign exchange rate changes on cash and cash
    equivalents
                          
                          
                          (8,721
                          )
                          
                          
                          3,293
                          
                          
                          
                          1,460Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          (23,787
                          )
                          
                          
                          83,170
                          
                          
                          
                          43,946Cash
      and cash equivalents at beginning of the year
                          
                          
                          203,661
                          
                          
                          
                          120,491
                          
                          
                          
                          76,545Cash
      and cash equivalents at end of the year
                          
                          $
                          179,874
                          
                          
                          $
                          203,661
                          
                          
                          $
                          120,491Supplemental
      disclosures:Interest
      paid
                          
                          $
                          6,952
                          
                          
                          $
                          6,900
                          
                          
                          $
                          3,488Income
      taxes paid, net of refunds
                          
                          $
                          25,537
                          
                          
                          $
                          11,945
                          
                          
                          $
                          2,905Supplemental
      disclosures of non-cash investing and financing
activities:Common
      stock issued for acquisitions
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          1,583Unrealized
      gain on investments
                          
                          $
                          658
                          
                          
                          $
                          364
                          
                          
                          $
                          559
  See
accompanying notes to consolidated financial statements.
  52
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 1.  Organization
and Business
 
 Informatica
Corporation (“Informatica,” or “the Company”) was incorporated in California in
February 1993 and reincorporated in Delaware in April 1999. The Company is a
leading provider of enterprise data integration and data quality software and
services that enable organizations to gain greater business value by integrating
their information assets. Informatica software handles a wide variety of complex
enterprise-wide data integration initiatives, including data warehousing, data
migration, data consolidation, data synchronization, data quality, and the
establishment of data hubs, data services, cross-enterprise data exchange and
integration competency centers.
 
 
 2.  Summary
of Significant Accounting Policies
 
 The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated.
 
 
 Use
of Estimates
 
 The
Company’s consolidated financial statements are prepared in accordance with
generally accepted accounting principles (GAAP) in the United States of America.
These accounting principles require us to make certain estimates, judgments, and
assumptions. The Company believes that the estimates, judgments, and assumptions
upon which it relies are reasonable based upon information available to it at
the time that these estimates, judgments, and assumptions are made. These
estimates, judgments, and assumptions can affect the reported amounts of assets
and liabilities as of the date of the financial statements as well as the
reported amounts of revenues and expenses during the periods presented. To the
extent there are material differences between these estimates and actual
results, Informatica’s 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
 
 The
Company considers highly liquid investment securities with maturities, at date
of purchase, of 90 days or less to be cash equivalents. Cash and cash
equivalents, which consist primarily of commercial paper, money market funds,
and U.S. government securities with insignificant interest rate risk, are stated
at cost, which approximates fair value.
 
 
 Allowance
for Doubtful Accounts
 
 The
Company makes estimates as to the overall collectibility of accounts receivable
and provides an allowance for accounts receivable considered uncollectible. The
Company specifically analyzes its accounts receivable and historical bad debt
experience, customer concentrations, customer credit-worthiness, current
economic trends, and changes in its customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. The Company charges off the
adjustment in general and administrative expense. At December 31, 2008 and 2007,
the Company’s allowance for doubtful accounts was $2.6 million and $1.3 million,
respectively.
 
 
 Investments
 
 Investments
are comprised of marketable securities, which consist primarily of commercial
paper, U.S. government notes and bonds, corporate bonds and municipal securities
with original maturities beyond 90 days. All marketable securities are held in
the Company’s name and managed by four major financial institutions. The
Company’s marketable securities are classified as available- for-sale and are
reported at fair value, with unrealized gains and losses, net of tax, recorded
in stockholders’ equity. The Company classifies all available for sale
marketable securities, including those with original maturity dates greater than
one year, as short-term investments. Realized gains or losses and permanent
declines in value, if any, on available-for-sale securities will be reported in
other income or expense as incurred. The Company recognizes realized gains and
losses upon sales of investment and reclassifies unrealized gains and losses out
of accumulated other comprehensive income into earnings using the specific
identification method.
  53
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 
 Property
and Equipment
 
 Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets, generally three to five years. The estimated useful lives of
computer software and equipment are generally three years. The estimated useful
lives of furniture and office equipment are three years. Leasehold improvements
are amortized using the straight-line method over the shorter of the lease term
or the estimated useful life of the related asset.
 
 
 Software
Development Costs
 
 The
Company accounts for software development costs in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 86, Accounting for the Costs of
Computer Software to Be Sold,
Leased, or Otherwise Marketed, under which certain software development
costs incurred subsequent to the establishment of technological feasibility are
capitalized and amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a working model.
Through December 31, 2008, 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 American Institute of Certified Public Accountants (“AICPA”) Statement of
Position (“SOP”) No. 98-1,
Accounting for Costs of Computer Software Developed or Obtained for Internal
Use,the Company capitalizes certain costs relating to software acquired,
developed, or modified solely to meet the Company’s internal requirements and
for which there are no substantive plans to market the software. No comparable
cost was capitalized for the year ended December 31, 2008.
 
 
 Goodwill
 
 The
Company assessed goodwill for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets,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 No. 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 its software applications. Goodwill was
tested for impairment in the annual impairment tests on October 31 in each year
using the two-step process required by SFAS No. 142. First, the Company reviews
the carrying amount of its Reporting Unit compared to the “fair value” of the
Reporting Unit based on quoted market prices of the Company’s common stock. If
such comparison reflected potential impairment, the Company would then prepare
the discounted cash flow analyses. Such analyses are based on cash flow
assumptions that are consistent with the plans and estimates being used to
manage the business. An excess carrying value compared to fair value would
indicate that goodwill may be impaired. Finally, if the Company would determine
that goodwill may be impaired, then it would compare the “implied fair value” of
the goodwill, as defined by SFAS No. 142, to its carrying amount to determine
the impairment loss, if any. The Company has completed the annual impairment
tests as of October 31, 2008 and 2007, which did not result in any impairment
charges.
 
 
 Impairment
of Long-Lived Assets
 
 In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived
Assets,the Company evaluates long-lived assets, other than goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable based on expected undiscounted
cash flows attributable to that asset. The amount of any impairment is measured
as the difference between the carrying value and the fair value of the impaired
asset.
 
 
  54
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Fair
Value Measurement of Financial Assets and Liabilities
 
 In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value
Measurements (“SFAS No. 157”), which defines fair value and
establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. In February 2007, the FASB issued Statement
No. 159, The Fair Value
Option for Financial
Assets and Financial Liabilities(“SFAS No. 159”), including an amendment
of FASB Statement No. 115, which allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities under an instrument-by-instrument election. At
January 1, 2008, the Company adopted SFAS No. 157 and SFAS No.
159, which address aspects of the expanding application of fair value
accounting. The company has elected not to use the fair value option for any of
its financial assets and liabilities held as of the beginning of the quarter
ended March 31, 2008 under SFAS No. 159.
  SFAS No.
157 establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value as follows:
  ●
                
                Level 1.Observable
      inputs such as quoted prices in active
markets;
  ●
                
                Level 2. Inputs, other
      than the quoted prices in active markets, that are observable either
      directly or indirectly; and
  ●
                
                Level 3. Unobservable
      inputs in which there is little or no market data, which require the
      reporting entity to develop its own
assumptions.
 
 SFAS No.
157 allows the Company to measure the fair value of its financial assets and
liabilities based on one or more of the three following valuation
techniques:
  ●
                  
                  Market approach. Prices
      and other relevant information generated by market transactions involving
      identical or comparable assets or
liabilities;
  ●
                
                Cost approach. Amount
      that would be required to replace the service capacity of an asset
      (replacement cost); and
 
 ●
                
                Income approach.
      Techniques to convert future amounts to a single present amount based on
      market expectations (including present value techniques, option-pricing,
      and excess earnings models).
 
 The
following table summarizes the fair value measurement classification of
Informatica as of December 31, 2008 (in thousands):
 
 Total
                
                
                Quoted
                  Prices
      in
                  Active
                  Markets
      for
                  Identical
                  Assets
                  (Level 1)
                
                
                Significant
                  Other
                  Observable
                  Inputs
                  (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level 3)Assets:Money
      market funds
                
                $
                25,542
                
                
                $
                25,542
                
                
                $
                —
                
                
                $
                —Marketable
      securities
                
                
                322,796
                
                
                
                —
                
                
                
                322,796
                
                
                
                —Total
      money market funds and marketable securities
                
                
                348,338
                
                
                
                25,542
                
                
                
                322,796
                
                
                
                —Foreign
      currency derivatives
                
                
                155
                
                
                
                —
                
                
                
                155
                
                
                
                —Investment
      in equity interest
                
                
                3,000
                
                
                
                —
                
                
                
                —
                
                
                
                3,000Total
                
                $
                351,493
                
                
                $
                25,542
                
                
                $
                322,951
                
                
                $
                3,000Liabilities:Convertible
      senior notes
                
                $
                204,259
                
                
                $
                204,259
                
                
                $
                —
                
                
                $
                —Total
                
                $
                204,259
                
                
                $
                204,259
                
                
                $
                —
                
                
                $
                —
 
 Marketable
Securities
 
 Informatica
uses a market approachfor determining the fair value of all itsLevel 1and Level 2 marketable
securitiesfinancial assets and
Convertible Senior Notes liabilities.
 
 The
Company for the valuation of its market funds uses valuations based on quoted
prices in active markets for identical assets that the Company has the ability
to access.
  55
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 Informatica
used the following methodology to determine the fair value of its treasury
bills, corporate bonds, agency and government bonds for $270 million at December
31, 2008: These securities generally have market prices from multiple sources;
therefore, the Company used a “consensus price” or a weighted average price for
each security. Informatica receives market prices for these securities from a
variety of industry standard data providers (e.g., Bloomberg), security master
files from large financial institutions, and other third-party sources. Then,
the Company uses these multiple prices as inputs into a distribution-curve-based
algorithm to determine the daily market value.
 
 Informatica
used the following methodology to determine the fair value of its commercial
paper for $53 million at December 31, 2008: The Company used mathematical
calculations to arrive at fair value for these securities, which generally have
short maturities and infrequent secondary market trades. For example, in the
absence of any observable transactions, the Company may accrete from purchase
price at purchase date to face value at maturity. In the event that a
transaction is observed on the same security in the market place, the price on
that subsequent transaction clearly reflects the market price on that day and
Informatica will adjust the price in the system to the observed transaction
price and follow a revised accretion schedule to determine the daily
price.
 
 Foreign
Currency Derivatives and Hedging Instruments
 
 Informatica
uses the income approachto value the derivatives, using observable Level 2 market expectations
at measurement date and standard valuation techniques to convert future amounts
to a single discounted present amount, assuming that participants are motivated
but not compelled to do any transactions. Level 2 inputs are limited to
quoted prices that are observable for the asset and liabilities, which include
interest rates and credit risk. The Company has used mid market pricing as a
practical expedient for fair value measurements. Key inputs for currency
derivatives are the spot rate, interest rates, volatilities, and credit
derivative markets. The spot rate for each currency is the same spot rate used
for all balance sheet translations at the measurement date and sourced from the
Federal Reserve Bulletin. The following values are interpolated from commonly
quoted intervals available from Bloomberg: forward points and the London
Interbank Offered Rate (LIBOR) rates to discount assets and liabilities.
One-year credit default swap spreads identified per counterparty at month end in
Bloomberg are used to discount derivative assets, all of which have tenors less
than 12 months. The company discounts derivative liabilities to reflect the
potential credit risk to lenders and has used the spread over LIBOR on the most
recent corporate borrowing rate. Both the Company and the counterparty are
expected to perform under the contractual terms of the instruments.
 
 The
functional currency of the Company’s foreign subsidiaries is their local
currencies, except for Informatica Cayman Ltd., which is in euros. 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 are included in other expense, net in the accompanying consolidated
statements of operations.
 
  The
Company began attempting to minimize the impact of certain foreign currency
fluctuations through initiation of certain cash flow hedge programs in the
fourth quarter of 2008. The purpose of these programs is to reduce volatility of
identified cash flows and earnings caused by movement in certain foreign
currency exchange rates. Informatica accounts for our derivative instruments as
either assets or liabilities on the balance sheet and measures them at fair
value. Derivatives that are not defined as hedges in Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS No. 133”) must be adjusted to
fair value through earnings. Gains and losses resulting from changes in fair
value are accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting. The Company records
changes in the intrinsic value of these cash flow hedges in accumulated other
comprehensive income (loss), until the forecasted transaction occurs. When the
forecasted transaction occurs, Informatica reclassifies the effective portion
related gain or loss on the cash flow hedge to operating expenditures. If the
underlying forecasted transaction does not occur for any reason, or it becomes
probable that it will not occur, the Company reclassifies the gain or loss on
the related cash flow hedge from accumulated other comprehensive income (loss)
to other income (expense) in the consolidated statements of
operations.
  
 
  56
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Investment
in Equity Securities
 
 The
Company also held a $3 million investment in the preferred stock of a privately
held company at December 31, 2008, which was classified as Level 3for value measurement
purposes. In determining the fair value of this investment, the Company
considered the price paid by other third-party investors purchasing preferred
stock in the same round funding. Informatica also uses the cash flow of the
entity against its own cash flow assumptions at the time that investment was
made for the determination of the fair value of this investment.
 
 
 Fair Value of
Financial Instruments, Concentrations of Credit Risk, and Credit Evaluations
 
 The fair
value of the Company’s cash, cash equivalents, short-term investments, accounts
receivable, and accounts payable approximates their respective carrying
amounts.
 
 Financial
instruments, which subject the Company to concentrations of credit risk, consist
primarily of cash and cash equivalents, investments in marketable securities,
and trade accounts receivable. The Company maintains its cash and cash
equivalents and investments with high-quality financial
institutions.
 
 The
Company performs ongoing credit evaluations of its customers, which are
primarily located in the United States, Canada, and Europe, and generally does
not require collateral. The Company makes judgments as to its ability to collect
outstanding receivables and provide allowances for the portion of receivables
when collection becomes doubtful. Provisions are made based upon a specific
review of all significant outstanding invoices. For those invoices not
specifically reviewed, provisions are provided at differing rates, based upon
the age of the receivable. In determining these percentages, the Company
analyzes its historical collection experience and current economic trends. If
the historical data it uses to calculate the allowance for doubtful accounts
does not reflect the future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and the future results
of operations could be materially affected. The counterparties associated with
the Company’s forward foreign exchange contracts are large credit worthy
commercial banking institutions; therefore, the Company does not consider
counterparty non-performance a material risk.
 
 
 Revenue
Recognition
 
 The
Company derives revenues from software license fees, maintenance fees, and
professional services, which consist of consulting and education services. The
Company recognizes revenue in accordance with AICPA SOP No. 97-2, Software Revenue Recognition,as
amended and modified by SOP No. 98-9, Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain Transactions,SOP No.
81-1, Accounting for
Performance of Construction-type and Certain Production-type Contracts,the Securities and Exchange Commission’s Staff Accounting Bulletin
(“SAB”) SAB No. 104, Revenue
Recognition,and other authoritative accounting literature.
 
 Under SOP
No. 97-2, revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection
is probable.
 
 Persuasive evidence of an
arrangement exists.The Company determines that persuasive evidence of an
arrangement exists when it has a written contract, signed by both the customer
and the Company, and written purchase authorization.
 
 Delivery has occurred.Software is considered delivered when title to the physical software
media passes to the customer or, in the case of electronic delivery, when the
customer has been provided the access codes to download and operate the
software.
 
 The fee is fixed or determinable.The Company considers arrangements with extended payment terms not to be
fixed or determinable. If the license fee in an arrangement is not fixed or
determinable, revenue is recognized as payments become due. Revenue arrangements
with resellers and distributors require evidence of sell-through, that is,
persuasive evidence that the products have been sold to an identified end user.
The Company’s standard agreements do not contain product return
rights.
 
 Collection is probable.Credit worthiness and collectibility are first assessed at a country
level based on the country’s overall economic climate and general business risk.
For customers in countries deemed credit worthy, credit and collectibility are
then
  57
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  assessed
based on payment history and credit profile. When a customer is not deemed
credit worthy, revenue is recognized when payment is received.
 
 The
Company also enters into OEM arrangements that provide for license fees based on
inclusion of our technology and/or products in the OEM’s products. These
arrangements provide for fixed, irrevocable royalty payments. Royalty payments
are recognized as revenue based on the activity in the royalty report the
Company receives from the OEM or in the case of OEMs with fixed royalty
payments, revenue is recognized upon execution of the agreement, delivery of the
software, and when all other criteria for revenue recognition are
met.
 
 Multiple
contracts with a single counterparty executed within close proximity of each
other are evaluated to determine if the contracts should be combined and
accounted for as a single arrangement. The Company recognizes revenues net of
applicable sales taxes, financing charges absorbed by Informatica, and amounts
retained by our resellers and distributors, if any.
 
 The
Company’s software license arrangements include the following multiple elements:
license fees from our core software products and/or product upgrades that are
not part of post-contract services, maintenance fees, consulting, and/or
education services. The Company uses the residual method to recognize license
revenue when the license arrangement includes elements to be delivered at a
future date and vendor-specific objective evidence (VSOE) of fair value exists
to allocate the fee to the undelivered elements of the arrangement. VSOE is
based on the price charged when an element is sold separately. If VSOE does not
exist for undelivered elements, all revenue is deferred and recognized when
delivery occurs or VSOE is established. Consulting services, if included as part
of the software arrangement, generally do not require significant modification
or customization of the software. If the software arrangement includes
significant modification or customization of the software, software license
revenue is recognized as the consulting services revenue is
recognized.
 
 The
Company recognizes maintenance revenues, which consist of fees for ongoing
support and product updates, ratably over the term of the contract, typically
one year.
 
 Consulting
revenues are primarily related to implementation services and product
configurations performed on a time-and-materials basis and, occasionally, on a
fixed-fee basis. Education services revenues are generated from classes offered
at both Company and customer locations. Revenues from consulting and education
services are recognized as the services are performed.
 
 Deferred
revenue includes deferred license, maintenance, consulting, and education
services revenue. For customers not deemed credit worthy, the Company’s practice
is to net unpaid deferred revenue for that customer against the related
receivable balance.
 
 
 Facilities
Restructuring Charges
 
 In June
2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146
supersedes Emerging Issues Task Force (“EITF”) Issue No. 88-10, Costs Associated with Lease
Modification or Termination.The Company adopted SFAS No. 146 effective
January 1, 2003; therefore, the restructuring activities initiated on or after
January 1, 2003 were accounted for in accordance with SFAS No. 146. The Company
applied SFAS No. 146 for its 2004 Restructuring Plan while its 2001
Restructuring Plan was accounted for in accordance with EITF No. 88-10 and other
applicable pre-existing guidance. See Note 11. Facilities Restructuring Charges,of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
 
 SFAS No.
146 requires that a liability associated with an exit or disposal activity be
recognized when the liability is incurred, as opposed to when management commits
to an exit plan. SFAS No. 146 also requires that: (1) liabilities associated
with exit and disposal activities be measured at fair value; (2) one-time
termination benefits be expensed at the date the entity notifies the employee,
unless the employee must provide future service, in which case the benefits are
expensed ratably over the future service period; (3) liabilities related to an
operating lease/contract be recorded at fair value and measured when the
contract does not have any future economic benefit to the entity (that is, the
entity ceases to utilize the rights conveyed by the contract); and (4) all other
costs related to an exit or disposal activity be expensed as incurred. The
Company estimated the fair value of its lease obligations included in its 2003
and later restructuring activities based on the present value of the remaining
lease obligation, operating costs, and other associated costs, less estimated
sublease income.
  58
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Facilities
restructuring obligations associated with lease termination and/or abandonment
incurred prior to the adoption of SFAS No. 146 were accounted for and continue
to be accounted for in accordance with EITF No. 88-10. Under EITF No. 88-10, the
liability associated with lease termination and/or abandonment represents the
sum of the total remaining lease costs and related exit costs, less probable
sublease income. Facilities restructuring obligations incurred after the
adoption of SFAS No. 146 were accounted for in accordance with SFAS No. 146. The
Company recorded the 2001 restructuring costs associated with lease termination
and/or abandonment when the leased property had no substantive future use or
benefit to the Company.
 
 
 Shipping
and Handling Costs
 
 Shipping
and handling costs in connection with our packaged software products are not
material and are expensed as incurred and included in cost-of-license revenues
in the Company’s results of operations.
 
 
 Advertising
Expense
 
 Advertising
costs are expensed as incurred. Advertising expenses were negligible for the
years ended December 31, 2008 and 2007. Advertising expense was $2.0 million for
the year ended December 31, 2006.
 
 
 Income
Taxes
 
 We use
the asset and liability method of accounting for income taxes in accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 109, Accounting for Income Taxes.Under this
method, income tax expenses or benefits are recognized for the amount of taxes
payable or refundable for the current year and for deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
our consolidated financial statements or tax returns. Effective January 1, 2007,
we adopted FIN No. 48 to account for any income tax contingencies. The
measurement of current and deferred tax assets and liabilities is based on
provisions of currently enacted tax laws. The effects of future changes in tax
laws or rates are not contemplated.
 
 As part
of the process of preparing consolidated financial statements, we are required
to estimate our income taxes and tax contingencies in each of the tax
jurisdictions in which we operate prior to the completion and filing of tax
returns for such periods. This process involves estimating actual current tax
expense together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, for tax and accounting purposes.
These differences result in net deferred tax assets and liabilities. We must
then assess the likelihood that the deferred tax assets will be realizable and
to the extent we believe that realizability is not likely, we must establish a
valuation allowance.
 
 In
assessing the need for any additional non-share-based compensation valuation
allowance, we considered all the evidence available to us both positive and
negative, including historical levels of income, legislative developments,
expectations and risks associated with estimates of future taxable income, and
ongoing prudent and feasible tax planning strategies.
 
 As a
result of this analysis for the year ended December 31, 2008, it was considered
more likely than not that our non-share-based related deferred tax assets would
be realized. Therefore, the remaining valuation allowance is primarily related
to our share-based compensation deferred tax assets. The benefit of these
deferred tax assets will be recorded in the stockholders’ equity as realized,
and as such, they will not reduce our effective tax rate.
 
 Reporting Segments
 
 SFAS No.
131, Disclosures about
Segments of an Enterprise and Related Information, establishes
standards for the manner in which public companies report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The method for determining the
information to report is based on the way management organizes the operating
segments within the Company for making operating decisions and assessing
financial performance.
  59
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  The
Company’s chief operating decision maker is the Chief Executive Officer, who
reviews financial information presented on a consolidated basis, accompanied by
disaggregated information about revenues by geographic region for purposes of
making operating decisions and assessing financial performance. On this basis,
the Company is organized and operates in a single segment: the design,
development, and marketing of software solutions.
 
 
 Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (“SFAS No. 157”), which defines fair value, establishes
guidelines for measuring fair value, and expands disclosures regarding fair
value measurements. SFAS No. 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. In February 2008, the Board issued Staff
Position (“FSP No. 157-2”) that (1) partially deferred the effective date of
SFAS No. 157, for one year for certain non-financial assets and non-financial
liabilities, and (2) removed certain leasing transactions from the scope of SFAS
No. 157. This FSP effectively delayed the implementation of this pronouncement
for certain non-financial assets and liabilities to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The Company
adopted SFAS No. 157, except as it applies to those non-financial assets
and non-financial liabilities as noted in FSP No. 157-2. The partial adoption of
SFAS No. 157 did not have a material impact on our consolidated financial
position, results of operations, or cash flows. The Company will adopt
SFAS No. 157 for its non-financial assets and liabilities as required, and its
adoption is not expected to have an impact on the consolidated financial
statements.
 
 In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), Business
Combinations(“SFAS No.
141(R)”),which
addresses the accounting and reporting standards for the business combinations.
This statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. The Company will adopt
this statement as required.
 
 In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51(“SFAS
No. 160”), which addresses accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This pronouncement also amends certain elements of ARB No. 51’s
consolidation procedures for consistency with requirements of FASB No. 141
(revised 2007). This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
Company will adopt this consensus as required, and its adoption is not expected
to have an impact on the consolidated financial statements.
 
 In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161 (“SFAS No.
161”), Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires companies
with derivative instruments to disclose information that should enable financial
statement users to understand how and why a company uses derivative instruments,
how derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and how derivative instruments and
related hedged items affect a company's financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt
this consensus as required and its adoption is not expected to have an impact on
the consolidated financial statements.
 
 In April
2008, the FASB issued FASB Staff Position No. 142-3 (“FSP No. 142-3”), Determination of the Useful Life of
Intangible Assets.FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets.This FSP shall be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The Company will adopt this FSP as required, and is currently
evaluating the related accounting and disclosure requirements.
 
 In May
2008, the FASB issued Staff Position No. APB No. 14-1 (“FSP No. 14-1”), Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement).This FSP clarifies that (1) convertible debt instruments
that may be settled in cash upon conversion, including partial cash settlement,
are not considered debt instruments within
  60
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  the scope
of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants(“APBO No. 14”), and (2) issuers
of such instruments should separately account for the liability and equity
components of those instruments by allocating the proceeds from issuance of the
instrument between the liability component and the embedded conversion option
(i.e., equity component). This FSP shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company will adopt this FSP as required, and its
adoption is not expected to have an impact on the consolidated financial
statements.
 
 In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162 (“SFAS
No. 162”), The Hierarchy of
Generally Accepted Accounting Principles.This statement identifies the
sources of accounting principles and the framework for selecting the principles
used in preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. This statement is effective November 15,
2008. The Company will adopt this statement as required, and its adoption is not
expected to have an impact on the consolidated financial
statements.
 
 In
October 2008, the FASB issued Staff Position No. 157-3 (“FSP No. 157-3”), Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.This FSP
applies to financial assets and clarifies the application of SFAS No. 157 in a
market that is not active. This FSP shall be effective upon issuance, including
prior periods for which financial statements have not been issued. The Company
adopted this FSP, and its adoption did not have an impact on its consolidated
financial statements.
 
 
 3.  Cash,
Cash Equivalents, and Short-Term Investments
 
 The
Company’s marketable securities are classified as available for sale as of the
balance sheet date and are reported at fair value with unrealized gains and
losses reported as a separate component of accumulated other comprehensive
income in stockholders’ equity, net of tax. Realized gains and losses and
permanent declines in value, if any, on available-for-sale securities are
reported in other income or expense as incurred. Realized gains of $92,000 and
realized losses of $53,000 were recognized for the years ended December 31, 2008
and 2007, respectively. No realized gains or losses were recognized for the year
ended December 31, 2006. The realized gains and losses are included in other
income of the consolidated results of operations for the respective years. The
cost of securities sold was determined based on the specific identification
method.
 
 The
following table summarizes of the Company’s investments at December 31, 2008 and
2007 (in thousands):
 
 December 31, 2008Cost
                              
                              
                              Gross
                                Unrealized
                                Gains
                              
                              
                              Gross
                                Unrealized
                                Losses
                              
                              
                              Estimated
                                Fair ValueCash
                              
                              $
                              112,591
                              
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              112,591Cash
      equivalents:Money
      market funds
                              
                              
                              25,542
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              25,542Commercial
      paper
                              
                              
                              9,741
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              9,741Federal
      agency notes and bonds
                              
                              
                              17,996
                              
                              
                              
                              4
                              
                              
                              
                              —
                              
                              
                              
                              18,000U.S.
      government notes and bonds
                              
                              
                              14,000
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              14,000Total
      cash equivalents
                              
                              
                              67,279
                              
                              
                              
                              4
                              
                              
                              
                              —
                              
                              
                              
                              67,283Total
      cash and cash equivalents
                              
                              
                              179,870
                              
                              
                              
                              4
                              
                              
                              
                              —
                              
                              
                              
                              179,874Short-term
      investments:Commercial
      paper
                              
                              
                              43,125
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              43,125Corporate
      notes and bonds
                              
                              
                              38,569
                              
                              
                              
                              174
                              
                              
                              
                              (18
                              )
                              
                              
                              38,725Federal
      agency notes and bonds
                              
                              
                              133,220
                              
                              
                              
                              1,015
                              
                              
                              
                              (1
                              )
                              
                              
                              134,234U.S.
      government notes and bonds
                              
                              
                              61,569
                              
                              
                              
                              266
                              
                              
                              
                              —
                              
                              
                              
                              61,835Municipal
      notes and bonds
                              
                              
                              3,134
                              
                              
                              
                              3
                              
                              
                              
                              (1
                              )
                              
                              
                              3,136Total
      short-term investments
                              
                              
                              279,617
                              
                              
                              
                              1,458
                              
                              
                              
                              (20
                              )
                              
                              
                              281,055Total
      cash, cash equivalents, and short-term investments *
                              
                              $
                              459,487
                              
                              
                              $
                              1,462
                              
                              
                              $
                              (20
                              )
                              
                              $
                              460,929
 
 *
              Total
      estimated fair value above included $348,338 comprised of cash equivalents
      and short-term investments at December 31,
2008.
 
  61
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 December 31, 2007Cost
                          
                          
                          Gross
                            Unrealized
                            Gains
                          
                          
                          Gross
                            Unrealized
                            Losses
                          
                          
                          Estimated
                            Fair ValueCash
                          
                          $
                          102,939
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          102,939Cash
      equivalents:Money
      market funds
                          
                          
                          35,240
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          35,240Commercial
      paper
                          
                          
                          24,448
                          
                          
                          
                          1
                          
                          
                          
                          —
                          
                          
                          
                          24,449Federal
      agency notes and bonds
                          
                          
                          41,037
                          
                          
                          
                          —
                          
                          
                          
                          (4
                          )
                          
                          
                          41,033Total
      cash equivalents
                          
                          
                          100,725
                          
                          
                          
                          1
                          
                          
                          
                          (4
                          )
                          
                          
                          100,722Total
      cash and cash equivalents
                          
                          
                          203,664
                          
                          
                          
                          1
                          
                          
                          
                          (4
                          )
                          
                          
                          203,661Short-term
      investments:Commercial
      paper
                          
                          
                          51,642
                          
                          
                          
                          7
                          
                          
                          
                          (4
                          )
                          
                          
                          51,645Corporate
      notes and bonds
                          
                          
                          51,308
                          
                          
                          
                          103
                          
                          
                          
                          (25
                          )
                          
                          
                          51,386Federal
      agency notes and bonds
                          
                          
                          150,049
                          
                          
                          
                          371
                          
                          
                          
                          (12
                          )
                          
                          
                          150,408U.S.
      government notes and bonds
                          
                          
                          5,494
                          
                          
                          
                          8
                          
                          
                          
                          (1
                          )
                          
                          
                          5,501Municipal
      notes and bonds
                          
                          
                          1,200
                          
                          
                          
                          7
                          
                          
                          
                          —
                          
                          
                          
                          1,207Auction
      rate securities
                          
                          
                          21,050
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          21,050Total
      short-term investments
                          
                          
                          280,743
                          
                          
                          
                          496
                          
                          
                          
                          (42
                          )
                          
                          
                          281,197Total
      cash, cash equivalents, and short-term investments
                          
                          $
                          484,407
                          
                          
                          $
                          497
                          
                          
                          $
                          (46
                          )
                          
                          $
                          484,858
 
 The
Company sold its investments in auction rate securities at par value in early
2008.
 
 In
accordance with FASB Staff Position No. FAS 115-1,The
Meaning of Other-Than-Temporary Impairment and its Application to Certain
Investments, Informatica considers the investment category and the length
of time that an individual security has been in continuous unrealized loss
position to make a decision that the investment is other-than-temporary
impaired. The following table summarizes the fair value and gross unrealized
losses related to available-for-sale securities, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2008 (in thousands):
 
 Less Than 12 months
                          
                          
                          More Than 12 months
                          
                          
                          TotalFair Value
                          
                          
                          Gross
                            Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Gross
                            Unrealized
                            Losses
                          
                          
                          Fair Value
                          
                          
                          Gross
                            Unrealized
                            LossesCorporate
      notes and bonds
                          
                          $
                          15,790
                          
                          
                          $
                          (18
                          )
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          15,790
                          
                          
                          $
                          (18
                          )Federal
      agency notes and bonds
                          
                          
                          2,554
                          
                          
                          
                          (1
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,554
                          
                          
                          
                          (1
                          )Municipal
      notes and bonds
                          
                          
                          1,017
                          
                          
                          
                          (1
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,017
                          
                          
                          
                          (1
                          )$
                          19,361
                          
                          
                          $
                          (20
                          )
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          19,361
                          
                          
                          $
                          (20
                          )
 
 Informatica
uses a market approachfor determining the fair value of all itsmarketable securities
and money market funds, which it has classified as Level 2and Level 1, respectively. The
declines in value of these investments are primarily related to changes in
interest rates and are considered to be temporary in nature.
 
 The
following table summarizes the cost and estimated fair value of the Company’s
cash equivalents and short-term investments by contractual maturity at December
31, 2008 (in thousands):
 
 Cost
                    
                    
                    Fair ValueDue
      within one year
                    
                    $
                    306,558
                    
                    
                    $
                    307,414Due
      one year to two years
                    
                    
                    40,338
                    
                    
                    
                    40,924Due
      after two years
                    
                    
                    —
                    
                    
                    
                    —$
                    346,896
                    
                    
                    $
                    348,338
 
  62
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  4.  Property
and Equipment
 
 The
following table summarizes the cost of property and equipment at December 31,
2008 and 2007 (in thousands):
 
 December 31,2008
                        
                        
                        2007Computer
      and office equipment
                        
                        $
                        40,269
                        
                        
                        $
                        39,262Furniture
      and fixtures
                        
                        
                        4,815
                        
                        
                        
                        4,346Leasehold
      improvements
                        
                        
                        17,363
                        
                        
                        
                        16,34362,447
                        
                        
                        
                        59,951Less:
      Accumulated depreciation and amortization
                        
                        
                        (53,384
                        )
                        
                        
                        (49,827
                        )$
                        9,063
                        
                        
                        $
                        10,124
 
 Depreciation
and amortization expense was $5.6 million and $10.5 million in 2008 and 2007,
respectively.
 
 
 5.  Goodwill
and Intangible Assets
 
 The
following table reflects the carrying amounts of the intangible assets as of
December 31, 2008 and 2007 (in thousands):
 
 2008
                      
                      
                      2007Gross
                        Carrying
                        Amount
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Net
                        Amount
                      
                      
                      Gross
                        Carrying
                        Amount
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Net
                        AmountDeveloped
      and core technology
                      
                      $
                      32,583
                      
                      
                      $
                      (14,216
                      )
                      
                      $
                      18,367
                      
                      
                      $
                      18,135
                      
                      
                      $
                      (10,091
                      )
                      
                      $
                      8,044Customer
      relationships
                      
                      
                      20,257
                      
                      
                      
                      (5,870
                      )
                      
                      
                      14,387
                      
                      
                      
                      4,175
                      
                      
                      
                      (1,895
                      )
                      
                      
                      2,280Other:Trade
      names
                      
                      
                      700
                      
                      
                      
                      (408
                      )
                      
                      
                      292
                      
                      
                      
                      700
                      
                      
                      
                      (208
                      )
                      
                      
                      492Covenant
      not to compete
                      
                      
                      2,000
                      
                      
                      
                      (817
                      )
                      
                      
                      1,183
                      
                      
                      
                      2,000
                      
                      
                      
                      (417
                      )
                      
                      
                      1,583Patents
                      
                      
                      1,300
                      
                      
                      
                      —
                      
                      
                      
                      1,300
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —$
                      56,840
                      
                      
                      $
                      (21,311
                      )
                      
                      $
                      35,529
                      
                      
                      $
                      25,010
                      
                      
                      $
                      (12,611
                      )
                      
                      $
                      12,399
 
 
 Intangible
assets, other than goodwill and patents, are amortized over estimated useful
lives of between three and seven years. Informatica entered into a patent
cross-license for $1.3 million at the end of 2008, and expects to amortize the
patents subject to the license over their estimated useful lives of 13 years
starting in 2009. Of the $8.7 million amortization of intangible assets recorded
in 2008, $4.6 million was recorded in operating expenses and $4.1 million was
recorded in cost of license revenues. Of the $4.2 million amortization of
intangible assets recorded in 2007, $1.4 million was recorded in operating
expenses and $2.8 million was recorded in cost of license revenues. Of the $5.2
million amortization of intangible assets and impairment recorded in 2006, $0.7
million was recorded in operating expenses and $2.4 million was recorded in cost
of license revenues and $2.1 million in cost of revenues—amortization of
acquired technology. In 2005, the Company purchased a source code license with a
value of $2.5 million. The balance of this source code license for $1.6 million
was determined to be impaired in December 2006 because the Company modified its
original plan to use this software in its PowerCenter product. The cost of the
impairment is reflected in the cost of license revenues. The weighted-average
amortization period of the Company’s developed and core technology, customer
relationships, trade names, covenant not to compete and patent are 5 years, 5
years, 3.5 years, 5 years, and 13 years, respectively. The amortization expense
related to identifiable intangible assets as of December 31, 2008 is expected to
be $11.4 million, $8.5 million, $7.1 million, $4.9 million, $2.8 million, and
$0.8 million for the years ended December 31, 2009, 2010, 2011, 2012, 2013, and
2014 and thereafter, respectively.
 
 The
increase in the gross carrying amount of developed and core technology for $14.6
million as well as customer relationships for $12.6 million is due to the
acquisition of Identity Systems, Inc. discussed in Note 20. Acquisitions,of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report. Developed and core technology of $2.3 million and customer
relationships of $0.1 million at December 31, 2008 related to the Identity
Systems, Inc. acquisition, were recorded in a European local currency;
therefore, the gross carrying amount and accumulated amortization are subject to
periodic translation adjustments.
  63
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  The
changes in the carrying amount of goodwill for 2008 and 2007 are as follows (in
thousands):
  December 31,2008
                                                                            
                                                                            
                                                                            2007Beginning
      balance
                                                                            
                                                                            $
                                                                            166,916
                                                                            
                                                                            
                                                                            $
                                                                            170,683Goodwill
      recorded in acquiring Identity Systems, Inc.
                                                                            
                                                                            
                                                                            49,316
                                                                            
                                                                            
                                                                            
                                                                            —Goodwill
      recorded in acquiring PowerData
                                                                            
                                                                            
                                                                            3,618
                                                                            
                                                                            
                                                                            
                                                                            —Subsequent
      goodwill adjustments:Tax benefits from exercise of non-qualified stock options granted as part
      of prior acquisitions
                                                                            
                                                                            
                                                                            (75
                                                                            )
                                                                            
                                                                            
                                                                            (159
                                                                            )Local currency translation adjustments
                                                                            
                                                                            
                                                                            (586
                                                                            )
                                                                            
                                                                            
                                                                            —Adjustments of pre-acquisition tax benefits for prior
    acquisitions
                                                                            
                                                                            
                                                                            181
                                                                            
                                                                            
                                                                            
                                                                            (2,272
                                                                            )Adjustments of pre-acquisition sales tax and accounts receivable reserves
      for prior acquisitions
                                                                            
                                                                            
                                                                            (107
                                                                            )
                                                                            
                                                                            
                                                                            (968
                                                                            )Other adjustments for prior acquisitions
                                                                            
                                                                            
                                                                            (200
                                                                            )
                                                                            
                                                                            
                                                                            (368
                                                                            )Ending
      balance
                                                                            
                                                                            $
                                                                            219,063
                                                                            
                                                                            
                                                                            $
                                                                            166,916
 In 2008,
the Company recorded adjustments of $0.8 million primarily due to foreign
currency translation and other adjustments for prior acquisitions. In 2007, the
Company recorded adjustments of $3.8 million due to purchase price accounting
adjustments, primarily due to reversal of the valuation allowance attributable
to the net operating loss carryforward and release of a sales tax reserve
originating from previous acquisitions.
 
 
 6.  Convertible
Senior Notes
 
 On March
8, 2006, the Company issued and sold Convertible Senior Notes with an aggregate
principal amount of $230 million due 2026 (“Notes”). The Company pays interest
at 3.0% per annum to holders of the Notes, payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 2006. Each $1,000 principal
amount of the Notes is initially convertible, at the option of the holders, into
50 shares of our common stock prior to the earlier of the maturity date (March
15, 2026) or the redemption or repurchase of the Notes. The initial conversion
price represented a premium of 29.28% relative to the last reported sale price
of common stock of the Company on the NASDAQ National Market of $15.47 on March
7, 2006. The conversion rate is subject to certain adjustments. The conversion
rate initially represents a conversion price of $20.00 per share. After March
15, 2011, the Company may from time to time redeem the Notes, in whole or in
part, for cash, at a redemption price equal to the full principal amount of the
notes, plus any accrued and unpaid interest. Holders of the Notes may require
the Company to repurchase all or a portion of their Notes at a purchase price in
cash equal to the full principal amount of the Notes plus any accrued and unpaid
interest on March 15, 2011, March 15, 2016, and March 15, 2021, or upon the
occurrence of certain events including a change in control. The Company has the
right to redeem some or all of the Notes after March 15, 2011. Future minimum
payments related to the Notes in total which represent interest as of December
31, 2008 are as follows: 2009—$6.6 million; 2010—$6.6 million; and 2011—$6.6
million. Future minimum payments related to the Notes as of December 31, 2008
for 2012 and thereafter is $317 million, consisting of interest for $96 million
and principal for $221 million.
 
 Pursuant
to a Purchase Agreement (the “Purchase Agreement”), the Notes were sold for cash
consideration in a private placement to an initial purchaser, UBS Securities
LLC, an “accredited investor,” within the meaning of Rule 501 under the
Securities Act of 1933, as amended (“the Securities Act”), in reliance upon the
private placement exemption afforded by Section 4(2) of the Securities Act. The
initial purchaser reoffered and resold the Notes to “qualified institutional
buyers” under Rule 144A of the Securities Act without being registered under the
Securities Act, in reliance on applicable exemptions from the registration
requirements of the Securities Act. In connection with the issuance of the
Notes, the Company filed a shelf registration statement with the SEC for the
resale of the Notes and the common stock issuable upon conversion of the Notes,
which became effective on June 21, 2006. The Company also agreed to periodically
update the shelf registration and to keep it effective until the earlier of the
date the Notes or the common stock issuable upon conversion of the Notes is
eligible to be sold to the public pursuant to Rule 144(k) of the Securities Act
or the date on which there are no outstanding registrable securities. The
Company has evaluated the terms of the call feature, redemption feature, and the
conversion feature under applicable accounting literature, including SFAS No.
133, Accounting for
Derivative Instruments
and Hedging Activities, and EITF 00-19, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock, and concluded that
none of these features should be separately accounted for as
derivatives.
 
 In
connection with the issuance of the Notes, the Company incurred $6.2 million of
issuance costs, which primarily consisted of investment banker fees and legal
and other professional fees. These costs are classified within Other Assets and
are being amortized as
  64
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  a
component of interest expense using the effective interest method over the life
of the Notes from issuance through March 15, 2026. If the holders require
repurchase of some or all of the Notes on the first repurchase date, which is
March 15, 2011, the Company would accelerate amortization of the pro rata share
of the unamortized balance of the issuance costs on such date. If the holders
require conversion of some or all of the Notes when the conversion requirements
are met, the Company would accelerate amortization of the pro rata share of the
unamortized balance of the issuance cost to additional paid-in capital on such
date. Amortization expense related to the issuance costs was $0.5 million and
$0.3 million for the years ended December 31, 2008 and 2007, respectively.
Interest expense on the Notes was $7.0 million and $6.9 million for the years
ended December 31, 2008 and 2007, respectively. Interest payments of $7.0
million and $6.9 million were made in 2008 and 2007, respectively.
 
 In
October 2008, Informatica’s Board of Directors authorized the repurchase of a
portion of its outstanding Notes due in 2026 in privately negotiated
transactions with the holders of the Notes. As of December 31, 2008, Informatica
repurchased $9.0 million of its outstanding Convertible Senior Notes at a cost
of $7.8 million at a discount. As a result, $1.0 million, net of prorated
deferred expenses written off for $0.2 million, is reflected in other income for
the three months ended December 31, 2008.
 
 The
estimated fair value of the Company’s Convertible Senior Notes as of December
31, 2008, based on the closing price as of December 29, 2008 (the last trading
day of 2008) at the Over-the-Counter market, was $204.3 million.
 
 
 7.  Stockholders’
Equity
 
 Preferred
Stock
 
 The
Company is authorized to issue 2.0 million shares of preferred stock with a par
value of $0.001 per share of which 200,000 shares have been designated as Series
A preferred stock. Informatica may issue preferred stock from time to time in
one or more series. The Board of Directors is authorized to provide for the
rights, preferences, privileges, and restrictions of the shares of such series.
As of December 31, 2008 and 2007, no shares of preferred stock had been
issued.
 
 Common
Stock
 
 The
Company has authorized 200 million shares of common stock with a par value of
$0.001 per share. Each share of common stock has the right to one vote. The
holders of common stock are also entitled to receive dividends whenever funds
are legally available and when declared by the Board of Directors, subject to
the rights of holders of all classes of stock having priority rights as to
dividends. No cash dividends have been declared or paid through December 31,
2008.
 
 Stockholders’
Rights Plan
 
 In
October 2001, the Board of Directors adopted the Stockholders’ Rights Plan and
declared a dividend distribution of one common stock purchase right for each
outstanding share of common stock held on November 12, 2001. Each right entitles
the holder to purchase 1/1000th of a share of Series A Preferred Stock of the
Company, par value $0.001, at an exercise price of $90 per share. The rights
become exercisable in certain circumstances and are redeemable at the Company’s
option, at an exercise price of $0.001 per right. The rights expire on the
earlier of November 12, 2011 or on the date of their redemption or exchange. The
Company may also exchange the rights for shares of common stock under certain
circumstances. The Stockholders’ Rights Plan was adopted to protect stockholders
from unfair or coercive takeover practices. The plan is reviewed every three
years by a committee of independent directors.
 
 Stock
Repurchase Plan
 
 The
purpose of Informatica’s stock repurchase program is, among other things, to
help offset the dilution caused by the issuance of stock under our employee
stock option and employee stock purchase plans. The number of shares acquired
and the timing of the repurchases are based on several factors, including
general market conditions and the trading price of the Company’s common stock.
These purchases can be made from time to time in the open market and are funded
from the Company’s available working capital.
 
 In April
2006, Informatica’s Board of Directors authorized a stock repurchase program for
a one-year period for up to $30 million of its common stock. As of April 30,
2007, the Company repurchased 2,238,000 shares at a cost of $30
million.
  65
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 In April
2007, Informatica’s Board of Directors authorized a stock repurchase program for
up to an additional $50 million of its common stock. As of December 31, 2008,
the Company repurchased 3,204,000 shares at a cost of
$50 million.
 
 In
April 2008, Informatica’s Board of Directors authorized a stock repurchase
program for up to an additional $75 million of its common stock. As of
September 30, 2008, the Company repurchased 940,000 shares at a cost of
$14.8 million, with a remaining balance of $60.2 million under this
program. In October 2008, Informatica’s Board of Directors authorized the
repurchase of a portion of its outstanding Notes due in 2026 in privately
negotiated transactions with holders of the Notes. During the fourth quarter
ended December 31, 2008, the Company repurchased 1,522,000 shares at a cost of
$19.7 million and $9.0 million of its outstanding Notes at a cost of $7.8
million. The Company has approximately $32.6 million remaining available to
repurchase shares and Notes under this program as of December 31, 2008. This
repurchase program does not have an expiration date to repurchase
shares.
 
 These
repurchased shares are retired and reclassified as authorized and unissued
shares of common stock. See Item 5 of this Report for more information regarding
the stock repurchase plan. We may continue to repurchase shares from time to
time, as determined by management under programs approved by the Board of
Directors.
 
 
 8.  Share-Based
Payments
 
 On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123(R), Share-Based
Payment(“SFAS No. 123(R)”),which requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair
values.
 
 Summary
of Assumptions
 
 The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model that uses the assumptions noted in the
following table.
 
 The
Company has been using consistently a blend of average historical and
market-based implied volatilities for calculating the expected volatilities for
employee stock options, and it uses market-based implied volatilities for its
Employee Stock Purchase Plan (ESPP).
 
 The
expected life of employee stock options granted is derived from historical
exercise patterns of the options while the expected life of ESPP is based on the
contractual terms. The expected life of options granted is derived from the
historical option exercises, post-vesting cancellations, and estimates
concerning future exercises and cancellations for vested and unvested options
that remain outstanding. The expected life in 2008 compared to 2007 remained
unchanged, but it declined in 2007 compared to 2006 mainly due to a reduction in
the contractual term of Informatica’s new grants from a 10 years term to a 7
years term in April 2004, and also higher exercise volume due to higher stock
prices in recent quarters.
 
 The
risk-free interest rate for the expected life of the option and ESPP is based on
the U.S. Treasury yield curve in effect at the time of grant. The risk-free
interest rate declined in 2008 compared to 2007, but it remained relatively
unchanged in 2007 compared to 2006.
 
 SFAS No.
123(R) also requires the Company to estimate forfeiture rates at the time of
grant and revise those estimates in subsequent periods if actual forfeitures
differ from those estimates. The Company uses an average of actual forfeited
options for the past four quarters to estimate its forfeiture rate and record
share-based payments. The Company lowered its forfeiture rate from 16% in 2006
to 13% in 2007. The company further reduced its forfeiture rate from 13% in 2007
to 10% in 2008, primarily due to lower historical cancellation
rates.
 
 The
Company amortizes its share-based payments using a straight-line method over the
vesting term of the awards.
  66
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 The fair
value of the Company’s share-based awards was estimated based on the following
assumptions:
 
 Years Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006Option
      grants:Expected
      volatility
                        
                        
                        38-54
                        %
                        
                        
                        37-41
                        %
                        
                        
                        43-52
                        %Weighted-average
      volatility
                        
                        
                        41
                        %
                        
                        
                        39
                        %
                        
                        
                        48
                        %Expected
      life (in years)
                        
                        
                        3.3
                        
                        
                        
                        3.3
                        
                        
                        
                        3.9Expected
      dividends
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Risk-free
      interest rate
                        
                        
                        2.5
                        %
                        
                        
                        4.5
                        %
                        
                        
                        4.8
                        %ESPP:Expected
      volatility
                        
                        
                        38-42
                        %
                        
                        
                        35
                        %
                        
                        
                        40
                        %Weighted-average
      volatility
                        
                        
                        40
                        %
                        
                        
                        35
                        %
                        
                        
                        40
                        %Expected
      dividends
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Expected
      term of ESPP (in years)
                        
                        
                        0.5
                        
                        
                        
                        0.5
                        
                        
                        
                        1.25Risk-free
      interest rate—ESPP
                        
                        
                        2.0
                        %
                        
                        
                        5.1
                        %
                        
                        
                        5.1
                        %
 
 The
allocation of the share-based payments net of income tax benefit is as follows
(in thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007Cost
      of service revenues
                          
                          $
                          2,023
                          
                          
                          $
                          1,670Research
      and development
                          
                          
                          4,109
                          
                          
                          
                          3,751Sales
      and marketing
                          
                          
                          5,397
                          
                          
                          
                          5,796General
      and administrative
                          
                          
                          4,792
                          
                          
                          
                          4,754Total
      share-based payments
                          
                          
                          16,321
                          
                          
                          
                          15,971Tax
      benefit of share-based payments
                          
                          
                          (3,024
                          )
                          
                          
                          (3,119
                          )Total
      share-based payments, net of tax benefit
                          
                          $
                          13,297
                          
                          
                          $
                          12,852
 
 
 Stock
Option Plan Activity
 
 A summary
of stock option activity through December 31, 2008 is presented below (in
thousands, except per share amounts):
 
 Number
      of
                      Shares
                    
                    
                    Weighted-
                      Average
                      Exercise
      Price
                      Per
      Share
                    
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      Term (Years)
                    
                    
                    Aggregate
                      Intrinsic
                      ValueOutstanding
      at December 31, 2005
                    
                    
                    17,113
                    
                    
                    $
                    7.56
                    
                    
                    
                    5.63
                    
                    
                    $
                    78,980Granted
                    
                    
                    3,866
                    
                    
                    
                    12.79Exercised
                    
                    
                    (2,709
                    )
                    
                    
                    6.28Forfeited
      or expired
                    
                    
                    (987
                    )
                    
                    
                    11.29Outstanding
      at December 31, 2006
                    
                    
                    17,283
                    
                    
                    $
                    8.72
                    
                    
                    
                    5.11
                    
                    
                    $
                    69,835Granted
                    
                    
                    4,129
                    
                    
                    
                    14.58Exercised
                    
                    
                    (2,782
                    )
                    
                    
                    7.27Forfeited
      or expired
                    
                    
                    (1,295
                    )
                    
                    
                    12.63Outstanding
      at December 31, 2007
                    
                    
                    17,335
                    
                    
                    $
                    10.05
                    
                    
                    
                    4.66
                    
                    
                    $
                    138,392Granted
                    
                    
                    3,631
                    
                    
                    
                    16.56Exercised
                    
                    
                    (2,313
                    )
                    
                    
                    8.22Forfeited
      or expired
                    
                    
                    (940
                    )
                    
                    
                    14.57Outstanding
      at December 31, 2008
                    
                    
                    17,713
                    
                    
                    $
                    11.35
                    
                    
                    
                    4.31
                    
                    
                    $
                    58,342Exercisable
      at December 31, 2008
                    
                    
                    11,844
                    
                    
                    $
                    9.38
                    
                    
                    
                    3.67
                    
                    
                    $
                    56,599
 
 As of
December 31, 2008, there was a total of 5,908,000 unvested options with a fair
value of $24.9 million, and the average grant price of $15.24. The Company
expects to recognize the fair value of the unvested shares over a
weighted-average period of 2.7 years.
  67
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  The
weighted-average fair value of options granted with exercise prices equal to
fair market value at the date of grant under stock options plans during 2008,
2007, and 2006 was $5.22, $4.77, and $6.21, respectively. No options were
granted with exercise prices less than fair value at the date of grant in 2008
and 2007. The Company granted options, related to acquisitions, with exercise
prices less than fair market value at the date of grant in 2006 for the
estimated weighted-average fair value of $12.01. The total intrinsic value of
options exercised for the years ended December 31, 2008, 2007, and 2006 were
$20.8 million, $21.0 million, and $22.3 million, respectively. The
weighted-average grant date fair value of employee stock purchase shares granted
under the ESPP for the years ended December 31, 2008, 2007, and 2006 was $4.65,
$3.39, and $3.81 per share, respectively. The total intrinsic value of stock
purchase shares granted under the ESPP exercised during the years ended December
31, 2008, 2007, and 2006 was $2.7 million and $2.4 million, and 9.3 million,
respectively. Upon the exercise of options and stock purchase shares granted
under the ESPP, the Company issues new common stock from its authorized
shares.
 
 The
following table summarizes information about stock options as of December 31,
2008 (number of options in thousands):
 
 Options Outstanding
                                
                                
                                Options ExercisableRange
      of
                                  Exercise Prices
                                
                                
                                Number
                                  of
                                  Options
                                
                                
                                Weighted-Average
                                  Remaining
                                  Contractual
      Life(Years)
                                
                                
                                Weighted
                                  Average
                                  Exercise
      Price
                                  per Share
                                
                                
                                Number
                                  of
                                  Options
                                
                                
                                Weighted
                                  Average
                                  Exercise
      Price
                                  per Share$
                                0.54
      to $ 4.05
                                
                                
                                
                                277
                                
                                
                                
                                2.92
                                
                                
                                $
                                3.07
                                
                                
                                
                                274
                                
                                
                                $
                                3.08$
                                4.51
      to $ 6.56
                                
                                
                                
                                2,925
                                
                                
                                
                                5.25
                                
                                
                                $
                                5.76
                                
                                
                                
                                2,924
                                
                                
                                $
                                5.76$
                                6.57
      to $ 7.73
                                
                                
                                
                                2,602
                                
                                
                                
                                2.39
                                
                                
                                $
                                7.28
                                
                                
                                
                                2,527
                                
                                
                                $
                                7.27$
                                7.74
      to $12.00
                                
                                
                                
                                3,075
                                
                                
                                
                                2.40
                                
                                
                                $
                                9.20
                                
                                
                                
                                2,821
                                
                                
                                $
                                8.99$
                                12.11
      to $14.71
                                
                                
                                
                                2,701
                                
                                
                                
                                5.07
                                
                                
                                $
                                13.37
                                
                                
                                
                                1,126
                                
                                
                                $
                                13.27$
                                14.95
      to $16.03
                                
                                
                                
                                2,646
                                
                                
                                
                                4.65
                                
                                
                                $
                                15.11
                                
                                
                                
                                1,473
                                
                                
                                $
                                15.15$
                                16.15
      to $42.56
                                
                                
                                
                                3,487
                                
                                
                                
                                5.88
                                
                                
                                $
                                17.21
                                
                                
                                
                                699
                                
                                
                                $
                                17.6917,713
                                
                                
                                
                                4.31
                                
                                
                                $
                                11.35
                                
                                
                                
                                11,844
                                
                                
                                $
                                9.38
 
 
 Summary
of Plans
 
 1999
Stock Incentive Plan
 
 The
Company’s stockholders approved the 1999 Stock Incentive Plan (the “1999
Incentive Plan”) in April 1999 under which 2,600,000 shares have been reserved
for issuance. In addition, any shares not issued under the 1996 Stock Plan are
also available for grant. The number of shares reserved under the 1999 Incentive
Plan automatically increases annually beginning on January 1, 2000 by the lesser
of 16,000,000 shares or 5% of the total amount of fully diluted shares of common
stock outstanding as of such date. Under the 1999 Incentive Plan, eligible
employees, officers, and directors may purchase stock options, stock
appreciation rights, restricted shares, and stock units. The exercise price for
incentive stock options and non-qualified options may not be less than 100% and
85%, respectively, of the fair value of the Company’s common stock at the option
grant date. Options granted are exercisable over a maximum term of 7 to 10 years
from the date of the grant and generally vest ratably over a period of 4 years,
with options for new employees generally including a 1-year cliff period. It is
the current practice of the Board to limit option grants under this plan to
7-year terms and to issue only non-qualified stock options. As of December 31,
2008, the Company had approximately 15,799,158 authorized options available for
grant and 16,989,000 options outstanding under the 1999 Incentive Plan. The
Company in its Proxy Statement for the 2009 Annual Meeting of Stockholders will
be requesting approval of a 2009 Equity Incentive Plan from its stockholders, as
the 1999 Incentive Plan expires in March 2009.
 
 1999
Non-Employee Director Stock Incentive Plan
 
 The
Company’s stockholders adopted the 1999 Non-Employee Director Stock Option
Incentive Plan (the “Directors Plan”) in April 1999 under which 1,000,000 shares
have been reserved for issuance. In April 2003, the Board of Directors amended
the Directors Plan such that each non-employee joining the Board of Directors
will automatically receive options to purchase 60,000 shares of common stock.
These options were exercisable over a maximum term of five years and would vest
in four equal annual installments on each yearly anniversary from the date of
the grant. The Directors Plan was amended in April 2003 such that one-third of
the options vest one year from the grant date and the remainder shall vest
ratably over a period of 24 months. In May 2004, the Directors Plan was amended
such that each non-employee director who has been a member of the Board for at
least six months prior to each annual
  68
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  stockholders
meeting will automatically receive options to purchase 25,000 shares of common
stock at each such meeting. Each such option has an exercise price equal to the
fair value of the common stock on the automatic grant date and vests on the
first anniversary of the grant date. As of December 31, 2008, the Company had no
additional options available for grant and 518,000 options outstanding under the
Directors Plan. The Company intends to grant options to the directors from the
1999 Incentive Plan at the point when all options in the Directors Plan have
been granted. The Company in its Proxy Statement for the 2009 Annual Meeting of
Stockholders will be requesting approval of a 2009 Equity Incentive Plan from
its stockholders, as the Directors Plan expires in March 2009.
 
 2000
Employee Stock Incentive Plan
 
 In
January 2000, the Board of Directors approved the 2000 Employee Stock Incentive
Plan (the “2000 Incentive Plan”) under which 1,600,000 shares have been reserved
for issuance. Under the 2000 Incentive Plan, eligible employees and consultants
may purchase stock options, stock appreciation rights, restricted shares, and
stock units. The exercise price for non-qualified options may not be less than
85% of the fair value of common stock at the option grant date. Options granted
are exercisable over a maximum term of 10 years from the date of the grant and
generally vested over a period of 4 years from the date of the grant. As of
December 31, 2008, the Company had approximately 781,000 authorized options
available for grant and 138,000 options outstanding under the 2000 Incentive
Plan.
 
 Assumed
Option Plans
 
 In
connection with certain acquisitions made by the Company, Informatica assumed
options in the Influence 1996 Incentive Stock Option Plan, the Zimba 1999 Stock
Option Plan, and the Striva 2000 Stock Option Plan, the Similarity 2002 Stock
Option Plan, and the Itemfield 2003 Stock Option Plan (the “Assumed Plans”). No
further options will be granted under the Assumed Plans. As of December 31,
2008, the Company had approximately 67,000 options outstanding under the Assumed
Plans.
 
 Employee
Stock Purchase Plan
 
 The
stockholders adopted the 1999 Employee Stock Purchase Plan (“ESPP”) in April
1999 under which 1,600,000 shares have been reserved for issuance. The number of
shares reserved under the ESPP automatically increases beginning on January 1 of
each year by the lesser of 6,400,000 shares or 2% of the total amount of fully
diluted common stock shares outstanding on such date. Under the ESPP, eligible
employees may purchase common stock in an amount not to exceed 10% of the
employees’ cash compensation. During the fourth quarter of 2005,the Board of Directors
approved an amendment to the ESPP. Effective 2006, under the amended ESPP, the
new participants are entitled to purchase shares at 85% of the lesser of the
common stock fair market value either at the beginning or at the end of the
6-month offering period, which was shortened from a 24-month offering period.
The purchase price is then reset at the start of the next offering
period.
 
 Disclosures
Pertaining to All Share-Based Payment Plans
 
 Cash
received from option exercises and ESPP contributions under all share-based
payment arrangements for the years ended 2008, 2007, and 2006 were $27.5
million, $27.7 million, and $23.8 million, respectively. The total realized tax
benefits attributable to stock options exercised were $6.6 million and $7.2
million for the years ended December 31, 2008 and 2007, respectively. The
Company was in full valuation allowance for the year ended December 31, 2006 and
prior years. The gross excess tax benefits from share-based payments in the
fiscal year ended December 31, 2008 and 2007 were $5.1 million and $5.5 million,
respectively, as reported on the consolidated statements of cash flows in the
financing activities section, which represent a reduction in income taxes
otherwise payable during the periods. These amounts are related to the actual
gross tax benefits in excess of the expected tax benefits for stock options
exercised in 2008 and 2007.
  
  
  69
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  9.
Accumulated Other Comprehensive Income
 
 Accumulated
other comprehensive income refers to gains and losses that, under GAAP, are
recorded as an element of stockholders’ equity and are excluded from net income,
net of tax.
 
 For the
years ended December 31, 2008, 2007, and 2006, the components of comprehensive
income consisted of the following (in thousands):
 
 Years Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Net
      income, as reported
                      
                      $
                      55,980
                      
                      
                      $
                      54,616
                      
                      
                      $
                      36,206Other
      comprehensive income (loss):Unrealized
      gain on investments*
                      
                      
                      658
                      
                      
                      
                      364
                      
                      
                      
                      559Cumulative
      translation adjustment**
                      
                      
                      (10,090
                      )
                      
                      
                      3,480
                      
                      
                      
                      1,776Cash
      flow hedging gain ***
                      
                      
                      51
                      
                      
                      
                      —
                      
                      
                      
                      —Comprehensive
      income
                      
                      $
                      46,599
                      
                      
                      $
                      58,460
                      
                      
                      $
                      38,541
 ____________
 *
                
                **
                ***
              The
      tax effects on unrealized gain on investments were $329,000 and $233,000
      for the years ended December 31, 2008 and 2007, respectively, and
      negligible for the year ended December 31, 2006.
                The
      tax effects on cumulative translation adjustments for the years ended
      December 31, 2008, 2007, and 2006 were negligible.
                The
      tax effect on cash flow hedging gain for the year ended December 31, 2008
      was negligible.
 
 December 31,2008
                          
                          
                          2007Unrealized
      gain on available-for-sale investments
                          
                          $
                          879
                          
                          
                          $
                          221Cumulative
      translation adjustment
                          
                          
                          (4,671
                          )
                          
                          
                          5,419Cash
      flow hedging gain
                          
                          
                          51
                          
                          
                          
                          —$
                          (3,741
                          )
                          
                          $
                          5,640
  Informatica
determines the basis of the cost of a security sold and the amount reclassified
out of other comprehensive income into statement of operations based on specific
identification.
  
 
 Note 10.
Derivative Financial Instruments
 
  Informatica
recognizes derivative instruments and hedging activities as either assets or
liabilities on its balance sheet and measures them at fair value based on SFAS
No. 133. Gains and losses resulting from changes in fair value are accounted for
depending on the use of the derivative and whether it is designated and
qualifies for hedge accounting.
   Informatica
uses foreign exchange forward contracts to hedge certain operational ("cash
flow") exposures resulting from changes in foreign currency exchange rates. Such
cash flow exposures result from portions of our forecasted expenditures
denominated in currencies other than the U.S. dollar, primarily the Indian rupee
and Israeli shekel. These foreign exchange contracts, carried at fair value,
usually have a maturity of 12 months or less. Informatica enters into these
foreign exchange contracts to hedge forecasted operating expenditures in the
normal course of business, and accordingly, they are not speculative in
nature.
   Informatica
has documented all hedging relationships at the inception of the hedge and has
ensured that hedges are all highly effective in offsetting changes to future
cash flows on hedged transactions. The Company records changes in the intrinsic
value of these cash flow hedges in accumulated other comprehensive income (loss)
until the forecasted transaction occurs. Upon occurrence of these forecasted
transactions, the Company reclassifies the effective portion’s related gain or
loss on the cash flow hedge to operating expenditures. If the underlying
forecasted transaction does not occur, or it becomes probable that it will not
occur, the related hedge gains and losses on the cash flow hedge are
reclassified from accumulated other comprehensive income (loss) to other income
(loss) on the consolidated statement of operations.
   70
 Table of Contents
 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
   As of
December 31, 2008, $51,000 was included in accumulated other comprehensive
income (loss), net of taxes. The Company expects to reclassify this amount to
the income statement within the next 12 months. There were no such gains or losses recognized in other
income (loss) related to hedging of forecasted transactions that did not
occur.
   Informatica
evaluates the effectiveness of hedges at the inception of the hedge
prospectively as well as retrospectively and records any ineffective portion of
the hedging instruments in other income (loss) on the consolidated statement of
operations based on SFAS No. 133. There were no gains or losses recognized in
other income (loss) for cash flow hedges due to hedge ineffectiveness in
2008.
  The
Company excludes time value of derivative instruments for hedge accounting
purposes under SFAS No. 133. The excluded component recorded income was a
$73,000 gain which was recorded in operating expenses in the consolidated
statement of operations. Informatica expects that the
time value of the derivative instruments for the duration of the hedge during
the next 12 months to be approximately $306,000.
 
 
 11.  Facilities
Restructuring Charges
 
  2004
Restructuring Plan
 
 In
October 2004, the Company announced a restructuring plan (“2004 Restructuring
Plan”) related to the December 2004 relocation of the Company’s corporate
headquarters within Redwood City, California. In 2005, the Company subleased the
available space at the Pacific Shores Center under the 2004 Restructuring Plan.
The Company recorded restructuring charges of approximately $103.6 million,
consisting of $21.6 million in leasehold improvement and asset write-offs and
$82.0 million related to estimated facility lease losses, which consist of the
present value of lease payment obligations for the remaining five-year lease
term of the previous corporate headquarters, net of actual and estimated
sublease income. The Company has actual and estimated sublease income, including
the reimbursement of certain property costs such as common area maintenance,
insurance, and property tax, net of estimated broker commissions of $5.2 million
in 2009, $5.2 million in 2010, $5.4 million in 2011, $5.5 million in 2012, and
$1.7 million in 2013.
 
 Subsequent
to 2004, the Company continued to record accretion on the cash obligations
related to the 2004 Restructuring Plan. Accretion represents imputed interest
and is the difference between the non-discounted future cash obligations and the
discounted present value of these cash obligations. At December 31, 2008, the
Company will recognize approximately $8.1 million of accretion as a
restructuring charge over the remaining five years term of the lease as follows:
$2.8 million in 2009, $2.3 million in 2010, $1.7 million in 2011, $1.0 million
in 2012, and $0.3 million in 2013.
 
  2001
Restructuring Plan
 
 During
2001, the Company announced a restructuring plan (“2001 Restructuring Plan”) and
recorded restructuring charges of approximately $12.1 million, consisting of
$1.5 million in leasehold improvement and asset write-offs and $10.6 million
related to the consolidation of excess leased facilities in the San Francisco
Bay Area and Texas.
 
 During
2002, the Company recorded additional restructuring charges of approximately
$17.0 million, consisting of $15.1 million related to estimated facility lease
losses and $1.9 million in leasehold improvement and asset write-offs. The
Company calculated the estimated costs for the additional restructuring charges
based on current market information and trend analysis of the real estate market
in the respective area.
 
 In
December 2004, the Company recorded restructuring charges under its 2001
restructuring plan of $9.0 million related to estimated facility lease losses.
The restructuring accrual adjustments recorded in the third and fourth quarters
of 2004 were the result of the relocation of its corporate headquarters within
Redwood City, California in December 2004, and an adjustment to management’s
estimate of occupancy of available vacant facilities. In 2005, the Company
subleased the available space at the Pacific Shores Center under the 2001
Restructuring Plan through May 2013, which was subsequently subleased until July
2013 under a December 2007 sublease agreement.
 
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  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  A summary
of the activity of the accrued restructuring charges for the years ended
December 31, 2008 and 2007 is as follows (in thousands):
 
 Accrued
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              AccruedRestructuring
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              RestructuringCharges
      at
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              Charges
      atDecember
      31,
                              
                              
                              Restructuring
                              
                              
                              Net Cash
                              
                              
                              Non-Cash
                              
                              
                              December
      31,2007
                              
                              
                              Charges
                              
                              
                              Adjustments
                              
                              
                              Payment
                              
                              
                              Reclass
                              
                              
                              20082004 Restructuring
      Plan
                                Excess
      lease facilities
                              
                              $
                              64,446
                              
                              
                              $
                              3,469
                              
                              
                              $
                              (324
                              )
                              
                              $
                              (11,071
                              )
                              
                              $
                              (164
                              )
                              
                              $
                              56,3562001
      Restructuring Plan
                                Excess
      lease facilities
                              
                              
                              9,796
                              
                              
                              
                              —
                              
                              
                              
                              (127
                              )
                              
                              
                              (1,557
                              )
                              
                              
                              —
                              
                              
                              
                              8,112$
                              74,242
                              
                              
                              $
                              3,469
                              
                              
                              $
                              (451
                              )
                              
                              $
                              (12,628
                              )
                              
                              $
                              (164
                              )
                              
                              $
                              64,468
 
 In 2008,
the Company recorded $3.0 million of restructuring charges related to the 2004
and 2001 Restructuring Plans. These charges included $3.5 million of accretion
charges and a $0.1 million charge for amortization of tenant improvements,
offset by an adjustment of $0.6 million due to changes in our assumed sublease
income.
 
 
 Accrued
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  AccruedRestructuring
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  RestructuringCharges
      at
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  Charges
      atDecember
      31,
                                  
                                  
                                  Restructuring
                                  
                                  
                                  Net Cash
                                  
                                  
                                  Non-Cash
                                  
                                  
                                  December
      31,2006
                                  
                                  
                                  Charges
                                  
                                  
                                  Adjustments
                                  
                                  
                                  Payment
                                  
                                  
                                  Reclass
                                  
                                  
                                  20072004 Restructuring
      Plan
                                    Excess
      lease facilities
                                  
                                  $
                                  71,678
                                  
                                  
                                  $
                                  3,894
                                  
                                  
                                  $
                                  (183
                                  )
                                  
                                  $
                                  (10,780
                                  )
                                  
                                  $
                                  (163
                                  )
                                  
                                  $
                                  64,4462001
      Restructuring Plan
                                    Excess
      lease facilities
                                  
                                  
                                  12,132
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (697
                                  )
                                  
                                  
                                  (1,639
                                  )
                                  
                                  
                                  —
                                  
                                  
                                  
                                  9,796$
                                  83,810
                                  
                                  
                                  $
                                  3,894
                                  
                                  
                                  $
                                  (880
                                  )
                                  
                                  $
                                  (12,419
                                  )
                                  
                                  $
                                  (163
                                  )
                                  
                                  $
                                  74,242
 
 Net cash
payments for 2008, 2007, and 2006 for facilities included in the 2001
Restructuring Plan amounted to $1.6 million, $1.6 million, and $4.0 million,
respectively. Actual future cash requirements may differ from the restructuring
liability balances as of December 31, 2008 if the Company is unable to sublease
the excess leased facilities after the expiration of the subleases, there are
changes to the time period that facilities are vacant, or the actual sublease
income is different from current estimates. If the subtenants do not extend
their subleases and the Company is unable to sublease any of the related Pacific
Shores facilities during the remaining lease terms through 2013, restructuring
charges could increase by approximately $3.9 million.
 
 Inherent
in the estimation of the costs related to the restructuring efforts are
assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. The estimates of sublease income may
vary significantly depending, in part, on factors that may be beyond the
Company’s control, such as the time periods required to locate and contract
suitable subleases should the Company’s existing sublessees elect to terminate
their sublease agreements in 2009 and the market rates at the time of entering
into new sublease agreements.
 
 
 12.  Employee
401(K) Plan
 
 The
Company’s employee savings and retirement plan (the “Plan”) is qualified under
Section 401 of the Internal Revenue Code. The Plan is available to all regular
employees on the Company’s U.S. payroll and provides employees with tax deferred
salary deductions and alternative investment options. Employees may contribute
up to 50% of their salary up to the statutory prescribed annual limit. The
Company matches 50% per dollar contributed by eligible employees who participate
in the Plan, up to a maximum of $2,500 per calendar year. Contributions made by
the Company vest 100% upon contribution. The Company contributed $1.7 million
and $1.3 million for the years ended December 31, 2008 and 2007, respectively.
In addition, the Plan provides for discretionary contributions at the discretion
of the Board of Directors. No discretionary contributions have been made by the
Company to date.
 
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  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  13.  Income
Taxes
 
 The
federal, state, and foreign income tax provisions for the years ended December
31, 2008, 2007, and 2006 are summarized as follows (in thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Current
      tax provision:Federal
                          
                          $
                          24,949
                          
                          
                          $
                          20,248
                          
                          
                          $
                          (177
                          )State
                          
                          
                          5,589
                          
                          
                          
                          3,679
                          
                          
                          
                          1,100Foreign
                          
                          
                          12,531
                          
                          
                          
                          3,265
                          
                          
                          
                          3,561Total
      current tax provision
                          
                          
                          43,069
                          
                          
                          
                          27,192
                          
                          
                          
                          4,484Deferred
      tax provision:Federal
                          
                          
                          (3,860
                          )
                          
                          
                          (12,958
                          )
                          
                          
                          853State
                          
                          
                          (1,840
                          )
                          
                          
                          (6,210
                          )
                          
                          
                          140Foreign
                          
                          
                          (1,376
                          )
                          
                          
                          —
                          
                          
                          
                          —Total
      deferred tax provision
                          
                          
                          (7,076
                          )
                          
                          
                          (19,168
                          )
                          
                          
                          993Total
      provision for income taxes
                          
                          $
                          35,993
                          
                          
                          $
                          8,024
                          
                          
                          $
                          5,477
 
 The
components of income (loss) before income taxes attributable to domestic and
foreign operations are as follows (in thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Domestic
                          
                          $
                          57,146
                          
                          
                          $
                          39,066
                          
                          
                          $
                          52,571Foreign
                          
                          
                          34,827
                          
                          
                          
                          23,574
                          
                          
                          
                          (10,888
                          )$
                          91,973
                          
                          
                          $
                          62,640
                          
                          
                          $
                          41,683
 
 
 A
reconciliation of the provision (benefit) computed at the statutory federal
income tax rate to the Company’s income tax provision is as follows (in
thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Income
      tax provision computed at federal statutory tax rate
                          
                          $
                          32,190
                          
                          
                          $
                          21,924
                          
                          
                          $
                          14,589State
      taxes, net of federal benefit
                          
                          
                          2,890
                          
                          
                          
                          1,497
                          
                          
                          
                          715Foreign
      earnings taxed at different rates
                          
                          
                          (1,563
                          )
                          
                          
                          (4,238
                          )
                          
                          
                          9,633Share-based
      payment
                          
                          
                          1,064
                          
                          
                          
                          1,562
                          
                          
                          
                          1,646Return
      to provision true-up
                          
                          
                          138
                          
                          
                          
                          1,615
                          
                          
                          
                          (603
                          )Other
                          
                          
                          974
                          
                          
                          
                          12
                          
                          
                          
                          —Valuation
      allowance
                          
                          
                          300
                          
                          
                          
                          (14,348
                          )
                          
                          
                          (20,503
                          )Total
      provision for income taxes
                          
                          $
                          35,993
                          
                          
                          $
                          8,024
                          
                          
                          $
                          5,477
 
  73
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Significant
components of the Company’s deferred tax assets are as follows (in
thousands):
 
 December 31,2008
                        
                        
                        2007Deferred
      tax assets:Net
      operating loss carryforwards
                        
                        $
                        1,989
                        
                        
                        $
                        4,082Tax
      credit carryforwards
                        
                        
                        5,274
                        
                        
                        
                        5,378Deferred
      revenue
                        
                        
                        12,301
                        
                        
                        
                        8,133Reserves
      and accrued costs not currently deductible
                        
                        
                        7,815
                        
                        
                        
                        2,277Depreciable
      assets
                        
                        
                        14,660
                        
                        
                        
                        16,442Accrued
      restructuring costs
                        
                        
                        25,170
                        
                        
                        
                        29,051Amortization
      of intangibles
                        
                        
                        —
                        
                        
                        
                        1,746Capitalized
      research and development
                        
                        
                        306
                        
                        
                        
                        463Share-based
      payment
                        
                        
                        5,964
                        
                        
                        
                        3,849Other
                        
                        
                        1,147
                        
                        
                        
                        155Valuation
      allowance
                        
                        
                        (42,849
                        )
                        
                        
                        (47,142
                        )Total
      deferred tax assets
                        
                        
                        31,777
                        
                        
                        
                        24,434Deferred
      tax liabilities:Non-deductible
      intangible assets
                        
                        
                        (1,531
                        )
                        
                        
                        (4,453
                        )Foreign
      earnings
                        
                        
                        —
                        
                        
                        
                        (1,225
                        )Other
                        
                        
                        (616
                        )
                        
                        
                        —Total
      deferred tax liabilities
                        
                        
                        (2,147
                        )
                        
                        
                        (5,678
                        )Net
      deferred tax assets
                        
                        $
                        29,630
                        
                        
                        $
                        18,756
 
 SFAS No.
109 provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. During 2007, as a result of analysis of all
available evidence, including cumulative profits over the prior three years and
a projection of future taxable income, it was considered more likely than not
that non-share-based related deferred tax assets would be realized. Therefore,
the Company released the valuation allowance previously held against its
deferred tax assets, resulting in a $14.3 million benefit recorded in the
consolidated statement of operations and a $2.3 million benefit recorded to
goodwill. Additionally, in the quarter ended September 30, 2007, the Company
completed an analysis of its inter-company transfer pricing retroactive to 2001
and based on this self-initiated review, the Company reallocated a portion of
the consolidated pre-tax income from its foreign operations to domestic
operations and utilized an additional $10.4 million of deferred tax assets
previously reserved.
 
 As of
December 31, 2008, approximately $42.8 million of the valuation allowance for
deferred taxes was attributable to the tax benefits of stock option deductions
which will be credited to equity when realized. The valuation allowance
decreased by $4.3 million in 2008, $35.5 million in 2007, and $9.0 million in
2006. The declines were primarily due to reductions in deferred tax assets to
the extent that tax attributes were utilized.
 
 As of
December 31, 2008, the Company had federal net operating loss carryforwards of
approximately $5.7 million. The net operating loss carryforwards will expire at
various times beginning in 2011, if not utilized. As of December 31, 2008, the
Company had state research and development tax credit carryforwards of
approximately $7.1 million, which can be carried forward indefinitely.
Utilization of the Company’s net operating loss is subject to substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. We do not anticipate expiration of
the net operation loss carryforwards prior to their utilization.
 
 The
Company has not provided for U.S. federal and foreign withholding taxes on $16.4
million of undistributed earnings, including earnings previously accrued upon,
from certain non-U.S. operations as of December 31, 2008 because the Company
intends to reinvest such earnings indefinitely outside of the United States. The
residual tax liability if such earnings were remitted may be reduced by foreign
tax credits and is currently not practical to compute.
 
 The
Company adopted Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainties
in Income Taxes—an Interpretation of FASB Statement No. 109(“FIN No. 48”),
effective January 1, 2007. FIN No. 48 requires the Company to recognize the
financial statement effects of a tax position when it is more likely than not,
based on the technical merits, that the position will be sustained upon
examination. The cumulative effect of adopting FIN No. 48, if any, is required
to be recorded in retained earnings and other accounts as applicable. No
material cumulative adjustment to retained earnings was required upon
the
  74
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  adoption
of FIN No. 48. A reconciliation of the beginning and ending amount of the
unrecognized tax benefits is as follows (in thousands):
 
 
 Balance
      at January 1,
      2008
                  
                  $
                  7,086Additions
      for tax positions of prior years
                  
                  
                  12,106Reductions
      for tax positions of prior years
                  
                  
                  (581
                  )Additions
      based on tax positions related to the current year
                  
                  
                  1,589Reduction
      due to lapse of statute of limitations
                  
                  
                  —Reduction
      due to settlements
                  
                  
                  —Balance
      at December 31, 2008
                  
                  $
                  20,200
 
 The
unrecognized tax benefits related to FIN No. 48, if recognized, would impact the
income tax provision by $12.9 million and $7.1 million as of December 31, 2008
and 2007, respectively. The Company has elected to include interest and
penalties as a component of tax expense. Accrued interest and penalties at
December 31, 2008 and 2007 were approximately $1.6 million and $0.3 million,
respectively. The Company does not anticipate that the amount of existing
unrecognized tax benefits will significantly increase or decrease within the
next 12 months.
 
 The
Company files U.S. federal income tax returns as well as income tax returns in
various states and foreign jurisdictions. The Company is currently under
examination by the Internal Revenue Service for fiscal years 2005 and 2006. Due
to net operating loss carryforwards, substantially all of the Company’s tax
years, from 1995 through 2006, remain open to tax examination. In 2008, the
Company has also been informed by certain state and foreign taxing authorities
that it was selected for examination. Most state and foreign jurisdictions have
three or four open tax years at any point in time. The field work for certain
state audits has commenced and is at various stages of completion as of December
31, 2008. Although the outcome of any tax audit is uncertain, the Company
believes that it has adequately provided in its financial statements for any
additional taxes that it may be required to pay as a result of such
examinations. If the payment ultimately proves to be unnecessary, the reversal
of these tax liabilities would result in tax benefits in the period that the
Company had determined such liabilities were no longer necessary. However, if an
ultimate tax assessment exceeds our estimate of tax liabilities, an additional
tax provision might be required.
 
 
 14.  Net
Income per Common Share
 
 Under the
provisions of SFAS No. 128, Earnings per Share,basic net
income per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net income per share reflects the
potential dilution of securities by adding other common stock equivalents,
primarily stock options, to the weighted-average number of common shares
outstanding during the period, if dilutive. Potentially dilutive securities have
been excluded from the computation of diluted net income per share if their
inclusion is anti-dilutive.
 
 The
calculation of basic and diluted net income per share is as follows (in
thousands, except per share data):
 Years Ended December 31,2008
                                                                                                                  
                                                                                                                  
                                                                                                                  2007
                                                                                                                  
                                                                                                                  
                                                                                                                  2006Net
      income
                                                                                                                  
                                                                                                                  $
                                                                                                                  55,980
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  54,616
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  36,206Effect
      of
      convertible senior notes, net of related tax
effects
                                                                                                                  
                                                                                                                  
                                                                                                                  4,350
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,399
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —Net
      income adjusted
                                                                                                                  
                                                                                                                  $
                                                                                                                  60,330
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  59,015
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  36,206Weighted-average
      shares outstanding
                                                                                                                  
                                                                                                                  
                                                                                                                  88,109
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  87,164
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  86,420Dilutive
      effect of employee stock options
                                                                                                                  
                                                                                                                  
                                                                                                                  3,715
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,588
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  6,522Dilutive
      effect of convertible senior notes
                                                                                                                  
                                                                                                                  
                                                                                                                  11,454
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  11,500
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  —Shares
      used in computing diluted net income per common share
                                                                                                                  
                                                                                                                  
                                                                                                                  103,278
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  103,252
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  92,942Basic
      net income per common share
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.64
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.63
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.42Diluted
      net income per common share
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.58
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.57
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.39
  
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Diluted
net income per common share is calculated according to SFAS No. 128, Earnings per Share,which requires the
dilutive effect of convertible securities to be reflected in the diluted net
income per share by application of the “if-converted” method. This method
assumes an add-back of interest and issuance cost amortization, net of income
taxes to net income if the securities are converted. The Company determined that
for years ended December 31, 2008 and 2007, the Convertible Senior Notes had a
dilutive effect on diluted net income per share, and as such, it had an add-back
of $4.3 million and $4.4 million, respectively, in interest and issuance cost
amortization, net of income taxes, to net income for the diluted net income per
share calculation. For the year ended December 31, 2006, the effect of the
Convertible Senior Notes, equivalent to 9,232,000 common shares, was
anti-dilutive.
 
 For the
years ended December 31, 2008, 2007, and 2006, options to purchase approximately
3.5 million, 4.0 million, and 2.7 million, respectively, of common stock with
exercise price greater than the annual average fair market value of our stock of
$15.77, $14.83, and $13.91, respectively, were not included in the calculation
because the effect would have been anti-dilutive.
 
 
 15.  Commitments
and Contingencies
 
 Lease
Obligations
 
 In
December 2004, the Company relocated its corporate headquarters within Redwood
City, California and entered into a new lease agreement. The initial lease term
is from December 15, 2004 to December 31, 2007 with a three-year option to renew
to December 31, 2010 at fair market value. In May 2007, the Company exercised
its renewal option to extend the office lease term to December 31, 2010. The
future minimum contractual lease payments are $4.0 million and $4.2 million for
the years ending December 31, 2009 and 2010, respectively.
 
 The
Company entered into two lease agreements in February 2000 for two office
buildings at the Pacific Shores Center in Redwood City, California, its former
corporate headquarters from August 2001 through December 2004. The leases expire
in July 2013. In 2001, a financial institution issued a $12.0 million letter of
credit, which required us to maintain certificates of deposits as collateral
until the leases expire in 2013. As of June 2008, however, we were no longer
required to maintain certificates of deposits for this letter of credit related
to our former corporate headquarters leases at the Pacific Shores Center in
Redwood City, California.
 
 The
Company leases certain office facilities under various non-cancelable operating
leases, including those described above, which expire at various dates through
2013 and require the Company to pay operating costs, including property taxes,
insurance, and maintenance. Rent expense for 2008, 2007, and 2006 was $11.2
million, $7.2 million, and $5.8 million, respectively. Operating lease payments
in the table below include approximately $76.7 million for operating lease
commitments for facilities that are included in restructuring charges. See Note
11. Facilities Restructuring Charges, above,
for a further discussion.
 
 Future
minimum lease payments as of December 31, 2008 under non-cancelable operating
leases with original terms in excess of one year are summarized as follows (in
thousands):
 
 Operating
                            Leases
                          
                          
                          Sublease
                            Income
                          
                          
                          Net2009
                          
                          $
                          24,771
                          
                          
                          $
                          2,344
                          
                          
                          $
                          22,4272010
                          
                          
                          24,037
                          
                          
                          
                          2,632
                          
                          
                          
                          21,4052011
                          
                          
                          19,218
                          
                          
                          
                          2,680
                          
                          
                          
                          16,5382012
                          
                          
                          19,528
                          
                          
                          
                          2,733
                          
                          
                          
                          16,7952013
                          
                          
                          11,763
                          
                          
                          
                          1,412
                          
                          
                          
                          10,351Thereafter
                          
                          
                          825
                          
                          
                          
                          —
                          
                          
                          
                          825$
                          100,142
                          
                          
                          $
                          11,801
                          
                          
                          $
                          88,341
 
 Of these
future minimum lease payments, the Company has accrued $64.5 million in the
facilities restructuring accrual at December 31, 2008. This accrual, in addition
to minimum lease payments of $76.7 million, includes estimated operating
expenses of $23.4 million and sublease commencement costs associated with excess
facilities and is net of estimated sublease income of $27.5 million and a
present value discount of $8.1 million recorded in accordance with FASB
Statement No. 146 (As Amended), Accounting for Costs Associated with
Exit or Disposal Activities (“SFAS No. 146”).
 
  76
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  Accruals
 
 Informatica
makes judgments for the amount to be accrued based on Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies(“SFAS No. 5”).Informatica has had accruals, which includesaccrued legal
settlement costs reflected in the Company’s operating expenses based, for $4.1
million and $0.4 million for the years ended on December 31, 2008 and December
31, 2007, respectively. The Company expects that the amount accrued for the year
ended December 31, 2008 to be settled during 2009.
 
 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 SFAS No. 5, Accounting for Contingencies.The Company’s software products’ media are generally warranted to be free
from defects in materials and workmanship under normal use, and the products are
also generally warranted to substantially perform as described in certain
Company documentation and the product specifications. The Company’s services are
generally warranted to be performed in a professional manner and to materially
conform to the specifications set forth in a customer’s signed contract. In the
event there is a failure of such warranties, the Company generally will correct
or provide a reasonable work-around or replacement product. The Company has
provided a warranty accrual of $0.2 million as of December 31, 2008 and 2007. To
date, the Company’s product warranty expense has not been
significant.
 
 Indemnification
 
 The
Company sells software licenses and services to its customers under contracts,
which the Company refers to as the License to Use Informatica Software (“License
Agreement”). Each License Agreement contains the relevant terms of the
contractual arrangement with the customer and generally includes certain
provisions for indemnifying the customer against losses, expenses, liabilities,
and damages that may be awarded against the customer in the event the Company’s
software is found to infringe upon a patent, copyright, trademark, or other
proprietary right of a third party. The License Agreement generally limits the
scope of and remedies for such indemnification obligations in a variety of
industry-standard respects, including but not limited to certain time and scope
limitations and a right to replace an infringing product with a non-infringing
product.
 
 The
Company believes its internal development processes and other policies and
practices limit its exposure related to the indemnification provisions of the
License Agreement. In addition, the Company requires its employees to sign a
proprietary information and inventions agreement, which assigns the rights to
its employees’ development work to the Company. To date, the Company has not had
to reimburse any of its customers for any losses related to these
indemnification provisions, and no material claims against the Company are
outstanding as of December 31, 2008. For several reasons, including the lack of
prior indemnification claims and the lack of a monetary liability limit for
certain infringement cases under the License Agreement, the Company cannot
determine the maximum amount of potential future payments, if any, related to
such indemnification provisions.
 
 In
addition, we indemnify our officers and directors under the terms of indemnity
agreements entered into with them, as well as pursuant to our certificate of
incorporation, bylaws, and applicable Delaware law. To date, we have not
incurred any costs related to these indemnifications.
 
 The
Company accrues for loss contingencies when available information indicates that
it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated, in accordance with SFAS
No. 5, Accounting for
Contingencies.
 
 Derivative
Financial Instruments
  Informatica
uses foreign exchange forward contracts to hedge certain operational ("cash
flow") exposures resulting from changes in foreign currency exchange rates. Such
cash flow exposures result from portions of our forecasted expenditures
denominated in currencies other than the U.S. dollar, primarily the Indian rupee
and Israeli shekel. These foreign exchange contracts, carried at fair value,
have a maturity of 12 months or less. Informatica enters into these foreign
exchange contracts to hedge forecasted operating expenditures in the normal
course of business, and accordingly, they are not speculative in
nature.
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  The table
below presents the notional amounts of the foreign exchange forward contracts
that the Company committed to purchase in the fourth quarter of 2008 for Indian
rupees and Israeli shekels (in thousands):
 
 
 Functional
      currency
                
                Foreign
                  Amount
                
                
                USD
                  Equivalent
                
                
                RateIndian
      rupee
                
                
                332,990
                
                
                $
                6,497
                
                
                
                49.00Israeli
      shekel
                
                
                13,105
                
                
                
                3,414
                
                
                
                3.83$
                9,911
 
 
 16.  Litigation
 
 On
November 8, 2001, a purported securities class action complaint was filed in the
U.S. District Court for the Southern District of New York. The case is entitled
In re Informatica Corporation
Initial Public Offering Securities Litigation, Civ. No.
01-9922 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities
Litigation, 21 MC 92 (SAS) (S.D.N.Y.). Plaintiffs’ amended complaint was
brought purportedly on behalf of all persons who purchased our common stock from
April 29, 1999 through December 6, 2000. It names as defendants Informatica
Corporation, two of our former officers (the “Informatica defendants”), and
several investment banking firms that served as underwriters of our April 29,
1999 initial public offering (IPO) and September 28, 2000 follow-on public
offering. The complaint alleges liability as to all defendants under Sections 11
and/or 15 of the Securities Act of 1933 and Sections 10(b) and/or 20(a) of the
Securities Exchange Act of 1934, on the grounds that the registration statements
for the offerings did not disclose that: (1) the underwriters had agreed to
allow certain customers to purchase shares in the offerings in exchange for
excess commissions paid to the underwriters; and (2) the underwriters had
arranged for certain customers to purchase additional shares in the aftermarket
at predetermined prices. The complaint also alleges that false analyst reports
were issued. No specific damages are claimed.
 
 Similar
allegations were made in other lawsuits challenging more than 300 other initial
public offerings and follow-on offerings conducted in 1999 and 2000. The cases
were consolidated for pretrial purposes. On February 19, 2003, the Court ruled
on all defendants’ motions to dismiss. The Court denied the motions to dismiss
the claims under the Securities Act of 1933. The Court denied the motion to
dismiss the Section 10(b) claim against Informatica and 184 other issuer
defendants. The Court denied the motion to dismiss the Section 10(b) and 20(a)
claims against the Informatica defendants and 62 other individual
defendants.
 
 The
Company accepted a settlement proposal presented to all issuer defendants. In
this settlement, plaintiffs will dismiss and release all claims against the
Informatica defendants, in exchange for a contingent payment by the insurance
companies collectively responsible for insuring the issuers in all of the IPO
cases, and for the assignment or surrender of control of certain claims we may
have against the underwriters. The Informatica defendants will not be required
to make any cash payments in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of the insurance coverage, a
circumstance that we do not believe will occur. Any final settlement will
require approval of the Court after class members are given the opportunity to
object to the settlement or opt out of the settlement.
 
 In
September 2005, the Court granted preliminary approval of the settlement. The
Court held a hearing to consider final approval of the settlement on April 24,
2006, and took the matter under submission. In the interim, the Second Circuit
reversed the class certification of plaintiffs’ claims against the underwriters.
Miles v. Merrill Lynch &
Co.(In re
Initial Public Offering
Securities Litigation), 471 F.3d 24 (2d Cir. 2006). On April 6, 2007, the
Second Circuit denied plaintiffs’ petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the district court.
Accordingly, the parties withdrew the prior settlement, and plaintiffs filed
amended complaints in focus or test cases in an attempt to comply with the
Second Circuit’s ruling. On March 26, 2008, the District Court issued an order
granting in part and denying in part motions to dismiss the amended complaints
in the focus cases, on substantially the same grounds as its February 2003
ruling on the prior motion to dismiss. In September 2008, all of the parties to
the lawsuits reached the contours of a settlement, subject to documentation and
then Court approval, and under which the Company would not be required to
pay in the settlement. The parties are working on documenting the settlement,
including addressing the effect of the subsequent bankruptcy of a party that was
expected to contribute to the settlement fund. If the settlement is
not consummated and then approved by the Court, the Company intends to
defend the lawsuit vigorously. We express no opinion as to the probable outcome
of this matter.
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  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  
 On July
15, 2002, the Company filed a patent infringement action in U.S. District Court
in Northern California against Acta Technology, Inc. (“Acta”), now known as
Business Objects Data Integration, Inc. (“BODI”), asserting that certain Acta
products infringe on three of our patents: U.S. Patent `No. 6,014,670, entitled
“Apparatus and Method for Performing Data Transformations in Data Warehousing,”
U.S. Patent No. 6,339,775, entitled “Apparatus and Method for Performing Data
Transformations in Data Warehousing” (this patent is a continuation in part of
and claims the benefit of U.S. Patent No. 6,014,670), and U.S. Patent No.
6,208,990, entitled “Method and Architecture for Automated Optimization of ETL
Throughput in Data Warehousing Applications.” In the suit, we sought an
injunction against future sales of the infringing Acta/BODI products, as well as
damages for past sales of the infringing products. On February 26, 2007, as
stipulated by both parties, the Court dismissed the infringement claims on U.S.
Patent No. 6,208,990 as well as BODI’s counterclaims on this
patent.
 
 The trial
began on March 12, 2007 on the two remaining patents (U.S. Patent No. 6,014,670
and U.S. Patent No. 6,339,775) originally asserted in 2002 and a verdict was
reached on April 2, 2007. During the trial, the judge determined that, as a
matter of law, BODI and its customers’ use of the Acta/BODI products infringe on
our asserted patents. The jury unanimously determined that our patents are
valid, that BODI’s infringement on our patents was done willfully and that a
reasonable royalty for BODI’s infringement is $25.2 million. On May 16, 2007,
the judge issued a permanent injunction preventing BODI from shipping the
infringing technology now and in the future.
 
 As a
result of the United States Supreme Court’s April 30, 2007 decision on AT&T Corp. v. Microsoft
Corp. (which ruled on
the territorial reach of U.S. patents), the damage award was subsequently
reduced to $12.2 million.
 
 On
October 29, 2007, the court entered final judgment on the case for that amount
and on December 18, 2007, the Court awarded us an additional amount of $1.7
million for prejudgment interest. On November 28, 2007, BODI filed its Notice of
Appeal and on December 12, 2007, we filed our Notice of Cross Appeal. Oral
arguments on the appeal were heard on November 6, 2008. On November 17, 2008 the
United States Circuit Court of Appeals for the Federal Circuit published, via a
summary affirmation, their finding for us on the appeal and on December 23,
2008, BODI remitted $14.5 million in payment for the full judgment, pre- and
post-judgment interest and a portion of the trial costs. The permanent
injunction remains in effect until the patent expires in 2019.
 
 On August
21, 2007, Juxtacomm Technologies (“Juxtacomm”) filed a complaint in the Eastern
District of Texas against 21 defendants, including us, alleging patent
infringement and seeking damages and an injunction. We filed an answer to the
complaint on October 10, 2007. It is Informatica’s current assessment that our
products do not infringe Juxtacomm’s patent and that potentially the patent
itself is invalid due to significant prior art. Informatica intends to
vigorously defend itself. This case is currently in the discovery
phase.
 
 On
November 24, 2008, Data Retrieval Technologies LLC (“Data Retrieval”) filed a
complaint in the Western District of Washington against the Company and Sybase,
Inc., alleging patent infringement.  On January 15, 2009, we filed an
answer to the complaint. It is the Company’s current assessment that our
products do not infringe Data Retrieval’s patents and that potentially the
patents are themselves invalid due to significant prior art. The Company intends
to vigorously defend itself. The case is currently in the discovery
phase.
 
 The
Company is also a party to various legal proceedings and claims arising from the
normal course of business activities.
 
 Based on
current available information, Informatica does not expect that the ultimate
outcome of these unresolved matters, individually or in the aggregate, will have
a material adverse effect on its results of operations, cash flows, or financial
position. However, litigation is subject to inherent uncertainties and the
Company’s view of these matters may change in the future. In addition given such
uncertainties, the Company has from time to time discussed settlement in the
context of litigation and accrued, based on SFAS No. 5, for estimates of
settlement. Were an unfavorable outcome to occur, there exists the possibility
of a material adverse impact on the Company’s financial position and results of
operation for the period in which the unfavorable outcome occurred, and
potentially in future periods.
 
 
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  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  17.  Related
Party Transaction
 
 Mark A.
Bertelsen, a director of Informatica since September 2002, serves as a member of
Wilson Sonsini Goodrich & Rosati (“WSGR”), our principal outside legal
counsel. Fees paid by the Company to WSGR for legal services rendered for the
years ended December 31, 2008, 2007, and 2006 were $0.9 million, $0.8 million,
and $0.7 million, respectively. The Company believes that the services rendered
by WSGR were provided on terms no more or less favorable than those with
unrelated parties.
 
 
 18.  Significant
Customer Information and Segment Information
 
 The
Company operates solely in one segment: the design, development, marketing, and
sales of software solutions. The Company’s chief operating decision maker is its
Chief Executive Officer, who reviews financial information presented on a
consolidated basis for purposes of making operating decisions and assessing
financial performance. The Company markets its products and services in the
United States and in foreign countries through its direct sales force and
indirect distribution channels. No customer accounted for more than 10% of
revenue in 2008, 2007, and 2006. At December 31, 2008, no customer accounted for
more than 10% of the accounts receivable balance, compared to one customer at
December 31, 2007. North America revenues include the United States and Canada.
Revenue from international customers (defined as those customers outside of
North America) accounted for 35%, 32%, and 30% of total revenue in 2008, 2007,
and 2006, respectively.
 
 The
following tables represent geographic information (in thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Revenues:North
      America
                          
                          $
                          297,093
                          
                          
                          $
                          264,167
                          
                          
                          $
                          226,731Europe
                          
                          
                          122,458
                          
                          
                          
                          101,933
                          
                          
                          
                          80,117Other
                          
                          
                          36,148
                          
                          
                          
                          25,156
                          
                          
                          
                          17,750$
                          455,699
                          
                          
                          $
                          391,256
                          
                          
                          $
                          324,598
 
 December 31,2008
                              
                              
                              2007Long-lived
      assets (excluding assets not allocated):North
      America
                              
                              $
                              36,285
                              
                              
                              $
                              19,247Europe
                              
                              
                              6,664
                              
                              
                              
                              1,769Other
                              
                              
                              1,643
                              
                              
                              
                              1,507$
                              44,592
                              
                              
                              $
                              22,523
 
 The
Company’s revenues are derived from software licenses, maintenance, consulting
and education services, and customer support. It is impracticable to
disaggregate software license revenue by product. The Company’s disaggregated
revenue information is as follows (in thousands):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006License
                          
                          $
                          195,769
                          
                          
                          $
                          175,318
                          
                          
                          $
                          146,092Maintenance
                          
                          
                          186,212
                          
                          
                          
                          151,246
                          
                          
                          
                          124,955Consulting
      and education
                          
                          
                          73,718
                          
                          
                          
                          64,692
                          
                          
                          
                          53,551$
                          455,699
                          
                          
                          $
                          391,256
                          
                          
                          $
                          324,598
 
 
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  19.  Selected
Quarterly Financial Information (Unaudited)
 
 Three Months EndedDecember
      31,
                              2008
                            
                            
                            September
      30,
                              2008
                            
                            
                            June 30,
                              2008
                            
                            
                            March 31,
                              2008(In
      thousands, except per share data)Total
      revenues
                            
                            $
                            124,412
                            
                            
                            $
                            113,817
                            
                            
                            $
                            113,760
                            
                            
                            $
                            103,710Gross
      profit
                            
                            
                            103,444
                            
                            
                            
                            91,408
                            
                            
                            
                            90,532
                            
                            
                            
                            82,612Facilities
      restructuring charges
                            
                            
                            254
                            
                            
                            
                            896
                            
                            
                            
                            921
                            
                            
                            
                            947Income
      from operations
                            
                            
                            39,526
                            
                            
                            
                            17,668
                            
                            
                            
                            14,619
                            
                            
                            
                            12,423Net
      income
                            
                            
                            19,872
                            
                            
                            
                            13,381
                            
                            
                            
                            11,503
                            
                            
                            
                            11,224Net
      income per common share:Basic
                            
                            $
                            0.23
                            
                            
                            $
                            0.15
                            
                            
                            $
                            0.13
                            
                            
                            $
                            0.13Diluted
                            
                            $
                            0.21
                            
                            
                            $
                            0.14
                            
                            
                            $
                            0.12
                            
                            
                            $
                            0.12Shares
      used in computing basic net income per common share:Basic
                            
                            
                            87,178
                            
                            
                            
                            88,570
                            
                            
                            
                            88,565
                            
                            
                            
                            88,128Diluted
                            
                            
                            101,767
                            
                            
                            
                            103,740
                            
                            
                            
                            104,457
                            
                            
                            
                            103,727
 
 
 Three Months EndedDecember
      31,
                              2007
                            
                            
                            September
      30,
                              2007
                            
                            
                            June 30,
                              2007
                            
                            
                            March 31,
                              2007(In
      thousands, except per share data)Total
      revenues
                            
                            $
                            113,877
                            
                            
                            $
                            96,003
                            
                            
                            $
                            94,262
                            
                            
                            $
                            87,114Gross
      profit
                            
                            
                            93,337
                            
                            
                            
                            77,338
                            
                            
                            
                            75,647
                            
                            
                            
                            69,273Facilities
      restructuring charges
                            
                            
                            (64
                            )
                            
                            
                            1,003
                            
                            
                            
                            1,026
                            
                            
                            
                            1,049Income
      from operations
                            
                            
                            19,978
                            
                            
                            
                            11,344
                            
                            
                            
                            9,073
                            
                            
                            
                            7,008Net
      income
                            
                            
                            20,620
                            
                            
                            
                            14,446
                            
                            
                            
                            10,456
                            
                            
                            
                            9,094Net
      income per common share:Basic
                            
                            $
                            0.24
                            
                            
                            $
                            0.17
                            
                            
                            $
                            0.12
                            
                            
                            $
                            0.11Diluted
                            
                            $
                            0.21
                            
                            
                            $
                            0.15
                            
                            
                            $
                            0.11
                            
                            
                            $
                            0.10Shares
      used in computing basic net income per common share:Basic
                            
                            
                            87,465
                            
                            
                            
                            87,428
                            
                            
                            
                            87,293
                            
                            
                            
                            86,448Diluted
                            
                            
                            103,452
                            
                            
                            
                            103,151
                            
                            
                            
                            103,206
                            
                            
                            
                            102,638
 
 
 Diluted
net income per common share is calculated according to SFAS No. 128, Earnings per Share,which
requires the dilutive effect of convertible securities to be reflected in the
diluted net income per share by application of the “if-converted” method. This
method assumes an add-back of interest and issuance cost amortization, net of
income taxes to net income if the securities are converted. The Company
determined that for the years ended December 31, 2008 and 2007, the Convertible
Senior Notes had a dilutive effect on diluted net income per share, and as such,
they had an add-back of $4.3 million and $4.4 million, respectively in interest
and issuance cost amortization, net of income taxes, to net income for the
diluted net income per share calculation.
 
 The
Company believes that period-to-period comparisons of the Company’s consolidated
financial results should not be relied upon as an indication of future
performance. The operating results of the Company reflect seasonal trends
experienced by many software companies and are subject to fluctuation due to
other factors, and the Company’s business, financial condition, and results of
operations may be affected by such factors in the future.
 
 
  81
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  20.  Acquisitions
 
 PowerData
 
 On
October 1, 2008, Informatica Nederland B.V., a wholly owned subsidiary of
Informatica, purchased all of the issued and outstanding shares of PowerData
Iberica, S.L. (“PowerData”), a company organized under the laws of Spain, with
corporate domicile at Constitució St, 1,2,1 Sant Just Desvern (Barcelona), for
$7.1 million in cash, including transaction costs of  $0.4
million.
 
 The
allocation of the purchase price for this acquisition, as of the date of the
acquisition, is as follows (in thousands):
 
 Customer
      relationships
                  
                  $
                  3,550Goodwill
                  
                  
                  3,618Assumed
      liabilities, net of assets
                  
                  
                  (32
                  )Total
      purchase price
                  
                  $
                  7,136
 
  The
identified intangible assets acquired were assigned fair values in accordance
with the guidelines established in Statement of Financial Accounting
Standards No. 141,
Business Combinations,Financial Accounting Standards Board
Interpretations No. 4, Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method,
Emergency Issues Task ForceNo. 95-8,Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination, and other relevant guidance.
 
 Management
believes that the investment value of the synergy created as a result of this
acquisition, due to future new markets for its product offerings, has
principally contributed to a purchase price that resulted in the recognition of
goodwill for $3.6 million, and no portion of this amount will be deductible for
tax purposes. The Company amortizes the customer relationships for $3.6 million
over 5 years on an accelerated basis consistent with expected
benefits.
 
 Informatica
included in its initial consideration a negative working capital adjustment of
$2.2 million.Further,in addition to the
initial consideration, the Company is obligated for some variable and deferred
earn-out payments based on the percentage of license revenues recognized
subsequent to acquisition. The working capital adjustment was split into three
$0.7 million deductions to be deducted from the initial consideration and
earn-outs in 2009 and 2010, respectively. The company considers these earn-outs
as additional contingent consideration and will record them in goodwill as they
occur.
 
 Identity Systems,
Inc.
 
 On May
15, 2008, Informatica Corporation acquired all of the issued and outstanding
shares of Identity Systems, Inc., a Delaware corporation and a wholly owned
subsidiary of Intellisync Corporation, for $85.6 million in cash, including
transaction costs of $0.9 million.
 
 The allocation of the
purchase price for this acquisition, as of the date of the acquisition, is as
follows (in thousands):
 
 Developed
      and core technology
                  
                  $
                  14,570Customer
      relationships
                  
                  
                  12,620In-process
      research and development
                  
                  
                  390Goodwill
                  
                  
                  49,316Assumed
      assets, net of liabilities
                  
                  
                  8,735Total
      purchase price
                  
                  $
                  85,631
 
 
  The
identified intangible assets acquired were assigned fair values in accordance
with the guidelines established in Statement of Financial Accounting
Standards No. 141,
Business Combinations,Financial Accounting Standards Board
Interpretations No. 4, Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method,
and other relevant guidance. The excess of the purchase price over the
identified tangible and intangible assets was recorded as goodwill. The Company
believes that none of the identified intangible assets has any residual value.
Further, management believes that the investment value of the synergy created as
a result of this acquisition, due to future product offerings, has principally
contributed to a purchase price that
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CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  resulted
in the recognition of goodwill for $49.3 million of which $1.8 million and
$38.4 million will be deductible for tax purposes for 2008 and future years,
respectively. The developed and core technology is amortized over 5.5 years on a
straight line basis and customer relationships over 5 years on an accelerated
basis consistent with expected benefits.
 
 
 In connection with the
purchase price allocations, Informatica estimated the fair value of the support
obligations assumed in connection with acquisitions. The estimated fair value of
the support obligations is determined utilizing a cost build-up approach. The
cost build-up approach determines fair value by estimating the costs related to
fulfilling the obligations plus a normal profit margin. The estimated costs to
fulfill the support obligations are based on the historical direct costs related
to providing the support services and to correct any errors in the software
products that the Company has acquired.
 
 
 Itemfield
 
 On
December 15, 2006, the Company acquired Itemfield, a private company
incorporated in Israel, providing built-in support for unstructured data
authored using Microsoft Excel, Word, PowerPoint, Adobe Acrobat, PostScript,
PCL, Sun StarOffice, AFP, and HTML. Management believes that it is the
investment value of this synergy, related to future product offerings, that
principally contributed to a purchase price that resulted in the recognition of
goodwill for $43.2 million, and no portion of this amount will be deductible for
tax purposes. The Company paid $54 million, consisting of $52 million of cash
and 157,728 of Informatica stock options with a fair value of $1.9 million, to
acquire all of the outstanding common stock, preferred stock, and stock options
of Itemfield. In connection with the acquisition, the Company also incurred
transaction costs of $0.8 million.
 
 Similarity
 
 On
January 26, 2006, the Company acquired Similarity Systems Limited
(“Similarity”), a private company incorporated in Ireland, providing data
quality and data profiling software. The acquisition extends Informatica’s data
integration software to include Similarity’s data quality technology. Management
believes that it is the investment value of this synergy, related to future
product offerings, that principally contributed to a purchase price that
resulted in the recognition of goodwill amounted to $46.4 million, of which $8.7
million was tax deductible for 2008 and prior years, and $34.7 million will be
deductible for tax purposes for future years. The Company paid $54.9 million,
consisting of $48.3 million of cash, 122,045 shares of Informatica common stock
(which were fully vested but subject to escrow) with a fair value of $1.6
million, and 392,333 of Informatica stock options with a fair value of $5.0
million, to acquire all of the outstanding common stock, preferred stock, and
stock options of Similarity. In connection with the acquisition, the Company
also incurred transaction costs of approximately $2.3 million.
 
 The
results of Identity Systems, Inc.’s, Similarity’s, and Itemfield’s operations
have been included in the consolidated financial statements since the
acquisition dates.
 
 The
following unaudited pro forma adjusted summary reflects the Company’s results of
operations for the years ended December 31, 2008, 2007 and 2006, assuming
Identity Systems, Inc., Similarity, and Itemfield had been acquired on January
1, 2006. The following unaudited pro forma adjusted summary is not intended to
be indicative of future results (in thousands, except per share
amounts):
 
 Years Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Pro
      forma adjusted total revenue
                          
                          $
                          461,145
                          
                          
                          $
                          411,568
                          
                          
                          $
                          350,207Pro
      forma adjusted net income
                          
                          $
                          52,805
                          
                          
                          $
                          56,271
                          
                          
                          $
                          27,944Pro
      forma adjusted net income per share—basic
                          
                          $
                          0.60
                          
                          
                          $
                          0.65
                          
                          
                          $
                          0.32Pro
      forma adjusted net income per share—diluted
                          
                          $
                          0.55
                          
                          
                          $
                          0.59
                          
                          
                          $
                          0.30Pro
      forma weighted-average basic shares
                          
                          
                          88,109
                          
                          
                          
                          87,164
                          
                          
                          
                          86,636Pro
      forma weighted-average diluted shares
                          
                          
                          103,278
                          
                          
                          
                          103,252
                          
                          
                          
                          93,234
 
  83
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 INFORMATICA
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
  21.  Subsequent
Event
 
 On
February 13, 2009, the Company acquired Applimation, Inc., a private company
incorporated in Delaware, providing application Information Lifecycle Management
(ILM) technology. The acquisition extends the Company's data integration
software to include Applimation’s technology. The Company acquired all the
capital stock of Applimation in a cash merger transaction valued at
approximately $40 million. As a result of this acquisition, the Company also
assumed certain facility leases and certain liabilities and commitments. Six
million dollars of the merger consideration will be placed into an escrow fund
and held as security for losses incurred by the Company in the event of certain
breaches of the merger agreement by Applimation. The escrow fund will
remain in place until August 13, 2010, although 50% of the escrow funds
will be distributed to the Applimation stockholders on February 13,
2010.
 
  84
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    ITEM 9. CHANGESIN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 Not
applicable.
 
 
 ITEM 9A. CONTROLSAND
PROCEDURES
 
 (a) Evaluation of disclosure controls
and procedures.Our management evaluated, with the participation of our
Chief Executive Officer and our Chief Financial Officer, the effectiveness of
our disclosure controls and procedures as of the end of the period covered by
this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information we are required
to disclose in reports that we file or submit under the Securities Exchange Act
of 1934 (1) is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and (2)
is accumulated and communicated to Informatica’s management, including our Chief
Executive Officer and our Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Our disclosure controls and
procedures are designed to provide reasonable assurance that such information is
accumulated and communicated to our management. Our disclosure controls and
procedures include components of our internal control over financial reporting.
Management’s assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance because a
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute, assurance that the control system’s objectives
will be met.
 
 (b) Management’s annual report on
internal control over financial reporting.The information required to be
furnished pursuant to this item is set forth under the captions “Report of
Management on Internal Control Over Financial Reporting” and “Report of
Independent Registered Accounting Firm” in Item 8 of this Annual Report on Form
10-K, which is incorporated herein by reference.
 
 (c) Change in internal control over
financial reporting.There was no change in our internal control over
financial reporting that occurred during the fourth quarter of 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
 
 
 ITEM 9B. OTHERINFORMATION
 
 Not
applicable.
 
 
 PART III
 
 
 ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE
 
 Executive
Officers of the Registrant
 
 The
following table sets forth certain information concerning our executive officers
as of January 31, 2009:
 
 Name
                                  
                                  Age
                                  
                                  Position(s)Sohaib
      Abbasi
                                  
                                  
                                  52
                                  
                                  Chairman
      of the Board, Chief Executive Officer, and PresidentEarl
      Fry
                                  
                                  
                                  50
                                  
                                  Chief
      Financial Officer, Executive Vice President, and SecretaryPaul
      Hoffman
                                  
                                  
                                  58
                                  
                                  Executive
      Vice President, Worldwide Field OperationsGirish
      Pancha
                                  
                                  
                                  44
                                  
                                  Executive
      Vice President and General Manager, Data Integration
 
  85
 Table of Contents
  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. Abbasihas been our
President and Chief Executive Officer since July 2004 and a member of our Board
of Directors since February 2004. From 2001 to 2003, Mr. Abbasi was Senior Vice
President, Oracle Tools Division and Oracle Education at Oracle Corporation,
which he joined in 1982. From 1994 to 2000, he was Senior Vice President Oracle
Tools Product Division at Oracle Corporation. Mr. Abbasi graduated with honors
from the University of Illinois at Urbana-Champaign in 1980, where he earned
both a B.S. and an M.S. degree in computer science.
 
 Mr. Fryjoined us as the
Chief Financial Officer and Senior Vice President in December 1999. In July
2002, Mr. Fry became the Secretary. In August 2003, Mr. Fry was promoted to
Executive Vice President. From November 1995 to December 1999, Mr. Fry was Vice
President and Chief Financial Officer at Omnicell Technologies, Inc. From July
1994 to November 1995, he was Vice President and Chief Financial Officer at
C*ATS Software, Inc. Mr. Fry holds a B.B.A. degree in accounting from the
University of Hawaii and an M.B.A. degree from Stanford University. Mr. Fry
serves on the Board of Directors of Central Pacific Financial
Corporation.
 
 Mr. Hoffmanjoined us as
Executive Vice President, Worldwide Sales in January 2005. Mr. Hoffman was
Executive Vice President of Worldwide Sales at Cassatt Corporation from August
2003 to December 2004. From April 1999 to June 2003, Mr. Hoffman was Vice
President of the Americas at SeeBeyond Technology Corporation. He served as Vice
President Worldwide Sales for Documentum from September 1996 to April 1999. Mr.
Hoffman also spent 10 years at Oracle Corporation in senior sales management and
executive-level positions, including the Vice President of Worldwide Operations.
Mr. Hoffman holds a B.S. degree in finance from Fairfield
University.
 
 Mr. Panchawas an early
employee of Informatica, serving in engineering management roles from November
1996 to October 1998. Mr. Pancha left in 1998 to co-found Zimba, a developer of
mobile applications providing real-time access to corporate information via
voice, wireless, and Web technologies. Upon Informatica’s acquisition of Zimba
in August 2000, Mr. Pancha rejoined us as Vice President and General Manager of
the Platform Business Unit. In August 2002, he became Senior Vice President of
Products. In August 2003, Mr. Pancha was promoted to Executive Vice President.
Prior to Informatica, Mr. Pancha spent eight years in various development and
management positions at Oracle. Mr. Pancha holds a B.S. degree in electrical
engineering from Stanford University and an M.S. degree in electrical
engineering from the University of Pennsylvania.
 
 Information
with respect to our Directors, our Code of Business Conduct, and corporate
governance matters is included under the caption “Proposal One—Election of
Directors” in the Proxy Statement for the 2009 Annual Meeting, which proxy
statement will be filed within 120 days of our fiscal year ended December 31,
2008 (the “2009 Proxy Statement”), and is incorporated herein by reference.
Information regarding delinquent filers pursuant to Item 405 of Regulation S-K
is included under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2009 Proxy Statement and is incorporated herein by
reference.
 
 
 ITEM 11. EXECUTIVECOMPENSATION
 
 The
information required by this item is included under the captions, “Election of
Directors—Director Compensation” and “Executive Officer Compensation” in the
2009 Proxy Statement and is incorporated herein by reference.
 
 
 ITEM 12. SECURITYOWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 The
information required by this item is included under the captions “Security
Ownership of Principal Stockholders and Management” and “Equity Compensation
Plan Information” in the 2009 Proxy Statement and is incorporated herein by
reference.
 
 
 ITEM 13. CERTAIN RELATIONSHIPSAND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 The
information required by this item is included under the captions “Transactions
with Management” and “Election of Directors” in the 2009 Proxy Statement and is
incorporated herein by reference.
  86
 Table of Contents
  
 ITEM 14. PRINCIPALACCOUNTANT FEES AND
SERVICES
 
 The
information required by this item is included under the caption “Ratification of
Appointment of Independent Registered Public Accounting Firm” in the 2009 Proxy
Statement and is incorporated herein by reference.
 
 
 
 PART IV
 
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
 
 (a) The
following documents are filed as part of this Annual Report on Form
10-K:
 
 1. Consolidated Financial
Statements:
 
 Reference
is made to the Index to consolidated financial statements of Informatica
Corporation under Item 8 of Part II hereof.
 
 2. Financial Statement
Schedule:
 
 The
following schedule is included herein:
 
 Valuation
and Qualifying Accounts (Schedule II)
 
 All other
schedules are omitted because they are not applicable or the amounts are
immaterial or the required information is presented in the consolidated
financial statements and notes thereto in Part II, Item 8 above.
 
 Schedule
II—Valuation and Qualifying Accounts
 (In
thousands)
 
 Description
                
                Balance
                  at
      Beginning
                  of Period
                
                
                Charged
      to
                  Costs
      and
                  Expenses
                
                
                Acquisitions
                
                
                Deductions
                
                
                Balance
                  at
      End
                  of PeriodProvision
      for Doubtful Accounts:Year
      ended December 31, 2008
                
                $
                1,299
                
                
                $
                1,268
                
                
                $
                49
                
                
                $
                (58
                )
                
                $
                2,558Year
      ended December 31, 2007
                
                $
                1,666
                
                
                $
                215
                
                
                $
                (468
                )
                
                $
                (114
                )
                
                $
                1,299Year
      ended December 31, 2006
                
                $
                870
                
                
                $
                (32
                )
                
                $
                837
                
                
                $
                (9
                )
                
                $
                1,666
 
 3. Exhibits
 
 See
Exhibit Index immediately following the signature page of this Form
10-K.
  87
 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.
   INFORMATICA
      CORPORATIONFebruary
      25, 2009
                    By:
                    /s/ 
      SOHAIB ABBASISohaib
      AbbasiChief
      Executive Officer, President, andChairman
      of the Board
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
                      Title
                      
                      DateChief
      Executive Officer, President, and Chairman of/s/  SOHAIB
      ABBASI
                      
                      the
      Board of Directors (Principal Executive
      Officer)
                      
                      February
      25, 2009Sohaib
      AbbasiChief
      Financial Officer, Executive Vice President,/s/  EARL
      FRY
                      
                      and
      Secretary(Principal Financial and Accounting
      Officer)
                      
                      February
      25, 2009Earl
      Fry/s/  DAVID
      PIDWELL
                      
                      Director
                      
                      February
      25, 2009David
      Pidwell/s/  MARK
      BERTELSEN
                      
                      Director
                      
                      February
      25, 2009Mark
      Bertelsen/s/  MARK
      GARRETT
                      
                      Director
                      
                      February
      25, 2009Mark
      Garrett/s/  GERALD
      HELD
                      
                      Director
                      
                      February
      25, 2009Gerald
      Held/s/  CHARLES
      ROBEL
                      
                      Director
                      
                      February
      25, 2009Charles
      Robel/s/  BROOKE
      SEAWELL
                      
                      Director
                      
                      February
      25, 2009Brooke
      Seawell/s/  GEOFF
      SQUIRE
                      
                      Director
                      
                      February
      25, 2009Geoff
      Squire/s/  GODFREY
      SULLIVAN
                      
                      Director
                      
                      February
      25, 2009Godfrey
      Sullivan
 
  88
 Table of Contents
  INFORMATICA
CORPORATION
 
 EXHIBITS
TO FORM 10-K ANNUAL REPORT
 For
the year ended December 31, 2008
 
 Exhibit
                  Number
                Document2.1
                Share
      Purchase Agreement for the sale and purchase of the entire issued share
      capital of Similarity Systems Limited dated January 26, 2006 (incorporated
      by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K
      filed on February 28, 2007, Commission File No.
  0-25871).2.2
                Stock
      Purchase Agreement for the sale and purchase of the entire issued share
      capital of Identity Systems, Inc. dated as of April 17, 2008 (incorporated
      by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q
      filed on August 7, 2008, Commission File No. 0-25871).3.1
                Amended
      and Restated Certificate of Incorporation of Informatica Corporation
      (incorporated by reference to Exhibit 3.2 to Amendment No. 1 of the
      Company’s Registration Statement on Form S-1 (Commission File No.
      333-72677) filed on April 8, 1999).3.2
                Certificate
      of Amendment to the Company’s Amended and Restated Certificate of
      Incorporation to increase the aggregate number of shares of the Company’s
      common stock authorized for issuance from 100,000,000 to 200,000,000
      shares (incorporated by reference to Exhibit 3.4 to the Company’s
      Quarterly Report on Form 10-Q filed on August 14, 2000, Commission File
      No. 0-25871).3.3
                Certificate
      of Designation of the Rights, Preferences and Privileges of Series A
      Participating Preferred Stock of Informatica Corporation (incorporated by
      reference to Exhibit 3.5 to the Company’s Registration Statement on Form
      8-A filed on November 6, 2001, Commission File No.
    0-25871).3.4
                Amended
      and Restated Bylaws  of Informatica Corporation (incorporated by
      reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed
      on February 28, 2008, Commission File No. 0-25871).3.5
                Certificate
      of Amendment of Bylaws of Informatica Corporation (incorporated by
      reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
      on January 29, 2008, Commission File No. 0-25871).4.1
                Reference
      is made to Exhibits 3.1 through 3.5.4.2
                Preferred
      Stock Rights Agreement, dated as of October 17, 2001, between Informatica
      Corporation and American Stock Transfer & Trust Company (incorporated
      by reference to Exhibit 4.2 to the Company’s Registration Statement on
      Form 8-A filed on November 6, 2001, Commission File No.
      0-25871).4.3
                Indenture,
      dated March 13, 2006, between the Company and U.S. Bank National
      Association (incorporated by reference to Exhibit 4.1 of the Company’s
      Current Report on Form 8-K filed on March 14, 2006, Commission File No.
      0-25871).4.4
                Form
      of 3% Convertible Senior Notes due 2026 (incorporated by reference to
      Exhibit A to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed
      on March 14, 2006, Commission File No. 0-25871).4.5
                Registration
      Rights Agreement, dated as of March 13, 2006, between the Company and UBS
      Securities LLC (incorporated by reference to Exhibit 4.3 of the Company’s
      Current Report on Form 8-K filed on March 14, 2006, Commission File No.
      0-25871).10.1*
                Company’s
      2000 Employee Stock Incentive Plan, as amended (incorporated by reference
      to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on
      August 8, 2001, Commission File No. 0-25871).10.2*
                Form
      of Indemnification Agreement between the Company and each of its executive
      officers and directors (incorporated by reference to Exhibit 10.6 to
      Amendment No. 1 of the Company’s Registration Statement on Form S-1
      (Commission File No. 333-72677) filed on April 8,
1999).10.3*
                Company’s
      1996 Flexible Stock Incentive Plan, including forms of agreements
      thereunder (incorporated by reference to Exhibit 10.10 to the Company’s
      Registration Statement on Form S-1 (Commission File No. 333-72677) filed
      on February 19, 1999).10.4*
                Company’s
      1999 Stock Incentive Plan, as amended (incorporated by reference to
      Exhibit 10.4 of the Company’s Annual Report on Form 10-K filed on February
      28, 2008 Commission File No.
0-25871).
 
  89
 Table of Contents
  
 Exhibit
                  Number
                Document10.5*
                Company’s
      1999 Employee Stock Purchase Plan, as amended, including forms of
      agreements thereunder (incorporated by reference to Exhibit 10.1 to the
      Company’s Quarterly Report on Form 10-Q filed on May 9, 2006, Commission
      File No. 0-25871).10.6*
                Company’s
      1999 Non-Employee Director Stock Incentive Plan (incorporated by reference
      to Exhibit 10.13 to Amendment No. 1 of the Company’s Registration
      Statement on Form S-1 (Commission File No. 333-72677) filed on April 8,
      1999).10.7
                Lease
      Agreement regarding Building 1 Lease, dated as of February 22, 2000, by
      and between the Company and Pacific Shores Center LLC (incorporated by
      reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on
      March 30, 2000, Commission File No. 0-25871).10.8
                Lease
      Agreement regarding Building 2 Lease, dated as of February 22, 2000, by
      and between the Company and Pacific Shores Center LLC (incorporated by
      reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on
      March 30, 2000, Commission File No. 0-25871).10.9*
                Description
      of management arrangement with Earl E. Fry (incorporated by reference to
      Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q filed on
      November 13, 2002, Commission File No. 0-25871).10.10*
                Amendment
      to 1999 Non-Employee Director Stock Incentive Plan (incorporated by
      reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q
      filed on August 7, 2003, Commission File No. 0-25871).10.11*
                Employment
      Agreement dated July 19, 2004 by and between Company and Sohaib Abbasi
      (incorporated by reference to Exhibit 10.26 of the Company’s Quarterly
      Report on Form 10-Q filed on August 5, 2004, Commission File No.
      0-25871).10.12
                Lease
      Agreement dated as of October 7, 2004, by and between the Company and
      Seaport Plaza Associates, LLC (incorporated by reference to Exhibit 10.28
      of the Company’s Annual Report on Form 10-K filed on March 8, 2005,
      Commission File No. 0-25871).10.13*
                Form
      of Executive Severance Agreement dated November 15, 2004 by and between
      the Company and each of Earl E. Fry and Girish Pancha (incorporated by
      reference to Exhibit 10.29 of the Company’s Annual Report on Form 10-K
      filed on March 8, 2005, Commission File No. 0-25871).10.14*
                Offer
      Letter dated January 4, 2005, by and between the Company and Paul J.
      Hoffman (incorporated by reference to Exhibit 10.31 of the Company’s
      Quarterly Report on Form 10-Q filed on May 9, 2005, Commission File No.
      0-25871).10.15*
                Executive
      Severance Agreement dated January 4, 2005 by and between the Company and
      Paul J. Hoffman (incorporated by reference to Exhibit 10.32 of the
      Company’s Quarterly Report on Form 10-Q filed on May 9, 2005, Commission
      File No. 0-25871).10.16*
                2007
      Cash Bonus Plan (incorporated by reference to Exhibit 10.1 of the
      Company’s Quarterly Report on Form 10-Q filed on May 9, 2007, Commission
      File No. 0-25871).10.17*
                Form
      of Amendment to Executive Severance Agreement dated January 30, 2008 by
      and between the Company and each of Earl E. Fry, Paul J. Hoffman and
      Girish Pancha (incorporated by reference to Exhibit 10.20 of the Company’s
      Annual Report on Form 10-K filed on February 28, 2008 Commission File No.
      0-25871).10.18*
                Description
      of amendments to Executive Severance Agreements by and between the Company
      and each of Earl E. Fry, Girish Pancha and Paul J. Hoffman (incorporated
      by reference Company’s Current Report on Form 8-K filed on February 4,
      2008, Commission File No. 0-25871).10.19*
                Company’s
      Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed on May 29, 2008, Commission
      File No. 0-25871).10.20*
                Amendment
      to Sohaib Abbasi’s Employment Agreement dated December 31, 2008 by and
      between the Company and Sohaib Abbasi.10.21*
                Form
      of Amendment to Executive Severance Agreement dated December 31, 2008 by
      and between the Company and each of Earl E. Fry, Paul J. Hoffman and
      Girish Pancha.
 
  90
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 Exhibit
                  Number
                Document21.1
                List
      of Subsidiaries.23.1
                Consent
      of Independent Registered Public Accounting Firm.31.1
                Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
 
 ____________
 
 
 *
              Indicates
      management contract or compensatory plan or
  arrangement.
 
 
  91