Edgar Filing: INFORMATICA CORP

form10q-093010.htm

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

________________

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-25871

INFORMATICA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	77-0333710
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

100 Cardinal Way

Redwood City, California 94063

(Address of principal executive offices, including zip code)

(650) 385-5000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

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

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

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

As of October 29, 2010, there were approximately 93,843,000 shares of the registrant’s common stock outstanding.

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INFORMATICA CORPORATION

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	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:	3
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009	4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	49
PART II. OTHER INFORMATION	49
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 6. Exhibits	65
Signature	66
Exhibit Index	67

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PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INFORMATICA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2010			December 31, 2009
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	227,316		$	159,197
Short-term investments		198,648			305,283
Accounts receivable, net of allowances of $4,354 and $3,454, respectively		96,706			110,653
Deferred tax assets		24,027			23,673
Prepaid expenses and other current assets		27,176			15,251
Total current assets		573,873			614,057

Property and equipment, net		8,604			7,928
Goodwill		400,757			287,068
Other intangible assets, net		81,427			63,586
Long-term deferred tax assets		22,294			8,259
Other assets		10,139			8,724
Total assets	$	1,097,094		$	989,622
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,757		$	4,274
Accrued liabilities		40,295			37,367
Accrued compensation and related expenses		35,755			41,523
Income taxes payable		—			12,949
Accrued facilities restructuring charges		19,089			19,880
Deferred revenues		153,379			139,629
Convertible senior notes		200,990			—
Total current liabilities		456,265			255,622

Convertible senior notes		—			201,000
Accrued facilities restructuring charges, less current portion		23,917			32,845
Long-term deferred revenues		6,184			4,531
Long-term deferred tax liabilities		318			516
Long-term income taxes payable		12,938			11,995
Total liabilities		499,622			506,509

Commitments and contingencies (Note 12)

Stockholders’ equity:
Common stock		94			90
Additional paid-in capital		498,887			434,262
Accumulated other comprehensive loss		(2,930	)		(968	)
Retained earnings		101,421			49,729
Total stockholders’ equity		597,472			483,113
Total liabilities and stockholders’ equity	$	1,097,094		$	989,622

See accompanying notes to condensed consolidated financial statements.

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INFORMATICA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues:
License	$	69,829		$	49,981		$	194,892		$	142,770
Service		91,421			73,413			257,149			207,026
Total revenues		161,250			123,394			452,041			349,796

Cost of revenues:
License		1,124			648			3,232			2,024
Service		25,304			18,759			73,402			55,605
Amortization of acquired technology		3,445			2,081			9,833			5,497
Total cost of revenues		29,873			21,488			86,467			63,126

Gross profit		131,377			101,906			365,574			286,670

Operating expenses:
Research and development		26,269			19,978			76,648			57,089
Sales and marketing		60,854			47,484			172,326			135,366
General and administrative		11,346			8,845			33,619			30,646
Amortization of intangible assets		2,280			2,754			7,345			7,239
Facilities restructuring charges		553			557			1,545			1,961
Acquisitions and other		(2,323	)		—			1,326			—
Total operating expenses		98,979			79,618			292,809			232,301

Income from operations		32,398			22,288			72,765			54,369

Interest income		1,002			1,295			2,802			4,651
Interest expense		(1,575	)		(1,611	)		(4,731	)		(4,863	)
Other income (expense), net		(229	)		189			1,784			964
Income before provision for income taxes		31,596			22,161			72,620			55,121
Provision for income taxes		9,125			5,969			20,928			15,881
Net income	$	22,471		$	16,192		$	51,692		$	39,240
Basic net income per common share	$	0.24		$	0.18		$	0.56		$	0.45
Diluted net income per common share	$	0.21		$	0.17		$	0.50		$	0.41
Shares used in computing basic net income per common share		92,794			88,283			91,746			87,837
Shares used in computing diluted net income per common share		109,494			103,516			108,283			102,507

See accompanying notes to condensed consolidated financial statements.

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INFORMATICA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
Operating activities:
Net income	$	51,692		$	39,240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,614			4,063
Allowance for (recovery of) doubtful accounts		(27	)		221
Gain on sale of investment in equity interests		(1,824	)		—
Gain on early extinguishment of debt		—			(337	)
Stock compensation		17,017			13,132
Deferred income taxes		2,113			(3,421	)
Tax benefits from stock compensation		15,159			2,631
Excess tax benefits from stock compensation		(14,389	)		(2,812	)
Amortization of intangible assets and acquired technology		17,178			12,736
Non-cash facilities restructuring charges		1,545			1,961
Other non-cash items		(2,146	)		(44	)
Changes in operating assets and liabilities:
Accounts receivable		23,240			7,425
Prepaid expenses and other assets		(2,307	)		(300	)
Accounts payable and other current liabilities		(12,575	)		(20,085	)
Income taxes payable		(13,285	)		5,709
Accrued facilities restructuring charges		(11,143	)		(9,766	)
Deferred revenues		13,060			(2,825	)
Net cash provided by operating activities		87,922			47,528
Investing activities:
Purchases of property and equipment		(4,584	)		(2,037	)
Purchases of investments		(211,977	)		(306,577	)
Purchases of patent		—			(2,420	)
Purchase of investment in equity interest		(1,500	)		—
Sale of investment in equity interest		4,824			—
Maturities of investments		220,390			284,495
Sales of investments		98,566			18,097
Business acquisitions, net of cash acquired		(168,777	)		(86,024	)
Net cash used in investing activities		(63,058	)		(94,466	)
Financing activities:
Net proceeds from issuance of common stock		44,807			28,832
Repurchases and retirement of common stock		(10,651	)		(9,021	)
Withholding taxes related to restricted stock units net share settlement		(1,713	)		—
Payment of issuance costs on credit facility		(1,881	)		—
Repurchases of convertible senior notes		—			(19,200	)
Excess tax benefits from stock compensation		14,389			2,812
Net cash provided by financing activities		44,951			3,423
Effect of foreign exchange rate changes on cash and cash equivalents		(1,696	)		2,098
Net increase (decrease) in cash and cash equivalents		68,119			(41,417	)
Cash and cash equivalents at beginning of period		159,197			179,874
Cash and cash equivalents at end of period	$	227,316		$	138,457

See accompanying notes to condensed consolidated financial statements.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of Informatica Corporation (“Informatica,” or the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all normal and recurring adjustments that are necessary to fairly present the results of the interim periods presented. All of the amounts included in this Quarterly Report on Form 10-Q related to the condensed consolidated financial statements and notes thereto as of and for the three and nine months ended September 30, 2010 and 2009 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2010, or any other future period.

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions. The Company believes that the estimates, judgments, and assumptions upon which it relies are reasonable based on information available at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates and actual results, Informatica’s financial statements would be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also instances that management’s judgment in selecting an available alternative would not produce a materially different result.

These unaudited, condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the SEC. The condensed consolidated balance sheet as of December 31, 2009 has been derived from the audited consolidated financial statements of the Company.

Revenue Recognition

The Company derives its revenues from software license fees, maintenance fees, and professional services, which consist of consulting and education services. The Company recognizes revenue in accordance with Software Revenue Recognition (ASC 985-605-25), the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB No. 104”), Revenue Recognition, and other authoritative accounting literature.

Under ASC 985-605-25, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable.

Persuasive evidence of an arrangement exists. The Company determines that persuasive evidence of an arrangement exists when it has a written contract, signed by both the customer and the Company, and a written purchase authorization.

Delivery has occurred. Software is considered delivered when title to the physical software media passes to the customer or, in the case of electronic delivery, when the customer has been provided with the access codes to download and operate the software.

Fee is fixed or determinable. The Company considers arrangements with extended payment terms not to be fixed or determinable. If the license fee in an arrangement is not fixed or determinable, revenue is recognized as payments become due. Revenue arrangements with resellers and distributors require evidence of sell-through, that is, persuasive evidence that the products have been sold to an identified end user. The Company’s standard agreements do not contain product return rights.

Collection is probable. The Company first assesses the credit-worthiness and collectability at a country level based on the country’s overall economic climate and general business risk. Then, for the customers in the countries that are deemed credit-worthy, it assesses credit and collectability based on their payment history and credit profile. When a customer is not deemed credit-worthy, revenue is recognized at the time that payment is received.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also enters into Original Equipment Manufacturer (“OEM”) arrangements that provide for license fees based on inclusion of technology and/or products in the OEM’s products. These arrangements provide for fixed and irrevocable royalty payments. The Company recognizes royalty payments as revenues based on the royalty report that it receives from the OEMs. In the case of OEMs with fixed royalty payments, revenue is recognized upon execution of the agreement, delivery of the software, and when all other criteria for revenue recognition have been met.

Multiple contracts with a single counterparty executed within close proximity of each other are evaluated to determine if the contracts should be combined and accounted for as a single arrangement. The Company recognizes revenues net of applicable sales taxes, financing charges absorbed by Informatica, and amounts retained by our resellers and distributors, if any.

The Company’s software license arrangements include the following multiple elements: license fees from our core software products and/or product upgrades that are not part of post-contract services, maintenance fees, consulting, and/or education services. The Company uses the residual method to recognize license revenue when the license arrangement includes elements to be delivered at a future date and vendor-specific objective evidence (“VSOE”) of fair value exists to allocate the fee to the undelivered elements of the arrangement. VSOE is based on the price charged when an element is sold separately. If VSOE does not exist for any undelivered software product element of the arrangement, all revenue is deferred until all elements have been delivered or VSOE has been established. If VSOE does not exist for any undelivered services elements of the arrangement, all revenue is recognized ratably over the period that the services are expected to be performed. If the software arrangement includes significant modification or customization of the software, software license revenue is recognized as the consulting services revenue is recognized.

The Company recognizes maintenance revenues, which consist of fees for ongoing support and product updates, ratably over the term of the contract, typically one year.

Consulting revenues are primarily related to implementation services and product configurations performed on a time-and-materials basis and, occasionally, on a fixed fee basis. Education services revenues are generated from classes offered at both Company and customer locations. Revenues from consulting and education services are recognized as the services are performed.

Other revenues, consisting of software subscription and cloud services revenues (which are not material at this time), are generally recognized as the services are performed. Cloud services is a model of software deployment whereby a vendor licenses an application to customers for use as a service on demand.

Deferred revenues include deferred license, maintenance, consulting, education, and other services revenues. For customers not deemed credit-worthy, the Company’s practice is to net unpaid deferred revenue for that customer against the related receivable balance.

Fair Value Measurement of Financial Assets and Liabilities

Fair Value Measurements and Disclosures (ASC 820-10-35) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

●

Level 1. Observable inputs such as quoted prices in active markets;

●

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

●

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Further, ASC 820-10-35 allows the Company to measure the fair value of its financial assets and liabilities based on one or more of the three following valuation techniques:

●

Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

●

Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost); and

●

Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing, and excess earnings models).

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the fair value measurement classification of Informatica as of September 30, 2010 (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	24,160	$	24,160	$	—	$	—
Marketable securities (2)		210,097		—		210,097		—
Total money market funds and marketable securities		234,257		24,160		210,097		—
Investment in equity interest (3)		1,500		—		—		1,500
Foreign currency derivatives (4)		166		—		166		—
Total	$	235,923	$	24,160	$	210,263	$	1,500
Liabilities:
Convertible senior notes	$	385,700	$	385,700	$	—	$	—
Total	$	385,700	$	385,700	$	—	$	—

The following table summarizes the fair value measurement classification of Informatica as of December 31, 2009 (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	10,895	$	10,895	$	—	$	—
Marketable securities (2)		306,283		—		306,283		—
Total money market funds and marketable securities		317,178		10,895		306,283		—
Investment in equity interest (3)		3,000		—		—		3,000
Foreign currency derivatives (4)		1		—		1		—
Total	$	320,179	$	10,895	$	306,284	$	3,000
Liabilities:
Foreign currency derivatives (5)	$	206	$	—	$	206	$	—
Convertible senior notes		257,055		257,055		—		—
Total	$	257,261	$	257,055	$	206	$	—

____________

	(1)	Included in cash and cash equivalents on the condensed consolidated balance sheets.

	(2)	Included in either cash and cash equivalents or short-term investments on the condensed consolidated balance sheets.

	(3)	Included in other non-current assets on the condensed consolidated balance sheets.

	(4)	Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

	(5)	Included in accrued liabilities on the condensed consolidated balance sheets.

The Company has classified its convertible debt as Level 1, according to ASC 820-10-35 since it has quoted prices available in active markets for identical assets. The estimated fair value of the Company’s Convertible Senior Notes as of September 30, 2010, based on the closing price as of September 30, 2010 (the last trading day of the respective period) at the Over-the-Counter market, was $385.7 million.

Informatica uses a market approach for determining the fair value of all its Level 1 and Level 2 marketable securities, financial assets, and Convertible Senior Notes liabilities.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

To value its money market funds, the Company values the funds at $1 stable net asset value, which is the market pricing convention for identical assets that the Company has the ability to access.

Informatica uses the following methodology to determine the fair value of its U.S. government and agency notes and bonds, municipal securities, and corporate notes and bonds aggregating $179 million and $280 million at September 30, 2010 and December 31, 2009, respectively. These securities generally have market prices from multiple sources; therefore, the Company uses a “consensus price” or a weighted average price for each security. Market prices for these securities are received from a variety of industry standard data providers (e.g., Bloomberg), security master files from large financial institutions, and other third-party sources. These multiple prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value.

Informatica uses the following methodology to determine the fair value of its commercial paper and certificates of deposit aggregating $31 million and $26 million at September 30, 2010 and December 31, 2009, respectively. The Company uses mathematical calculations to arrive at fair value for these securities, which generally have short maturities and infrequent secondary market trades. For example, in the absence of any observable transactions, the Company may accrete from purchase price at purchase date to face value at maturity. In the event that a transaction is observed on the same security in the marketplace, the price on that subsequent transaction clearly reflects the market price on that day, and Informatica will adjust the price in the system to the observed transaction price and follow a revised accretion schedule to determine the daily price.

Foreign Currency Derivatives and Hedging Instruments

Informatica uses the income approach to value the derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk. The Company has used mid-market pricing as a practical expedient for fair value measurements. Key inputs for currency derivatives are the spot rates, forward rates, interest rates, and credit derivative markets. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date and is sourced from the Federal Reserve Bulletin. The following values are interpolated from commonly quoted intervals available from Bloomberg: forward points and the London Interbank Offered Rate (LIBOR) used to discount and determine the fair value of assets and liabilities. One-year credit default swap spreads identified per counterparty at month end in Bloomberg are used to discount derivative assets for counterparty non-performance risk, all of which have terms of 13 months or less. The Company discounts derivative liabilities to reflect the Company’s own potential non-performance risk to lenders and has used the spread over LIBOR on its most recent corporate borrowing rate.

The counterparties associated with Informatica’s foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration; therefore, the Company does not consider counterparty concentration and non-performance to be material risks at this time. Both the Company and the counterparties are expected to perform under the contractual terms of the instruments. See Note 5. Other Comprehensive Income, Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

Informatica made a $1.5 million investment in the preferred stock of a privately-held company in February 2010, which was classified as Level 3 for fair value measurement purposes. In determining the fair value of this investment, the Company compares the cash flow of the entity against its own cash flow assumptions at the time that the investment was made.

During the first quarter of 2010, Informatica received $4.8 million for its $3.0 million investment in another privately-held company due to the acquisition of such company by a third party. As a result of this transaction, the Company recorded a gain of $1.8 million in other income for the three months ended March 31, 2010.

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 due to their short-term maturity.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash equivalents, investments in marketable securities, and trade accounts receivable. The Company maintains its cash and cash equivalents and investments with financial institutions with high credit standing.

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 Company evaluates its counterparties associated with the Company’s foreign exchange forward contracts at least quarterly as part of its cash flow hedge program. Since all these counterparties are large credit-worthy commercial banking institutions, the Company does not consider counterparty non-performance a material risk.

Note 2. 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 recognized for the three months ended September 30, 2010 and 2009 were approximately $141,000 and $3,000, respectively. Realized gains recognized for the nine months ended September 30, 2010 and 2009 were approximately $217,000 and $12,000, respectively. The cost of securities sold was determined based on the specific identification method. The Company sold approximately $35 million of its investment in marketable securities in December 2009 in anticipation of its cash requirement for the acquisition of Siperian, Inc.

The following is a summary of the Company’s investments as of September 30, 2010 and December 31, 2009 (in thousands):

	September 30, 2010
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Cash	$	191,707	$	—	$	—		$	191,707
Cash equivalents:
Money market funds		24,160		—		—			24,160
Commercial paper		450		—		—			450
Federal agency notes and bonds		5,999		—		—			5,999
U.S. government notes and bonds		5,000		—		—			5,000
Total cash equivalents		35,609		—		—			35,609
Total cash and cash equivalents		227,316		—		—			227,316
Short-term investments:
Certificates of deposit		14,418		—		—			14,418
Commercial paper		15,962		—		—			15,962
Corporate notes and bonds		83,756		628		(2	)		84,382
Federal agency notes and bonds		71,469		76		(10	)		71,535
U.S. government notes and bonds		10,179		32		—			10,211
Municipal notes and bonds		2,139		1		—			2,140
Total short-term investments		197,923		737		(12	)		198,648
Total cash, cash equivalents, and short-term investments *	$	425,239	$	737	$	(12	)	$	425,964

___________

*	Total estimated fair value above included $234.3 million comprised of cash equivalents and short-term investments at September 30, 2010.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	December 31, 2009
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Cash	$	147,302	$	—	$	—		$	147,302
Cash equivalents:
Money market funds		10,895		—		—			10,895
Municipal notes and bonds		1,000		—		—			1,000
Total cash equivalents		11,895		—		—			11,895
Total cash and cash equivalents		159,197		—		—			159,197
Short-term investments:
Certificates of deposit		5,040		—		—			5,040
Commercial paper		20,953		—		—			20,953
Corporate notes and bonds		63,168		364		(42	)		63,490
Federal agency notes and bonds		143,840		200		(252	)		143,788
U.S. government notes and bonds		24,515		44		(10	)		24,549
Municipal notes and bonds		47,387		88		(12	)		47,463
Total short-term investments		304,903		696		(316	)		305,283
Total cash, cash equivalents, and short-term investments *	$	464,100	$	696	$	(316	)	$	464,480

___________

*	Total estimated fair value above included $317.2 million comprised of cash equivalents and short-term investments at December 31, 2009.

In accordance with ASC 320, Investments – Debt and Equity Securities, Informatica considers the investment category and the length of time that an individual security has been in a continuous unrealized loss position to make a decision that the investment is other-than-temporarily 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 September 30, 2010 (in thousands):

	Less Than 12 Months
	Fair Value		Gross Unrealized Losses
Corporate notes and bonds	$	7,103	$	(2	)
Federal agency notes and bonds		22,835		(10	)
	$	29,938	$	(12	)

Informatica uses a market approach for determining the fair value of all its marketable securities and money market funds, which it has classified as Level 2 and Level 1, respectively. The changes 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 September 30, 2010 (in thousands):

	Cost		Fair Value
Due within one year	$	180,857	$	181,082
Due one year to two years		45,848		46,276
Due after two years		6,827		6,899
Total	$	233,532	$	234,257

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Goodwill and Intangible Assets

The carrying amounts of intangible assets other than goodwill as of September 30, 2010 and December 31, 2009 are as follows (in thousands):

	September 30, 2010							December 31, 2009
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Developed and core technology	$	88,265	$	(31,779	)	$	56,486	$	55,350	$	(22,048	)	$	33,302
Customer relationships		33,530		(19,284	)		14,246		31,426		(14,029	)		17,397
Vendor relationships		7,908		(2,242	)		5,666		7,908		(992	)		6,916
Other:
Trade names		2,494		(1,196	)		1,298		2,494		(835	)		1,659
Covenants not to compete		2,000		(1,517	)		483		2,000		(1,217	)		783
Patents		3,720		(472	)		3,248		3,720		(191	)		3,529
	$	137,917	$	(56,490	)	$	81,427	$	102,898	$	(39,312	)	$	63,586

Amortization expense of intangible assets was $5.7 million and $4.8 million for the three months ended September 30, 2010 and 2009, respectively, and $17.2 million and $12.7 million for the nine months ended September 30, 2010 and 2009, respectively. The Company’s weighted-average amortization period is 6 years for developed and core technology; is 5 years for customer relationships, vendor relationships, trade names, and covenants not to compete; and is 10 years for patents.

As of September 30, 2010, the amortization expense related to identifiable intangible assets in future periods is expected to be as follows (in thousands):

	Acquired Technology		Other Intangible Assets		Total Intangible Assets
Remaining 2010	$	3,452	$	2,193	$	5,645
2011		17,908		7,701		25,609
2012		16,358		5,722		22,080
2013		13,122		4,964		18,086
2014		4,252		2,300		6,552
Thereafter		1,445		2,010		3,455
Total expected amortization expense	$	56,537	$	24,890	$	81,427

The increase of $32.9 million in the gross carrying amount of developed and core technology was primarily due to the intangibles of $23.3 million, including the $1.9 million reclassified from in-process research and development (“IPR&D”) in September 2010 (see a further discussion below), and $9.8 million acquired from Siperian and 29West, respectively. The increase of $2.1 million in the gross carrying amount of customer relationships was primarily due to the intangibles of $1.6 million and $0.6 million acquired from Siperian and 29West, respectively. See Note 15. Acquisitions of Notes to Condensed Consolidated Financial Statements for a further discussion. In addition, $2.3 million of developed and core technology and $3.7 million of customer relationships at September 30, 2010, related to the Identity Systems and PowerData acquisitions, were recorded in European local currencies; therefore, the gross carrying amount and accumulated amortization are subject to periodic translation adjustments.

The Company has acquired certain customer relationships for approximately $13.3 million from Applimation, AddressDoctor, Agent Logic, Siperian, and 29West acquisitions, which consist of software maintenance agreements. These renewable agreements are usually for a duration of one year and renewable afterward. The costs of renewal of these contracts are reflected in cost of service revenues.

In the first quarter of 2010, in conjunction with our acquisition of Siperian, the Company recorded IPR&D of $1.9 million. The IPR&D capitalized costs 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. Technological feasibility was achieved in September 2010. The IPR&D was reclassified to developed technology and is being amortized over its useful life.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The change in the carrying amount of goodwill for the nine months ended September 30, 2010 is as follows (in thousands):

	September 30, 2010
Beginning balance as of December 31, 2009	$	287,068
Goodwill recorded in acquiring Siperian		78,360
Goodwill recorded in acquiring 29West		36,397
Local currency translation adjustments		(1,341	)
Other adjustments		273
Ending balance as of September 30, 2010	$	400,757

The goodwill acquired through the Siperian and 29West acquisitions is nondeductible for tax purposes.

Note 4. Borrowings

Convertible Senior Notes

On March 8, 2006, the Company issued and sold Convertible Senior Notes (“Notes”) with an aggregate principal amount of $230 million due 2026. The Company pays interest at 3.0% per annum to holders of the Notes, payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2006. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, into 50 shares of our common stock prior to the earlier of the maturity date (March 15, 2026) or the redemption or repurchase of the Notes. The initial conversion price represented a premium of 29.28% relative to the last reported sale price of common stock of the Company on the NASDAQ Stock Market (Global Select) of $15.47 on March 7, 2006. The conversion rate is subject to certain adjustments. The conversion rate initially represents a conversion price of $20.00 per share. After March 15, 2011, the Company may from time to time redeem the Notes, in whole or in part, for cash, at a redemption price equal to the full principal amount of the Notes, plus any accrued and unpaid interest. Holders of the Notes may require the Company to repurchase all or a portion of their Notes at a purchase price in cash equal to the full outstanding principal amount of the Notes plus any accrued and unpaid interest on March 15, 2011, March 15, 2016, and March 15, 2021, or upon the occurrence of certain events including a change in control.

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. 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 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 Derivatives and Hedging (ASC 815) and Debt With Conversion and Other Options (ASC 470-20), and concluded that none of these features should be separately accounted for as derivatives.

In connection with the issuance of the Notes, the Company incurred $6.2 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional fees. These costs are classified within Other Assets and are being amortized as a component of interest expense using the effective interest method over the life of the Notes from issuance through March 15, 2026. If the holders require repurchase of some or all of the Notes on the first repurchase date, which is March 15, 2011, the Company would accelerate amortization of the pro rata share of the unamortized balance of the issuance costs on such date. Also, if the Company repurchases some of the outstanding balance of the Notes, it would accelerate amortization of the pro rata share of the unamortized balance of the issuance costs at the time of such repurchases. If the holders require conversion of some or all of the Notes when the conversion requirements are met, the Company would accelerate amortization of the pro rata share of the unamortized balance of the issuance cost to additional paid-in capital on such date. Amortization expenses related to the issuance costs were approximately $68,000 each for both of the three-month periods ended September 30, 2010 and 2009, and $205,000 and $671,000 for the nine-month periods ended September 30, 2010 and 2009, respectively. Interest expenses on the Notes were $1.5 million each for both of the three-month periods ended September 30, 2010 and 2009. Interest expenses on the Notes were $4.5 million and $4.6

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

million for the nine-month periods ended September 30, 2010 and 2009, respectively. Interest payments of $6.0 million and $6.3 million were made in the nine-month periods ended September 30, 2010 and 2009, respectively.

In October 2008, Informatica’s Board of Directors authorized the repurchase of a portion of its outstanding Notes due in 2026 in privately negotiated transactions with the holders of the Notes. In the fourth quarter of 2008, Informatica repurchased $9.0 million of its outstanding Convertible Senior Notes at a discounted cost of $7.8 million. 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. During the three-month period ended March 31, 2009, Informatica repurchased an additional $20.0 million of its outstanding Notes, net of $0.3 million gain due to early retirement of the Notes and $0.5 million due to recapture of prorated deferred expenses, at a discounted cost of $19.2 million.

The following table sets forth the ending balance of the Convertible Senior Notes as of September 30, 2010 and December 31, 2009 resulting from the repurchase activities in the respective periods (in thousands):

Balance at January 1, 2008	$	230,000
Face amount of Notes repurchased during the fourth quarter of 2008		(9,000	)
Balance at December 31, 2008		221,000
Face amount of Notes repurchased during the first quarter of 2009		(20,000	)
Balance at December 31, 2009		201,000
Face amount of Notes converted during the nine months ended September 30, 2010		(10	)
Balance at September 30, 2010	$	200,990

Credit Agreement

On September 29, 2010, the Company entered into a Credit Agreement (the “Credit Agreement”) that matures on September 29, 2014. The Credit Agreement provides for an unsecured revolving credit facility in an amount of up to $220.0 million, with an option for the Company to request to increase the revolving loan commitments by an aggregate amount of up to $30.0 million with new or additional commitments, for a total credit facility of up to $250.0 million. No amounts were outstanding under the Credit Agreement as of September 30, 2010, and a total of $220.0 million remained available for borrowing.

Revolving loans accrue interest at a per annum rate based on either, at our election, (i) the base rate plus a margin ranging from 1.00% to 1.75% depending on the Company’s consolidated leverage ratio, or (ii) LIBOR (based on 1-, 2-, 3-, or 6-month interest periods) plus a margin ranging from 2.00% to 2.75% depending on the Company’s consolidated leverage ratio. The base rate is equal to the highest of (i) JPMorgan Chase Bank, N.A.’s prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) LIBOR for a 1-month interest period plus a margin equal to 1.00%. The Company is also obligated to pay other customary closing fees, arrangement fees, administrative fees, commitment fees, and letter of credit fees. A quarterly commitment fee is applied to the average daily unborrowed amount under the credit facility at a per annum rate ranging from 0.35% to 0.50% depending on the Company’s consolidated leverage ratio. The Company may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions including minimum amounts in the case of commitment reductions and reimbursement of certain costs in the case of prepayments of LIBOR loans.

On September 29, 2010, Siperian LLC and Identity Systems, Inc., each wholly-owned subsidiaries of the Company, entered into a Guaranty pursuant to which such parties guarantied all of the obligations of the Company under the Credit Agreement. Future material domestic subsidiaries of the Company will be required to guaranty the Company’s obligations under the Credit Agreement.

The Credit Agreement contains customary representations and warranties, covenants, and events of default, including the requirement to maintain a maximum consolidated leverage ratio of 2.75 to 1.00 and a minimum consolidated interest coverage ratio of 3.50 to 1.00. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts. The Company was in compliance with all covenants under the Credit Agreement as of September 30, 2010.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5. 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. Other comprehensive income activity consisted of the following items (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010			2009
Net income, as reported	$	22,471	$	16,192	$	51,692		$	39,240
Other comprehensive income:
Unrealized gain (loss) on investments (1)		308		111		210			(72	)
Cumulative translation adjustments (2)		9,315		1,934		(2,336	)		4,765
Derivative gain (loss) (3)		115		17		164			(41	)
Other comprehensive income	$	32,209	$	18,254	$	49,730		$	43,892

_________

(1)	The tax effects on unrealized gain (loss) on investments were $197,000 and $71,000 for the three months ended September 30, 2010 and 2009, respectively, and $134,000 and $(46,000) for the nine months ended September 30, 2010 and 2009, respectively.
(2)	The tax effects on cumulative translation adjustments were $278,000 and $73,000 for the three months ended September 30, 2010 and 2009, respectively, and $(75,000) and $106,000 for the nine months ended September 30, 2010 and 2009, respectively.
(3)	The tax effects on cash flow hedging gain (loss) were $74,000 and $11,000 for the three months ended September 30, 2010 and 2009, respectively, and $105,000 and $(26,000) for the nine months ended September 30, 2010 and 2009, respectively.

The ending balance of accumulated other comprehensive income (loss) as of September 30, 2010 and December 31, 2009, respectively, consisted of the following (in thousands):

	September 30, 2010			December 31, 2009
Net unrealized gain on available-for-sale investments, net of tax effects	$	442		$	232
Cumulative translation adjustments, net of tax effects		(3,445	)		(1,109	)
Derivatives gain (loss), net of tax effects		73			(91	)
Accumulated other comprehensive loss	$	(2,930	)	$	(968	)

Informatica did not have any other-than-temporary gain or loss reflected in accumulated other comprehensive loss as of September 30, 2010 and December 31, 2009.

Informatica determines the basis of the cost of a security sold and the amount reclassified out of other comprehensive income into statement of income based on specific identification.

The following table reflects the change in accumulated investment unrealized gain (loss) included in other comprehensive income for the nine months ended September 30, 2010 and 2009 (in thousands):

	Nine Months Ended September 30,
	2010		2009
Net unrealized investment gain balance, net of tax effects at beginning of the year	$	232	$	879
Investment unrealized gain (loss), net of tax effects		210		(72	)
Net unrealized investment gain balance, net of tax effects at end of the period	$	442	$	807

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table reflects the change in accumulated derivatives gain (loss) included in other comprehensive income for the nine months ended September 30, 2010 and 2009 (in thousands):

	Nine Months Ended September 30,
	2010			2009
Net unrealized derivatives gain (loss) balance, net of tax effects at beginning of the year	$	(91	)	$	51
Reclassified to the statement of income, net of tax effects		(8	)		108
Derivatives gain (loss) for hedging transactions, net of tax effects		172			(149	)
Net unrealized derivatives gain balance, net of tax effects at end of the period	$	73		$	10

See Note 1. Summary of Significant Accounting Policies, Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

Note 6. Derivative Financial Instruments

The functional currency of Informatica’s foreign subsidiaries is their local currencies, except for Informatica Cayman Ltd., which uses euros as its functional currency. The Company translates all assets and liabilities of its foreign subsidiaries into U.S. dollars at current exchange rates as of the applicable balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period, and the gains and losses resulting from the translation of the foreign subsidiaries’ financial statements are reported in accumulated other comprehensive income (loss), as a separate component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in other income or expense, net in the condensed consolidated statements of income.

Informatica’s results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Indian rupee, Israeli shekel, euro, British pound sterling, Canadian dollar, Japanese yen, Brazilian real, and Australian dollar. The Company initiated certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations starting in the fourth quarter of 2008. The purpose of these programs is to reduce the volatility of identified cash flows and expenses caused by movement in certain foreign currency exchange rates, in particular, the Indian rupee and Israeli shekel.Informatica is currently using foreign exchange forward contracts to hedge certain foreign currency anticipated expenses reflected in the intercompany accounts between Informatica U.S. and its two subsidiaries in India and Israel. In December 2009, the Company entered into forward contracts with monthly expiration dates through January 18, 2011 for Indian rupees and Israeli shekels. The Company releases the amounts accumulated in other comprehensive income into earnings in the same period or periods during which the forecasted hedge transaction affects earnings.

Informatica has forecasted the amount of its anticipated foreign currency expenses based on its historical performance and its 2009 and 2010 financial plans. As of September 30, 2010, these foreign exchange contracts, carried at fair value, have a maturity of four months or less. During the nine months ended September 30, 2010, the Company did not enter into any new foreign exchange forward contracts, and the Company closed out approximately two foreign exchange contracts per month when the foreign currency denominated expenses were paid and any gain or loss on the contracts was offset against income.

Informatica and its subsidiaries do not enter into derivative contracts for speculative purposes.

As of September 30, 2010, a derivative gain of $73,000 was included in accumulated other comprehensive income, net of applicable taxes. The Company expects to reclassify this amount to its condensed consolidated statements of income during the remaining term of its foreign exchange forward contracts that expire on January 18, 2011.

Informatica evaluates prospectively as well as retrospectively the effectiveness of its hedge programs using statistical analysis at the inception of the hedge. Informatica uses the spot price method and excludes the time value of derivative instruments for determination of hedge effectiveness.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The effects of derivative instruments designated as cash flow hedges on the accumulated other comprehensive income and condensed consolidated statements of income for the three and nine months ended September 30, 2010 and 2009, respectively, are as follows (in thousands):

	Three Months Ended September 30, 2010							Three Months Ended September 30, 2009
	Gain Recognized		(Loss)Reclassified			Gain Recognized		Gain (Loss) Recognized			Gain (Loss) Reclassified			Gain Recognized
	(1)		(2)			(3)		(1)			(2)			(3)
Indian rupee	$	96	$	(26	)	$	84	$	(4	)	$	5		$	32
Israeli shekel		58		(10	)		—		35			(2	)		3
Total	$	154	$	(36	)	$	84	$	31		$	3		$	35

	Nine Months Ended September 30, 2010							Nine Months Ended September 30, 2009
	Gain Recognized		(Loss) Reclassified			Gain Recognized		(Loss) Recognized			(Loss) Reclassified			Gain Recognized
	(1)		(2)			(3)		(1)			(2)			(3)
Indian rupee	$	245	$	(3	)	$	60	$	(109	)	$	(61	)	$	210
Israeli shekel		20		(2	)		1		(133	)		(115	)		17
Total	$	265	$	(5	)	$	61	$	(242	)	$	(176	)	$	227

_________

	(1)	Amount of gain and loss recognized in accumulated other comprehensive income (effective portion).

	(2)	Amount of gain and loss reclassified from accumulated other comprehensive income into the operating expenses of condensed consolidated statements of income (effective portion).

(3)

Amount of gain and loss recognized in income on derivatives for the amount excluded from effectiveness testing located in operating expenses of condensed consolidated statements of income. The Company did not have any ineffective portion of derivatives recorded in the condensed consolidated statements of income.

See Note 1. Summary of Significant Accounting Policies, Note 5. Other Comprehensive Income, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

The following tables reflect the fair value amounts for derivatives designated and not designated as hedging instruments at September 30, 2010 and December 31, 2009 (in thousands):

Derivatives Designated as Hedging Instruments under ASC 815:	Derivative Assets at September 30, 2010 (1)		Derivative Liabilities at September 30, 2010 (2)
Indian rupee	$	89	$	—
Israeli shekel		25		—
Total	$	114	$	—

Derivatives Designated as Hedging Instruments under ASC 815:	Derivative Assets at December 31, 2009 (1)		Derivative Liabilities at December 31, 2009 (2)
Indian rupee	$	—	$	206
Israeli shekel		1		—
Total	$	1	$	206

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives Not Designated as Hedging Instruments under ASC 815:	Derivative Assets at September 30, 2010 (1)		Derivative Liabilities at September 30, 2010 (2)
Indian rupee	$	42	$	—
Israeli shekel		10		—
Total	$	52	$	—

There were no derivative assets or liabilities not designated as hedging instruments at December 31, 2009.

_________

	(1)	Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
	(2)	Included in accrued liabilities on the condensed consolidated balance sheets.

The gain recognized in other income, net for non-designated foreign currency forward contracts for the three and nine months ended September 30, 2010 and 2009 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Indian rupee	$	52	$	19	$	92	$	73
Israeli shekel		25		14		14		116
Total	$	77	$	33	$	106	$	189

Note 7. Stock Repurchases and Retirement of Convertible Senior Notes

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 of up to $30 million of its common stock until April 2007. In April 2007, Informatica’s Board of Directors authorized a stock repurchase program for up to an additional $50 million of its common stock. In April 2008, Informatica’s Board of Directors authorized the repurchase of an additional $75 million of its common stock under the stock repurchase program. In October 2008, Informatica’s Board of Directors approved expanding the repurchase program to include the repurchase of a portion of its outstanding Convertible Senior Notes (“Notes”) due in 2026 in privately negotiated transactions with holders of the Notes. In January 2010, Informatica’s Board of Directors authorized the repurchase of an additional $50 million of its outstanding common stock and Notes under the stock repurchase program. This repurchase program does not have an expiration date.

From April 2007 to September 30, 2010, the Company repurchased approximately (1) 6,933,000 shares of its common stock pursuant to the repurchase program described above at a cost of $108 million and (2) $29 million of its outstanding Notes at a cost of $27 million. The Company has approximately $39.7 million remaining from its current authorization to repurchase additional shares of its common stock or redeem a portion of its Notes under this program as of September 30, 2010.

The repurchased shares are retired and reclassified as authorized and unissued shares of common stock. The Company may continue to repurchase its outstanding common stock and Notes from time to time, as determined by management under programs approved by the Board of Directors.

The Company did not have any repurchases of its common stock pursuant to the stock repurchase program during the three months ended March 31, 2010. During the second quarter of 2010, the Company repurchased approximately 435,000 shares of its common stock at a cost of $10.7 million. During the third quarter ended September 30, 2010, the Company did not repurchase any shares of its common stock. There were no repurchases of the Notes during the nine months ended September 30, 2010.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Stock Compensation

Informatica grants restricted stock units (“RSUs”) and stock options under its 2009 Employee Stock Incentive Plan. Informatica uses the Black-Scholes-Merton option pricing model to determine the fair value of option awards granted. The Company is using a blend of average historical and market-based implied volatilities for calculating the expected volatilities for employee stock options and market-based implied volatilities for its Employee Stock Purchase Plan (“ESPP”). The expected term of employee stock options granted is derived from historical exercise patterns of the options while the expected term of ESPP is based on the contractual terms. The risk-free interest rate for the expected term of the option and ESPP is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock Compensation (ASC 718) requires the Company to estimate forfeiture rates at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical forfeitures to estimate its future forfeiture rates. The Company increased its forfeiture rate for stock options from 8% in 2009 to 10% in 2010, which did not materially impact its stock compensation. The forfeiture rate for RSUs remained at 10% for both 2009 and 2010.

The Company amortizes its stock compensation using a straight-line method over the vesting term of the awards.

The Company estimated the fair value of its stock compensation awards related to stock options granted using the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Option Grants:
Expected volatility		37	%		37	%		34 – 38	%		37 – 48	%
Weighted-average volatility		37	%		37	%		35	%		44	%
Expected dividends		—			—			—			—
Expected term of options (in years)		3.7			3.6			3.7			3.6
Risk-free interest rate		1.3	%		2.2	%		1.9	%		1.7	%
ESPP:*
Expected volatility		36	%		34	%		34	%		34 – 51	%
Weighted-average volatility		36	%		34	%		34	%		44	%
Expected dividends		—			—			—			—
Expected term of ESPP (in years)		0.5			0.5			0.5			0.5
Risk-free interest rate — ESPP		0.2	%		0.3	%		0.2	%		0.3	%

____________

*	ESPP purchases are made on the last day of January and July of each year.

The allocations of stock compensation for the three and nine months ended September 30, 2010 and 2009 are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Cost of service revenues	$	641		$	510		$	1,956		$	1,624
Research and development		1,925			1,177			5,285			3,468
Sales and marketing		1,817			1,452			5,383			4,397
General and administrative		1,573			1,230			4,393			3,643
Total stock compensation	$	5,956		$	4,369		$	17,017		$	13,132
Tax benefit of stock compensation		(1,263	)		(940	)		(3,558	)		(2,787	)
Total stock compensation, net of tax benefit	$	4,693		$	3,429		$	13,459		$	10,345

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. 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 three-year lease term (as of September 30, 2010) 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 $1.4 million for the remainder of 2010, $5.7 million in 2011, $4.2 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 September 30, 2010, the Company will recognize approximately $3.5 million of accretion as a restructuring charge over the remaining three-year term of the lease as follows: $0.5 million for the remainder of 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 areas.

In December 2004, the Company recorded additional restructuring charges 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, an executed sublease for the Company’s excess facilities in Palo Alto, California during the third quarter of 2004, and an adjustment to management’s estimate of occupancy of available vacant facilities. In 2005, the Company subleased the available space at the Pacific Shores Center under the 2001 Restructuring Plan through May 2013, which was subsequently subleased until July 2013 under a December 2007 sublease agreement.

A summary of the activity of the accrued restructuring charges for the nine months ended September 30, 2010 is as follows (in thousands):

	Accrued Restructuring Charges at December 31,		Restructuring					Net Cash			Non-Cash			Accrued Restructuring Charges at September 30,
	2009		Charges		Adjustments			Payment			Reclass			2010
2004 Restructuring Plan
Excess lease facilities	$	47,496	$	1,749	$	(204	)	$	(9,941	)	$	(2,346	)	$	36,754
2001 Restructuring Plan
Excess lease facilities		5,229		—		—			(1,202	)		2,225			6,252
	$	52,725	$	1,749	$	(204	)	$	(11,143	)	$	(121	)	$	43,006

For the nine months ended September 30, 2010, the Company recorded $1.7 million of restructuring charges from accretion charges related to the 2004 Restructuring Plan. Actual future cash requirements may differ from the restructuring liability balances as of September 30, 2010 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $1.3 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 with suitable sublessees when the Company’s existing sublessees vacate as well as the market rates at the time of entering into new sublease agreements.

Note 10. Income Taxes

The Company’s effective tax rates were 29% for both of the three-month and nine-month periods ended September 30, 2010, and 27% and 29% for the three-month and nine-month periods ended September 30, 2009, respectively. The effective tax rates differed from the federal statutory rate of 35% primarily due to benefits of certain earnings from operations in lower-tax jurisdictions throughout the world, the indirect benefit recorded as a result of the audit settlement, a prior year tax return true-up, and the benefit from the reduction of an acquisition liability that is not subject to tax offset by expense related to non-deductible stock compensation, nondeductible transaction costs, and the accrual of reserves related to uncertain tax positions. The Company has not provided for residual U.S. taxes in any of these lower-tax jurisdictions since it intends to indefinitely reinvest these earnings offshore.

In assessing the need for any additional valuation allowance in the quarter ended September 30, 2010, the Company considered all available evidence both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. As a result of this analysis, consistent with prior quarters, it was considered more likely than not that the Company’s deferred tax assets that are not stock compensation related would be realizable. As a result, the remaining valuation allowance is primarily related to deferred tax assets that were created through the benefit from stock option deductions on a “with” and “without” basis and recorded on the balance sheet with a corresponding valuation allowance prior to the Company’s adoption of Stock Compensation (ASC 718). Pursuant to Stock Compensation (ASC 718-740-25-10), the benefit of these deferred tax assets will be recorded in the stockholders’ equity when they are utilized on an income tax return to reduce the Company’s taxes payable, and as such, they will not impact the Company’s effective tax rate.

The unrecognized tax benefits related to Income Taxes (ASC 740), if recognized, would impact the income tax provision by $12.7 million and $9.3 million as of September 30, 2010 and 2009, respectively. The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of September 30, 2010 and 2009 were approximately $1.7 million and $2.2 million, respectively. As of September 30, 2010 the gross uncertain tax position is approximately $14.3 million.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. On June 30, 2010, Informatica filed a document with the Internal Revenue Service to effectively settle all remaining matters related to its examination for fiscal years 2005 and 2006. The estimated amount of the assessment was accrued for previously. Final adjustments will also need to be settled with all states in which Informatica filed during 2005 and 2006. The Company is in the process of filing the appropriate documents and any associated taxes at various due dates over the next several months.

The Company has been informed by certain state and foreign taxing authorities that it has been 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 and foreign audits has commenced and is at various stages of completion as of September 30, 2010.

Although the outcome of any tax audit is uncertain, the Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of such examinations. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and believes its current reserve to be reasonable. If tax payments ultimately prove to be unnecessary, the reversal of these tax liabilities would result in tax benefits in the period that the Company determined such liabilities were no longer necessary. However, if an ultimate tax assessment exceeds its estimate of tax liabilities, an additional tax provision might be required.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Net Income per Common 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 and common shares potentially issuable under the terms of the Convertible Senior Notes, to the weighted-average number of common shares outstanding during the period, if dilutive. Potentially dilutive securities have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive.

The calculation of basic and diluted net income per common share is as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net income	$	22,471	$	16,192	$	51,692	$	39,240
Effect of convertible senior notes, net of related tax effects		961		961		2,884		3,061
Net income adjusted	$	23,432	$	17,153	$	54,576	$	42,301
Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)		92,794		88,283		91,746		87,837
Effect of dilutive common stock equivalents:
Dilutive effect of unvested restricted stock units		422		232		374		105
Dilutive effect of employee stock options		6,228		4,951		6,113		4,328
Dilutive effect of convertible senior notes		10,050		10,050		10,050		10,237
Shares used in computing diluted net income per common share		109,494		103,516		108,283		102,507
Basic net income per common share	$	0.24	$	0.18	$	0.56	$	0.45
Diluted net income per common share	$	0.21	$	0.17	$	0.50	$	0.41

The diluted net income per common share calculation 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 amortization of issuance cost, net of income taxes, to net income if the securities are converted. The Company determined that for the three and nine months ended September 30, 2010 and 2009, the Convertible Senior Notes had a dilutive effect on diluted net income per share, and as such, it had an add-back of $1.0 million and $2.9 million for the three and nine months ended September 30, 2010, respectively, and $1.0 million and $3.1 million for the same periods in 2009 in interest and issuance cost amortization, net of income taxes, to net income for the diluted net income per share calculation.

In calculating its diluted net income per common share, Informatica excluded 0.9 and 1.4 million of its options for the three months ended September 30, 2010 and 2009, respectively, and 1.7 million and 4.4 million of its options for the nine months ended September 30, 2010 and 2009, respectively since the inclusion of these options would have been anti-dilutive.

Note 12. 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 was from December 15, 2004 to December 31, 2007 with a three-year option to renew to December 31, 2010 at fair market value. In May 2007, the Company exercised its renewal option to extend the office lease term to December 31, 2010. In May 2009, the Company executed the lease amendment to further extend the lease term for another three years to December 31, 2013. The future minimum contractual lease payments are $0.8 million for the remainder of 2010 and $3.4 million, $3.5 million, and $3.6 million for the years ending December 31, 2011, 2012, and 2013, respectively.

The Company entered into two lease agreements in February 2000 for two office buildings at the Pacific Shores Center in Redwood City, California, which was used as 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 the Company to maintain certificates of deposits as collateral until the leases expire in 2013. As of June 2008, however, the Company was no longer required to maintain certificates of deposits for this letter of credit related to its former corporate headquarters leases at the Pacific Shores Center in Redwood City, California.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company leases certain office facilities under various non-cancelable operating leases, including those described above, which expire at various dates through 2017 and require the Company to pay operating costs, including property taxes, insurance, and maintenance. Operating lease payments in the table below include approximately $49.0 million for operating lease commitments for facilities that are included in restructuring charges. See Note 9. Facilities Restructuring Charges above for a further discussion.

Future minimum lease payments as of September 30, 2010 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):

	Operating Leases		Sublease Income		Net
Remaining 2010	$	6,920	$	663	$	6,257
2011		27,485		2,797		24,688
2012		27,798		2,030		25,768
2013		19,086		1,016		18,070
2014		3,333		—		3,333
Thereafter		4,109		—		4,109
	$	88,731	$	6,506	$	82,225

Of these future minimum lease payments, the Company has accrued $43.0 million in the facilities restructuring accrual at September 30, 2010. This accrual includes the minimum lease payments of $49.0 million and an estimate for operating expenses of $13.3 million and sublease commencement costs associated with excess facilities and is net of estimated sublease income of $15.8 million and a present value discount of $3.5 million recorded in accordance with Accounting for Costs Associated with Exit or Disposal Activities (ASC 420).

Warranties

The Company generally provides a warranty for its software products and services to its customers for a period of three to six months and accounts for its warranties. 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 September 30, 2010 and December 31, 2009. 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 September 30, 2010. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As permitted under Delaware law, the Company has agreements whereby the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request, in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that reduces the Company’s exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

The Company accrues for loss contingencies when available information indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated, in accordance with Contingencies (ASC 450).

Derivative Financial Instruments

Informatica uses foreign exchange forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such cash flow exposures result from portions of its forecasted expenditures denominated in currencies other than the U.S. dollar, primarily the Indian rupee and Israeli shekel. As of September 30, 2010, these foreign exchange forward contracts, carried at fair value, have a maturity of four months or less. Informatica enters into these foreign exchange forward contracts to hedge forecasted operating expenditures in the normal course of business, and accordingly, they are not speculative in nature.

As of September 30, 2010, the notional amounts of the outstanding foreign exchange forward contracts that the Company committed to purchase in the fourth quarter of 2009 for the Indian rupees and Israeli shekels were $4.2 million and $1.2 million, respectively.

See Note 1. Summary of Significant Accounting Policies, Note 5. Other Comprehensive Income, Note 6. Derivative Financial Instruments of Notes to Condensed Consolidated Financial Statements, and the disclosure under Part I, Item 3 of this Report for a further discussion.

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 (together with the Company, 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. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

All parties in all lawsuits have reached a settlement, which, as noted above, will not require the Company to contribute cash unless the pro rata amount paid by the insurers in the settlement exceeds the amount of the insurance coverage. The Court gave preliminary approval to the settlement on June 10, 2009 and gave final approval on October 6, 2009. Several objectors have filed notices of appeals of the final judgment dismissing the cases upon the settlement.

On July 15, 2002, the Company filed a patent infringement lawsuit against Acta Technology, Inc., now known as Business Objects Data Integration, Inc. (“BODI”), and the final judgment in the Company’s favor includes a permanent injunction preventing BODI from shipping the infringing technology until the patent expires in 2019.

On August 21, 2007, JuxtaComm Technologies (“JuxtaComm”) filed a complaint in the Eastern District of Texas against the Company and 20 other defendants, including Microsoft, IBM, and Business Objects, for infringement of JuxtaComm’s U.S. patent 6,195,662 (“System for Transforming and Exchanging Data Between Distributed Heterogeneous Computer Systems”). In its complaint, JuxtaComm sought unspecified monetary damages and permanent injunctive relief. This matter was settled in August 2009. The Company received a release and settlement of any past damages related to potential infringement of the subject patent and a non-exclusive, non-transferable, fully paid license for the subject patent.

On November 24, 2008, Data Retrieval Technologies LLC (“Data Retrieval”) filed a complaint in the Western District of Washington against the Company and Sybase, Inc., alleging patent infringement of U.S. Patent Nos. 6,026,392 (the “‛392 patent”) and 6,631,382 (the “‛382 patent”). On December 5, 2008, the Company and Sybase filed an action in the Northern District of California against Data Retrieval, Timeline, Inc. (“Timeline”) and TMLN Royalty, LLC (“TMLN Royalty”), asserting declaratory relief claims for non-infringement and invalidity of the ‛392 and ‛382 patents. On January 15, 2009, we filed an answer to the complaint in the Western District of Washington and asserted declaratory relief counterclaims for non-infringement and invalidity of the ‛392 and ‛382 patents. In addition, on January 15, 2009, Informatica and Sybase filed a voluntary dismissal without prejudice of Timeline and TMLN Royalty in the Northern District of California action. On April 1, 2009, in the Northern District of California action, Data Retrieval filed an answer and asserted counterclaims for patent infringement of the ‛382 and ‛392 patents. On April 8, 2009, the Court in the Western District of Washington transferred that action to the Northern District of California. On April 21, 2009, the Company filed its reply to Data Retrieval’s counterclaims in the Northern District of California. Following Data Retrieval’s service of its Disclosure of Asserted Claims and Preliminary Infringement Contentions on June 8, 2009, on June 18, 2009, the Company filed a motion for partial summary judgment of the following claims and issues: (1) non-infringement of the ‛382 patent; (2) non-infringement of the unasserted claims (claims 2-25) of the ‛392 patent; and (3) no infringement of either patent-in-suit by the Informatica PowerCenter product. On September 11, 2009, the Court granted the Company’s motion for partial summary judgment on all of the claims and issues requested by the Company. On June 23, 2010, the Court granted in part and denied in part an additional motion for summary judgment filed by the Company. The Court ruled that the Company was entitled to summary judgment on the issue of inducement to infringe and contributory infringement, but denied the motion as to Data Retrieval’s claim of direct infringement. The case is currently in the discovery phase, and no trial date has been set. The Company intends to vigorously defend itself.

On January 12, 2010, Data Retrieval initiated another action (the “Data Retrieval II Action”) for patent infringement against the Company in the United States District Court for the Northern District of California, Case No. C 09-05360-VRW, asserting two patents, U.S. Patent Nos. 5,802,511 (the “‛511 patent”) and 6,625,617 B2 (the “‛617 patent”) (collectively, the “Data Retrieval II patents-in-suit”). Sybase, Inc. is also named as a defendant in the Data Retrieval II Action. The Data Retrieval II Action is related to the Data Retrieval I Actions and has been assigned to the same Judge. In the Data Retrieval II Action, Data Retrieval alleges that a “suite of data warehousing systems and/or material components thereof,” including PowerCenter, Data Explorer and PowerExchange, infringe the Data Retrieval II patents-in-suit. Data Retrieval accuses the Company of infringing at least claims 1, 2 and 14 of the ‛511 patent and at least claims 25 and 26 of the ‛617 patent. On February 25, 2010, the Company filed its answer to the complaint in the Data Retrieval II Action and asserted declaratory relief counterclaims for non-infringement and invalidity. The case is currently in the discovery phase, and no trial date has been set.

The Company is also a party to various legal proceedings and claims arising from the normal course of its business activities.

Litigation is subject to inherent uncertainties. Given such uncertainties, the Company has from time to time discussed settlement in the context of litigation and has accrued, based on Contingencies (ASC 450), for estimates of settlement. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operation for the period in which the unfavorable outcome occurred, and potentially in future periods.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Significant Customer Information and Segment Reporting

Segment Reporting (ASC 280) establishes standards for the manner in which public companies report information about operating segments in their annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining the information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance.

The Company is organized and operates in a single segment: the design, development, marketing, and sales of software solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

The following table presents geographic information (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Revenues:
North America	$	116,559	$	77,754	$	308,628	$	227,179
Europe		30,487		33,810		101,871		86,649
Other		14,204		11,830		41,542		35,968
	$	161,250	$	123,394	$	452,041	$	349,796

	September 30, 2010		December 31, 2009
Long-lived assets (excluding assets not allocated):
North America	$	84,441	$	65,384
Europe		4,044		4,610
Other		1,546		1,520
	$	90,031	$	71,514

No customer accounted for more than 10% of the Company’s total revenues in the three and nine months ended September 30, 2010 and 2009. At September 30, 2010 and 2009, no single customer accounted for more than 10% of the accounts receivable balance.

Note 14. Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU No. 2009-13”) or Emerging Issues Task Force (“EITF No. 08-01”) which requires a vendor to allocate revenue to each unit of accounting in many arrangements involving multiple deliverables based on the relative selling price of each deliverable. It also changes the level of evidence of the standalone selling price required to separate deliverables by allowing a vendor to make its best estimate of the standalone selling price of deliverables when more objective evidence of the selling price is not available. The best estimate of the selling price can be used when VSOE or third-party evidence (“TPE”) of fair value is not available. Cloud services is a model of software deployment whereby a vendor licenses an application to customers for use as a service on demand and is within the scope of this ASU. Informatica is currently using these revenue models on a limited basis and the amount of revenue generated from these models is not material at this time. This ASU is effective for the arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Informatica will adopt this ASU as of January 1, 2011, and the Company expects that its adoption will not materially impact the consolidated financial statements.

In January 2010, the FASB issued an Accounting Standard Update (“ASU No. 2010-02”) which provides for decreases in ownership of a subsidiary – a scope clarification. The objective of this update is to address implementation issues related to the changes in ownership provisions in the Consolidation – Overall Subtopic (“Subtopic 810-10”) of the FASB Accounting Standards Codification, originally issued as FASB Statement No. 160 Noncontrolling Interests in Consolidated Financial Statements. This update is effective beginning in the first interim period or annual reporting period ending on or after December 15, 2009. The

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Company adopted this ASU in the first quarter of 2010, and its adoption did not have an impact on the consolidated financial statements.

In January 2010, the FASB issued an Accounting Standard Update (“ASU No. 2010-06”) which provides amendments to Subtopic 820-1. This update requires new disclosures regarding transfers in and out of Level 1 and 2 and activities in Level 3 for fair value measurements. This ASU also provides clarification to existing disclosures regarding fair value measurement disclosures for each class of assets and liabilities and valuation techniques. This ASU and guidance for new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures related to activities in Level 3. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company has adopted this ASU in its entirety as required in the first quarter of 2010.

In February 2010, the FASB issued an Accounting Standard Update (“ASU No. 2010-09”) which provides amendments to Subtopic 855-10. This update eliminates the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The Company adopted this ASU as required in the first quarter of 2010.

Note 15. Acquisitions

Siperian, Inc.

On January 28, 2010, the Company acquired Siperian, Inc. (“Siperian”), a privately-held company incorporated in Delaware. Siperian provides an integrated model-driven master data management (“MDM”) platform that adapts to most business requirements. The Company acquired Siperian in a cash merger transaction valued at approximately $130 million. As a result of this acquisition, the Company also assumed certain facility leases and certain liabilities and commitments. Approximately $18.3 million of the consideration otherwise payable to former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan was placed into an escrow fund and held as partial security for the indemnification obligations of the former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan set forth in the merger agreement and for purposes of the working capital adjustment stated in the contract. The escrow fund will remain in place until July 28, 2011, although 50% of the escrow funds may be distributed to former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan on January 28, 2011.

The following table presents the purchase price allocation of $102.9 million and the acquiree’s transaction related costs and debt settlement of $27.1 million, which were paid by the Company on January 28, 2010 or shortly thereafter. This amount consists of investment banker, legal and accounting fees, certain employee related compensation, and debt settlement as of the date of this acquisition (in thousands):

Goodwill	$	78,360
Developed and core technology		21,340
Customer relationships		1,630
In-process research and development		1,920
Assumed liabilities, net of assets		(333	)
Total purchase price allocation		102,917
Acquiree’s transaction related costs and debt settlement		27,083
Total	$	130,000

Informatica has finalized plans to terminate certain employees and vacate certain facilities of Siperian. The cost associated with such exit activities, which are reflected in Acquisitions and other in the Statement of Income, is as follows (in thousands):

Termination of certain employees	$	326
Vacating certain facilities of Siperian		1,121
Total	$	1,447

Informatica does not expect to incur any additional expenses related to these exit activities in the future.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the unaudited pro forma results of Informatica (including Siperian) for the three-month and nine-month periods ended September 30, 2010 and 2009 (in thousands, except per share amounts). The unaudited pro forma financial information combines the results of operations of Informatica and Siperian as though the companies had been combined as of the beginning of each of the fiscal periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2009. The unaudited pro forma results presented include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments to interest expense and interest income, adjustment of deferred revenues to its estimated fair values, and tax adjustments and tax benefits related to the acquisition.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Pro forma total revenues	$	161,250	$	131,273	$	452,960	$	369,214
Pro forma net income	$	22,471	$	14,868	$	45,466	$	29,540
Pro forma net income per share—basic	$	0.24	$	0.17	$	0.50	$	0.34
Pro forma net income per share—diluted	$	0.21	$	0.15	$	0.45	$	0.32
Pro forma weighted-average basic shares		92,794		88,283		91,746		87,837
Pro forma weighted-average diluted shares		109,494		103,516		108,283		102,507

The Company has determined that for the three-month and nine-month periods ended September 30, 2010 and 2009, the Convertible Senior Notes had a dilutive effect on diluted net income per share, and as such, the Company had an add-back of $1.0 million and $2.9 million for the three and nine months ended September 30, 2010, respectively, and $1.0 million and $3.1 million for the same periods in 2009 in interest and issuance cost amortization, net of income taxes, to net income for the diluted net income per share calculation.

29West Inc.

On March 22, 2010, the Company acquired 29West Inc. (“29West”), a privately-held company incorporated in Illinois. 29West develops high-speed messaging software, known as Ultra Messaging. This software is used for distribution of data, streaming market data, and proprietary trading and market making, and is sold to banks, hedge funds, exchanges, and software application vendors worldwide. The Company acquired 29West in a stock purchase transaction valued at approximately $50 million. As a result of this acquisition, the Company also assumed certain facility leases and certain liabilities and commitments. Approximately $7 million of the consideration otherwise payable to former 29West stockholders and vested option holders was placed into an escrow fund and held as partial security for the indemnification obligations of the former 29West stockholders and vested option holders. The escrow fund will remain in place until September 22, 2011.

The following table presents the purchase price allocation of $47.0 million and the acquiree’s transaction related costs of $3.0 million which were paid on March 22, 2010 or shortly thereafter. This amount consists of investment banker, legal and accounting fees, and certain employee related compensation as of the date of this acquisition (in thousands):

Goodwill	$	36,397
Developed and core technology		9,750
Customer relationships		590
Assumed assets, net of liabilities		262
Total purchase price allocation		46,999
Acquiree’s transaction related costs and debt settlement		3,001
Total	$	50,000

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the federal securities laws, particularly statements referencing our expectations relating to license revenues, service revenues, international revenues, deferred revenues, cost of license revenues, cost of service revenues, operating expenses, amortization of acquired technology, stock compensation, interest income or expense, and provision for income taxes; deferred taxes; international expansion; the growth of our customer base and customer demand for our products and services, continuing impacts from our 2004 and 2001 Restructuring Plans; the sufficiency of our cash balances and cash flows for the next 12 months; our stock repurchase programs; investment and potential investments of cash or stock to acquire or invest in complementary businesses, products, or technologies; the impact of recent changes in accounting standards; the acquisitions of Siperian, and 29West; market risk sensitive instruments, contractual obligations; and assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “intends,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative thereof, or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth under Part II, Item 1A Risk Factors. All forward-looking statements and reasons why results may differ included in this Report are made as of the date 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 condensed 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, education, and other 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 receive service revenues from maintenance contracts, consulting services, and education services that we perform for customers that license our products either directly or indirectly. We also receive a small amount of revenues from our customers and partners under subscription-based licenses for a variety of cloud and address validation offerings. Most of our international sales have been in Europe, and revenues outside of Europe and North America have comprised 10% or less of total consolidated revenues during the past three years.

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

Despite the uncertainty in the macroeconomic environment in the United States and many foreign economies, we were able to grow our total revenues in the third quarter of 2010 by 31% to $161.3 million from $123.4 million in the third quarter of 2009. License revenues grew by 40% to $69.8 million in the third quarter of 2010 from $50.0 million in the comparable period a year ago. In the nine-month period ended September 30, 2010, our total revenues grew by 29% to $452.0 million from $349.8 million in the comparable period a year ago, and license revenues grew by 37% to $194.9 million from $142.8 million on a year-over-year basis, with revenue growth primarily in North America. Our growth in license revenues reflects the continued market acceptance of our products for broader data integration projects and, to a lesser degree, revenues from recent acquisitions. Services revenues increased by 25% in the third quarter of 2010 to $91.4 million from $73.4 million in the third quarter of 2009 due to 19% growth in maintenance revenues and a 42% increase in consulting, education, and other services revenues. Services revenues increased by 24% in the nine-month period ended September 30, 2010 to $257.1 million from $207.0 million in the same period in 2009 due to 18% growth in maintenance revenues and a 43% increase in consulting, education, and other services revenues compared to the same period in 2009.

On January 28, 2010, we acquired Siperian, a privately-held company incorporated in Delaware. Siperian provides an integrated model-driven master data management (“MDM”) platform that adapts to many business requirements. We acquired Siperian in a cash merger transaction valued at approximately $130 million. As a result of this acquisition, we also assumed certain facility leases and

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certain liabilities and commitments. Approximately $18.3 million of the consideration otherwise payable to former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan was placed into an escrow fund and held as partial security for the indemnification obligations of the former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan as set forth in the merger agreement and for purposes of the working capital adjustment set forth therein. The escrow fund will remain in place until July 28, 2011, although 50% of the escrow funds may be distributed to former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan on January 28, 2011.

On March 22, 2010, we acquired 29West, a privately-held company incorporated in Illinois. 29West develops high-speed messaging software, known as Ultra Messaging. This software is used for the distribution of data, streaming market data and proprietary trading and market making, and is sold to banks, hedge funds, exchanges, and software application vendors worldwide. We acquired 29West in a stock purchase transaction valued at approximately $50 million. As a result of this acquisition, we also assumed certain facility leases and certain liabilities and commitments. Approximately $7 million of the consideration otherwise payable to former 29West stockholders and vested option holders was placed into an escrow fund and held as partial security for the indemnification obligations of the former 29West stockholders and vested option holders. The escrow fund will remain in place until September 22, 2011.

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

●

Macroeconomic Conditions: The United States and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions. Although some these economies have shown signs of improvement, macroeconomic recovery remains uneven.

●

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

●

New Product Introductions: To address the expanding data integration and data integrity needs of our customers and prospective customers, we continue to introduce new products and technology enhancements on a regular basis. In August 2009, we delivered the PowerCenter Cloud Edition to enable our customers to procure PowerCenter functionality from Amazon Web Services by the hour. In November 2009, we released Informatica Cloud 9. In December 2009, we delivered a version upgrade to our entire data integration platform by delivering the generally available version of Informatica 9. In February 2010, we launched Informatica Data Cloud Store, the industry’s first Infrastructure-as-a-Service offering to archive database and enterprise application data to the cloud in a cost-effective and secure manner. In June 2010, we delivered the Informatica Cloud Summer 2010 Release. New product introductions and/or enhancements have inherent risks including, but not limited to, product availability, product quality and interoperability, and customer adoption or the delay in customer purchases. Given these risks and the recent introduction of these products, we cannot predict their impact on our overall sales and revenues.

●

Quarterly and Seasonal Fluctuations: Historically, purchasing patterns in the software industry have followed quarterly and seasonal trends and are likely to do so in the future. Specifically, it is normal for us to recognize a substantial portion of our new license orders in the last month of each quarter and sometimes in the last few weeks or days of each quarter, though such fluctuations are mitigated somewhat by recognition of backlog orders. In recent years, the fourth quarter has had the highest level of license revenues and order backlog, and we generally have weaker demand for our software products and services in the first and third quarters of the year. The first and second quarters of 2010 followed these seasonal trends. However, license revenues in the third quarter were essentially flat with the second quarter. The current macroeconomic conditions make our historical seasonal trends more difficult to predict.

To address these potential risks, we have focused on a number of key initiatives, including certain cost discipline measures, the strengthening of our partnerships, and increasing our distribution capacity, the targeting of our sales force and distribution channel on

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new products, and strategic acquisitions of complementary businesses, products, and technologies. If we are unable to execute these key initiatives successfully, we may not be able to sustain the growth rates we have experienced recently. As a result of improvements in our business prospects and with the expectation of uneven yet continued progress towards macroeconomic recovery, we have increased our hiring and, as noted above, recently completed two acquisitions.

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. For example, in July 2010, we entered into a partnership with Dun & Bradstreet with respect to Informatica Cloud. Additionally, in May 2010, we announced a partnership with EMC to resell our Information Lifecycle Management (“ILM”) and Master Data Management (“MDM”) products and services. In addition, we are partners with Hewlett-Packard, Intel, Microsoft, Oracle, salesforce.com, and SAP, among others. 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 II, 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 enterprise data integration, data quality, master data management, B2B data exchange, application information lifecycle management, complex event processing, ultra messaging, and cloud data integration to our customers’ enterprise architects and chief information officers. We also have opened the Informatica Marketplace, which allows buyers and sellers to share and leverage data integration solutions. Additionally, we have expanded our international sales presence in recent years by opening new offices, increasing headcount, and through acquisitions. As a result of this international expansion, as well as the increase in our direct sales headcount in the United States, our sales and marketing expenses have increased. In the long term, we expect these investments to result in increased revenues and productivity and ultimately higher profitability, although we experienced a tougher than expected selling environment in certain regions in 2009. If we experience an increase in sales personnel turnover, do not achieve expected increases in our sales pipeline, experience a decline in our sales pipeline conversion ratio, or do not achieve increases in sales productivity and efficiencies from our new sales personnel as they gain more experience, then it is unlikely that we will achieve our expected increases in revenue, sales productivity, or profitability from our international operations. We have experienced some increases in revenues and sales productivity in the United States in the past few years and experienced a continued increase in sales productivity in the United States in the first nine months of 2010. While we have not yet achieved the same level of sales productivity internationally as we have in the United States, we did experience a slight increase in international sales productivity in the first nine months of 2010.

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 condensed consolidated financial statements, we make assumptions, judgments, and estimates that can have a significant impact on amounts reported in our condensed 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, stock compensation, and allowance for doubtful accounts have the greatest potential impact on our condensed 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 1. Summary of Significant Accounting Policies and Note 14. Recent Accounting Pronouncements of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

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Revenue Recognition

We recognize revenue in accordance with generally accepted accounting principles (“GAAP”) in the United States that have been prescribed for the software industry. The accounting rules related to revenue recognition are complex and are affected by interpretations of such rules. These rules and their interpretations are often subject to change. Consequently, the revenue recognition process requires management to make significant judgments – for example, to determine if collectability is probable.

We derive revenues from software license fees, maintenance fees (which entitle the customer to receive product support and unspecified software updates), professional services, consisting of consulting and education services, and other revenues, consisting of software subscription and cloud services revenues. We follow the appropriate revenue recognition rules for each type of revenues. The basis for recognizing software license revenue is determined by Software Revenue Recognition (ASC 985-605-25), and the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition, which is discussed in the subsection Revenue Recognition in Note 1. Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report. Substantially all of our software licenses are perpetual licenses under which the customer acquires the perpetual right to use the software as provided and subject to the conditions of the license agreement. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. In applying these criteria to revenue transactions, we must exercise judgment and use estimates to determine the amount of software, maintenance, and professional services revenue to be recognized at each period.

We assess whether fees are fixed or determinable prior to recognizing revenue. We must make interpretations of our customer contracts and exercise judgments in determining if the fees associated with a license arrangement are fixed or determinable. We consider factors including extended payment terms, financing arrangements, the category of customer (end-user customer or reseller), rights of return or refund, and our history of enforcing the terms and conditions of customer contracts. If the fee due from a customer is not fixed or determinable due to extended payment terms, revenue is recognized when payment becomes due or upon cash receipt, whichever is earlier. We require evidence of sell-through from resellers and distributors for order acceptance. We then recognize revenue from resellers and distributors upon shipment if all other revenue recognition criteria are met, which in substantially all cases is upon collection. Further, we make judgments in determining the collectability of the amounts due from our customers that could possibly impact the timing of revenue recognition. We assess credit worthiness and collectability, and when a customer is not deemed credit-worthy, revenue is recognized when payment is received.

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

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

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

Other revenues, consisting of software subscription and cloud services revenues (which are not material at this time but are growing), are generally recognized as the services are performed.

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

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

Facilities Restructuring Charges

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

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

If we determine that there is a change in the estimated sublease rates or in the expected time it will take us to sublease our vacant space, we may incur additional restructuring charges in the future and our cash position could be adversely affected. See Note 9. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report and “Risk Factors – 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” in Part II, Item 1A. Future adjustments to the charges could result from a change in the time period that the buildings will be vacant, expected sublease rates, expected sublease terms, and the expected time it will take to sublease.

Accounting for Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with Income Taxes (ASC 740). Under this method, income tax expenses or benefits are recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. We account for any income tax contingencies in accordance with ASC 740. The measurement of current and deferred tax assets and liabilities is based on provisions of currently enacted tax laws. The effects of any future changes in tax laws or rates have not been taken into account with the exception of revaluing deferred taxes for California relating to 2011 and thereafter.

As part of the process of preparing consolidated financial statements, we estimate our income taxes and tax contingencies in each of the tax jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in net deferred tax assets and liabilities. We must then assess the likelihood that the deferred tax assets will be realizable, and to the extent we believe that the asset is not likely to be realized, we must establish a valuation allowance. In assessing the need for any additional valuation allowance, we considered all the evidence available to us, both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies.

Accounting for Impairment of Goodwill

We assess goodwill for impairment in accordance with Intangibles – Goodwill and Other (ASC 350), which requires that goodwill be tested for impairment at the “reporting unit level” (“Reporting Unit”) at least annually and more frequently upon the occurrence of certain events, as defined by ASC 350. We have determined that we have one reporting segment and also one Reporting Unit within that segment. We test goodwill for impairment in our annual impairment test on October 31 of each year, using the two-step process required by ASC 350. First, we review the carrying amount of the Reporting Unit compared to the “fair value” of the Reporting Unit

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based on quoted market prices of our common stock. Second, if such comparison reflects potential impairment, we would then perform the discounted cash flow analyses. These analyses are based on cash flow assumptions that are consistent with the plans and estimates that we use to manage our business. An excess of the carrying value to fair value might indicate a potential goodwill impairment. Finally, if we determine that goodwill might have been impaired, then we would compare the “implied fair value” of the goodwill, as defined by ASC 350, to its carrying amount to determine the amount of impairment loss, if any.

We determined in our annual impairment tests on October 31, 2009, 2008, and 2007 that the fair value of our Reporting Unit exceeded the carrying amount and, accordingly, determined that goodwill had not been impaired and is not at risk of failing. We have made assumptions and estimates about future values and remaining useful lives which are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends as well as internal factors such as changes in our business strategy and our internal forecasts. Although we believe that the assumptions and estimates that we have made are sound and reasonable, the result of our financial operations would have been materially different if we hade made different assumptions and estimates.

Acquisitions

In accordance with Business Combinations (ASC 805), we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as to in-process research and development (“IPR&D”) based on their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, support obligations assumed, estimated restructuring liabilities, and pre-acquisition contingencies.

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

	●	future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents;

	●	expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed;

	●	the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and

	●	discount rates.

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

Accounting for business combinations has been impacted by ASC 805. Under the new accounting pronouncement, we expense transaction costs and restructuring expenses related to the acquisition as incurred. In contrast, we treated transaction costs and restructuring expenses as part of the cost of the acquired business previously, thus effectively capitalizing those amounts within the basis of the acquired assets. Further, pursuant to ASC 805, we identify pre-acquisition contingencies and determine their respective fair values as of the end of the purchase price allocation period. We will adjust the amounts recorded as pre-acquisition contingencies in our operating results in the period in which the adjustment is determined. Furthermore, any adjustment applicable to acquisition related tax contingencies estimates will be reflected in our operating results in the period in which the adjustment is determined.

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Moreover, we identify the in-process research and development costs and determine their respective fair values and reflect them as part of the purchase price allocation. In-process research and development costs, under the new guidance, meet the definition of asset, and we classify them as an indefinite lived intangible asset until the asset is put to use or deemed to be impaired.

Stock Compensation

We account for stock compensation related to share-based transactions in accordance with the provisions of Stock Compensation (ASC 718). Accordingly, stock compensation is estimated at the grant date based on the fair value of the awards and is recognized as an expense ratably on a straight line basis over its requisite service period. It requires a certain amount of judgment to select the appropriate fair value model and calculate the fair value of share-based awards, including estimating stock price volatility and expected life. Further, estimates of forfeiture rates could shift the stock compensation from one period to the next.

We have estimated the expected volatility as an input into the Black-Scholes-Merton valuation formula when assessing the fair value of options granted. Our current estimate of volatility was based upon a blend of average historical and market-based implied volatilities of our stock price that we have used consistently since the adoption of SFAS No. 123(R) Share-Based Payments (ASC 718) in 2006. Our volatility rates were 37% and 35% for the three and nine months ended September 30, 2010, compared to 37% and 44% for the same periods in 2009. The decrease in rates for the nine months ended September 30, 2010 compared to nine months ended September 30, 2009 was due to a decline in the implied volatility component of our volatility rates. To the extent that the volatility rate in our stock price decreases in the future, our estimates of the fair value of options granted will decrease accordingly. For example, a 10% lower volatility rate for the options granted in the third quarter of 2010 would have decreased the fair value of the options granted by approximately $0.5 million.

We derived our expected life of the options that we granted in 2009 from the historical option exercises, post-vesting cancellations, and estimates concerning future exercises and cancellations for vested and unvested options that remain outstanding. We slightly increased our expected life estimate from 3.6 years in 2009 to 3.7 years in 2010.

In addition, we apply an expected forfeiture rate in determining the amount of stock compensation. We estimate our forfeiture rate for stock options based on actual historical forfeited options. We increased our forfeiture rate, for the nine months ended September 30, 2010, to 10% from 8% in the same period of 2009. The impact on our stock compensation in the first three quarters of 2010 due to the change in our forfeiture rate was negligible.

We have granted Restricted Stock Units (“RSUs”) to our executive officers, certain employees, and directors in 2009 and 2010. We have recorded the stock compensation for RSUs net of the 10% forfeiture estimate. We estimate our forfeiture rate for RSUs based on actual historical forfeited grants. We believe that the estimates that we have used for the calculation of the variables to arrive at stock compensation are accurate. We will, however, continue to monitor the historical performance of these variables and will modify our methodology and assumptions in the future as needed.

Allowances for Doubtful Accounts

We establish allowances for doubtful accounts based on our review of credit profiles of our customers, contractual terms and conditions, current economic trends and historical payment, and return and discount experiences. We reassess the allowances for doubtful accounts each quarter. However, unexpected events or significant future changes in trends could result in a material impact to our future statements of income and of cash flows. Our allowance for doubtful accounts at September 30, 2010 and December 31, 2009 was $4.4 million and $3.5 million, respectively.

Recent Accounting Pronouncements

For recent accounting pronouncements see Note 14. Recent Accounting Pronouncements of Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this Report.

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Results of Operations

The following table presents certain financial data for the three and nine months ended September 30, 2010 and 2009 as a percentage of total revenues:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues:
License		43	%		41	%		43	%		41	%
Service		57			59			57			59
Total revenues		100			100			100			100
Cost of revenues:
License		1			1			1			1
Service		16			15			16			16
Amortization of acquired technology		2			1			2			1
Total cost of revenues		19			17			19			18
Gross profit		81			83			81			82
Operating expenses:
Research and development		16			16			17			16
Sales and marketing		38			39			38			39
General and administrative		7			7			8			8
Amortization of intangible assets		1			2			2			2
Facilities restructuring charges		—			1			—			1
Acquisitions and other		(1	)		—			—			—
Total operating expenses		61			65			65			66
Income from operations		20			18			16			16
Interest income		1			1			1			1
Interest expense		(1	)		(1	)		(1	)		(1	)
Other income (expense), net		—			—			—			—
Income before provision for income taxes		20			18			16			16
Provision for income taxes		6			5			5			5
Net income		14	%		13	%		11	%		11	%

Revenues

Our total revenues increased to $161.3 million for the three months ended September 30, 2010 from $123.4 million for the three months ended September 30, 2009, representing an increase of $37.9 million (or 31%). Our total revenues increased to $452.0 million for the nine months ended September 30, 2010 from $349.8 million for the nine months ended September 30, 2009, representing an increase of $102.2 million (or 29%). In each case, the increase was due to an increase in the number of license transactions and the average sales price of those license transactions and growth in our customer installed base, as well as revenues derived from our strategic acquisitions of complementary businesses and products during the last 12 months.

The following table sets forth, for the periods indicated, our revenues (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
License revenues	$	69,829	$	49,981		40	%	$	194,892	$	142,770		37	%
Services revenues:
Maintenance		65,671		55,221		19	%		184,781		156,249		18	%
Consulting, education, and other		25,750		18,192		42	%		72,368		50,777		43	%
Total services revenues		91,421		73,413		25	%		257,149		207,026		24	%
	$	161,250	$	123,394		31	%	$	452,041	$	349,796		29	%

License Revenues

Our license revenues increased to $69.8 million (or 43% of total revenues) and $194.9 million (or 43% of total revenues) for the three and nine months ended September 30, 2010, respectively, from $50.0 million (or 41% of total revenues) and $142.8 million (or

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41% of total revenues) for the three and nine months ended September 30, 2009, respectively. The increase in license revenues of $19.8 million (or 40%) for the three months ended September 30, 2010, and $52.1 million (or 37%) for the nine months ended September 30, 2010, compared to the same periods in 2009, was primarily due to an increase in both the volume of license transactions and the average size of those transactions. Our growth in license revenues reflects the continued market acceptance of our products beyond data warehousing and the adoption of our newer technologies.

The number of booked transactions greater than $1.0 million increased to 11 in the third quarter of 2010, compared to 5 in the third quarter of 2009. The number of booked transactions greater than $1.0 million increased to 32 in the nine-month period ended September 30, 2010 from 16 in the comparative nine-month period in 2009. We added 68 and 269 new customers in the third quarter and first nine months of 2010, respectively, compared to 64 and 405 in the same periods of 2009. Of these, 89 and 223 customers were added through acquisitions in the first nine months of 2010 and 2009, respectively. We had license transactions with 286 and 863 existing customers in the third quarter and first nine months of 2010, respectively, compared to 237 and 664 for the same periods in 2009.

We have two types of upgrades: (1) upgrades that are not part of the post-contract services for which we charge customers an additional fee, and (2) upgrades that are part of the post-contract services that we provide to our customers at no additional charge, when and if available. The average transaction amount for orders greater than $100,000 in the third quarter of 2010, including upgrades for which we charge customers an additional fee, increased to $393,000 from $365,000 in the third quarter of 2009. The average transaction amount for orders greater than $100,000 in the nine-month period ended September 30, 2010, including upgrades for which we charge customers an additional fee, increased to $385,000 from $336,000 in the corresponding nine-month period in 2009.

Services Revenues

Maintenance Revenues

Maintenance revenues increased to $65.7 million (or 41% of total revenues) for the three months ended September 30, 2010, compared to $55.2 million (or 45% of total revenues) for the three months ended September 30, 2009. Maintenance revenues increased to $184.8 million (or 41% of total revenues) for the nine months ended September 30, 2010, compared to $156.2 million (or 45% of total revenues) for the nine months ended September 30, 2009. The increase of $10.5 million (or 19%) and $28.6 million (or 18%) in the three and nine months ended September 30, 2010, respectively compared to the same periods in 2009, was primarily due to an increase in the size of our customer base.

For the fourth quarter of 2010, based on our growing installed customer base, we expect maintenance revenues to increase from the comparable 2009 levels.

Consulting, Education, and Other Services Revenues

Consulting, education, and other services revenues increased to $25.8 million (or 16% of total revenues) for the three months ended September 30, 2010, compared to $18.2 million (or 15% of total revenues) for the three months ended September 30, 2009. The $7.6 million (or 42%) increase in the three months ended September 30, 2010, compared to the same period in 2009, was primarily due to increases in consulting and education services and subscription revenues in North America. Consulting, education, and other services revenues increased to $72.4 million (or 16% of total revenues) for the nine months ended September 30, 2010, compared to $50.8 million (or 15% of total revenues) for the nine months ended September 30, 2009. The $21.6 million (or 43%) increase in the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to an increase in consulting revenues in North America as a result of increased demand, increased utilization rates, and consulting services for new product families acquired by the Company during the last twelve months.

For the fourth quarter of 2010, we expect our revenues from consulting, education, and other services to increase from the comparable 2009 periods due to increased demand for our consulting and subscriptions.

International Revenues

Our international revenues were $44.7 million (or 28% of total revenues) and $45.6 million (or 37% of total revenues) for the three months ended September 30, 2010 and 2009, respectively. The $0.9 million (or 2%) decrease for the three months ended September 30, 2010, compared to the same period in 2009, was primarily due to a decrease in international license revenues in Europe,

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particularly the public sector, partially offset by growth in international maintenance revenues in Latin America and Asia. International revenues were $143.4 million (or 32% of total revenues) for the nine months ended September 30, 2010, compared to $122.6 million (or 35% of total revenues) for the nine months ended September 30, 2009. The $20.8 million (or 17%) increase for the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to an increase in international license revenues in Europe and Asia, as well as growth in international maintenance and service revenues as a result of a larger and growing installed customer base.

For the fourth quarter of 2010, we expect the amount of international revenues as a percentage of total revenues to be relatively consistent with 2009.

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

Our potential future revenues include (1) backlog consisting primarily of product license orders that have not shipped as of the end of a given quarter, (2) product license orders received from certain distributors, resellers, and OEMs that are not included in deferred revenues, where revenue is recognized based on cash receipt (collectively (1) and (2) above are referred to as “aggregate backlog”), and (3) deferred revenues. Our deferred revenues consist primarily of the following: (1) maintenance revenues that we recognize over the term of the contract, typically one year, (2) license product orders that have shipped but where the terms of the license agreement contain acceptance language or other terms that require the license revenues to 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. Aggregate backlog and deferred revenues were approximately $181.9 million at September 30, 2010, compared to $144.8 million at September 30, 2009, and $171.8 million at December 31, 2009. Aggregate backlog and deferred revenues as of any particular date are not necessarily indicative of future results.

Cost of Revenues

The following table sets forth, for the periods indicated, our cost of revenues (in thousands, except percentages):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			Change			2010			2009			Change
Cost of license revenues	$	1,124		$	648			73	%	$	3,232		$	2,024			60	%
Cost of services revenues		25,304			18,759			35	%		73,402			55,605			32	%
Amortization of acquired technology		3,445			2,081			66	%		9,833			5,497			79	%
Total cost of revenues	$	29,873		$	21,488			39	%	$	86,467		$	63,126			37	%
Cost of license revenues, as a percentage of license revenues		2	%		1	%		1	%		2	%		1	%		1	%
Cost of services revenues, as a percentage of services revenues		28	%		26	%		2	%		29	%		27	%		2	%

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 increased to $1.1 million (or 2% of license revenues) for the three months ended September 30, 2010 compared to $0.6 million (or 1% of license revenues) in the same period of 2009. Cost of license revenues increased to $3.2 million (or 2% of license revenues) for the nine months ended September 30, 2010 from $2.0 million (or 1% of license revenues) for the nine months ended September 30, 2009. The increase of $0.5 million (or 73%) and $1.2 million (or 60%) in cost of license revenues for the three and nine months ended September 30, 2010, compared to the same periods in 2009, was primarily due to an increase in royalty-bearing product sales and increased costs to localize international documentation.

For the fourth quarter of 2010, we expect the cost of license revenues as a percentage of license revenues to be relatively consistent with the first three quarters of 2010.

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Cost of Services Revenues

Our cost of services revenues is a combination of costs of maintenance, consulting, education, and other services revenues. Our cost of maintenance revenues consists primarily of costs associated with customer service personnel expenses and royalty fees for maintenance related to third-party software providers. Cost of consulting revenues consists primarily of personnel costs and expenses incurred in providing consulting services at customers’ facilities. Cost of education services revenues consists primarily of the costs of providing education classes and materials at our headquarters, sales and training offices, and customer locations. Cost of other services revenues consists primarily of fees paid to postal authorities, other third parties for content, and hosting costs for our subscription services. Cost of services revenues increased to $25.3 million (or 28% of services revenues) for the three months ended September 30, 2010 from $18.8 million (or 26% of services revenues) for the three months ended September 30, 2009. The $6.5 million (or 35%) increase was primarily due to increased personnel-related costs due to higher services and support headcount, partially driven by recent acquisitions, and higher subcontractor fees. Cost of services revenues increased to $73.4 million (or 29% of services revenues) for the nine months ended September 30, 2010 from $55.6 million (or 27% of services revenues) for the nine months ended September 30, 2009. The increase of $17.8 million (or 32%) for the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to increases in personnel related and outside service costs driven by increased demand for services.

The increases in cost of services revenues as a percentage of services revenues from 26% and 27% for the three and nine months ended September 30, 2009, respectively, to 28% and 29% for the three and nine months ended September 30, 2010, respectively are due to higher revenues from consulting services that generally have a lower margin.

For the fourth quarter of 2010, we expect our cost of services revenues, in absolute dollars, to increase from the 2009 levels, mainly due to headcount increases associated with increased services revenues. We expect, however, the cost of services revenues in the fourth quarter of 2010 as a percentage of services revenues to remain relatively consistent with the first three quarters of 2010.

Amortization of Acquired Technology

The following table sets forth, for the periods indicated, our amortization of acquired technology (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
Amortization of acquired technology	$	3,445	$	2,081		66	%	$	9,833	$	5,497		79	%

Amortization of acquired technology is the amortization of technologies acquired through business acquisitions and technology licenses. Amortization of acquired technology increased to $3.4 million for the three months ended September 30, 2010, compared to $2.1 million for the three months ended September 30, 2009. Amortization of acquired technology increased to $9.8 million for the nine months ended September 30, 2010, compared to $5.5 million for the nine months ended September 30, 2009. The increases of $1.3 million (or 66%) and $4.3 million (or 79%) for the three and nine months ended September 30, 2010, respectively compared to the same periods in the prior year, were the result of amortization of certain technologies that we acquired in connection with recent acquisitions. See Note 15. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

For the fourth quarter of 2010, we expect amortization of other acquired technology to be approximately $3.5 million before the effect of any future acquisitions subsequent to September 30, 2010.

Operating Expenses

Research and Development

The following table sets forth, for the periods indicated, our research and development expenses (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
Research and development	$	26,269	$	19,978		31	%	$	76,648	$	57,089		34	%

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, the enhancement and localization of existing

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products, quality assurance, and development of documentation for our products. Research and development expenses increased to $26.3 million (or 16% of total revenues) and $76.6 million (or 17% of total revenues) for the three and nine months ended September 30, 2010, respectively, up from $20.0 million (or 16% of total revenues) and $57.1 million (or 16% of total revenues) for the same periods in 2009. All software and development costs have been expensed in the period incurred because the costs incurred subsequent to the establishment of technological feasibility have not been significant.

The $6.3 million (or 31%) increase for the three months ended September 30, 2010 compared to the same period in 2009 was due to a $5.6 million increase in personnel-related costs, as a result of a headcount increase. There was also a $0.7 million increase in overhead related costs driven by the headcount increase. The $19.5 million (or 34%) increase for the nine months ended September 30, 2010 compared to the same period in 2009, was primarily due to a $16.9 million increase in personnel-related costs and a $2.3 million increase in overhead-related costs driven by the headcount increase. The research and development expenses as percentage of total revenues increased slightly by 1% for the nine months ended September 30, 2010, compared to the same period in 2009, mainly due to headcount increases.

For the fourth quarter of 2010, we expect research and development expenses as a percentage of total revenues to decrease slightly from the first three quarters of 2010.

Sales and Marketing

The following table sets forth, for the periods indicated, our sales and marketing expenses (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
Sales and marketing	$	60,854	$	47,484		28	%	$	172,326	$	135,366		27	%

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 increased to $60.9 million (or 38% of total revenues) for the three months ended September 30, 2010 from $47.5 million (or 39% of total revenues) for the three months ended September 30, 2009. The $13.4 million (or 28%) increase for the three months ended September 30, 2010, compared to the same period in 2009, was primarily due to an $11.2 million increase in personnel-related costs. Sales and marketing expenses increased to $172.3 million (or 38% of total revenues) for the nine months ended September 30, 2010 from $135.4 million (or 39% of total revenues) for the nine months ended September 30, 2009. The increase of $36.9 million (or 27%) for the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to a $31.5 million increase in personnel-related costs and a $3.3 million increase in overhead-related costs driven by headcount increases. The increases in personnel-related costs for both of the three and nine months ended September 30, 2010 compared to the same periods in 2009 were due to an increase in headcount, higher sales commissions, and higher stock compensation. Headcount increased from 611 in June 2009 to 688 in June 2010 and from 618 in September 2009 to 714 in September 2010. The sales and marketing expenses as a percentage of total revenues declined by 1% for the nine months ended September 30, 2010 and were flat for the three months ended September 30, 2010, compared to the same periods in 2009, mainly due to the benefits of scale, as our revenues have increased proportionately more than our sales and marketing expenses.

For the fourth quarter of 2010, we expect sales and marketing expenses as a percentage of total revenues to be relatively consistent with or slightly decrease from the first three quarters of 2010.

General and Administrative

The following table sets forth, for the periods indicated, our general and administrative expenses (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
General and administrative	$	11,346	$	8,845		28	%	$	33,619	$	30,646		10	%

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 increased to $11.3 million (or 7% of total revenues) for the three months ended September 30, 2010, compared to $8.8 million (or 7% of total revenues) for the three months ended September 30, 2009. The $2.5 million (or 28%)

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increase in general and administrative expenses was primarily due to a $1.5 million increase in personnel-related expenses as a result of a headcount increase and a $0.9 million increase in outside services. General and administrative expenses increased to $33.6 million (or 8% of total revenues) for the nine months ended September 30, 2010, compared to $30.6 million (or 8% of total revenues) for the nine months ended September 30, 2009. The increase of $3.0 million (or 10%) for the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to a $4.4 million increase in personnel-related expenses and stock compensation partially offset by a $1.7 million decrease in outside services.

For the fourth quarter of 2010, we expect general and administrative expenses as a percentage of total revenues to be relatively consistent with or slightly decrease from the first three quarters of 2010.

Amortization of Intangible Assets

The following table sets forth, for the periods indicated, our amortization of intangible assets (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
Amortization of intangible assets	$	2,280	$	2,754		(17	)%	$	7,345	$	7,239		1	%

Amortization of intangible assets is the amortization of customer relationships and vendor relationships acquired, trade names, and covenants not to compete through prior business acquisitions. Amortization of intangible assets decreased to $2.3 million for the three months ended September 30, 2010 from $2.8 million for the three months ended September 30, 2009, and slightly increased to $7.3 million for the nine months ended September 30, 2010 from $7.2 million in the same period of 2009. The decrease of $0.5 million (or 17%) for the three months ended September 30, 2010, compared to the same period in 2009, was due to certain intangibles from a prior acquisition that were fully amortized in the first quarter of 2010.

For the fourth quarter of 2010, we expect amortization of the remaining intangible assets to be approximately $2.2 million before the impact of any amortization for any possible intangible assets acquired as part of any potential future acquisitions subsequent to September 30, 2010.

Facilities Restructuring Charges

The following table sets forth, for the periods indicated, our facilities restructuring and excess facilities charges (in thousands, except percentages):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2010		2009		Change			2010		2009		Change
Facilities restructuring charges	$	553	$	557		(1	)%	$	1,545	$	1,961		(21	)%

For the three and nine months ended September 30, 2010, we recorded $0.5 million and $1.7 million of restructuring charges from accretion charges related to the 2004 Restructuring Plan, respectively. Comparatively, for the three and nine months ended September 30, 2009, we recorded $0.6 million and $2.0 million of restructuring charges from accretion charges related to the 2004 Restructuring Plan, respectively.

As of September 30, 2010, $43.0 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 related to the consolidation of excess facilities under the 2004 Restructuring Plan amounted to $3.5 million and $3.1 million for the three months ended September 30, 2010 and 2009, respectively, and $9.9 million and $8.6 million for the nine months ended September 30, 2010 and 2009, respectively. Actual future cash requirements may differ from the restructuring liability balances as of September 30, 2010 if there are changes to the time period that facilities are expected to be vacant or if the actual sublease income differs from our current estimates.

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2001 Restructuring Plan

Net cash payments related to the consolidation of excess facilities under the 2001 Restructuring Plan amounted to $0.4 million for both of the three-month periods ended September 30, 2010 and 2009, and $1.2 million and $1.1 million for the nine months ended September 30, 2010 and 2009, respectively. Actual future cash requirements may differ from the restructuring liability balances as of September 30, 2010 if there are changes to the time period that facilities are vacant or the actual sublease income is different from current estimates.

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 9. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Acquisitions and Other

The following table sets forth, for the periods indicated, our acquisitions and other (in thousands, except percentages):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2010			2009		Change			2010		2009		Change
Acquisitions and other	$	(2,323	)	$	—		*	%	$	1,326	$	—		*	%

____________

*	Percentage is not meaningful

Acquisitions and other expenses of $1.3 million for the nine months ended September 30, 2010 consist of a $2.3 million reduction in fair value of an acquisition liability in the third quarter of 2010 offset by $3.6 million in charges in the first quarter of 2010. The $3.6 million charges include $2.2 million for legal and bankers’ fees, $1.1 million for write-off of certain lease liabilities and leasehold improvements, and $0.3 million for severance payments to certain employees.

Interest Income, Expense, and Other

The following table sets forth, for the periods indicated, our interest income, expense and other (in thousands, except percentages):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			Change			2010			2009			Change
Interest income	$	1,002		$	1,295			(23	)%	$	2,802		$	4,651			(40	)%
Interest expense		(1,575	)		(1,611	)		(2	)%		(4,731	)		(4,863	)		(3	)%
Other income (expense), net		(229	)		189			(221	)%		1,784			964			85	%
	$	(802	)	$	(127	)		(531	)%	$	(145	)	$	752			(119	)%

Interest income, expense, and other consist primarily of interest income earned on our cash, cash equivalents, short-term investments, and restricted cash; interest expense on our Convertible Senior Notes; as well as foreign exchange transaction gains and losses. The decrease of $0.7 million (or 531%) in the three months ended September 30, 2010, compared to the same period in 2009, was primarily due to a $0.3 million decrease in interest income received from lower portfolio balance and investment yields, a $0.6 million decrease in foreign exchange gains partially offset by a $0.1 million increase in gain on disposition of investment securities. The decrease of $0.9 million (or 119%) in the nine months ended September 30, 2010, compared to the same period in 2009, was primarily due to a $1.9 million decrease in interest income received from lower portfolio balance and investment yields and a $1.0 million decrease in foreign exchange gains, which were partially offset by a $1.8 million gain recognized from the sale of our investment in an equity interest and a $0.2 million increase in gain on disposition of investment securities.

We expect lower interest income in the future if the current lower yields in the credit market continue to persist or decline in the future.

In March 2008, we made a $3.0 million investment in the preferred stock of a privately held company. This company was acquired by a third party, and as a result of this acquisition, Informatica received $4.8 million in consideration of which $1.8 million was recorded in other income for the three months ended March 31, 2010.

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Income Tax Provision

The following table sets forth, for the periods indicated, our provision for income taxes (in thousands, except percentages):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2010			2009			Change			2010			2009			Change
Provision for income taxes	$	9,125		$	5,969			53	%	$	20,928		$	15,881			32	%
Effective tax rate		29	%		27	%		2	%		29	%		29	%		—	%

Our effective tax rates were 29% for both of the three-month and nine-month periods ended September 30, 2010, and 27% and 29% for the three-month and nine-month periods ended September 30, 2009, respectively. The effective tax rates differed from the federal statutory rate of 35% primarily due to benefits of certain earnings from operations in lower-tax jurisdictions throughout the world, the indirect benefit recorded as a result of the audit settlement, a prior year tax return true-up, and the benefit from the reduction of an acquisition liability that is not subject to tax offset by expense related to non-deductible stock compensation, nondeductible transaction costs, and the accrual of reserves related to uncertain tax positions. We have not provided for residual U.S. taxes in any of these lower-tax jurisdictions since we intend to indefinitely reinvest these earnings offshore.

Our effective tax rate in 2010 continues to be highly dependent on the result of our international operations, the execution of business combinations, the outcome of various tax audits, and the possibility of changes in tax law.

In assessing the need for any additional valuation allowance in the quarter ended September 30, 2010, we considered all available evidence, both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. As a result of this analysis, consistent with prior quarters it was considered more likely than not that our deferred tax assets that are not related to stock compensation would be realizable. As a result, the remaining valuation allowance is primarily related to deferred tax assets that were created through the benefit derived from stock option expense deductions on a “with” and “without” basis and recorded on the balance sheet with a corresponding valuation allowance prior to our adoption of Stock Compensation (ASC 718). Pursuant to Stock Compensation (ASC 718-740-25-10), the benefit of these deferred tax assets will be recorded in the stockholders’ equity when they are utilized on an income tax return to reduce our taxes payable, and as such, they will not impact our effective tax rate.

The unrecognized tax benefits related to Income Taxes (ASC 740), if recognized, would impact the income tax provision by $12.7 million and $9.3 million as of September 30, 2010 and 2009, respectively. We have elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of September 30, 2010 and 2009 were approximately $1.7 million and $2.2 million, respectively. As of September 30, 2010, our gross uncertain tax position is approximately $14.3 million.

Liquidity and Capital Resources

We have funded our operations primarily through cash flows from operations, public offerings of our common stock, and issuance of Convertible Senior Notes in the past. As of September 30, 2010, we had $426.0 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 the purchase of stock 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 in privately negotiated transactions, and acquire businesses and technologies to expand our product offerings.

The following table summarizes our cash flows for the nine months ended September 30, 2010 and 2009 (in thousands):

	Nine Months Ended September 30,
	2010			2009
Cash provided by operating activities	$	87,922		$	47,528
Cash used in investing activities		(63,058	)		(94,466	)
Cash provided by financing activities		44,951			3,423

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Operating Activities: Net cash provided by operating activities for the nine months ended September 30, 2010 was $87.9 million, representing an increase of $40.4 million from the nine months ended September 30, 2009. This increase primarily resulted from a $12.5 million increase in net income, an $11.1 million increase in adjustments for non-cash expenses, a $15.8 million decrease in accounts receivable, a $15.9 million increase in deferred revenues, a $6.1 million increase in accounts payable and accrued liabilities partially offset by a $2.0 million increase in prepaid expenses and other assets, and a $19.0 million decrease in income taxes payable.

We were able to recognize $14.4 million in excess tax benefits from stock compensation during the nine months ended September 30, 2010. This amount is recorded as a use of operating activities and an offsetting amount is recorded as a source in financing activities. We made cash payments for taxes in different jurisdictions of $16.9 million during the nine months ended September 30, 2010.

Our “Days Sales Outstanding” in accounts receivable decreased from 62 days at September 30, 2009 to 55 days at September 30, 2010 due to improvement in collections and order linearity. Net cash provided by operating activities for the nine months ended September 30, 2009 was $47.5 million, representing a decline of $4.6 million from the nine months ended September 30, 2008 for $52.1 million. This decline was primarily due to the $14.6 million decrease in liabilities, $8.7 million decrease in cash collections against accounts receivable partially offset by a $9.7 million decrease in prepaid accounts and other current assets, $3.1 million increase in net income, and $5.9 million adjustments for non-cash expenses.

Investing Activities: Net cash used in investing activities was $63.1 million and $94.5 million for the nine months ended September 30, 2010 and 2009, respectively. We acquire property and equipment in the normal course of our 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 at which we upgrade the computer hardware and software used in our business, as well as our business outlook.

We have identified our investment portfolio as “available for sale,” 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 credit rating of the investment declines, the yield on the investment is no longer attractive, or we need additional cash. We invest only in money market funds and short-term marketable securities. We believe that the purchase, maturity, or sale of our investments has no material impact on our overall liquidity.

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 January 2010, we acquired Siperian, a privately-held company incorporated in Delaware. Siperian provides an integrated model-driven master data management (“MDM”) platform that adapts to most business requirements. We acquired Siperian in a cash merger transaction valued at approximately $130 million of which approximately $18.3 million was placed in an escrow fund as security for losses accrued by Informatica in the event of certain breaches of the merger agreement by Siperian. The escrow fund will remain in place until July 28, 2011, although 50% of the escrow funds may be distributed to former Siperian stockholders, vested option holders, and participants in Siperian’s Management Acquisition Bonus Plan on January 28, 2011. As a result of this acquisition, we assumed certain facility leases and certain liabilities and commitments.

In February 2010, we made a $1.5 million investment in the preferred stock of another privately-held company, which was classified as Level 3 for fair value measurement purposes.

In March 2010, we acquired 29West, a privately-held company incorporated in Illinois. 29West develops high-speed messaging software, known as Ultra Messaging. This software is used for the distribution of data, streaming market data and proprietary trading and market making, and is sold to banks, hedge funds, exchanges and software application vendors worldwide. We acquired 29West in a stock purchase transaction valued at approximately $50 million of which approximately $7 million was placed in an escrow fund as security for losses accrued by Informatica in the event of certain breaches of the merger agreement by 29West. The escrow fund will remain in place until September 22, 2011.

Due to the nature of mergers and acquisitions, it is difficult to predict the amount and timing of cash requirements to complete such transactions. We may be required to raise additional funds to complete future acquisitions.

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”).

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Net cash provided by financing activities for the nine months ended September 30, 2010 was $45.0 million due to the proceeds received from the issuance of common stock to option holders and to participants of our ESPP program in the amount of $44.8 million, as well as $14.4 million of excess tax benefits from stock compensation, which was partially offset by the repurchases and retirement of our common stock of $10.7 million, withholding taxes for restricted stock units net share settlement of $1.7 million, and payment of issuance costs on the credit facility of $1.9 million.

Net cash provided by financing activities for the nine months ended September 30, 2009 was $3.4 million due to the repurchases and retirement of our Convertible Senior Notes and our common stock for $19.2 million, and $9.0 million, respectively. These amounts were offset by the proceeds we received from the issuance of common stock to option holders and to participants of our ESPP program in the amount of $28.8 million, as well as $2.8 million of excess tax benefits from stock compensation. Although we expect to continue to receive some proceeds from the issuance of common stock to option holders and participants of ESPP in future periods, the timing and amount of such proceeds are difficult to predict and are contingent on a number of factors, including the price of our common stock, the number of employees participating in our stock option plans and our employee stock purchase plan, and overall market conditions.

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

In April 2006, our Board of Directors authorized a stock repurchase program of up to $30 million of our common stock at any time until April 2007. From April 2006 to April 30, 2007, we repurchased 2,238,000 shares of our common stock for $30 million. In April 2007, our Board of Directors authorized an additional repurchase of $50 million of our common stock under the existing stock repurchase program. We repurchased 3,204,000 shares of our common stock for $50 million from May 2007 to August 2008. In April 2008, our Board of Directors authorized an additional repurchase of $75 million of our common stock under the stock repurchase program. In October 2008, our 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. In January 2010, our Board of Directors approved an additional $50 million for the stock repurchase program. This repurchase program does not have an expiration date.

From April 2007 to September 30, 2010, we repurchased approximately (1) 6,933,000 shares of our common stock at a cost of $108 million and (2) $29 million of our outstanding Notes at a cost of $27 million. We have approximately $39.7 million remaining from our current authorization to repurchase additional shares of our common stock or redeem a portion of the Convertible Senior Notes under this program as of September 30, 2010.

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. We did not repurchase any shares of our common stock under the repurchase program during the three months ended March 31, 2010. During the three months ended June 30, 2010, we repurchased 435,000 shares of our common stock under the repurchase program, and we repurchased 23,000 shares of our common stock at a cost of approximately $0.6 million in settlement of employee tax withholding obligations due upon the vesting of restricted stock units. During the three months ended September 30, 2010, we did not repurchase any shares of our common stock under the repurchase program, but we repurchased approximately 500 shares of our common stock at a cost of approximately $16,000 in settlement of employee tax withholding obligations due upon the vesting of restricted stock units. We did not repurchase any of the Notes during the nine months ended September 30, 2010. See Part II, Item 2 of this Report for more information regarding the stock repurchase program. We may continue to repurchase shares and Notes from time to time, as determined by management as authorized by the Board of Directors.

We believe that our cash balances, the cash flows generated by operations, and amounts available under our credit facility will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months, even if the holders of the Notes require us to repurchase all or a portion of their Notes. After March 15, 2011, we may from time to time redeem the Notes, in whole or in part, for cash at a redemption price equal to the full principal amount of the Notes, plus any accrued and

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unpaid interest. Further, on March 15, 2011 and then on 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 us to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principal amount of the Notes plus any accrued and unpaid interest as of the relevant date. If our stock price declines and interest rates rise, we may be required to settle the Notes in cash in the first quarter of 2011. 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 equity or debt financing or from other sources. In addition, we may desire or be required to raise or desire additional funds for selective purposes, such as acquisitions, and may raise such additional funds through public or private equity or debt financing or from other sources.

Credit Agreement

In September 2010, we entered into a Credit Agreement (the “Credit Agreement”) that matures in September 2014. The Credit Agreement provides for an unsecured revolving credit facility in an amount of up to $220.0 million, with an option for us to request to increase the revolving loan commitments by an aggregate amount of up to $30.0 million with new or additional commitments, for a total credit facility of up to $250.0 million. No amounts were outstanding under the Credit Agreement as of September 30, 2010 and a total of $220.0 million remained available for borrowing. The Credit Agreement contains customary representations and warranties, covenants and events of default, including the requirement to maintain a maximum consolidated leverage ratio of 2.75 to 1.00 and a minimum consolidated interest coverage ratio of 3.50 to 1.00. We were in compliance with all covenants under the Credit Agreement as of September 30, 2010. For further information, see Note 4. Borrowings of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Contractual Obligations

The following table summarizes our significant contractual obligations, including future minimum lease payments as of September 30, 2010, 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 future periods (in thousands):

	Payment Due by Period
	Total			Remaining 2010			2011 and 2012			2013 and 2014			2015 and Beyond
Operating lease obligations:
Operating lease payments	$	88,731		$	6,920		$	55,283		$	22,419		$	4,109
Future sublease income		(6,506	)		(663	)		(4,827	)		(1,016	)		—
Net operating lease obligations		82,225			6,257			50,456			21,403			4,109
Debt obligations:
Principal payments (1)		200,990			—			—			—			200,990
Interest payments		93,460			—			12,059			12,059			69,342
Other obligations (2)		1,957			221			1,736			—			—
	$	378,632		$	6,478		$	64,251		$	33,462		$	274,441

____________

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

The above commitment table does not include approximately $12.9 million of long-term income tax liabilities recorded in accordance with Income Taxes (ASC 740). We adopted FIN No. 48 (ASC 740) effective January 1, 2007. We are unable to make a reasonably reliable estimate of the timing of these potential future payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. For further information, see Note 10. Income Taxes of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

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

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minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. Contractual obligations that are contingent upon the achievement of certain milestones are not included in the table above.

We estimate the expected timing of payment of the obligations discussed above 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 relocated our corporate headquarters within Redwood City, California and recorded restructuring charges related to the consolidation of excess leased facilities in Redwood City, California. Our contractual obligations at September 30, 2010 include the lease term for our headquarters office in Redwood City, California, which is from December 15, 2004 to December 31, 2013. Minimum contractual lease payments are $0.8 million for the remainder of 2010 and $3.4 million, $3.5 million, and $3.6 million for the years ending December 31, 2011, 2012, and 2013, respectively. Operating lease payments in the table above include approximately $49.0 million, net of actual sublease income, for operating lease commitments for those facilities that are included in accrued facilities restructuring charges. See Note 9. Facilities Restructuring Charges and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Of these future minimum lease payments, we have $43.0 million recorded in accrued facilities restructuring charges at September 30, 2010. This accrual, in addition to minimum lease payments of $49.0 million, includes estimated operating expenses of $13.3 million, and sublease commencement costs associated with excess facilities and is net of estimated sublease income of $15.8 million, and a present value discount of $3.5 million recorded in accordance with Accounting for Costs Associated with Exit or Disposal Activities (ASC 420-10). We estimated sublease income and the related timing thereof based on existing sublease agreements and current market conditions, among other factors. Our estimates of sublease income may vary significantly from actual amounts realized depending, in part, on factors that may be beyond our control, such as the time periods required to locate and contract suitable subleases and the market rates at the time of such subleases.

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

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

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.

We have sublease agreements for leased office space at the above facilities. 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.

Off-Balance-Sheet Arrangements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

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

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Indian rupee, Israeli shekel, euro, British pound sterling, Canadian dollar, Japanese yen, Brazilian real, and Australian dollar.

Cash Flow Hedge Activities.

We have attempted to minimize the impact of certain foreign currency fluctuations through the initiation of certain cash flow hedge programs starting in the fourth quarter of 2008. The purpose of these programs is to reduce volatility in cash flows and expenses caused by movement in certain foreign currency exchange rates, in particular the Indian rupee and Israeli shekel. Under these programs, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and is reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings.

The table below presents the notional amounts of the foreign exchange forward contracts that we committed to purchase in the fourth quarter of 2009 for Indian rupees and Israeli shekels outstanding as of September 30, 2010 (in thousands, except weighted average rate):

Functional currency	Foreign Amount		USD Equivalent		Weighted Average Rate
Indian rupee		195,300	$	4,183		46.69
Israeli shekel		4,445		1,176		3.78
			$	5,359

See Note 1. Summary of Significant Accounting Policies, Note 5. Other Comprehensive Income, Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

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 and agency notes and bonds, corporate notes and bonds, commercial paper, and municipal securities. All investments are carried at market value, which approximates cost. See Note 2. Cash, Cash Equivalents, and Short-Term Investments of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

For the nine months ended September 30, 2010, the average annual rate of return on our investments was 1.1%. 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

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September 30, 2010, we had net unrealized gains of $0.7 million associated with these securities. If market interest rates were to increase immediately and uniformly by 100 basis points from levels as of September 30, 2010, the fair market value of the portfolio would decrease by approximately $1.5 million. Additionally, we have the ability to hold our investments until maturity and, therefore, we would not necessarily expect to realize an adverse impact on income or cash flows. At this time, we do not expect a significant change in our average rate of return for the fourth quarter of 2010.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management has 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 Quarterly Report on Form 10-Q. 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 (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) 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.

Changes in Internal Control over Financial Reporting. There was no change in our system of internal control over financial reporting during the three months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 12. Commitments and Contingencies – Litigation of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-Q, 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. In assessing these risks, investors should also refer to the information contained in our other SEC filings, including our Form 10-K for the year ended December 31, 2009.

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

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

The recent weak macroeconomic environment and associated global economic conditions resulted in a tightening of the credit markets, low levels of liquidity in many financial markets, extreme volatility in credit, equity, and foreign currency markets, including the European sovereign debt markets, and volatility in various other markets, including the financial services sector, which typically is the largest vertical segment that we serve. These conditions affected the buying patterns of our customers and prospects and adversely affected our overall pipeline conversion rate as well as our revenue growth expectations. Though economic conditions appear to be improving, although unevenly, if such conditions deteriorate or if the pace of economic recovery is slower or more uneven, our results of operations could be adversely affected, we may not be able to sustain the growth rates we have experienced recently, and we could fail to meet the expectations of stock analysts and investors, which could cause the price of our common stock to decline.

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We have made incremental investments in Asia-Pacific and Latin America, and have maintained a high level of investments in Europe, the Middle East, and Africa (“EMEA”). There are significant risks with overseas investments, and our growth prospects in these regions are uncertain. Increased volatility or further declines in the European credit, equity and foreign currency markets could cause delays in or cancellations of European orders. 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 is continuing at a rapid pace with Oracle’s acquisition of Sun Microsystems creating a large integrated supplier of enterprise software on hardware optimized for its software products, which could accelerate further consolidation in the industry. Our competition consists of hand-coding, custom-built data integration solutions developed in-house by various companies in the industry segments that we target, as well as other vendors of integration software products, including IBM (which acquired Ascential Software, Cast Iron Systems, Cognos, DataMirror, Initiate Systems, and SPSS), Microsoft, Oracle (which acquired BEA Systems, GoldenGate Software, Hyperion Solutions, Siebel, SilverCreek, Sun Microsystems, and Sunopsis), SAP (which acquired Business Objects, which had previously acquired FirstLogic, and Sybase), and certain privately held companies. In the past, we have competed with business intelligence vendors that currently offer, or may develop, products with functionalities that compete with our products, such as Business Objects, and to a lesser degree, Cognos, and certain privately held companies. With regard to data quality, we compete against SAP, Trillium (which is part of Harte-Hanks), and SAS Institute, as well as various other privately held companies. Many of these competitors have longer operating histories, substantially greater financial, technical, marketing, and other resources, and greater name recognition than we do and may be able to exert greater influence on customers’ purchasing decisions. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Our current and potential competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable, or less competitive.

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

Our current and potential competitors may make strategic acquisitions, consolidate their operations, or establish cooperative relationships among themselves or with other solution providers, thereby increasing their ability to provide a broader suite of software products or solutions and more effectively address the needs of our prospective customers. Such acquisitions could cause customers to defer their purchasing decisions. Our current and potential competitors may establish or strengthen cooperative relationships with our current or future strategic partners, thereby limiting our ability to sell products through these channels. If any of this were to occur, our ability to market and sell our software products would be impaired. In addition, competitive pressures could reduce our market share or require us to reduce our prices, either of which could harm our business, results of operations, and financial condition.

Our international operations expose us to greater risks, including but not limited to those regarding intellectual property, collections, exchange rate fluctuations, and regulations, each of 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.

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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 our international staff, particularly our international sales management and sales personnel, which have adversely affected our ability to increase sales productivity, and we have also experienced high wage inflation in India, which has increased costs. We may continue to experience such difficulties in the future.

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

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

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

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

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

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

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

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

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

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wage inflation and increased operating costs in markets where we do business, particularly in India and Brazil;

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

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

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

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

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general economic and political conditions in these foreign markets.

For example, an increase in international sales would expose us to foreign currency fluctuations where an unfavorable change in the exchange rate of foreign currencies against the U.S. dollar would result in lower revenues when translated into U.S. dollars although operating expenditures would be lower as well. Historically, the effect of changes in foreign currency exchange rates on revenues and operating expenses has been immaterial although in the fourth quarter of 2008 and the first half of 2009, the decline in the U.S. dollar and the increased volatility in currency markets caused a greater than historical impact. The sequential impact of the foreign currency

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exchange rate fluctuation diminished near the end of 2009 and increased in the second and third quarters of 2010. Beginning in the fourth quarter of 2008, we have attempted to reduce the impact of certain foreign currency fluctuations through hedging programs for the foreign subsidiaries where we do not have a natural hedge. However, as our international operations grow, or if the current dramatic fluctuations in foreign currency exchange rates continue or increase or if our hedging programs become ineffective, the effect of changes in the foreign currency exchange rates could become material to revenue, operating expenses, and income. These factors and other factors could harm our ability to gain future international revenues and, consequently, materially impact our business, results of operations, and financial condition. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to manage our international operations and the associated risks effectively could limit the future growth of our business.

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

We believe that the introduction and market acceptance of new products and the enhancement of existing products are important to our continued success. New product introductions and product enhancements, including those related to acquired products, have inherent risks, including, but not limited to, delayed product availability, product quality and interoperability, and customer adoption or the delay in customer purchases. In August 2009, we delivered the PowerCenter Cloud Edition to enable customers to procure PowerCenter functionality from Amazon Web Services by the hour. In addition, we released Informatica 9 in December 2009. In February 2010, we launched Informatica Data Archive Cloud Store, an Infrastructure-as-a-Service offering that archives database and enterprise application data to the cloud in a cost effective and secure manner. New product introductions and/or enhancements such as these have inherent risks, including but not limited to the following:

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delay in completion, launch, delivery, or availability;

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

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product quality issues, including the possibility of defects and the costs of remediating any such defects;

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

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interoperability issues with third-party technologies and the costs of remediating any such issues;

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issues with migration or upgrade paths from previous product versions and the costs of remediating any such issues;

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

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

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

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

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

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

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

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

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

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

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

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

We believe that our ability to increase the sales of our products depends in part upon maintaining and strengthening relationships with our current strategic partners and any future strategic partners. In addition to our direct sales force, we rely on established relationships with a variety of strategic partners, such as systems integrators, resellers, and distributors, for marketing, licensing, implementing, and supporting our products in the United States and internationally. We also rely on relationships with strategic technology partners, such as enterprise application providers, database vendors, data quality vendors, and enterprise integrator vendors, for the promotion and implementation of our products. Among others, we are partners with Dun & Bradstreet, EMC, Hewlett-Packard, Intel, Microsoft, Oracle, salesforce.com, and SAP.

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 acquisitions of Ascential Software, Cast Iron Systems, Cognos, DataMirror, Initiate Systems, and SPSS has made it critical that we strengthen our relationships with our other strategic partners. Business Objects’ acquisition of FirstLogic, a former strategic partner, and SAP’s acquisition of Business Objects may also make such strengthening with other strategic partners more critical. In addition, with respect to our acquisition of AddressDoctor, we will continue to work toward maintaining AddressDoctor’s pre-existing supplier relationships and current partnership relationships, some of which compete with other aspects of our business. We cannot guarantee

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that we will be able to strengthen our relationships with our strategic partners or that such relationships will be successful in generating additional revenue.

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

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

In the past, we have experienced a reduced conversion rate of our overall license pipeline, primarily as a result of general economic slowdowns, which caused the amount of customer purchases to be reduced, deferred, or cancelled. As such, we have experienced uncertainty regarding our sales pipeline and our ability to convert potential sales of our products into revenue. We experienced an increase in the size of our sales pipeline and some increases in our pipeline conversion rate subsequent to 2005 as a result of our increased investment in sales personnel and a gradually improving IT spending environment. However, the size of our sales pipeline and our conversion rate are not consistent on a quarter-to-quarter basis. Our conversion rate declined in 2008, remained depressed in certain geographies in 2009, and increased in the first nine months of 2010. The global economic recession has had and will likely continue to have an adverse effect on our conversion rate in the near future. If we are unable to continue to increase the size of our sales pipeline and our pipeline conversion rate, our results of operations could fail to meet the expectations of stock analysts and investors, which could cause the price of our common stock to decline.

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

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

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our customers’ budgetary constraints and internal acceptance review procedures;

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the timing of our customers’ budget cycles;

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

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

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

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.

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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 March 2010, we acquired 29West, a provider of high-speed messaging software. In January 2010, we acquired Siperian, a provider of Master Data Management (“MDM”) infrastructure technology. In September 2009, we acquired Agent Logic, a provider of complex event processing software; in June 2009, we acquired AddressDoctor, a provider of global address validation technology; and in February 2009, we acquired Applimation, a provider of application Information Lifecycle Management (“ILM”) technology. Future acquisitions or investments like these could result in the issuance of dilutive equity securities, the incurrence of debt or contingent liabilities, or the payment of cash to purchase equity securities from third parties. There can be no assurance that any strategic acquisition or investment will succeed. Risks include difficulties in the integration of the products, personnel, and operations of the acquired entity, disruption of the ongoing business, potential management distraction from the ongoing business, difficulties in the retention of key partner alliances of Informatica and the acquired companies, difficulties in supporting acquired customers, potential product liability issues related to the acquired products, potential decline in the fair value of investments, potential impairment of goodwill, and potential impairment of other intangible assets.

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

We have recently acquired several companies. For example, we acquired 29West in March 2010, Siperian in January 2010, Agent Logic in September 2009, AddressDoctor in June 2009, and Applimation in February 2009. The successful integration of 29West’s, Siperian’s, Agent Logic’s, Applimation’s, and AddressDoctor’s technologies, employees, and business operations, as well as the technology, employees, and business operations of any company we may acquire in the future will place an additional burden on our management and infrastructure. These acquisitions, and others we may make in the future, will subject us to a number of risks, including:

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

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any inability to generate revenue from the combined products in an amount sufficient to offset the associated acquisition and maintenance costs, including addressing issues related to the availability of offerings on multiple platforms and from cross-selling and up-selling our products to the acquired company’s installed customer base or the acquired company’s products to our installed customer base; and

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the assumption of any contracts or agreements from the acquired company that contain terms or conditions that are unfavorable to us.

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

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

Our products are designed to interoperate with and provide access to a wide range of third-party developed and maintained hardware and software technologies, which are used by our customers. The future design and development plans of the third parties that maintain these technologies are not within our control and may not be in line with our future product development plans. We may also rely on such third parties, particularly certain third-party developers of database and application software products, to provide us with access to these technologies so that we can properly test and develop our products to interoperate with the third-party technologies. These third parties may in the future refuse or otherwise be unable to provide us with the necessary access to their technologies. In addition, these third parties may decide to design or develop their technologies in a manner that would not be interoperable with our own. The continued consolidation in the enterprise software market may heighten these risks. Furthermore, our

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expanding product line, including our combination of products delivered on a comprehensive, unified, and open data integration platform makes maintaining interoperability more difficult as various products may have different levels of interoperability and compatibility, which may change from version to version. If any of the situations described above were to occur, we would not be able to continue to market our products as interoperable with such third-party hardware and software, which could adversely affect our ability to successfully sell our products to our customers.

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

We believe our success depends upon our ability to attract and retain highly skilled personnel and key members of our management team. Historically, there has been a significant level of competition to attract these individuals. 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 have seen the pace of voluntary turnover decrease in the last several quarters, we typically experience lower productivity from newly hired sales personnel for a period of 6 to 12 months. If we are unable to effectively train such new personnel, or if we experience an increase in the level of sales force turnover, our ability to generate license revenues may be negatively impacted.

In addition, we have experienced turnover in other areas of the business. As the market becomes increasingly competitive and the hiring becomes more difficult and costly, our personnel (including those with government security clearance qualifications) become more attractive to other companies. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. 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, in particular, new sales personnel. If we are unable to effectively attract and train new personnel, or if we experience an increase in the level of turnover, our results of operations may be negatively impacted.

We currently do not have any key-man life insurance relating to our key personnel, and the employment of the key personnel in the United States is at will and not subject to employment contracts. We have relied on our ability to grant equity awards as one mechanism for recruiting and retaining highly skilled talent. If we are unable to grant such awards, we may not be able to attract and retain outstanding and highly skilled individuals in the extremely competitive labor markets in which we compete.

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. 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 cloud offerings. Our potential customers may:

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not fully value the benefits of using our products;

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not achieve favorable results using our products;

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defer product purchases due to the current global economic downturn;

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experience technical difficulties in implementing our products; or

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

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.

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We rely on the sale of a limited number of products, and if these products do not achieve and/or maintain 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 these products does not maintain market acceptance, our revenues and stock price could decrease. More recently, we have broadened our platform with additional products in the areas of master data management, B2B data exchange, application information lifecycle management, complex event processing, ultra messaging, and cloud data integration. If these products do not achieve market acceptance, our revenues and stock price could decrease. Market acceptance for our products and continued maintenance of same could be affected if, among other things, competition substantially increases in the enterprise data integration market or transactional applications suppliers integrate their products to such a degree that the utility of the data integration functionality that our products provide is minimized or rendered unnecessary.

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

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

Furthermore, our overall effective income tax rate and tax expenses may be affected by various factors in our business, including acquisitions, changes in our legal structure, changes in the geographic mix of income and expenses, changes in valuation allowances, changes in tax laws and applicable accounting pronouncements and variations in the estimated and actual level of annual pre-tax income. Further, the geographic mix of income and expense is impacted by the fluctuation in exchange rates between the U.S. dollar and the functional currencies of our subsidiaries.

We have been under various examinations by the Internal Revenue Service and state and foreign taxing authorities for the past several years. We may receive additional assessments from domestic and foreign tax authorities that might exceed amounts reserved by us. In the event we are unsuccessful in reducing the amount of such assessment, our business, financial condition, or results of operations could be adversely affected. Specifically, if additional taxes and/or penalties are assessed as a result of these audits, there could be a material effect on our income tax provision, operating expenses, and net income in the period or periods for which that determination is made.

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

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

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

During the past few years, our organizational structure has increased in complexity due to compliance with tax regulations and tax accounting requirements, acquisitions, and other regulatory and compliance requirements. Further, we have expanded our presence in the Asia-Pacific region, where business practices can differ from those in other regions of the world and can create internal control risks. To address potential risks, we recognize revenue on transactions derived in this region (except for direct sales in Japan and Australia) only when the cash has been received and all other revenue recognition criteria have been met. We also have provided

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business practices training to our sales teams. While our organizational structure has increased in complexity as a result of our international expansion, our capital structure has also increased in complexity as a result of the issuance of the Convertible Senior Notes in March 2006. Finally, our reorganization of various foreign entities in April 2006, which required a change in some of our internal controls over financial reporting, and the assessment of the impact for our adoption of FIN No. 48 (ASC 740) further add to the reporting complexity and increase the potential risk that we may not be able 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 controls over financial reporting are 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 controls over financial reporting are effective in any future period (or if our auditors are unable to provide an attestation report regarding the effectiveness of our internal controls, or qualify such report or fail to provide such report in a timely manner), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price.

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

We need to continue to improve our internal systems, processes, and controls to effectively (1) manage our operations and growth, including our international growth into new geographies, particularly the Asia-Pacific and Latin American markets, and (2) realign resources from time to time to more efficiently address market or product requirements. To the extent any realignment requires changes to our internal systems, processes, and controls or organizational structure, we could experience disruption in customer relationships, increases in cost, and increased employee turnover. For our systems process and controls, we use both on-premise and cloud resources, and any security or other flaws in such resources could have a negative impact on such systems, processes, or controls. In addition, we may not be able to successfully implement upgrades and improvements to these systems, processes, and controls in an efficient or timely manner, and we may discover deficiencies in existing systems, processes, and controls. We have licensed technology from third parties to help us accomplish this objective. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. We may experience difficulties in managing upgrades and improvements to our systems, processes, and controls or in connection with third-party software, which could disrupt existing customer relationships, causing us to lose customers, limit us to smaller deployments of our products, or increase our technical support costs.

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

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

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volatility in the capital markets;

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

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quarterly variations in our competitors’ results of operations;

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changes in earnings estimates and recommendations by securities analysts;

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developments in our industry; and

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changes in accounting rules.

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.

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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. As the use of our products, including products recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our products fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software products to fix these defects or errors, which could require us to allocate significant customer support resources to address these problems.

Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our license agreements may not be effective as a result of existing or future national, federal, state, or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any product liability claims to date, the sale and support of our products entail the risk of such claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against product liability may not be adequate to cover a potential claim.

We are currently facing and may face future intellectual property infringement claims that could be costly to defend and result in our loss of significant rights.

As is common in the software industry, we have received and may continue from time to time to receive notices from third parties claiming infringement by our products of third-party patent and other proprietary rights. As the number of software products in our target markets increases and the functionality of these products further overlaps, we may become increasingly subject to claims by a third party that our technology infringes such party’s proprietary rights. In addition, there is a growing occurrence of patent suits being brought by organizations that use patents to generate revenue without manufacturing, promoting, or marketing products or investing in research and development in bringing products to market. These organizations have been increasingly active in the enterprise software market and have targeted whole industries as defendants. For example, in August 2007, JuxtaComm Technologies filed a complaint in the Eastern District of Texas alleging patent infringement against various defendants, including: Ascential Software Corporation, Business Objects SA, Business Objects America, CA, Inc., Cognos, Inc., Cognos Corporation, DataMirror, Inc., Fiorano Software, Inc., Hummingbird Ltd., International Business Machines Corporation, Informatica Corporation, Information Builders, Inc., Intersystems, Inc., Iway Software Company, Metastorm, Inc., Microsoft Corporation, Open Text Corporation, Software AG, Software AG, Inc., Sybase, Inc., and Webmethods, Inc. Some defendants, including Informatica, have settled with JuxtaComm. More recently, in November 2008, Data Retrieval Technologies LLC filed a complaint in the Western District of Washington against Sybase, Inc. and us, alleging patent infringement.

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

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we could be and have been obligated to incur significant legal costs and expenses defending the patent infringement suit;

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

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

●

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.

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

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

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

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

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

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

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

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

In March 2006, we issued $230.0 million aggregate principal amount of Convertible Senior Notes due 2026 (the “Notes”). As of September 30, 2010, $201.0 million of the Notes were outstanding. The Note holders can convert the Notes into shares of our common stock at any time before the Notes mature or we redeem or repurchase them. Upon certain dates (March 15, 2011, March 15,

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2016, and March 15, 2021) or the occurrence of certain events including a change in control, the Note holders can require us to repurchase some or all of the Notes. Upon any conversion of the Notes, our basic earnings per share would be expected to decrease because such underlying shares would be included in the basic earnings per share calculation. Given that events constituting a “change in control” can trigger such repurchase obligations, the existence of such repurchase obligations may delay or discourage a merger, acquisition, or other consolidation. If our stock price declines and interest rates rise, we may be required to settle the Notes in cash. Our ability to meet our repurchase or repayment obligations of the Notes will depend upon our future performance, which is subject to economic, competitive, financial, and other factors affecting our industry and operations, some of which are beyond our control. If we are unable to meet the obligations out of cash flows from operations or other available funds, we may need to raise additional funds through public or private debt or equity financings. We may not be able to borrow money or sell more of our equity securities to meet our cash needs for reasons including the tightening of the capital markets. Even if we are able to do so, it may not be on terms that are favorable or reasonable to us.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Sales to U.S. and foreign federal, state, and local governmental agency end-customers have accounted for a portion of our revenue, and we may in the future increase sales to government entities. However, recently government entities have announced reductions in, or experienced increased pressure to reduce, government spending. In particular, such measures have adversely affected European public sector transactions. Such budgetary constraints or shifts in spending priorities of government entities may adversely affect sales of our products and services to such entities. In addition, sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our products to such governmental entity. Government entities may require contract terms that differ from our standard arrangements. Government contracts may require the maintenance of certain security clearances for facilities and employees which can entail administrative time and effort possibly resulting in additional costs and delays. In addition, government demand and payment for our products may be more volatile as they are affected by public sector budgetary cycles, funding authorizations, and the potential for funding reductions or delays, making the time to close such transactions more difficult to predict. This risk is enhanced as the size of such sales to the government entities increases. As the use of our products, including products recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our government customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our products fail to perform as contemplated in such deployments.

Most of our sales to government entities have been made indirectly through providers that sell our products. Government entities may have contractual or other legal rights to terminate contracts with our providers for convenience or due to a default, and any such termination may adversely impact our future results of operations. For example, if the provider receives a significant portion of its revenue from sales to such governmental entity, the financial health of the provider could be substantially harmed, which could negatively affect our future sales to such provider. Governments routinely audit and investigate government contractors, and we may be subject to such audits and investigations. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition from doing business with such government entity. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us or should our products not perform as contemplated in government deployments.

Changes in existing financial accounting standards or practices may adversely affect our results of operations.

Changes in existing accounting rules or practices, including the possible conversion to unified international accounting standards, new accounting pronouncements, or varying interpretations of current accounting pronouncements could have a significant adverse effect on our results of operations or the manner in which we conduct our business. For example, the adoption of Financial Accounting Standards Board’s (“FASB”) Compensation – Stock Compensation (ASC 718) has had a significant adverse impact on our consolidated results of operations as it has increased our operating expenses and the number of diluted shares outstanding and reduced our operating income and diluted earnings per share. Further, the effect of stock compensation 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. In addition, the FASB is currently working together with the International Accounting Standards Board (“IASB”) on several projects to converge accounting principles and facilitate more comparable financial reporting between companies who are required to follow GAAP and those who are required to follow International Financial Reporting Standards. These projects may result in different accounting principles under GAAP, which may have a material impact on the way in which we report financial results in areas including, but not limited to, principles for recognizing revenue, lease accounting,

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and financial statement presentation. A change in existing financial accounting standards or practices may even retroactively adversely affect previously reported transactions.

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

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

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

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

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

We have substantial real estate lease commitments in the United States and internationally. However, we do not occupy some of these leases, with the most significant portion of our unoccupied leases being located in Silicon Valley. Currently, we have substantially subleased these unoccupied properties to third parties. The terms of most of these sublease agreements account for only a portion of the period of our master leases and contain rights of the subtenant to extend the term of the sublease. In addition, the current economic downturn has negatively impacted commercial lease rates and terms in the Silicon Valley area and makes it more difficult to enter into agreements with existing subtenants on sublease renewals or prospective subtenants with sublease rates or terms comparable to those contracted for in the past. To the extent that (1) our subtenants do not renew their subleases at the end of the initial term and we are unable to enter into new subleases with other parties at comparable rates, or (2) our subtenants are unable to pay the sublease rent amounts in a timely manner, our cash flow would be negatively impacted and our operating results and financial condition could be adversely affected. See Note 9. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 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.

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

Business interruptions could adversely affect our business.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications or network failure, and other events beyond our control. We have prepared a detailed disaster recovery plan which includes the use of internal and external resources and will continue to expand the scope over time. Disasters or disruptions, such as the major fiber outage experienced by some of our facilities in Asia as a result of the December 2006 earthquake off the coast of Taiwan, can negatively affect our operations given necessary interaction among our international facilities. In the event such an earthquake or any other natural disaster or man-made failure occurs, it could disrupt the operations of our affected facilities and recovery of our resources. In addition, we do not carry sufficient business interruption insurance to compensate us for losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchases of Equity Securities

In April 2006, our Board of Directors authorized a stock repurchase program of up to $30 million of our common stock until April 2007. In April 2007, our Board of Directors authorized a stock repurchase program for up to an additional $50 million of our common stock. In April 2008, Informatica’s Board of Directors authorized an additional $75 million for the stock repurchase program. In October 2008, our Board of Directors approved expanding the repurchase program to include the repurchase, from time to time, of a portion of our outstanding Convertible Senior Notes (“Notes”) due in 2026 in privately negotiated transactions with holders of the Notes. In January 2010, our Board of Directors authorized the repurchase of up to an additional $50 million of our outstanding common stock and Notes under the repurchase program. See Note 4. Borrowings – Convertible Senior Notes and Note 7. Stock Repurchases and Retirement of Convertible Senior Notes of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

The repurchased shares are retired and reclassified as authorized and unissued shares of common stock. We may continue to repurchase our outstanding common stock and Notes from time to time, as determined by management under programs approved by our Board of Directors. During the three months ended September 30, 2010, there was no repurchase of common stock under the repurchase program and approximately 500 shares of our common stock were repurchased outside of the repurchase program at a cost of approximately $16,000 in settlement of employee tax withholding obligations due upon the vesting of restricted stock units. There were no repurchases of the Notes during the nine months ended September 30, 2010.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
July 1 – July 31
From employees (1)		—		—		—		—
Structured repurchases (2)		—		—		—	$	39,675
August 1 – August 31
From employees (1)		523	$	30.12		—		—
Structured repurchases (2)		—		—		—	$	39,675
September 1 – September 30
From employees (1)		—		—		—		—
Structured repurchases (2)		—		—		—	$	39,675
Total		523	$	30.12		—

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(1)	The repurchases from employees represent shares cancelled in settlement of employee tax withholding obligations due upon the vesting of restricted stock units.
(2)	All shares repurchased in open-market transactions under the repurchase programs.

ITEMS 3, 4, and 5 are not applicable and have been omitted.

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ITEM 6. EXHIBITS

Exhibit Number		Description
10.1		Credit Agreement, dated as of September 29, 2010, by and among Informatica Corporation, each of the lenders party thereto from time to time, JPMorgan Chase Bank, N.A., as Administrative Agent, Comerica Bank, as Syndication Agent, Bank of America, N.A., HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents, and J.P. Morgan Securities LLC and Comerica Bank, as Joint Bookrunners and Joint Lead Arrangers.
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-15(a).
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-15(a).
32.1	*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS	**	XBRL Instance.
101.SCH	**	XBRL Taxonomy Extension Schema.
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase.
101.LAB	**	XBRL Taxonomy Extension Label Linkbase.
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase.

____________

*	Furnished, not filed.
**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under these sections.

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SIGNATURE

Pursuant to the requirements 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.

Date: November 5, 2010	INFORMATICA CORPORATION

	/s/ Earl Fry
	Earl Fry
	Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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INFORMATICA CORPORATION

EXHIBITS TO FORM 10-Q QUARTERLY REPORT

For the Quarter Ended September 30, 2010

Exhibit Number		Description
10.1		Credit Agreement, dated as of September 29, 2010, by and among Informatica Corporation, each of the lenders party thereto from time to time, JPMorgan Chase Bank, N.A., as Administrative Agent, Comerica Bank, as Syndication Agent, Bank of America, N.A., HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents, and J.P. Morgan Securities LLC and Comerica Bank, as Joint Bookrunners and Joint Lead Arrangers.
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-15(a).
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-15(a).
32.1	*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS	**	XBRL Instance.
101.SCH	**	XBRL Taxonomy Extension Schema.
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase.
101.LAB	**	XBRL Taxonomy Extension Label Linkbase.
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase.

____________

*	Furnished, not filed.
**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under these sections.