e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ Annual
report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the year ended December 31, 2005
or
o Transition
report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-25871
INFORMATICA CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
|
77-0333710 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
100 Cardinal Way
Redwood City, California 94063
(Address of principal executive offices and zip code)
(650) 385-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Preferred Share Purchase Rights, par value $0.001 per
share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of 1933. þ
Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 (the Exchange Act).
o Yes
þ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90 days.
þ Yes o
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
Large accelerated filer
þ Accelerated
filer
o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange Act). o Yes
þ No
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of June 30, 2005 was
approximately $726,197,000 (based on the last reported sale
price of $8.39 on June 30, 2005 on the NASDAQ National
Market). As of January 31, 2006, there were approximately
88,291,000 shares of the registrants Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the
registrants 2006 Annual Meeting of Stockholders are
incorporated by reference into Part III of this
Form 10-K to the
extent stated herein. The Proxy Statement will be filed within
120 days of the registrants fiscal year ended
December 31, 2005.
INFORMATICA CORPORATION
TABLE OF CONTENTS
PART I
Overview
Informatica Corporation (Informatica) is a leading
provider of enterprise data integration software and services
that enable organizations to gain greater business value by
integrating their information assets. Informatica software
handles a wide variety of complex enterprise-wide data
integration initiatives, including data migration, data
consolidation, data synchronization, data warehousing, and the
establishment of data hubs and data services. The Informatica
enterprise data integration platform enables and accelerates
data integration initiatives, allowing enterprises to meet new
business requirements by utilizing cost-effective information
technology (IT) systems; to reduce overall IT
expenses by extending and adapting IT systems; and to implement
best practices. Using our products, business users gain a
holistic and consistent view of all of their enterprise
information. IT management can be more responsive to the
business demands for informationdespite dramatically
increasing data volumes and real-time delivery
requirementsand IT developers benefit from reduced time to
results and significant productivity gains.
Over the last two decades, companies have made significant
investments in process automation resulting in islands of data
created by a variety of packaged transactional
applicationssuch as enterprise resource planning
(ERP), customer relationship management
(CRM), and supply chain management (SCM)
softwareand custom operational systems deployed in various
departments. The ultimate goal of deploying these applications
was to make businesses more efficient through automation.
However, these applications have further increased data
fragmentation throughout the enterprise because they generate
massive volumes of data in disparate software systems that were
not designed to share data.
Organizations are now finding that the strategic value of
information technology goes far beyond process automation.
Organizations of all sizes require information to run their
business, and most information is derived from data. Operational
activities generate a constant flow of data inside and outside
the enterprise, but unless the various data streams can be
integrated, the amount of real, useful business information
derived from such data is limited. Companies are realizing that
they must integrate data to support their business processes
such as providing a single view of the customer, migrating away
from legacy systems to new technologies, or consolidating
multiple instances of an ERP system. In addition, we believe
industry consolidation and corporate divestitures further the
need to migrate and to integrate data.
With Informaticas robust enterprise data integration
platform, business and IT decision makers can facilitate
sophisticated information delivery across the enterprise. Based
on an open, platform-neutral architecture, the Informatica
platform is designed to access and integrate data from a large
variety of enterprise systems, in a wide variety of formats, and
deliver that data throughout the enterprise. The Informatica
platform addresses the challenges of data integration as a
mission-critical, enterprise-wide solution to complex problems
such as migrating off of legacy systems, consolidating
application instances, and synchronizing data across multiple
operational systems.
We have more than 2,400 customers representing a worldwide
variety of industries, ranging from high technology and
financial services to manufacturing and telecommunications. We
market and sell our software and services through our global
direct sales force in North America (consisting of the United
States and Canada), Europe (including France, Germany, the
Netherlands, Switzerland, and the United Kingdom), and
Asia-Pacific (including Australia, China, Japan, India, Korea,
Singapore, and Taiwan). We maintain relationships with a variety
of strategic partners to jointly develop, market, sell,
recommend, and/or implement our solutions. We also have
relationships with distributors in various regions, including
Europe, Asia-Pacific, and Latin America, who sublicense our
products and provide service and support within their
territories. More than 20 independent software vendors,
including several of our strategic partners, have licensed our
technology for inclusion in their products.
1
We began selling our first products in 1996. Through
December 31, 2005, substantially all of our revenues have
been derived from our data integration products: Informatica
PowerCenter and Informatica PowerExchange and related services.
Our corporate headquarters are located at 100 Cardinal Way,
Redwood City, California 94063, and our telephone number at that
location is (650) 385-5000. We can be reached at our Web
site at www.informatica.com; however, the information in,
or that can be accessed through, our Web site is not part of
this report. We were incorporated in California in February 1993
and reincorporated in Delaware in April 1999.
Copies of our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K, and
amendments to these reports pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the
Exchange Act) are available, free of charge, on our
Web site as soon as reasonably practicable after such material
is electronically filed with the Securities and Exchange
Commission (SEC). The SEC also maintains a Web site
that contains our SEC filings. The address of the site is
www.sec.gov.
Recent Developments
On January 26, 2006, we acquired Similarity Systems Limited
(Similarity), a private company incorporated in
Ireland, by entering into a Share Purchase Agreement by and
among Informatica and the holders of the shares of Similarity.
Pursuant to the Purchase Agreement, Similarity stockholders are
entitled to receive approximately $48.3 million in cash and
approximately 122,000 shares of Informatica common stock (which
were fully vested but subject to escrow) valued on the date of
close at approximately $1.6 million. In addition, the
options of Similarity option holders were assumed by Informatica
and converted into options to purchase approximately 392,000
shares of Informatica common stock valued on the date of close
at approximately $5.1 million. Similaritys software
product suite includes data profiling, data standardization,
data cleansing, data matching, and data quality monitoring. With
this acquisition, we intend to further extend our enterprise
data integration platform by incorporating certain of
Similaritys product suite including its patented data
quality technology, thereby providing our customers with a more
robust solution for global data quality and data measuring and
monitoring functionality. With the acquisition of Similarity,
Informatica gained approximately 70 employees, based
primarily in Ireland and the United States.
Our Products
Our products are designed to enable customers to gain greater
business value by integrating their information assets. We help
our customers simplify their IT infrastructure by providing a
unified platform for all enterprise data integration initiatives.
Our data integration platform is designed to empower the
business user with holistic information, reduce the cost and
complexity of enterprise IT infrastructure for the IT manager,
provide increased productivity to IT practitioners to improve
their responsiveness to the business, and deliver those
capabilities through a service-oriented architecture to enable
the IT architect to maximize existing and future technical
environments.
For the business user, our products deliver complete, accurate,
and timely information. Our products provide near-universal
access to enterprise datastructured data in databases as
well as unstructured and semi-structured enterprise data locked
in documents and industry-specific data formats. Our products
feature the unique ability to access batch, federated, and
changed data from mainframe, legacy, and relational systems and
deliver that data at the frequency demanded by the business. In
addition, our products provide built-in data profiling and rich
transformations to ensure the accuracy and integrity of
information with an
end-to-end audit trail.
For the IT manager, our products reduce risk and cost by
providing a highly secure, scalable, and high performance
environment, with the flexibility to deploy on a wide variety of
operating systems including Windows, UNIX, Linux, and mainframe
systems including ADABAS, DB2, IMS and VSAM. We also run
2
on 64-bit hardware and we facilitate complete user
authentication, granular privacy management, and encryption in
data transport. We deliver near-linear scalability, fully
parallel processing, and a unique ability to deploy a set of
business logic across a heterogeneous grid of operating
platforms to accommodate the most demanding of large and growing
global organizations. For the IT architect, our products are
based on a service-oriented architecture that is metadata-driven
for flexibility and Web services enablement. Our products are
fully extensible though open application program interfaces
(APIs) and are designed to be interoperable to
accommodate existing IT standards and future IT architectures.
For the IT practitioner, our products supply a highly productive
environment with complete version control and configuration
management that enables individuals to work collaboratively
across teams, multiple projects, and geographically dispersed
locations, including onshore/offshore and in-source/out-source
models. In addition, our metadata-driven environment accelerates
initial design and evolution by providing data profiling,
search, impact analysis, and high reuse of development assets
via our patented global and local object management technology,
so that work can be designed once, deployed anywhere
across a network of installations.
Products included in the Informatica platform are summarized
below:
Informatica PowerCenter Standard Edition (SE).
PowerCenter SE is a single, unified enterprise data integration
platform for discovering, accessing, and integrating data from a
wide variety of business systems, in a wide variety of formats,
and delivering that data throughout the enterprise. PowerCenter
SE helps IT organizations cost-effectively scale to meet growing
data volumes and demands from the business with a single,
unified platform that offers high performance, scalability, and
reliability. PowerCenter SE increases developer productivity
with a codeless, easy to use, object-oriented visual development
environment and mapping templates. Furthermore, PowerCenter SE
enables IT organizations to respond efficiently and effectively
to business needs for holistic information with near universal
data access and metadata analysis and reporting. PowerCenter is
available as version 7 and we anticipate general availability of
the new upgraded version, PowerCenter 8, in April 2006.
Informatica PowerCenter Advanced Edition (AE).
PowerCenter AE is a single, unified enterprise data integration
platform for discovering, accessing, and integrating data from a
wide variety of business systems, in a wide variety of formats,
and delivering that data throughout the enterprise. PowerCenter
AE addresses requirements for organizations standardizing data
integration at an enterprise level, across a number of projects
and departments. PowerCenter AE expands the breadth of
PowerCenter SE with such additional capabilities as advanced
metadata analysis, team-based development, and Web-based
reporting and dashboards. PowerCenter AE integrates data
auditing capabilities that are critical for regulatory
compliance and reporting features that allow companies to get an
immediate view into the data.
Informatica PowerExchange. PowerExchange is scalable,
non-invasive software for access to changed or bulk datain
real time or batch modefrom complex legacy and mainframe
systems. PowerExchange helps companies cost-effectively and
efficiently access the vast amounts of enterprise data on
mainframes for mission-critical business processing.
Additional Options. Informatica offers eight PowerCenter
options to extend the data integration platforms core
capabilities. These options are available with either
PowerCenter Standard Edition or PowerCenter Advanced Edition:
|
|
|
|
1) |
the Data Federation Option provides virtual data federation
services or Enterprise Information Integration (EII)
capabilities; |
|
|
2) |
the Data Profiling Option supplies thorough, accurate
information about the content, quality, and structure of the
data in virtually any operational system; |
|
|
3) |
the Data Cleansing Option standardizes, validates, and corrects
name and address data to maximize the integrity and value of
enterprise data; |
|
|
4) |
the Metadata Exchange Options coordinate technical and business
metadata from data modeling tools, business intelligence tools,
source and target database catalogs, and PowerCenter
repositories; |
3
|
|
|
|
5) |
the Partitioning Option executes optimal parallel sessions,
enabling organizations to maximize their technology investments; |
|
|
6) |
the PowerCenter Connect Options extend broad connectivity to
enterprise data, eliminating the need for manually coding data
extraction programs; |
|
|
7) |
the Real Time Option extends PowerCenters capabilities to
transform and process operational data in real time; and |
|
|
8) |
the Unstructured Data Option expands PowerCenters data
access capabilities to include unstructured and semi-structured
data formats. |
Services
Informatica offers a comprehensive set of services, including
product-related customer support, consulting services, and
education services. Through our technical support centers in the
United States, the United Kingdom, the Netherlands, and India,
we offer 24x7 technical support on a global basis to customers
and partners over the phone, via email, and online through
Informaticas customer Web portal
my.informatica.com. Our consulting services range
from the initial configuration of our products with
knowledge-transfer to customers and partners to designing and
implementing custom data integration/transformation solutions,
to project audit and performance tuning services, to helping
customers implement best practices for their integration
competency centers (ICCs). ICCs are a shared IT
function that enables project teams to complete data integration
efforts rapidly and efficiently by following best-practice
processes, leveraging the expertise of staff with
integration-specific roles, and using standard technologies. Our
consulting strategy is to provide specialized expertise on our
products to enable our customers and partners to successfully
implement their customized business solutions using our data
integration products.
Informatica professional services consultants use a services
methodology called Informatica Velocity to guide the successful
implementation of our data integration software. Our services
methodology reflects the best practices that Informatica has
developed and refined through hundreds of successful data
integration projects. Informatica Velocity covers each of the
major implementation project phases, including manage,
architect, analyze, design, build, test, deploy, and operate.
Where applicable, Informatica Velocity includes technical white
papers as well as sample project documentation and even sample
implementations (mappings) of specific technical
solutions.
Informatica also offers a comprehensive curriculum of
product-related education services to help our customers and
strategic partners build proficiency in using our products. We
have established the Informatica Certification Program to create
a database of expert professionals with verifiable skills in the
design and administration of Informatica-based systems.
Our Strategic Partners
Informaticas strategic partners include industry leaders
in enterprise software, computer hardware, and systems
integration. We offer a comprehensive strategic partner program
for major companies in these areas so that they can provide
sales and marketing leverage, have access to required
technology, and provide complementary products and services to
our joint customers. Our strategic business partners that resold
and/or influenced more than $3,000,000 each in license and
services orders in 2005 are Accenture, IBM, Tata Consultancy
Services, Mantas, Hewlett-Packard, Infosys, Sun Microsystems,
Siebel Systems, Teradata, and Northrop Grumman. Our original
equipment manufacturer (OEM) partners that generated
more than $400,000 in license royalties for us in 2005 are
Siebel Systems and i2 Technologies.
Our Customers
More than 2,400 companies worldwide rely on Informatica for
their end-to-end
enterprise data integration needs. Our customers represent a
wide range of corporations and governmental and educational
institutions. Our targeted markets include energy &
utilities, financial services, government & public
sector,
4
healthcare, high technology, insurance, manufacturing, retail,
services, transportation, and telecommunications. No single
customer accounted for 10% or more of our total revenues in
2005, 2004, or 2003.
Our Market Strategy
Expand from Data Warehousing to Broad Enterprise Data
Integration. Our goal is to be the market leader in the
enterprise data integration market that includes data migration,
data consolidation, data synchronization, data warehousing, and
the establishment of data hubs and data services. Our strategy
is to capitalize on this opportunity by leveraging our success,
knowledge, and the strength of our proven products that have
helped our customers deploy thousands of large data warehouses
and data integration initiatives. We address the growing
enterprise data integration market with our products that we
believe are well-suited to rapidly deliver value to our
customers.
Evolve Departmental Projects to Enterprise Standardization
via Integration Competency Centers. As customers
undertake multiple data integration projects, they are
increasingly moving from individual departmental projects to
centralized ICCs managing enterprise integration initiatives.
Informatica has been chosen by many customers as standard
technology for centralized ICCs, and we will continue to promote
the value of ICCs among our customers for broad adoption.
Focus on Horizontal Data Integration Solutions: Migration
and Consolidation. The data migration phase of an
application implementation, upgrade, or instance consolidation
project can extend up to multiple years, is often underestimated
in complexity and cost, and requires rigorous project planning
and significant manual effort. Detailed project planning is
required because enterprises have traditionally underestimated
the challenges involved in the data migration process, including
the quality of the data being migrated and the high cost of
system maintenance, administration, and development.
Organizations now increasingly recognize the need for an
enterprise data integration platform to automate the data
migration and consolidation of IT systems. We believe that along
with our strategic system integrator partners, we can address
this growing requirement by providing customers with a tailored
solution including software and services to speed the deployment
of migration and consolidation initiatives.
Launch Vertical Solutions: Financial Services. We
are increasing our focus on the financial services market. With
18 of the worlds 20 largest financial organizations as
current customers, Informatica has already established a
leadership position within this market. Informatica has
increased its sales, marketing, and alliances resources tailored
to meet the needs of a growing market demand in this segment. In
conjunction with our strategic partners, we offer business
solutions such as risk management, compliance, and single
view of the customer for leading financial institutions.
Leverage Installed Customer Base and Community of
Developers. We have an installed customer base that
spans a wide range of industries. As of December 31, 2005,
more than 2,400 customers worldwide and 79 of the Fortune
100 companies have licensed our products. The Informatica
Developer Network, created in 2001, has grown to more than
25,000 members in over 100 countries using our products to build
their own data warehouses and data integration solutions. Our
success at each customer site strengthens awareness of our brand
while providing an opportunity to up-sell and cross-sell
additional products and services.
Increase Base of Strategic Partners. We have
alliances and strategic partnerships with leading enterprise
software providers, systems integrators, and hardware vendors.
These alliances furnish sales and marketing support and access
to required technology, while also providing complementary
products and services to our joint customers. More than
300 companies help market, resell or implement information
around the world. Additionally, more than 20 companies now
OEM our core products.
Sales, Marketing, and Distribution
We market and sell software and services through both our direct
sales force and indirect channel partners in North America,
Europe, Asia-Pacific, Latin America, and other regions around
the world. As of December 31, 2005, we employed 362 people
in our sales and marketing organization worldwide.
5
Marketing programs are focused on creating brand awareness, lead
generation, customer references, and up-sell/cross-sell
opportunities for our products. These programs are targeted at
such key executives as chief information officers, vice
presidents of IT, enterprise architects, and vice presidents of
specific functional areas, such as marketing, sales, service,
finance, human resources, manufacturing, distribution, and
procurement. Our marketing personnel engage in a variety of
activities, including positioning our software products and
services, conducting public relations programs, establishing and
maintaining relationships with industry analysts, producing
product collateral, and generating qualified sales leads.
Our global sales process consists of several phases: lead
generation, opportunity qualification, needs assessment, product
demonstration, proposal generation, and contract negotiation.
Although the typical sales cycle requires three to six months,
some sales cycles have lasted substantially longer. In a number
of instances, our relationships with systems integrators and
other strategic partners have reduced sales cycles by generating
qualified sales leads, making initial customer contacts,
assessing needs prior to our introduction to the customer and
endorsing our products to the customer before their product
selection. Also, partners have assisted in the creation of
presentations and demonstrations, which we believe enhances our
overall value proposition and competitive position.
In addition to our direct sales efforts, we distribute our
products through systems integrators, resellers, distributors,
and OEM partners in the United States and internationally.
Systems integrators typically have expertise in vertical or
functional markets. In some cases, they resell our products,
bundling them with their broader service offerings. In other
cases, they influence direct sales of our products. Distributors
sublicense our products and provide service and support within
their territories. OEMs embed portions of our technology in
their product offerings.
Research and Development
As of December 31, 2005, we employed 259 people in our
research and development organization. This team is responsible
for the design, development, and release of our products. The
group is organized into four disciplines: development, quality
assurance, documentation, and product management. Members from
each discipline, along with a product-marketing manager from our
marketing department, form focus teams that work closely with
sales, marketing, services, customers, and prospects to better
understand market needs and user requirements. These teams
utilize a well-defined software development methodology that we
believe enables us to deliver products that satisfy real
business needs for the global market while also meeting
commercial quality expectations.
When appropriate, we also use third parties to expand the
capacity and technical expertise of our internal research and
development team. On occasion, we have licensed third-party
technology. We believe this approach shortens time to market
without compromising competitive position or product quality,
and we plan to continue drawing on third-party resources as
needed in the future.
Approximately half of Informaticas research and
development team is based in the United States and the remainder
is in the offshore development teams based in India, the United
Kingdom and the Netherlands. The offshore development teams are
focused on developing and performing quality assurance work on
portions of our data integration technology. Our offshore
development is intended to increase development productivity and
expand development capabilities. Our research and development
expenditures were $42.6 million in 2005, $50.3 million
in 2004, and $47.7 million in 2003.
Intellectual Property and Other Proprietary Rights
Our success depends in part upon our proprietary technology. We
rely on a combination of patent, copyright, trademark and trade
secret rights, confidentiality procedures, and licensing
arrangements to establish and protect our proprietary rights. As
part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, distributors, and
corporate partners and into license agreements with respect to
our software, documentation, and other proprietary information.
In addition, we have 12 patents granted in the United
States, 1 patent granted in the European Union, 1 patent granted
in Ireland,
6
8 patent applications pending in the United States, and 20
corresponding international patent applications pending.
Nonetheless, our intellectual property rights may not be
successfully asserted in the future or may be invalidated,
circumvented, or challenged. In addition, the laws of various
foreign countries where our products are distributed do not
protect our intellectual property rights to the same extent as
U.S. laws. Our inability to protect our proprietary
information could harm our business.
Future Revenues (New Orders, Backlog, and Deferred
Revenue)
Our future revenues are dependent upon (1) new orders
received, shipped, and recognized in a given quarter and
(2) our backlog and deferred revenues entering a given
quarter. Our backlog consists primarily of product license
orders that have not shipped as of the end of a given quarter
and orders to certain distributors, resellers, and OEMs where
revenue is recognized upon cash receipt. Our deferred revenues
are primarily comprised of (1) maintenance revenues that we
recognize over the term of the contract, typically one year,
(2) license product orders that have shipped but where the
terms of the license agreement contain acceptance language or
other terms that require that the license revenues be deferred
until all revenue recognition criteria are met or recognized
ratably over an extended period, and (3) consulting and
education services revenues that have been prepaid but for which
services have not yet been performed. We typically ship products
shortly after the receipt of an order, which is common in the
software industry, and historically our backlog of license
orders awaiting shipment at the end of any given quarter has
varied. Aggregate backlog and deferred revenues at
December 31, 2005 was approximately $104.2 million
compared to $82.3 million at December 31, 2004. This
increase at December 31, 2005 was primarily due to an
increase in deferred maintenance revenues and, to a lesser
extent, an increase in license orders awaiting shipment and
shipped orders where revenue is recognized upon cash receipt.
Backlog and deferred revenues as of any particular date are not
necessarily indicative of future results.
Competition
The market for our products is highly competitive, quickly
evolving, and subject to rapidly changing technology. Our
competition consists of hand-coded, custom-built data
integration solutions developed in-house by various companies in
the industry segments that we target, as well as vendors of
point integration solutions typically used for departmental
deployment, including Embarcadero Technologies, Group 1
Software, IBM, SAS Institute, and certain privately held
companies. We have competed in the past with business
intelligence vendors that offer data integration solutions for
their combined data warehousing and business intelligence
offerings, such as Business Objects, Cognos, Hyperion Solutions,
MicroStrategy, and certain privately held companies. We also
compete against certain database and enterprise application
vendors, which offer products that typically operate
specifically with these competitors proprietary databases.
Such competitors include IBM, Microsoft, Oracle, and SAP.
We currently compete on the basis of the breadth and depth of
our products functionality as well as on the basis of
price. Additionally, we compete on the basis of certain other
factors, including neutrality, dependability, innovation,
quality of products, services, and support, and versatility.
We believe that we currently compete favorably with respect to
the above factors. For a further discussion of our competition,
see Risk FactorsIf we do not compete effectively
with companies selling data integration products, our revenues
may not grow and could decline.
Seasonality
Our business is influenced by seasonal factors, largely due to
customer buying patterns. In recent years, we have generally had
weaker demand for our software products and services in the
first and third quarters of the year. Our consulting and
education services have sometimes been negatively impacted in
the fourth and first quarters of the year due to the holiday
season and internal meetings, which result in fewer billable
hours for our consultants and fewer education classes.
7
Employees
As of December 31, 2005, we had a total of 1,010 employees,
including 259 people in research and development, 362 people in
sales and marketing, 272 people in consulting, customer support,
and education services, and 117 people in general and
administrative services. None of our employees is represented by
a labor union. We have not experienced any work stoppages, and
we consider employee relations to be good.
In addition to the other information contained in this
Form 10-K, we have
identified the following risks and uncertainties that may have a
material adverse effect on our business, financial condition, or
results of operation. Investors should carefully consider the
risks described below before making an investment decision. The
trading price of our common stock could decline due to any of
these risks, and investors may lose all or part of their
investment.
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. Our
competition consists of hand-coded, custom-built data
integration solutions developed in-house by various companies in
the industry segments that we target, as well as other vendors
of integration software products, including Ab Initio, Business
Objects, Embarcadero Technologies, IBM (which acquired Ascential
Software), SAS Institute, and certain other 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 Cognos, Hyperion Solutions, MicroStrategy, and certain
privately held companies. We also compete against certain
database and enterprise application vendors, which offer
products that typically operate specifically with these
competitors proprietary databases. Such competitors
include IBM, Microsoft, Oracle, and SAP. Many of these
competitors have longer operating histories, substantially
greater financial, technical, marketing, or other resources, or
greater name recognition than we do. Our competitors may be able
to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. 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 at no cost to the customer or at deeply discounted
prices. These difficulties may increase as larger companies
target the data integration market. 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
as IBMs acquisition of Ascential Software. 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.
New product introductions and product enhancements may
impact market acceptance of our products and affect our results
of operations.
For new product introductions and existing product enhancements,
changes can occur in product packaging and pricing. In February
2005, we announced our introduction of PowerCenter Advanced
Edition. In October 2005 we announced our introduction of
PowerCenter 8. In connection with our acquisition of
8
Similarity in January 2006, we have announced our intention to
incorporate Similaritys patented data quality technology
into our PowerCenter data integration product suite. New product
introductions and/or enhancements have inherent risks, including
but not limited to:
|
|
|
|
|
delay in completion, launch, delivery, or availability; |
|
|
|
delay in customer purchases in anticipation of new products not
yet released; |
|
|
|
product quality issues including the possibility of defects; |
|
|
|
market confusion based on changes to the product packaging and
pricing as a result of a new product release; |
|
|
|
interoperability issues with third-party technologies; |
|
|
|
loss of existing customers that choose a competitors
product instead of upgrading or migrating to the new product; and |
|
|
|
loss of maintenance revenues from existing customers that do not
upgrade or migrate. |
In addition, we plan to continue to partner with our existing
data quality vendors in terms of support for our existing
customers. However, it is unclear how successful the ongoing
partnering will be and how our customers will react. Given the
risks associated with the introduction of new products, we
cannot predict their impact on overall sales and revenues.
We have experienced and could continue to experience
fluctuations in our quarterly operating results, especially the
amount of license revenues we recognize each quarter, and such
fluctuations have caused and could cause our stock price to
decline.
Our quarterly operating results have fluctuated in the past and
are likely to do so in the future. These fluctuations have
caused our stock price to experience declines in the past and
could cause our stock price to significantly fluctuate or
experience declines in the future. One of the reasons why our
operating results have fluctuated is that our license revenues,
which are 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. By
comparison, our short-term expenses are relatively fixed and
based in part on our expectations of future revenues.
Moreover, historically our backlog of license orders at the end
of a given fiscal period has tended to vary. This has
particularly been the case at the end of the first and third
fiscal quarters when our backlog typically decreases from the
prior quarter and increases at the end of the fourth quarter.
For example, in the first quarter of 2004, we experienced
greater seasonal reduction in license orders than we had
initially expected.
Furthermore, we generally recognize a substantial portion of our
license revenues in the last month of each quarter and,
sometimes, in the last few weeks of each quarter. As a result,
we cannot predict the adverse impact caused by cancellations or
delays in orders until the end of each quarter. Moreover, the
likelihood of an adverse impact may be greater if we experience
increased average transaction sizes due to a mix of relatively
larger deals in our sales pipeline.
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.
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
9
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.
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 IBMs Business
Consulting Services (BCS) group has been successful
in the past, IBMs recent acquisition of Ascential Software
may make it more critical that we strengthen our relationships
with our other strategic partners. We cannot guarantee that we
will be able to strengthen our relationships with our strategic
partners or that such relationships will be successful in
generating additional revenue.
We may not be able to maintain our strategic partnerships or
attract sufficient additional strategic partners who have the
ability to market our products effectively, are qualified to
provide timely and cost-effective customer support and service,
or have the technical expertise and personnel resources
necessary to implement our products for our customers. In
particular, if our strategic partners do not devote sufficient
resources to implement our products, we may incur substantial
additional costs associated with hiring and training additional
qualified technical personnel to implement solutions for our
customers in a timely manner. Furthermore, our relationships
with our strategic partners may not generate enough revenue to
offset the significant resources used to develop these
relationships. If we are unable to leverage the strength of our
strategic partnerships to generate additional revenues, our
revenues and the price of our common stock could decline.
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. 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 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 2002, we experienced a reduced conversion rate of our overall
license pipeline, primarily as a result of the general economic
slowdown which caused the amount of customer purchases to be
reduced, deferred, or cancelled. In the first half of 2003, we
continued to experience a decrease in our sales pipeline as well
as our pipeline conversion rate, primarily as a result of the
negative impact of the war in Iraq on the capital spending
budgets of our customers, as well as the continued general
economic slowdown. While the U.S. economy improved in the
second half of 2003 and in 2004 and 2005, we experienced, and
continue to experience, uncertainty regarding our sales pipeline
and our ability to convert potential sales of our products into
revenue. Although we experienced an increase in the size of our
sales pipeline and our pipeline conversion rate in 2005
10
as a result of our increased investment in sales personnel and a
gradually improving IT spending environment, 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.
Our international operations expose us to greater risks,
including but not limited to those regarding intellectual
property, collections, exchange rate fluctuations, and
regulations, which could limit our future growth.
We have significant operations outside the United States,
including software development centers in India, 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 the Netherlands, India, and the
United Kingdom. Additionally, we have recently opened sales
offices in Australia, China, India, Japan, Korea, Taiwan, and
Singapore, and we plan to continue to expand our international
operations in the Asia-Pacific market. Our international
operations face numerous risks. For example, in order to sell
our products in certain foreign countries, our products must be
localized, that is, customized to meet local user needs.
Developing local versions of our products for foreign markets is
difficult, requires us to incur additional expenses, and can
take longer than we anticipate. We currently have limited
experience in localizing products and in testing whether these
localized products will be accepted in the targeted countries.
We cannot assure that our localization efforts will be
successful.
In addition, we have only a limited history of marketing,
selling, and supporting our products and services
internationally. As a result, we must hire and train experienced
personnel to staff and manage our foreign operations. However,
we have experienced difficulties in recruiting, training, and
managing an international staff, and 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. For example, in 2004, we were unable to recognize a
portion of license fees for two large software license
agreements signed in Europe in the third quarter of 2004. We
deferred the license revenues related to these software license
agreements in September 2004 due to extended warranties that
contained provisions for additional unspecified deliverables and
began amortizing the deferred revenues balances to license
revenues in September 2004 for a two- to five-year period.
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 India, the Netherlands, and
the United Kingdom also subject our business to certain risks,
including:
|
|
|
|
|
greater difficulty in protecting our ownership rights to
intellectual property developed in foreign countries, which may
have laws that materially differ from those in the United States; |
|
|
|
communication delays between our main development center in
Redwood City, California and our development centers in India,
the Netherlands, and the United Kingdom as a result of time zone
differences, which may delay the development, testing, or
release of new products; |
|
|
|
greater difficulty in relocating existing trained development
personnel and recruiting local experienced personnel, and the
costs and expenses associated with such activities; and |
|
|
|
increased expenses incurred in establishing and maintaining
office space and equipment for the development centers. |
11
Additionally, our international operations as a whole are
subject to a number of risks, including the following:
|
|
|
|
|
greater risk of uncollectible accounts and longer collection
cycles; |
|
|
|
greater risk of unexpected changes in regulatory practices,
tariffs, and tax laws and treaties; |
|
|
|
greater risk of a failure of our foreign employees to comply
with both U.S. and foreign laws, including antitrust
regulations, the Foreign Corrupt Practices Act, and unfair trade
regulations; |
|
|
|
potential conflicts with our established distributors in
countries in which we elect to establish a direct sales presence; |
|
|
|
our limited experience in establishing a sales and marketing
presence and the appropriate internal systems, processes, and
controls in Asia-Pacific, especially China, Hong Kong, Korea,
and Taiwan; |
|
|
|
fluctuations in exchange rates between the U.S. dollar and
foreign currencies in markets where we do business, if we
continue to not engage in hedging activities; and |
|
|
|
general economic and political conditions in these foreign
markets. |
These factors and other factors could harm our ability to gain
future international revenues and, consequently, materially
impact our business, results of operations, and financial
condition. 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.
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, which may result in larger
average transaction sizes. Further, our sales cycle may lengthen
as we continue to focus our sales efforts on large corporations.
As a result of these factors, the length of time from our
initial contact with a customer to the customers decision
to purchase our products typically ranges from three to nine
months. We are subject to a number of significant risks as a
result of our lengthy sales cycle, including:
|
|
|
|
|
our customers budgetary constraints and internal
acceptance review procedures; |
|
|
|
the timing of our customers budget cycles; |
|
|
|
the seasonality of technology purchases, which historically has
resulted in stronger sales of our products in the fourth quarter
of the year, especially when compared to lighter sales in the
first quarter of the year; |
|
|
|
our customers concerns about the introduction of our
products or new products from our competitors; or |
|
|
|
potential downturns in general economic or political conditions
that could occur during the sales cycle. |
If our sales 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.
12
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 includes, among other things, an
assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year, including
a statement regarding the effectiveness of our internal control
over financial reporting. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management.
Managements assessment of internal control over financial
reporting requires management to make subjective judgments and,
because this requirement to provide a management report has only
been in effect since 2004, some of our judgments will be in
areas that may be open to interpretation. Therefore, our
management report may be difficult to prepare, and our auditors,
who are required to issue an attestation report along with our
management report, may not agree with managements
assessments.
In addition, during 2005, we 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
controls risks. To address such potential risks, we recognize
revenue on transactions derived in this region only when the
cash has been received.
Although we currently believe our internal control over
financial reporting is effective, the effectiveness of our
internal controls in future periods is subject to the risk that
our controls may become inadequate.
If we are unable to assert that our internal control over
financial reporting is effective in any future period (or if our
auditors are unable to provide an attestation report regarding
the effectiveness of our internal controls, or qualify such
report or fail to provide such report in a timely manner), we
could lose investor confidence in the accuracy and completeness
of our financial reports, which would have an adverse effect on
our stock price.
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. 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.
If the market in which we sell our products and services
does not grow as we anticipate, we may not be able to increase
our revenues at an acceptable rate of growth, and the price of
our common stock could decline.
The market for software products that enable more effective
business decision-making by helping companies aggregate and
utilize data stored throughout an organization continues to
change. Substantially all of our historical revenues have been
attributable to the sales of products and services in the data
warehousing market. While we believe that this market is still
growing, we expect most of our growth to come from the
13
emerging market for broader data integration, which includes
migration, data consolidation, data synchronization, and single
view projects. The use of packaged software solutions to address
the needs of the broader data integration market is relatively
new and is still emerging. Our potential customers may:
|
|
|
|
|
not fully value the benefits of using our products; |
|
|
|
not achieve favorable results using our products; |
|
|
|
experience technical difficulties in implementing our
products; or |
|
|
|
use alternative methods to solve the problems addressed by our
products. |
If this market does not grow as we anticipate, we would not be
able to sell as much of our software products and services as we
currently expect, which could result in a decline in the price
of our common stock.
The loss of our key personnel, an increase in our sales
force personnel turnover rate, or the inability to attract and
retain additional personnel could adversely affect our ability
to grow our company successfully and may negatively impact our
results of operations.
We believe our success depends upon our ability to attract and
retain highly skilled personnel and key members of our
management team. We continue to experience changes in members of
our senior management team with the recent departure of John
Entenmann, our Executive Vice President, Corporate Strategy and
Marketing. 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.
We also experienced an increased level of turnover in our direct
sales force in the fourth quarter of 2003 and the first quarter
of 2004. This increase in the turnover rate impacted our ability
to generate license revenues in the first nine months of 2004.
Although we have hired replacements in our sales force and have
seen the pace of the turnover decrease in recent 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 an increased level of turnover
in other areas of the business. If we are unable to effectively
attract and train new personnel, or if we continue to 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 stock options
as one mechanism for recruiting and retaining highly skilled
talent. Accounting regulations requiring the expensing of stock
options may impair our future ability to provide these
incentives without incurring significant compensation costs.
There can be no assurance that we will continue to successfully
attract and retain key personnel.
If the current improvement in the U.S. and global
economies does not result in increased sales of our products and
services, our operating results would be harmed, and the price
of our common stock could decline.
As our business has grown, we have become increasingly subject
to the risks arising from adverse changes in the domestic and
global economies. We experienced the adverse effect of the
economic slowdown in 2002 and the first six months of 2003,
which resulted in a significant reduction in capital spending by
our customers, as well as longer sales cycles, and the deferral
or delay of purchases of our products. In addition, terrorist
actions and the military actions in Afghanistan and Iraq
magnified and prolonged the adverse effects of the economic
slowdown. Although the U.S. economy improved beginning in
the third quarter of 2003, and we have experienced some
improvement in our pipeline conversion rate, we may not
experience any significant improvement in our pipeline
conversion rate in the future. In particular, our ability to
forecast and rely on U.S. federal government orders,
especially potential orders from the U.S. Department of
Defense, is uncertain due to congressional budget constraints
and changes in spending priorities.
14
If the current improvement in the U.S. economy does not
result in increased sales of our products and services, our
results of operations could fail to meet the expectations of
stock analysts and investors, which could cause the price of our
common stock to decline. Moreover, if the economies of Europe
and Asia-Pacific do not continue to grow or if there is an
escalation in regional or global conflicts, we may fall short of
our revenue expectations for 2006. Any further economic slowdown
in Europe could adversely affect our pipeline conversion rate,
which could impact our ability to meet our revenue expectations
for 2006. Although we are investing in Asia-Pacific, there are
significant risks with overseas investments and our growth
prospects in Asia-Pacific are uncertain. In addition, we could
experience delays in the payment obligations of our worldwide
reseller customers if they experience weakness in the end-user
market, which would increase our credit risk exposure and harm
our financial condition.
We rely on the sale of a limited number of products, and
if these products do not achieve broad market acceptance, our
revenues would be adversely affected.
To date, substantially all of our revenues have been derived
from our data integration products such as PowerCenter and
PowerExchange and related services. We expect sales of our data
integration software and related services to comprise
substantially all of our revenues for the foreseeable future. If
any of our products does not achieve market acceptance, our
revenues and stock price could decrease. In particular, with the
completion of our Similarity acquisition, we intend to integrate
Similaritys data quality technology into our PowerCenter
data integration product suite. Market acceptance for our
current products, as well as our PowerCenter product with
Similaritys data quality technology, could be already
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.
We may not be able to successfully manage the growth of
our business if we are unable to improve our internal systems,
processes, and controls.
We need to continue to improve our internal systems, processes,
and controls to effectively manage our operations and growth,
including our international growth into new geographies,
particularly the Asia-Pacific market. We may not be able to
successfully implement improvements to these systems, processes,
and controls in an efficient or timely manner, and we may
discover deficiencies in existing systems, processes, and
controls. We have licensed technology from third parties to help
us accomplish this objective. The support services available for
such third-party technology may be negatively affected by
mergers and consolidation in the software industry, and support
services for such technology may not be available to us in the
future. We may experience difficulties in managing improvements
to our systems, processes, and controls or in connection with
third-party software, which could disrupt existing customer
relationships, causing us to lose customers, limit us to smaller
deployments of our products, or increase our technical support
costs.
The price of our common stock fluctuates as a result of
factors other than our operating results, such as the actions of
our competitors and securities analysts, as well as developments
in our industry and changes in accounting rules.
The market price for our common stock has experienced
significant fluctuations and may continue to fluctuate
significantly. The market price for our common stock may be
affected by a number of factors other than our operating
results, including:
|
|
|
|
|
the announcement of new products or product enhancements by our
competitors; |
|
|
|
quarterly variations in our competitors results of
operations; |
|
|
|
changes in earnings estimates and recommendations by securities
analysts; |
|
|
|
developments in our industry; and |
|
|
|
changes in accounting rules. |
After periods of volatility in the market price of a particular
companys securities, securities class action litigation
has often been brought against that company. The Company and
certain former Company officers
15
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.
The price of our common stock may fluctuate when we
account for employee stock option and employee stock purchase
plans using the new fair value method, which could significantly
reduce our net income and earnings per share.
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 123(R), Share-Based
Payment, which will require us to measure compensation cost
for all share-based payments (including employee stock options)
at fair value at the date of grant and record such expense in
our consolidated financial statements. We are required to adopt
SFAS No. 123(R) in the first quarter of 2006. The
adoption of SFAS No. 123(R) is expected to have a
material adverse impact on our consolidated financial position
and results of operations. We anticipate that the adoption of
SFAS No. 123(R) will increase our operating expenses
and reduce our net income and earnings per share, all of which
could result in a decline in the price of our common stock.
We rely on a number of different distribution channels to
sell and market our products. Any conflicts that we may
experience within these various distribution channels could
result in confusion for our customers and a decrease in revenue
and operating margins.
We have a number of relationships with resellers, systems
integrators, and distributors that assist us in obtaining broad
market coverage for our products and services. Although our
discount policies, sales commission structure, and reseller
licensing programs are intended to support each distribution
channel with a minimum level of channel conflicts, we may not be
able to minimize these channel conflicts in the future. Any
channel conflicts that we may experience could result in
confusion for our customers and a decrease in revenue and
operating margins.
Any significant defect in our products could cause us to
lose revenue and expose us to product liability claims.
The software products we offer are inherently complex and,
despite extensive testing and quality control, have in the past
and may in the future contain errors or defects, especially when
first introduced. These defects and errors could cause damage to
our reputation, loss of revenue, product returns, order
cancellations, or lack of market acceptance of our products. We
have in the past and may in the future need to issue corrective
releases of our software products to fix these defects or
errors, which could require us to allocate significant customer
support resources to address these problems.
Our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product
liability claims. However, the limitation of liability
provisions contained in our license agreements may not be
effective as a result of existing or future national, federal,
state, or local laws or ordinances or unfavorable judicial
decisions. Although we have not experienced any product
liability claims to date, the sale and support of our products
entails the risk of such claims, which could be substantial in
light of the use of our products in enterprise-wide
environments. In addition, our insurance against product
liability may not be adequate to cover a potential claim.
If we are unable to successfully respond to technological
advances and evolving industry standards, we could experience a
reduction in our future product sales, which would cause our
revenues to decline.
The market for our products is characterized by continuing
technological development, evolving industry standards, changing
customer needs, and frequent new product introductions and
enhancements. The introduction of products by our direct
competitors or others embodying new technologies, the emergence
of new industry standards, or changes in customer requirements
could render our existing products obsolete, unmarketable, or
less competitive. In particular, an industry-wide adoption of
uniform open standards across heterogeneous applications could
minimize the importance of the integration functionality of our
products and materially adversely affect the competitiveness and
market acceptance of our products. Our success depends upon our
ability to enhance existing products, to respond to changing
customer requirements, and to develop and introduce in a timely
manner new products that keep pace with technological and
competitive
16
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, rather than at the time of sale. As our business
grows, if these customers and partners do not make timely
payment for our products, our revenues could decrease. If our
revenues decrease, the price of our common stock may fall.
We have a limited operating history and a cumulative net
loss, which makes it difficult to evaluate our operations,
products, and prospects for the future.
We were incorporated in 1993 and began selling our products in
1996; therefore, we have a limited operating history upon which
investors can evaluate our operations, products, and prospects.
With the exception of 2005 and 2003, when we had net income of
$33.8 million and $7.3 million, respectively, since
our inception we have incurred significant annual net losses,
resulting in an accumulated deficit of $161.3 million as of
December 31, 2005. We cannot ensure that we will be able to
sustain profitability in the future. If we are unable to sustain
profitability, we may fail to meet the expectations of stock
analysts and investors, and the price of our common stock may
fall.
If we are not able to adequately protect our proprietary
rights, third parties could develop and market products that are
equivalent to our own, which would harm our sales
efforts.
Our success depends upon our proprietary technology. We believe
that our product development, product enhancements, name
recognition, and the technological and innovative skills of our
personnel are essential to establishing and maintaining a
technology leadership position. We rely on a combination of
patent, copyright, trademark and trade secret rights,
confidentiality procedures, and licensing arrangements to
establish and protect our proprietary rights.
However, these legal rights and contractual agreements may
provide only limited protection. Our pending patent applications
may not be allowed or our competitors may successfully challenge
the validity or scope of any of our issued patents or any future
issued patents. Our patents alone may not provide us with any
significant competitive advantage, and third parties may develop
technologies that are similar or superior to our technology or
design around our patents. Third parties could copy or otherwise
obtain and use our products or technology without authorization,
or develop similar technology independently. We cannot easily
monitor any unauthorized use of our products, and, although we
are unable to determine the extent to which piracy of our
software products exists, software piracy is a prevalent problem
in our industry in general.
The risk of not adequately protecting our proprietary technology
and our exposure to competitive pressures may be increased if a
competitor should resort to unlawful means in competing against
us. For example, in July 2003 we settled a complaint against
Ascential Software Corporation in which a number of former
Informatica employees recruited and hired by Ascential
misappropriated our trade secrets, including sensitive product
and marketing information and detailed sales information
regarding existing and potential customers and unlawfully used
that information to benefit Ascential in gaining a competitive
advantage against us. Although we were ultimately successful in
this lawsuit, there are no assurances that we will be successful
in protecting our proprietary technology from competitors in the
future.
We have entered into agreements with many of our customers and
partners that require us to place the source code of our
products into escrow. Such agreements generally provide that
such parties will have a limited, non-exclusive right to use
such code if: (1) there is a bankruptcy proceeding by or
against us; (2) we cease to do business; or (3) we
fail to meet our support obligations. Although our agreements
with these third
17
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 in order 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). Although this lawsuit is in the discovery
stage, litigating claims related to the enforcement of
proprietary rights can be very expensive and can be burdensome
in terms of management time and resources, which could adversely
affect our business and operating results.
We may face intellectual property infringement claims that
could be costly to defend and result in our loss of significant
rights.
As is common in the software industry, we have received and may
continue from time to time to receive notices from third parties
claiming infringement by our products of third-party patent and
other proprietary rights. 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
partys proprietary rights. Any claims, with or without
merit, could be time consuming, result in costly litigation,
cause product shipment delays, or require us to enter into
royalty or licensing agreements, any of which could adversely
affect our business, financial condition, and operating results.
Although we do not believe that we are currently infringing any
proprietary rights of others, legal action claiming patent
infringement could be commenced against us, and we may not
prevail in such litigation given the complex technical issues
and inherent uncertainties in patent litigation. The potential
effects on our business that may result from a third-party
infringement claim include the following:
|
|
|
|
|
we may be forced to enter into royalty or licensing agreements,
which may not be available on terms favorable to us, or at all; |
|
|
|
we may be required to indemnify our customers or obtain
replacement products or functionality for our customers; |
|
|
|
we may be forced to significantly increase our development
efforts and resources to redesign our products as a result of
these claims; and |
|
|
|
we may be forced to discontinue the sale of some or all of our
products. |
Our effective tax rate is difficult to project and changes
in such tax rate could adversely affect our operating
results.
The process of determining our anticipated tax liabilities
involves many calculations and estimates, making 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 positions that we will take on tax returns prior to our
actually preparing the returns and the outcomes of audits with
tax authorities. We are also required to make determinations of
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
more likely than not based on our estimation of future taxable
income and other factors in each jurisdiction.
Furthermore, our overall effective income tax rate may be
affected by various factors in our business including
acquisitions, changes in our legal structure, changes in the
geographic mix of income and expenses,
18
changes in valuation allowances, changes in applicable
accounting rules and tax laws, developments in tax audits, and
variations in the estimated and actual level of annual pre-tax
income.
We may not successfully integrate Similaritys
technology, employees or business operations with our own. As a
result, we may not achieve the anticipated benefits of our
acquisition, which could adversely affect our operating results
and cause the price of our common stock to decline.
In January 2006, we acquired Similarity, a provider of
business-focused data quality and profiling solutions. The
successful integration of Similaritys technology,
employees, and business operations will place an additional
burden on our management and infrastructure. This acquisition,
and any others we may make in the future, will subject us to a
number of risks, including:
|
|
|
|
|
the failure to capture the value of the business we acquired,
including the loss of any key personnel, customers, and business
relationships; |
|
|
|
any inability to generate revenue from the combined products
that offsets the associated acquisition and maintenance
costs; and |
|
|
|
the assumption of any contracts or agreements from Similarity
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 Similarity acquisition or any future
acquisitions. To the extent that we are unable to successfully
manage these risks, our business, operating results, or
financial condition could be adversely affected, and the price
of our common stock could decline.
We may engage in future acquisitions or investments that
could dilute our existing stockholders or cause us to incur
contingent liabilities, debt, or significant expense.
From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of, or investments in, related
businesses, products, or technologies. For example, in January
2006 we announced our acquisition of Similarity Systems. Future
acquisitions and investments like these could result in the
issuance of dilutive equity securities, the incurrence of debt
or contingent liabilities, or the payment of cash to purchase
equity securities from third parties. There can be no assurance
that any strategic acquisition or investment will succeed. Risks
include difficulties in the integration of the products,
personnel, and operations of the acquired entity, disruption of
the ongoing business, potential management distraction from the
ongoing business, difficulties in the retention of key partner
alliances, and potential product liability issues related to the
acquired products.
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, and we do not occupy many of such
leases. Currently, we have substantially subleased these
unoccupied properties to third parties. However, 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. 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 6. Facilities Restructuring
Charges of Notes to Consolidated Financial Statements in
Item 8 of this Report.
Delaware law and our certificate of incorporation and
bylaws contain provisions that could deter potential acquisition
bids, which may adversely affect the market price of our common
stock, discourage merger offers, and prevent changes in our
management or Board of Directors.
Our basic corporate documents and Delaware law contain
provisions that might discourage, delay, or prevent a change in
the control of Informatica or a change in our management. Our
bylaws provide that we
19
have a classified Board of Directors, with each class of
directors subject to re-election every three years. This
classified Board has the effect of making it more difficult for
third parties to elect their representatives on our Board of
Directors and gain control of Informatica. These provisions
could also discourage proxy contests and make it more difficult
for our stockholders to elect directors and take other corporate
actions. The existence of these provisions could limit the price
that investors might be willing to pay in the future for shares
of our common stock.
In addition, we have adopted a stockholder rights plan. Under
the plan, we issued a dividend of one right for each outstanding
share of common stock to stockholders of record as of
November 12, 2001, and such rights will become exercisable
only upon the occurrence of certain events. Because the rights
may substantially dilute the stock ownership of a person or
group attempting to take us over without the approval of our
Board of Directors, the plan could make it more difficult for a
third party to acquire us or a significant percentage of our
outstanding capital stock without first negotiating with our
Board of Directors regarding such acquisition.
We may need to raise additional capital in the future,
which may not be available on reasonable terms to us, if at
all.
We may not generate sufficient revenue from operations to offset
our operating or other expenses. As a result, in the future, we
may need to raise additional funds through public or private
debt or equity financings. We may not be able to borrow money or
sell more of our equity securities to meet our cash needs. Even
if we are able to do so, it may not be on terms that are
favorable or reasonable to us. If we are not able to raise
additional capital when we need it in the future, our business
could be seriously harmed.
Business interruptions could adversely affect our
business.
Our operations are vulnerable to interruption by fire,
earthquake, power loss, telecommunications or network failure,
and other events beyond our control. We are in the process of
preparing a detailed disaster recovery plan. Our facilities in
the State of California had been subject to electrical blackouts
as a consequence of a shortage of available electrical power,
which occurred during 2001. In the event these blackouts
reoccur, they could disrupt the operations of our affected
facilities. In connection with the shortage of available power,
prices for electricity may continue to increase in the
foreseeable future. Such price changes will increase our
operating costs, which could negatively impact our
profitability. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that may
occur, and any losses or damages incurred by us could have a
material adverse effect on our business.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
We have received no written comments regarding our periodic or
current reports from the staff of the SEC that were issued
180 days or more preceding the end of its 2005 fiscal year
and that remained unresolved.
Our corporate headquarters are located in a leased facility at
the Seaport Plaza in Redwood City, California and consist of
approximately 159,000 square feet; the lease will expire in
December 2007 (with a three-year renewal option). The facility
is used by our administrative, sales, marketing, product
development, customer support, and services groups.
We also occupy additional leased facilities in the United States
including offices located in Austin and Plano, Texas; Chicago,
Illinois; and New York, New York, which are primarily used for
sales, marketing, services and, to a lesser degree, product
development. Leased facilities located outside of the United
States and used primarily for sales, marketing, customer
support, and services include offices in Toronto, Canada;
Puteaux, France; Frankfurt and Munich, Germany; Nieuwegein, the
Netherlands; Baden-Dattwil, Switzerland; Maidenhead, the United
Kingdom; Sydney, Australia; Beijing, China; Seoul, Korea; and
Singapore. We also leased facilities in Bangalore, India where
our offices are primarily used for product development. In
addition, we lease executive office space throughout the world
for our local sales and services needs. These leased facilities
expire at various times through February 2010. We are
continually evaluating the
20
adequacy of existing facilities and additional facilities in new
cities, and we believe that suitable additional space will be
available in the future on commercially reasonable terms as
needed.
With the close of the acquisition of Similarity on
January 26, 2006, we assumed leased facilities primarily in
Dublin, Ireland and Austin, Texas. We have certain facilities
under leases that are in excess of our requirements and we no
longer occupy, do not intend to occupy, and address these
facilities through subleasing. Currently, these vacated
facilities are fully occupied by our tenants. See Note 6.
Facilities Restructuring Charges, and Note 7. Commitments
and Contingencies of Notes to the Consolidated Financial
Statements in Item 8 of this Report.
|
|
ITEM 3. |
LEGAL PROCEEDINGS |
On November 8, 2001, a purported securities class action
complaint was filed in the U.S. District Court for the
Southern District of New York. The case is entitled In re
Informatica Corporation Initial Public Offering Securities
Litigation, Civ.
No. 01-9922 (SAS)
(S.D.N.Y.), related to In re Initial Public Offering
Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.).
Plaintiffs amended complaint was brought purportedly
on behalf of all persons who purchased our common stock from
April 29, 1999 through December 6, 2000. It names as
defendants Informatica Corporation, two of our former officers
(the Informatica defendants), and several investment
banking firms that served as underwriters of our April 29,
1999 initial public offering 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.
We accepted a settlement proposal presented to all issuer
defendants. In this settlement, plaintiffs will dismiss and
release all claims against the Informatica defendants, in
exchange for a contingent payment by the insurance companies
collectively responsible for insuring the issuers in all of the
IPO cases, and for the assignment or surrender of control of
certain claims we may have against the underwriters. The
Informatica defendants will not be required to make any cash
payments in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of the
insurance coverage, a circumstance that we do not believe will
occur. The settlement will require approval of the Court, which
cannot be assured, after class members are given the opportunity
to object to the settlement or opt out of the settlement. The
Court has set a hearing date of April 24, 2006 to consider
final approval of the settlement.
On July 15, 2002, we filed a patent infringement action in
U.S. District Court in Northern California against Acta
Technology, Inc. (Acta), now known as Business
Objects Data Integration, Inc. (BODI), asserting
that certain Acta products infringe on three of our patents:
U.S. Patent No. 6,014,670, entitled Apparatus
and Method for Performing Data Transformations in Data
Warehousing, U.S. Patent No. 6,339,775, entitled
Apparatus and Method for Performing Data Transformations
in Data Warehousing (this patent is a continuation in part
of and claims the benefit of U.S. Patent
No. 6,014,670), and U.S. Patent No. 6,208,990,
entitled Method and Architecture for Automated
Optimization of ETL Throughput in Data Warehousing
Applications. On July 17, 2002, we filed an amended
complaint alleging that Acta products also infringe on one
additional patent: U.S. Patent No. 6,044,374, entitled
Object References for Sharing Metadata in Data
Marts. In the suit, we are seeking an injunction against
future sales of the infringing Acta/
21
BODI products, as well as damages for past sales of the
infringing products. We have asserted that BODIs
infringement of our patents was willful and deliberate. On
September 5, 2002, BODI answered the complaint and filed
counterclaims against us seeking a declaration that each patent
asserted is not infringed and is invalid and unenforceable. BODI
has not made any claims for monetary relief against us and has
not filed any counterclaims alleging that we have infringed any
of BODIs patents. The parties presented their respective
claim constructions to the Court on September 24, 2003, and
on August 1, 2005, the Court issued its claims construction
order. We believe that the issued claims construction order is
favorable to our position on the infringement action. The matter
is currently in the discovery phase.
We are also a party to various legal proceedings and claims
arising from the normal course of business activities.
Based on current available information, management does not
expect that the ultimate outcome of these unresolved matters,
individually or in the aggregate, will have a material adverse
effect on our results of operations, cash flows, or financial
position. However, litigation is subject to inherent
uncertainties and our view of these matters may change in the
future. Were an unfavorable outcome to occur, there exists the
possibility of a material adverse impact on our results of
operations, cash flows, and financial position for the period in
which the unfavorable outcome occurs, and potentially in future
periods.
|
|
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not applicable.
Executive Officers of the Registrant
The following table sets forth certain information concerning
our executive officers as of January 31, 2006:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position(s) |
|
|
| |
|
|
Sohaib Abbasi
|
|
|
49 |
|
|
Chief Executive Officer, President and Director |
Earl E. Fry
|
|
|
47 |
|
|
Chief Financial Officer, Executive Vice President, and Secretary |
Paul J. Hoffman
|
|
|
55 |
|
|
Executive Vice President, Worldwide Sales |
Girish Pancha
|
|
|
41 |
|
|
Executive Vice President of Products |
Our executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is
a full-time employee. There is no family relationship between
any of our executive officers or directors.
Mr. Abbasi has been our President and Chief
Executive Officer since July 2004 and a member of our Board of
Directors since February 2004. From 2001 to 2003,
Mr. Abbasi was Senior Vice President, Oracle Tools Division
and Oracle Education at Oracle Corporation, which he joined in
1982. From 1994 to 2000, he was Senior Vice President Oracle
Tools Product Division at Oracle Corporation. Mr. Abbasi
graduated with honors from the University of Illinois at
Urbana-Champaign in 1980, where he earned both a B.S. and an
M.S. degree in computer science.
Mr. Fry joined us as the Chief Financial Officer and
Senior Vice President in December 1999. In July 2002,
Mr. Fry became the Secretary. In August 2003, Mr. Fry
was promoted to Executive Vice President. From November 1995 to
December 1999, Mr. Fry was Vice President and Chief
Financial Officer at Omnicell Technologies, Inc. From July 1994
to November 1995, he was Vice President and Chief Financial
Officer at C*ATS Software, Inc. Mr. Fry holds a B.A. degree
in accounting from the University of Hawaii and an M.B.A. degree
in finance and marketing from Stanford University. Mr. Fry
serves on the Board of Directors of Central Pacific Financial
Corp.
Mr. Hoffman joined us as Executive Vice President,
Worldwide Sales in January 2005. Mr. Hoffman was Executive
Vice President of Worldwide Sales at Cassatt Corporation from
August 2003 to December 2004. From April 1999 to June 2003,
Mr. Hoffman was Vice President of the Americas at SeeBeyond
Technology
22
Corporation. He served as Vice President Worldwide Sales for
Documentum from September 1996 to April 1999. Mr. Hoffman
holds a B.S. degree in finance from Fairfield University.
Mr. Pancha was an early employee of Informatica,
serving in engineering management roles from November 1996 to
October 1998. Mr. Pancha left in 1998 to co-found Zimba, a
developer of mobile applications providing real-time access to
corporate information via voice, wireless, and Web technologies.
Upon Informaticas acquisition of Zimba in August 2000,
Mr. Pancha rejoined us as Vice President and General
Manager of the Platform Business Unit. In August 2002, he became
Senior Vice President of Products, assuming responsibility for
all products. In August 2003, Mr. Pancha was promoted to
Executive Vice President. Prior to Informatica, Mr. Pancha
spent eight years in various development and management
positions at Oracle. Mr. Pancha holds a B.S. degree in
electrical engineering from Stanford University and an M.S.
degree in electrical engineering from the University of
Pennsylvania.
PART II
|
|
ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Price Range of Common Stock
Our common stock is listed on the NASDAQ National Market under
the symbol INFA. Our initial public offering was
April 29, 1999 at $4.00 per share (adjusted for stock
splits in the form of stock dividends in February 2000 and
November 2000). The price range per share in the table below
reflects the highest and lowest sale prices for our stock as
reported by the NASDAQ National Market during the last two
fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$ |
12.63 |
|
|
$ |
10.20 |
|
|
Third quarter
|
|
$ |
12.54 |
|
|
$ |
8.35 |
|
|
Second quarter
|
|
$ |
9.02 |
|
|
$ |
7.23 |
|
|
First quarter
|
|
$ |
8.50 |
|
|
$ |
6.99 |
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$ |
8.67 |
|
|
$ |
5.82 |
|
|
Third quarter
|
|
$ |
7.65 |
|
|
$ |
5.36 |
|
|
Second quarter
|
|
$ |
10.20 |
|
|
$ |
6.64 |
|
|
First quarter
|
|
$ |
12.58 |
|
|
$ |
8.20 |
|
Holders of Record
At January 31, 2006, there were approximately 139
stockholders of record of our common stock, and the closing
price per share of our common stock was $14.72. Because many of
our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these
record holders.
Dividends
We have never declared or paid cash dividends on our common
stock. Because we currently intend to retain all future earnings
to finance future growth, we do not anticipate paying any cash
dividends in the near future.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
In 2004, the board of directors approved a one-year stock
repurchase program to purchase up to 5 million shares of
our common stock. In 2005, the board approved an extension of
this program to December 31, 2005.
23
The purpose of our stock repurchase program is, among other
things, to help offset the dilution caused by the issuance of
stock under our employee stock option 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 our common stock. We repurchased a total of
910,000 shares in the three months ended December 31,
2005. This program was completed on December 31, 2005.
The following table provides information about the repurchase of
our common stock during the three months ended December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) | |
|
|
|
|
|
|
Total Number of | |
|
Maximum Number of | |
|
|
|
|
|
|
Shares Purchased | |
|
Shares That May | |
|
|
(1) | |
|
|
|
as Part of Publicly | |
|
Yet Be Purchased | |
|
|
Total Number of | |
|
Average Price | |
|
Announced Plans | |
|
Under the Plans | |
Period |
|
Shares Purchased | |
|
Paid per Share | |
|
or Programs | |
|
or Programs | |
|
|
| |
|
| |
|
| |
|
| |
October 1 October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,045,000 |
|
November 1 November 30
|
|
|
910,000 |
|
|
$ |
11.37 |
|
|
|
910,000 |
|
|
|
1,135,000 |
|
December 1 December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
910,000 |
|
|
$ |
11.37 |
|
|
|
910,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
All shares repurchased in open-market transactions under the
repurchase program. |
|
(2) |
We announced the repurchase program on July 2, 2004. The
repurchase program authorizes the repurchase of up to
5 million shares of our common stock at any time until the
end of 2005. |
24
|
|
ITEM 6. |
SELECTED FINANCIAL DATA |
The following selected consolidated financial data is qualified
in its entirety by, and should be read in conjunction with, the
consolidated financial statements and the notes thereto included
in Item 8, and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
Item 7. The selected consolidated statements of operations
data and consolidated balance sheet data as of and for each of
the five years in the period ended December 31, 2005, have
been derived from the audited consolidated financial statements.
All share and per share amounts have been adjusted to give
retroactive effect to stock splits that have occurred since our
inception.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Selected Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$ |
120,182 |
|
|
$ |
97,941 |
|
|
$ |
94,590 |
|
|
$ |
99,943 |
|
|
$ |
119,937 |
|
|
|
Service
|
|
|
147,249 |
|
|
|
121,740 |
|
|
|
110,943 |
|
|
|
95,498 |
|
|
|
80,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
267,431 |
|
|
|
219,681 |
|
|
|
205,533 |
|
|
|
195,441 |
|
|
|
200,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
4,465 |
|
|
|
3,778 |
|
|
|
3,139 |
|
|
|
6,185 |
|
|
|
4,500 |
|
|
|
Service(1)
|
|
|
46,801 |
|
|
|
40,346 |
|
|
|
38,856 |
|
|
|
39,250 |
|
|
|
42,559 |
|
|
|
Amortization of acquired technology
|
|
|
922 |
|
|
|
2,322 |
|
|
|
1,031 |
|
|
|
1,040 |
|
|
|
1,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
52,188 |
|
|
|
46,446 |
|
|
|
43,026 |
|
|
|
46,475 |
|
|
|
48,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
215,243 |
|
|
|
173,235 |
|
|
|
162,507 |
|
|
|
148,966 |
|
|
|
152,046 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
42,585 |
|
|
|
51,322 |
|
|
|
47,730 |
|
|
|
45,836 |
|
|
|
46,714 |
|
|
|
Sales and marketing(1)
|
|
|
118,770 |
|
|
|
94,900 |
|
|
|
86,810 |
|
|
|
86,770 |
|
|
|
99,898 |
|
|
|
General and administrative(1)
|
|
|
20,583 |
|
|
|
20,755 |
|
|
|
20,921 |
|
|
|
20,286 |
|
|
|
19,638 |
|
|
|
Amortization of goodwill and other intangible assets
|
|
|
188 |
|
|
|
197 |
|
|
|
147 |
|
|
|
100 |
|
|
|
26,336 |
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
4,524 |
|
|
|
|
|
|
|
|
|
|
|
Facilities restructuring charges
|
|
|
3,683 |
|
|
|
112,636 |
|
|
|
|
|
|
|
17,030 |
|
|
|
12,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
185,809 |
|
|
|
279,810 |
|
|
|
160,132 |
|
|
|
170,022 |
|
|
|
204,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
29,434 |
|
|
|
(106,575 |
) |
|
|
2,375 |
|
|
|
(21,056 |
) |
|
|
(52,636 |
) |
|
Interest income and other, net
|
|
|
6,544 |
|
|
|
3,391 |
|
|
|
7,059 |
|
|
|
6,363 |
|
|
|
8,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
35,978 |
|
|
|
(103,184 |
) |
|
|
9,434 |
|
|
|
(14,693 |
) |
|
|
(43,676 |
) |
|
Income tax provision
|
|
|
2,174 |
|
|
|
1,220 |
|
|
|
2,124 |
|
|
|
921 |
|
|
|
1,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
|
$ |
(15,614 |
) |
|
$ |
(44,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
0.39 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
$ |
(0.20 |
) |
|
$ |
(0.58 |
) |
|
Diluted net income (loss) per common share
|
|
$ |
0.37 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
$ |
(0.20 |
) |
|
$ |
(0.58 |
) |
|
Shares used in computing basic net income (loss) per common share
|
|
|
87,242 |
|
|
|
85,812 |
|
|
|
82,049 |
|
|
|
79,753 |
|
|
|
77,599 |
|
|
Shares used in computing diluted net income (loss) per common
share
|
|
|
92,083 |
|
|
|
85,812 |
|
|
|
85,200 |
|
|
|
79,753 |
|
|
|
77,599 |
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
76,545 |
|
|
$ |
88,941 |
|
|
$ |
82,903 |
|
|
$ |
105,590 |
|
|
$ |
119,664 |
|
|
Short-term investments
|
|
|
185,649 |
|
|
|
152,160 |
|
|
|
140,890 |
|
|
|
130,285 |
|
|
|
89,555 |
|
|
Restricted cash
|
|
|
12,166 |
|
|
|
12,166 |
|
|
|
12,166 |
|
|
|
12,166 |
|
|
|
12,166 |
|
|
Working capital(2)
|
|
|
187,759 |
|
|
|
173,816 |
|
|
|
167,011 |
|
|
|
180,750 |
|
|
|
171,018 |
|
|
Total assets
|
|
|
441,022 |
|
|
|
409,768 |
|
|
|
402,808 |
|
|
|
365,194 |
|
|
|
342,903 |
|
|
Long-term obligations, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
222,730 |
|
|
|
195,722 |
|
|
|
289,599 |
|
|
|
252,403 |
|
|
|
260,408 |
|
|
|
(1) |
Amortization of stock-based compensation has been reclassified
for periods prior to December 31, 2004 to cost of service
revenues, research and development, sales and marketing, and
general and administrative expense. |
|
(2) |
A portion of deferred revenues has been reclassified to
long-term for periods prior to December 31, 2004. |
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
This Annual Report on
Form 10-K includes
forward-looking statements within the meaning of the
federal securities laws, particularly statements referencing our
expectations relating to license revenues, service revenues,
deferred revenues, cost of license revenues as a percentage of
license revenues, cost of service revenues as a percentage of
service revenues, and operating expenses as a percentage of
total revenues; the recording of amortization of acquired
technology, and stock-based compensation and share-based
payment; provision for income taxes; deferred taxes;
international expansion; the ability of our products to meet
customer demand; expected savings from our 2004 and 2001
Restructuring Plans; the sufficiency of our cash balances and
cash flows for the next 12 months; our stock repurchase
program; investment and potential investments of cash or stock
to acquire or invest in complementary businesses, products, or
technologies; the impact of recent changes in accounting
standards; 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 Item 1A. Risk Factors. All forward-looking
statements and reasons why results may differ included in this
Report are made as of the date hereof, and we assume no
obligation to update any such forward-looking statements or
reasons why actual results may differ.
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto appearing
elsewhere in this report.
Overview
We are a leading provider of enterprise data integration
software. We generate revenues from sales of software licenses
for our enterprise data integration software products and from
sales of services, which consist of maintenance, consulting, and
education services.
We receive revenues from licensing our products under perpetual
licenses directly to end users and indirectly through resellers,
distributors, and OEMs in the United States and internationally.
Most of our international sales have been in Europe, and revenue
outside of Europe and North America has comprised 4% or less of
total consolidated revenues during the last three years. We
receive service revenues from
26
maintenance contracts, consulting services, and education
services that we perform for customers that license our products
either directly or indirectly.
We license our software and provide services to many industry
sectors, including, but not limited to, energy &
utilities, financial services, insurance, government &
public sector, healthcare, high-technology, manufacturing,
retail, services, telecommunications, and transportation.
In 2005, our total revenues grew 22% to $267.4 million and
we generated net income of $33.8 million, or $0.37 per
diluted share. The increase in license revenues was a result of
an increase in both the volume and the average size of our
transactions and an increase in international license revenues.
The increase in service revenues was primarily from increased
maintenance revenues driven by strong renewals from our
expanding customer base, coupled with contribution from the new
releases of existing products. In 2005, we have subleased the
remainder of our excess facilities in connection with our 2004
and 2001 facilities restructuring for durations that are
generally less than the remaining lease terms.
On January 26, 2006, we acquired Similarity Systems Limited
(Similarity), a private company incorporated in
Ireland, by entering into a Share Purchase Agreement by and
among Informatica and the holders of the shares of Similarity.
Pursuant to the Purchase Agreement, Similarity stockholders are
entitled to receive approximately $48.3 million in cash and
approximately 122,000 shares of Informatica common stock (which
were fully vested but subject to escrow) valued on the date of
close at approximately $1.6 million. In addition, the
options of Similarity option holders were assumed by Informatica
and converted into options to purchase approximately 392,000
shares of Informatica common stock valued on the date of close
at approximately $5.1 million. Similaritys software
product suite includes data profiling, data standardization,
data cleansing, data matching, and data quality monitoring. With
this acquisition, we intend to further extend our enterprise
data integration platform by incorporating certain of
Similaritys product suite including its patented data
quality technology. With the acquisition, Informatica gained
approximately 70 employees, based primarily in Ireland and the
United States. In connection with the acquisition, we have
incurred additional expenses, including amortization of
intangible assets and acquired technology, purchased in-process
research and development costs, stock-based compensation, and
other charges. As a result of these charges, we expect the
acquisition to be dilutive in 2006.
Because our market is a dynamic one, we face both significant
opportunities and challenges. As such, we focus on several key
factors:
|
|
|
|
|
Competition: Inherent in our industry are risks
arising from competition with existing software solutions,
technological advances from other vendors, and the perception of
cost-savings by solving data integration challenges through
internal development. Our prospective customers may view these
alternative solutions as more attractive than our offerings.
Additionally, the recent consolidation activity in our industry
(including IBMs acquisition of Ascential Software) could
pose challenges as competitors could potentially offer our
prospective customers a broader suite of software products or
solutions. |
|
|
|
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. For
example in February 2005, we introduced PowerCenter Advanced
Edition, which expanded the capabilities of PowerCenter Standard
Edition. In October, we announced the release of a new major
release of our core product, PowerCenter 8. Also, in early 2006,
we announced our intention to integrate Similaritys data
quality technology into the PowerCenter product suite. New
product introductions and/or enhancements have inherent risks
including, but not limited to, product availability, product
quality and interoperability, and customer adoption or the delay
in customer purchases. Given the risks and new nature of the
products, we cannot predict their impact on overall sales and
revenues. |
|
|
|
Quarterly and Seasonal Fluctuations: Historically,
purchasing patterns in the software industry have followed
quarterly and seasonal trends and they are likely to do so in
the future. Specifically, it is the norm for us to recognize a
substantial portion of our new license orders in the last month
of each |
27
|
|
|
|
|
quarter and sometimes in the last few weeks of each quarter.
Seasonally, in recent years, we have generally had weaker demand
for our software products and services in the first and third
quarters. Additionally, our consulting and education services
have sometimes been negatively impacted in the fourth quarter
and first quarter due to the holiday season and internal
meetings, which result in fewer billable hours for our
consultants and fewer education classes. |
To address these potential risks, we have focused on a number of
key initiatives, including the strengthening of our
partnerships, the broadening of our distribution capability
worldwide, the enablement of our sales force and distribution
channel on new products, and the development and execution of a
branding campaign.
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.
Our alliance managers are focused on developing new and
enhancing existing strategic partnerships and we have added
employees in Europe to drive deeper relationships with partners
based in that geography. We have increased joint marketing
initiatives and have experienced more lead sharing from our
partners. In 2005, Accenture selected us as a key component of
the technology framework within its Accenture Information
Management Systems practice. Additionally, SAP Americas selected
us as its partner for data migrations into SAP, consolidations
of SAP systems, and upgrades of SAP systems.
We have also broadened our distribution efforts. In 2005, we
were able 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 to
our customers enterprise architects and chief information
officers. We have also expanded our sales presence in
Asia-Pacific in 2005 by opening new offices and increasing
headcount significantly. This included opening offices in Seoul,
Korea, Beijing, China, Taipei, Taiwan, and Hong Kong. This
expansion is aided by our
follow-the-sun support
model anchored by our Bangalore support center, which allows us
to provide local, better support to customers in Asia-Pacific.
Further, we have leveraged our inside sales force to address
incremental upgrade sales (of additional CPU licenses or add-on
options or products) and other routine sales to allow our direct
sales force to concentrate on higher-value transactions.
To address the risks of introducing new products, we have
invested 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, but are not limited to, our annual sales
kickoff conference for all sales and key marketing personnel,
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.
Another key initiative is a worldwide branding campaign. We
believe that the development of a well-recognized brand image
will help attract new prospective customers and drive trust and
loyalty from our existing customers, thereby mitigating
competitive and new product risks. Our branding campaign is
focused on making our name more known within the community of
our prospective buyers and is executed through placement of
advertisements in trade publications, consistency of our image
and presence in our marketing materials and on the Web, and
clear communication of our corporate image and goals to our
workforce and distribution channel.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements, we make
assumptions, judgments, and estimates that can have a
significant impact on amounts reported in our consolidated
financial statements. We base our assumptions, judgments, and
estimates on historical experience and various other factors
that we believe to be reasonable under the circumstances. Actual
results could differ materially from these estimates under
different assumptions or conditions. On a regular basis we
evaluate our assumptions, judgments, and estimates
28
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, and accounting
for impairment of goodwill have the greatest potential impact on
our consolidated financial statements, so we consider these to
be our critical accounting policies. We discuss below the
critical accounting estimates associated with these policies.
Historically, our assumptions, judgments, and estimates relative
to our critical accounting policies have not differed materially
from actual results. For further information on our significant
accounting policies, see the discussion in Note 2. Summary
of Significant Accounting Policies of Notes to the Consolidated
Financial Statements in Item 8 of this Report.
We follow detailed revenue recognition guidelines, which are
discussed below. We recognize revenue in accordance with
generally accepted accounting principles in the United States of
America (GAAP) that have been prescribed for the
software industry. The accounting rules related to revenue
recognition are complex and are affected by interpretations of
the rules which are subject to change. Consequently, the revenue
recognition accounting rules require management to make
significant judgments, such as determining if collectibility is
probable.
We derive revenues from software license fees, maintenance fees
(which entitle the customer to receive product support and
unspecified software updates), and professional services,
consisting of consulting and education services. We follow the
appropriate revenue recognition rules for each type of revenue.
The basis for recognizing software license revenue is determined
by American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 97-2
Software Revenue Recognition, together with other
authoritative literature. For other authoritative literature,
see the subsection Revenue Recognition in Note 2.
Summary of Significant Accounting Policies of Notes to the
Consolidated Financial Statements in Item 8 of this Report.
Substantially all of our software licenses are perpetual
licenses under which the customer acquires the perpetual right
to use the software as provided and subject to the conditions of
the license agreement. We recognize revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collection is probable. In
applying these criteria to revenue transactions, we must
exercise judgment and use estimates to determine the amount of
software, maintenance and professional services revenue to be
recognized each period.
Our judgment in determining the collectibility of amounts due
from our customers impacts the timing of revenue recognition.
Credit worthiness and collectibility are assessed; when a
customer is not deemed credit worthy, revenue is recognized when
payment is received.
We assess whether fees are fixed or determinable prior to
recognizing revenue. We must make interpretations of our
customer contracts and use estimates and 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. If we determine that a fee due from a
reseller is not fixed or determinable upon shipment to the
reseller, we defer the revenue until the reseller provides us
with evidence of sell through to an end-user customer or upon
cash receipt.
Our software license arrangements include multiple elements:
software license fees, 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 element of the
arrangement, all revenue is deferred until all elements have
been delivered, or VSOE is established. We are required to
exercise judgment in determining if VSOE exists for each
undelivered element.
29
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, software license revenue is
recognized as the consulting services revenue is recognized.
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. 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.
|
|
|
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 reduced operating expenses. 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. The accrued restructuring charges represent gross
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.
These liabilities include managements estimates pertaining
to sublease activities. Inherent in the assessment of the costs
related to our restructuring efforts are estimates related to
the most likely expected outcome of the significant actions to
accomplish the restructuring. We will continue to evaluate the
commercial real estate market conditions periodically to
determine if our estimates of the amount and timing of future
sublease income are reasonable based on current and expected
commercial real estate market conditions. Our estimates of
sublease income may vary significantly depending, in part, on
factors 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. 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.
For example, we increased our 2001 Restructuring Plan charges in
2002 and 2004 based on the continued deterioration in the
San Francisco Bay Area and Dallas, Texas real estate
markets. See Note 6. Facilities Restructuring Charges of
Notes to Consolidated Financial Statements in Item 8.
Future adjustments to the charges could result from a change in
the time period that the buildings will be vacant, expected
sublease rates, expected sublease terms, and the expected time
it will take to sublease. We will periodically assess the need
to update the original restructuring charges based on current
real estate market information and trend analysis and executed
sublease agreements.
|
|
|
Accounting for Income Taxes |
We use the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting
Standard (SFAS) No. 109, Accounting for
Income Taxes. Under this method, income tax expense 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 also account for any income tax contingencies in
accordance with SFAS No. 5, Accounting for
Contingencies. The measurement of current and deferred tax
assets and liabilities are based on provisions of currently
enacted tax laws. The effects of future changes in tax laws or
rates are not contemplated.
30
As part of the process of preparing consolidated financial
statements, we are required to estimate our income taxes and tax
contingencies in each of the tax jurisdictions in which we
operate prior to the completion and filing of tax returns for
such periods. This process involves estimating actual current
tax expense together with assessing temporary differences
resulting from differing treatment of items, such as deferred
revenue, for tax and accounting purposes. These differences
result in net deferred tax assets and liabilities. We must then
assess the likelihood that the deferred tax assets will be
realizable and to the extent we believe that realizability is
not more likely than not, we must establish a valuation
allowance. To the extent we establish a valuation allowance or
adjust such allowance in a period, we must include a tax expense
or benefit within the tax provision in the statement of
operations. We currently have established full valuation
allowance against our net deferred tax assets of
$91.7 million as of December 31, 2005, due to
uncertainties regarding realizability. In the event that actual
results differ from these estimates or we adjust these estimates
in future periods, we may need to adjust our valuation
allowance, which could impact our results of operations in the
quarter in which such determination is made.
|
|
|
Accounting for Impairment of Goodwill |
We assess goodwill for impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets,
which requires that goodwill be tested for impairment at the
reporting unit level (Reporting Unit) at
least annually and more frequently upon the occurrence of
certain events, as defined by SFAS No. 142. Consistent
with our determination that we have only one reporting segment,
we have determined that there is only one Reporting Unit,
specifically the license, implementation, and support of our
software products. Goodwill was tested for impairment in our
annual impairment tests on October 31 in each of the years
in 2005, 2004, and 2003 using the two-step process required by
SFAS No. 142. First, we reviewed the carrying amount
of the Reporting Unit compared to the fair value of
the Reporting Unit based on quoted market prices of our common
stock. If such comparison reflected potential impairment, we
would then prepare the discounted cash flow analyses. Such
analyses are based on cash flow assumptions that are consistent
with the plans and estimates being used to manage the business.
An excess carrying value compared to fair value would indicate
that goodwill may be impaired. Finally, if we would determine
that goodwill may be impaired, then we compare the implied
fair value of the goodwill, as defined by
SFAS No. 142, to its carrying amount to determine the
impairment loss, if any.
Based on these estimates, we determined in our annual impairment
tests as of October 31 of each year that the fair value of
the Reporting Unit exceeded the carrying amount and,
accordingly, goodwill was not impaired. Assumptions and
estimates about future values and remaining useful lives are
complex and often subjective. They can be affected by a variety
of factors, including such external factors as industry and
economic trends and such internal factors as changes in our
business strategy and our internal forecasts. Although we
believe the assumptions and estimates we have made in the past
have been reasonable and appropriate, different assumptions and
estimates could materially impact our reported financial
results. Accordingly, future changes in market capitalization or
estimates used in discounted cash flows analyses could result in
significantly different fair values of the Reporting Unit, which
may impair goodwill.
31
Results of Operations
The following table presents certain financial data as a
percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
45 |
% |
|
|
45 |
% |
|
|
46 |
% |
|
Service
|
|
|
55 |
|
|
|
55 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
Service
|
|
|
18 |
|
|
|
18 |
|
|
|
19 |
|
|
Amortization of acquired technology
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
20 |
|
|
|
21 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
80 |
|
|
|
79 |
|
|
|
79 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
44 |
|
|
|
43 |
|
|
|
42 |
|
|
Research and development
|
|
|
16 |
|
|
|
23 |
|
|
|
23 |
|
|
General and administrative
|
|
|
8 |
|
|
|
10 |
|
|
|
10 |
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Restructuring charges
|
|
|
1 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
69 |
|
|
|
128 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
11 |
|
|
|
(49 |
) |
|
|
2 |
|
Interest income and other, net
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
14 |
|
|
|
(47 |
) |
|
|
5 |
|
Income taxes provision
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
13 |
% |
|
|
(48 |
)% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
Revenues
Our total revenues were $267.4 million in 2005 compared to
$219.7 million in 2004 and $205.5 million in 2003,
representing growth of $47.7 million, or 22%, in 2005 from
2004 and $14.2 million, or 7%, in 2004 from 2003.
The following table and discussion compares our revenues by type
for the three years ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
License
|
|
$ |
120,182 |
|
|
$ |
97,941 |
|
|
$ |
94,590 |
|
|
|
23 |
% |
|
|
4 |
% |
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
|
103,573 |
|
|
|
87,470 |
|
|
|
75,748 |
|
|
|
18 |
% |
|
|
15 |
% |
|
Consulting and education
|
|
|
43,676 |
|
|
|
34,270 |
|
|
|
35,195 |
|
|
|
27 |
% |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service revenues
|
|
|
147,249 |
|
|
|
121,740 |
|
|
|
110,943 |
|
|
|
21 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267,431 |
|
|
$ |
219,681 |
|
|
$ |
205,533 |
|
|
|
22 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Our license revenues increased to $120.2 million in 2005
compared to $97.9 million in 2004 and $94.6 million in
2003, representing growth of $22.3 million, or 23%, in 2005
from 2004, and $3.3 million, or 4%, in 2004 from 2003. The
increase in license revenues in 2005 from 2004 was primarily due
to an increase in both the volume and the average size of our
transactions, and an increase in international license revenues.
In 2005, the average transaction amount for orders greater than
$100,000, increased to $316,000 from $299,000 in 2004. In
addition, the number of transactions greater than
$1.0 million increased to 17 in 2005 from 11 in 2004. The
increase in license revenues in 2004 from 2003 was primarily due
to $8.8 million of incremental sales of our data
integration platform products, partially offset by a
$5.4 million decrease in license revenue attributable to
our discontinued analytical applications in 2003. In 2004, we
also experienced an increase in the average size of transactions
greater than $100,000, which increased to $299,000 in 2004 from
$249,000 in 2003. In addition, the number of transactions
greater than $1.0 million increased to 11 in 2004 from 5 in
2003.
Maintenance revenues increased to $103.6 million in 2005
from $87.5 million in 2004 and $75.7 million in 2003,
representing growth of $16.1 million, or 18%, in 2005 from
2004 and $11.7 million, or 15%, in 2004 from 2003. These
increases in maintenance revenues in 2005 and 2004 were
primarily due to consistently strong renewals of maintenance
contracts in 2005 and 2004, coupled with the continually
increasing size of our customer base. For 2006, based on our
growing installed customer base, we expect maintenance revenues
to increase from the 2005 levels.
|
|
|
Consulting and Education Services Revenues |
Consulting and education services revenues were
$43.7 million in 2005, $34.3 million in 2004, and
$35.2 million in 2003. The $9.4 million, or 27%,
increase in 2005 compared to 2004 was primarily due to an
increase in demand and an increase in capacity to meet the
demand in consulting and education services in North America.
The $0.9 million, or 3%, decrease in 2004 compared to 2003
was primarily a result of underutilization of our consultants in
Europe. For 2006, we expect to maintain our current utilization
rate and continue to add overall consulting capacity, and thus
we expect revenues from consulting and education services to
increase from the 2005 levels.
Our international revenues were $82.3 million in 2005,
$63.1 million in 2004, and $55.8 million in 2003,
representing an increase of $19.2 million, or 30%, in 2005
from 2004 and an increase of $7.3 million, or 13%, in 2004
from 2003. The $19.2 million increase in 2005 from 2004 in
international revenues was due primarily to our continued
expansion in Europe and Asia-Pacific. The $7.3 million
increase in 2004 from 2003 in international revenues was
primarily due to a 15% increase in local currency license
revenues, a 12% increase in local currency maintenance revenues,
and a 12% increase in local currency education services
revenues, offset by a 42% decline in local currency consulting
revenues in Europe. International revenues as a percentage of
total revenues were 31%, 29%, and 27% for 2005, 2004, and 2003,
respectively. For 2006, we expect international revenues as a
percentage of total revenue to be relatively consistent with, or
increase slightly from, the 2005 levels.
33
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Cost of license revenues
|
|
$ |
4,465 |
|
|
$ |
3,778 |
|
|
$ |
3,139 |
|
|
|
18 |
% |
|
|
20 |
% |
Cost of service revenues
|
|
|
46,801 |
|
|
|
40,346 |
|
|
|
38,856 |
|
|
|
16 |
% |
|
|
4 |
% |
Amortization of acquired technology
|
|
|
922 |
|
|
|
2,322 |
|
|
|
1,031 |
|
|
|
(60 |
)% |
|
|
125 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
52,188 |
|
|
$ |
46,446 |
|
|
$ |
43,026 |
|
|
|
12 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license revenues, as a percentage of license revenues
|
|
|
4 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
% |
|
|
1 |
% |
Cost of service revenues, as a percentage of service revenues
|
|
|
32 |
% |
|
|
33 |
% |
|
|
35 |
% |
|
|
(1 |
)% |
|
|
(2 |
)% |
Our cost of license revenues consists primarily of software
royalties, product packaging, documentation, production costs
and personnel costs. Cost of license revenues was
$4.5 million in 2005, $3.8 million in 2004, and
$3.1 million in 2003 representing approximately 4%, 4%, and
3% of license revenues in 2005, 2004, and 2003, respectively.
The $0.7 million, or 18%, increase in 2005 from 2004 was
primarily due to higher transaction volumes for sales of royalty
bearing products. The $0.7 million, or 20%, increase in
2004 from 2003 was primarily the result of increases in
royalties due to changes in our percentage mix of
royalty-bearing products. For 2006, we expect the cost of
license revenues as a percentage of license revenues to remain
relatively consistent with the 2005 levels.
Our cost of service revenues is a combination of costs of
maintenance, consulting, and education services revenues. Our
cost of maintenance revenues consists mainly of costs associated
with customer service personnel expenses and royalty fees for
maintenance related to third-party software providers. Cost of
consulting revenues consists primarily of personnel costs and
expenses incurred in providing consulting services at
customers facilities. Cost of education services revenues
consists primarily of the costs of providing training classes
and materials at our headquarters, sales and training offices,
and customer locations. Cost of service revenues was
$46.8 million in 2005, $40.3 million in 2004, and
$38.9 million in 2003, representing 32%, 33%, and 35% of
service revenues in 2005, 2004, and 2003, respectively. The
$6.5 million or 16% increase in 2005 from 2004 was
primarily due to headcount growth in the customer support,
professional service, and education service groups from 200 in
2004 to 272 in 2005. The $1.4 million or 4% increase in
2004 from 2003 was primarily due to increased personnel-related
expenses from headcount growth in our customer support
organization from 181 in 2003 to 200 in 2004. For 2006, we
expect the cost of service revenues, in absolute dollars, to
increase from the 2005 levels due in large part to the inclusion
of costs incurred in connection with the adoption of
SFAS No. 123(R), Share-Based Payment,
commencing in the first quarter of 2006. As a percentage of
service revenues, we expect the cost of service revenues to
remain relatively constant with or slightly increase from the
2005 levels.
|
|
|
Amortization of Acquired Technology |
Amortization of acquired technology is the amortization of
technologies acquired through business combinations.
Amortization of acquired technology totaled $0.9 million,
$2.3 million, and $1.0 million in 2005, 2004, and
2003, respectively. The $1.4 million or 60% decrease in
2005 from 2004 was primarily due to certain developed technology
acquired in our 2003 acquisition of Striva being fully amortized
as of December 31, 2004. For 2006, we expect amortization
of acquired technology to be approximately $0.9 million
excluding the amortization resulting from the Similarity
acquisition. We may incur additional amortization expense beyond
these expected future levels to the extent we make additional
acquisitions.
34
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Research and development
|
|
$ |
42,585 |
|
|
$ |
51,322 |
|
|
$ |
47,730 |
|
|
|
(17)% |
|
|
|
8% |
|
Our research and development expenses consist primarily of
salaries and other personnel-related expenses, consulting
services, facilities, and related overhead costs associated with
the development of new products, enhancement and localization of
existing products, quality assurance and development of
documentation for our products. The $8.7 million or 17%
decrease in 2005 from 2004 was primarily due to a
$8.1 million decrease in facilities and related overhead
costs in connection with the 2004 Restructuring Plan and a
$1.7 million decrease in stock-based compensation and was
partially offset by a $0.9 million increase in
personnel-related costs including travel-related and
equipment-related expenses, as a result of headcount increasing
from 238 in 2004 to 259 in 2005. The $3.6 million or 8%
increase in 2004 from 2003 was primarily due to a
$5.3 million increase from a full year of costs in 2004
compared to approximately three months of costs in 2003 coupled
with a $2.2 million increase in stock-based compensation
both related to the Striva acquisition, offset by a
$3.2 million decrease in personnel-related expenses related
to shifting of headcount to our offshore development center in
Bangalore, India and a $0.9 million decrease in legal
expenses related to patent litigation. Research and development
expenses represented 16%, 23%, and 23% of total revenues in
2005, 2004, and 2003, respectively. To date, all software and
development costs have been expensed in the period incurred
because costs incurred subsequent to the establishment of
technological feasibility have not been significant. For 2006,
we expect the research and development expenses, in absolute
dollars, to increase from the 2005 levels due in large part to
the inclusion of costs incurred in connection with the adoption
of SFAS No. 123(R), Share-Based Payment,
commencing in the first quarter of 2006. As a percentage of
total revenues, we expect the research and development expenses
to remain relatively consistent with or slightly increase from
the 2005 levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Sales and marketing
|
|
$ |
118,770 |
|
|
$ |
94,900 |
|
|
$ |
86,810 |
|
|
|
25% |
|
|
|
9% |
|
Our sales and marketing expenses consist primarily of personnel
costs, including commissions and bonus, as well as costs of
public relations, seminars, marketing programs, lead generation,
travel, and trade shows. The $23.9 million, or 25%,
increase in 2005 from 2004 was primarily due to headcount
increasing from 296 in 2004 to 362 in 2005. In 2005,
personnel-related costs, including salaries and wages,
travel-related and equipment-related expenses, and
telecommunication expenses increased by $13.3 million,
sales commissions increased by $9.5 million, marketing
programs spending increased by $1.1 million, and costs for
outside services including lead generation costs and costs
associated with opening new offices in Asia-Pacific increased by
$1.0 million. These increases were partially offset by a
$1.0 million decrease in deferred stock-based compensation.
The $8.1 million or 9% increase in 2004 from 2003 was
primarily due headcount increasing from 267 in 2003 to 296 in
2004. In 2004, personnel-related costs, including salaries and
wages, travel-related and equipment-related expenses, and
telecommunication expenses increased by $3.9 million, sales
commissions increased by $3.5 million, sales incentive
events increased by $1.1 million, and stock-based
compensation increased by $0.6 million. These increases
were partially offset by a $1.0 million decrease in
marketing programs spending. Sales and marketing expenses
represented 44%, 43%, and 42% of total revenues in 2005, 2004,
and 2003, respectively. For 2006, we expect the sales and
marketing expenses, in absolute dollars, to increase from the
2005 levels due in large part to the inclusion of costs incurred
in connection with the adoption of SFAS No. 123(R),
Share-Based Payment, commencing in the first quarter of
2006. As a percentage of total revenues, we expect the sales and
marketing expenses to slightly decrease from the 2005 levels. We
also expect that the percentage of total revenues represented by
sales and marketing expenses will
35
fluctuate from period to period due to the timing of hiring of
new sales and marketing personnel, our spending on marketing
programs and the level of revenues, in particular size and
volume of license transactions, and associated commission
expenses, in each period.
|
|
|
General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
General and administrative
|
|
$ |
20,583 |
|
|
$ |
20,755 |
|
|
$ |
20,921 |
|
|
|
(1)% |
|
|
|
(1)% |
|
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 decreased slightly to $20.6 million
in 2005 from $20.8 million in 2004. The $0.2 million
or 1% decrease in expenses in 2005 from 2004 was primarily due
to a $1.6 million decrease in facilities and related
overhead costs in connection with the 2004 Restructuring Plan,
which were partially offset by a $0.9 million increase in
personnel-related costs and a $0.5 million increase in fees
paid to professional service providers. The increase of
personnel related costs and professional service fees were
primarily due to additional costs associated with compliance
with the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley). General and administrative
expenses decreased slightly to $20.8 million in 2004 from
$20.9 million in 2003. General and administrative expenses
represented 8%, 10%, and 10% of our total revenues in 2005,
2004, and 2003, respectively. For 2006, we expect the general
and administrative expenses, in absolute dollars, to increase
from the 2005 levels due in large part to the inclusion of costs
incurred in connection with the adoption of
SFAS No. 123(R), Share-Based Payment,
commencing in the first quarter of 2006. As a percentage of
total revenues, we expect the general and administrative
expenses to slightly increase from the 2005 levels.
|
|
|
Purchased In-Process Research and Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 |
|
2004 |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Purchased in-process research and development
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,524 |
|
|
|
|
*% |
|
|
(100)% |
|
|
|
|
|
* |
Percentage is not meaningful |
In 2003, in conjunction with our business combinations, we
recorded in-process research and development charges of
$4.5 million related to the acquisition of Striva. The
in-process research and development charges were associated with
software development efforts in process at the time of the
business combination that had not yet achieved technological
feasibility and no future alternative uses had been identified.
The purchase price allocated to in-process research and
development was determined, in part, by a third-party appraiser
through established valuation techniques. For 2006, we expect
purchased in-process research and development as a percentage of
service revenues to increase significantly from the 2005 levels
as a result of the Similarity acquisition. We may further incur
in-process research and development expense in the future to the
extent we make additional acquisitions.
|
|
|
Facilities Restructuring Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Percentage Change | |
|
|
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
|
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Facilities restructuring charges
|
|
$ |
3,683 |
|
|
$ |
112,636 |
|
|
$ |
|
|
|
|
(97)% |
|
|
|
|
*% |
|
|
|
|
* |
Percentage is not meaningful |
In 2005, we recorded $3.7 million of restructuring charges
related to the 2004 and 2001 Restructuring Plans. These charges
included $4.8 million of accretion charges and a
$1.0 million adjustment due to a change
36
in lease operating expense assumptions, offset by an adjustment
to reflect a $2.1 million increase in our assumed sublease
income. See Note 6. Facilities Restructuring Charges of
Notes to Consolidated Financial Statements in Item 8 of
this Report.
As of December 31, 2005, $94.5 million of total lease
termination costs, net of actual and expected sublease income,
less broker commissions and tenant improvement costs related to
facilities to be subleased, was included in accrued
restructuring charges and is expected to be paid by 2013.
In 2005, we subleased an additional 86,000 square feet of
office space at the Pacific Shores Center for the lease terms
expiring in 2008 and 2013. In 2005, we subleased the remainder
of our excess facilities in connection with our 2004 and 2001
facilities restructuring for durations that are generally less
than the remaining lease terms.
2004 Restructuring Plan. Net cash payments for
facilities included in the 2004 Restructuring Plan amounted to
$13.9 million in 2005 and there were no net cash payments
in 2004. Actual future cash requirements may differ from the
restructuring liability balances as of December 31, 2005,
if there are changes to the time period that facilities are
vacant, or the actual sublease income is different from current
estimates.
2001 Restructuring Plan. Net cash payments for
facilities included in the 2001 Restructuring Plan amounted to
$4.4 million, $4.5 million and $4.5 million in
2005, 2004, and 2003, respectively. Actual future cash
requirements may differ from the restructuring liability
balances as of December 31, 2005 if we are unable to
continue subleasing the excess leased facilities, there are
changes to the time period that facilities are vacant, or the
actual sublease income is different from current estimates.
Going forward, our results of operations should be positively
affected by a significant decrease in rent expense and decreases
to non-cash depreciation and amortization expense for the
leasehold improvements and equipment written off. We estimate
that these combined savings will be approximately $10 to
$11 million annually, after accretion charges.
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, as well as 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 6. Facilities
Restructuring Charges of Notes to the Consolidated Financial
Statements in Item 8 of this Report.
Interest Income and Other, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
Interest income and other, net
|
|
$ |
6,544 |
|
|
$ |
3,391 |
|
|
$ |
7,059 |
|
|
|
93% |
|
|
|
(52)% |
|
Interest income and other, net consists primarily of interest
income earned on our cash, cash equivalents, short-term
investments, and restricted cash and foreign exchanges
transaction gains and losses and, to a lesser degree, interest
expenses. Interest income and other, net was $6.5 million,
$3.4 million, and $7.1 million in 2005, 2004, and
2003, respectively. The increase of $3.2 million, or 93%,
in 2005 from 2004 was primarily due to an increase in investment
yields from these interest bearing instruments and increases in
our average cash, cash equivalent, and short-term investment
balances compared to 2004, offset by $0.6 million in
foreign exchange losses in 2005 as compared to foreign exchange
gains of $0.5 million in 2004. The decrease of
$3.7 million, or 52%, in 2004 from 2003 was primarily due
to a decrease of $1.1 million in foreign currency gains in
2004 from 2003 and an investment impairment charge of
$0.5 million related to an investment in equity securities
of another company. In addition, 2003 included the receipt of a
$1.6 million settlement from Ascential Software for
misappropriation of trade secrets. We currently do not engage in
any foreign currency hedging activities and, therefore, are
susceptible to fluctuations in foreign exchange gains or losses
in our results of operations in future reporting periods.
37
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
Percentage Change | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 to 2005 | |
|
2003 to 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except percentages) | |
|
|
|
|
Income tax provision
|
|
$ |
2,174 |
|
|
$ |
1,220 |
|
|
$ |
2,124 |
|
|
|
78% |
|
|
|
(43)% |
|
We recorded an income tax provision of $2.2 million,
$1.2 million, and $2.1 million in 2005, 2004, and
2003, respectively. The expected tax provision derived by
applying the federal statutory rate to our pre-tax income in
2005 differed from the income tax provision recorded primarily
due to foreign withholding and income taxes, federal and state
minimum taxes, and non-deductible amortization of deferred
stock-based compensation and intangibles, offset by a decrease
in our valuation allowance for deferred tax assets to the extent
of tax attributes utilized, the benefits from a reversal of
previously accrued tax reserve recorded as a discrete item in
the third quarter, as well as provision to return adjustments
recorded as discrete items in the third and fourth quarters.
The expected tax provision derived by applying the federal
statutory rate to our pre-tax loss in 2004 differed from the
income tax provision recorded primarily due to restructuring
charges not currently deductible for tax purposes, amortization
of deferred stock compensation and intangibles, foreign
withholding and incomes taxes, and federal alternative minimum
taxes partially offset by a decrease in our valuation allowance
for deferred tax assets to the extent of tax attributes utilized
and the benefit from provision to return adjustments recorded as
a discrete event in the third quarter.
The expected tax provision derived by applying the federal
statutory rate to our pre-tax income in 2003 differed from the
income tax provision recorded primarily due to foreign taxes,
alternative minimum taxes, and non-deductible amortization of
deferred stock-based compensation and intangibles, offset by a
decrease in our valuation allowance for deferred tax assets to
the extent of tax attributes utilized.
Liquidity and Capital Resources
We have funded our operations primarily through cash flows from
operations and public offerings of our common stock. As of
December 31, 2005, we had $262.2 million in available
cash and cash equivalents and short-term investments and
$12.2 million of restricted cash under the terms of our
Pacific Shores property leases. In January 2006, pursuant to the
Purchase Agreement, Similarity stockholders are entitled to
receive approximately $48.3 million in cash and
approximately 122,000 shares of Informatica common stock (which
were fully vested but subject to escrow) valued on the date of
close at approximately $1.6 million. In addition, the
options of Similarity option holders were assumed by Informatica
and converted into options to purchase approximately 392,000
shares of Informatica common stock valued on the date of close
at approximately $5.1 million. Furthermore, approximately
$8.3 million of the consideration will be placed into
escrow for 15 months following the closing to be held as
security for losses incurred by us in the event of certain
breaches of the representations and warranties or certain other
events.
Our primary sources of cash are the collection of accounts
receivable from our customers and proceeds from the exercise of
stock options and stock purchased under our employee stock
purchase plan. Our uses of cash include payroll and
payroll-related expenses and operating expenses such as
marketing programs, travel, professional services, and
facilities and related costs. We have also used cash to purchase
property and equipment, repurchase common stock from the open
market to reduce the dilutive impact of stock option issuances,
and acquire businesses and technologies to expand our product
offerings.
Operating Activities: Cash provided by operating
activities in 2005 was $37.9 million, representing an
increase of $15.4 million from 2004. This increase
primarily resulted from an increase in net income, after
adjusting for non-cash expenses and increases in deferred
revenue, accrued compensation and related expenses, and income
taxes payable, offset by an increase in accounts receivable and
prepaid expense and other assets primarily for insurance and
third-party software maintenance, payments to our vendors, and
payments on our lease obligations under our facilities
restructuring accrual. Our days sales outstanding in accounts
receivable (days outstanding) decreased from
64 days at December 31, 2004 to 58 days at
38
December 31, 2005. Deferred revenues increased primarily
due to increased customer support contracts. Days outstanding at
December 31, 2005 were primarily impacted by improvements
to our collection program.
Cash provided by operating activities in 2004 was
$22.5 million, representing an increase of
$2.0 million from 2003. This increase primarily resulted
from adding back accrued facilities restructuring charges and
non-cash expenses to our net loss and an increase in deferred
revenues, accrued compensation and related expenses, and income
taxes payable. The cash provided by operating activities in 2004
was offset by an increase in accounts receivable, prepaid
expenses, and other assets and payments against accounts payable
and accrued liabilities. The increase in the facilities
restructuring accrual resulted from the abandonment of our
former corporate headquarters associated with our 2004
Restructuring Plan and the re-evaluation of sublease prospects
for our excess facilities. Deferred revenues increased due to
increased customer support contracts. Our days outstanding
increased to 64 days at December 31, 2004 from
56 days at December 31, 2003.
Cash provided by operating activities in 2003 was
$20.5 million and primarily resulted from our net income,
after adjusting for non-cash depreciation and amortization
expenses, adding back purchased in-process research and
development costs. Cash provided by operating activities in 2003
was offset by an increase in accounts receivable, payments
against accounts payable and accrued liabilities, payments to
reduce our facilities restructuring charges accrual, and a
decrease in deferred revenues.
Investing Activities: We anticipate that we will continue
to purchase necessary 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
of change of computer hardware and software used in our
business, and our business outlook. We have classified 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
quality rating of the investment declines, the yield on the
investment is no longer attractive, or we are in need of cash.
Because we invest only in investment securities that are highly
liquid with a ready market, 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.
The nature of these transactions makes it difficult to predict
the amount and timing of such cash requirements. We may need to
raise additional financing 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). Net cash
provided by financing activities in 2005 and 2004 included
$21.5 million and $13.3 million of proceeds,
respectively, from issuance of 3.4 million and
3.2 million shares of common stock, respectively, to option
holders and participants in the ESPP. Although we expect to
continue to receive these proceeds in future periods, the timing
and amount of such proceeds are difficult to predict and are
contingent on a number of factors including the price of our
common stock, the number of employees participating in our stock
option plans and our employee stock purchase plan, and general
market conditions.
In 2004, our Board of Directors authorized a stock repurchase
program for up to 5 million shares of our common stock. In
2005, the board approved an extension of this program to
December 31, 2005. Purchases could be made from time to
time in the open market, and they were funded from available
working capital. The purpose of our stock repurchase program is,
among other things, to help offset the dilution caused by the
issuance of stock under our employee stock option 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 our common stock. Under this program,
we purchased 2,810,000 shares at a cost of
$26.5 million and 1,055,000 shares at a cost of
$6.1 million in 2005 and 2004, respectively. These shares
were retired and reclassified as authorized and unissued shares
of common stock. The share repurchase program expired at
December 31, 2005. See Item 5 of this Report for more
information regarding the stock repurchase plan.
We may continue to repurchase shares from time to time, as
determined by management under programs approved by the Board of
Directors. The timing and terms of the transactions will depend
on market conditions, our liquidity, and other considerations.
39
We believe that our cash balances and the cash flows generated
by operations will be sufficient to satisfy our anticipated cash
needs for working capital and capital expenditures for at least
the next 12 months. However, we may require or desire
additional funds to support our operating expenses and capital
requirements or for other purposes, such as acquisitions, and
may see to raise such additional funds through public or private
equity or debt financing or from other sources. We may not be
able to obtain adequate or favorable financing at that time, and
any financing we obtain might be dilutive to our stockholders.
|
|
|
Contractual Obligations and Operating Leases |
The following table summarizes our significant contractual
obligations at December 31, 2005, and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period | |
|
|
| |
|
|
|
|
2007 and | |
|
2009 and | |
|
2010 and | |
|
|
Total | |
|
2006 | |
|
2008 | |
|
2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments
|
|
$ |
140,293 |
|
|
$ |
22,259 |
|
|
$ |
38,393 |
|
|
$ |
34,800 |
|
|
$ |
44,841 |
|
|
Sublease income
|
|
|
(11,760 |
) |
|
|
(3,116 |
) |
|
|
(5,483 |
) |
|
|
(2,047 |
) |
|
|
(1,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating lease obligations
|
|
|
128,533 |
|
|
|
19,143 |
|
|
|
32,910 |
|
|
|
32,753 |
|
|
|
43,727 |
|
Other obligations*
|
|
|
1,800 |
|
|
|
600 |
|
|
|
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
130,333 |
|
|
$ |
19,743 |
|
|
$ |
34,110 |
|
|
$ |
32,753 |
|
|
$ |
43,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Other purchase obligations and commitments include minimum
royalty payments under license agreements and do not include
purchase obligations discussed below. |
Purchase orders or contracts for the purchase of certain goods
and services are not included in the preceding table. We cannot
determine the aggregate amount of such purchase orders that
represent contractual obligations because purchase orders may
represent authorizations to purchase rather than binding
agreements. For the purposes of this table, contractual
obligations for purchase of goods or services are defined as
agreements that are enforceable and legally binding and that
specify all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum, or variable price
provisions; and the approximate timing of the transaction. Our
purchase orders are based on our current needs and are fulfilled
by our vendors within short time horizons. We also enter into
contracts for outsourced services; however, the obligations
under these contracts were not significant and the contracts
generally contain clauses allowing for cancellation without
significant penalty. Contractual obligations that are contingent
upon the achievement of certain milestones are not included in
the table above.
We base our estimates of 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.
We lease certain office facilities and equipment under
non-cancelable operating leases. During 2004, 2002, and 2001, we
recorded facilities restructuring charges related to the
consolidation of excess leased facilities in the
San Francisco Bay Area and Texas. Operating lease payments
in the table above include approximately $124.4 million,
net of actual sublease income, for operating lease commitments
for those facilities that are included in restructuring charges.
See Note 6. Facilities Restructuring Charges and
Note 7. Commitments and Contingencies of Notes to the
Consolidated Financial Statements in Item 8 of this Report.
Of these future minimum lease payments, we have
$94.5 million recorded in the restructuring and excess
facilities accrual at December 31, 2005. This accrual, in
addition to minimum lease payments of $124.4 million,
includes estimated operating expenses of $22.4 million, is
net of estimated sublease income of
40
$32.2 million, and is net of the present value impact of
$20.1 million recorded in accordance with
SFAS No. 146. We estimated sublease income and the
related timing thereof based on existing sublease agreements and
current market conditions, among other factors. Our estimates of
sublease income may vary significantly from actual amounts
realized depending, in part, on factors that may be beyond our
control, such as the time periods required to locate and
contract suitable subleases and the market rates at the time of
such subleases.
In relation to our excess facilities, we may decide to negotiate
and enter into lease termination agreements, if and when the
circumstances are appropriate. These lease termination
agreements would likely require that a significant amount of the
remaining future lease payments be paid at the time of execution
of the agreement, but would release us from future lease payment
obligations for the abandoned facility. The timing of a lease
termination agreement and the corresponding payment could
materially affect our cash flows in the period of payment.
The expected timing of payment of the obligations discussed
above is estimated based on current information. Timing of
payments and actual amounts paid may be different.
We have sublease agreements for leased office space in Palo
Alto, San Francisco, Scotts Valley, and at the Pacific
Shores Center in Redwood City, California. In the event the
sublessees are unable to fulfill their obligations, we would be
responsible for rent due under the leases. However, we expect
the sublessees will fulfill their obligations under these leases.
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. The lease
expires in July 2013. As part of these agreements, we have
purchased certificates of deposit totaling $12.2 million as
a security deposit for lease payments.
In connection with our January 2006 acquisition of Similarity
Systems, we have assumed leases located primarily in Dublin,
Ireland and Austin, Texas.
In January 2006, in connection with the Similarity acquisition,
we used approximately $48.3 million cash as part of the
consideration. A portion of our cash may be further used to
acquire or invest in other complementary businesses or products
or to obtain the right to use other complementary technologies.
From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of such businesses, products, or
technologies. The nature of these transactions makes it
difficult to predict the amount and timing of such cash
requirements. We may also be required to raise additional
financing to complete future acquisitions.
We have a $12.2 million letter of credit issued by a
financial institution that is required as collateral for our
former corporate headquarter leases at the Pacific Shores Center
until the leases expire in 2013. These certificates of deposit
are classified as long-term restricted cash on our consolidated
balance sheet. The letter of credit currently bears interest of
3.0%. There are no financial covenant requirements under our
line of credit.
|
|
|
Off-Balance Sheet Arrangements |
We do not have any off-balance sheet financing arrangements, or
transactions, arrangements or relationships with special
purpose entities.
Recent Accounting Pronouncements
For recent accounting pronouncements, see Note 2. Summary
of Significant Accounting Policies of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
41
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
All market risk sensitive instruments were entered into for
non-trading purposes. We do not use derivative financial
instruments for speculative trading purposes, nor do we hedge
our foreign currency exposure to offset the effects of changes
in foreign exchange rates. As of December 31, 2005, we did
not hold derivative financial instruments.
Interest Rate Risk
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. We do not use
derivative financial instruments in our investment portfolio.
The primary objective of our investment activities is to
preserve principal while maximizing yields without significantly
increasing risk. Our investment policy specifies credit quality
standards for our investments and limits the amount of credit
exposure to any single issue, issuer, or type of investment. Our
investments consist primarily of U.S. government notes and
bonds, auction rate securities, corporate bonds, commercial
paper and municipal securities. All investments are carried at
market value, which approximates cost. See Note 3. Cash,
Cash Equivalents and Short-Term Investments of Notes to the
Consolidated Financial Statements in Item 8 of this Report.
The following table presents the fair value of cash equivalents
and short-term investments that are subject to interest rate
risk and the average interest rate as of December 31, 2005
and 2004 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cash equivalents and short-term investments
|
|
$ |
221,967 |
|
|
$ |
153,736 |
|
Average rate of return
|
|
|
3.0 |
% |
|
|
1.6 |
% |
Our cash equivalents and short-term investments are subject to
interest rate risk and will decline in value if market interest
rates increase. As of December 31, 2005, we had net
unrealized losses 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 December 31, 2005, the fair market value of the
portfolio would decline by approximately $0.8 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.
Foreign Currency 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. As a result, our
financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions
in foreign markets. For example, the strengthening of the
U.S. dollar compared to any of the local currencies in the
markets in which we do business could overtime make our products
less competitive in these markets. Because we translate foreign
currencies into U.S. dollars for reporting purposes,
currency fluctuations, especially between the U.S. dollar
and the Euro and British pound, may have an impact on our
financial results. In 2005, the impact from these fluctuations
on our revenues, expenses, and net income was insignificant.
Because our subsidiaries transact business in various foreign
currencies, gains and losses typically arise on the settlement
of intercompany transactions with the corporate parent company,
Informatica Corporation. See Note 9. Interest Income, net
and Other Income (Expense), net of Notes to the Consolidated
Financial Statements in Item 8 of this Report.
To date, we have not engaged in any foreign currency hedging
activities. We regularly review our foreign currency strategy
and may as part of this review determine at any time to change
our strategy.
|
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following consolidated financial statements, and the related
notes thereto, of Informatica Corporation and the Report of
Independent Auditors are filed as a part of this
Form 10-K.
42
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of Informatica is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and 15d-15(f) under the
Securities Exchange Act of 1934. Informaticas internal
control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; |
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and |
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements due
to human error, or the improper circumvention or overriding of
internal controls. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions
and that the degree of compliance with the policies or
procedures may change over time.
Management assessed the effectiveness of Informaticas
internal control over financial reporting as of
December 31, 2005. In making this assessment, management
used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Based on its assessment of internal control over financial
reporting, management has concluded that, as of
December 31, 2005, Informaticas internal control over
financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Informaticas independent registered public accounting
firm, Ernst & Young LLP, has issued an attestation
report on our assessment of Informaticas internal control
over financial reporting. Its report appears immediately after
this report.
|
|
|
/s/ Sohaib Abbasi
|
|
|
|
Sohaib Abbasi |
|
Chief Executive Officer |
|
February 28, 2006 |
|
|
/s/ Earl E. Fry
|
|
|
|
Earl E. Fry |
|
Chief Financial Officer |
|
February 28, 2006 |
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Informatica
Corporation
We have audited managements assessment, included in the
accompanying Report of Management on Internal Control Over
Financial Reporting, that Informatica Corporation maintained
effective internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Informatica Corporations management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Informatica
Corporation maintained effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Informatica Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Informatica Corporation as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2005 of Informatica Corporation and our report
dated February 24, 2006 expressed an unqualified opinion
thereon.
San Francisco, California
February 24, 2006
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Informatica
Corporation
We have audited the accompanying consolidated balance sheets of
Informatica Corporation as of December 31, 2005 and 2004,
and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2005. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These consolidated financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Informatica Corporation at
December 31, 2005 and 2004, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2005, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Informatica Corporations internal control
over financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 24,
2006 expressed an unqualified opinion thereon.
San Francisco, California
February 24, 2006
45
INFORMATICA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
76,545 |
|
|
$ |
88,941 |
|
|
Short-term investments
|
|
|
185,649 |
|
|
|
152,160 |
|
|
Accounts receivable, net of allowances of $1,094 in 2005 and
$849 in 2004
|
|
|
50,533 |
|
|
|
42,535 |
|
|
Prepaid expenses and other current assets
|
|
|
9,342 |
|
|
|
7,837 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
322,069 |
|
|
|
291,473 |
|
Restricted cash
|
|
|
12,166 |
|
|
|
12,166 |
|
Property and equipment, net
|
|
|
21,026 |
|
|
|
20,063 |
|
Goodwill
|
|
|
81,066 |
|
|
|
82,245 |
|
Other intangible assets, net
|
|
|
4,163 |
|
|
|
2,880 |
|
Other assets
|
|
|
532 |
|
|
|
941 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
441,022 |
|
|
$ |
409,768 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
3,404 |
|
|
$ |
7,476 |
|
|
Accrued liabilities
|
|
|
17,424 |
|
|
|
16,053 |
|
|
Accrued compensation and related expenses
|
|
|
20,450 |
|
|
|
15,681 |
|
|
Income taxes payable
|
|
|
4,566 |
|
|
|
3,142 |
|
|
Accrued facilities restructuring charges
|
|
|
18,718 |
|
|
|
20,080 |
|
|
Deferred revenues
|
|
|
69,748 |
|
|
|
55,225 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
134,310 |
|
|
|
117,657 |
|
Accrued facilities restructuring charges, less current portion
|
|
|
75,815 |
|
|
|
89,171 |
|
Deferred revenues, less current portion
|
|
|
8,167 |
|
|
|
7,218 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
218,292 |
|
|
|
214,046 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 200,000 shares
authorized; 87,341 shares and 86,771 shares issued and
outstanding at December 31, 2005 and 2004, respectively
|
|
|
87 |
|
|
|
87 |
|
|
Additional paid-in capital
|
|
|
384,653 |
|
|
|
389,948 |
|
|
Deferred stock-based compensation
|
|
|
(187 |
) |
|
|
(1,000 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(539 |
) |
|
|
1,775 |
|
|
Accumulated deficit
|
|
|
(161,284 |
) |
|
|
(195,088 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
222,730 |
|
|
|
195,722 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
441,022 |
|
|
$ |
409,768 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
46
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$ |
120,182 |
|
|
$ |
97,941 |
|
|
$ |
94,590 |
|
|
Service
|
|
|
147,249 |
|
|
|
121,740 |
|
|
|
110,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
267,431 |
|
|
|
219,681 |
|
|
|
205,533 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
4,465 |
|
|
|
3,778 |
|
|
|
3,139 |
|
|
Service
|
|
|
46,801 |
|
|
|
40,346 |
|
|
|
38,856 |
|
|
Amortization of acquired technology
|
|
|
922 |
|
|
|
2,322 |
|
|
|
1,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
52,188 |
|
|
|
46,446 |
|
|
|
43,026 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
215,243 |
|
|
|
173,235 |
|
|
|
162,507 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
42,585 |
|
|
|
51,322 |
|
|
|
47,730 |
|
|
Sales and marketing
|
|
|
118,770 |
|
|
|
94,900 |
|
|
|
86,810 |
|
|
General and administrative
|
|
|
20,583 |
|
|
|
20,755 |
|
|
|
20,921 |
|
|
Amortization of intangible assets
|
|
|
188 |
|
|
|
197 |
|
|
|
147 |
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
4,524 |
|
|
Facilities restructuring charges
|
|
|
3,683 |
|
|
|
112,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
185,809 |
|
|
|
279,810 |
|
|
|
160,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
29,434 |
|
|
|
(106,575 |
) |
|
|
2,375 |
|
Interest income, net
|
|
|
7,256 |
|
|
|
3,449 |
|
|
|
3,807 |
|
Other income (expense), net
|
|
|
(712 |
) |
|
|
(58 |
) |
|
|
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
35,978 |
|
|
|
(103,184 |
) |
|
|
9,434 |
|
Income tax provision
|
|
|
2,174 |
|
|
|
1,220 |
|
|
|
2,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
0.39 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$ |
0.37 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per common share
|
|
|
87,242 |
|
|
|
85,812 |
|
|
|
82,049 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per common
share
|
|
|
92,083 |
|
|
|
85,812 |
|
|
|
85,200 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
47
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
Deferred | |
|
Other | |
|
|
|
Total | |
|
|
| |
|
Paid-In | |
|
Stock-based | |
|
Comprehensive | |
|
Accumulated | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Income (Loss) | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balances, December 31, 2002
|
|
|
80,750 |
|
|
$ |
81 |
|
|
$ |
348,550 |
|
|
$ |
(74 |
) |
|
$ |
1,840 |
|
|
$ |
(97,994 |
) |
|
$ |
252,403 |
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,310 |
|
|
|
7,310 |
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517 |
|
|
|
|
|
|
|
517 |
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(571 |
) |
|
|
|
|
|
|
(571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,256 |
|
Common stock options exercised
|
|
|
1,532 |
|
|
|
2 |
|
|
|
6,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,988 |
|
Common stock issued under employee stock purchase plan
|
|
|
788 |
|
|
|
1 |
|
|
|
4,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,636 |
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
Issuance of common stock and assumption of stock options in
acquisition
|
|
|
3,190 |
|
|
|
3 |
|
|
|
33,540 |
|
|
|
(4,719 |
) |
|
|
|
|
|
|
|
|
|
|
28,824 |
|
Common stock issued for services rendered
|
|
|
11 |
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76 |
|
Repurchase and retirement of common stock
|
|
|
(1,642 |
) |
|
|
(2 |
) |
|
|
(11,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,448 |
) |
Deferred stock-based compensation adjustments and other
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003
|
|
|
84,629 |
|
|
|
85 |
|
|
|
382,470 |
|
|
|
(4,058 |
) |
|
|
1,786 |
|
|
|
(90,684 |
) |
|
|
289,599 |
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104,404 |
) |
|
|
(104,404 |
) |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786 |
|
|
|
|
|
|
|
786 |
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(797 |
) |
|
|
|
|
|
|
(797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104,415 |
) |
Common stock options exercised
|
|
|
2,392 |
|
|
|
2 |
|
|
|
8,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,850 |
|
Common stock issued under employee stock purchase plan
|
|
|
805 |
|
|
|
1 |
|
|
|
4,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,448 |
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
1,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341 |
|
Repurchase and retirement of common stock
|
|
|
(1,055 |
) |
|
|
(1 |
) |
|
|
(6,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,118 |
) |
Deferred stock-based compensation adjustments and other
|
|
|
|
|
|
|
|
|
|
|
(1,041 |
) |
|
|
1,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,017 |
|
|
|
|
|
|
|
|
|
|
|
2,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004
|
|
|
86,771 |
|
|
|
87 |
|
|
|
389,948 |
|
|
|
(1,000 |
) |
|
|
1,775 |
|
|
|
(195,088 |
) |
|
|
195,722 |
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,804 |
|
|
|
33,804 |
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,257 |
) |
|
|
|
|
|
|
(2,257 |
) |
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,490 |
|
Common stock options exercised
|
|
|
2,504 |
|
|
|
2 |
|
|
|
16,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,738 |
|
Common stock issued under employee stock purchase plan
|
|
|
909 |
|
|
|
1 |
|
|
|
4,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,765 |
|
Repurchase and retirement of common stock
|
|
|
(2,843 |
) |
|
|
(3 |
) |
|
|
(26,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,708 |
) |
Deferred stock-based compensation adjustments and other
|
|
|
|
|
|
|
|
|
|
|
(90 |
) |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
87,341 |
|
|
$ |
87 |
|
|
$ |
384,653 |
|
|
$ |
(187 |
) |
|
$ |
(539 |
) |
|
$ |
(161,284 |
) |
|
$ |
222,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
48
INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,198 |
|
|
|
9,261 |
|
|
|
11,224 |
|
|
|
Amortization and compensation expense related to stock options
|
|
|
723 |
|
|
|
3,358 |
|
|
|
940 |
|
|
|
Amortization of intangible assets and acquired technology
|
|
|
1,144 |
|
|
|
2,519 |
|
|
|
1,178 |
|
|
|
Allowance for doubtful accounts and sales returns allowances
|
|
|
350 |
|
|
|
5 |
|
|
|
145 |
|
|
|
Purchased in-process research and development
|
|
|
|
|
|
|
|
|
|
|
4,524 |
|
|
|
Non-cash restructuring charges
|
|
|
3,683 |
|
|
|
21,556 |
|
|
|
|
|
|
|
Gain on the sale of investments
|
|
|
|
|
|
|
|
|
|
|
(121 |
) |
|
|
Investment impairment charge
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,348 |
) |
|
|
(8,165 |
) |
|
|
(3,108 |
) |
|
|
|
Prepaid expenses and other assets
|
|
|
(3,596 |
) |
|
|
(2,876 |
) |
|
|
3,300 |
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,571 |
) |
|
|
(6,784 |
) |
|
|
(482 |
) |
|
|
|
Accrued compensation and related expenses
|
|
|
4,769 |
|
|
|
1,430 |
|
|
|
1,558 |
|
|
|
|
Income taxes payable
|
|
|
1,606 |
|
|
|
917 |
|
|
|
(81 |
) |
|
|
|
Accrued facilities restructuring charges
|
|
|
(18,299 |
) |
|
|
94,084 |
|
|
|
(4,539 |
) |
|
|
|
Deferred revenues
|
|
|
15,472 |
|
|
|
11,131 |
|
|
|
(1,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
37,935 |
|
|
|
22,532 |
|
|
|
20,499 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(9,913 |
) |
|
|
(12,515 |
) |
|
|
(2,569 |
) |
|
Purchases of investments
|
|
|
(227,132 |
) |
|
|
(217,849 |
) |
|
|
(193,019 |
) |
|
Maturities of investments
|
|
|
104,586 |
|
|
|
75,930 |
|
|
|
70,384 |
|
|
Sales of investments
|
|
|
89,000 |
|
|
|
129,852 |
|
|
|
111,580 |
|
|
Acquisition, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(30,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(43,459 |
) |
|
|
(24,582 |
) |
|
|
(43,903 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
21,503 |
|
|
|
13,298 |
|
|
|
11,624 |
|
|
Repurchases of common stock and treasury stock
|
|
|
(26,500 |
) |
|
|
(6,118 |
) |
|
|
(11,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(4,997 |
) |
|
|
7,180 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
|
|
(1,875 |
) |
|
|
908 |
|
|
|
541 |
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(12,396 |
) |
|
|
6,038 |
|
|
|
(22,687 |
) |
Cash and cash equivalents at beginning of year
|
|
|
88,941 |
|
|
|
82,903 |
|
|
|
105,590 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
76,545 |
|
|
$ |
88,941 |
|
|
$ |
82,903 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
122 |
|
|
$ |
|
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
1,014 |
|
|
$ |
304 |
|
|
$ |
2,126 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock-based compensation related to options granted and
other
|
|
$ |
(90 |
) |
|
$ |
(1,041 |
) |
|
$ |
4,801 |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisitions
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,796 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments
|
|
$ |
(57 |
) |
|
$ |
(797 |
) |
|
$ |
(571 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
49
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Organization and Business |
Informatica Corporation (Informatica, or the
Company) was incorporated in California in February 1993
and reincorporated in Delaware in April 1999. The Company is a
leading provider of enterprise data integration software and
services that enable organizations to gain greater business
value by integrating all their information assets. Informatica
software handles a wide variety of complex enterprise-wide data
integration initiatives including data warehousing, data
migration, data consolidation, data synchronization, and the
establishment of data hubs and integration competency centers.
|
|
2. |
Summary of Significant Accounting Policies |
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the current year
presentation.
The Companys consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP).
These accounting principles require us to make certain
estimates, judgments, and assumptions. The Company believes that
the estimates, judgments, and assumptions upon which it relies
are reasonable based upon information available to it at the
time that these estimates, judgments, and assumptions are made.
These estimates, judgments, and assumptions can affect the
reported amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenues
and expenses during the periods presented. To the extent there
are material differences between these estimates and actual
results, Informaticas financial statements would have been
affected. In many cases, the accounting treatment of a
particular transaction is specifically dictated by GAAP and does
not require managements judgment in its application. There
are also areas in which managements judgment in selecting
any available alternative would not produce a materially
different result.
|
|
|
Cash, Cash Equivalents, and Restricted Cash |
The Company considers highly liquid investment securities with
maturities, at date of purchase, of 90 days or less to be
cash equivalents. Cash and cash equivalents, which consist
primarily of commercial paper, money market funds, and
U.S. government securities with insignificant interest rate
risk, are stated at cost, which approximates fair value.
Restricted cash consists of amounts held in deposits that are
required as collateral under facilities lease agreements.
|
|
|
Allowance for Doubtful Accounts |
The Company makes estimates as to the overall collectibility of
accounts receivable and provides an allowance for accounts
receivable considered uncollectible. The Company specifically
analyzes its accounts receivable and historical bad debt
experience, customer concentrations, customer credit-worthiness,
current economic trends, and changes in its customer payment
terms when evaluating the adequacy of the allowance for doubtful
accounts. The Company charges off the adjustment in general and
administrative expense. At December 31, 2005 and 2004, the
Companys allowance for doubtful accounts was
$0.9 million and $0.8 million, respectively.
50
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Allowance for Sales Returns |
The Company estimates its expected product and service returns
and provides an allowance for sales returns. The Company
analyzes its revenue transactions, historical return pattern,
current economic trends, and changes in its customer payment
terms when evaluating the adequacy of the allowance for sales
returns. Adjustments to the allowance for returns are offset
against revenues. At December 31, 2005 and 2004, the
Companys allowance for sales returns was $224,000 and
$38,000, respectively.
Investments are comprised of marketable securities, which
consist primarily of commercial paper, U.S. government
notes and bonds, corporate bonds and municipal securities with
original maturities beyond 90 days. All marketable
securities are held in the Companys name and maintained
with four major financial institutions. The Companys
marketable securities are classified as available-for-sale and
are reported at fair value, with unrealized gains and losses,
net of tax, recorded in stockholders equity. The Company
classifies all available-for-sale marketable securities,
including those with original maturity dates greater than one
year, as short-term investments. Realized gains or losses and
permanent declines in value, if any, on available-for-sale
securities will be reported in other income or expense as
incurred. The Company recognizes realized gains and losses upon
sales of investment and reclassifies unrealized gains and losses
out of accumulated other comprehensive income into earnings
using the specific identification method.
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets,
generally three to five years. The estimated useful lives of
computer software and equipment are three to five years. The
estimated useful lives of furniture and office equipment are
three years. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the
estimated useful life of the related asset.
|
|
|
Software Development Costs |
The Company accounts for software development costs in
accordance with Statement of Financial Accounting Standard
(SFAS) No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed,
under which certain software development costs incurred
subsequent to the establishment of technological feasibility are
capitalized and amortized over the estimated lives of the
related products. Technological feasibility is established upon
completion of a working model. Through December 31, 2005,
costs incurred subsequent to the establishment of technological
feasibility have not been significant and all software
development costs have been charged to research and development
expense in the accompanying consolidated statements of
operations.
Pursuant to American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP)
No. 98-1,
Accounting for Costs of Computer Software Developed or
Obtained for Internal Use, the Company capitalizes certain
costs relating to software acquired, developed, or modified
solely to meet the Companys internal requirements and for
which there are no substantive plans to market the software.
Costs capitalized relating to software developed to meet
internal requirements were $1.0 million and
$0.3 million for the years ended December 31, 2005 and
2004, respectively, and are included in property and equipment.
The Company assessed goodwill for impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets, which requires that goodwill be tested for
impairment at the reporting unit level
(Reporting Unit) at least annually and more
frequently upon the occurrence of certain events, as defined by
51
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 142. Consistent with the Companys
determination that it has only one reporting segment, the
Company has determined that it has only one Reporting Unit,
specifically the license, implementation, and support of its
software applications. Goodwill was tested for impairment in the
annual impairment tests on October 31 in each year using
the two-step process required by SFAS No. 142. First,
the Company reviews the carrying amount of its Reporting Unit
compared to the fair value of the Reporting Unit
based on quoted market prices of the Companys common
stock. If such comparison reflected potential impairment, the
Company would then prepare the discounted cash flow analyses.
Such analyses are based on cash flow assumptions that are
consistent with the plans and estimates being used to manage the
business. An excess carrying value compared to fair value would
indicate that goodwill may be impaired. Finally, the Company
would determine that goodwill may be impaired, then it would
compare the implied fair value of the goodwill, as
defined by SFAS No. 142, to its carrying amount to
determine the impairment loss, if any. The Company has completed
the annual impairment tests as of October 31 of each year,
which did not result in any impairment charges.
|
|
|
Impairment of Long-Lived Assets |
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company
evaluates long-lived assets, other than goodwill, for impairment
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable based on
expected undiscounted cash flows attributable to that asset. The
amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset. The
Company has recorded impairment of certain assets in 2004. See
Note 4. Property and Equipment and Note 6. Facilities
Restructuring Charges.
|
|
|
Fair Value of Financial Instruments, Concentrations of
Credit Risk, and Credit Evaluations |
The fair value of the Companys cash, cash equivalents,
short-term investments, accounts receivable, and accounts
payable approximates their respective carrying amounts.
Financial instruments, which subject the Company to
concentrations of credit risk, consist primarily of cash and
cash equivalents, investments in marketable securities, and
trade accounts receivable. The Company maintains its cash and
cash equivalents and investments with high-quality financial
institutions.
The Company performs ongoing credit evaluations of its
customers, which are primarily located in the United States,
Canada, and Europe, and generally does not require collateral.
The Company makes judgments as to its ability to collect
outstanding receivables and provide allowances for the portion
of receivables when collection becomes doubtful. Provisions are
made based upon a specific review of all significant outstanding
invoices. For those invoices not specifically reviewed,
provisions are provided at differing rates, based upon the age
of the receivable. In determining these percentages, the Company
analyzes its historical collection experience and current
economic trends. If the historical data it uses to calculate the
allowance for doubtful accounts does not reflect the future
ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and the future
results of operations could be materially affected.
The Company derives revenues from software license fees,
maintenance fees, and professional services, which consist of
consulting and education services. The Company recognizes
revenue in accordance with AICPA
SOP 97-2,
Software Revenue Recognition, as amended and modified by
SOP 98-9,
Modification of
SOP 97-2, Software
Revenue Recognition, With Respect to Certain
Transactions,
SOP 81-1,
Accounting for Performance of Construction-type and Certain
Production-type Contracts, the Securities and Exchange
Commissions Staff Accounting Bulletin (SAB)
101, Revenue Recognition in Financial Statements, SAB 104,
Revenue Recognition, and other authoritative accounting
literature.
52
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under SOP 97-2,
revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable,
and collection is probable.
Persuasive evidence of an arrangement exists. The Company
determines that persuasive evidence of an arrangement exists
when it has a written contract, signed by both the customer and
the Company, and written purchase authorization.
Delivery has occurred. Software is considered delivered
when title to the physical software media passes to the customer
or, in the case of electronic delivery, when the customer has
been provided the access codes to download and operate the
software.
The fee is fixed or determinable. The Company considers
arrangements with extended payment terms not to be fixed or
determinable. If the license fee in an arrangement is not fixed
or determinable, revenue is recognized as payments become due.
Revenue arrangements with resellers and distributors require
evidence of sell-through, that is, persuasive evidence that the
products have been sold to an identified end user. The
Companys standard agreements do not contain product return
rights.
Collection is probable. Credit worthiness and
collectibility are first assessed at a country level based on
the countrys overall economic climate and general business
risk. For customers in countries deemed credit-worthy, credit
and collectibility are then assessed based on payment history
and credit profile. When a customer is not deemed credit worthy,
revenue is recognized when payment is received.
The Company also enters into OEM arrangements that provide for
license fees based on inclusion of our technology and/or
products in the OEMs products. These arrangements provide
for fixed, irrevocable royalty payments. Royalty payments are
recognized as revenue based on the activity in the royalty
report the Company receives from the OEM or in the case of OEMs
with fixed royalty payments, revenue is recognized upon
execution of the agreement, delivery of the software, and when
all other criteria for revenue recognition are met.
The Companys software license arrangements include
multiple elements: software license fees, maintenance fees,
consulting, and/or education services. The Company uses the
residual method to recognize license revenue when the license
arrangement includes elements to be delivered at a future date
and vendor-specific objective evidence (VSOE) of
fair value exists to allocate the fee to the undelivered
elements of the arrangement. VSOE is based on the price charged
when an element is sold separately. If VSOE does not exist for
undelivered elements, all revenue is deferred and recognized
when delivery occurs or VSOE is established. Consulting
services, if included as part of the software arrangement,
generally do not require significant modification or
customization of the software. If the software arrangement
includes significant modification or customization of the
software, software license revenue is recognized as the
consulting services revenue is recognized.
The Company recognizes maintenance revenues, which consist of
fees for ongoing support and product updates, ratably over the
term of the contract, typically one year.
Consulting revenues are primarily related to implementation
services and product configurations performed on a
time-and-materials basis and, occasionally, on a fixed fee
basis. Education services revenues are generated from classes
offered at both Company and customer locations. Revenues from
consulting and education services are recognized as the services
are performed.
Deferred revenue includes deferred license, maintenance,
consulting and education services revenue. For customers not
deemed credit-worthy, the Companys practice is to net
unpaid deferred revenue for that customer against the related
receivable balance.
53
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Facilities Restructuring Charges |
In June 2002, the Financial Accounting Standards Board
(FASB) issued SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 supersedes Emerging Issues Task Force
(EITF) Issue No. 88-10, Costs Associated
with Lease Modification or Termination. The Company adopted
SFAS No. 146 effective January 1, 2003;
therefore, the restructuring activities initiated on or after
January 1, 2003 were accounted for in accordance with
SFAS No. 146. The Company applied
SFAS No. 146 for its 2004 Restructuring Plan while its
2001 Restructuring Plan was accounted for in accordance with
EITF No. 88-10 and other applicable pre-existing guidance.
See Note 6. Facilities Restructuring Charges.
SFAS No. 146 requires that a liability associated with
an exit or disposal activity be recognized when the liability is
incurred, as opposed to when management commits to an exit plan.
SFAS No. 146 also requires that: (1) liabilities
associated with exit and disposal activities be measured at fair
value; (2) one-time termination benefits be expensed at the
date the entity notifies the employee, unless the employee must
provide future service, in which case the benefits are expensed
ratably over the future service period; (3) liabilities
related to an operating lease/contract be recorded at fair value
and measured when the contract does not have any future economic
benefit to the entity (that is, the entity ceases to utilize the
rights conveyed by the contract); and (4) all other costs
related to an exit or disposal activity be expensed as incurred.
The Company estimated the fair value of its lease obligations
included in its 2003 and later restructuring activities based on
the present value of the remaining lease obligation, operating
costs, and other associated costs, less estimated sublease
income.
Facilities restructuring obligations associated with lease
termination and/or abandonment incurred prior to the adoption of
SFAS No. 146 were accounted for and continue to be
accounted for in accordance with EITF No. 88-10. Under EITF
No. 88-10, the liability associated with lease termination
and/or abandonment represents the sum of the total remaining
lease costs and related exit costs, less probable sublease
income. Facilities restructuring obligations incurred after the
adoption of SFAS No. 146 were accounted for in
accordance with SFAS No. 146. The Company recorded the
2001 Restructuring costs associated with lease termination
and/or abandonment when the leased property had no substantive
future use or benefit to the Company.
|
|
|
Shipping and Handling Costs |
Shipping and handling costs in connection with our packaged
software products are not material and are expensed as incurred
and included in cost of license revenues in the Companys
results of operations.
Advertising costs are expensed as incurred. Advertising expense
was $0.9 million, $0.4 million, and $1.4 million
for the years ended December 31, 2005, 2004, and 2003,
respectively.
|
|
|
Net Income (Loss) per Common Share |
Under the provisions of SFAS No. 128, Earnings per
Share, basic net income (loss) per share is computed using
the weighted-average number of common shares outstanding during
the period. Diluted net income (loss) per share reflects the
potential dilution of securities by adding other common stock
equivalents, primarily stock options, to the weighted-average
number of common shares outstanding during the period, if
dilutive. Potentially dilutive securities have been excluded
from the computation of diluted net income (loss) per share if
their inclusion is antidilutive.
54
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The calculation of basic and diluted net income (loss) per share
is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income (loss)
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
87,266 |
|
|
|
85,919 |
|
|
|
82,158 |
|
Weighted-average unvested common shares subject to repurchase
|
|
|
(24 |
) |
|
|
(107 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per common share
|
|
|
87,242 |
|
|
|
85,812 |
|
|
|
82,049 |
|
Effect of dilutive securities (stock options)
|
|
|
4,841 |
|
|
|
|
|
|
|
3,151 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per common
share
|
|
|
92,083 |
|
|
|
85,812 |
|
|
|
85,200 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
0.39 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$ |
0.37 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
If the Company had reported net income in the year ended
December 31, 2004, the calculation of diluted earnings per
share would have included the shares used in the computation of
basic net loss per share as well as an additional 2,771,000
common equivalent shares related to outstanding stock options
not included in the calculations above (determined using the
treasury stock method). For the years ended December 31,
2005, 2004, and 2003, options to purchase approximately
1.2 million, 8.3 million (in addition to 2,771,000
common equivalent shares), and 3.4 million shares,
respectively, of common stock with exercise price greater than
the annual average fair market value of our stock of $9.61,
$7.78, and $8.02, respectively, were not included in the
calculation because the effect would have been antidilutive.
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires the use of the liability method in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce
the deferred tax assets to the amounts expected to be realized.
The Company also accounts for any income tax contingencies in
accordance with SFAS No. 5, Accounting for
Contingencies.
The Company accounts for stock issued to employees using the
intrinsic value method in accordance with Accounting Principles
Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, and SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure. Under APB No. 25,
compensation expense of fixed stock options is based on the
difference, if any, on the date of the grant between the fair
value of the Companys stock and the exercise price of the
option. The Company amortizes its stock-based compensation under
APB 25 using a straight-line basis over the remaining
vesting term of the related options. The Company accounts for
stock issued to non-employees in accordance with the provisions
of SFAS No. 123 EITF No. 96-18, Accounting for
Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.
Pro forma information regarding net income (loss) and net income
(loss) per share is required by SFAS No. 148 as if the
Company had accounted for its employee stock options and shares
issued under the Employee Stock Purchase Plan (ESPP)
under the fair value method of SFAS No. 123. The fair
value of
55
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Companys stock-based awards to employees was estimated
using the multiple option approach of the Black-Scholes
option-pricing model. The related expense is amortized using an
accelerated method over the vesting terms of the option as
required by Financial Accounting Standards Board Interpretation
(FIN) No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Awards
Plans (an interpretation of APB Opinions No. 15 and 25).
The fair value of the Companys stock-based awards was
estimated assuming no expected dividends on the date of grant
using the Black-Scholes option valuation method, with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Option grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life of options (years)
|
|
|
3.3 |
|
|
|
3.0 |
|
|
|
3.1 |
|
|
Risk-free interest rate
|
|
|
3.9 |
% |
|
|
3.0 |
% |
|
|
1.7 |
% |
|
Volatility
|
|
|
57 |
% |
|
|
80 |
% |
|
|
80 |
% |
ESPP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life of options (years)
|
|
|
1.25 |
|
|
|
1.25 |
|
|
|
1.25 |
|
|
Risk-free interest rate
|
|
|
3.5 |
% |
|
|
1.8 |
% |
|
|
1.4 |
% |
|
Volatility
|
|
|
44 |
% |
|
|
60 |
% |
|
|
88 |
% |
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. The
Black-Scholes model requires the input of subjective
assumptions. In the third quarter of 2005, the Company
re-evaluated the assumptions used in the Black-Scholes model
and, as a result, changed its computation of expected volatility
from one based solely on historical volatility to volatility
based on a combination of historical and market-based implied
volatility. The Companys computation of expected life was
also adjusted to be more representative of expected future
exercise patterns. Also, during the first quarter of 2005, the
Company modified its approach and updated certain assumptions
with respect to determining the estimated fair value of shares
granted under its ESPP, and made other corrections to its 2004
and 2003 pro forma charges. The previous amounts for the years
ended December 31, 2004 and 2003 have been revised to
reflect these corrections. The pro forma stock-based
compensation expense reported under the fair value method was
previously reported as $17.1 million and $24.5 million
for the years ended December 31, 2004 and 2003,
respectively.
56
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Had compensation cost for the Companys stock-based
compensation plans been determined using the fair value at the
grant dates for awards under those plans calculated using the
Black-Scholes method of SFAS No. 123, the
Companys net income (loss) and basic and diluted net
income (loss) per share would have been changed to the pro forma
amounts indicated below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
|
Stock-based employee compensation included in net income (loss)
as reported, net of related tax*
|
|
|
723 |
|
|
|
3,358 |
|
|
|
940 |
|
|
Stock-based employee compensation using the fair value method,
net of related tax*
|
|
|
(16,010 |
) |
|
|
(18,897 |
) |
|
|
(27,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
18,517 |
|
|
$ |
(119,943 |
) |
|
$ |
(19,177 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.39 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
Pro forma
|
|
$ |
0.21 |
|
|
$ |
(1.40 |
) |
|
$ |
(0.23 |
) |
Diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.37 |
|
|
$ |
(1.22 |
) |
|
$ |
0.09 |
|
|
Pro forma
|
|
$ |
0.20 |
|
|
$ |
(1.40 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
* |
The tax effects on stock-based compensation have been fully
reserved by way of a valuation allowance. |
The estimated weighted-average fair value of options granted
under the stock option plans during 2005, 2004 and 2003 was
$3.76, $3.69, and $3.95 per share, respectively. The
weighted-average fair value of employee stock purchase shares
granted under the ESPP during 2005, 2004, and 2003 was $3.29,
$2.57, and $3.70 per share, respectively.
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for the manner in which public companies report information
about operating segments in annual and interim financial
statements. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. The method for determining the information to
report is based on the way management organizes the operating
segments within the Company for making operating decisions and
assessing financial performance.
The Companys chief operating decision maker is the Chief
Executive Officer, who reviews financial information presented
on a consolidated basis, accompanied by disaggregated
information about revenues by geographic region for purposes of
making operating decisions and assessing financial performance.
On this basis, the Company is organized and operates in a single
segment: the design, development, and marketing of software
solutions.
|
|
|
Foreign Currency Translation |
The functional currency of the Companys foreign
subsidiaries is their local currency. The Company translates all
assets and liabilities of foreign subsidiaries to
U.S. dollars at the current exchange rates as of the
applicable balance sheet date. Revenue and expenses are
translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation of the
foreign subsidiaries financial statements are reported as
a separate component of stockholders equity. Net gains and
losses resulting from
57
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
foreign exchange transactions are included in other income
(expense), net in the accompanying consolidated statements of
operations.
|
|
|
Recent Accounting Pronouncements |
In June 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
SFAS No. 154 replaces APB Opinion No. 20 and
SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements, applies to all voluntary changes in
accounting principle, and changes the requirements for
accounting for and reporting of a change in accounting
principle. APB Opinion No. 20 previously required that most
voluntary changes in accounting principle be recognized by
including in net income of the period of change a cumulative
effect of changing to the new accounting principle whereas
SFAS No. 154 requires retrospective application to
prior periods financial statements of a voluntary change
in accounting principle, unless it is impracticable.
SFAS No. 154 enhances the consistency of financial
information between periods. SFAS No. 154 will be
effective beginning with the Companys first quarter of
2006. The Company does not expect that the adoption of
SFAS No. 154 will have a material impact on its
consolidated results of operations or financial position.
In March 2005, the FASB published FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement
Obligations, which clarifies that the term,
conditional asset retirement obligation, as used in
SFAS No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event
that may or may not be within the control of the entity. The
uncertainty about the timing and (or) method of settlement
of a conditional asset retirement obligation should be factored
into the measurement of the liability when sufficient
information exists. The interpretation also clarifies when an
entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The Company
adopted of this Interpretation during 2005, and there is no
material effect on the Companys consolidated financial
position, results of operations or cash flows.
In December 2004, the FASB issued FASB No. 123 (revised
2004) (SFAS No. 123(R)), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB No. 25,
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative to
financial statement recognition. SFAS No. 123(R) also
requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow,
rather than as an operating cash flow as prescribed under
current accounting rules. This requirement will reduce net
operating cash flows and increase net financing cash flows in
periods after adoption, but will result in no change to total
cash flow. As permitted by SFAS No. 123, the Company
currently accounts for share-based payments to employees using
APB No. 25s intrinsic value method. As a consequence,
the Company generally recognizes no compensation cost for
employee stock options and purchases under the Companys
ESPP. In January 2005, the U.S. Securities Exchange
Commission issued Staff Accounting Bulletin No. 107,
which provides supplemental implementation guidance for
SFAS No. 123(R). The Company is required to adopt
SFAS No. 123(R) in the first quarter of 2006. The
Company anticipates that it will adopt SFAS No. 123(R)
using the modified prospective method, under which compensation
cost is recognized beginning with the effective date
(1) based on the requirements of SFAS No. 123(R)
for all share-based payments granted after the effective date
and (2) based on the previous requirements of
SFAS No. 123 for all awards granted to employees prior
to the effective date of SFAS 123(R) that remain unvested
on the effective date. The Company has selected the
Black-Scholes option pricing model as the most appropriate
fair-value method for its share-based awards and will recognize
compensation cost on a straight-line basis over the
Companys awards vesting periods. Although the
58
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company has not completed its evaluation of the impact of this
accounting pronouncement, the adoption of
SFAS No. 123(R)s fair value method will have no
adverse impact on the Companys total cash flows, but will
have a significant adverse impact on its consolidated statements
of operations and basic and diluted earnings per share. The
actual effects of adopting SFAS No. 123(R) will depend
on numerous factors, including the amounts of share-based
payments granted in the future, stock price volatility, employee
stock option exercise behavior, and estimated forfeiture rates.
See Note 2. Summary of Significant Accounting Policies:
Stock-Based Compensation, above, for the effect on
reported net income (loss) and earnings per share if the Company
had accounted for its stock option and stock purchase plans
using the fair value recognition provisions of
SFAS No. 123.
3. Cash, Cash Equivalents and
Short-Term Investments
The Companys marketable securities are classified as
available-for-sale as of the balance sheet date and are reported
at fair value with unrealized gains and losses reported as a
separate component of accumulated other comprehensive income in
stockholders equity, net of tax. Realized gains and losses
and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense as incurred.
The Company recognized realized gains of $0.1 million for
the year ended December 31, 2003. No realized gains were
recognized for the years ended December 31, 2005 and 2004.
The realized gains are included in other income of the
consolidated results of operations for the respective years. The
cost of securities sold was determined based on the specific
identification method.
The following is a summary of the Companys investments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
|
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
|
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Cash
|
|
$ |
40,227 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
|
|
1,261 |
|
|
Commercial paper
|
|
|
20,996 |
|
|
|
|
|
|
|
(3 |
) |
|
|
20,993 |
|
|
U.S. government notes and bonds
|
|
|
14,063 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
14,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
36,320 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
36,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
76,547 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
76,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
451 |
|
|
Commercial paper
|
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
997 |
|
|
Certificates of deposit
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
Corporate notes and bonds
|
|
|
27,455 |
|
|
|
|
|
|
|
(184 |
) |
|
|
27,271 |
|
|
Municipal securities
|
|
|
4,198 |
|
|
|
|
|
|
|
(9 |
) |
|
|
4,189 |
|
|
U.S. government notes and bonds
|
|
|
109,084 |
|
|
|
|
|
|
|
(507 |
) |
|
|
108,577 |
|
|
Auction rate securities
|
|
|
41,850 |
|
|
|
|
|
|
|
|
|
|
|
41,850 |
|
|
France government bonds
|
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
186,349 |
|
|
|
|
|
|
|
(700 |
) |
|
|
185,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and short-term investments
|
|
$ |
262,896 |
|
|
$ |
2 |
|
|
$ |
(704 |
) |
|
$ |
262,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
Gross |
|
Gross | |
|
|
|
|
|
|
Unrealized |
|
Unrealized | |
|
Estimated | |
|
|
Cost | |
|
Gains |
|
Losses | |
|
Fair Value | |
|
|
| |
|
|
|
| |
|
| |
Cash
|
|
$ |
87,365 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
87,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
88,941 |
|
|
|
|
|
|
|
|
|
|
|
88,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
451 |
|
|
Corporate notes and bonds
|
|
|
19,446 |
|
|
|
|
|
|
|
(146 |
) |
|
|
19,300 |
|
|
Municipal securities
|
|
|
40,326 |
|
|
|
|
|
|
|
(9 |
) |
|
|
40,317 |
|
|
U.S. government notes and bonds
|
|
|
79,782 |
|
|
|
|
|
|
|
(490 |
) |
|
|
79,292 |
|
|
Auction rate securities
|
|
|
12,800 |
|
|
|
|
|
|
|
|
|
|
|
12,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
152,805 |
|
|
|
|
|
|
|
(645 |
) |
|
|
152,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and short-term investments
|
|
$ |
241,746 |
|
|
$ |
|
|
|
$ |
(645 |
) |
|
$ |
241,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with EITF
No. 03-1, the
following table summarizes the fair value and gross unrealized
losses related to available-for-sale securities, aggregated by
investment category and length of time that individual
securities have been in a continuous unrealized loss position,
at December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months | |
|
More than 12 Months | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
|
Gross | |
|
|
|
Gross | |
|
|
|
Gross | |
|
|
|
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
|
Unrealized | |
|
|
Fair Value | |
|
Losses | |
|
Value | |
|
Losses | |
|
Fair Value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate notes and bonds
|
|
$ |
22,549 |
|
|
$ |
(131 |
) |
|
$ |
4,722 |
|
|
$ |
(54 |
) |
|
$ |
27,271 |
|
|
$ |
(185 |
) |
Municipal securities
|
|
|
4,189 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
4,189 |
|
|
|
(9 |
) |
Commercial paper
|
|
|
7,034 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
7,034 |
|
|
|
(3 |
) |
U.S. government notes and bonds
|
|
|
90,998 |
|
|
|
(349 |
) |
|
|
19,324 |
|
|
|
(158 |
) |
|
|
110,322 |
|
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
124,770 |
|
|
$ |
(492 |
) |
|
$ |
24,046 |
|
|
$ |
(212 |
) |
|
$ |
148,816 |
|
|
$ |
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market values were determined for each individual security in
the investment portfolio. The declines in value of these
investments are primarily related to changes in interest rates
and are considered to be temporary in nature.
The following table summarized the cost and estimated fair value
of the Companys cash equivalents and short-term
investments by contractual maturity at December 31, 2005
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cost | |
|
Fair Value | |
|
|
| |
|
| |
Due within one year
|
|
$ |
156,561 |
|
|
$ |
156,071 |
|
Due one year to two years
|
|
|
24,258 |
|
|
|
24,046 |
|
Due after two years
|
|
|
41,850 |
|
|
|
41,850 |
|
|
|
|
|
|
|
|
|
|
$ |
222,669 |
|
|
$ |
221,967 |
|
|
|
|
|
|
|
|
60
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The investments classified as due after two years
are marketable auction rate securities that have contractual
maturities greater than two years with interest reset features.
The interest rates of these securities reset approximately every
30 days. These auction rate securities also have structural
features that allow the Company to sell the investments, at par,
prior to the contractual maturities dates.
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Computer and office equipment
|
|
$ |
31,184 |
|
|
$ |
27,436 |
|
Furniture and fixtures
|
|
|
3,130 |
|
|
|
516 |
|
Leasehold improvements
|
|
|
14,653 |
|
|
|
4,216 |
|
Capital work-in-progress
|
|
|
1,170 |
|
|
|
8,708 |
|
|
|
|
|
|
|
|
|
|
|
50,137 |
|
|
|
40,876 |
|
Less: Accumulated depreciation and amortization
|
|
|
(29,111 |
) |
|
|
(20,813 |
) |
|
|
|
|
|
|
|
|
|
$ |
21,026 |
|
|
$ |
20,063 |
|
|
|
|
|
|
|
|
The Company recorded charges of $21.6 million to the
write-off of leasehold improvements and furniture and fixtures
at excess facilities during the year ended December 31,
2004. See Note 6. Facilities Restructuring Charges. The
capital
work-in-progress
presented in 2004 consists of leasehold improvements, furniture
and fixtures, and computer and office equipment associated with
the relocation of the Companys headquarters that had not
been placed in service at December 31, 2004. Depreciation
and amortization expense was $9.2 million,
$9.2 million, and $11.2 million in 2005, 2004, and
2003, respectively.
|
|
5. |
Goodwill and Intangible Assets |
The carrying amount of the intangible assets as of
December 31, 2005 and 2004 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
Net | |
|
Gross Carrying | |
|
Accumulated | |
|
Net | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Core technology
|
|
$ |
6,357 |
|
|
$ |
(5,178 |
) |
|
$ |
1,179 |
|
|
$ |
6,429 |
|
|
$ |
(4,257 |
) |
|
$ |
2,172 |
|
Purchased technology
|
|
|
2,500 |
|
|
|
(35 |
) |
|
|
2,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
945 |
|
|
|
(426 |
) |
|
|
519 |
|
|
|
945 |
|
|
|
(237 |
) |
|
|
708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,802 |
|
|
$ |
(5,639 |
) |
|
$ |
4,163 |
|
|
$ |
7,374 |
|
|
$ |
(4,494 |
) |
|
$ |
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, other than goodwill, are amortized over
estimated useful lives of between three to five years. Of the
$1.1 million amortization of intangible assets recorded in
2005, $0.2 million was recorded in operating expenses and
$0.9 million was recorded in cost of revenues. Of the
$2.5 million amortization of intangible assets recorded in
2004, $0.2 million was recorded in operating expenses and
$2.3 million was recorded in cost of revenues. Of the
$1.2 million amortization of intangible assets recorded in
2003, $0.2 million was recorded in operating expenses and
$1.0 million was recorded in cost of revenues. In 2005, the
Company purchased a source code license with a value of
$2.5 million. The weighted-average amortization period of
the Companys core technology, purchased technology, and
customer relationships are three and half years, three years,
and five years, respectively. The amortization expense related
to identifiable intangible
61
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets as of December 31, 2005 is expected to be
$1.9 million, $1.3 million, and $1.0 million for
the years ended December 31, 2006, 2007, and 2008,
respectively.
Core technology at December 31, 2005 and 2004 totaling
$0.4 million and $1.0 million, net, related to the
Striva acquisition is recorded in a European local currency,
therefore, the gross carrying amount and accumulated
amortization are subject to periodic translation adjustments.
The Company adopted SFAS No. 142 effective
January 1, 2002 and, as a result, ceased to amortize
goodwill at that time. The changes in the carrying amount of
goodwill for 2005 and 2004 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
82,245 |
|
|
$ |
82,186 |
|
Subsequent goodwill adjustments
|
|
|
(1,179 |
) |
|
|
59 |
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
81,066 |
|
|
$ |
82,245 |
|
|
|
|
|
|
|
|
In 2005, the Company recorded a decrease in goodwill related to
the 2003 Striva acquisition of $1.2 million to reflect
closing out an escrow account and reductions of other accrued
merger costs. In 2004, the Company recorded an increase in
goodwill related to the Striva acquisition of $59,000 to reflect
net adjustments to the purchase price allocation in accordance
with SFAS No. 142.
6. Facilities Restructuring
Charges
In October 2004, the Company announced a restructuring plan
(2004 Restructuring Plan) related to the December 2004
relocation of the Companys corporate headquarters within
Redwood City, California. In 2005, the Company subleased the
available space at the Pacific Shores Center under the 2004
Restructuring Plan with two subleases expiring in 2008 and 2009
with rights to extend for a period of one and four years,
respectively. 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 nine-year lease term of the
previous corporate headquarters, net of actual and estimated
sublease income. The Company has actual and estimated sublease
income, including the reimbursement of certain property costs
such as common area maintenance, insurance and property tax, net
of estimated broker commissions of $4.3 million in 2006,
$4.5 million in 2007, $4.4 million in 2008,
$2.4 million in 2009, $0.9 million in 2010,
$3.3 million in 2011, $3.9 million in 2012, and
$2.1 million in 2013. If the subtenants do not extend their
subleases and the Company is unable to sublease any of the
related Pacific Shores facilities during the remaining lease
terms through 2013, restructuring charges could increase by
approximately $10.2 million.
In future periods, the Company will record accretion on the cash
obligations related to the 2004 Restructuring Plan. Accretion
represents imputed interest and is the difference between our
non-discounted future cash obligations and the discounted
present value of these cash obligations. At December 31,
2005, the Company will recognize approximately
$20.1 million of accretion as a restructuring charge over
the remaining term of the lease, or approximately nine years, as
follows: $4.3 million in 2006; $4.0 million in 2007;
$3.6 million in 2008; $3.1 million in 2009;
$2.4 million in 2010; $1.6 million in 2011;
$0.9 million in 2012; and $0.2 million in 2013.
62
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 timing of the restructuring accrual adjustment
was a result of negotiated and executed subleases for the
Companys excess facilities in Dallas, Texas and Palo Alto,
California during the third quarter of 2002. These subleases
included terms that provided a lower level of sublease rates
than the initial assumptions. The terms of these new subleases
were consistent with the continued deterioration of the
commercial real estate market in these areas. In addition, cost
containment measures initiated in the same quarter, such as
delayed hiring and salary reductions, resulted in an adjustment
to managements estimate of occupancy of available vacant
facilities. These charges represent adjustments to the original
assumptions, including the time period that the buildings will
be vacant, expected sublease rates, expected sublease terms and
the estimated time to sublease. The Company calculated the
estimated costs for the additional restructuring charges based
on current market information and trend analysis of the real
estate market in the respective area.
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
Companys excess facilities in Palo Alto, California during
the third quarter of 2004, and an adjustment to
managements estimate of occupancy of available vacant
facilities. These charges represent adjustments to the original
assumptions in the 2001 Restructuring Plan charges, including
the time period that the buildings will be vacant, expected
sublease rates, expected sublease terms, and the estimated time
to sublease. The Company calculated the estimated costs for the
additional restructuring charges based on current market
information and trend analysis of the real estate market in the
respective area. In 2005, the Company subleased the available
space at the Pacific Shores Center under the 2001 Restructuring
Plan through May 2013.
A summary of the activity of the accrued restructuring charges
for the years ended December 31, 2005 and 2004 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued | |
|
|
|
|
|
|
|
|
|
Accrued | |
|
|
Restructuring | |
|
|
|
|
|
|
|
Restructuring | |
|
|
Charges at | |
|
Restructuring | |
|
|
|
|
|
Charges at | |
|
|
December 31, | |
|
| |
|
Net Cash | |
|
Non-cash | |
|
December 31, | |
|
|
2004 | |
|
Charges | |
|
Adjustments | |
|
Payment | |
|
Reclass | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess lease facilities
|
|
$ |
88,521 |
|
|
$ |
4,767 |
|
|
$ |
(1,133 |
) |
|
$ |
(13,924 |
) |
|
$ |
(102 |
) |
|
$ |
78,129 |
|
2001 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess lease facilities
|
|
|
20,730 |
|
|
|
|
|
|
|
49 |
|
|
|
(4,375 |
) |
|
|
|
|
|
|
16,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
109,251 |
|
|
$ |
4,767 |
|
|
$ |
(1,084 |
) |
|
$ |
(18,299 |
) |
|
$ |
(102 |
) |
|
$ |
94,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2005, the Company recorded $3.7 million of restructuring
charges related to the 2004 and 2001 Restructuring Plans. These
charges included $4.8 million of accretion charges and a
$1.0 million adjustment due to a change in lease operating
expense assumptions, offset by an adjustment to reflect a
$2.1 million increase in the Companys assumed
sublease income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued | |
|
|
|
|
|
|
|
Accrued | |
|
|
Restructuring | |
|
|
|
|
|
|
|
Restructuring | |
|
|
Charges at | |
|
|
|
Net | |
|
|
|
Charges at | |
|
|
December 31, | |
|
Restructuring | |
|
Cash | |
|
Non-cash | |
|
December 31, | |
|
|
2003 | |
|
Charges | |
|
Payment | |
|
Reclass | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2004 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess lease facilities
|
|
$ |
|
|
|
$ |
82,015 |
|
|
$ |
|
|
|
$ |
6,506 |
|
|
$ |
88,521 |
|
|
Property and equipment write-offs
|
|
|
|
|
|
|
21,556 |
|
|
|
|
|
|
|
(21,556 |
) |
|
|
|
|
2001 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess lease facilities
|
|
|
15,167 |
|
|
|
9,065 |
|
|
|
(4,465 |
) |
|
|
963 |
|
|
|
20,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,167 |
|
|
$ |
112,636 |
|
|
$ |
(4,465 |
) |
|
$ |
(14,087 |
) |
|
$ |
109,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash payments for 2005, 2004, and 2003 for facilities
included in the 2001 Restructuring Plan amounted to
$4.4 million, $4.5 million, and $4.5 million,
respectively. Actual future cash requirements may differ from
the restructuring liability balances as of December 31,
2005 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.
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 Companys control, such as the time periods required to
locate and contract suitable subleases should the Companys
existing sublessees elect to terminate their sublease agreements
in 2008 and 2009 and the market rates at the time of entering
into new sublease agreements.
As the related facilities associated with the restructured
properties are no longer being utilized in the Companys
operations, the Company reclassified the deferred rent liability
to accrued restructuring charges in 2004. As of
December 31, 2005, $18.7 million of the
$94.5 million accrued restructuring charges was classified
as current liabilities and the remaining $75.8 million was
classified as non-current liabilities.
|
|
7. |
Commitments and Contingencies |
In December 2004, the Company relocated its corporate
headquarters within Redwood City, California and entered into a
new lease agreement. The lease term is from December 15,
2004 to December 31, 2007 (with a three-year renewal
option). The future minimum contractual lease payments are
$1.9 million and $2.1 million for the years ended
December 31, 2006 and 2007, 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 lease
expires in July 2013. As part of these agreements, the Company
purchased certificates of deposit totaling $12.2 million as
a security deposit for lease payments until certain financial
milestones are met. The letter of credit may be reduced to an
amount not less than three months of the base rent at the then
current rate if the Companys annual revenues reach
$750 million, and the Company has quarterly operating
profits of at least $100 million for no less than four
consecutive calendar quarters. These certificates of deposit are
classified as long-term restricted cash on the Companys
consolidated balance sheet.
64
INFORMATICA CORPORATION
NOTES TO 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 2013 and require
the Company to pay operating costs, including property taxes,
insurance, and maintenance. Rent expense for 2005, 2004, and
2003 was $5.1 million, $16.1, million and $15.4 million,
respectively. Operating lease payments in the table below
include approximately $124.4 million for operating lease
commitments for facilities that are included in restructuring
charges. See Note 6. Facilities Restructuring Charges,
above, for a further discussion.
Future minimum lease payments as of December 31, 2005 under
non-cancelable operating leases with original terms in excess of
one year are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating | |
|
Sublease | |
|
|
|
|
Leases | |
|
Income | |
|
Net | |
|
|
| |
|
| |
|
| |
2006
|
|
$ |
22,259 |
|
|
$ |
(3,116 |
) |
|
$ |
19,143 |
|
2007
|
|
|
21,077 |
|
|
|
(2,731 |
) |
|
|
18,346 |
|
2008
|
|
|
17,316 |
|
|
|
(2,752 |
) |
|
|
14,564 |
|
2009
|
|
|
17,453 |
|
|
|
(1,623 |
) |
|
|
15,830 |
|
2010
|
|
|
17,347 |
|
|
|
(424 |
) |
|
|
16,923 |
|
Thereafter
|
|
|
44,841 |
|
|
|
(1,114 |
) |
|
|
43,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
140,293 |
|
|
$ |
(11,760 |
) |
|
$ |
128,533 |
|
|
|
|
|
|
|
|
|
|
|
Of these future minimum lease payments, the Company has accrued
$94.5 million in the facilities restructuring accrual at
December 31, 2005. This accrual, in addition to minimum
lease payments of $124.4 million, includes estimated
operating expenses of $22.4 million and sublease
commencement costs associated with excess facilities and is net
of estimated sublease income of $32.2 million and a present
value discount of $20.1 million recorded in accordance with
SFAS No. 146.
In December 2005, the Company subleased 35,000 square feet
of office space at the Pacific Shores Center, its former
corporate headquarters, in Redwood City, California through May
2013. In June 2005, the Company subleased 51,000 square
feet of office space at the Pacific Shores Center, its previous
corporate headquarters, in Redwood City, California through
August 2008 with an option to renew through July 2013. In
February 2005, the Company subleased 187,000 square feet of
office space at the Pacific Shores Center for the remainder of
the lease term through July 2013 with a right of termination by
the subtenant that is exercisable in July 2009. In 2004, the
Company signed sublease agreements for leased office space in
Palo Alto and Scotts Valley, California. In 2003, the Company
signed sublease agreements for leased office space in
San Francisco, Palo Alto, and Redwood City, California.
During 2002, the Company signed a sublease agreement for leased
office space in Palo Alto, California.
The Company generally provides a warranty for its software
products and services to its customers for a period of three to
six months and accounts for its warranties under the
SFAS No. 5, Accounting for Contingencies. The
Companys 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 Companys
services are generally warranted to be performed in a
professional manner and to materially conform to the
specifications set forth in a customers signed contract.
In the event there is a failure of such warranties, the Company
generally will correct or provide a reasonable work-around or
replacement product. The Company has provided a warranty accrual
of $0.2 million as of December 31, 2005 and
December 31, 2004. To date, the Companys product
warranty expense has not been significant.
65
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
Companys 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, 2005. For several reasons,
including the lack of prior indemnification claims and the lack
of a monetary liability limit for certain infringement cases
under the License Agreement, the Company cannot determine the
maximum amount of potential future payments, if any, related to
such indemnification provisions.
In addition, we indemnify our officers and directors under the
terms of indemnity agreements entered into with them, as well as
pursuant to our certificate of incorporation, bylaws, and
applicable Delaware law. To date, we have not incurred any costs
related to these indemnifications.
The Company accrues for loss contingencies when available
information indicates that it is probable that an asset has been
impaired or a liability has been incurred and the amount of the
loss can be reasonably estimated, in accordance with
SFAS No. 5, Accounting for Contingencies.
The Company is authorized to issue 2.0 million shares of
preferred stock with a par value of $0.001 per share of
which 200,000 shares have been designated as Series A
preferred stock. Preferred stock may be issued from time to time
in one or more series. The Board of Directors is authorized to
provide for the rights, preferences, privileges and restrictions
of the shares of such series. As of December 31, 2005 and
2004, no shares of preferred stock had been issued.
The Company has authorized 200 million shares of common
stock with a par value of $0.001 per share. Each share of
common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are
legally available and when declared by the Board of Directors,
subject to the rights of holders of all classes of stock having
priority rights as to dividends. No cash dividends have been
declared or paid through December 31, 2005.
|
|
|
Stockholders Rights Plan |
In October 2001, the Board of Directors adopted the
Stockholders Rights Plan and declared a dividend
distribution of one common stock purchase right for each
outstanding share of common stock held on November 12,
2001. Each right entitles the holder to
purchase 1/1000th of a share of Series A Preferred
66
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock of the Company, par value $0.001, at an exercise price of
$90 per share. The rights become exercisable in certain
circumstances and are redeemable at the Companys option,
at an exercise price of $0.001 per right. The rights expire
on the earlier of November 12, 2011 or on the date of their
redemption or exchange. The Company may also exchange the rights
for shares of common stock under certain circumstances. The
Stockholders Rights Plan was adopted to protect
stockholders from unfair or coercive takeover practices. The
plan is reviewed every three years by a committee of independent
directors.
In 2004, the Companys Board of Directors authorized a
one-year stock repurchase program for up to 5 million
shares of the Companys common stock. In 2005, the board
approved an extension of this program to December 31, 2005.
Purchases could be made from time to time in the open market and
were funded from available working capital. The number of shares
to be purchased and the timing of purchases were based on the
level of the Companys cash balances and general business
and market conditions. The Company purchased
2,810,000 shares at cost of $26.5 million and
1,055,000 shares at a cost of $6.1 million under this
program in 2005 and 2004, respectively. These shares were
retired and reclassified as authorized and unissued shares of
common stock.
In September 2003, upon the acquisition of Striva, the Company
entered into stock agreements with three Striva employees. In
connection with these agreements, 50% of the converted Striva
stock held by each employee is subject to a repurchase right by
the Company. The total number of shares of common stock subject
to these repurchased rights initially totaled 450,149 when the
acquisition closed. The repurchase rights lapse ratably over
periods ranging from one to two years through September 2005
based on continued employment of the individuals with the
Company. In connection with these shares, the Company recognized
deferred stock-based compensation totaling $3.4 million,
which is being amortized over the respective vesting periods.
The deferred stock-based compensation balance related to these
stock shares has been fully amortized in 2005.
|
|
|
Stock Issued for Services Rendered |
In June 2003, the Company granted unrestricted common stock for
consulting services rendered. The Company issued
11,000 shares of common stock. The fair value of the common
stock on the date of issuance totaled $76,000. The fair value
was recognized as a general and administrative expense in the
year ended December 31, 2003 as there was no remaining
performance obligation.
|
|
|
Employee Stock Purchase Plan |
The stockholders adopted the 1999 Employee Stock Purchase Plan
(ESPP) in April 1999 under which
1,600,000 shares have been reserved for issuance. The
number of shares reserved under the ESPP automatically increases
beginning on January 1 of each year by the lesser of
6,400,000 shares or 2% of the total amount of fully diluted
common stock shares outstanding on such date. Under the ESPP,
eligible employees may purchase common stock in an amount not to
exceed 10% of the employees cash compensation. The
purchase price per share will be 85% of the lesser of the common
stock fair market value either at the beginning of a rolling
two-year offering period or at the end of each six-month
purchase period within the two-year offering period. A total of
approximately 909,000, 805,000, and 788,000 shares of
common stock were issued under the ESPP in 2005, 2004, and 2003,
respectively, at a weighted-average price of $5.24, $5.52, and
$5.88 per share, 2005, 2004, and 2003, respectively. As of
December 31, 2005, the Company has approximately
6,391,000 shares available for future issuance under the
ESPP.
67
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fourth quarter of 2005, the Board of Directors
approved an amendment to the ESPP. Effective 2006, under the
amended ESPP, the new participants will be entitled to purchase
shares at 85% of the lesser of the common stock fair market
value either at the beginning or at the end of the
6-month offering
period, which was shortened from a
24-month offering
period. The purchase price will then be reset at the start of
the next offer period. The existing 2005 participants will be
able to apply their subscription prices within their remaining
two-year offering periods, which will expire at various purchase
dates through July 31, 2007. Furthermore, the existing 2005
participants offer periods would also expire if, on the
first day of one of the remaining purchase periods, the purchase
price is lower than the purchase price that was set at the
commencement of their two-year offering period.
|
|
|
1999 Stock Incentive Plan |
The Companys stockholders approved the 1999 Stock
Incentive Plan (the 1999 Incentive Plan) in April
1999 under which 2,600,000 shares have been reserved for
issuance. In addition, any shares not issued under the 1996
Stock Plan are also available for grant. The number of shares
reserved under the 1999 Incentive Plan automatically increases
annually beginning on January 1, 2000 by the lesser of
16,000,000 shares or 5% of the total amount of fully
diluted shares of common stock outstanding as of such date.
Under the 1999 Incentive Plan, eligible employees, officers, and
directors may purchase stock options, stock appreciation rights,
restricted shares, and stock units. The exercise price for
incentive stock options and non-qualified options may not be
less than 100% and 85%, respectively, of the fair value of the
Companys common stock at the option grant date. Options
granted are exercisable over a maximum term of 7 to
10 years from the date of the grant and generally vest over
a period of 4 years. It is the current practice of the
Board to limit option grants under this plan to
7-year terms and to
issue only non-qualified stock options. As of December 31,
2005, the Company had approximately 10,171,000 shares
available for future issuance under the 1999 Incentive Plan.
|
|
|
1999 Non-Employee Director Stock Incentive Plan |
The Companys stockholders adopted the 1999 Non-Employee
Director Stock Option Incentive Plan (the Directors
Plan) in April 1999 under which 1,000,000 shares have
been reserved for issuance. Each non-employee joining the Board
of Directors following the completion of the initial public
offering would automatically receive options to
purchase 100,000 shares of common stock at an exercise
price per share equal to the fair market value of the common
stock. In April 2003, the Board of Directors amended the
Directors Plan such that each non-employee joining the Board of
Directors will automatically receive options to
purchase 60,000 shares of common stock. These options
were exercisable over a maximum term of five years and would
vest in four equal annual installments on each yearly
anniversary from the date of the grant. The Directors Plan was
amended in April 2003 such that one-third of the options vest
one year from the grant date and the remainder shall vest
ratably over 24 months. In May 2004, the Directors Plan was
amended such that each non-employee director, who has been a
member of the Board for at least six months prior to each annual
stockholders meeting will automatically receive options to
purchase 25,000 shares of common stock at each such
meeting. Each option will have an exercise price equal to the
fair value of the common stock on the automatic grant date and
will vest on the first anniversary of the grant date. There was
an initial grant for a new Board member totaling
60,000 shares of common stock and five automatic annual
options granted for a total of 125,000 shares of the
Companys common stock in 2004 under the Directors Plan. In
2005, there were initial grants for two new board members
totaling 120,000 and five automatic annual options granted to a
total of 125,000 shares of the Companys common stock
under the Directors Plan. As of December 31, 2005, the
Company had approximately 190,000 shares available for
future issuance under the Directors Plan. During 2005, 40,000
options under the plan were expired with the weighed-average
exercised price at $21.75 per share.
68
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
2000 Employee Stock Incentive Plan |
In January 2000, the Board of Directors approved the 2000
Employee Stock Incentive Plan (the 2000 Incentive
Plan) under which 1,600,000 shares have been reserved
for issuance. Under the 2000 Incentive Plan, eligible employees
and consultants may purchase stock options, stock appreciation
rights, restricted shares and stock units. The exercise price
for non-qualified options may not be less than 85% of the fair
value of common stock at the option grant date. Options granted
are exercisable over a maximum term of 10 years from the
date of the grant and generally vest over a period of
4 years from the date of the grant. As of December 31,
2005, the Company had approximately 755,000 shares
available for future issuance under the 2000 Incentive Plan.
In connection with certain acquisitions made by the Company,
Informatica assumed options in the Influence 1996 Incentive
Stock Option Plan, the Zimba 1999 Stock Option Plan, and the
Striva 2000 Stock Plan (the Assumed Plans). No
further options will be granted under the Assumed Plans.
|
|
|
Stock Option Plan Activity |
A summary of the Companys stock option activity under all
plans is set forth below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
Number of | |
|
Exercise Price | |
|
|
Shares | |
|
per Share | |
|
|
| |
|
| |
Outstanding at December 31, 2002
|
|
|
14,917 |
|
|
$ |
7.81 |
|
|
Granted
|
|
|
4,368 |
|
|
|
6.59 |
|
|
Exercised
|
|
|
(1,532 |
) |
|
|
4.56 |
|
|
Canceled
|
|
|
(2,168 |
) |
|
|
11.67 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
15,585 |
|
|
|
7.26 |
|
|
Granted
|
|
|
7,901 |
|
|
|
6.97 |
|
|
Exercised
|
|
|
(2,392 |
) |
|
|
3.70 |
|
|
Canceled
|
|
|
(3,209 |
) |
|
|
8.06 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
17,885 |
|
|
|
7.47 |
|
|
Granted
|
|
|
3,735 |
|
|
|
8.99 |
|
|
Exercised
|
|
|
(2,504 |
) |
|
|
6.68 |
|
|
Canceled
|
|
|
(2,003 |
) |
|
|
10.51 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
17,113 |
|
|
$ |
7.56 |
|
|
|
|
|
|
|
|
The estimated weighted-average fair value of options granted
with exercise prices equal to fair value at date of grant under
the stock option plans during 2005, 2004, and 2003 was $3.76,
$3.69, and $3.71 per share, respectively. The
weighted-average fair value of options granted with exercise
prices less than fair value at date of grant was $6.76 per
share in 2003. No options were granted with exercise prices less
than fair value at date of grant in 2005 and 2004.
69
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
as of December 31, 2005 (number of options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
|
Weighted-Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
Number | |
|
Remaining | |
|
Average | |
|
Number | |
|
Average | |
Range of | |
|
of | |
|
Contractual Life | |
|
Exercise Price | |
|
of | |
|
Exercise Price | |
Exercise Prices | |
|
Options | |
|
(Years) | |
|
per Share | |
|
Options | |
|
per Share | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.06 to $ 4.05 |
|
|
|
1,047 |
|
|
|
4.13 |
|
|
$ |
2.23 |
|
|
|
958 |
|
|
$ |
2.15 |
|
|
$ 4.19 to $ 5.69 |
|
|
|
2,812 |
|
|
|
8.19 |
|
|
$ |
5.64 |
|
|
|
1,034 |
|
|
$ |
5.58 |
|
|
$ 5.72 to $ 7.26 |
|
|
|
3,701 |
|
|
|
5.06 |
|
|
$ |
6.86 |
|
|
|
1,787 |
|
|
$ |
6.83 |
|
|
$ 7.30 to $ 7.82 |
|
|
|
2,526 |
|
|
|
5.79 |
|
|
$ |
7.63 |
|
|
|
586 |
|
|
$ |
7.64 |
|
|
$ 7.83 to $ 8.00 |
|
|
|
3,563 |
|
|
|
4.50 |
|
|
$ |
7.90 |
|
|
|
3,294 |
|
|
$ |
7.90 |
|
|
$ 8.01 to $12.00 |
|
|
|
2,817 |
|
|
|
6.09 |
|
|
$ |
9.80 |
|
|
|
1,028 |
|
|
$ |
8.56 |
|
|
$12.20 to $48.63 |
|
|
|
647 |
|
|
|
4.21 |
|
|
$ |
16.59 |
|
|
|
577 |
|
|
$ |
17.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,113 |
|
|
|
5.65 |
|
|
$ |
7.56 |
|
|
|
9,264 |
|
|
$ |
7.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded deferred stock-based compensation in
connection with certain stock options grants and stock options
assumed in business combinations. Deferred stock-based
compensation is presented as a reduction of stockholders
equity. Amortization of stock-based compensation was
$0.7 million, $3.4 million, and $0.9 million in
2005, 2004, and 2003, respectively. The stock-based compensation
charges relate to the following expense classifications in the
accompanying consolidated statements of operations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Cost of service revenues
|
|
$ |
41 |
|
|
$ |
48 |
|
|
$ |
12 |
|
Sales and marketing
|
|
|
156 |
|
|
|
1,172 |
|
|
|
252 |
|
Research and development
|
|
|
525 |
|
|
|
2,216 |
|
|
|
468 |
|
General and administrative
|
|
|
1 |
|
|
|
(78 |
) |
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
723 |
|
|
$ |
3,358 |
|
|
$ |
940 |
|
|
|
|
|
|
|
|
|
|
|
During 2003, the Company recorded a total of $1.3 million
of deferred stock-based compensation in conjunction with the
assumption of certain stock options in the acquisition of
Striva, which is being amortized to operations over the
remaining vesting term of the assumed options, generally three
years. Additionally in 2003, an option to purchase common stock
was granted to the Companys former CEO with a variable
term that was based on future performance. The variable term of
the option is such that it requires the Company to periodically
remeasure the value of the grant as compared to the fair value
of the stock and record related stock-based compensation. The
adjustment to deferred stock-based compensation and related
amortization of stock-based compensation related to this grant
for the year ended December 31, 2003 was $84,000. In 2004,
the Company adjusted the deferred stock-based compensation and
recorded a benefit of $84,000 related to the periodic
remeasurement of the stock option value through its cancellation
of the stock option in July 2004.
|
|
9. |
Interest Income, net and Other Income (Expense), net |
Interest income, net consisted of interest income generating
from the Companys cash, cash equivalents, short-term
investments, and interest expense. The interest income, net also
included accretion of bond
70
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
premium net of amortization of bond discount of
$0.3 million, $(1.0) million, and $(1.7) million
in 2005, 2004, and 2003, respectively. The Company accrued
interest expense in connection with an acquisition escrow
account in the amount of $54,000 and $44,000 in 2004 and 2003,
respectively. The escrow account was closed out in early 2005.
Cash paid for interest expense was $122,000 and $6,000 in 2005
and 2003, respectively. No interest expense was paid in 2004.
Other income (expense), net consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Foreign currency gain (loss)
|
|
$ |
(617 |
) |
|
$ |
540 |
|
|
$ |
1,613 |
|
Other
|
|
|
(95 |
) |
|
|
(598 |
) |
|
|
1,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(712 |
) |
|
$ |
(58 |
) |
|
$ |
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
Comprehensive Income (Loss) |
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 (loss).
For the years ended December 31, 2005, 2004, and 2003, the
components of comprehensive income (loss) consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income (loss), as reported
|
|
$ |
33,804 |
|
|
$ |
(104,404 |
) |
|
$ |
7,310 |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments*
|
|
|
(57 |
) |
|
|
(797 |
) |
|
|
(571 |
) |
|
Cumulative translation adjustment*
|
|
|
(2,257 |
) |
|
|
786 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$ |
31,490 |
|
|
$ |
(104,415 |
) |
|
$ |
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
The tax effect on unrealized gain (loss) on investment and
foreign currency translation adjustment has not been significant. |
Accumulated other comprehensive income (loss) as of
December 31, 2005 and 2004 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Unrealized gain (loss) on available-for-sale investments
|
|
$ |
(702 |
) |
|
$ |
(645 |
) |
Cumulative translation adjustment
|
|
|
163 |
|
|
|
2,420 |
|
|
|
|
|
|
|
|
|
|
$ |
(539 |
) |
|
$ |
1,775 |
|
|
|
|
|
|
|
|
|
|
11. |
Investment Impairment |
In 2003, the Company made a minority equity investment in a
privately held company that was carried at a cost basis of
$0.5 million and was included in other assets. The Company
evaluated the investment in December 2004 and determined that
the carrying value of this investment was impaired. In December
2004, we recorded an investment impairment charge of
$0.5 million to other income (expense), net in the
Companys consolidated statement of operations. The Company
based its impairment assessment on the performance of the
company in which it invested, including its cash position,
earnings and revenue outlook, liquidity, and overall management.
71
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys employee savings and retirement plan (the
Plan) is qualified under Section 401 of the
Internal Revenue Code. The Plan is available to all regular
employees on the Companys U.S. payroll and provides
employees with tax deferred salary deductions and alternative
investment options. Employees may contribute up to 50% of their
salary up to the statutory prescribed annual limit. The Company
matches 50% per dollar contributed by eligible employees
who participate in the Plan, up to a maximum of $1,500 per
calendar year. Contributions made by the Company vest 100% upon
contribution. The Company contributed $0.8 million for the
year ended December 31, 2005. The Companys match was
suspended for 2004 and 2003. In addition, the Plan provides for
discretionary contributions at the discretion of the Board of
Directors. No discretionary contributions have been made by the
Company to date.
The federal, state, and foreign income tax provisions for the
years ended December 31, 2005, 2004, and 2003 are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
350 |
|
|
$ |
211 |
|
|
$ |
817 |
|
|
State
|
|
|
450 |
|
|
|
150 |
|
|
|
150 |
|
|
Foreign
|
|
|
1,374 |
|
|
|
859 |
|
|
|
1,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,174 |
|
|
$ |
1,220 |
|
|
$ |
2,124 |
|
|
|
|
|
|
|
|
|
|
|
The components of income (loss) before income taxes attributable
to domestic and foreign operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Domestic
|
|
$ |
42,343 |
|
|
$ |
(94,384 |
) |
|
$ |
24,905 |
|
Foreign
|
|
|
(6,365 |
) |
|
|
(8,800 |
) |
|
|
(15,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,978 |
|
|
$ |
(103,184 |
) |
|
$ |
9,434 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the provision (benefit) computed at the
statutory federal income tax rate to the Companys income
tax provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Income tax provision (benefit) computed at federal statutory
income tax rate
|
|
$ |
12,592 |
|
|
$ |
(36,114 |
) |
|
$ |
3,302 |
|
Federal alternative minimum tax
|
|
|
1,062 |
|
|
|
611 |
|
|
|
817 |
|
State taxes
|
|
|
293 |
|
|
|
98 |
|
|
|
98 |
|
Foreign taxes
|
|
|
1,374 |
|
|
|
859 |
|
|
|
1,157 |
|
Non-deductible purchased technology
|
|
|
|
|
|
|
|
|
|
|
1,583 |
|
Amortization of deferred stock-based compensation and intangibles
|
|
|
642 |
|
|
|
1,928 |
|
|
|
508 |
|
Other
|
|
|
(554 |
) |
|
|
(437 |
) |
|
|
293 |
|
Valuation allowance
|
|
|
(13,235 |
) |
|
|
34,275 |
|
|
|
(5,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,174 |
|
|
$ |
1,220 |
|
|
$ |
2,124 |
|
|
|
|
|
|
|
|
|
|
|
72
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys deferred tax assets
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
16,875 |
|
|
$ |
23,278 |
|
|
Tax credit carryforwards
|
|
|
12,441 |
|
|
|
11,291 |
|
|
Deferred revenue
|
|
|
1,576 |
|
|
|
2,920 |
|
|
Reserves and accrued costs not currently deductible
|
|
|
743 |
|
|
|
3,691 |
|
|
Depreciable assets
|
|
|
8,416 |
|
|
|
4,518 |
|
|
Accrued restructuring costs
|
|
|
48,395 |
|
|
|
53,908 |
|
|
Amortization of intangibles
|
|
|
1,131 |
|
|
|
1,811 |
|
|
Capitalized research and development
|
|
|
2,329 |
|
|
|
3,133 |
|
|
Other
|
|
|
205 |
|
|
|
204 |
|
|
Valuation allowance
|
|
|
(91,678 |
) |
|
|
(103,283 |
) |
|
|
|
|
|
|
|
|
|
|
433 |
|
|
|
1,471 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Non-deductible intangible assets
|
|
|
(433 |
) |
|
|
(1,471 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
SFAS No. 109 provides for the recognition of deferred
tax assets if realization of such assets is more likely than
not. Based on a number of factors, which includes the
Companys historical operating performance and the reported
cumulative net losses in prior years, the Company has provided a
full valuation allowance against its net deferred tax assets.
The valuation allowance decreased by $11.6 million, which
is primarily attributable to a reduction of deferred tax assets
to the extent of tax attributes utilized and increased by
$52.7 million primarily attributable to restructuring
charges currently not deductible and decreased by
$8.4 million, during the years ended December 31,
2005, 2004, and 2003, respectively.
The deferred tax assets as of December 31, 2004 have been
revised to reflect an additional $2.8 million of deferred
tax assets related to depreciable assets temporary differences
as a result of a more detailed analysis that was performed by
the Company in 2005.
As of December 31, 2005, approximately $47.0 million
of the valuation allowance for deferred taxes was attributable
to the tax benefits of stock option deductions which will be
credited to equity when realized.
As of December 31, 2005, the Company has federal net
operating loss carryforwards of approximately
$46.7 million, federal research and development tax credit
carryforwards of approximately $5.2 million and foreign tax
credits carryforwards of approximately $2.1 million. The
net operating loss and tax credit carryforwards will expire at
various times beginning in 2012, if not utilized. The federal
minimum tax credit carryforwards of $0.5 million have no
expiration dates.
As of December 31, 2005, the Company has state net
operating loss and research and development tax credit
carryforwards of approximately $9.4 million and
$6.8 million, respectively. The state net operating loss
carryforwards will expire at various times beginning in 2006 and
the research and development tax credit carryforwards have no
expiration dates. State investment tax credit carryforwards of
$0.2 million will expire at various times beginning in 2007.
73
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2003, the Company filed a complaint against Ascential
Software Corporation in which the Company asserted that
Ascential, and a number of former Informatica employees
recruited and hired by Ascential, misappropriated our trade
secrets, including sensitive products and marketing information
and detailed sales information regarding existing and potential
customers and unlawfully used that information to benefit
Ascential in gaining a competitive advantage against us. In July
2003, the Company settled this lawsuit with Ascential. The
settlement includes a consent judgment being entered against
Ascential, and a permanent injunction enjoining Ascential from
using, or further disseminating, confidential, sensitive
Informatica information and materials. In addition, Ascential
paid Informatica a sum of $1.6 million, which is included
in other income (expense), net, for the year ended
December 31, 2003.
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 the
Companys common stock from April 29, 1999 through
December 6, 2000. It names as defendants Informatica
Corporation, two of the Companys former officers (the
Informatica defendants), and several investment
banking firms that served as underwriters of the Companys
April 29, 1999 initial public offering and
September 28, 2000
follow-on public
offering. The complaint alleges liability as to all defendants
under Sections 11 and/or 15 of the Securities Act of
1933 and Sections 10(b) and/or 20(a) of the Securities
Exchange Act of 1934, on the grounds that the registration
statements for the offerings did not disclose that: (1) the
underwriters had agreed to allow certain customers to purchase
shares in the offerings in exchange for excess commissions paid
to the underwriters; and (2) the underwriters had arranged
for certain customers to purchase additional shares in the
aftermarket at predetermined prices. The complaint also alleges
that false analyst reports were issued. No specific damages are
claimed.
Similar allegations were made in other lawsuits challenging over
300 other initial public offerings and follow-on offerings
conducted in 1999 and 2000. The cases were consolidated for
pretrial purposes. On February 19, 2003, the Court ruled on
all defendants motions to dismiss. The Court denied the
motions to dismiss the claims under the Securities Act of 1933.
The Court denied the motion to dismiss the Section 10(b)
claim against Informatica and 184 other issuer defendants. The
Court denied the motion to dismiss the Section 10(b) and
20(a) claims against the Informatica defendants and 62 other
individual defendants.
The Company 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 the Company may have against the underwriters.
The Informatica defendants will not be required to make any cash
payments in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of the
insurance coverage, a circumstance which the Company does not
believe will occur. The settlement will require approval of the
Court, which cannot be assured, after class members are given
the opportunity to object to the settlement or opt out of the
settlement. The Court has set a hearing date of April 24,
2006 to consider final approval of the settlement.
On July 15, 2002, the Company filed a patent infringement
action in U.S. District Court in Northern California
against Acta Technology, Inc. (Acta), now known as
Business Objects Data Integration, Inc. (BODI),
asserting that certain Acta products infringe on three Company
patents: U.S. Patent No. 6,014,670, entitled
Apparatus and Method for Performing Data Transformations
in Data Warehousing;
74
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. Patent No. 6,339,775, entitled Apparatus
and Method for Performing Data Transformations in Data
Warehousing (this patent is a
continuation-in-part of
and claims the benefit of U.S. Patent No. 6,014,670);
and U.S. Patent No. 6,208,990, entitled Method
and Architecture for Automated Optimization of ETL Throughput in
Data Warehousing Applications. On July 17, 2002, the
Company filed an amended complaint alleging that Acta products
also infringe on one additional patent: U.S. Patent
No. 6,044,374, entitled Object References for Sharing
Metadata in Data Marts. In the suit, the Company is
seeking an injunction against future sales of the infringing
Acta/ BODI products, as well as damages for past sales of the
infringing products. The Company has asserted that BODIs
infringement of the Informatica patents was willful and
deliberate. On September 5, 2002, BODI answered the
complaint and filed counterclaims against us seeking a
declaration that each patent asserted is not infringed and is
invalid and unenforceable. BODI has not made any claims for
monetary relief against the Company and has not filed any
counterclaims alleging that the Company has infringed any of
BODIs patents. The parties presented their respective
claim constructions to the Court on September 24, 2003, and
on August 1, 2005, the Court issued its claims construction
order. The Company believes that the issued claims construction
order is favorable to the Companys position on the
infringement action. The matter is currently in the discovery
phase.
The Company is also a party to various legal proceedings and
claims arising from the normal course of business activities.
Based on current available information, the Company does not
expect that the ultimate outcome of these unresolved matters,
individually or in the aggregate, will have a material adverse
effect on its results of operations, cash flows, or financial
position.
|
|
16. |
Related Party Transaction |
Mark A. Bertelsen, a director of Informatica since September
2002, serves as a member of Wilson Sonsini Goodrich &
Rosati (WSGR), our principal outside legal counsel.
Fees paid by the Company to WSGR for legal services rendered for
the years ended December 31, 2005, 2004, and 2003 were
$0.3 million, $0.5 million, and $0.6 million,
respectively. The Company believes that the services rendered by
WSGR were provided on terms no more or less favorable than those
with unrelated parties.
|
|
17. |
Significant Customer Information and Segment Information |
The Company operates solely in one segment, the development and
marketing of enterprise data integration software. The Company
markets its products and services in the United States and in
foreign countries through its direct sales force and indirect
distribution channels. No customer accounted for more than 10%
of revenue in 2005, 2004, and 2003. At December 31, 2005
and 2004, no single customer accounted for more than 10% of the
accounts receivable balance. North America revenues include the
United States and Canada. Revenue from international customers
(defined as those customers outside of North America) accounted
for 31%, 29%, and 27% of total revenue in 2005, 2004, and 2003,
respectively.
The following table presents geographic information (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
185,118 |
|
|
$ |
156,565 |
|
|
$ |
149,736 |
|
|
Europe
|
|
|
73,398 |
|
|
|
54,951 |
|
|
|
47,778 |
|
|
Other
|
|
|
8,915 |
|
|
|
8,165 |
|
|
|
8,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267,431 |
|
|
$ |
219,681 |
|
|
$ |
205,533 |
|
|
|
|
|
|
|
|
|
|
|
75
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Long-lived assets (excluding goodwill):
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
21,708 |
|
|
$ |
18,982 |
|
|
Europe
|
|
|
2,571 |
|
|
|
3,476 |
|
|
Other
|
|
|
910 |
|
|
|
485 |
|
|
|
|
|
|
|
|
|
|
$ |
25,189 |
|
|
$ |
22,943 |
|
|
|
|
|
|
|
|
The Companys revenues are derived from software licenses,
maintenance, consulting and education services, and customer
support. It is impracticable to disaggregate software license
revenue by product. The Companys disaggregated revenue
information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
License
|
|
$ |
120,182 |
|
|
$ |
97,941 |
|
|
$ |
94,590 |
|
Maintenance
|
|
|
103,573 |
|
|
|
87,470 |
|
|
|
75,748 |
|
Consulting and education
|
|
|
43,676 |
|
|
|
34,270 |
|
|
|
35,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267,431 |
|
|
$ |
219,681 |
|
|
$ |
205,533 |
|
|
|
|
|
|
|
|
|
|
|
In January 2006, the Company acquired Similarity Systems Limited
(Similarity), a private company incorporated in
Ireland providing data quality and data profiling software. The
Company acquired Similarity by entering into a Share Purchase
Agreement (the Purchase Agreement) by and among the
Company and the holders of the shares of Similarity. Pursuant to
the Purchase Agreement, Similarity stockholders are entitled to
receive approximately $48.3 million in cash and
approximately 122,000 shares of Informatica common stock (which
were fully vested but subject to escrow) valued on the date of
close at approximately $1.6 million. In addition, the
options of Similarity option holders were assumed by Informatica
and converted into options to purchase approximately 392,000
shares of Informatica common stock valued on the date of close
at approximately $5.1 million. Within 20 days of the
closing, approximately $8.3 million of the consideration
will be placed into escrow for 15 months following the
closing to be held as security for losses incurred by
Informatica in the event of certain breaches of the
representations and warranties covered in the Purchase Agreement
or certain other events. In connection with the acquisition, the
Company assumed approximately 392,000 options with $0.95
weighted-average exercise price per share. As a result of the
acquisition, the Company also assumed facilities leases and
certain liabilities and commitments of Similarity. Management is
in the process of finalizing the purchase price allocation.
76
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19. |
Selected Quarterly Financial Information (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
December 31, | |
|
September 30, | |
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Total revenues
|
|
$ |
79,838 |
|
|
$ |
64,997 |
|
|
$ |
64,205 |
|
|
$ |
58,391 |
|
Gross profit
|
|
|
64,469 |
|
|
|
52,360 |
|
|
|
51,450 |
|
|
|
46,964 |
|
Facilities restructuring charges
|
|
|
781 |
|
|
|
1,274 |
|
|
|
70 |
|
|
|
1,558 |
|
Income from operations
|
|
|
11,131 |
|
|
|
6,804 |
|
|
|
6,851 |
|
|
|
4,648 |
|
Net income
|
|
|
13,553 |
|
|
|
8,301 |
|
|
|
7,641 |
|
|
|
4,309 |
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.15 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
|
Diluted
|
|
$ |
0.14 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Shares used in computing basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,651 |
|
|
|
87,568 |
|
|
|
86,876 |
|
|
|
86,886 |
|
|
Diluted
|
|
|
94,163 |
|
|
|
93,571 |
|
|
|
89,760 |
|
|
|
89,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
December 31, | |
|
September 30, | |
|
June 30, | |
|
March 31, | |
|
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Total revenues
|
|
$ |
60,046 |
|
|
$ |
52,428 |
|
|
$ |
53,034 |
|
|
$ |
54,173 |
|
Gross profit
|
|
|
47,937 |
|
|
|
40,717 |
|
|
|
42,166 |
|
|
|
42,415 |
|
Facilities restructuring charges
|
|
|
102,963 |
|
|
|
9,673 |
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(99,153 |
) |
|
|
(9,866 |
) |
|
|
895 |
|
|
|
1,549 |
|
Net income (loss)
|
|
|
(98,689 |
) |
|
|
(8,585 |
) |
|
|
979 |
|
|
|
1,891 |
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(1.14 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.01 |
|
|
$ |
0.02 |
|
Shares used in computing basic net income (loss) per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
86,565 |
|
|
|
86,002 |
|
|
|
85,557 |
|
|
|
84,811 |
|
|
Diluted
|
|
|
86,565 |
|
|
|
86,002 |
|
|
|
88,394 |
|
|
|
89,752 |
|
The Company believes that
period-to-period
comparisons of the Companys consolidated financial results
should not be relied upon as an indication of future
performance. The operating results of the Company reflect
seasonal trends experienced by many software companies and are
subject to fluctuation due to other factors, and the
Companys business, financial condition, and results of
operations may be affected by such factors in the future.
77
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
Not applicable.
|
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures.
Our management evaluated, with the participation of our
Chief Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Annual Report on
Form 10-K. Based
on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls
and procedures are effective to ensure that information we are
required to disclose in reports that we file or submit under the
Securities Exchange Act of 1934 (1) is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and
(2) is accumulated and communicated to Informaticas
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.
Managements 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
systems objectives will be met.
(b) Managements annual report on internal control
over financial reporting. The information required to be
furnished pursuant to this item is set forth under the caption
Report of Management on Internal Control Over Financial
Reporting in Item 8 of this Annual Report on
Form 10-K, which
is incorporated herein by reference.
(c) Change in internal control over financial reporting.
There was no change in our internal control over financial
reporting that occurred during the fourth quarter of 2005 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
ITEM 9B. |
OTHER INFORMATION |
On November 1, 2005, we entered into a Severance Agreement
and Release (the Agreement) with John Entenmann, our
former Executive Vice President, Corporate Strategy and
Marketing. Pursuant to the Agreement, in return for a release
from Mr. Entenmann of all known and unknown claims against
Informatica and its affiliates, we paid Mr. Entenmann an
additional two months of his annual base salary and COBRA
premiums. In addition, we agreed to pay Mr. Entenmann his
allocation of any performance bonuses otherwise paid to our
employees for our operational performance in the third quarter
of 2005.
A copy of the Agreement is attached to this Annual Report as
Exhibit 10.20 and is incorporated herein by reference.
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Information with respect to Directors is included under the
caption Proposal One Election of
Directors in the Proxy Statement for the 2006 Annual
Meeting, which proxy statement will be filed within
120 days of our fiscal year ended December 31, 2005
(the 2006 Proxy Statement), and is incorporated
herein by reference. Information with respect to Executive
Officers is included under the heading Executive Officers
of the Registrant in Part I hereof after Item 4.
Information regarding delinquent filers pursuant to
Item 405 of
Regulation S-K is
included under the heading Section 16(a) Beneficial
Ownership Reporting Compliance in the 2006 Proxy Statement
and is incorporated herein by reference.
78
Code of Business Conduct
We have adopted a Code of Business Conduct that applies to all
of our directors, officers (including our principal
executive officer and senior financial and accounting officers),
and employees. You can find our Code of Business
Conduct on our Web site at
http://www.informatica.com/company/investors/corporate governance/default.htm
and clicking on the link Code of Business Conduct.
We will post any amendments to the Code of Business Conduct, as
well as any waivers that are required to be disclosed by the
rules of either the SEC or the NASDAQ Stock Market, on our Web
site.
|
|
ITEM 11. |
EXECUTIVE COMPENSATION |
The information required by this item is included under the
proposal, Proposal One Election of
Directors Director Compensation and
Executive Officer Compensation in the 2006 Proxy
Statement and is incorporated herein by reference.
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item is included under the
headings Security Ownership of Principal Stockholders and
Management and Equity Compensation Plan
Information in the 2006 Proxy Statement and is
incorporated herein by reference.
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required by this item is included under the
caption Transactions with Management in the 2006
Proxy Statement and is incorporated herein by reference.
|
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is included under the
caption under the proposal, Ratification of Appointment of
Independent Registered Public Accounting Firm in the 2006
Proxy Statement and is incorporated herein by reference.
PART IV
|
|
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this
Annual Report on
Form 10-K:
|
|
|
|
1. |
Consolidated Financial Statements: |
Reference is made to the Index to consolidated financial
statements of Informatica Corporation under Item 8 of
Part II hereof.
|
|
|
|
2. |
Financial Statement Schedule: |
The following schedule is included herein:
Valuation and Qualifying Accounts (Schedule II)
All other schedules are omitted because they are not applicable
or the amounts are immaterial or the required information is
presented in the consolidated financial statements and notes
thereto in Item 8 above.
79
Schedule II Valuation and Qualifying
Accounts
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
|
|
Balance at | |
|
|
|
|
Beginning | |
|
Costs and | |
|
|
|
End of | |
|
|
Description |
|
of Period | |
|
Expenses | |
|
Deductions | |
|
Period | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Provision for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
|
|
$ |
811 |
|
|
$ |
150 |
|
|
$ |
(91 |
) |
|
$ |
870 |
|
|
|
|
|
|
Year ended December 31, 2004
|
|
$ |
564 |
|
|
$ |
361 |
|
|
$ |
(114 |
) |
|
$ |
811 |
|
|
|
|
|
|
Year ended December 31, 2003
|
|
$ |
461 |
|
|
$ |
145 |
|
|
$ |
(42 |
) |
|
$ |
564 |
|
|
|
|
|
Sales and Returns Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
|
|
$ |
38 |
|
|
$ |
200 |
|
|
$ |
(14 |
) |
|
$ |
224 |
|
|
|
|
|
|
Year ended December 31, 2004
|
|
$ |
705 |
|
|
$ |
(356 |
) |
|
$ |
(311 |
) |
|
$ |
38 |
|
|
|
|
|
|
Year ended December 31, 2003
|
|
$ |
888 |
|
|
$ |
|
|
|
$ |
(183 |
) |
|
$ |
705 |
|
|
|
|
|
See Exhibit Index immediately following the signature page
of this Form 10-K.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, Redwood City, State of California on
this 28th day of February 2006.
|
|
|
|
|
Sohaib Abbasi |
|
Chief Executive Officer, President, and |
|
Chairman of the Board |
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed by
the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Sohaib Abbasi
Sohaib Abbasi |
|
Chief Executive Officer, President, and Chairman of the Board of
Directors
(Principal Executive Officer) |
|
February 28, 2006 |
|
/s/ Earl E. Fry
Earl E. Fry |
|
Chief Financial Officer, Executive Vice President, and Secretary
(Principal Financial and Accounting Officer) |
|
February 28, 2006 |
|
/s/ David W. Pidwell
David W. Pidwell |
|
Director |
|
February 28, 2006 |
|
/s/ Mark A. Bertelsen
Mark A. Bertelsen |
|
Director |
|
February 28, 2006 |
|
/s/ Janice D. Chaffin
Janice D. Chaffin |
|
Director |
|
February 28, 2006 |
|
/s/ Charles J. Robel
Charles J. Robel |
|
Director |
|
February 28, 2006 |
|
/s/ A. Brooke Seawell
A. Brooke Seawell |
|
Director |
|
February 28, 2006 |
|
/s/ Geoff W. Squire
Geoff W. Squire |
|
Director |
|
February 28, 2006 |
|
/s/ Carl J. Yankowski
Carl J. Yankowski |
|
Director |
|
February 28, 2006 |
81
INFORMATICA CORPORATION
EXHIBITS TO FORM 10-K ANNUAL REPORT
For the year ended December 31, 2005
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
|
|
|
2 |
.1 |
|
Agreement and Plan of Merger, dated September 11, 2003, by
and among Informatica Corporation, a Delaware corporation,
Stopwatch Acquisition Corporation, a Delaware corporation,
Striva Corporation, a Delaware corporation, and Pete Sinclair as
Stockholder Representative (incorporated by reference to the
identically numbered exhibit to the Companys Current
Report on Form 8-K filed on October 7, 2003,
Commission File No. 0-25871). |
|
2 |
.2 |
|
Amendment No. 1 to Agreement and Plan of Merger, dated
September 22, 2003 (incorporated by reference to
Exhibit 2.2 to the Companys Current Report on
Form 8-K filed on October 7, 2003, Commission File
No. 0-25871). |
|
2 |
.3 |
|
Amendment No. 2 to Agreement and Plan of Merger, dated
September 29, 2003 (incorporated by reference to
Exhibit 2.3 to the Companys Current Report on
Form 8-K filed on October 7, 2003, Commission File
No. 0-25871). |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of Informatica
Corporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 of the Companys Registration
Statement on Form S-1 (Commission File No. 333-72677)
filed on April 8, 1999). |
|
3 |
.2 |
|
Certificate of Amendment to the Companys Amended and
Restated Certificate of Incorporation to increase the aggregate
number of shares of the Companys common stock authorized
for issuance from 100,000,000 to 200,000,000 shares
(incorporated by reference to Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q filed on
August 14, 2000, Commission File No. 0-25871). |
|
3 |
.3 |
|
Certificate of Designation of the Rights, Preferences and
Privileges of Series A Participating Preferred Stock of
Informatica Corporation (incorporated by reference to
Exhibit 3.5 to the Companys Registration Statement on
Form 8-A filed on November 6, 2001, Commission
File No. 0-25871). |
|
3 |
.4 |
|
Bylaws, as amended, of Informatica Corporation. |
|
4 |
.1 |
|
Reference is made to Exhibits 3.1 through 3.4. |
|
4 |
.2 |
|
Preferred Stock Rights Agreement, dated as of October 17,
2001, between Informatica Corporation and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 4.2 to the Companys Registration
Statement on Form 8-A filed on November 6, 2001,
Commission File No. 0-25871). |
|
10 |
.1* |
|
Companys 2000 Employee Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed on
August 8, 2001, Commission File No. 0-25871). |
|
10 |
.2* |
|
Form of Indemnification Agreement between the Company and each
of its executive officers and directors (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 of the
Companys Registration Statement on Form S-1
(Commission File No. 333-72677) filed on April 8,
1999). |
|
10 |
.3* |
|
Companys 1996 Flexible Stock Incentive Plan, including
forms of agreements thereunder (incorporated by reference to
Exhibit 10.10 to the Companys Registration Statement
on Form S-1 (Commission File No. 333-72677) filed on
February 19, 1999). |
|
10 |
.4* |
|
Companys 1999 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 4.3 to the
Companys Registration Statement on Form S-8
(Commission File No. 333-66754) filed on August 3,
2001). |
|
10 |
.5* |
|
Companys 1999 Employee Stock Purchase Plan, as amended,
including forms of agreements thereunder (incorporated by
reference to Exhibit 4.4 to the Companys Registration
Statement on Form S-8 (Commission File No. 333-66754)
filed on August 3, 2001). |
|
10 |
.6* |
|
Companys 1999 Non-Employee Director Stock Incentive Plan
(incorporated by reference to Exhibit 10.13 to Amendment
No. 1 of the Companys Registration Statement on
Form S-1 (Commission File No. 333-72677) filed on
April 8, 1999). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
|
|
|
10 |
.7 |
|
Lease Agreement regarding Building 1 Lease, dated as of
February 22, 2000, by and between the Company and Pacific
Shores Center LLC (incorporated by reference to
Exhibit 10.14 to the Annual Report on Form 10-K filed
on March 30, 2000, Commission File No. 0-25871). |
|
10 |
.8 |
|
Lease Agreement regarding Building 2 Lease, dated as of
February 22, 2000, by and between the Company and Pacific
Shores Center LLC (Incorporated by reference to
Exhibit 10.15 to the Annual Report on Form 10-K filed
on March 30, 2000, Commission File No. 0-25871). |
|
10 |
.9* |
|
Description of management arrangement with Earl E. Fry
(incorporated by reference to Exhibit 10.20 to the
Companys Quarterly Report on Form 10-Q filed on
November 13, 2002, Commission File No. 0-25871). |
|
10 |
.10* |
|
Amendment to 1999 Non-Employee Director Stock Incentive Plan
(incorporated by reference to Exhibit 10.21 to the
Companys Quarterly Report on Form 10-Q filed on
August 7, 2003, Commission File No. 0-25871). |
|
10 |
.11* |
|
Agreement on the Forgiveness of Employee Loan dated
September 13, 2001, by and between the Company and Earl E.
Fry (incorporated by reference to Exhibit 99.1 to Amendment
No. 1 of the Companys Registration Statement on
Form S-3 (Commission File No. 333-109683) filed on
December 24, 2003). |
|
10 |
.12* |
|
Employment Agreement dated July 19, 2004 by and between
Company and Sohaib Abbasi (incorporated by reference to
Exhibit 10.26 of the Companys Quarterly Report on
Form 10-Q filed on August 5, 2004, Commission File
No. 0-25871). |
|
10 |
.13* |
|
Offer Letter dated September 21, 2004, by and between the
Company and John Entenmann (incorporated by reference to
Exhibit 10.27 of the Companys Quarterly Report on
Form 10-Q filed on November 5, 2004, Commission File
No. 0-25871). |
|
10 |
.14 |
|
Lease Agreement dated as of October 7, 2004, by and between
the Company and Seaport Plaza Associates, LLC (incorporated by
reference to Exhibit 10.28 of the Companys Annual
Report on Form 10-K filed on March 8, 2005, Commission
File No. 0-25871). |
|
10 |
.15* |
|
Form of Executive Severance Agreement dated November 15,
2004 by and between the Company and each of John Entenmann, Earl
E. Fry and Girish Pancha (incorporated by reference to
Exhibit 10.29 of the Companys Annual Report on
Form 10-K filed on March 8, 2005, Commission File
No. 0-25871). |
|
10 |
.16* |
|
Offer Letter dated January 4, 2005, by and between the
Company and Paul J. Hoffman (incorporated by reference to
Exhibit 10.31 of the Companys Quarterly Report on
Form 10-Q filed on May 9, 2005, Commission File
No. 0-25871). |
|
10 |
.17* |
|
Executive Severance Agreement dated January 4, 2005 by and
between the Company and Paul J. Hoffman (incorporated by
reference to Exhibit 10.31 of the Companys Quarterly
Report on Form 10-Q filed on May 9, 2005, Commission
File No. 0-25871). |
|
10 |
.18* |
|
2005 Cash Bonus Plan (incorporated by reference to
Exhibit 10.31 of the Companys Quarterly Report on
Form 10-Q filed on May 9, 2005, Commission File
No. 0-25871). |
|
10 |
.19* |
|
Summary of amended standard director cash compensation
arrangements (incorporated by reference to Item 1.01 of the
Companys Current Report on Form 8-K filed on
October 20, 2005, Commission File No. 0-25871). |
|
10 |
.20* |
|
Severance Agreement and Release dated November 1, 2005 by
and between the Company and John Entenmann. |
|
21 |
.1 |
|
List of Subsidiaries. |
|
23 |
.1 |
|
Consent of Independent Registered Public Accounting Firm. |
|
31 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32 |
.1 |
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
* |
Indicates management contract or compensatory plan or
arrangement. |