INFORMATICA CORP, 10-Q, 2000-11-13

INFORMATICA CORP
10-Q, 2000-11-13
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q
------------------------

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

[ ] 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)

<TABLE>
<S> <C>
DELAWARE 77-0333710
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

3350 WEST BAYSHORE, PALO ALTO, CALIFORNIA 94303
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 687-6200

------------------------

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

As of October 31, 2000, there were 37,661,469 shares of the registrant's
Common Stock outstanding.

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INFORMATICA CORPORATION

FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements................. 1
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999................................ 1
Condensed Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 2000 and 1999............. 2
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended
September 30, 2000 and 1999............................... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 21

PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................... 22
Item 6. Exhibits and Reports on Form 8-K............................ 22
Signature............................................................ 23
</TABLE>

i
<PAGE> 3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INFORMATICA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 38,825 $57,521
Restricted cash........................................... 8,116 --
Accounts receivable, net of allowances of $2,772 and
$1,977, respectively................................... 24,602 8,119
Prepaid expenses and other current assets................. 3,394 1,272
-------- -------
Total current assets.............................. 74,937 66,912
Restricted cash, less current portion....................... 12,166 --
Property and equipment, net................................. 5,242 1,482
Goodwill and other intangible assets, net................... 50,346 --
Other assets................................................ 1,387 129
-------- -------
Total assets...................................... $144,078 $68,523
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 18,675 $ 7,999
Accrued compensation and related expenses................. 7,459 6,264
Income taxes payable...................................... 2,410 813
Current portion of capital lease obligations.............. 166 150
Current portion of notes payable to stockholders.......... -- 2,075
Deferred revenue.......................................... 18,182 9,660
-------- -------
Total current liabilities......................... 46,892 26,961
Capital lease obligations, less current portion............. 47 66
Notes payable to stockholders, less current portion......... -- 1,372
Stockholders' equity........................................ 97,139 40,124
-------- -------
Total liabilities and stockholders' equity........ $144,078 $68,523
======== =======
</TABLE>

See notes to condensed consolidated financial statements.
1
<PAGE> 4

INFORMATICA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
License.......................................... $28,475 $11,003 $ 67,044 $27,531
Service.......................................... 14,333 5,799 35,602 14,283
------- ------- -------- -------
Total revenues........................... 42,808 16,802 102,646 41,814
Cost of revenues:
License.......................................... 443 191 1,236 444
Service.......................................... 8,019 2,797 19,226 7,038
------- ------- -------- -------
Total cost of revenues................... 8,462 2,988 20,462 7,482
------- ------- -------- -------
Gross profit....................................... 34,346 13,814 82,184 34,332
Operating expenses:
Research and development......................... 7,787 3,310 17,663 8,543
Sales and marketing.............................. 20,460 8,802 50,561 22,718
General and administrative....................... 3,178 1,280 7,489 3,313
Amortization of stock-based compensation......... 427 186 956 473
Amortization of goodwill and other intangible
assets........................................ 4,367 -- 8,539 --
Purchased in-process research and development.... 5,117 -- 7,316 --
------- ------- -------- -------
Total operating expenses................. 41,336 13,578 92,524 35,047
------- ------- -------- -------
Income (loss) from operations...................... (6,990) 236 (10,340) (715)
Interest income, net............................... 357 548 1,079 732
------- ------- -------- -------
Income (loss) before income taxes.................. (6,633) 784 (9,261) 17
Income tax provision............................... 820 201 1,695 501
------- ------- -------- -------
Net income (loss).................................. $(7,453) $ 583 $(10,956) $ (484)
======= ======= ======== =======
Net income (loss) per share:
Basic............................................ $ (0.21) $ 0.02 $ (0.32) $ (0.02)
======= ======= ======== =======
Diluted.......................................... $ (0.21) $ 0.02 $ (0.32) $ (0.02)
======= ======= ======== =======
Shares used in calculation of net income (loss) per
share:
Basic............................................ 34,804 31,029 33,949 21,124
======= ======= ======== =======
Diluted.......................................... 34,804 37,625 33,949 21,124
======= ======= ======== =======
</TABLE>

See notes to condensed consolidated financial statements.
2
<PAGE> 5

INFORMATICA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(10,956) $ (484)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 917 349
Sales and return allowances............................... 877 --
Other receivable allowances............................... 182 226
Amortization of stock-based compensation.................. 956 473
Amortization of goodwill and other intangible assets...... 8,539 --
Purchased in-process research and development............. 7,316 --
Interest expense related to notes payable................. 125 208
Changes in operating assets and liabilities:
Accounts receivable.................................... (17,552) (3,504)
Prepaid expenses and other current assets.............. (2,087) (90)
Other assets........................................... (1,209) 30
Accounts payable and accrued liabilities............... 3,347 1,990
Accrued compensation and related expenses.............. 904 1,555
Income taxes payable................................... 1,419 --
Deferred revenue....................................... 8,403 3,034
-------- -------
Net cash provided by operating activities......... 1,181 3,787
-------- -------
INVESTING ACTIVITIES
Purchase of property and equipment, net..................... (4,222) (995)
Acquisitions, net of cash acquired.......................... (2,217) --
Allocation to restricted cash............................... (20,282) --
-------- -------
Net cash used in investing activities....................... (26,721) (995)
-------- -------
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of payments for
repurchases............................................... 10,792 428
Proceeds from initial public offering, net.................. -- 43,514
Proceeds from notes payable to stockholders................. -- 889
Payments on notes payable to stockholders................... (3,572) (1,060)
Payments on capital lease obligations....................... (91) (213)
Proceeds from notes receivable from stockholders............ 40 --
-------- -------
Net cash provided by financing activities................... 7,169 43,558
-------- -------
Effect of foreign currency translation on cash and cash
equivalents............................................... (325) (107)
-------- -------
Increase (decrease) in cash and cash equivalents............ (18,696) 46,243
Cash and cash equivalents at beginning of period............ 57,521 7,167
-------- -------
Cash and cash equivalents at end of period.................. $ 38,825 $53,410
======== =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest.................................................. $ 229 $ 17
======== =======
Income taxes.............................................. $ 97 $ --
======== =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of preferred stock to common stock............. $ -- $17,586
======== =======
Deferred stock-based compensation related to common stock
options granted........................................ $ 1,989 $ 968
======== =======
Common stock issued in connection with acquisitions....... $ 56,508 $ --
======== =======
</TABLE>

See notes to condensed consolidated financial statements.
3
<PAGE> 6

INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in conjunction with our audited consolidated financial statements
for the year ended December 31, 1999.

2. REVENUE RECOGNITION

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance with respect to the recognition, presentation
and disclosure of revenue in financial statements of all public registrants. The
Company has not fully assessed the impact of the adoption of SAB 101 and has not
determined the effect, if any, that it will have on the Company's reported
revenues or results of operations in future periods.

The Company generates revenues from sales of software licenses and
services. The Company's license revenues are derived from its infrastructure and
packaged analytic software products. The Company receives software license
revenues from licensing its products directly to end users and indirectly
through resellers and original equipment manufacturers ("OEMs"). Service
revenues are derived from maintenance contracts and training and consulting
services performed for customers that license the Company's products directly or
indirectly through resellers.

License revenues are recognized when a noncancelable license agreement has
been signed, the product has been shipped, the fees are fixed and determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. Vendor-specific objective
evidence is based on the price charged when an element is sold separately. In
the case of an element not sold separately, the price is established by
authorized management. For the packaged analytic software products, the Company
recognizes the bundled license and support revenue ratably over the support
period, generally one year. Support for the analytic software products for the
first year is never sold separately and in consideration of the complexities and
timeliness of the implementation, the customer is entitled to receive support
services that are different than the standard annual support services. If an
acceptance period is required, revenue is recognized upon customer acceptance or
the expiration of the acceptance period. The Company also enters into reseller
arrangements that typically provide for sublicense fees based on a percentage of
list price. For direct sales, revenue is recognized upon shipment to the end
user and when collectibility is probable. For sales to OEMs, specific resellers,
international customers and specific customers based on their credit history,
revenue is recognized at the time payment is received for the Company's
products, rather than at the time of sale. The Company's agreements with its
customers and resellers do not contain product return rights.

Revenues from services, which consist of fees for ongoing support and
product updates, are recognized ratably over the term of the contract, typically
one year. Consulting revenues are primarily related to implementation services
and product enhancements performed on a time-and-materials basis or a fixed fee
arrangement under separate service arrangements related to the installation of
the Company's software products. Training revenues are generated from classes
offered both on-site and at customer locations. Revenues from consulting and
training services are recognized as the services are performed or contract
milestones are met. When a contract includes both license and service elements,
the license fee is recognized on delivery of the software, provided services do
not include significant customization or modification of the base product, and
the payment terms for licenses are not dependent on additional acceptance
criteria.

4
<PAGE> 7
INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Deferred revenue includes deferred license and maintenance revenue and
prepaid training and consulting fees. Deferred license revenue amounts do not
include items which are both deferred and unbilled. The Company's practice is to
net such deferred items against the related receivables balances.

3. STOCK SPLIT

On January 26, 2000, the Board of Directors approved a two-for-one split of
its $.001 par value common stock to be effected in the form of a stock dividend.
The stock split was effected by distribution of one share of the Company's
common stock for each share of common stock held to each stockholder of record
as of February 18, 2000. All references in the financial statements to number of
shares, per share amounts and stock option data of the Company's common stock
have been restated for the effect of the stock split.

4. INITIAL PUBLIC OFFERING

On April 29, 1999, the Company completed an initial public offering and
issued 6,000,000 shares of its common stock, including 500,000 shares in
connection with the exercise of the underwriters' overallotment option, at a
price of $8.00 per share. The Company received $43.5 million in cash, net of
underwriting discounts, commissions and other offering costs. As of the closing
date of the offering, all of the preferred stock outstanding was converted into
an aggregate of 15,880,000 shares of common stock.

5. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution of securities by adding other common stock
equivalents, including stock options, warrants and convertible preferred stock,
to the weighted average number of common shares outstanding during the period,
if dilutive. Potentially dilutive securities have been excluded from the
computation of diluted net loss per share for the three months ended September
30, 2000, and for the nine months ended September 30, 2000 and 1999, as their
inclusion would be antidilutive.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)................... $(7,453) $ 583 $(10,956) $ (484)
======= ======= ======== =======
Weighted average shares of common
stock outstanding used in
calculation of net income (loss)
per share:
Basic............................. 34,804 31,029 33,949 21,124
Effect of dilutive securities:
Common stock equivalents....... 0 6,596 0 0
------- ------- -------- -------
Diluted........................ 34,804 37,625 33,949 21,124
======= ======= ======== =======
Net income (loss) per share:
Basic............................. $ (0.21) $ 0.02 $ (0.32) $ (0.02)
======= ======= ======== =======
Diluted........................... $ (0.21) $ 0.02 $ (0.32) $ (0.02)
======= ======= ======== =======
</TABLE>

If the Company had reported net income for the three months ended September
30, 2000, and for the nine months ended September 30, 2000 and 1999, the
calculation of diluted earnings per share would have
5
<PAGE> 8
INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

included the shares used in the computation of basic net loss per share as well
as an additional 5,290,000, 5,441,000 and 5,986,000 common equivalent shares
related to the outstanding options and warrants not included in the calculations
above, respectively (determined using the treasury stock method).

6. COMPREHENSIVE INCOME (LOSS)

The following is a calculation of comprehensive income (loss), in
thousands:

7. INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards 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.

8. RECENT ACCOUNTING PRONOUNCEMENTS

In July 1999, the Financial Accounting Standards Board ("FASB") announced
the delay of the effective date of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), to the first quarter of 2001. SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. The Company
does not currently hold any derivative instruments and does not engage in
hedging activities. The Company expects that the adoption of SFAS 133 during
2001 will not have a material impact on the Company's financial position and
results of operations.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of
Accounting Principles Board ("APB") Opinion No. 25" ("FIN 44"). FIN 44 clarifies
the application of APB Opinion No. 25 and was effective July 1, 2000. The
Company adopted FIN 44 during the quarter ended June 30, 2000. The adoption of
FIN 44 did not have a material effect on the Company's financial statements.

9. PURCHASE COMBINATIONS

In February 2000, the Company acquired Delphi Solutions AG ("Delphi"), a
distributor of Informatica products in Switzerland. The agreement was structured
as a share purchase and accounted for as a purchase transaction. The estimated
purchase price includes payments associated with 1999 revenues and projections
for 2000 revenues. The first payment of approximately $3.6 million was paid in
February 2000, and the estimated second payment of approximately $5.6 million is
payable in January 2001. The purchase price of the transaction was allocated to
the acquired assets and liabilities based on their estimated fair values as of
the date of the acquisition. Amounts allocated to intangible assets are being
amortized on a straight-line basis over a two-year period. Amortization expense
of $1.1 million and $2.6 million was recorded for the three and nine

6
<PAGE> 9
INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

months ended September 30, 2000, respectively. As part of this agreement, the
Company is holding a certificate of deposit for $8.1 million as security for the
second payment. This certificate of deposit has been reclassified to restricted
cash on the Company's balance sheet. Pro forma results of operations have not
been presented since the effects of the acquisition were not material to the
Company's consolidated financial position, results of operations or cash flows
for the periods presented.

In August 2000, the Company completed the acquisition of Zimba ("Zimba") in
a transaction accounted for as a purchase. Zimba is a leading provider of
e-business analytic solutions that enable mobile professionals with real-time
access to corporate and external information through wireless devises, voice
recognition technology and the Internet. Under the terms of the agreement, the
Company issued 253,329 shares of the Company's common stock in exchange for the
outstanding shares of capital stock of Zimba, subject to the withholding of 10%
of such shares in escrow. In addition, all the outstanding options and warrants
to purchase Zimba common stock were automatically converted into options and
warrants to purchase the Company's common stock based on the conversion ratio in
the agreement with a corresponding adjustment to their respective exercise
prices.

The total purchase price, including assumed liabilities and related
expenses, was approximately $26 million, of which $20.3 million was allocated to
goodwill and other intangibles (including core technology, acquired workforce
and patents). Goodwill and other intangibles are being amortized on a
straight-line basis over two years for the acquired workforce and over three
years for the core technology, patents and goodwill. At September 30, 2000,
accumulated amortization related to goodwill and other intangibles and
amortization expense for the three months ended September 30, 2000 totaled
approximately $0.6 million. The results of operations of Zimba have been
included with the Company's results of operations beginning in September 2000.

Purchased in-process research and development of $5.1 million was expensed
in the third quarter of 2000 because the in-process technology had not reached
technological feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using a discounted
cash flow analysis based on management's estimates of future revenues, cost of
revenues and operating expenses related to the products and technologies
acquired from Zimba.

The following unaudited pro forma adjusted summary reflects the condensed
consolidated results of operations for the nine months ended September 30, 2000
and 1999, assuming Zimba had been acquired at the beginning of the pro forma
periods presented and is not intended to be indicative of future results (in
thousands, except per share data):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Pro forma adjusted total revenue............................ $102,646 $41,814
Pro forma adjusted net loss................................. (17,879) (6,516)
Pro forma adjusted net loss per share -- basic and
diluted................................................... $ (0.53) $ (0.30)
</TABLE>

10. ASSET ACQUISITION

In April 2000, the Company announced a strategic alliance with
PricewaterhouseCoopers ("PwC") to jointly develop, sell and support end-to-end
analytic solutions for the business-to-business e-commerce market worldwide. In
connection with the agreement relating to the strategic alliance, PwC received
409,138 shares of the Company's common stock in exchange for transferring
ownership of certain intellectual property rights and personnel to the Company.

7
<PAGE> 10
INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The total purchase price, including related expenses, was approximately
$31.8 million, of which $5.0 million was allocated to various intangible assets
including acquired workforce and consultants, and $24.6 million was allocated to
core technology and goodwill. Goodwill and other intangible assets are being
amortized on a straight-line basis over two years for the acquired workforce and
consultants and over three years for the core technology and goodwill. At
September 30, 2000, accumulated amortization related to goodwill and other
intangible assets totaled $5.4 million and amortization expense for the three
months ended September 30, 2000 totaled $2.7 million.

Purchased in-process research and development of $2.2 million was expensed
in the second quarter of 2000 because the in-process technology had not reached
technological feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using a discounted
cash flow analysis based on management's estimates of future revenues, cost of
revenues and operating expenses related to the products and technologies
acquired from PwC.

11. COMMITMENTS

In February 2000, the Company entered into two lease agreements for new
corporate headquarters in Redwood City, California. The facility is under
construction and expected to be completed in June 2001. The lease expires twelve
years after occupancy. As part of these agreements, in April 2000, the Company
purchased certificates of deposit totaling $12.2 million as a security deposit
for the first year's lease payments until certain financial covenants are met.
These certificates of deposit have been reclassified as restricted cash on the
Company's balance sheet.

12. SUBSEQUENT EVENT

On October 3, 2000, the Company completed a follow-on public offering of
2,875,000 shares of its common stock. The Company issued 2,375,000 new shares,
including 375,000 in connection with the exercise of the underwriters'
overallotment option, and an additional 500,000 shares were sold by certain
selling stockholders. The offering was completed at a price of $85.00 per share
for net proceeds to the Company of approximately $191 million.

8
<PAGE> 11

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

This Quarterly Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including any
statements referencing revenues and operating expenses as a percentage of total
revenues; expected hiring of additional sales and marketing personnel; the
sufficiency of our cash balances and cash flows for the next twelve months;
potential investments of cash or stock to acquire or invest in complementary
businesses or products; 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 below and in "Factors That
May Affect Our Operating Results" and elsewhere in this report. All forward-
looking statements and reasons why results may differ included in this report
are made as of the date hereof, and we assume no obligation to update any such
forward-looking statements or reasons why actual results may differ.

BUSINESS COMBINATIONS AND STRATEGIC ALLIANCE

In February 2000, we acquired Delphi Solutions AG ("Delphi"), a distributor
of Informatica products in Switzerland. The agreement was structured as a share
purchase and accounted for as a purchase transaction. The estimated purchase
price includes payments associated with 1999 revenues and projections for 2000
revenues. The first payment of approximately $3.6 million was paid in February
2000, and the estimated second payment of approximately $5.6 million is payable
in January 2001. The purchase price of the transaction was allocated to the
acquired assets and liabilities based on their estimated fair values as of the
date of the acquisition. Amounts allocated to intangible assets are being
amortized on a straight-line basis over a two-year period.

In April 2000, we announced a strategic alliance with
PricewaterhouseCoopers ("PwC") to jointly develop, sell and support end-to-end
analytic solutions for the business-to-business e-commerce market worldwide. In
connection with the agreement relating to the strategic alliance, PwC received
409,138 shares of our common stock. The total purchase price, including related
expenses, was approximately $31.8 million.

In August 2000, we completed the acquisition of Zimba ("Zimba") in a
transaction accounted for as a purchase. Zimba is a leading provider of
e-business analytic solutions that enable mobile professionals with real-time
access to corporate and external information through wireless devises, voice
recognition technology and the Internet. Under the terms of the agreement, we
issued 253,329 shares of Informatica common stock in exchange for the
outstanding shares of capital stock of Zimba, subject to the withholding of 10%
of such shares in escrow. In addition, all the outstanding options and warrants
to purchase Zimba common stock were automatically converted into options and
warrants to purchase Informatica's common stock based on the conversion ratio in
the agreement with a corresponding adjustment to their respective exercise
prices. The total purchase price, including assumed liabilities and related
expenses, was approximately $26 million.

REVENUES

Our total revenues for the three months ended September 30, 2000 increased
to $42.8 million from $16.8 million for the three months ended September 30,
1999, representing growth of 155%. For the nine months ended September 30, 2000,
our total revenues increased to $102.6 million, representing growth of 145% over
the $41.8 million for the nine months ended September 30, 1999. Our license
revenues increased to $28.5 million for the three months ended September 30,
2000 from $11.0 million for the three months ended September 30, 1999,
representing growth of 159%. Our license revenues for the nine months ended

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September 30, 2000 increased to $67.0 million from $27.5 million for the nine
months ended September 30, 1999, representing growth of 144%. These increases
were due primarily to increases in the number of licenses sold and the average
transaction size, reflecting increased acceptance of PowerCenter, PowerMart and
Informatica Application Products as well as expansion of our direct sales
organization and reseller channels. Service revenues increased to $14.3 million
for the three months ended September 30, 2000 from $5.8 million for the three
months ended September 30, 1999, representing growth of 147%. For the nine
months ended September 30, 2000, our service revenues increased to $35.6 million
from $14.3 million for the nine months ended September 30, 1999, representing
growth of 149%. These increases in our service revenues were due primarily to an
increase in consulting, training and maintenance fees associated with both the
increased number of licenses sold and the increased average transaction size,
along with a larger installed license base. Service revenues have increased
modestly as a percentage of total revenues as our installed license base grew
and as we continued to provide additional services to our customer base and may
increase modestly in future periods to the extent these trends continue.

COST OF REVENUES

Cost of License Revenues

Our cost of license revenues consists primarily of product packaging,
documentation, production costs and software royalties. Cost of license revenues
was $443,000 and $191,000 for the three months ended September 30, 2000 and
1999, respectively, representing 2% of license revenues in each of those
periods. For the nine months ended September 30, 2000 and 1999, our cost of
license revenues increased to $1.2 million from $444,000, respectively,
representing 2% of license revenues in each of these periods. The increase in
our cost of license revenues in absolute dollars was due primarily to increases
in license revenues and increases in royalty expense.

Cost of Service Revenues

Our cost of service revenues is a combination of costs of maintenance,
training and consulting revenues. Our cost of maintenance revenues consists
primarily of costs associated with software upgrades, telephone support services
and on-site visits. Cost of training revenues consists primarily of the costs of
providing training classes and materials, which are provided both off-site and
at our headquarters. Cost of consulting revenues consists primarily of personnel
costs and expenses incurred in providing consulting services at customers'
facilities. Cost of service revenues was $8.0 million and $2.8 million for the
three months ended September 30, 2000 and 1999, respectively, representing 56%
and 48% of service revenues. Our cost of service revenues was $19.2 million and
$7.0 million for the nine months ended September 30, 2000 and 1999,
respectively, representing 54% and 49% of service revenues. Cost of service
revenues as a percentage of service revenues increased due to an increase in
personnel associated with our consulting business. Because we believe that
providing a high level of support to customers is a strategic advantage, we have
continued to invest significantly in personnel and infrastructure. For the
remainder of 2000, we expect our cost of service revenues as a percentage of
total revenues to remain consistent with our level for the three months ended
September 30, 2000, as we grow and expand our consulting business.

OPERATING EXPENSES

Research and Development

Our research and development expenses consist primarily of salaries and
other personnel-related expenses associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and development of documentation for our products. Research and
development expenses increased to $7.8 million for the three months ended
September 30, 2000 from $3.3 million for the three months ended September 30,
1999. The increase was due primarily to an increase in personnel costs for
development of future products and enhancement of existing products. Research
and development expenses represented 18% and 20% of total revenues for the three
months ended September 30, 2000 and 1999, respectively. The decrease as a
percentage of total revenues was due primarily to growth in our total revenues.
Research and development expenses for the nine months ended September 30, 2000
and 1999 were
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$17.7 million and $8.5 million, representing 17% and 20% of total revenues,
respectively. The decrease as a percentage of total revenues was due primarily
to growth in our total revenues. 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. We
believe that continued investment in research and development is critical to
attaining our strategic objectives, and, as a result, we expect research and
development expenses to increase in absolute dollars in future periods. For the
remainder of 2000, we expect research and development expense as a percentage of
total revenues to remain at or slightly below our level for the three months
ended September 30, 2000.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel costs,
including commissions, as well as costs of advertising, public relations,
seminars, marketing programs, lead generation, travel and trade shows. Sales and
marketing expenses increased to $20.5 million for the three months ended
September 30, 2000 from $8.8 million for the three months ended September 30,
1999. For the nine months ended September 30, 2000 and 1999, sales and marketing
expenses were $50.6 million and $22.7 million, respectively. The increases were
due primarily to the hiring of additional sales and marketing personnel in
connection with the building of our direct, original equipment manufacturer and
reseller channels, higher sales commissions associated with increased sales
volume, and increased spending associated with advertising, trade shows and
other marketing programs. Sales and marketing expenses for the three months
ended September 30, 2000 and 1999 represented 48% and 52% of total revenues,
respectively. For the nine months ended September 30, 2000 and 1999, sales and
marketing expenses represented 49% and 54% of total revenues, respectively. The
decline in sales and marketing expenses as a percentage of total revenues for
these periods was due primarily to growth in total revenues. We expect to
continue hiring additional sales and marketing personnel and to increase
promotion and other marketing expenditures in the future. For the remainder of
2000, we expect sales and marketing expense as a percentage of total revenue to
remain at or slightly below our level for the three months ended September 30,
2000.

General and Administrative

Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, legal and general management, as well as
professional services associated with recruiting, legal and accounting. General
and administrative expenses increased to $3.2 million for the three months ended
September 30, 2000 from $1.3 million for the three months ended September 30,
1999, representing 7% and 8% of our total revenues, respectively. For the nine
months ended September 30, 2000 and 1999, general and administrative expenses
were $7.5 million and $3.3 million, representing 7% and 8% of total revenues,
respectively. Expenses increased due primarily to increased staffing in finance,
human resources, legal, information technology and administration to manage and
support our growth as well as increased costs paid to outside professional
service providers and increased facilities costs. The decrease as a percentage
of our total revenues was due primarily to the growth in our total revenues. We
expect that for the remainder of 2000, our general and administrative expenses
as a percentage of total revenue will remain consistent with our level for the
three months ended September 30, 2000.

Bad debt expense charged to operations was $60,000 and $81,000 for the
three months ended September 30, 2000 and 1999, respectively, representing less
than 1% of total revenues in each period. For the nine months ended September
30, 2000 and 1999, the bad debt expense charged to operations was $182,000 and
$226,000, respectively.

Amortization of Stock-based Compensation

We use the intrinsic value method of accounting for our employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of our stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option with respect to the options granted. For non-employees, we
record deferred stock-based compensation of an amount that equals the difference
between the exercise price and deemed fair value of our common stock
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based on the Black-Scholes formula for valuing options. This amount will be
remeasured at each measurement date. From inception through September 30, 2000,
we recorded deferred stock-based compensation of $5.7 million. This amount is
included as a component of stockholder's equity and is being amortized on a
graded vesting method by charges to operations over the vesting period of the
options. Such amortization amounted to $427,000 and $186,000 for the three
months ended September 30, 2000 and 1999, respectively, and $956,000 and
$473,000 for the nine months ended September 30, 2000 and 1999, respectively.

Amortization of Goodwill and Other Intangible Assets

Intangible assets consist of goodwill, which represents the excess of the
aggregate purchase price over the fair value of the tangible and identifiable
intangible assets we have acquired. In February 2000, we acquired Delphi
Solutions AG, a distributor of Informatica products in Switzerland. The
agreement was structured as a share purchase and accounted for as a purchase
transaction. Amounts allocated to intangible assets are being amortized on a
straight-line basis over a two-year period. Amortization expense of $1.1 million
and $2.6 million was recorded for the three and nine months ended September 30,
2000, respectively.

In April 2000, we announced a strategic alliance with PwC to jointly
develop, sell and support end-to-end analytic solutions for the
business-to-business e-commerce market worldwide. In connection with the
agreement relating to the strategic alliance, PwC received 409,138 shares of our
common stock. We recorded goodwill and other intangible assets totaling $31.8
million, which is being amortized on a straight-line basis over two to three
years. Amortization of goodwill and other intangible assets was $2.7 million and
$5.4 million for the three and nine months ended September 30, 2000.

In August 2000, we completed the acquisition of Zimba, a leading provider
of e-business analytic solutions that enable mobile professionals with real-time
access to corporate and external information via wireless devised, voice
recognition and the Web. The agreement was structured as a share purchase and
accounted for as a purchase transaction. Amounts allocated to intangible assets
are being amortized on a straight-line basis over two to three years.
Amortization expense of $569,000 was recorded for the three and nine months
ended September 30, 2000.

Purchased In-Process Research and Development

In connection with the PwC agreement, we recorded a charge to operations of
$2.2 million for purchased in-process research and development for the three
months ended June 30, 2000. In connection with the acquisition of Zimba, we
recorded a charge to operations of $5.1 million for purchased in-process
research and development for the three months ended September 30, 2000. The
in-process technology had not reached technological feasibility and had no
alternative uses. The value of the purchased in-process research and development
was computed using a discounted cash flow analysis based on management's
estimates of future revenues, cost of revenues and operating expenses related to
the products and technologies acquired from PwC and Zimba.

NET INTEREST INCOME

Net interest income represents interest income earned on our cash, cash
equivalents and restricted cash and interest expense on capital equipment leases
and stockholder loans. Net interest income was $357,000 and $548,000 for the
three months ended September 30, 2000 and 1999, respectively. The decrease for
the three months ended September 30, 2000 was due primarily to a decrease in
interest income earned on the restricted cash balances. For the nine months
ended September 30, 2000 and 1999, net interest income increased to $1.1 million
from $732,000, respectively. The increase for the three and nine months ended
September 30, 1999 was primarily due to an increased average cash balance as a
result of the completion of our initial public offering of our common stock with
net proceeds of $43.5 million in April 1999.

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PROVISION FOR INCOME TAXES

We recorded an income tax provision for state and foreign income taxes of
$820,000 and $201,000 for the three months ended September 30, 2000 and 1999,
respectively. For the nine months ended September 30, 2000 and 1999 we recorded
an income tax provision of $1.7 million and $501,000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through cash flows from operations
and public offerings of common stock. In the past, we also funded our operations
through private sales of preferred equity securities and capital equipment
leases. As of September 30, 2000, we had $59.1 million in cash, cash equivalents
and restricted cash.

Our operating activities resulted in net cash inflows of $1.2 million for
the nine months ended September 30, 2000. The net cash provided by operating
activities was primarily due to increases in deferred revenue, amortization of
goodwill and other intangible assets and purchased in-process research and
development. Uses of cash in operating activities were due primarily to net
operating losses and increases in accounts receivable, prepaid expenses and
other current assets and other assets.

For the nine months ended September 30, 1999, our operating activities
resulted in a net cash inflows of $3.8 million. The net cash provided by
operating activities was primarily due to increases in deferred revenue,
accounts payable and accrued liabilities and accrued compensation and related
expenses. Uses of cash in operating activities were primarily due to net
operating losses and increases in accounts receivable.

Investing activities used cash of $26.7 million for the nine months ended
September 30, 2000 and $995,000 for the nine months ended September 30, 1999. Of
the $26.7 million used in investing activities for the nine months ended
September 30, 2000, $20.3 million was associated with requirements for
restricted cash, $2.2 million was associated with the acquisition of our
distributor in Switzerland, Delphi Solutions, AG. The other $4.2 million was for
the purchase of property and equipment. The use of cash in investing activities
for the nine months ended September 30, 1999 was due primarily to the purchase
of property and equipment.

Financing activities provided cash of $7.2 million for the nine months
ended September 30, 2000. Net cash provided by financing activities was from the
exercise of stock options, partially offset by final payments on notes payable
to stockholders associated with the acquisition of Influence Software, Inc.
("Influence") in December 1999. Financing activities provided $43.6 million for
the nine months ended September 30, 1999, primarily through the completion of
our initial public offering of common stock in April 1999.

As of September 30, 2000, our principal commitments consisted of
obligations under operating and capital leases. As of September 30, 2000 and
1999, we had $213,000 and $246,000, respectively, in outstanding borrowings
under capital lease agreements which are payable through 2001. In addition, the
principal and accrued interest on the notes to stockholders of $3.6 million were
fully repaid in February 2000.

On February 22, 2000, we entered into two lease agreements for new
corporate headquarters in Redwood City, California. The facility is under
construction and is expected to be completed in June 2001. The lease expires
twelve years after occupancy. As part of these leases, we provided certificates
of deposit totaling $12.2 million as a security deposit for one year's lease
payments or until certain financial covenants are met. These certificates of
deposit are classified as restricted cash in the balance sheet.

Deferred revenues consist primarily of the unrecognized portion of revenues
received under maintenance contracts. For international customers, thinly
capitalized resellers and OEMs, revenue is recognized upon cash collections, and
is not recorded on the balance sheet or income statement until collectibility is
no longer determined to be uncertain. As of September 30, 2000, we had $17.7
million of sales related to shipments to international customers, thinly
capitalized resellers and OEMs for which revenue had not been recognized.

On October 3, 2000, we completed a follow-on public offering for net
proceeds of approximately $191 million. We believe that our cash balances and
the cash flows generated by operations and the follow-on public offering will be
sufficient to satisfy our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. Thereafter, we may require
additional funds to support our
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working capital requirements, or for other purposes, and may seek to raise such
additional funds through public or private equity financings or from other
sources. We may not be able to obtain adequate or favorable financing at that
time. Any financing we obtain may dilute your ownership interests.

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

FACTORS THAT MAY AFFECT OUR OPERATING RESULTS

OUR QUARTERLY RESULTS FLUCTUATE, WHICH MAY CAUSE OUR STOCK PRICE TO EXPERIENCE
SIGNIFICANT FLUCTUATIONS

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

- the size and timing of customer orders, which can be affected by customer
order deferrals in anticipation of future new product introductions or
product enhancements and customer budgeting and purchasing cycles;

- market acceptance of our products;

- the length and variability of our sales cycle for our products;

- the length of time and costs associated with the implementation of our
products;

- introduction or enhancement of our products or our competitors' products
and changes in our or our competitors' pricing policies;

- our ability to develop, introduce and market new products on a timely
basis;

- the mix of our products and services sold and the mix of distribution
channels utilized;

- our success in expanding our sales and marketing programs;

- an increase in analytic applications licensing, which may result in a
smaller percentage of our revenue from licenses being recognized when
such licenses are made, and increased implementation cost;

- seasonality with respect to our license revenues;

- technological changes in computer systems and environments; and

- general economic conditions, which may affect our customers' capital
investment levels.

Our product revenues are not predictable with any significant degree of
certainty. Historically, we have recognized a substantial portion of our
revenues in the last month of the quarter. If customers cancel or delay orders,
it can have a significant adverse impact on our revenues and results of
operations for the quarter. To the extent any such cancellations or delays are
for large orders, this impact will be greater. To the extent that the average
size of our orders increases, customers' cancellations or delays of orders will
more likely harm our revenues and results of operations. Our quarterly product
license revenues are difficult to forecast because we historically have not had
a substantial backlog of orders, and therefore revenues in each quarter are
substantially dependent on orders booked and shipped in that quarter and cash
collections from international customers and specific resellers. Our product
license revenues are also difficult to forecast because the market for our
products is rapidly evolving, and our sales cycles, which may last many months,
vary substantially from customer to customer and vary in general due to a number
of factors over which we have little or no control. Nonetheless, our short-term
expense levels are relatively fixed and based, in part, on our expectations of
future revenues.

The difficulty we have in predicting our quarterly revenue means revenue
shortfalls are likely to occur at some time, and our inability to adequately
reduce short-term expenses means such shortfalls will affect not only our
revenue, but also our overall business, results of operations and financial
condition. Due to the

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uncertainty surrounding our revenues and expenses, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. While we achieved significant quarter-
to-quarter revenue growth in the past, you should not take these recent
quarterly results to be indicative of our future performance. We do not expect
to sustain this same rate of sequential quarterly revenue growth in future
periods. Moreover, our future quarterly operating results may fall below the
expectations of stock analysts and investors. If this happens, the price of our
common stock may fall.

THE MARKET IN WHICH WE SELL OUR PRODUCTS IS HIGHLY COMPETITIVE

The market for our products is highly competitive, quickly evolving and
subject to rapidly changing technology. Many of our competitors have longer
operating histories, substantially greater financial, technical, marketing or
other resources, or greater name recognition than we do. Our competitors may be
able to respond more quickly than we can to new or emerging technologies and
changes in customer requirements. Competition could seriously impede our ability
to sell additional products and services on terms favorable to us. Our current
and potential competitors may develop and market new technologies that render
our existing or future products obsolete, unmarketable or less competitive. We
believe we currently compete more on the basis of our products' functionality
than on the basis of price. If our competitors develop products with similar or
superior functionality, we may have difficulty competing on the basis of price.

Our current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with other solution
providers, thereby increasing the ability of their products to address the needs
of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
strategic partners, thereby limiting our ability to sell products through these
channels. Competitive pressures could reduce our market share or require us to
reduce our prices, either of which could harm our business, results of
operations or financial condition. We compete principally against providers of
decision support, data warehousing and analytic application software. Such
competitors include Acta Technology, Broadbase Software, E.piphany, Informix
Corporation and Sagent Technology.

In addition, we compete against database vendors that currently offer, or
may develop, products with functionalities that compete with our solutions.
These products typically operate specifically with these competitors'
proprietary databases. Such competitors include IBM, Microsoft and Oracle.

ANY SIGNIFICANT DEFECT IN OUR PRODUCTS COULD CAUSE US TO LOSE REVENUE AND EXPOSE
US TO PRODUCT LIABILITY CLAIMS

The software products we offer are inherently complex and, despite
extensive testing and quality control, have in the past and may in the future
contain errors or defects, especially when first introduced. These defects and
errors could cause damage to our reputation, loss of revenue, product returns,
order cancellations or lack of market acceptance of our products, and as a
result, harm our business, results of operations or financial condition. We have
in the past and may in the future need to issue corrective releases of our
software products to fix these defects or errors. For example, we issued
corrective releases to fix problems with the version of our PowerMart released
in the first quarter of 1998. As a result, we had to allocate significant
customer support resources to address these problems. Our license agreements
with our customers typically contain provisions designed to limit our exposure
to potential product liability claims. The limitation of liability provisions
contained in our license agreements, however, may not be effective as a result
of existing or future national, federal, state or local laws or ordinances or
unfavorable judicial decisions. Although we have not experienced any product
liability claims to date, the sale and support of our products entails the risk
of such claims, which could be substantial in light of the use of our products
in enterprise-wide applications. If a claimant successfully brings a product
liability claim against us, it would likely significantly harm our business,
results of operations or financial condition.

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BECAUSE WE SELL A LIMITED NUMBER OF PRODUCTS, IF THESE PRODUCTS DO NOT ACHIEVE
BROAD MARKET ACCEPTANCE, OUR REVENUES WILL BE ADVERSELY AFFECTED

To date, substantially all of our revenues were derived from our
PowerCenter, PowerCenter.e, PowerConnects, PowerMart, our analytic application
software products and related services. We expect revenues derived from these
products and related services to comprise substantially all of our revenues for
the foreseeable future. Even if the emerging software market in which these
products are sold grows substantially, if any of these products do not achieve
market acceptance, our revenues will be adversely affected. In particular, we
recently released our analytic application products and the degree of market
acceptance for these products is unknown. Market acceptance of our products
could be affected if, among other things, 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.

IF THE MARKET IN WHICH WE SELL OUR PRODUCTS AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, OUR REVENUES WILL BE HARMED

The market for software solutions that enable more effective business
decision-making by helping companies aggregate and use data stored throughout an
organization is relatively new and still emerging. Substantially all of our
revenues are attributable to the sale of products and services in this market.
If this market does not grow at the rate we anticipate, our business, results of
operations and financial condition will be adversely affected. One of the
reasons this market might not grow as we anticipate is that many companies are
not yet fully aware of the benefits of using these software solutions to help
make business decisions or the benefits of our specific product solutions. As a
result, we believe large companies to date have deployed these software
solutions to make business decisions on a relatively limited basis. Although we
have devoted and intend to continue to devote significant resources to promote
market awareness of the benefits of these solutions, our efforts may be
unsuccessful or insufficient.

TECHNOLOGICAL ADVANCES AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY IMPACT
OUR FUTURE PRODUCT SALES

The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. The
introduction of products by our direct competitors or others embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render our existing products obsolete, unmarketable or less
competitive. In particular, an industry-wide adoption of uniform open standards
across heterogeneous analytic applications could minimize the importance of the
integration functionality of our products and harm the competitiveness and
market acceptance of our products. Our success depends upon our ability to
enhance existing products, to respond to changing customer requirements and to
develop and introduce in a timely manner new products that keep pace with
technological and competitive developments and emerging industry standards.

We have in the past experienced delays in releasing new products and
product enhancements and may experience similar delays in the future. As a
result, some of our customers have deferred purchasing products until their
upgrades were released. For example, an upgrade to a version of our PowerMart
product, which was scheduled to be released in December 1997, was not shipped
until February 1998. As a result, some of our customers deferred purchasing this
version of our PowerMart product until the upgrade was released. Future delays
or problems in the installation or implementation of our new releases may cause
customers to forego purchases of our products and purchase those of our
competitors instead. Failure to develop and introduce new products, or
enhancements to existing products, in a timely manner in response to changing
market conditions or customer requirements will harm our business, results of
operations and financial condition.

IF WE DO NOT MAINTAIN AND STRENGTHEN OUR RELATIONSHIPS WITH OUR STRATEGIC
PARTNERS, OUR ABILITY TO GENERATE REVENUE AND CONTROL IMPLEMENTATION COSTS WILL
BE ADVERSELY AFFECTED

We believe that our ability to increase the sales of our products and our
future success will depend in part upon maintaining and strengthening successful
relationships with our current or future strategic partners. In addition to our
direct sales force, we rely on established relationships with a variety of
strategic partners, such

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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 resource planning providers, for the promotion and
implementation of our solutions. In particular, our ability to market our
products depends substantially on our relationships with significant strategic
partners, including Andersen Consulting, Ariba, BroadVision, Business Objects,
Deloitte Consulting, KPMG, PeopleSoft, PricewaterhouseCoopers, SAP, Siebel
Systems and Sybase. In addition, our strategic partners may offer products of
several different companies, including, in some cases, products that compete
with our products. We have limited control, if any, as to whether these
strategic partners devote adequate resources to promoting, selling and
implementing our products.

We may not be able to maintain our strategic partnerships or attract
sufficient additional strategic partners who are able to market our products
effectively, who are qualified to provide timely and cost-effective customer
support and service or who have the technical expertise and personnel resources
necessary to implement our products for our customers. In particular, if our
strategic partners do not devote adequate resources for implementation of our
products, we will incur substantial additional costs associated with hiring and
training additional qualified technical personnel to timely implement solutions
for our customers. Furthermore, our relationships with our strategic partners
may not generate enough revenue to offset the significant resources used to
develop these relationships.

WE RELY ON THIRD-PARTY TECHNOLOGIES AND IF WE ARE UNABLE TO USE OR INTEGRATE
THESE TECHNOLOGIES, OUR PRODUCT AND SERVICE DEVELOPMENT MAY BE DELAYED

We intend to continue to license technologies from third parties, including
applications used in our research and development activities and technologies,
which are integrated into our products and services. If we cannot obtain or
integrate any of these licenses, we may experience a delay in product and
service development until equivalent technology can be identified, licensed and
integrated. These technologies may not continue to be available to us on
commercially reasonable terms or at all. We may not be able to successfully
integrate any licensed technology into our products or services, which would
harm our business and operating results. Third-party licenses also expose us to
increased risks that include:

- risks of product malfunction after new technology is integrated;

- the diversion of resources from the development of our own proprietary
technology; and

- our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs.

THE LENGTHY SALES CYCLE AND IMPLEMENTATION PROCESS OF OUR PRODUCTS MAKES OUR
REVENUES SUSCEPTIBLE TO FLUCTUATIONS

Our sales cycle can be lengthy because the expense, complexity, broad
functionality and company-wide deployment of our products typically requires
executive-level approval for investment in our products. In addition, to
successfully sell our products, we frequently must educate our potential
customers about the full benefits of our products, which also can require
significant time. Due to these factors, the sales cycle associated with the
purchase of our products is subject to a number of significant risks over which
we have little or no control, including:

- customers' budgetary constraints and internal acceptance review
procedures;

- the timing of budget cycles;

- concerns about the introduction of our products or competitors' new
products; or

- potential downturns in general economic conditions.

Further, our sales cycle may lengthen as we continue to focus our sales
efforts on large corporations. The implementation of our products, and
particularly our analytic application products, is also a complex and time-
consuming process, the length and cost of which is difficult to predict. If our
sales cycle and implementation

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

WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE

In recent years, there has been a relatively greater demand for our
products in the fourth quarter than in each of the first three quarters of the
year, particularly the first quarter. As a result, we historically have
experienced relatively higher bookings in the fourth quarter and relatively
lighter bookings in the first quarter. While some of this effect can be
attributed to the rapid growth of revenues in recent years, we believe that
these fluctuations are caused by customer buying patterns (often influenced by
year-end budgetary pressures) and the efforts of our direct sales force to meet
or exceed year-end sales quotas. In addition, European sales may tend to be
relatively lower during the summer months than during other periods. We expect
that seasonal trends will continue for the foreseeable future. This seasonal
impact may increase as we continue to focus our sales efforts on large
corporations.

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

We recognize revenue from sales to OEMs, specific resellers, international
customers and specific customers based on their credit history, at the time we
receive payment for our products, rather than at the time of sale. If these
customers do not make timely payment for our products, our revenues could
decrease. Further, if our revenues from sales to these customers increase as a
percentage of total revenues, our revenues could decrease. If our revenues
decrease, the price of our common stock may fall.

WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES, AND WE MAY NOT BE
ABLE TO ACHIEVE PROFITABLE OPERATIONS

We were incorporated in 1993 and began selling our products in 1996; and
therefore, we have a limited operating history upon which investors can evaluate
our operations, products and prospects. We have incurred significant net losses
since our inception, and we may not achieve profitability. We intend to increase
our operating expenses significantly in the next 12 months; therefore, our
operating results will be harmed if revenues do not increase significantly.

OUR BUSINESS COULD SUFFER AS A RESULT OF OUR STRATEGIC ACQUISITIONS AND
INVESTMENTS

In December 1999, we acquired Influence, a developer of analytic
applications for e-business, in a transaction accounted for as a
pooling-of-interests. In February 2000, we acquired Delphi, a distributor of our
products in Switzerland, in a transaction accounted for as a purchase. In August
2000, we acquired Zimba, a provider of applications that enable mobile
professionals to have real-time access to enterprise and external information
through wireless devices, voice recognition technologies and the Internet, in a
transaction accounted for as a purchase. In April 2000, we acquired certain
PricewaterhouseCoopers intellectual property rights and personnel in exchange
for shares of our common stock. We may not be able to effectively integrate
these companies, intellectual property, or personnel, and our attempts to do so
will place an additional burden on our management and infrastructure. These
acquisitions will subject us to a number of risks, including:

- the loss of key personnel, customers and business relationships;

- difficulties associated with assimilating and integrating the new
personnel and operations of the acquired company;

- the potential disruption of our ongoing business;

- the expense associated with maintenance of uniform standards, controls,
procedures, employees and clients;

- the risk of product malfunction after new technology is integrated;

- the diversion of resources from the development of our own proprietary
technology; and
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<PAGE> 21

- our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs.

There can be no assurance that we will be successful in overcoming these
risks or any other problems encountered in connection with our acquisitions.

WE MAY ENGAGE IN FUTURE ACQUISITIONS OR INVESTMENTS THAT COULD DILUTE OUR
EXISTING STOCKHOLDERS, OR CAUSE US TO INCUR CONTINGENT LIABILITIES, DEBT OR
SIGNIFICANT EXPENSE

From time to time, in the ordinary course of business, we may evaluate
potential acquisitions of, or investments in, related businesses, products or
technologies. Future acquisitions could result in the issuance of dilutive
equity securities, the incurrence of debt or contingent liabilities.
Furthermore, there can be no assurance that any strategic acquisition or
investment will succeed. Any future acquisition or investment could harm our
business, financial condition and results of operation.

Recently, the Financial Accounting Standards Board, or FASB, voted to
eliminate pooling-of-interests accounting for acquisitions and the ability to
write-off in-process research and development has been limited by recent
pronouncements. The effect of these changes would be to increase the portion of
the purchase price for any future acquisitions that must be charged to our cost
of revenues and operating expenses in the periods following any such
acquisitions. As a consequence, our results of operations could be harmed.
Although these changes would not directly affect the purchase price for any of
these acquisitions, they would have the effect of increasing the reported
expenses associated with any of these acquisitions. To that extent, these
changes may make it more difficult for us to acquire other companies, product
lines or technologies.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO GREATER INTELLECTUAL PROPERTY,
COLLECTIONS, EXCHANGE RATE FLUCTUATIONS, REGULATORY AND OTHER RISKS, WHICH COULD
LIMIT OUR FUTURE GROWTH

We intend to expand our international operations, and as a result, we may
face significant additional risks. Our failure to manage our international
operations and the associated risks effectively could limit the future growth of
our business. The expansion of our existing international operations and entry
into additional international markets will require significant management
attention and financial resources.

Our international operations face numerous risks. Our products must be
localized -- customized to meet local user needs -- in order to be sold in
particular foreign countries. Developing local versions of our products for
foreign markets is difficult and can take longer than we anticipate. We
currently have limited experience in localizing products and in testing whether
these localized products will be accepted in the targeted countries. We cannot
assure you that our localization efforts will be successful. In addition, we
have only a limited history of marketing, selling and supporting our products
and services internationally. As a result, we must hire and train experienced
personnel to staff and manage our foreign operations. However, we may experience
difficulties in recruiting and training an international staff. We must also be
able to enter into strategic relationships with companies in international
markets. If we are not able to maintain successful strategic relationships
internationally or recruit additional companies to enter into strategic
relationships, our future growth could be limited.

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

- greater difficulty in protecting intellectual property;

- greater difficulty in staffing and managing foreign operations;

- greater risk of uncollectible accounts;

- longer collection cycles;

- potential unexpected changes in regulatory practices and tariffs;

- potential unexpected changes in tax laws and treaties;

- sales seasonality;

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<PAGE> 22

- the impact of fluctuating exchange rates between the U.S. dollar and
foreign currencies in markets where we do business; and

- general economic and political conditions in these foreign markets.

We may encounter difficulties predicting the extent of the future impact of
these conditions. These factors and other factors could harm our ability to gain
future international revenues and consequently on our business, results of
operations and financial condition.

DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD HARM OUR RESULTS OF
OPERATIONS

We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative and operational infrastructure. If we are unable to manage this
growth effectively, our business, results of operations or financial condition
may be significantly harmed. Our ability to manage our operations and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures and hiring programs. We
may not be able to successfully implement improvements to our management
information and control systems in an efficient or timely manner, and we may
discover deficiencies in existing systems and controls.

IF WE ARE NOT ABLE TO ADEQUATELY PROTECT OUR PROPRIETY RIGHTS, OUR BUSINESS
COULD BE HARMED

Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. Our pending patent applications may not be allowed or
our competitors may successfully challenge the validity or scope of any of our
four US and one European issued patents or any future issued patents. Our
patents alone may not provide us with any significant competitive advantage.
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.

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 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 receive notices from third parties claiming infringement by
our products of third-party patent and other proprietary rights. Third parties
could claim that our current or future products infringe their patent or other
proprietary rights. 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 effect
our business, financial condition and operating results. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all. 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. Moreover, the
cost of defending patent litigation could be substantial, regardless of the
outcome. In the event a patent claim against us was successful and we could not
obtain a license on acceptable terms, license a substitute technology or
redesign to avoid infringement, our business, financial condition and operating
results would be significantly harmed.

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<PAGE> 23

OUR STOCK PRICE FLUCTUATES AS A RESULT OF OUR BUSINESS AND STOCK MARKET
FLUCTUATIONS

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

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

- quarterly variations in our or our competitors' results of operations;

- changes in earnings estimates or recommendations by securities analysts;

- developments in our industry; and

- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.

In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. After periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against that company. We may become involved
in this type of litigation in the future, which is often expensive and diverts
management's attention and resources, which could harm our ability to execute
our business plan. Such factors and fluctuations, as well as general economic,
political and market conditions, may cause the market price of our common stock
to decline, which may impact our operations.

THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, PARTICULARLY IN THE SILICON VALLEY AREA, WHERE WE ARE HEADQUARTERED,
COULD HARM OUR RESULTS OF OPERATIONS

We believe our success depends upon our ability to attract and retain
highly skilled personnel, including Gaurav S. Dhillon, our Chief Executive
Officer, Diaz H. Nesamoney, our President and Chief Operating Officer, and other
key members of our management team. We currently do not have any key-man life
insurance relating to our key personnel, and their employment is at-will and not
subject to employment contracts.

We may not be successful in attracting, assimilating and retaining key
personnel in the future. As we seek to expand our operations, the hiring of
qualified sales and technical personnel will be difficult due to the limited
number of qualified professionals. Competition for these types of employees,
particularly in the Silicon Valley area, where we are headquartered, is intense.
We have in the past experienced difficulty in recruiting qualified sales and
technical personnel. Failure to attract, assimilate and retain key personnel,
particularly sales and technical personnel, would harm our business, results of
operations and financial condition.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio. We do not plan to use derivative financial instruments in
our investment portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk and reinvestment
risk. We plan to mitigate default risk by investing in high-credit quality
securities.

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<PAGE> 24

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On September 6, 2000, in connection with its acquisition of Zimba, a
privately-held company, Informatica issued an aggregate of 253,329 unregistered
shares of its common stock for the benefit of the stockholders of Zimba, subject
to the withholding of 10% of such shares in escrow. The transaction was exempt
from registration under the Securities Act of 1933, as amended, under Section
4(2) thereof, as a transaction not involving a public offering.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger by and among Informatica
Corporation, I-2 Merger Corporation, and Zimba.(1)
27.1 Financial Data Schedule.
</TABLE>

---------------

(1) Incorporated by reference to identically numbered Exhibit to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 6, 2000.

(b) Reports on Form 8-K

A current report on Form 8-K was filed with the Securities and Exchange
Commission by Informatica on September 6, 2000 to report the consummation of our
merger with Zimba. An amendment to this current report on Form 8-K was filed
with the Securities and Exchange Commission by Informatica on November 3, 2000
with the required financial information.

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<PAGE> 25

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
Informatica Corporation has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

INFORMATICA CORPORATION

By: /s/ EARL E. FRY
------------------------------------
Earl E. Fry
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial
and Accounting Officer)

Dated: November 10, 2000

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<PAGE> 26

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and among Informatica
Corporation, I-2 Merger Corporation, and Zimba.(1)
27.1 Financial Data Schedule.
</TABLE>

---------------

(1) Incorporated by reference to identically numbered Exhibit to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 6, 2000.