Acquisition, Goodwill, And Other Intangible Assets

6 Months Ended

Jun. 30, 2011

Acquisition, Goodwill, And Other Intangible Assets

Acquisition, Goodwill, And Other Intangible Assets

6.    ACQUISITION, GOODWILL, AND OTHER INTANGIBLE ASSETS

  Chordiant Acquisition

On April 21, 2010, the Company acquired all of the outstanding shares of common stock of Chordiant, a leading provider of customer relationship management ("CRM") software and services with a focus on improving customer experiences through decision technology for approximately $160.3 million in cash and the issuance of stock options.

The operations of Chordiant were included in the Company's operating results from the date of acquisition. Due to the rapid integration of the products, sales force, and operations of Chordiant, it is no longer feasible for the Company to identify revenue from new arrangements attributable to Chordiant.

During the first quarter of 2011, the Company recorded adjustments to the purchase price allocation to reflect the Company's final determination of other accrued liabilities, acquired tax assets and uncertain tax liabilities. As a result of this determination, the Company recorded a $1.8 million decrease to other accrued liabilities, a $0.4 million increase to net deferred tax assets, and a corresponding $2.2 million decrease to goodwill. These purchase price adjustments were also reflected retrospectively as of December 31, 2010 in the accompanying condensed consolidated balance sheet as required by the business combination accounting rules.

  Pro forma Information

The following pro forma financial information presents the combined results of operations of the Company and Chordiant as if the acquisition had occurred on January 1, 2009 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Chordiant acquisition, factually determinable, and expected to have a continuing impact on the Company. These pro forma adjustments include a reduction of historical Chordiant revenue for fair value adjustments related to acquired deferred revenue and elimination of deferred costs associated with revenue, a net increase in amortization expense to eliminate historical amortization of Chordiant intangible assets and to record amortization expense for the $88 million of acquired identifiable intangibles. The pro forma financial information does not reflect any adjustments for anticipated synergies resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated as of January 1, 2009.

	Pro Forma Three Months Ended June 30,		Pro Forma Six Months Ended June 30,
	2010		2010
Revenue	$	85,524	$	176,164
Net loss		(16,858)		(20,336)
Net loss per basic and diluted share	$	(0.45)	$	(0.55)

  Goodwill and Intangibles

The Company operates in one operating segment, business process solutions, for which discrete financial information is available and its performance is evaluated regularly by the Company's CEO, who is the Company's chief operating decision maker, or CODM. The Company has one reporting unit, the fair value of which is evaluated annually to determine whether goodwill is impaired.

The purchase price adjustments related to the Chordiant acquisition identified during the first quarter of 2011 were retrospectively applied as of December 31, 2010. There were no other changes in the carrying amount of goodwill during the first or second quarter of 2011.

(in thousands)	2011
Balance as of January 1,	$	22,618
Purchase price adjustments to goodwill retrospectively applied		(2,167)
Revised balance as of January 1, and June 30,	$	20,451

Intangible assets are recorded at cost and are amortized using the straight-line method over their estimated useful life, which range from one to nine years.

(Dollars in thousands)	Amortization Period (Years)	Cost		Accumulated    Amortization			Net Book Value
As of June 30, 2011
Customer related intangibles	9	$	44,355	$	(5,750	)	$	38,605
Technology	8		43,446		(7,189	)		36,257
Trade name	1		248		(248	)		—
Technology designs	4		490		(402	)		88
Non-compete agreements	5		100		(65	)		35
Intellectual property	4		1,400		(1,400	)		—
Total		$	90,039	$	(15,054	)	$	74,985
	Amortization Period (Years)	Cost		Accumulated Amortization			Net Book Value
As of December 31, 2010
Customer related intangibles	9	$	44,355	$	(3,286	)	$	41,069
Technology	8		43,446		(4,108	)		39,338
Trade name	1		248		(165	)		83
Technology designs	4		490		(340	)		150
Non-compete agreements	5		100		(56	)		44
Intellectual property	4		1,400		(1,400	)		—
Total		$	90,039	$	(9,355	)	$	80,684

For the second quarter and first six months of 2011 and 2010, amortization of intangibles was reflected in the Company's unaudited condensed consolidated statements of operations as follows:

	Three Months Ended          June 30,				Six Months Ended          June 30,
(in thousands)	2011		2010		2011		2010
Cost of software license		$1,571		$  1,079		$3,142		$  1,110
Selling and marketing		1,232		847		2,464		847
General and administrative		26		46		93		51
Total amortization expense		$2,829		$1,972		$5,699		$2,008

(in thousands) As of June 30,	Future estimated amortization expense
Remainder of 2011	$	5,616
2012		11,137
2013		11,095
2014		9,489
2015		8,688
2016 and thereafter		28,960
	$	74,985