10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

COMMISSION FILE NO. 000-26937

QUEST SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0231678
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5 Polaris Way Aliso Viejo, California	92656
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (949) 754-8000

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   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No   ¨

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

The number of shares outstanding of the registrant’s Common Stock as of July 28, 2011, was 85,893,403.

QUEST SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Income Statements		4
	Condensed Consolidated Statements of Comprehensive Income		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Overview		22
	Results of Operations		24
	Liquidity and Capital Resources		29
	Recently Adopted Accounting Pronouncements		31
	Critical Accounting Policies and Estimates		31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.	Controls and Procedures		33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 6.	Exhibits		35
Signatures			36

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

QUEST SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	June 30 2011		December 31 2010
ASSETS
Current assets:
Cash and cash equivalents	$	204,094	$	356,533
Short-term investments		43,504		90,284
Accounts receivable, net of allowances of $6,619 and $5,367 at June 30, 2011 and December 31, 2010, respectively		143,221		179,621
Prepaid expenses and other current assets		36,607		48,312
Deferred income taxes		7,061		6,677
Total current assets		434,487		681,427
Property and equipment, net		81,185		70,854
Long-term investments		33,553		45,466
Intangible assets, net		107,014		62,785
Goodwill		746,719		706,224
Deferred income taxes		54,536		46,985
Other assets		54,165		21,843
Total assets	$	1,511,659	$	1,635,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,628	$	5,512
Accrued compensation		55,367		55,185
Other accrued expenses		42,646		32,600
Loans payable		576		521
Deferred revenue		338,003		324,121
Total current liabilities		447,220		417,939
Long-term liabilities:
Deferred revenue		104,316		100,264
Income taxes payable		42,106		41,385
Loans payable		32,460		32,730
Other long-term liabilities		15,689		11,000
Total long-term liabilities		194,571		185,379
Total liabilities		641,791		603,318
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value, 200,000 shares authorized; 85,752 and 92,893 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively		86		93
Additional paid-in-capital		557,317		729,640
Retained earnings		311,655		301,697
Accumulated other comprehensive income		810		836
Total stockholders’ equity		869,868		1,032,266
Total liabilities and stockholders’ equity	$	1,511,659		1,635,584

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

QUEST SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30					Six Months Ended June 30
	2011		2010			2011		2010
Revenues:
Licenses	$	77,632	$	77,100		$	144,367	$	142,081
Services		125,338		109,002			246,760		215,192
Total revenues		202,970		186,102			391,127		357,273
Cost of revenues:
Licenses		2,550		1,893			4,334		3,714
Services		22,634		15,636			43,600		30,360
Amortization of purchased technology		5,249		3,965			9,899		8,458
Total cost of revenues		30,433		21,494			57,833		42,532
Gross profit		172,537		164,608			333,294		314,741
Operating expenses:
Sales and marketing		86,983		72,082			168,713		140,422
Research and development		43,117		36,543			84,840		72,016
General and administrative		28,078		19,836			56,271		39,173
Amortization of other purchased intangible assets		4,198		3,149			7,945		6,325
Total operating expenses		162,376		131,610			317,769		257,936
Income from operations		10,161		32,998			15,525		56,805
Other income (expense), net		573		(3,843	)		1,843		(7,449	)
Income before income tax provision		10,734		29,155			17,368		49,356
Income tax provision		4,404		11,764			7,410		16,353
Net income	$	6,330	$	17,391		$	9,958	$	33,003
Net income per share:
Basic	$	0.07	$	0.19		$	0.11	$	0.37
Diluted	$	0.07	$	0.19		$	0.11	$	0.36
Weighted-average shares:
Basic		88,320		89,434			90,301		89,548
Diluted		90,363		91,920			92,742		92,135

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

QUEST SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended June  30					Six Months Ended June 30
	2011		2010			2011			2010
Net income	$	6,330	$	17,391		$	9,958		$	33,003
Other comprehensive income (loss):
Unrealized income (loss) on foreign currency hedges, net of tax		306		(388	)		(100	)		51
Unrealized income (loss) on available-for-sale securities, net of tax		96		(4	)		74			(11	)
Comprehensive income	$	6,732	$	16,999		$	9,932		$	33,043

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

QUEST SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30
	2011			2010
Cash flows from operating activities:
Net income	$	9,958		$	33,003
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,798			21,779
Compensation expense associated with stock-based payments		12,906			9,171
Deferred income taxes		(83	)		5,025
Excess tax benefit related to stock-based compensation		(1,869	)		(1,318	)
Other non-cash adjustments, net		924			683
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		49,701			33,258
Prepaid expenses and other current assets		1,178			4,230
Other assets		2,267			1,955
Accounts payable		4,100			(388	)
Accrued compensation		(6,976	)		(7,115	)
Other accrued expenses		2,306			(4,051	)
Income taxes payable		19,971			8,719
Deferred revenue		(2,944	)		(3,089	)
Other liabilities		(3,271	)		(1,282	)
Net cash provided by operating activities		113,966			100,580
Cash flows from investing activities:
Purchases of property and equipment		(17,314	)		(6,831	)
Cash paid for acquisitions, net of cash acquired		(89,429	)		(981	)
Change in restricted cash		(7,903	)		874
Purchases of cost method investments		(27,234	)		—
Purchases of investment securities		(5,136	)		(132,283	)
Sales and maturities of investment securities		63,562			107,246
Notes receivable from a cost method investee		—			(2,000	)
Cash paid for intellectual property		(1,500	)		—
Change in notes receivable		(750	)		—
Net cash used in investing activities		(85,704	)		(33,975	)
Cash flows from financing activities:
Repayment of loans payable		(238	)		(32,339	)
Repurchase of common stock		(205,745	)		(37,373	)
Repayment of capital lease obligations		(69	)		(133	)
Cash paid for line of credit fees		(500	)		—
Proceeds from the exercise of stock options		24,925			23,297
Excess tax benefit related to stock-based compensation		1,869			1,318
Net cash used in financing activities		(179,758	)		(45,230	)
Effect of exchange rate changes on cash and cash equivalents		(943	)		1,833
Net (decrease) increase in cash and cash equivalents		(152,439	)		23,208
Cash and cash equivalents, beginning of period		356,533			292,940
Cash and cash equivalents, end of period	$	204,094		$	316,148
Supplemental disclosures of consolidated cash flow information:
Cash paid for interest	$	1,570		$	1,715
Cash (received) paid for income taxes	$	(14,261	)	$	2,319

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Quest Software, Inc. was incorporated in California in 1987 and reincorporated in Delaware in 2009. We are a leading developer and vendor of application, database, Windows and virtualization management software products. We also provide consulting, training, and support services to our customers. References to “Quest,” “Quest Software,” the “Company,” “we,” “us,” or “our” refer to Quest Software, Inc. and its consolidated subsidiaries.

Our accompanying unaudited condensed consolidated financial statements as of June 30, 2011 and for the three months and six months ended June 30, 2011 and 2010 reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the “Consolidated Financial Statements and Notes to the Consolidated Financial Statements” included in Quest’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”). The results for the interim periods presented are not necessarily indicative of the results that may be expected for any future period.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, Financial Accounting Standards Board (“FASB”) issued amendments to its accounting guidance on fair value measurement. The amendments provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The amendments change certain fair value measurement principles and enhance the disclosure requirements about fair value measurements. This guidance is effective during interim and annual periods beginning after December 15, 2011 and should be applied prospectively. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In June 2011, FASB issued amendments to its accounting guidance on comprehensive income. The amendments require an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments eliminate the option to present the components of other comprehensive income as part of the statement of equity. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are currently evaluating the impact of this guidance on our consolidated financial statements.

NOTE 3 — ACQUISITIONS

2011 Acquisitions

BakBone Software Incorporated – In January 2011, we acquired 100% of the voting equity interests of BakBone Software Incorporated (“BakBone”), a publicly-held provider of data protection software, for cash consideration of approximately $56 million. BakBone gives us additional technologies to provide data protection solutions across heterogeneous physical, virtual and application-level environments.

The acquisition has been accounted for as a business combination and the purchase price was allocated primarily to goodwill and other intangible assets. Actual results of operations of BakBone are included in our consolidated financial statements from the date of acquisition. Our preliminary allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows (in thousands):

Current assets	$	12,479
Acquired technologies with a weighted average useful life of 5.2 years		24,500
In-process research and development		400
Customer relationships with a useful life of 4.0 years		11,300
Trademarks and trade names with a useful life of 10.0 years		1,800
Goodwill		20,730
Deferred income tax assets – non-current		7,832
Other assets		2,419
Current liabilities		(6,328	)
Deferred revenue – current		(9,383	)
Deferred revenue – non-current		(9,491	)
Other long-term liabilities		(278	)
Total purchase price	$	55,980

7

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The preliminary allocation of purchase price for BakBone was based upon valuation information and estimates and assumptions available at the time of filing. Our estimates and assumptions are subject to change. The areas of the purchase price allocation that are not yet finalized and are subject to change within the measurement period relate to the completion of our income taxes review and the resulting impact on goodwill.

The intangible assets will be amortized over the pattern in which the expected economic benefits of the intangible assets are realized, which in general is correlated with the cash flows generated from such assets. We acquired an in-process research and development (“IPR&D”) project and the value assigned to the IPR&D was determined utilizing the income approach by determining cash flow projections relating to the project. We applied a discount rate of 28% to derive the value of the IPR&D project. The IPR&D project will be assessed for impairment until completed. Upon completion, the project will be amortized over its estimated useful life, as described above. The goodwill associated with this acquisition is reported within our Licenses, Maintenance Services and Professional Services segments of our business, and is not expected to be deductible for tax purposes. The goodwill allocation of 45% to Licenses, 52% to Maintenance Services and 3% to Professional Services is based on both historical and projected relative contribution from Licenses, Maintenance Services and Professional Services revenues. Goodwill results from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, and opportunities within new markets, which we believe will result in incremental revenue and profitability.

Other Acquisitions – We completed three other acquisitions during the six months ended June 30, 2011. These acquisitions have been accounted for as business combinations. The aggregate purchase price for these transactions was approximately $40 million. The preliminary allocation of purchase price was primarily to goodwill and other intangible assets for approximately $20 million and $21 million, respectively. Actual results of operations of these acquisitions are included in our condensed consolidated financial statements from the effective dates of the acquisitions.

The pro forma effects of acquisitions in 2011 individually, or in the aggregate, would not have been material to our results of operations for the six months ended June 30, 2011 and 2010, and therefore are not presented.

NOTE 4 — GEOGRAPHIC AND SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision maker, or decision-making group, in assessing performance and deciding how to allocate resources. Our reportable operating segments are Licenses, Maintenance Services and Professional Services. The Licenses segment develops and markets licenses to use our software products. The Maintenance Services segment provides after-sale support for software products. The Professional Services segment provides consulting and fee-based training related to our software products.

Previously, we had two reportable operating segments, Licenses and Services. During the first quarter of 2011, we revised our reportable operating segments by separating our Services segment into our Professional Services segment and our Maintenance Services segment. We separated these two previously aggregated segments because the Professional Services component has experienced significant growth and has become more distinct, robust and pronounced relative to all Services, and also has become more separately managed and analyzed. Previously reported segment data have been reclassified to conform to the 2011 presentation. Goodwill previously allocated to the Services segment has been reallocated between the Maintenance Services and Professional Services segments using a relative fair value approach.

We do not separately allocate operating expenses to these segments, nor do we allocate specific assets to these segments. Therefore, segment information reported includes only revenues, cost of revenues, and gross profit.

8

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Reportable segment data for the three months and six months ended June 30, 2011 and 2010 is as follows (in thousands):

	Licenses		Maintenance Services		Professional Services		Total
Three months ended June 30, 2011:
Revenues	$	77,632	$	110,276	$	15,062	$	202,970
Cost of revenues		7,799		10,469		12,165		30,433
Gross profit	$	69,833	$	99,807	$	2,897	$	172,537
Three months ended June 30, 2010:
Revenues	$	77,100	$	98,520	$	10,482	$	186,102
Cost of revenues		5,858		7,409		8,227		21,494
Gross profit	$	71,242	$	91,111	$	2,255	$	164,608
Six months ended June 30, 2011:
Revenues	$	144,367	$	218,342	$	28,418	$	391,127
Cost of revenues		14,233		20,480		23,120		57,833
Gross profit	$	130,134	$	197,862	$	5,298	$	333,294
Six months ended June 30, 2010:
Revenues	$	142,081	$	194,288	$	20,904	$	357,273
Cost of revenues		12,172		14,638		15,722		42,532
Gross profit	$	129,909	$	179,650	$	5,182	$	314,741

Revenues are attributed to geographic areas based on the location of the Quest entity from which the products or services were invoiced. Revenues and long-lived assets concerning principal geographic areas in which we operate are as follows (in thousands):

	United States		Ireland		Other International  (2)		Total
Three months ended/As of June 30, 2011:
Revenues	$	120,152	$	36,359	$	46,459	$	202,970
Long-lived assets (1)		113,636		7,802		13,912		135,350
Three months ended/As of June 30, 2010:
Revenues	$	117,248	$	22,520	$	46,334	$	186,102
Long-lived assets (1)		84,902		8		12,636		97,546
Six months ended/As of June 30, 2011:
Revenues	$	232,899	$	67,324	$	90,904	$	391,127
Long-lived assets (1)		113,636		7,802		13,912		135,350
Six months ended/As of June 30, 2010:
Revenues	$	220,291	$	43,547	$	93,435	$	357,273
Long-lived assets (1)		84,902		8		12,636		97,546

(1) Includes property and equipment, net and other assets

(2) No single location within Other International accounts for greater than 10% of total revenues

9

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 5 — CASH AND CASH EQUIVALENTS AND INVESTMENTS

The following table summarizes our cash and cash equivalents and investments by balance sheet classification at the dates indicated (in thousands):

	June 30, 2011				December 31, 2010
	Cost		Fair Value (1)		Cost		Fair Value (1)
Cash and cash equivalents	$	204,094	$	204,094	$	356,533	$	356,533
Short-term investments		44,126		43,504		90,466		90,284
Long-term investments		33,554		33,553		45,647		45,466
Total cash and cash equivalents and investments	$	281,774	$	281,151	$	492,646	$	492,283

(1) See Note 16 – Fair Value Measurements for details regarding fair value measurements.

The following table summarizes our investments by investment category at the dates indicated (in thousands):

	June 30, 2011				December 31, 2010
Investment category:	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
U.S. treasury securities	$	3,430	$	3,435	$	24,500	$	24,511
U.S. agency securities		11,115		11,097		35,407		35,387
Commercial paper		4,970		5,000		14,958		14,984
Corporate notes/bonds		55,415		54,774		51,561		51,181
Certificates/term deposits		2,750		2,751		9,687		9,687
Total investments	$	77,680	$	77,057	$	136,113	$	135,750

NOTE 6 — PROPERTY AND EQUIPMENT, NET

Net property and equipment consisted of the following (in thousands):

	June 30 2011			December 31 2010
Building	$	39,601		$	39,003
Furniture and fixtures		16,725			15,846
Machinery and equipment		8,608			7,181
Computer equipment		57,844			54,940
Computer software		47,405			43,822
Leasehold improvements		17,688			15,438
Land		16,317			11,154
		204,188			187,384
Less accumulated depreciation and amortization		(123,003	)		(116,530	)
Property and equipment, net	$	81,185		$	70,854

The increase in property and equipment during the six months ended June 30, 2011 was primarily due to expenditures on the facilities to house the Business Operations and Advance Technology Center in Cork, Ireland. Total depreciation and amortization expense related to property and equipment was $3.8 million and $7.6 million for the three months and six months ended June 30, 2011, respectively. This compares to $3.5 million and $7.0 million for the three months and six months ended June 30, 2010, respectively.

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

The changes in the carrying amount of goodwill by reportable operating segment (refer to Note 4 – Geographic and Segment Reporting for discussion of our reportable operating segments) for the six months ended June 30, 2011 are as follows (in thousands):

	Licenses		Maintenance Services		Professional Services		Total
Balance as of December 31, 2010	$	490,095	$	211,806	$	4,323	$	706,224
Acquisitions		20,420		18,628		1,447		40,495
Balance as of June 30, 2011	$	510,515	$	230,434	$	5,770	$	746,719

Intangible assets, net are comprised of the following (in thousands):

	June 30, 2011							December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Acquired technology and IPR&D (1)	$	207,223	$	(143,803	)	$	63,420	$	164,816	$	(133,591	)	$	31,225
Customer relationships		91,218		(58,010	)		33,208		74,318		(50,639	)		23,679
Non-compete agreements		14,589		(13,578	)		1,011		13,919		(13,201	)		718
Trademarks and trade names (2)		15,700		(6,325	)		9,375		13,302		(6,139	)		7,163
	$	328,730	$	(221,716	)	$	107,014	$	266,355	$	(203,570	)	$	62,785

(1) IPR&D projects were identified and valued related to our acquisitions. These projects are continually assessed for impairment. Upon completion, these projects will be amortized over their estimated useful life.

(2) Trademarks and trade names include $6.2 million and $0.8 million in trade names related to our acquisition of ScriptLogic and PacketTrap, respectively, that each have an indefinite useful life, and as such are not being amortized.

Amortization expense for amortizing intangible assets was $9.6 million and $18.2 million for the three months and six months ended June 30, 2011, respectively. This compares to $7.1 million and $14.8 million for the three months and six months ended June 30, 2010, respectively.

Estimated annual amortization expense related to amortizing intangible assets reflected on our June 30, 2011 condensed consolidated balance sheet is as follows (in thousands):

	Estimated Annual Amortization Expense
2011 (remaining 2 quarters)	$	19,532
2012		33,071
2013		18,784
2014		15,656
2015 and thereafter		12,971
Total accumulated amortization	$	100,014

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 8 — COST METHOD INVESTMENTS

Our investments in early stage private companies are accounted for under the cost method given that we do not have the ability to exercise significant influence over these companies. The fair value of our cost method investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. We determined that it is not practicable to estimate the fair value of our cost method investments since these investments were made in privately-held companies that are not subject to the same disclosure regulations as U.S. public companies, and, as such, the basis for an estimated fair value is subject to the completeness, quality, timing and accuracy of data received from these private companies. Our cost method investments are carried at $41.4 million and $14.4 million as part of Other assets in our condensed consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively.

NOTE 9 — LOANS PAYABLE

In February 2011, our line of credit agreement was amended and renewed for a subsequent five-year term (the “Amended Credit Agreement”) with Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as arranger, administrative agent and lender. The Amended Credit Agreement allows for cash borrowings and letters of credit under a secured revolving credit facility of up to a maximum of $100.0 million. Interest will accrue based on a floating rate based on, at the Company’s election, (i) LIBOR (subject to reserve requirements) or (ii) the greater of (a) the Federal Funds Rate plus  ¹/2% or (b) Wells Fargo’s prime rate, in each case, plus an applicable margin. The Amended Credit Agreement includes limitations on the Company’s ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividend payments, and dispose of assets. The Amended Credit Agreement is secured by substantially all of the Company’s assets, subject to certain exceptions. Fees associated with this amended line of credit were approximately $0.5 million and will be amortized over the life of the credit agreement as interest expense. As of June 30, 2011, we have a zero balance outstanding under this line of credit.

In August 2009, we entered into a loan agreement with Mutual of Omaha Bank whereby we borrowed an aggregate principal amount of $34 million. The loan is secured by our real property at our headquarters in Aliso Viejo, California. We have used the proceeds from the loan for working capital and other general corporate purposes. The loan matures in five years, during which time we will make equal monthly principal and interest payments at a 7.03% interest rate on a fixed rate, 25-year amortization schedule. Events of default include, among other things, payment defaults, breaches of covenants and bankruptcy events. In the case of a continuing event of default, the lender may, among other things, accelerate the payment of any unpaid principal and interest amounts, increase the then-current interest rate by 5% and foreclose on the real estate collateral. As of June 30, 2011, we have a $33.0 million balance outstanding with $0.6 million recorded as current and $32.4 million recorded as long-term portion of loans payable.

We were in compliance with all debt-related covenants at June 30, 2011.

NOTE 10 — OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following (in thousands):

	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Interest income	$	589		$	532		$	1,126		$	844
Interest expense		(790	)		(1,108	)		(1,769	)		(2,238	)
Foreign currency gains (losses), net (1)		1,646			(4,671	)		4,861			(8,853	)
Forward foreign currency contracts (losses) gains, net (2)		(881	)		1,411			(2,493	)		2,506
Other income (expense), net		9			(7	)		118			292
Total other income (expense), net	$	573		$	(3,843	)	$	1,843		$	(7,449	)

(1) Our foreign currency (losses) gains, net are predominantly attributable to the re-measurement gains or losses on our net balances of monetary assets and liabilities in our foreign subsidiaries, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. The foreign currency re-measurement adjustments to these balance sheet items are calculated by comparing the currency spot rates at the end of a month to the spot rates at the end of the previous month.

12

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

(2) Relates to changes in fair value of our forward foreign currency contracts not designated as hedging instruments. See Note 15 — Derivative Instruments for further details.

NOTE 11 — INCOME TAX PROVISION

During the three months and six months ended June 30, 2011, the provision for income taxes decreased to $4.4 million and $7.4 million, respectively from $11.8 million and $16.4 million in the comparable period in 2010. The effective income tax rate for the three months and six months ended June 30, 2011 was approximately 41.0% and 42.7%, respectively, as compared to 40.3% and 33.1% for the three months and six months ended June 30, 2010, respectively. The change in the provision for income taxes and the effective income tax rate is primarily a result of the decrease in the consolidated pre-tax book income and the taxes computed based on a higher ratio of year-to-date foreign losses as compared to the overall consolidated pre-tax book income for which no benefit could be taken and other discrete items impacting the quarter ended June 30, 2011. Discrete items included an increase in the income tax provision related to the write-off of deferred tax assets associated with cancelled, forfeited and expired stock options recorded during the six months ended June 30, 2011.

During the first quarter of 2011, we received examination notices from the Internal Revenue Service and the California Franchise Tax Board to audit income tax returns filed for calendar years 2008 through 2009, and 2007 through 2008, respectively.

NOTE 12 — NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution of securities by including other common stock equivalents, including stock options and restricted stock units, in the weighted-average number of common shares outstanding for a period, if dilutive.

The table below sets forth the reconciliation of the denominator of the net income per share calculation (in thousands):

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Shares used in computing basic net income per share		88,320		89,434		90,301		89,548
Dilutive effect of stock options and restricted stock units (1)		2,043		2,486		2,441		2,587
Shares used in computing diluted net income per share		90,363		91,920		92,742		92,135

(1) Options to purchase 4.8 million and 5.8 million shares of common stock were outstanding during the three months ended June 30, 2011 and 2010, respectively, and 2.8 million and 5.5 million shares of common stock during the six months ended June 30, 2011 and 2010, respectively, were outstanding but were not included in the computation of diluted net income per share as inclusion would have been anti-dilutive.

NOTE 13 — STOCKHOLDERS’ EQUITY

In May 2011, our Board of Directors authorized a new stock repurchase program covering up to $200 million of our common stock. This program replaced the $150 million stock repurchase program previously authorized in February 2011. Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans. Rule 10b5-1 permits Quest to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors including market conditions, corporate and regulatory requirements, and capital availability. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice. During the three months ended June 30, 2011, we repurchased 5.3 million shares at a weighted average price per share of $22.67 for a total cost of $119.0 million pursuant to the two authorizations. At June 30, 2011, a total of $121.9 million remains available pursuant to our stock repurchase authorization.

13

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE 14 — STOCK-BASED COMPENSATION

We offer stock-based awards to employees, directors and consultants under the Quest Software, Inc. 2008 Stock Incentive Plan (the “2008 Plan”). The 2008 Plan was adopted by our Board of Directors as a means to secure and retain the services of our employees, directors, and consultants, to provide such eligible individuals an opportunity to benefit from increases in the value of our Common Stock through the grant of stock awards, and thereby align the long-term compensation and interests of those individuals with our stockholders.

The 2008 Plan provides for the discretionary grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, and other forms of equity compensation (collectively, the “stock awards”). The number of shares of Common Stock available for issuance under the 2008 Plan is 21.3 million as of June 30, 2011. The number of shares of Common Stock reserved for issuance under the 2008 Plan will be reduced by 1 share for each share of Common Stock issued under the 2008 Plan pursuant to a stock option and by 1.94 shares for each share of Common Stock issued under the 2008 Plan pursuant to a restricted stock award, restricted stock unit award, or other stock award. As of June 30, 2011, there were 7.1 million shares available for grant under the 2008 Plan.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The fair value of these awards is amortized on a straight-line basis over the vesting period. Expected volatilities are based on historical volatilities of Quest’s stock. We use historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate is based on the U.S. Treasury zero-coupon issues in effect at the time of option grant for equivalent remaining terms. We do not expect to pay any dividends and, therefore, we use an expected dividend yield of zero.

We used the following weighted-average assumptions for option awards granted during the three months and six months ended June 30, 2011 and 2010:

	Three Months Ended June  30					Six Months Ended June  30
	2011			2010 (1)		2011			2010 (1)
Expected volatility		34	%		N/A		34	%		37	%
Expected term (in years)		5.3			N/A		5.7			6.4
Risk-free interest rate		1.9	%		N/A		2.1	%		2.8	%
Expected dividend yield		None			None		None			None

(1) There were no option awards granted for the three months ended June 30, 2010. Consequently, six month data relates only to the three month period during which options were granted.

A summary of the activity of employee stock options during the six months ended June 30, 2011, and details regarding the options outstanding and exercisable at June 30, 2011, are provided below:

	Number of Shares (in thousands)			Weighted-Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (1)
Outstanding at December 31, 2010		13,130		$	16.93
Granted		2,471		$	25.48
Exercised		(1,325	)	$	19.05
Canceled/forfeited/expired		(734	)	$	22.45
Outstanding at June 30, 2011		13,542		$	17.99		6.9	$	72,270
Vested or expected to vest at June 30, 2011		12,739		$	17.78		6.8	$	70,092
Exercisable at June 30, 2011		5,881		$	14.86		4.2	$	47,601

(1) These amounts represent the difference between the exercise price and $22.73, the closing price of Quest Software, Inc. stock on June 30, 2011 as reported on the NASDAQ National Market, for all options outstanding that have an exercise price currently below the closing price.

14

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The weighted-average fair value of options granted during the six months ended June 30, 2011 and 2010 was $8.99 and $6.98, respectively. The total intrinsic value of options exercised was $9.0 million and $10.5 million for the six months ended June 30, 2011 and 2010, respectively. The total fair value of options vested during the six months ended June 30, 2011 and 2010 was $12.6 million and $4.1 million, respectively.

Restricted Stock Unit Awards (“RSU Awards”)

RSU awards have been granted to selected executives pursuant to our Executive Incentive Plan. We have also granted RSU awards to key employees pursuant to the Managing For Results Profit Sharing Plan. Our outstanding RSU awards vest over three years with vesting contingent upon continuous service and meeting certain company-wide performance goals, including sales, operating profit margin, and cash flow targets. We estimate the fair value of RSU awards using the market price of our common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period. Additionally, a portion of each RSU award is settled in cash, only to the extent necessary to pay the minimum tax withholding or any government levies on the restricted stock unit.

A summary of our RSU awards activity during the six months ended June 30, 2011 is provided below:

	Number of Shares			Weighted-Average Grant Date Fair Value (per share)
Nonvested at January 1, 2011		787,798		$	14.99
Granted		—		$	—
Vested		(293,418	)	$	14.26
Forfeited		(34,513	)	$	15.47
Nonvested at June 30, 2011(1)		459,867		$	15.43

(1) Of which, 435,998 shares are expected to vest.

The total fair value of RSU awards vested during the six months ended June 30, 2011 and 2010 was $4.2 million and $5.2 million, respectively.

Stock-Based Compensation Expense

The following table presents the income statement classification of all stock-based compensation expense for the three months and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Cost of services	$	238	$	199	$	554	$	383
Sales and marketing		1,682		1,246		3,791		2,359
Research and development		1,614		1,592		3,767		3,010
General and administrative		1,958		1,478		4,794		3,418
Total stock-based compensation		5,492		4,515		12,906		9,170
Tax benefit associated with stock-based compensation expense (1)		2,125		1,747		4,995		3,549
Reduction of net income	$	3,367	$	2,768	$	7,911	$	5,621

(1) The recognized tax benefit related to share-based compensation expense is estimated to be 38.7% for the three months and six months ended June 30, 2011 and 2010. This approximates the blended Federal and State statutory tax rate after the benefit for state taxes.

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

As of June 30, 2011, total unrecognized stock-based compensation cost related to unvested stock option awards was $45.3 million, which is expected to be recognized over a weighted-average period of 3.7 years and total unrecognized stock-based compensation cost related to unvested RSU awards was $6.1 million, which is expected to be recognized over a weighted-average period of 1.2 years.

NOTE 15 — DERIVATIVE INSTRUMENTS

Foreign Exchange Risk Management Policy

Our Foreign Exchange Risk Management Policy identifies target exposures such as balance sheet, cash flow and income statement risks, program objectives, approved financial instruments and counterparties, accounting and tax treatment, as well as oversight, reporting and controls. The functional currency of all our subsidiaries is the U.S. Dollar. Our exposure to foreign exchange risk originates both from the operating results of our foreign operations denominated in currencies other than the U.S. Dollar, as well as our net balances of monetary assets and liabilities within our foreign subsidiaries. These exposures have the potential to produce either gains or losses depending on the directional movement of the foreign currencies versus the U.S. Dollar and our operational profile in foreign subsidiaries. Certain balance sheet items are re-measured each period and the changes in value are recorded within Other income (expense), net.

We utilize a balance sheet hedging program with the stated objective of reducing volatility within Other income (expense), net. Under this program, we use derivatives in the form of foreign currency contracts to hedge certain balance sheet exposures. We do not designate these contracts as hedging instruments and therefore do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the condensed consolidated balance sheet at fair value and the changes in fair value from these contracts are recorded in Other income (expense), net, in the condensed consolidated income statement. These derivative contracts typically have a one month term.

We have a cash flow hedging program primarily focused on reducing volatility in our forecasted research and development cash expenses and license revenues, some of which are denominated in non-U.S. Dollar currencies. Under this program, we use derivatives in the form of forward foreign currency contracts and foreign currency option contracts to hedge certain forecasted transactions. These derivatives, with durations ranging from less than one month to nine months, are designated as hedging instruments and qualify for hedge accounting. Accordingly, these outstanding designated derivatives are recognized on the condensed consolidated balance sheet at fair value. Changes in value that are highly effective are recognized in Accumulated other comprehensive income (“AOCI”) on the condensed consolidated balance sheets, until the hedged item is recognized in the income statement. Any ineffective portion of a derivative’s change in fair value is recorded in Other income (expense), net, in the condensed consolidated income statement. There was no material ineffectiveness in our cash flow hedging program for the six months ended June 30, 2011.

We had the following notional amounts for our foreign currency contracts included in our consolidated balance sheets (in U.S. Dollars in thousands):

Currency	June 30 2011		December 31 2010
Derivatives designated as hedging instruments
Australian Dollar	$	1,734	$	2,788
Canadian Dollar		5,981		7,694
Chinese Yuan		642		1,167
Israeli Shekel		1,245		2,105
Russian Ruble		4,264		6,206
British Pound		7,490		7,188
Euro		4,455		22,029
Total	$	25,811	$	49,177

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Derivatives not designated as hedging instruments
Danish Krone	$	1,156	$	2,126
Norwegian Krone		1,110		2,013
Swedish Krona		808		2,058
Euro		15,085		43,600
Australian Dollar		4,237		3,846
Brazil Real		1,827		4,705
British Pound		8,210		18,724
Total	$	32,433	$	77,072

Fair Value of Derivative Instruments

The following table provides the fair value of our foreign currency contracts included in our condensed consolidated balance sheets (in thousands):

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

998

Prepaid expenses and other current assets

$

1,123

Other accrued expenses

$

(364

)

Other accrued expenses

$

424

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives not designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

197

Prepaid expenses and other current assets

$

—

Other accrued expenses

$

(296

)

Other accrued expenses

$

956

(1) See Note 16 – Fair Value Measurements for details.

The Effect of Derivative Instruments on Financial Performance

The following tables provide the effect that derivative instruments had on our AOCI and results of operations (in thousands):

	Three Months Ended June 30
Derivatives designated as hedging instruments	Amount of gain (loss) recognized in AOCI (effective portion)					Location of gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011		2010				2011			2010
Foreign currency contracts	$	306	$	(388	)	Revenues	$	(271	)	$	554
						Operating expenses	$	628		$	62

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

	Six Months Ended June 30
Derivatives designated as hedging instruments	Amount of (loss) gain recognized in AOCI (effective  portion)					Location of (loss) gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011			2010			2011			2010
Foreign currency contracts	$	(100	)	$	51	Revenues	$	(1,301	)	$	686
						Operating expenses	$	1,128		$	384

	Three Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(881	)	$	1,411
	Six Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(2,493	)	$	2,506

NOTE 16 — FAIR VALUE MEASUREMENTS

We perform fair value measurements in accordance with FASB’s guidance on Fair Value Measurements and Disclosures. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies under other accounting pronouncements that require or permit fair value measurements. The standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions when there is little or no market data.

We measure our financial assets and liabilities at fair value on a recurring basis using the following valuation techniques:

(a) Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(b) Income Approach – uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The following table represents our fair value hierarchy and the valuation techniques used for financial assets and financial liabilities measured at fair value on a recurring basis (in thousands):

	June 30, 2011
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	103,320	$	103,320	$	—	$	—	(a)
U.S. treasury securities		3,435		—		3,435		—	(a)
U.S. agency securities		11,096		11,096		—		—	(a)
Corporate notes/bonds		54,774		—		54,774		—	(a)
Certificates/term deposits		3,892		—		3,892		—	(a)
Commercial paper		6,499		—		6,499		—	(a)
Derivative assets (1)		1,195		—		1,195		—	(a)
Total	$	184,211	$	114,416	$	69,795	$	—
Liabilities:
Derivative liabilities (1)	$	660	$	—	$	660	$	—	(a)
Contingent consideration		11,513		—		—		11,513	(b)
Total	$	12,173	$	—	$	660	$	11,513
	December 31, 2010
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	268,118	$	268,118	$	—	$	—	(a)
U.S. treasury securities		24,511		24,511		—		—	(a)
U.S. agency securities		35,387		35,387		—		—	(a)
Corporate notes/bonds		51,181		—		51,181		—	(a)
Certificates/term deposits		10,777		—		10,777		—	(a)
Commercial paper		14,984		—		14,984		—	(a)
Derivative assets (1)		1,123		—		1,123		—	(a)
Total	$	406,081	$	328,016	$	78,065	$	—
Liabilities:
Derivative liabilities (1)	$	1,380	$	—	$	1,380	$	—	(a)
Contingent consideration		8,515		—		—		8,515	(b)
Total	$	9,895	$	—	$	1,380	$	8,515

(1) See Note 15 – Derivative Instruments for details.

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QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The following table presents our liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30(1)
	2011			2010
Total, beginning of the period	$	8,515		$	4,000
Contingent consideration		5,700			—
Payment of contingent consideration		(2,702	)		—
Total, end of the period	$	11,513		$	4,000

(1) We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically based on the acquired company’s products’ total revenue or sales growth over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property. During the second quarter of 2011, we separately purchased intellectual property and entered into an agreement whereby the former owner has the opportunity to earn an additional amount contingent upon his achievement of certain technology milestones.

Other Financial Assets and Liabilities

The carrying amounts of our other financial assets and liabilities including accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization.

The book value and fair value of our current and long-term portion of loans payable as of June 30, 2011 are as follows (in thousands):

	Book Value		Fair Value (1)
Current portion of loans payable	$	576	$	576
Long-term portion of loans payable		32,460		32,460
	$	33,036	$	33,036

(1) Estimated fair value of long-term debt is based on quoted prices for similar liabilities for which significant inputs are observable.

NOTE 17 — COMMITMENTS AND CONTINGENCIES

Patent Litigation. On August 27, 2010, we filed a complaint in the United States District Court for the District of Utah against Centrify Corporation and Likewise Software alleging that Centrify’s DirectControl software and Likewise’s Enterprise software infringe Quest’s United States Patent No. 7,617,501 (the “‘501 Patent”). Our complaint seeks money damages, costs, attorneys’ fees, and the entry of permanent injunctions against each defendant. A trial date in the ‘501 Patent litigation has been set for April 9, 2012.

On August 30, 2010, Centrify filed a complaint in the United States District Court for the Northern District of California against Quest alleging that our Authentication Services software infringes Centrify’s United States Patent No. 7,591,005 (the “‘005 Patent”). Centrify’s complaint seeks an unspecified amount of money damages, costs, attorneys’ fees, and a permanent injunction. On October 21, 2010, we filed a motion to dismiss Centrify’s complaint for failure to state a claim on which relief may be granted. On November 15, 2010, Centrify filed an amended complaint amending its allegations that our Authentication Services software infringes Centrify’s ‘005 Patent. A trial date in the ‘005 Patent litigation has been set for September 24, 2012. We believe the claims asserted against Quest by Centrify are without merit and we intend to defend vigorously against Centrify’s infringement claims.

On August 31, 2010, we filed a petition with the United States Patent and Trademark Office alleging that Centrify’s ‘005 Patent is invalid and requesting the United States Patent and Trademark Office to commence an inter partes reexamination of the patentability of Centrify’s ‘005 Patent. On November 15, 2010, the United States Patent and Trademark Office granted our petition for inter partes reexamination of the patentability of Centrify’s ‘005 Patent and issued a first

20

QUEST SOFTWARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

office action rejecting all claims of Centrify’s ‘005 Patent. On January 18, 2011, Centrify filed a response to the United States Patent and Trademark Office’s first office action. On September 30, 2010, Centrify filed a petition with the United States Patent and Trademark Office alleging that our ‘501 Patent is invalid and requesting the United States Patent and Trademark Office to commence an inter partes reexamination of the patentability of our ‘501 Patent. On November 30, 2010, the United States Patent and Trademark Office granted Centrify’s petition for inter partes reexamination of the patentability of our ‘501 Patent. On January 21, 2011, the United States Patent and Trademark Office issued a first office action rejecting all claims of our ‘501 Patent. Our response to the United States Patent and Trademark Office was filed on March 21, 2011. We believe that our ‘501 patent is valid and enforceable and intend to vigorously defend the patentability of the ‘501 Patent.

On May 2, 2011, Quest and Likewise agreed to the terms of a Settlement Agreement under which Quest agreed to dismiss the lawsuit against Likewise in exchange for a permanent injunction preventing Likewise (and its subsidiaries, affiliates, successors and assigns) from making, using, selling, offering to sell, importing, exporting, or supporting products or services that constitute technology covered by Quest’s ‘501 patent or that utilize or embody the method covered by Quest’s ‘501 patent. On May 23, 2011, the Utah Court entered the mutually agreed upon permanent injunction against Likewise, ending the case against Likewise.

General. The Company and its subsidiaries are also involved in other legal proceedings, claims and litigation arising in the ordinary course of business. The foregoing discussion includes material developments that occurred during the three months ended June 30, 2011 or thereafter in our material legal proceedings.

In the normal course of our business, we enter into certain types of agreements that require us to indemnify or guarantee the obligations of other parties. These commitments include (i) intellectual property indemnities to licensees of our software products, (ii) indemnities to certain lessors under office space leases for certain claims arising from our use or occupancy of the related premises, or for the obligations of our subsidiaries under leasing arrangements, (iii) indemnities to customers, vendors and service providers for claims based on negligence or willful misconduct of our employees and agents, (iv) indemnities to our directors and officers to the maximum extent permitted under applicable law, and (v) letters of credit and similar obligations as a form of credit support for our international subsidiaries and certain resellers. The terms and duration of these commitments varies and, in some cases, may be indefinite, and certain of these commitments do not limit the maximum amount of future payments we could become obligated to make there under; accordingly, our actual aggregate maximum exposure related to these types of commitments cannot be reasonably estimated. Historically, we have not been obligated to make significant payments for obligations of this nature, and no liabilities have been recorded for these obligations in our financial statements included in this report.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations (“MD&A”) should be read in conjunction with the condensed consolidated financial statements and notes to those statements included elsewhere in this Report. Certain statements in this Report, including statements regarding our business strategies, operations, financial condition and prospects are forward-looking statements. Use of the words “believe,” “expect,” “anticipate,” “will,” “contemplate,” “would,” “project,” “plan,” “may,” “could,” “intend,” “likely,” “might,” “estimate,” “continue” and similar expressions that contemplate future events may identify forward-looking statements.

Numerous important factors, risks and uncertainties affect our operations and could cause actual results to differ materially from those expressed or implied by these or any other forward-looking statements made by us or on our behalf. Readers are urged to carefully review and consider the various disclosures made in this Report, including those described under Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2010, under Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and in other filings with the SEC that attempt to advise interested parties of certain risks and factors that may affect our business, which are available on the SEC’s website at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the date thereof. We do not assume any obligation to revise or update forward-looking statements. Finally, our historic results should not be viewed as indicative of future performance.

We have trademarks and registered trademarks in the United States and other countries, including Quest, Quest Software, the Quest Software logo, AccessManager, Active Administrator, ActiveDL, ActiveEntry, ActiveRoles, Akonix, Asempra, BakBone, Benchmark Factory, Big Brother, Box and Wave Design, BridgeAccess, BridgeAutoEscalate, BridgeSearch, BridgeTrak, ChangeAuditor, ChangeManager, ColdSpark & design, ColdSpark MTR, Data Replicator, Defender, DeployDirector, Desktop Authority, Directory Analyzer, DirectoryScript, DS Analyzer, DS Expert, DSProxy, Enterprise Security Reporter, ERDisk, Fastlane, File System Auditor, FlashRestore, Foglight, FullArmor MailPortal Migrator, GPOADmin, Help Desk Authority, I/Watch, InstantAssist, IntelliProfile, InTrust, iToken, JClass, Jint, JProbe, Kemma Software, KL Group, Knowledge Xpert, LiteSpeed, LiveReorg, LiveTable, LogADmin, Mail Central, MessageStats, MultSess, NBSpool, NetBase, NetPro, NetVault, NetVault: TotalOps, PacketTrap, PassGo, Patch Authority, PerformaSure, Point, Click, Done!, PowerGUI, Privilege Authority, Q Designer, Quest Central, RemoteScan, ReportADmin, RestoreADmin, ScriptLogic, Secure Copy, Security Explorer, Security LifeCycle Map, SelfServiceADmin, SharePlex, Simplicity at Work, Sitraka, Sitraka JMonitor, Spotlight, SQL LiteSpeed, SQL Navigator, SQL Turbo, SQL Watch, SQLab Xpert, Stat, StealthCollect, Storage Horizon, Symlabs, Tag and Follow, TimeTrace, Toad, Toad logo, T.O.A.D., Toad World, VaultDR, vConverter, vEcoShell, VESI, vFoglight, Vintela, VizionCore, Volcker Informatik, vRanger, vSpotlight, vToad, WebDefender, XRT and Your Business to the Power of Email. Other trademarks and registered trademarks are the property of their respective owners.

Overview

Our Company and Business Model

Quest Software, Inc., together with our subsidiary ScriptLogic, delivers simple-to-use IT management software that saves time and money across physical, virtual, and cloud environments. In each of our six solution areas – Administration and Automation, Data Protection, Development and Optimization, Identity and Access Management, Migration and Consolidation, and Performance Monitoring – we concentrate on developing practical, innovative solutions to make IT tasks easier and less costly for our customers, who number more than 100,000 around the world. Our products are designed to simplify even the most complex IT tasks.

Quarterly Update

As discussed in more detail throughout our MD&A, for the three months ended June 30, 2011 compared to the three months ended June 30, 2010, we delivered the following financial performance:

• Total revenues increased by $16.9 million, or 9.1%, to $203.0 million.

• Total expenses increased by $39.7 million, or 25.9%, to $192.8 million.

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• Income from operations decreased by $22.8 million, or 69.2%, to $10.2 million.

• Diluted earnings per share decreased by $0.12, or 63.2%, to $0.07.

The comparison of our operating results in the second quarter of 2011 against the same period in 2010 is impacted by our acquisitions. We acquired Völcker and Surgient in the third quarter of 2010, and BakBone in January 2011. Our acquisition of Völcker gives us access to a larger aspect of the Identity Access Management market and the continued expansion of our Identity Management solution capabilities, whereas with Surgient, we added private cloud management capabilities to our virtualization product portfolio. We acquired BakBone to complement our data protection portfolio, particularly in the areas of physical server backup and recovery. The BakBone acquisition gives us additional technologies to provide data protection solutions across heterogeneous physical, virtual and application-level environments, enhancing our competitive position in the data protection market. In addition, we have acquired three other private companies to date in 2011. In our discussion of changes in our results of operations, we quantify the contribution of these acquisitions.

Our second quarter of 2011 total revenues increased by 9.1% compared to the same period in 2010. Our Americas sales region, which includes United States, Canada and Latin America, contributed 61.9% of total revenues, and the rest of the world, comprised of our Asia Pacific (“APAC”) sales region and our Europe, Middle East and Africa (“EMEA”) sales region, contributed 38.1% of total revenues, as compared to 66.0% and 34.0%, respectively, in the same period last year. Our EMEA sales region performed strongly during this quarter. Total revenues from our Americas and APAC sales region were comparable to the same period in 2010.

The increase in our total revenues was due to increased sales of our Windows Migration and Identity and Access Management (“IDAM”) products and related services, particularly in our EMEA sales region. The strength in our Windows Migration products was due to our customers’ migration to Exchange Server 2010 and Sharepoint 2010. The continued need for IT system access controls to comply with existing and new regulations and the growing need to automate and control end-user access to IT resources are driving our IDAM growth. Our acquisitions contributed $11.3 million, or 67.2%, of the overall increase in total revenues compared to the same period in 2010.

Total revenues were positively impacted by the weak U.S. Dollar relative to certain non-U.S. Dollar currencies. This resulted in higher U.S. dollar equivalent sales for several currencies. Since certain of our international sales are denominated in these non-U.S. Dollar currencies, the positive impact from foreign currency was approximately $3.6 million compared the same period in 2010.

Total expenses increased compared to the same period in 2010. Our expenses primarily consist of personnel costs, which include compensation, benefits and payroll related taxes and are a function of our worldwide headcount. Our average full-time employee headcount for the second quarter of 2011 was 3,879 as compared to 3,255 for the second quarter of 2010. Our average full-time employee headcount in locations outside of the United States was 1,874 for the second quarter of 2011 compared to 1,497 for the second quarter of 2010. The increase in our headcount compared to the second quarter of 2010 was due primarily to our acquisitions after the second quarter of 2010. These acquisitions contributed $20.8 million, or 52.4%, of the overall increase in total expenses relating to their operating costs.

Our total expenses were negatively impacted by the weak U.S. Dollar relative to certain non-U.S. Dollar currencies in the second quarter of 2011, which resulted in higher U.S. Dollar equivalents for several currencies as noted above. Since certain of our international expenses are denominated in these non-U.S. Dollar currencies, our total expenses in the second quarter of 2011 increased by approximately $6 million compared to the same period in 2010 as a result of the impact of foreign currency exchange rates when comparing 2011 rates to 2010.

Foreign Currency

While we are a U.S. Dollar functional company on a world-wide basis, we transact business and operate using multiple foreign currencies. As such, the value of our revenues, expenses, certain account balances and cash flows are exposed to fluctuations in foreign currencies against the value of the U.S. Dollar. For example, when the U.S. Dollar strengthens against several non-U.S. Dollar currencies, our foreign revenues and thus our total revenues can be negatively impacted. A stronger U.S. Dollar translates into lower expenses in those entities where we have operations and our personnel and occupancy expenses are denominated in non-U.S. Dollars, resulting in lower total expenses. Conversely, a weaker U.S. Dollar would have the opposite effects on total revenues and expenses. In certain geographic regions and within specific currencies, partial offsets between revenues and expenses or balance sheet positions may reduce this exposure. In other instances, we can manage our operations to reduce foreign currency exposure or utilize derivative instruments to manage this exposure. See Note 15 – Derivative Instruments of our Notes to Condensed Consolidated Financial Statements for additional details.

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Results of Operations

The following are as a percentage of total revenues:

	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Revenues:
Licenses		38.2	%		41.4	%		36.9	%		39.8	%
Services		61.8			58.6			63.1			60.2
Total revenues		100.0			100.0			100.0			100.00
Cost of revenues:
Licenses		1.2			1.0			1.1			1.0
Services		11.2			8.4			11.2			8.5
Amortization of purchased technology		2.6			2.1			2.5			2.4
Total cost of revenues		15.0			11.5			14.8			11.9
Gross profit		85.0			88.5			85.2			88.1
Operating expenses:
Sales and marketing		42.9			38.8			43.1			39.3
Research and development		21.2			19.6			21.7			20.1
General and administrative		13.8			10.7			14.4			11.0
Amortization of other purchased intangible assets		2.1			1.7			2.0			1.8
Total operating expenses		80.0			70.8			81.2			72.2
Income from operations		5.0			17.7			4.0			15.9
Other income (expense), net		0.3			(2.1	)		0.4			(2.1	)
Income before income tax provision		5.3			15.6			4.4			13.8
Income tax provision		2.2			6.3			1.9			4.6
Net income		3.1	%		9.3	%		2.5	%		9.2	%

Comparison of Three Months and Six Months Ended June 30, 2011 and 2010

Previously, we had two reportable operating segments, Licenses and Services. During the first quarter of 2011, we revised our reportable operating segments by separating our Services segment into our Professional Services segment and our Maintenance Services segment. We separated these two previously aggregated segments because the Professional Services component has experienced significant growth and has become more distinct, robust and pronounced relative to all Services, and also has become more separately managed and analyzed. Previously reported segment data have been reclassified to conform to the 2011 presentation.

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Revenues

Total revenues and year-over-year changes are as follows (in thousands, except for percentages):

	Three Months Ended June 30							Six Months Ended June 30
	2011		2010		% Change			2011		2010		% Change
Revenues:
Licenses
Americas	$	44,150	$	49,702		(11.2	)%	$	81,248	$	88,296		(8.0	)%
Rest of World		33,482		27,398		22.2	%		63,119		53,785		17.4	%
Total licenses		77,632		77,100		0.7	%		144,367		142,081		1.6	%
Maintenance Services
Americas		72,014		65,671		9.7	%		142,987		129,694		10.2	%
Rest of World		38,262		32,849		16.5	%		75,355		64,594		16.7	%
Total maintenance services revenues		110,276		98,520		11.9	%		218,342		194,288		12.4	%
Professional Services
Americas		9,463		7,421		27.5	%		18,556		13,990		32.6	%
Rest of World		5,599		3,061		82.9	%		9,862		6,914		42.6	%
Total professional services revenues		15,062		10,482		43.7	%		28,418		20,904		35.9	%
Total revenues	$	202,970	$	186,102		9.1	%	$	391,127	$	357,273		9.5	%

Our revenues for the three months ended June 30, 2011 are comprised of 38.2% of license revenues, 54.3% of maintenance services revenues and 7.5% of professional services revenues compared to 41.4% of license revenues, 53.0% of maintenance services revenues and 5.6% of professional services revenues in the second quarter of 2010. For the six months ended June 30, 2011, revenues are comprised of 36.9% of license revenues, 55.8% of maintenance services revenues and 7.3% of professional services revenues compared to 39.7% of license revenues, 54.4% of maintenance service revenues and 5.9% of professional service revenues in the same period in 2010.

Licenses Revenues —We generate revenues by licensing our software products, principally on a perpetual basis. In addition to perpetual software licenses, we sell time-based software licenses (or term licenses) wherein customers pay a single fee for the right to use the software and receive maintenance for a defined period of time. Our license revenues for the three months and six months ended June 30, 2011 were comparable to the same periods last year.

Maintenance Services Revenues — Maintenance services revenues are derived from post-contract technical support services (“maintenance”). Maintenance revenues are generated from support and maintenance services relating to current year sales of new software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. The increase in maintenance services revenues for the three months and six months ended June 30, 2011 compared to the same periods last year was due to Windows Migration and IDAM related maintenance services. Our acquisitions contributed $6.1 million and $11.4 million of the net increase in maintenance services revenues for the three months and six months ended June 30, 2011, respectively.

Maintenance services revenues continue to contribute a larger percentage of our total revenues primarily because of maintenance contracts associated with our growing installed base of customers and because maintenance contract growth exceeds that of license contracts from time to time. As our maintenance customer base grows, maintenance renewals have a larger influence on the maintenance revenue growth rate and the amount of new software license revenues has a diminishing effect. Therefore, the growth rate of total revenues does not necessarily correlate directly to the growth rate of new software license revenues in a given period. The primary determinant of changes in our maintenance revenue profile is the extent to which our customers renew their annual maintenance agreements, taking into account the number of products and licenses for which each customer renews, and the timing of the renewals by each such customer. If our maintenance renewals were to decline materially, our maintenance revenues, total revenues and cash flows would likely decline materially as well.

Professional Services Revenues — Professional services revenues are derived from consulting and training services. The increase in professional service revenues for the three months and six months ended June 30, 2011 compared to the same periods last year was due to related professional services for our Windows Migration and IDAM products. Our acquisitions contributed to $2.3 million and $3.7 million of the overall increase in professional services revenues for the three months and six months ended June 30, 2011, respectively.

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Cost of Revenues

Total cost of revenues and year-over-year changes are as follows (in thousands, except for percentages):

	Three Months Ended June 30							Six Months Ended June 30
	2011		2010		% Change			2011		2010		% Change
Cost of Revenues:
Licenses	$	2,550	$	1,893		34.7	%	$	4,334	$	3,714		16.7	%
Maintenance Services		10,469		7,409		41.3	%		20,480		14,638		39.9	%
Professional Services		12,165		8,227		47.9	%		23,120		15,722		47.1	%
Amortization of purchased technology		5,249		3,965		32.4	%		9,899		8,458		17.0	%
Total cost of revenues	$	30,433	$	21,494		41.6	%	$	57,833	$	42,532		36.0	%

Cost of Licenses — Cost of licenses primarily consists of third-party software royalties, product packaging, delivery, and personnel costs. Cost of licenses as a percentage of license revenues was 3.3% and 2.5% for the three months ended June 30, 2011 and 2010, respectively. Cost of licenses as a percentage of license revenues was 3.0% and 2.6% for the six months ended June 30, 2011 and 2010, respectively. The increase in cost of licenses for the three months and six months ended June 30, 2011 compared to the same periods in 2010 was due to product-related royalties.

Cost of Maintenance Services — Cost of maintenance services primarily consists of personnel, outside consultants, facilities and systems costs used in providing maintenance services. Cost of maintenance services does not include development costs related to bug fixes and upgrades which are classified in research and development and which are not separately determinable. Cost of maintenance services as a percentage of maintenance services revenues was 9.5% and 7.5% in the three months ended June 30, 2011 and 2010, respectively. Cost of maintenance services as a percentage of maintenance services revenues was 9.4% and 7.5% in the six months ended June 30, 2011 and 2010, respectively. Cost of maintenance services increased due to an increase of $2.2 million and $4.1 million in personnel related costs for the three months and six months ended June 30, 2011, respectively, compared to the same periods in 2010. Average full-time employee headcount increased by 80 and 70 for the three months and six months ended June 30, 2011 compared to the same periods last year. Our acquisitions contributed $2.0 million and $3.8 million of the net increase in cost of maintenance services for the three months and six months ended June 30, 2011, respectively.

Cost of Professional Services — Cost of professional services primarily consists of personnel, outside consultants, facilities and systems costs used in providing consulting and training services. Cost of professional services as a percentage of professional services revenues was 80.8% and 78.5% for the three months ended June 30, 2011 and 2010, respectively. Cost of professional services as a percentage of professional services revenues was 81.4% and 75.2% for the six months ended June 30, 2011 and 2010, respectively. Cost of professional services for the three months ended June 30, 2011 increased due to an increase of $1.7 million in personnel related costs and an increase of $1.7 million in general expenses. For the six months ended June 30, 2011, cost of professional services increased due to an increase of $3.3 million in personnel related costs and $3.0 million in general expenses. Average full-time employee headcount increased by 34 for the three months and six months ended June 30, 2011 compared to the compared to the same periods in 2010. Our acquisitions contributed $1.6 million and $2.6 million of the net increase in cost of professional services for the three months and six months ended June 30, 2011, respectively.

Amortization of Purchased Technology — Amortization of purchased technology includes amortization of the fair value of purchased technology associated with acquisitions. The increase for the three months and six months ended June 30, 2011 compared to the same periods last year was due to acquisitions completed after the second quarter of 2010.

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Operating Expenses

Year-over-year changes in the principal components of our operating expenses are as follows (in thousands, except for percentages):

	Three Months Ended June 30							Six Months Ended June 30
	2011		2010		% Change			2011		2010		% Change
Operating Expenses:
Sales and marketing	$	86,983	$	72,082		20.7	%	$	168,713	$	140,422		20.1	%
Research and development		43,117		36,543		18.0	%		84,840		72,016		17.8	%
General and administrative		28,078		19,836		41.6	%		56,271		39,173		43.6	%
Amortization of other purchased intangible assets		4,198		3,149		33.3	%		7,945		6,325		25.6	%
Total operating expenses	$	162,376	$	131,610		23.4	%	$	317,769	$	257,936		23.2	%

Sales and Marketing — Sales and marketing expenses consist primarily of compensation and benefit costs for sales and marketing personnel, sales commissions, and costs of trade shows, travel and entertainment and various discretionary marketing programs. Sales and marketing expenses as a percentage of total revenues for the second quarter of 2011 were 42.9% compared to 38.7% in the second quarter of 2010. The increase in sales and marketing expenses during the three months ended June 30, 2011 over the comparable period in 2010 was due to an increase of $7.6 million in personnel-related costs and an increase of $4.2 million in general expenses (primarily professional services, marketing programs and implementation of our sales force automation system). Our average full-time sales and marketing employee headcount for the second quarter of 2011 was 1,614 compared to 1,341 in the second quarter of 2010. Our acquisitions contributed $6.8 million, or 45.4%, of the total increase in sales and marketing expenses. The impact from foreign currency comprised approximately $3 million of the total increase in sales and marketing expenses.

Sales and marketing expenses as a percentage of total revenues for the six months ended June 30, 2011 were 43.1%, compared to 39.3% in the first half of 2010. The increase in sales and marketing expenses during the six months ended June 30, 2011 over the comparable period in 2010 was due to an increase in personnel related costs of $16.8 million and an increase of $7.1 million in general expenses (primarily professional services, marketing programs and implementation of our sales force automation system). Our average full-time sales and marketing employee headcount for the six months ended June 30, 2011 increased by 208 compared to the same period in 2010. Our acquisitions contributed $12.9 million, or 45.4%, of the total increase in sales and marketing expenses. The impact from foreign currency comprised approximately $4 million of the total increase in sales and marketing expenses during the six months ended June 30, 2011.

Research and Development — Research and development expenses consist primarily of compensation and benefit costs for software developers who develop new products, fix bugs and design upgrades to existing products and at times provide engineering support for maintenance services, software product managers, quality assurance and technical documentation personnel, and payments made to outside software development consultants in connection with our ongoing efforts to enhance our core technologies and develop additional products. Research and development expenses as a percentage of total revenues were 21.2% and 19.6% for the three months ended June 30, 2011 and 2010, respectively. The increase in research and development expenses during the three months ended June 30, 2011 over the comparable period in 2010 was due to an increase of $6.5 million in personnel-related costs. Our average full time research and development employee headcount for the three months ended June 30, 2011 increased by 200 compared to the same period in 2010. Our acquisitions contributed $5.2 million, or 79.1%, of the net increase in research and development expenses.

Research and development expenses as a percentage of total revenues were 21.7% and 20.2% for the six months ended June 30, 2011 and 2010, respectively. The increase in research and development expenses during the six months ended June 30, 2011 as compared to the same period in 2010 was due to an increase of $12.5 million in personnel related costs. Our average full-time research and development employee headcount during the first half of 2011 was 1,283 compared to 1,116 in the first half of 2010. Our acquisitions contributed $9.5 million, or 73.7%, of the total increase in research and development expenses.

General and Administrative — General and administrative expenses consist primarily of compensation and benefit costs for our executive, finance, legal, human resources, administrative and information services personnel, and professional fees for audit, tax and legal services. General and administrative expenses as a percentage of total revenues were 13.8% and 10.7% for the three months ended June 30, 2011 and 2010, respectively. The increase in general and administrative expenses

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during the three months ended June 30, 2011 over the comparable period in 2010 was due to an increase of $3.7 million in personnel-related costs and $5.4 million in general expenses (primarily related to our Business Operations and Advance Technology Center we are developing in Cork, Ireland and phase II of the implementation of our Oracle financial system upgrade). Our acquisitions contributed $1.2 million, or 14.8%, of the total increase in general and administrative expenses.

General and administrative expenses as a percentage of total revenues were 14.4% and 11.0% for the six months ended June 30, 2011 and 2010, respectively. The increase in general and administrative expenses during the six months ended June 30, 2011 over the comparable period in 2010 was due primarily to an increase of $7.8 million in personnel-related costs and $9.7 million in general expenses (primarily related to our Business Operations and Advance Technology Center we are developing in Cork, Ireland and phase II of the implementation of our Oracle financial system upgrade). Our acquisitions contributed $3.6 million, or 21.1%, of the total increase in general and administrative expenses.

Amortization of Other Purchased Intangible Assets — Amortization of other purchased intangible assets includes the amortization of customer lists, trademarks and trade names, non-compete agreements and maintenance contracts associated with acquisitions. The increase for the three months and six months ended June 30, 2011 compared to the same periods last year was due to acquisitions completed after the second quarter of 2010.

Other Income (Expense), Net

Other income (expense), net consists of the following (in thousands):

	Three Months Ended June  30									Six Months Ended June 30
	2011			2010			Dollar Change			2011			2010			Dollar Change
Interest income	$	589		$	532		$	57		$	1,126		$	844		$	282
Interest expense		(790	)		(1,108	)		318			(1,769	)		(2,238	)		469
Foreign currency gains (losses), net		1,646			(4,671	)		6,317			4,861			(8,853	)		13,714
Forward foreign currency contracts (losses) gains, net		(881	)		1,411			(2,292	)		(2,493	)		2,506			(4,999	)
Other income (expense), net		9			(7	)		16			118			292			(174	)
Total other income (expense), net	$	573		$	(3,843	)	$	4,416		$	1,843		$	(7,449	)	$	9,292

Other income (expense), net includes gains and losses from foreign exchange fluctuations, interest expense on our borrowings and gains or losses on other financial assets as well as a variety of other non-operating expenses. Our foreign currency gains or losses are predominantly attributable to re-measurement gains or losses relative to the U.S. Dollar on the re-measurement of net monetary assets, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. The largest impact to other income (expense), net this quarter was attributed to foreign currency gains of $1.6 million compared to a loss of $4.7 million in the comparable period of 2010. This was partially offset by forward foreign currency contracts losses of $0.9 million compared to a gain of $1.4 million in the second quarter of 2010. Our forward foreign currency contracts gains (losses), net relate to the changes in fair value of our forward foreign currency contracts not designated as hedging instruments.

The largest impact to other income (expense), net for the six months ended June 30, 2011 was attributed to a foreign currency gain of $4.9 million compared to a loss of $8.9 million in the comparable period of 2010. This was partially offset by a loss in forward foreign currency contracts of $2.5 million compared to a gain of $2.5 million in the comparable period of 2010. Interest expense was $1.8 million and $2.2 million in the six months ended June 30, 2011 and 2010, respectively. Refer to Note 9 – Loans Payable of our Notes to Condensed Consolidated Financial Statements for additional information regarding our debt agreements.

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Income Tax Provision

During the three months and six months ended June 30, 2011, the provision for income taxes decreased to $4.4 million and $7.4 million, respectively from $11.8 million and $16.4 million in the comparable period in 2010. The effective income tax rate for the three months and six months ended June 30, 2011 was approximately 41.0% and 42.7%, respectively, as compared to 40.3% and 33.1% for the three months and six months ended June 30, 2010, respectively. The change in the provision for income taxes and the effective income tax rate is primarily a result of the decrease in the consolidated pre-tax book income and the taxes computed based on a higher ratio of year-to-date foreign losses as compared to the overall consolidated pre-tax book income for which no benefit could be taken and other discrete items impacting the quarter ended June 30, 2011. Discrete items included an increase in the income tax provision related to write-off of deferred tax assets associated with cancelled, forfeited and expired stock options recorded during the six months ended June 30, 2011.

Our effective income tax rate is subject to change as a result of shifts of taxable income earned by entities in jurisdictions which have a range of differing income tax rates. The effective income tax rate is also subject to shifts of net operating losses that cannot be benefited between certain jurisdictions. Our effective income tax rate is more sensitive to shifts of income between our Americas and EMEA regions and more specifically between our United States and Irish operating entities. This is primarily due to the disparity in the income tax rates between these jurisdictions. Accordingly, an increase or decrease in the ratio of income earned by our U.S. operating entities compared to the income before taxes earned by our non-U.S. operating entities, most notably our Irish operating entities, may cause a corresponding increase or decrease in our overall effective tax rate.

We are currently under examination by the Internal Revenue Service, California Franchise Tax Board, Canada Revenue Agency, German Tax Authorities, Her Majesty’s Revenue & Customs (UK), and the French tax authority. We believe appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. However, due to the risk that audit outcomes and the timing of audit settlements are subject to significant uncertainty and as we continue to evaluate such uncertainties in light of current facts and circumstances, our current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open tax years. As of the date of this report, we do not anticipate that there will be any material change in the unrecognized tax benefits associated with these audits within the next twelve months.

Liquidity and Capital Resources

Cash and cash equivalents and short-term and long-term investments were approximately $281.2 million and $492.3 million as of June 30, 2011 and December 31, 2010, respectively. Of these amounts, $228.5 million and $282.6 million as of June 30, 2011 and December 31, 2010, respectively, are domiciled in locations outside of the U.S. We do not expect the repatriation of cash balances from certain of our foreign subsidiaries to fund our activities within the U. S. as this would result in the recognition and payment of U.S. income taxes.

Summarized annual cash flow information is as follows (in thousands):

	Six Months Ended June 30
	2011			2010
Cash provided by operating activities	$	113,966		$	100,580
Cash used in investing activities		(85,704	)		(33,975	)
Cash used in financing activities		(179,758	)		(45,230	)
Effect of exchange rate changes		(943	)		1,833
Net (decrease) increase in cash and cash equivalents	$	(152,439	)	$	23,208

Operating Activities

Cash provided by operating activities is primarily comprised of net income, adjusted for non-cash activities such as depreciation and amortization and compensation expenses associated with share-based payments. These non-cash adjustments represent charges reflected in net income and, therefore, to the extent that non-cash items increase or decrease our future operating results, there will be no corresponding impact on our cash flows. After excluding the effects of these non-cash charges, the primary changes in cash flows relating to operating activities resulted from changes in operating assets and liabilities. The analyses of the changes in our operating assets and liabilities are as follows:

• Accounts receivable, net decreased by $36.4 million to $143.2 million at June 30, 2011 compared to December 31, 2010 resulting in a decrease in operating assets and reflecting a cash inflow of $49.7 million for the six months ended June 30, 2011. Days sales outstanding (“DSO”), improved to 64 days at June 30, 2011 compared to 76 days at December 31, 2010. Our daily sales decreased to $2.2 million for the quarter ended June 30, 2011 compared to $2.4 million for the quarter ended December 31, 2010. Collection of accounts receivable and related DSO could fluctuate in future periods due to the timing and amount of our revenues and their linearity and the effectiveness of our collection efforts.

29

• Total income taxes payable increased by $21.8 million to $35.1 million at June 30, 2011 compared to December 31, 2010 resulting in an increase in operating liabilities and reflecting a cash inflow of $20.0 million for the six months ended June 30, 2011. Net cash received for income tax refunds for the six months ended June 30, 2011 was $14.3 million.

Investing Activities

Cash outflows from investing activities in the six months ended June 30, 2011 included approximately $85 million paid for acquisitions, $27.2 million paid for additional cost method investments, $5.1 million for purchases of investment securities, $1.5 million paid for intellectual property and $17.3 million in capital expenditures. We acquired BakBone, a publicly-held provider of data protection software, in January 2011 for cash consideration, net of cash acquired, of approximately $53 million. BakBone gives us additional technologies to provide data protection solutions across heterogeneous physical, virtual and application-level environments. In addition, we acquired three other private companies in the six months ended June 30, 2011 for total cash consideration net of cash acquired, of approximately $32 million. Also, we received $63.6 million in proceeds from the sale and maturities of our investment securities.

In April 2011, we entered into real estate lease and purchase agreements for facilities to house our Business Operations and Advance Technology Center in Cork, Ireland. Under these agreements, we will temporarily lease office space during the construction of a building and land that we are purchasing. Total expected cost of the land and building is approximately $30 million. We anticipate moving into our new building during the fourth quarter of 2012.

We expect that we will continue to purchase property and equipment needed in the normal course of our business. We plan to use excess cash generated from operations to invest in short and long-term investments consistent with past investment practices. Also, we plan to use cash generated from operations and/or proceeds from our investment securities to fund other strategic investment and acquisition opportunities that we continue to evaluate.

Financing Activities

Cash flows from financing activities in the six months ended June 30, 2011 included $205.7 million paid for repurchases of our common stock and net proceeds of $24.9 million from the issuance of our common stock due to exercises of stock options.

In February 2011, our Board of Directors increased the authorization under our stock repurchase program to an aggregate of up to $150 million of our common stock. In May 2011, our Board of Directors authorized a new stock repurchase program covering up to $200 million of our common stock. This program replaces the $150 million stock repurchase program previously authorized in February 2011. Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans. Rule 10b5-1 permits Quest to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors including market conditions, corporate and regulatory requirements, and capital availability. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice. During the three months ended June 30, 2011, we repurchased 5.3 million shares under this stock repurchase authorization at a weighted-average price per share of $22.67, for a total cost of $119.0 million pursuant to the two authorizations. At June 30, 2011, a total of $121.9 million remains available pursuant to our stock repurchase authorization.

30

In 2009, we entered into a two year revolving line of credit agreement with Wells Fargo Foothill, LLC as the arranger, administrative agent and lender. On February 17, 2011, this line of credit agreement was amended and renewed for a subsequent five-year term with Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as arranger, administrative agent and lender (for additional information on our loans payable, please refer to Note 9 – Loans Payable of our Notes to Condensed Consolidated Financial Statements). We were in compliance with all debt-related covenants at June 30, 2011.

As we continue to evaluate potential acquisitions, potential future stock repurchases or other general corporate expenditures which may be in excess of current cash available within certain operating entities, sourcing cash to fund these activities requires financial flexibility afforded by financing instruments. As such, we plan to continue to evaluate potential debt financings when and if reasonable financing terms become available to us.

Based on our current operating plan, we believe that our existing cash, cash equivalents, investment balances, cash flows from operations and available debt financing will be sufficient to finance our operational cash needs through at least the next 12 to 24 months. Our ability to generate cash from operations is subject to substantial risks described under Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2010 and under Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011. One of these risks is that our future business does not stay at a level that is similar to, or better than, our recent past. In that event, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash, cash equivalents, investment balances and debt financing to support our working capital and other cash requirements. Also, acquisitions are an important part of our business model. As such, significant amounts of cash could and will likely be used in the future for additional acquisitions or strategic investments. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through public or private equity or, as discussed above, debt financing or from other sources. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

Recently Adopted Accounting Pronouncements

See Note 2 – Recent Accounting Pronouncements of our Notes to Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an on-going basis, we make and evaluate estimates and judgments, including those related to revenue recognition, asset valuations (including accounts receivable, goodwill and intangible assets), share-based compensation, income taxes and functional currencies for purpose of consolidation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Our estimates form the basis for making judgments about amounts and timing of revenue and expenses, the carrying values of assets, and the recorded amounts of liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. We have discussed the development and selection of the critical accounting policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our related disclosures. The critical accounting policies related to the estimates and judgments listed above are discussed further in our Annual Report on Form 10-K for the year ended December 31, 2010 under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no material changes to our critical accounting policies or estimates during the six months ended June 30, 2011.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

We are a U.S. Dollar functional company and transact business in a number of different foreign countries around the world. In most instances, revenues are collected and operating expenses are paid in the local currency of the country in which we are transacting. Accordingly, we are exposed to both transaction and translation risk relating to changes in foreign exchange rates.

Our exposure to foreign exchange risk originates both from our foreign operations net profits and losses denominated in currencies other than the U.S. Dollar, as well as our net balances of monetary assets and liabilities in our foreign subsidiaries. These exposures have the potential to produce either gains or losses depending on the directional movement of the foreign currencies versus the U.S. Dollar and our operational profile in foreign subsidiaries. Our cumulative currency gains or losses in any given period may be lessened by the economic benefits of diversification and the correlative relationships of different currencies, but there can be no assurance that this pattern will continue to be true in future periods. During the three months and six months ended June 30, 2011, we had a positive effect of $3.6 million and $3.9 million on total revenues and a negative effect of $6.0 million and $7.3 million to total expenses related to foreign currency fluctuation when comparing 2011 rates to 2010. In addition, during the three months and six months ended June 30, 2011, we had foreign currency gains of $1.6 million and $4.9 million within Other income (expense), net compared to foreign currency losses of $4.7 million and $8.9 million in the comparable period in 2010.

The foreign currencies to which we currently have the most significant exposure are the Euro, the Canadian Dollar, the British Pound, the Australian Dollar and the Russian Ruble. We enter into hedges in the form of foreign currency contracts to reduce the range of outcomes that foreign currency rate changes can have on non-functional currency denominated forecasted transactions and balance sheet positions, which include certain monetary assets and liabilities denominated in foreign currencies. The foreign currency contracts are carried at fair value and denominated in various currencies as listed in the tables below. The durations of these contracts range from less than one month to nine months. A description of our accounting for foreign currency contracts is included in Note 15 – Derivative Instruments of our Notes to Condensed Consolidated Financial Statements.

The magnitude of success of our hedging activities depends upon the accuracy of our estimates of various balances and transactions denominated in non-functional currencies. To the extent our estimates are correct, gains and losses on our foreign currency contracts will be offset by corresponding losses and gains on the underlying transactions. In order to monitor the financial impact of our foreign currency hedges, we subject our hedges to a stress test. This test is intended to quantify the impact to our financial statements of an abnormal change in the foreign currency rates in which we do business. When subjected to a 10% and 20% adverse change, we estimate that the fair value of our contracts would decline by $5.8 million and $11.6 million, respectively.

We do not use forward foreign currency contracts for speculative or trading purposes. We enter into foreign currency contracts with reputable financial institutional counterparties whose financial health we monitor. To date, we have not experienced nonperformance by any of these counterparties and anticipate performance by all counterparties.

The following table summarizes the notional amounts of our outstanding foreign currency contracts. All contracts have maturities of nine months or less. (in U.S. Dollars in thousands):

Currency	June 30 2011		December 31 2010
Australian Dollar	$	5,970	$	6,634
Canadian Dollar		5,982		7,694
Chinese Yuan		642		1,167
Danish Krone		1,156		1,073
Euro		19,540		45,961
British Pound		15,700		14,988
Israeli Shekel		1,245		2,105
Brazil Real		1,827		2,381
Swedish Krona		808		743
Norwegian Krone		1,110		1,028
Russian Ruble		4,265		6,206
Total	$	58,245	$	89,980

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Interest Rate Risk

Our exposure to market interest rate risk relates primarily to our investment portfolio. We traditionally do not use derivative financial instruments to hedge the market risks of our investments. We place our investments with high-quality issuers and money market funds and articulate allocation limits in our investment policy to any one issuer other than the United States government. Our investment portfolio as of June 30, 2011 consisted of money market funds, U.S. Treasuries, U.S. agency securities, commercial paper, certificates of deposit and corporate bonds. Investments purchased with an original maturity of three months or less are considered to be cash equivalents. We classify our investments as available-for-sale securities. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity.

Information about our investment portfolio is presented in the table below, which states the amortized book value and related weighted-average interest rates by year of maturity (in thousands):

	Amortized Book Value		Weighted Average Rate
Investments maturing by June 30
2012 (1)	$	172,332		0.41	%
2013		25,397		1.66	%
2014		5,975		1.63	%
2015		—		—
2016 and thereafter		1,941		3.31	%
Total portfolio	$	205,645		0.62	%

(1) Includes $129.0 million in cash equivalents.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2011 as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of that date, our disclosure controls and procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act were effective, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 17 – Commitments and Contingencies of our Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Report, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 1A. Risk Factors

You should carefully consider the risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2010, and in Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There has been no material changes in our risk factors from those disclosed in the reports listed above.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below summarizes information about our purchases of equity securities registered pursuant to Section 12 of the Exchange Act during the quarterly period ended June 30, 2011.

Period	Total Number of Shares of Common Stock Purchased (1)		Price Paid per Share of Common Stock (2)		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Approximate Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Plans or Programs (in millions)
April 1, 2011 through April 30, 2011		1,375,000	$	24.61		1,375,000	$	27.5
May 1, 2011 through May 31, 2011		1,799,346	$	22.57		1,799,346	$	166.4
June 1, 2011 through June 30, 2011		2,077,148	$	21.41		2,077,148	$	121.9
Total		5,251,494	$	22.65		5,251,494	$	121.9

(1) In May 2011, our Board of Directors authorized a new stock repurchase program covering up to $200 million of our common stock. This program replaced the $150 million stock repurchase program previously authorized in February 2011. Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans. Rule 10b5-1 permits Quest to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors including market conditions, corporate and regulatory requirements, and capital availability. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.

(2) The price paid per share of common stock does not include the related transaction costs.

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Item 6. Exhibits

Exhibit Number	Exhibit Title
3.1*	Certificate of Incorporation of Quest Software, Inc. (incorporated by reference to our Current Report on Form 8-K filed on April 30, 2009)
3.2*	Bylaws of Quest Software, Inc. (incorporated by reference to our Current Report on Form 8-K filed on April 30, 2009)
4.1*	Form of Registrant’s Specimen Common Stock Certificate (incorporated by reference to our Registration Statement on Form S-1 and all amendments thereto filed on June 11, 1999 (File No. 333-80543))
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Incorporated by reference

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SIGNATURES

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

	QUEST SOFTWARE, INC.
Date: August 9, 2011	/s/    Scott J. Davidson
	Scott J. Davidson Senior Vice President, Chief Financial Officer
	/s/    Scott H. Reasoner
	Scott H. Reasoner Vice President, Corporate Controller

36

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Douglas F. Garn, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Quest Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2011

/s/    Douglas F. Garn        

Douglas F. Garn

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Scott J. Davidson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Quest Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2011

/s/    Scott J. Davidson        

Scott J. Davidson

Senior Vice President, Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to

18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Douglas F. Garn, Chief Executive Officer of Quest Software, Inc. (the “Company”), and Scott J. Davidson, Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2011, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 9^th day of August, 2011.

/s/    Douglas F. Garn	/s/    Scott J. Davidson
Douglas F. Garn	Scott J. Davidson
Chief Executive Officer	Chief Financial Officer

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Quest Software, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML



Stockholder's Equity (Details) (USD $) In Millions, except Per Share data	1 Months Ended		3 Months Ended	6 Months Ended
	May 31, 2011	Feb. 28, 2011	Jun. 30, 2011	Jun. 30, 2011
Stockholders' Equity
Repurchase of common stock, authorized amount	$ 200	$ 150
Stock repurchased during the period, shares			5.3
Weighted average price per repurchased share			$ 22.67
Stock repurchased during the period, value			119.0
Remaining authorized amount available for stock repurchase				$ 121.9

XML



Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data	Jun. 30, 2011	Dec. 31, 2010
Condensed Consolidated Balance Sheets
Accounts receivable	$ 6,619	$ 5,367
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	200,000	200,000
Common stock, shares issued	85,752	92,893
Common stock, shares outstanding	85,752	92,893

XML



Condensed Consolidated Income Statements (USD $) In Thousands, except Per Share data	3 Months Ended			6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Revenues:
Licenses	$ 77,632	$ 77,100		$ 144,367		$ 142,081
Services	125,338	109,002		246,760		215,192
Total revenues	202,970	186,102	[1]	391,127	[1]	357,273
Cost of revenues:
Licenses	2,550	1,893		4,334		3,714
Services	22,634	15,636		43,600		30,360
Amortization of purchased technology	5,249	3,965		9,899		8,458
Total cost of revenues	30,433	21,494		57,833		42,532
Gross profit	172,537	164,608		333,294		314,741
Operating expenses:
Sales and marketing	86,983	72,082		168,713		140,422
Research and development	43,117	36,543		84,840		72,016
General and administrative	28,078	19,836		56,271		39,173
Amortization of other purchased intangible assets	4,198	3,149		7,945		6,325
Total operating expenses	162,376	131,610		317,769		257,936
Income from operations	10,161	32,998		15,525		56,805
Other income (expense), net	573	(3,843)		1,843		(7,449)
Income before income tax provision	10,734	29,155		17,368		49,356
Income tax provision	4,404	11,764		7,410		16,353
Net income	$ 6,330	$ 17,391		$ 9,958		$ 33,003
Net income per share:
Basic	$ 0.07	$ 0.19		$ 0.11		$ 0.37
Diluted	$ 0.07	$ 0.19		$ 0.11		$ 0.36
Weighted-average shares:
Basic	88,320	89,434		90,301		89,548
Diluted	90,363	91,920		92,742		92,135

[1] Includes property and equipment, net and other assets

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Stock-Based Compensation (Summary Activity Of Employee Stock Options) (Details) (Employee Stock Option [Member], USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2011
Employee Stock Option [Member]
Number of shares, Outstanding at December 31, 2010	13,130,000
Weighted-Average Exercise Price, Outstanding at December 31, 2010	$ 16.93
Number of Shares, Granted	2,471,000
Weighted-Average Exercise Price, Granted	$ 25.48
Number of Shares, Exercised	(1,325,000)
Weighted-Average Exercise Price, Exercised	$ 19.05
Number of Shares, Canceled/forfeited/expired	(734,000)
Weighted-Average Exercise Price, Canceled/forfeited/expired	$ 22.45
Number of Shares, Outstanding at June 30, 2011	13,542,000
Weighted-Average Exercise Price, Outstanding at June 30, 2011	$ 17.99
Weighted-Average Remaining Contractual Term, Outstanding at June 30, 2011 (years)	6.9
Aggregate Intrinsic Value, Outstanding at June 30, 2011 (years)	$ 72,270	[1]
Number of Shares, Vested or expected to vest at June 30, 2011	12,739,000
Weighted-Average Exercise Price, Vested or expected to vest at June 30, 2011	$ 17.78
Weighted-Average Remaining Contractual Term, Vested or expected to vest at June 30 , 2011	6.8
Aggregate Intrinsic Value, Vested or expected to vest at June 30, 2011	70,092	[1]
Number of Shares, Exercisable at June 30, 2011	5,881,000
Weighted-Average Exercise Price, Exercisable at June 30, 2011	$ 14.86
Weighted-Average Remaining Contractual Term, Exercisable at June 30, 2011	4.2
Aggregate Intrinsic Value, Exercisable at June 30, 2011	$ 47,601	[1]
Closing price of Quest Software, Inc.	$ 22.73

[1] These amounts represent the difference between the exercise price and $22.73, the closing price of Quest Software, Inc. stock on June 30, 2011 as reported on the NASDAQ National Market, for all options outstanding that have an exercise price currently below the closing price.

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Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

NOTE 17 — COMMITMENTS AND CONTINGENCIES

Patent Litigation. On August 27, 2010, we filed a complaint in the United States District Court for the District of Utah against Centrify Corporation and Likewise Software alleging that Centrify's DirectControl software and Likewise's Enterprise software infringe Quest's United States Patent No. 7,617,501 (the "'501 Patent"). Our complaint seeks money damages, costs, attorneys' fees, and the entry of permanent injunctions against each defendant. A trial date in the '501 Patent litigation has been set for April 9, 2012.

On August 30, 2010, Centrify filed a complaint in the United States District Court for the Northern District of California against Quest alleging that our Authentication Services software infringes Centrify's United States Patent No. 7,591,005 (the "'005 Patent"). Centrify's complaint seeks an unspecified amount of money damages, costs, attorneys' fees, and a permanent injunction. On October 21, 2010, we filed a motion to dismiss Centrify's complaint for failure to state a claim on which relief may be granted. On November 15, 2010, Centrify filed an amended complaint amending its allegations that our Authentication Services software infringes Centrify's '005 Patent. A trial date in the '005 Patent litigation has been set for September 24, 2012. We believe the claims asserted against Quest by Centrify are without merit and we intend to defend vigorously against Centrify's infringement claims.

On August 31, 2010, we filed a petition with the United States Patent and Trademark Office alleging that Centrify's '005 Patent is invalid and requesting the United States Patent and Trademark Office to commence an inter partes reexamination of the patentability of Centrify's '005 Patent. On November 15, 2010, the United States Patent and Trademark Office granted our petition for inter partes reexamination of the patentability of Centrify's '005 Patent and issued a first office action rejecting all claims of Centrify's '005 Patent. On January 18, 2011, Centrify filed a response to the United States Patent and Trademark Office's first office action. On September 30, 2010, Centrify filed a petition with the United States Patent and Trademark Office alleging that our '501 Patent is invalid and requesting the United States Patent and Trademark Office to commence an inter partes reexamination of the patentability of our '501 Patent. On November 30, 2010, the United States Patent and Trademark Office granted Centrify's petition for inter partes reexamination of the patentability of our '501 Patent. On January 21, 2011, the United States Patent and Trademark Office issued a first office action rejecting all claims of our '501 Patent. Our response to the United States Patent and Trademark Office was filed on March 21, 2011. We believe that our '501 patent is valid and enforceable and intend to vigorously defend the patentability of the '501 Patent.

On May 2, 2011, Quest and Likewise agreed to the terms of a Settlement Agreement under which Quest agreed to dismiss the lawsuit against Likewise in exchange for a permanent injunction preventing Likewise (and its subsidiaries, affiliates, successors and assigns) from making, using, selling, offering to sell, importing, exporting, or supporting products or services that constitute technology covered by Quest's '501 patent or that utilize or embody the method covered by Quest's '501 patent. On May 23, 2011, the Utah Court entered the mutually agreed upon permanent injunction against Likewise, ending the case against Likewise.

General. The Company and its subsidiaries are also involved in other legal proceedings, claims and litigation arising in the ordinary course of business. The foregoing discussion includes material developments that occurred during the three months ended June 30, 2011 or thereafter in our material legal proceedings.

In the normal course of our business, we enter into certain types of agreements that require us to indemnify or guarantee the obligations of other parties. These commitments include (i) intellectual property indemnities to licensees of our software products, (ii) indemnities to certain lessors under office space leases for certain claims arising from our use or occupancy of the related premises, or for the obligations of our subsidiaries under leasing arrangements, (iii) indemnities to customers, vendors and service providers for claims based on negligence or willful misconduct of our employees and agents, (iv) indemnities to our directors and officers to the maximum extent permitted under applicable law, and (v) letters of credit and similar obligations as a form of credit support for our international subsidiaries and certain resellers. The terms and duration of these commitments varies and, in some cases, may be indefinite, and certain of these commitments do not limit the maximum amount of future payments we could become obligated to make there under; accordingly, our actual aggregate maximum exposure related to these types of commitments cannot be reasonably estimated. Historically, we have not been obligated to make significant payments for obligations of this nature, and no liabilities have been recorded for these obligations in our financial statements included in this report.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 28, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	QUEST SOFTWARE INC
Entity Central Index Key	0001088033
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		85,893,403

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Income Tax Provision (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Income Tax Provision
Income tax provision (benefit)	$ 4,404,000	$ 11,764,000	$ 7,410,000	$ 16,353,000
Effective income tax rate	41.00%	40.30%	42.70%	33.10%
Tax benefit due to a higher ratio of foreign losses	$ 0

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Cash And Cash Equivalents And Investments (Tables)

6 Months Ended

Jun. 30, 2011

Cash And Cash Equivalents And Investments

Summary Of Cash And Cash Equivalents And Investments By Balance Sheet Classification

	June 30, 2011				December 31, 2010
	Cost		Fair Value (1)		Cost		Fair Value (1)
Cash and cash equivalents	$	204,094	$	204,094	$	356,533	$	356,533
Short-term investments		44,126		43,504		90,466		90,284
Long-term investments		33,554		33,553		45,647		45,466
Total cash and cash equivalents and investments	$	281,774	$	281,151	$	492,646	$	492,283

(1) See Note 16 – Fair Value Measurements for details regarding fair value measurements.

Summary Of Investments By Category

	June 30, 2011				December 31, 2010
Investment category:	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
U.S. treasury securities	$	3,430	$	3,435	$	24,500	$	24,511
U.S. agency securities		11,115		11,097		35,407		35,387
Commercial paper		4,970		5,000		14,958		14,984
Corporate notes/bonds		55,415		54,774		51,561		51,181
Certificates/term deposits		2,750		2,751		9,687		9,687
Total investments	$	77,680	$	77,057	$	136,113	$	135,750

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Other Income (Expense), Net (Schedule Of Other Income (Expense), Net) (Details) (USD $) In Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Other Income (Expense), Net
Interest income	$ 589		$ 532		$ 1,126		$ 844
Interest expense	(790)		(1,108)		(1,769)		(2,238)
Foreign currency gains (losses), net	1,646	[1]	(4,671)	[1]	4,861	[1]	(8,853)	[1]
Forward foreign currency contracts (losses) gains, net	(881)	[2]	1,411	[2]	(2,493)	[2]	2,506	[2]
Other income (expense), net	9		(7)		118		292
Total other income (expense), net	$ 573		$ (3,843)		$ 1,843		$ (7,449)

[1] Our foreign currency (losses) gains, net are predominantly attributable to the re-measurement gains or losses on our net balances of monetary assets and liabilities in our foreign subsidiaries, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. The foreign currency re-measurement adjustments to these balance sheet items are calculated by comparing the currency spot rates at the end of a month to the spot rates at the end of the previous month.

[2] Relates to changes in fair value of our forward foreign currency contracts not designated as hedging instruments. See Note 15 - Derivative Instruments for further details.

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Property And Equipment, Net

6 Months Ended

Jun. 30, 2011

Property And Equipment, Net

Property And Equipment, Net

NOTE 6 — PROPERTY AND EQUIPMENT, NET

Net property and equipment consisted of the following (in thousands):

	June 30 2011			December 31 2010
Building	$	39,601		$	39,003
Furniture and fixtures		16,725			15,846
Machinery and equipment		8,608			7,181
Computer equipment		57,844			54,940
Computer software		47,405			43,822
Leasehold improvements		17,688			15,438
Land		16,317			11,154
		204,188			187,384
Less accumulated depreciation and amortization		(123,003	)		(116,530	)
Property and equipment, net	$	81,185		$	70,854

The increase in property and equipment during the six months ended June 30, 2011 was primarily due to expenditures on the facilities to house the Business Operations and Advance Technology Center in Cork, Ireland. Total depreciation and amortization expense related to property and equipment was $3.8 million and $7.6 million for the three months and six months ended June 30, 2011, respectively. This compares to $3.5 million and $7.0 million for the three months and six months ended June 30, 2010, respectively.

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Property And Equipment, Net (Tables)

6 Months Ended

Jun. 30, 2011

Property And Equipment, Net

Net Property And Equipment

	June 30 2011			December 31 2010
Building	$	39,601		$	39,003
Furniture and fixtures		16,725			15,846
Machinery and equipment		8,608			7,181
Computer equipment		57,844			54,940
Computer software		47,405			43,822
Leasehold improvements		17,688			15,438
Land		16,317			11,154
		204,188			187,384
Less accumulated depreciation and amortization		(123,003	)		(116,530	)
Property and equipment, net	$	81,185		$	70,854

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Goodwill and Intangible Assets, Net (Components Of Intangible Assets, Net) (Details) (USD $)	Jun. 30, 2011		Dec. 31, 2010
Gross Carrying Amount	$ 328,730,000		$ 266,355,000
Accumulated Amortization	(221,716,000)		(203,570,000)
Net	107,014,000		62,785,000
ScriptLogic [Member] | Trademarks and Trade Names [Member]
Acquired indefinite-lived intangible asset	6,200,000		6,200,000
PacketTrap [Member] | Trademarks and Trade Names [Member]
Acquired indefinite-lived intangible asset	800,000		800,000
Acquired Technology and IPR&D [Member]
Gross Carrying Amount	207,223,000	[1]	164,816,000	[1]
Accumulated Amortization	(143,803,000)	[1]	(133,591,000)	[1]
Net	63,420,000	[1]	31,225,000	[1]
Customer Relationships [Member]
Gross Carrying Amount	91,218,000		74,318,000
Accumulated Amortization	(58,010,000)		(50,639,000)
Net	33,208,000		23,679,000
Non-compete Agreements [Member]
Gross Carrying Amount	14,589,000		13,919,000
Accumulated Amortization	(13,578,000)		(13,201,000)
Net	1,011,000		718,000
Trademarks and Trade Names [Member]
Gross Carrying Amount	15,700,000	[2]	13,302,000	[2]
Accumulated Amortization	(6,325,000)	[2]	(6,139,000)	[2]
Net	$ 9,375,000	[2]	$ 7,163,000	[2]

[1] IPR&D projects were identified and valued related to our acquisitions. These projects are continually assessed for impairment. Upon completion, these projects will be amortized over their estimated useful life.

[2] Trademarks and trade names include $6.2 million and $0.8 million in trade names related to our acquisition of ScriptLogic and PacketTrap, respectively, that each have an indefinite useful life, and as such are not being amortized.

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Cash and Cash Equivalents and Investments (Summary Of Cash And Cash Equivalents And Investments By Balance Sheet Classification) (Details) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Cash And Cash Equivalents And Investments
Cash and cash equivalents, cost	$ 204,094	$ 356,533
Cash and cash equivalents, fair value	204,094	356,533	[1]
Short term investments, cost	44,126	90,466
Short-term investments, fair value	43,504	90,284	[1]
Long term investments, cost	33,554	45,647
Long-term investments, fair value	33,553	45,466	[1]
Total cash and cash equivalents and investments, cost	281,774	492,646
Total cash and cash equivalents and investments, fair value	$ 281,151	$ 492,283	[1]

[1] See Note 16 - Fair Value Measurements for details regarding fair value measurements.

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Geographic And Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2011

Geographic And Segment Reporting

Schedule Of Business Segment Information

	Licenses		Maintenance Services		Professional Services		Total
Three months ended June 30, 2011:
Revenues	$	77,632	$	110,276	$	15,062	$	202,970
Cost of revenues		7,799		10,469		12,165		30,433
Gross profit	$	69,833	$	99,807	$	2,897	$	172,537
Three months ended June 30, 2010:
Revenues	$	77,100	$	98,520	$	10,482	$	186,102
Cost of revenues		5,858		7,409		8,227		21,494
Gross profit	$	71,242	$	91,111	$	2,255	$	164,608
Six months ended June 30, 2011:
Revenues	$	144,367	$	218,342	$	28,418	$	391,127
Cost of revenues		14,233		20,480		23,120		57,833
Gross profit	$	130,134	$	197,862	$	5,298	$	333,294
Six months ended June 30, 2010:
Revenues	$	142,081	$	194,288	$	20,904	$	357,273
Cost of revenues		12,172		14,638		15,722		42,532
Gross profit	$	129,909	$	179,650	$	5,182	$	314,741

Schedule Of Geographical Segment Information

	United States		Ireland		Other International  (2)		Total
Three months ended/As of June 30, 2011:
Revenues	$	120,152	$	36,359	$	46,459	$	202,970
Long-lived assets (1)		113,636		7,802		13,912		135,350
Three months ended/As of June 30, 2010:
Revenues	$	117,248	$	22,520	$	46,334	$	186,102
Long-lived assets (1)		84,902		8		12,636		97,546
Six months ended/As of June 30, 2011:
Revenues	$	232,899	$	67,324	$	90,904	$	391,127
Long-lived assets (1)		113,636		7,802		13,912		135,350
Six months ended/As of June 30, 2010:
Revenues	$	220,291	$	43,547	$	93,435	$	357,273
Long-lived assets (1)		84,902		8		12,636		97,546

(1) Includes property and equipment, net and other assets

(2) No single location within Other International accounts for greater than 10% of total revenues

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Income Tax Provision

6 Months Ended

Jun. 30, 2011

Income Tax Provision

Income Tax Provision

NOTE 11 — INCOME TAX PROVISION

During the three months and six months ended June 30, 2011, the provision for income taxes decreased to $4.4 million and $7.4 million, respectively from $11.8 million and $16.4 million in the comparable period in 2010. The effective income tax rate for the three months and six months ended June 30, 2011 was approximately 41.0% and 42.7%, respectively, as compared to 40.3% and 33.1% for the three months and six months ended June 30, 2010, respectively. The change in the provision for income taxes and the effective income tax rate is primarily a result of the decrease in the consolidated pre-tax book income and the taxes computed based on a higher ratio of year-to-date foreign losses as compared to the overall consolidated pre-tax book income for which no benefit could be taken and other discrete items impacting the quarter ended June 30, 2011. Discrete items included an increase in the income tax provision related to the write-off of deferred tax assets associated with cancelled, forfeited and expired stock options recorded during the six months ended June 30, 2011.

During the first quarter of 2011, we received examination notices from the Internal Revenue Service and the California Franchise Tax Board to audit income tax returns filed for calendar years 2008 through 2009, and 2007 through 2008, respectively.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, Financial Accounting Standards Board ("FASB") issued amendments to its accounting guidance on fair value measurement. The amendments provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The amendments change certain fair value measurement principles and enhance the disclosure requirements about fair value measurements. This guidance is effective during interim and annual periods beginning after December 15, 2011 and should be applied prospectively. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In June 2011, FASB issued amendments to its accounting guidance on comprehensive income. The amendments require an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments eliminate the option to present the components of other comprehensive income as part of the statement of equity. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are currently evaluating the impact of this guidance on our consolidated financial statements.

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Acquisitions (Preliminary Allocation Of Purchase Price To Assets And Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2011
Current assets	$ 12,479
Goodwill	20,730
Deferred income tax assets (liabilities) - non-current	7,832
Other assets	2,419
Current liabilities	(6,328)
Deferred revenue - current	(9,383)
Deferred revenue - non-current	(9,491)
Other long-term liabilities	(278)
Total purchase price	55,980
Customer Relationships [Member]
Amortizable intangible assets	11,300
Useful life of amortizable intangible assets (years)	4.0
Acquired Technologies [Member]
Amortizable intangible assets	24,500
Useful life of amortizable intangible assets (years)	5.2
IPR&D [Member]
Amortizable intangible assets	400
Trademarks and Trade Names [Member]
Amortizable intangible assets	$ 1,800
Useful life of amortizable intangible assets (years)	10.0

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Cost Method Investments

6 Months Ended

Jun. 30, 2011

Cost Method Investments

Cost Method Investments

NOTE 8 — COST METHOD INVESTMENTS

Our investments in early stage private companies are accounted for under the cost method given that we do not have the ability to exercise significant influence over these companies. The fair value of our cost method investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. We determined that it is not practicable to estimate the fair value of our cost method investments since these investments were made in privately-held companies that are not subject to the same disclosure regulations as U.S. public companies, and, as such, the basis for an estimated fair value is subject to the completeness, quality, timing and accuracy of data received from these private companies. Our cost method investments are carried at $41.4 million and $14.4 million as part of Other assets in our condensed consolidated balance sheets at June 30, 2011 and December 31, 2010, respectively.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2011

Stockholders' Equity

Stockholders' Equity

NOTE 13 — STOCKHOLDERS' EQUITY

In May 2011, our Board of Directors authorized a new stock repurchase program covering up to $200 million of our common stock. This program replaced the $150 million stock repurchase program previously authorized in February 2011. Any stock repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10b5-1 trading plans. Rule 10b5-1 permits Quest to establish, while not in possession of material nonpublic information, prearranged plans to buy stock at a specific price in the future, regardless of any subsequent possession of material nonpublic information. The timing and actual number of shares repurchased will depend on a variety of factors including market conditions, corporate and regulatory requirements, and capital availability. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice. During the three months ended June 30, 2011, we repurchased 5.3 million shares at a weighted average price per share of $22.67 for a total cost of $119.0 million pursuant to the two authorizations. At June 30, 2011, a total of $121.9 million remains available pursuant to our stock repurchase authorization.

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Loans Payable

6 Months Ended

Jun. 30, 2011

Loans Payable

Loans Payable

NOTE 9 — LOANS PAYABLE

In February 2011, our line of credit agreement was amended and renewed for a subsequent five-year term (the "Amended Credit Agreement") with Wells Fargo Capital Finance, LLC (formerly known as Wells Fargo Foothill, LLC), as arranger, administrative agent and lender. The Amended Credit Agreement allows for cash borrowings and letters of credit under a secured revolving credit facility of up to a maximum of $100.0 million. Interest will accrue based on a floating rate based on, at the Company's election, (i) LIBOR (subject to reserve requirements) or (ii) the greater of (a) the Federal Funds Rate plus  ¹/2% or (b) Wells Fargo's prime rate, in each case, plus an applicable margin. The Amended Credit Agreement includes limitations on the Company's ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividend payments, and dispose of assets. The Amended Credit Agreement is secured by substantially all of the Company's assets, subject to certain exceptions. Fees associated with this amended line of credit were approximately $0.5 million and will be amortized over the life of the credit agreement as interest expense. As of June 30, 2011, we have a zero balance outstanding under this line of credit.

In August 2009, we entered into a loan agreement with Mutual of Omaha Bank whereby we borrowed an aggregate principal amount of $34 million. The loan is secured by our real property at our headquarters in Aliso Viejo, California. We have used the proceeds from the loan for working capital and other general corporate purposes. The loan matures in five years, during which time we will make equal monthly principal and interest payments at a 7.03% interest rate on a fixed rate, 25-year amortization schedule. Events of default include, among other things, payment defaults, breaches of covenants and bankruptcy events. In the case of a continuing event of default, the lender may, among other things, accelerate the payment of any unpaid principal and interest amounts, increase the then-current interest rate by 5% and foreclose on the real estate collateral. As of June 30, 2011, we have a $33.0 million balance outstanding with $0.6 million recorded as current and $32.4 million recorded as long-term portion of loans payable.

We were in compliance with all debt-related covenants at June 30, 2011.

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Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2011

Derivative Instruments

Summary Of Notional Amounts For Foreign Currency Contracts

Currency	June 30 2011		December 31 2010
Derivatives designated as hedging instruments
Australian Dollar	$	1,734	$	2,788
Canadian Dollar		5,981		7,694
Chinese Yuan		642		1,167
Israeli Shekel		1,245		2,105
Russian Ruble		4,264		6,206
British Pound		7,490		7,188
Euro		4,455		22,029
Total	$	25,811	$	49,177
Derivatives not designated as hedging instruments
Danish Krone	$	1,156	$	2,126
Norwegian Krone		1,110		2,013
Swedish Krona		808		2,058
Euro		15,085		43,600
Australian Dollar		4,237		3,846
Brazil Real		1,827		4,705
British Pound		8,210		18,724
Total	$	32,433	$	77,072

Summary Of Fair Value Of Foreign Currency Contracts

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

998

Prepaid expenses and other current assets

$

1,123

Other accrued expenses

$

(364

)

Other accrued expenses

$

424

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives not designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

197

Prepaid expenses and other current assets

$

—

Other accrued expenses

$

(296

)

Other accrued expenses

$

956

(1) See Note 16 – Fair Value Measurements for details.

Effect Of Derivative Instruments Designated As Hedges On AOCI

	Three Months Ended June 30
Derivatives designated as hedging instruments	Amount of gain (loss) recognized in AOCI (effective portion)					Location of gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011		2010				2011			2010
Foreign currency contracts	$	306	$	(388	)	Revenues	$	(271	)	$	554
						Operating expenses	$	628		$	62

	Six Months Ended June 30
Derivatives designated as hedging instruments	Amount of (loss) gain recognized in AOCI (effective  portion)					Location of (loss) gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011			2010			2011			2010
Foreign currency contracts	$	(100	)	$	51	Revenues	$	(1,301	)	$	686
						Operating expenses	$	1,128		$	384

Effect Of Derivative Instruments Not Designated As Hedges On Result Of Operations

	Three Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(881	)	$	1,411
	Six Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(2,493	)	$	2,506

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Goodwill And Intangible Assets, Net

6 Months Ended

Jun. 30, 2011

Goodwill And Intangible Assets, Net

Goodwill And Intangible Assets, Net

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET

The changes in the carrying amount of goodwill by reportable operating segment (refer to Note 4 – Geographic and Segment Reporting for discussion of our reportable operating segments) for the six months ended June 30, 2011 are as follows (in thousands):

	Licenses		Maintenance Services		Professional Services		Total
Balance as of December 31, 2010	$	490,095	$	211,806	$	4,323	$	706,224
Acquisitions		20,420		18,628		1,447		40,495
Balance as of June 30, 2011	$	510,515	$	230,434	$	5,770	$	746,719

Intangible assets, net are comprised of the following (in thousands):

June 30, 2011											December 31, 2010
	Gross Carrying Amount			Accumulated Amortization				Net				Gross Carrying Amount			Accumulated Amortization				Net
Acquired technology and IPR&D (1)		$	207,223		$	(143,803	)		$	63,420			$	164,816		$	(133,591	)		$	31,225
Customer relationships			91,218			(58,010	)			33,208				74,318			(50,639	)			23,679
Non-compete agreements			14,589			(13,578	)			1,011				13,919			(13,201	)			718
Trademarks and trade names (2)			15,700			(6,325	)			9,375				13,302			(6,139	)			7,163
		$	328,730		$	(221,716	)		$	107,014			$	266,355		$	(203,570	)		$	62,785

(1) IPR&D projects were identified and valued related to our acquisitions. These projects are continually assessed for impairment. Upon completion, these projects will be amortized over their estimated useful life.

(2) Trademarks and trade names include $6.2 million and $0.8 million in trade names related to our acquisition of ScriptLogic and PacketTrap, respectively, that each have an indefinite useful life, and as such are not being amortized.

Amortization expense for amortizing intangible assets was $9.6 million and $18.2 million for the three months and six months ended June 30, 2011, respectively. This compares to $7.1 million and $14.8 million for the three months and six months ended June 30, 2010, respectively.

Estimated annual amortization expense related to amortizing intangible assets reflected on our June 30, 2011 condensed consolidated balance sheet is as follows (in thousands):

	Estimated Annual Amortization Expense
2011 (remaining 2 quarters)	$	19,532
2012		33,071
2013		18,784
2014		15,656
2015 and thereafter		12,971
Total accumulated amortization	$	100,014

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Stock-Based Compensation (Weighted-Average Assumptions For Option Awards Granted) (Details) (Employee Stock Option [Member])	3 Months Ended			6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010		Jun. 30, 2011	Jun. 30, 2010
Employee Stock Option [Member]
Expected volatility	34.00%		[1]	34.00%	37.00%	[1]
Expected term (in years)	5.3		[1]	5.7	6.4	[1]
Risk-free interest rate	1.90%		[1]	2.10%	2.80%	[1]
Expected dividend yield			[1]			[1]

[1] There were no option awards granted for the three months ended June 30, 2010. Consequently, six month data relates only to the three month period during which options were granted.

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 9,958	$ 33,003
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,798	21,779
Compensation expense associated with stock-based payments	12,906	9,171
Deferred income taxes	(83)	5,025
Excess tax benefit related to stock-based compensation	(1,869)	(1,318)
Other non-cash adjustments, net	924	683
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	49,701	33,258
Prepaid expenses and other current assets	1,178	4,230
Other assets	2,267	1,955
Accounts payable	4,100	(388)
Accrued compensation	(6,976)	(7,115)
Other accrued expenses	2,306	(4,051)
Income taxes payable	19,971	8,719
Deferred revenue	(2,944)	(3,089)
Other liabilities	(3,271)	(1,282)
Net cash provided by operating activities	113,966	100,580
Cash flows from investing activities:
Purchases of property and equipment	(17,314)	(6,831)
Cash paid for acquisitions, net of cash acquired	(89,429)	(981)
Change in restricted cash	(7,903)	874
Purchases of cost method investments	(27,234)
Purchases of investment securities	(5,136)	(132,283)
Sales and maturities of investment securities	63,562	107,246
Notes receivable from a cost method investee		(2,000)
Cash paid for intellectual property	(1,500)
Change in notes receivable	(750)
Net cash used in investing activities	(85,704)	(33,975)
Cash flows from financing activities:
Repayment of loans payable	(238)	(32,339)
Repurchase of common stock	(205,745)	(37,373)
Repayment of capital lease obligations	(69)	(133)
Cash paid for line of credit fees	(500)
Proceeds from the exercise of stock options	24,925	23,297
Excess tax benefit related to stock-based compensation	1,869	1,318
Net cash used in financing activities	(179,758)	(45,230)
Effect of exchange rate changes on cash and cash equivalents	(943)	1,833
Net (decrease) increase in cash and cash equivalents	(152,439)	23,208
Cash and cash equivalents, beginning of period	356,533	292,940
Cash and cash equivalents, end of period	204,094	316,148
Supplemental disclosures of consolidated cash flow information:
Cash paid for interest	1,570	1,715
Cash (received) paid for income taxes	$ (14,261)	$ 2,319

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Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

Acquisitions

NOTE 3 — ACQUISITIONS

2011 Acquisitions

BakBone Software Incorporated – In January 2011, we acquired 100% of the voting equity interests of BakBone Software Incorporated ("BakBone"), a publicly-held provider of data protection software, for cash consideration of approximately $56 million. BakBone gives us additional technologies to provide data protection solutions across heterogeneous physical, virtual and application-level environments.

The acquisition has been accounted for as a business combination and the purchase price was allocated primarily to goodwill and other intangible assets. Actual results of operations of BakBone are included in our consolidated financial statements from the date of acquisition. Our preliminary allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows (in thousands):

Current assets	$	12,479
Acquired technologies with a weighted average useful life of 5.2 years		24,500
In-process research and development		400
Customer relationships with a useful life of 4.0 years		11,300
Trademarks and trade names with a useful life of 10.0 years		1,800
Goodwill		20,730
Deferred income tax assets – non-current		7,832
Other assets		2,419
Current liabilities		(6,328	)
Deferred revenue – current		(9,383	)
Deferred revenue – non-current		(9,491	)
Other long-term liabilities		(278	)
Total purchase price	$	55,980

The preliminary allocation of purchase price for BakBone was based upon valuation information and estimates and assumptions available at the time of filing. Our estimates and assumptions are subject to change. The areas of the purchase price allocation that are not yet finalized and are subject to change within the measurement period relate to the completion of our income taxes review and the resulting impact on goodwill.

The intangible assets will be amortized over the pattern in which the expected economic benefits of the intangible assets are realized, which in general is correlated with the cash flows generated from such assets. We acquired an in-process research and development ("IPR&D") project and the value assigned to the IPR&D was determined utilizing the income approach by determining cash flow projections relating to the project. We applied a discount rate of 28% to derive the value of the IPR&D project. The IPR&D project will be assessed for impairment until completed. Upon completion, the project will be amortized over its estimated useful life, as described above. The goodwill associated with this acquisition is reported within our Licenses, Maintenance Services and Professional Services segments of our business, and is not expected to be deductible for tax purposes. The goodwill allocation of 45% to Licenses, 52% to Maintenance Services and 3% to Professional Services is based on both historical and projected relative contribution from Licenses, Maintenance Services and Professional Services revenues. Goodwill results from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, and opportunities within new markets, which we believe will result in incremental revenue and profitability.

Other Acquisitions – We completed three other acquisitions during the six months ended June 30, 2011. These acquisitions have been accounted for as business combinations. The aggregate purchase price for these transactions was approximately $40 million. The preliminary allocation of purchase price was primarily to goodwill and other intangible assets for approximately $20 million and $21 million, respectively. Actual results of operations of these acquisitions are included in our condensed consolidated financial statements from the effective dates of the acquisitions.

The pro forma effects of acquisitions in 2011 individually, or in the aggregate, would not have been material to our results of operations for the six months ended June 30, 2011 and 2010, and therefore are not presented.

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Property And Equipment, Net (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010	Dec. 31, 2010
Property And Equipment, Net
Building	$ 39,601,000		$ 39,601,000		$ 39,003,000
Furniture and fixtures	16,725,000		16,725,000		15,846,000
Machinery and equipment	8,608,000		8,608,000		7,181,000
Computer equipment	57,844,000		57,844,000		54,940,000
Computer software	47,405,000		47,405,000		43,822,000
Leasehold improvements	17,688,000		17,688,000		15,438,000
Land	16,317,000		16,317,000		11,154,000
Property and equipment, gross	204,188,000		204,188,000		187,384,000
Less accumulated depreciation and amortization	(123,003,000)		(123,003,000)		(116,530,000)
Property and equipment, net	81,185,000		81,185,000		70,854,000
Depreciation and amortization expense	$ 3,800,000	$ 3,500,000	$ 7,600,000	$ 7,000,000

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Weighted-Average Assumptions For Option Awards Granted

	Three Months Ended June  30					Six Months Ended June  30
	2011			2010 (1)		2011			2010 (1)
Expected volatility		34	%		N/A		34	%		37	%
Expected term (in years)		5.3			N/A		5.7			6.4
Risk-free interest rate		1.9	%		N/A		2.1	%		2.8	%
Expected dividend yield		None			None		None			None

(1) There were no option awards granted for the three months ended June 30, 2010. Consequently, six month data relates only to the three month period during which options were granted.

Summary Activity Of Employee Stock Options

	Number of Shares (in thousands)			Weighted-Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (1)
Outstanding at December 31, 2010		13,130		$	16.93
Granted		2,471		$	25.48
Exercised		(1,325	)	$	19.05
Canceled/forfeited/expired		(734	)	$	22.45
Outstanding at June 30, 2011		13,542		$	17.99		6.9	$	72,270
Vested or expected to vest at June 30, 2011		12,739		$	17.78		6.8	$	70,092
Exercisable at June 30, 2011		5,881		$	14.86		4.2	$	47,601

(1) These amounts represent the difference between the exercise price and $22.73, the closing price of Quest Software, Inc. stock on June 30, 2011 as reported on the NASDAQ National Market, for all options outstanding that have an exercise price currently below the closing price.

Summary Activity Of RSU Awards

	Number of Shares			Weighted-Average Grant Date Fair Value (per share)
Nonvested at January 1, 2011		787,798		$	14.99
Granted		—		$	—
Vested		(293,418	)	$	14.26
Forfeited		(34,513	)	$	15.47
Nonvested at June 30, 2011(1)		459,867		$	15.43

(1) Of which, 435,998 shares are expected to vest.

Classification Of Stock-Based Compensation Expense

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Cost of services	$	238	$	199	$	554	$	383
Sales and marketing		1,682		1,246		3,791		2,359
Research and development		1,614		1,592		3,767		3,010
General and administrative		1,958		1,478		4,794		3,418
Total stock-based compensation		5,492		4,515		12,906		9,170
Tax benefit associated with stock-based compensation expense (1)		2,125		1,747		4,995		3,549
Reduction of net income	$	3,367	$	2,768	$	7,911	$	5,621

(1) The recognized tax benefit related to share-based compensation expense is estimated to be 38.7% for the three months and six months ended June 30, 2011 and 2010. This approximates the blended Federal and State statutory tax rate after the benefit for state taxes.

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Derivative Instruments (Effect Of Derivative Instruments Designated As Hedges On AOCI) (Details) (Foreign Currency Contracts [Member], USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Amount of (loss) gain recognized in AOCI (effective portion)	$ 306	$ (388)	$ (100)	$ 51
Revenues [Member]
Amount of (loss) gain reclassified from accumulated AOCI (effective portion)	(271)	554	(1,301)	686
Operating Expenses [Member]
Amount of (loss) gain reclassified from accumulated AOCI (effective portion)	$ 628	$ 62	$ 1,128	$ 384

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Fair Value Measurements (Summary Of Fair Value Of Financial Assets And Liabilities Measured At Recurring Basis And Valuation Techniques) (Details) (USD $) In Thousands	Jun. 30, 2011		Dec. 31, 2010
Total investments, fair value	$ 77,057		$ 135,750
Total assets	184,211		406,081
Contingent consideration	5,700	[1]
Total liabilities	12,173		9,895
Income Approach Valuation Techniques [Member]
Contingent consideration	11,513		8,515
Income Approach Valuation Techniques [Member] | Level 1 [Member]
Contingent consideration
Income Approach Valuation Techniques [Member] | Level 2 [Member]
Contingent consideration
Income Approach Valuation Techniques [Member] | Level 3 [Member]
Contingent consideration	11,513		8,515
Market Approach Valuation Techniques [Member] | Level 1 [Member] | Money Market Funds [Member]
Total investments, fair value	103,320		268,118
Market Approach Valuation Techniques [Member] | Level 1 [Member] | U.S. Treasury Securities [Member]
Total investments, fair value			24,511
Market Approach Valuation Techniques [Member] | Level 1 [Member] | U.S. Agency Securities [Member]
Total investments, fair value	11,096		35,387
Market Approach Valuation Techniques [Member] | Level 1 [Member] | Derivative Assets [Member]
Derivative assets		[2]		[2]
Market Approach Valuation Techniques [Member] | Level 1 [Member] | Derivative Liabilities [Member]
Derivative liabilities		[2]
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Money Market Funds [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 2 [Member] | U.S. Treasury Securities [Member]
Total investments, fair value	3,435
Market Approach Valuation Techniques [Member] | Level 2 [Member] | U.S. Agency Securities [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Corporate Notes/Bonds[Member]
Total investments, fair value	54,774		51,181
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Certificates/Term Deposits [Member]
Total investments, fair value	3,892		10,777
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Commercial Paper [Member]
Total investments, fair value	6,499		14,984
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Derivative Assets [Member]
Derivative assets	1,195	[2]	1,123	[2]
Market Approach Valuation Techniques [Member] | Level 2 [Member] | Derivative Liabilities [Member]
Derivative liabilities	660	[2]	1,380	[2]
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Money Market Funds [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | U.S. Treasury Securities [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | U.S. Agency Securities [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Corporate Notes/Bonds[Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Certificates/Term Deposits [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Commercial Paper [Member]
Total investments, fair value
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Derivative Assets [Member]
Derivative assets		[2]		[2]
Market Approach Valuation Techniques [Member] | Level 3 [Member] | Derivative Liabilities [Member]
Derivative liabilities		[2]
Market Approach Valuation Techniques [Member] | Money Market Funds [Member]
Total investments, fair value	103,320		268,118
Market Approach Valuation Techniques [Member] | U.S. Treasury Securities [Member]
Total investments, fair value	3,435		24,511
Market Approach Valuation Techniques [Member] | U.S. Agency Securities [Member]
Total investments, fair value	11,096		35,387
Market Approach Valuation Techniques [Member] | Corporate Notes/Bonds[Member]
Total investments, fair value	54,774		51,181
Market Approach Valuation Techniques [Member] | Certificates/Term Deposits [Member]
Total investments, fair value	3,892		10,777
Market Approach Valuation Techniques [Member] | Commercial Paper [Member]
Total investments, fair value	6,499		14,984
Market Approach Valuation Techniques [Member] | Derivative Assets [Member]
Derivative assets	1,195	[2]	1,123	[2]
Market Approach Valuation Techniques [Member] | Derivative Liabilities [Member]
Derivative liabilities	660	[2]	1,380	[2]
Level 1 [Member]
Total assets	114,416		328,016
Total liabilities
Level 2 [Member]
Total assets	69,795		78,065
Total liabilities	660		1,380
Level 3 [Member]
Total assets
Total liabilities	$ 11,513		$ 8,515

[1] We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically based on the acquired company's products' total revenue or sales growth over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property. During the second quarter of 2011, we separately purchased intellectual property and entered into an agreement whereby the former owner has the opportunity to earn an additional amount contingent upon his achievement of certain technology milestones.

[2] See Note 15 - Derivative Instruments for details.

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Stock-Based Compensation (Narrative) (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2011 years	Jun. 30, 2010
Restricted Stock Awards [Member]
Minimum vesting period of outstanding RSU awards (years)	3
Total fair value of RSU awards vested	$ 4.2	$ 5.2
Unrecognized stock-based compensation cost	6.1
Weighted-average recognized period (years)	1.2
Restricted Stock Awards [Member] | 2008 Stock Incentive Plan [Member]
For each of common stock share, reduction of the reserved shares for issuance	1.94
Employee Stock Option [Member]
Weighted-average grant date fair value of options granted	$ 8.99	$ 6.98
Total intrinsic value of options exercised	9.0	10.5
Total fair value of options vested	12.6	4.1
Unrecognized stock-based compensation cost	$ 45.3
Weighted-average recognized period (years)	3.7
Number of shares granted	2,471,000
Employee Stock Option [Member] | 2008 Stock Incentive Plan [Member]
For each of common stock share, reduction of the reserved shares for issuance	1
2008 Stock Incentive Plan [Member]
Number of shares available for issuance	21,300,000
Number of shares available for grant	7,100,000

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Geographic And Segment Reporting

6 Months Ended

Jun. 30, 2011

Geographic And Segment Reporting

Geographic and Segment Reporting

NOTE 4 — GEOGRAPHIC AND SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision maker, or decision-making group, in assessing performance and deciding how to allocate resources. Our reportable operating segments are Licenses, Maintenance Services and Professional Services. The Licenses segment develops and markets licenses to use our software products. The Maintenance Services segment provides after-sale support for software products. The Professional Services segment provides consulting and fee-based training related to our software products.

Previously, we had two reportable operating segments, Licenses and Services. During the first quarter of 2011, we revised our reportable operating segments by separating our Services segment into our Professional Services segment and our Maintenance Services segment. We separated these two previously aggregated segments because the Professional Services component has experienced significant growth and has become more distinct, robust and pronounced relative to all Services, and also has become more separately managed and analyzed. Previously reported segment data have been reclassified to conform to the 2011 presentation. Goodwill previously allocated to the Services segment has been reallocated between the Maintenance Services and Professional Services segments using a relative fair value approach.

We do not separately allocate operating expenses to these segments, nor do we allocate specific assets to these segments. Therefore, segment information reported includes only revenues, cost of revenues, and gross profit.

Reportable segment data for the three months and six months ended June 30, 2011 and 2010 is as follows (in thousands):

	Licenses		Maintenance Services		Professional Services		Total
Three months ended June 30, 2011:
Revenues	$	77,632	$	110,276	$	15,062	$	202,970
Cost of revenues		7,799		10,469		12,165		30,433
Gross profit	$	69,833	$	99,807	$	2,897	$	172,537
Three months ended June 30, 2010:
Revenues	$	77,100	$	98,520	$	10,482	$	186,102
Cost of revenues		5,858		7,409		8,227		21,494
Gross profit	$	71,242	$	91,111	$	2,255	$	164,608
Six months ended June 30, 2011:
Revenues	$	144,367	$	218,342	$	28,418	$	391,127
Cost of revenues		14,233		20,480		23,120		57,833
Gross profit	$	130,134	$	197,862	$	5,298	$	333,294
Six months ended June 30, 2010:
Revenues	$	142,081	$	194,288	$	20,904	$	357,273
Cost of revenues		12,172		14,638		15,722		42,532
Gross profit	$	129,909	$	179,650	$	5,182	$	314,741

Revenues are attributed to geographic areas based on the location of the Quest entity from which the products or services were invoiced. Revenues and long-lived assets concerning principal geographic areas in which we operate are as follows (in thousands):

	United States		Ireland		Other International  (2)		Total
Three months ended/As of June 30, 2011:
Revenues	$	120,152	$	36,359	$	46,459	$	202,970
Long-lived assets (1)		113,636		7,802		13,912		135,350
Three months ended/As of June 30, 2010:
Revenues	$	117,248	$	22,520	$	46,334	$	186,102
Long-lived assets (1)		84,902		8		12,636		97,546
Six months ended/As of June 30, 2011:
Revenues	$	232,899	$	67,324	$	90,904	$	391,127
Long-lived assets (1)		113,636		7,802		13,912		135,350
Six months ended/As of June 30, 2010:
Revenues	$	220,291	$	43,547	$	93,435	$	357,273
Long-lived assets (1)		84,902		8		12,636		97,546

(1) Includes property and equipment, net and other assets

(2) No single location within Other International accounts for greater than 10% of total revenues

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Goodwill and Intangible Assets, Net (Changes In Carrying Amount Of Goodwill) (Details) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011
Balance as of December 31, 2010	$ 706,224
Acquisitions	40,495
Balance as of June 30, 2011	746,719
Licenses [Member]
Balance as of December 31, 2010	490,095
Acquisitions	20,420
Balance as of June 30, 2011	510,515
Maintenance Services [Member]
Balance as of December 31, 2010	211,806
Acquisitions	18,628
Balance as of June 30, 2011	230,434
Professional Services [Member]
Balance as of December 31, 2010	4,323
Acquisitions	1,447
Balance as of June 30, 2011	$ 5,770

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Goodwill And Intangible Assets, Net (Tables)

6 Months Ended

Jun. 30, 2011

Goodwill And Intangible Assets, Net

Changes In Carrying Amount Of Goodwill

	Licenses		Maintenance Services		Professional Services		Total
Balance as of December 31, 2010	$	490,095	$	211,806	$	4,323	$	706,224
Acquisitions		20,420		18,628		1,447		40,495
Balance as of June 30, 2011	$	510,515	$	230,434	$	5,770	$	746,719

Components Of Intangible Assets, Net

June 30, 2011											December 31, 2010
	Gross Carrying Amount			Accumulated Amortization				Net				Gross Carrying Amount			Accumulated Amortization				Net
Acquired technology and IPR&D (1)		$	207,223		$	(143,803	)		$	63,420			$	164,816		$	(133,591	)		$	31,225
Customer relationships			91,218			(58,010	)			33,208				74,318			(50,639	)			23,679
Non-compete agreements			14,589			(13,578	)			1,011				13,919			(13,201	)			718
Trademarks and trade names (2)			15,700			(6,325	)			9,375				13,302			(6,139	)			7,163
		$	328,730		$	(221,716	)		$	107,014			$	266,355		$	(203,570	)		$	62,785

(1) IPR&D projects were identified and valued related to our acquisitions. These projects are continually assessed for impairment. Upon completion, these projects will be amortized over their estimated useful life.

(2) Trademarks and trade names include $6.2 million and $0.8 million in trade names related to our acquisition of ScriptLogic and PacketTrap, respectively, that each have an indefinite useful life, and as such are not being amortized.

Estimated Annual Amortization Expense Related To Amortizing Intangible Assets

	Estimated Annual Amortization Expense
2011 (remaining 2 quarters)	$	19,532
2012		33,071
2013		18,784
2014		15,656
2015 and thereafter		12,971
Total accumulated amortization	$	100,014

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Fair Value Measurements (Summary Of Book Value And Fair Value Of Current And Long-Term Portion Of Loans Payable) (Details) (USD $) In Thousands	Jun. 30, 2011		Dec. 31, 2010
Fair Value Measurements
Current portion of loans payable	$ 576		$ 521
Long-term portion of loans payable	32,460		32,730
Total of balance outstanding	33,036
Current portion of loans payable, Fair Value	576	[1]
Long-term portion of loans payable, Fair Value	32,460	[1]
Total loans payable	$ 33,036	[1]

[1] Estimated fair value of long-term debt is based on quoted prices for similar liabilities for which significant inputs are observable.

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Summary Of Fair Value Of Financial Assets And Liabilities Measured At Recurring Basis And Valuation Techniques

	June 30, 2011
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	103,320	$	103,320	$	—	$	—	(a)
U.S. treasury securities		3,435		—		3,435		—	(a)
U.S. agency securities		11,096		11,096		—		—	(a)
Corporate notes/bonds		54,774		—		54,774		—	(a)
Certificates/term deposits		3,892		—		3,892		—	(a)
Commercial paper		6,499		—		6,499		—	(a)
Derivative assets (1)		1,195		—		1,195		—	(a)
Total	$	184,211	$	114,416	$	69,795	$	—
Liabilities:
Derivative liabilities (1)	$	660	$	—	$	660	$	—	(a)
Contingent consideration		11,513		—		—		11,513	(b)
Total	$	12,173	$	—	$	660	$	11,513
	December 31, 2010
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	268,118	$	268,118	$	—	$	—	(a)
U.S. treasury securities		24,511		24,511		—		—	(a)
U.S. agency securities		35,387		35,387		—		—	(a)
Corporate notes/bonds		51,181		—		51,181		—	(a)
Certificates/term deposits		10,777		—		10,777		—	(a)
Commercial paper		14,984		—		14,984		—	(a)
Derivative assets (1)		1,123		—		1,123		—	(a)
Total	$	406,081	$	328,016	$	78,065	$	—
Liabilities:
Derivative liabilities (1)	$	1,380	$	—	$	1,380	$	—	(a)
Contingent consideration		8,515		—		—		8,515	(b)
Total	$	9,895	$	—	$	1,380	$	8,515

(1) See Note 15 – Derivative Instruments for details.

Summary Of Liabilities Measured At Fair Value On Recurring Basis Using Significant Unobservable Inputs (Level 3)

	Six Months Ended June 30(1)
	2011			2010
Total, beginning of the period	$	8,515		$	4,000
Contingent consideration		5,700			—
Payment of contingent consideration		(2,702	)		—
Total, end of the period	$	11,513		$	4,000

(1) We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically based on the acquired company's products' total revenue or sales growth over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property. During the second quarter of 2011, we separately purchased intellectual property and entered into an agreement whereby the former owner has the opportunity to earn an additional amount contingent upon his achievement of certain technology milestones.

Summary of Book Value and Fair Value of Current and Long-Term Portion of Loans Payable

	Book Value		Fair Value (1)
Current portion of loans payable	$	576	$	576
Long-term portion of loans payable		32,460		32,460
	$	33,036	$	33,036

(1) Estimated fair value of long-term debt is based on quoted prices for similar liabilities for which significant inputs are observable.

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Goodwill and Intangible Assets, Net (Narrative) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Goodwill And Intangible Assets, Net
Amortization expense for intangible assets	$ 9.6	$ 7.1	$ 18.2	$ 14.8

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Net Income Per Share (Tables)

6 Months Ended

Jun. 30, 2011

Net Income Per Share

Reconciliation Of Denominator Of Net Income Per Share

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Shares used in computing basic net income per share		88,320		89,434		90,301		89,548
Dilutive effect of stock options and restricted stock units (1)		2,043		2,486		2,441		2,587
Shares used in computing diluted net income per share		90,363		91,920		92,742		92,135

(1) Options to purchase 4.8 million and 5.8 million shares of common stock were outstanding during the three months ended June 30, 2011 and 2010, respectively, and 2.8 million and 5.5 million shares of common stock during the six months ended June 30, 2011 and 2010, respectively, were outstanding but were not included in the computation of diluted net income per share as inclusion would have been anti-dilutive.

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Net Income Per Share

6 Months Ended

Jun. 30, 2011

Net Income Per Share

Net Income Per Share

NOTE 12 — NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution of securities by including other common stock equivalents, including stock options and restricted stock units, in the weighted-average number of common shares outstanding for a period, if dilutive.

The table below sets forth the reconciliation of the denominator of the net income per share calculation (in thousands):

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Shares used in computing basic net income per share		88,320		89,434		90,301		89,548
Dilutive effect of stock options and restricted stock units (1)		2,043		2,486		2,441		2,587
Shares used in computing diluted net income per share		90,363		91,920		92,742		92,135

(1) Options to purchase 4.8 million and 5.8 million shares of common stock were outstanding during the three months ended June 30, 2011 and 2010, respectively, and 2.8 million and 5.5 million shares of common stock during the six months ended June 30, 2011 and 2010, respectively, were outstanding but were not included in the computation of diluted net income per share as inclusion would have been anti-dilutive.

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Derivative Instruments (Summary Of Notional Amounts For Foreign Currency Contracts) (Details) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Notional amount for foreign currency derivatives designated as hedging instruments	$ 25,811	$ 49,177
Notional amount for foreign currency derivatives not designated as hedging instruments	32,433	77,072
Australian Dollar [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	1,734	2,788
Notional amount for foreign currency derivatives not designated as hedging instruments	4,237	3,846
Canadian Dollar [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	5,981	7,694
Chinese Yuan [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	642	1,167
Israeli Shekel [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	1,245	2,105
Russian Ruble [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	4,264	6,206
British Pound [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	7,490	7,188
Notional amount for foreign currency derivatives not designated as hedging instruments	8,210	18,724
Euro [Member]
Notional amount for foreign currency derivatives designated as hedging instruments	4,455	22,029
Notional amount for foreign currency derivatives not designated as hedging instruments	15,085	43,600
Danish Krone [Member]
Notional amount for foreign currency derivatives not designated as hedging instruments	1,156	2,126
Norwegian Krone [Member]
Notional amount for foreign currency derivatives not designated as hedging instruments	1,110	2,013
Swedish Krona [Member]
Notional amount for foreign currency derivatives not designated as hedging instruments	808	2,058
Brazil Real [Member]
Notional amount for foreign currency derivatives not designated as hedging instruments	$ 1,827	$ 4,705

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Fair Value Measurements (Summary Of Liabilities Measured At Fair Value On Recurring Basis Using Significant Unobservable Inputs (Level 3)) (Details) (USD $) In Thousands	Jun. 30, 2011		Dec. 31, 2010		Jun. 30, 2010		Dec. 31, 2009
Fair Value Measurements
Total, beginning of the period	$ 11,513	[1]	$ 8,515	[1]	$ 4,000	[1]	$ 4,000	[1]
Contingent consideration	5,700	[1]
Payment of contingent consideration	(2,702)	[1]
Total, end of the period	$ 11,513	[1]	$ 8,515	[1]	$ 4,000	[1]	$ 4,000	[1]

[1] We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically based on the acquired company's products' total revenue or sales growth over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property. During the second quarter of 2011, we separately purchased intellectual property and entered into an agreement whereby the former owner has the opportunity to earn an additional amount contingent upon his achievement of certain technology milestones.

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Cash And Cash Equivalents And Investments

6 Months Ended

Jun. 30, 2011

Cash And Cash Equivalents And Investments

Cash and Cash Equivalents and Investments

NOTE 5 — CASH AND CASH EQUIVALENTS AND INVESTMENTS

The following table summarizes our cash and cash equivalents and investments by balance sheet classification at the dates indicated (in thousands):

	June 30, 2011				December 31, 2010
	Cost		Fair Value (1)		Cost		Fair Value (1)
Cash and cash equivalents	$	204,094	$	204,094	$	356,533	$	356,533
Short-term investments		44,126		43,504		90,466		90,284
Long-term investments		33,554		33,553		45,647		45,466
Total cash and cash equivalents and investments	$	281,774	$	281,151	$	492,646	$	492,283

(1) See Note 16 – Fair Value Measurements for details regarding fair value measurements.

The following table summarizes our investments by investment category at the dates indicated (in thousands):

	June 30, 2011				December 31, 2010
Investment category:	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
U.S. treasury securities	$	3,430	$	3,435	$	24,500	$	24,511
U.S. agency securities		11,115		11,097		35,407		35,387
Commercial paper		4,970		5,000		14,958		14,984
Corporate notes/bonds		55,415		54,774		51,561		51,181
Certificates/term deposits		2,750		2,751		9,687		9,687
Total investments	$	77,680	$	77,057	$	136,113	$	135,750

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Derivative Instruments

6 Months Ended

Jun. 30, 2011

Derivative Instruments

Derivative Instruments

NOTE 15 — DERIVATIVE INSTRUMENTS

Foreign Exchange Risk Management Policy

Our Foreign Exchange Risk Management Policy identifies target exposures such as balance sheet, cash flow and income statement risks, program objectives, approved financial instruments and counterparties, accounting and tax treatment, as well as oversight, reporting and controls. The functional currency of all our subsidiaries is the U.S. Dollar. Our exposure to foreign exchange risk originates both from the operating results of our foreign operations denominated in currencies other than the U.S. Dollar, as well as our net balances of monetary assets and liabilities within our foreign subsidiaries. These exposures have the potential to produce either gains or losses depending on the directional movement of the foreign currencies versus the U.S. Dollar and our operational profile in foreign subsidiaries. Certain balance sheet items are re-measured each period and the changes in value are recorded within Other income (expense), net.

We utilize a balance sheet hedging program with the stated objective of reducing volatility within Other income (expense), net. Under this program, we use derivatives in the form of foreign currency contracts to hedge certain balance sheet exposures. We do not designate these contracts as hedging instruments and therefore do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the condensed consolidated balance sheet at fair value and the changes in fair value from these contracts are recorded in Other income (expense), net, in the condensed consolidated income statement. These derivative contracts typically have a one month term.

We have a cash flow hedging program primarily focused on reducing volatility in our forecasted research and development cash expenses and license revenues, some of which are denominated in non-U.S. Dollar currencies. Under this program, we use derivatives in the form of forward foreign currency contracts and foreign currency option contracts to hedge certain forecasted transactions. These derivatives, with durations ranging from less than one month to nine months, are designated as hedging instruments and qualify for hedge accounting. Accordingly, these outstanding designated derivatives are recognized on the condensed consolidated balance sheet at fair value. Changes in value that are highly effective are recognized in Accumulated other comprehensive income ("AOCI") on the condensed consolidated balance sheets, until the hedged item is recognized in the income statement. Any ineffective portion of a derivative's change in fair value is recorded in Other income (expense), net, in the condensed consolidated income statement. There was no material ineffectiveness in our cash flow hedging program for the six months ended June 30, 2011.

We had the following notional amounts for our foreign currency contracts included in our consolidated balance sheets (in U.S. Dollars in thousands):

Currency	June 30 2011		December 31 2010
Derivatives designated as hedging instruments
Australian Dollar	$	1,734	$	2,788
Canadian Dollar		5,981		7,694
Chinese Yuan		642		1,167
Israeli Shekel		1,245		2,105
Russian Ruble		4,264		6,206
British Pound		7,490		7,188
Euro		4,455		22,029
Total	$	25,811	$	49,177
Derivatives not designated as hedging instruments
Danish Krone	$	1,156	$	2,126
Norwegian Krone		1,110		2,013
Swedish Krona		808		2,058
Euro		15,085		43,600
Australian Dollar		4,237		3,846
Brazil Real		1,827		4,705
British Pound		8,210		18,724
Total	$	32,433	$	77,072

Fair Value of Derivative Instruments

The following table provides the fair value of our foreign currency contracts included in our condensed consolidated balance sheets (in thousands):

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

998

Prepaid expenses and other current assets

$

1,123

Other accrued expenses

$

(364

)

Other accrued expenses

$

424

Derivative Assets

Derivative Liabilities

June 30, 2011

December 31, 2010

June 30, 2011

December 31, 2010

Derivatives not designated as hedging instruments

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Balance Sheet Location

Fair Value (1)

Balance Sheet Location

Fair Value  (1)

Foreign currency contracts

Prepaid expenses and other current assets

$

197

Prepaid expenses and other current assets

$

—

Other accrued expenses

$

(296

)

Other accrued expenses

$

956

(1) See Note 16 – Fair Value Measurements for details.

The Effect of Derivative Instruments on Financial Performance

The following tables provide the effect that derivative instruments had on our AOCI and results of operations (in thousands):

	Three Months Ended June 30
Derivatives designated as hedging instruments	Amount of gain (loss) recognized in AOCI (effective portion)					Location of gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011		2010				2011			2010
Foreign currency contracts	$	306	$	(388	)	Revenues	$	(271	)	$	554
						Operating expenses	$	628		$	62

	Six Months Ended June 30
Derivatives designated as hedging instruments	Amount of (loss) gain recognized in AOCI (effective  portion)					Location of (loss) gain reclassified from accumulated AOCI into income statement (effective portion)	Amount of (loss) gain reclassified from accumulated AOCI (effective portion)
	2011			2010			2011			2010
Foreign currency contracts	$	(100	)	$	51	Revenues	$	(1,301	)	$	686
						Operating expenses	$	1,128		$	384

	Three Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(881	)	$	1,411
	Six Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2011			2010
Foreign currency contracts	Other income (expense), net	$	(2,493	)	$	2,506

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Cash and Cash Equivalents and Investments (Summary Of Investments By Category) (Details) (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Total investments, cost	$ 77,680	$ 136,113
Total investments, fair value	77,057	135,750
U.S. Treasury Securities [Member]
Available-for-sale securities, cost	3,430	24,500
Available-for-sale securities, fair value	3,435	24,511
U.S. Agency Securities [Member]
Available-for-sale securities, cost	11,115	35,407
Available-for-sale securities, fair value	11,097	35,387
Commercial Paper [Member]
Available-for-sale securities, cost	4,970	14,958
Available-for-sale securities, fair value	5,000	14,984
Corporate Notes/Bonds [Member]
Available-for-sale securities, cost	55,415	51,561
Available-for-sale securities, fair value	54,774	51,181
Certificates/Term Deposits [Member]
Available-for-sale securities, cost	2,750	9,687
Available-for-sale securities, fair value	$ 2,751	$ 9,687

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Other Income (Expense), Net (Tables)

6 Months Ended

Jun. 30, 2011

Other Income (Expense), Net

Schedule Of Other (Expense) Income, Net

	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Interest income	$	589		$	532		$	1,126		$	844
Interest expense		(790	)		(1,108	)		(1,769	)		(2,238	)
Foreign currency gains (losses), net (1)		1,646			(4,671	)		4,861			(8,853	)
Forward foreign currency contracts (losses) gains, net (2)		(881	)		1,411			(2,493	)		2,506
Other income (expense), net		9			(7	)		118			292
Total other income (expense), net	$	573		$	(3,843	)	$	1,843		$	(7,449	)

(1) Our foreign currency (losses) gains, net are predominantly attributable to the re-measurement gains or losses on our net balances of monetary assets and liabilities in our foreign subsidiaries, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. The foreign currency re-measurement adjustments to these balance sheet items are calculated by comparing the currency spot rates at the end of a month to the spot rates at the end of the previous month.

(2) Relates to changes in fair value of our forward foreign currency contracts not designated as hedging instruments. See Note 15 - Derivative Instruments for further details.

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Condensed Consolidated Statements Of Comprehensive Income (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Condensed Consolidated Statements Of Comprehensive Income
Net income	$ 6,330	$ 17,391	$ 9,958	$ 33,003
Other comprehensive income (loss):
Unrealized income (loss) on foreign currency hedges, net of tax	306	(388)	(100)	51
Unrealized income (loss) on available-for-sale securities, net of tax	96	(4)	74	(11)
Comprehensive income	$ 6,732	$ 16,999	$ 9,932	$ 33,043

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

NOTE 16 — FAIR VALUE MEASUREMENTS

We perform fair value measurements in accordance with FASB's guidance on Fair Value Measurements and Disclosures. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies under other accounting pronouncements that require or permit fair value measurements. The standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs that reflect the reporting entity's own assumptions when there is little or no market data.

We measure our financial assets and liabilities at fair value on a recurring basis using the following valuation techniques:

(a) Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(b) Income Approach – uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

The following table represents our fair value hierarchy and the valuation techniques used for financial assets and financial liabilities measured at fair value on a recurring basis (in thousands):

	June 30, 2011
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	103,320	$	103,320	$	—	$	—	(a)
U.S. treasury securities		3,435		—		3,435		—	(a)
U.S. agency securities		11,096		11,096		—		—	(a)
Corporate notes/bonds		54,774		—		54,774		—	(a)
Certificates/term deposits		3,892		—		3,892		—	(a)
Commercial paper		6,499		—		6,499		—	(a)
Derivative assets (1)		1,195		—		1,195		—	(a)
Total	$	184,211	$	114,416	$	69,795	$	—
Liabilities:
Derivative liabilities (1)	$	660	$	—	$	660	$	—	(a)
Contingent consideration		11,513		—		—		11,513	(b)
Total	$	12,173	$	—	$	660	$	11,513
	December 31, 2010
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	268,118	$	268,118	$	—	$	—	(a)
U.S. treasury securities		24,511		24,511		—		—	(a)
U.S. agency securities		35,387		35,387		—		—	(a)
Corporate notes/bonds		51,181		—		51,181		—	(a)
Certificates/term deposits		10,777		—		10,777		—	(a)
Commercial paper		14,984		—		14,984		—	(a)
Derivative assets (1)		1,123		—		1,123		—	(a)
Total	$	406,081	$	328,016	$	78,065	$	—
Liabilities:
Derivative liabilities (1)	$	1,380	$	—	$	1,380	$	—	(a)
Contingent consideration		8,515		—		—		8,515	(b)
Total	$	9,895	$	—	$	1,380	$	8,515

(1) See Note 15 – Derivative Instruments for details.

The following table presents our liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30(1)
	2011			2010
Total, beginning of the period	$	8,515		$	4,000
Contingent consideration		5,700			—
Payment of contingent consideration		(2,702	)		—
Total, end of the period	$	11,513		$	4,000

(1) We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically based on the acquired company's products' total revenue or sales growth over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property. During the second quarter of 2011, we separately purchased intellectual property and entered into an agreement whereby the former owner has the opportunity to earn an additional amount contingent upon his achievement of certain technology milestones.

Other Financial Assets and Liabilities

The carrying amounts of our other financial assets and liabilities including accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization.

The book value and fair value of our current and long-term portion of loans payable as of June 30, 2011 are as follows (in thousands):

	Book Value		Fair Value (1)
Current portion of loans payable	$	576	$	576
Long-term portion of loans payable		32,460		32,460
	$	33,036	$	33,036

(1) Estimated fair value of long-term debt is based on quoted prices for similar liabilities for which significant inputs are observable.

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Goodwill and Intangible Assets, Net (Estimated Annual Amortization Expense Related To Amortizing Intangible Assets) (Details) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011
Goodwill And Intangible Assets, Net
2011 (remaining 2 quarters)	$ 19,532
2012	33,071
2013	18,784
2014	15,656
2015 and thereafter	12,971
Total accumulated amortization	$ 100,014

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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2011

Acquisitions

Preliminary Allocation Of Purchase Price To Assets And Liabilities

Current assets	$	12,479
Acquired technologies with a weighted average useful life of 5.2 years		24,500
In-process research and development		400
Customer relationships with a useful life of 4.0 years		11,300
Trademarks and trade names with a useful life of 10.0 years		1,800
Goodwill		20,730
Deferred income tax assets – non-current		7,832
Other assets		2,419
Current liabilities		(6,328	)
Deferred revenue – current		(9,383	)
Deferred revenue – non-current		(9,491	)
Other long-term liabilities		(278	)
Total purchase price	$	55,980

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Organization And Basis Of Presentation

6 Months Ended

Jun. 30, 2011

Organization And Basis Of Presentation

Organization and Basis of Presentation

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Quest Software, Inc. was incorporated in California in 1987 and reincorporated in Delaware in 2009. We are a leading developer and vendor of application, database, Windows and virtualization management software products. We also provide consulting, training, and support services to our customers. References to "Quest," "Quest Software," the "Company," "we," "us," or "our" refer to Quest Software, Inc. and its consolidated subsidiaries.

Our accompanying unaudited condensed consolidated financial statements as of June 30, 2011 and for the three months and six months ended June 30, 2011 and 2010 reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Consolidated Financial Statements and Notes to the Consolidated Financial Statements" included in Quest's Annual Report on Form 10-K for the year ended December 31, 2010 ("2010 Form 10-K"). The results for the interim periods presented are not necessarily indicative of the results that may be expected for any future period.

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Other Income (Expense), Net

6 Months Ended

Jun. 30, 2011

Other Income (Expense), Net

Other (Expense) Income, Net

NOTE 10 — OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following (in thousands):

	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Interest income	$	589		$	532		$	1,126		$	844
Interest expense		(790	)		(1,108	)		(1,769	)		(2,238	)
Foreign currency gains (losses), net (1)		1,646			(4,671	)		4,861			(8,853	)
Forward foreign currency contracts (losses) gains, net (2)		(881	)		1,411			(2,493	)		2,506
Other income (expense), net		9			(7	)		118			292
Total other income (expense), net	$	573		$	(3,843	)	$	1,843		$	(7,449	)

(1) Our foreign currency (losses) gains, net are predominantly attributable to the re-measurement gains or losses on our net balances of monetary assets and liabilities in our foreign subsidiaries, including accounts receivable and cash, which were primarily denominated in the Euro, and to a lesser extent, the British Pound and Canadian Dollar. The foreign currency re-measurement adjustments to these balance sheet items are calculated by comparing the currency spot rates at the end of a month to the spot rates at the end of the previous month.

(2) Relates to changes in fair value of our forward foreign currency contracts not designated as hedging instruments. See Note 15 - Derivative Instruments for further details.

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Stock-Based Compensation (Classification Of Stock-Based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Total stock-based compensation	$ 5,492		$ 4,515		$ 12,906		$ 9,170
Tax benefit associated with stock-based compensation expense	2,125	[1]	1,747	[1]	4,995	[1]	3,549	[1]
Reduction of net income	3,367		2,768		7,911		5,621
Percentage of recognized tax benefit related to share-based compensation expense	38.70%		38.70%		38.70%		38.70%
Cost of Services [Member]
Total stock-based compensation	238		199		554		383
Sales and Marketing [Member]
Total stock-based compensation	1,682		1,246		3,791		2,359
Research and Development [Member]
Total stock-based compensation	1,614		1,592		3,767		3,010
General and Administrative [Member]
Total stock-based compensation	$ 1,958		$ 1,478		$ 4,794		$ 3,418

[1] The recognized tax benefit related to share-based compensation expense is estimated to be 38.7% for the three months and six months ended June 30, 2011 and 2010. This approximates the blended Federal and State statutory tax rate after the benefit for state taxes.

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Derivative Instruments (Effect Of Derivative Instruments Not Designated As Hedges On Result Of Operations) (Details) (Foreign Currency Contracts [Member], Other Income (Expense), Net [Member], USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Foreign Currency Contracts [Member] | Other Income (Expense), Net [Member]
Amount of (loss) gain recognized on derivative instruments	$ (881)	$ 1,411	$ (2,493)	$ 2,506

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Acquisitions (Narrative) (Details) (USD $)	6 Months Ended	1 Months Ended
	Jun. 30, 2011	Jan. 31, 2011 BakBone Software Incorporated [Member]	Jan. 31, 2011 BakBone Software Incorporated [Member] IPR&D [Member]
Percentage of voting interest acquired		100.00%
Cash consideration paid		$ 56,000,000
Total purchase price	55,980,000
Discount rate used for valuation of intangible assets			28.00%
Goodwill allocation to licenses		45.00%
Goodwill allocation to services		52.00%
Goodwill allocation to professional services		3.00%
Additional acquisitions completed	three
Aggregate purchase price of other acquisitions	40,000,000
Preliminary allocation of purchase price to goodwill	20,000,000
Preliminary allocation of purchase price to intangibles	$ 21,000,000

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

NOTE 14 — STOCK-BASED COMPENSATION

We offer stock-based awards to employees, directors and consultants under the Quest Software, Inc. 2008 Stock Incentive Plan (the "2008 Plan"). The 2008 Plan was adopted by our Board of Directors as a means to secure and retain the services of our employees, directors, and consultants, to provide such eligible individuals an opportunity to benefit from increases in the value of our Common Stock through the grant of stock awards, and thereby align the long-term compensation and interests of those individuals with our stockholders.

The 2008 Plan provides for the discretionary grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, and other forms of equity compensation (collectively, the "stock awards"). The number of shares of Common Stock available for issuance under the 2008 Plan is 21.3 million as of June 30, 2011. The number of shares of Common Stock reserved for issuance under the 2008 Plan will be reduced by 1 share for each share of Common Stock issued under the 2008 Plan pursuant to a stock option and by 1.94 shares for each share of Common Stock issued under the 2008 Plan pursuant to a restricted stock award, restricted stock unit award, or other stock award. As of June 30, 2011, there were 7.1 million shares available for grant under the 2008 Plan.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The fair value of these awards is amortized on a straight-line basis over the vesting period. Expected volatilities are based on historical volatilities of Quest's stock. We use historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate is based on the U.S. Treasury zero-coupon issues in effect at the time of option grant for equivalent remaining terms. We do not expect to pay any dividends and, therefore, we use an expected dividend yield of zero.

We used the following weighted-average assumptions for option awards granted during the three months and six months ended June 30, 2011 and 2010:

	Three Months Ended June  30					Six Months Ended June  30
	2011			2010 (1)		2011			2010 (1)
Expected volatility		34	%		N/A		34	%		37	%
Expected term (in years)		5.3			N/A		5.7			6.4
Risk-free interest rate		1.9	%		N/A		2.1	%		2.8	%
Expected dividend yield		None			None		None			None

(1) There were no option awards granted for the three months ended June 30, 2010. Consequently, six month data relates only to the three month period during which options were granted.

A summary of the activity of employee stock options during the six months ended June 30, 2011, and details regarding the options outstanding and exercisable at June 30, 2011, are provided below:

	Number of Shares (in thousands)			Weighted-Average Exercise Price (per share)		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands) (1)
Outstanding at December 31, 2010		13,130		$	16.93
Granted		2,471		$	25.48
Exercised		(1,325	)	$	19.05
Canceled/forfeited/expired		(734	)	$	22.45
Outstanding at June 30, 2011		13,542		$	17.99		6.9	$	72,270
Vested or expected to vest at June 30, 2011		12,739		$	17.78		6.8	$	70,092
Exercisable at June 30, 2011		5,881		$	14.86		4.2	$	47,601

(1) These amounts represent the difference between the exercise price and $22.73, the closing price of Quest Software, Inc. stock on June 30, 2011 as reported on the NASDAQ National Market, for all options outstanding that have an exercise price currently below the closing price.

The weighted-average fair value of options granted during the six months ended June 30, 2011 and 2010 was $8.99 and $6.98, respectively. The total intrinsic value of options exercised was $9.0 million and $10.5 million for the six months ended June 30, 2011 and 2010, respectively. The total fair value of options vested during the six months ended June 30, 2011 and 2010 was $12.6 million and $4.1 million, respectively.

Restricted Stock Unit Awards ("RSU Awards")

RSU awards have been granted to selected executives pursuant to our Executive Incentive Plan. We have also granted RSU awards to key employees pursuant to the Managing For Results Profit Sharing Plan. Our outstanding RSU awards vest over three years with vesting contingent upon continuous service and meeting certain company-wide performance goals, including sales, operating profit margin, and cash flow targets. We estimate the fair value of RSU awards using the market price of our common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period. Additionally, a portion of each RSU award is settled in cash, only to the extent necessary to pay the minimum tax withholding or any government levies on the restricted stock unit.

A summary of our RSU awards activity during the six months ended June 30, 2011 is provided below:

	Number of Shares			Weighted-Average Grant Date Fair Value (per share)
Nonvested at January 1, 2011		787,798		$	14.99
Granted		—		$	—
Vested		(293,418	)	$	14.26
Forfeited		(34,513	)	$	15.47
Nonvested at June 30, 2011(1)		459,867		$	15.43

(1) Of which, 435,998 shares are expected to vest.

The total fair value of RSU awards vested during the six months ended June 30, 2011 and 2010 was $4.2 million and $5.2 million, respectively.

Stock-Based Compensation Expense

The following table presents the income statement classification of all stock-based compensation expense for the three months and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June  30				Six Months Ended June 30
	2011		2010		2011		2010
Cost of services	$	238	$	199	$	554	$	383
Sales and marketing		1,682		1,246		3,791		2,359
Research and development		1,614		1,592		3,767		3,010
General and administrative		1,958		1,478		4,794		3,418
Total stock-based compensation		5,492		4,515		12,906		9,170
Tax benefit associated with stock-based compensation expense (1)		2,125		1,747		4,995		3,549
Reduction of net income	$	3,367	$	2,768	$	7,911	$	5,621

(1) The recognized tax benefit related to share-based compensation expense is estimated to be 38.7% for the three months and six months ended June 30, 2011 and 2010. This approximates the blended Federal and State statutory tax rate after the benefit for state taxes.

As of June 30, 2011, total unrecognized stock-based compensation cost related to unvested stock option awards was $45.3 million, which is expected to be recognized over a weighted-average period of 3.7 years and total unrecognized stock-based compensation cost related to unvested RSU awards was $6.1 million, which is expected to be recognized over a weighted-average period of 1.2 years.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Cash and cash equivalents	$ 204,094	$ 356,533
Short-term investments	43,504	90,284	[1]
Accounts receivable, net of allowances of $6,619 and $5,367 at June 30, 2011 and December 31, 2010, respectively	143,221	179,621
Prepaid expenses and other current assets	36,607	48,312
Deferred income taxes	7,061	6,677
Total current assets	434,487	681,427
Property and equipment, net	81,185	70,854
Long-term investments	33,553	45,466	[1]
Intangible assets, net	107,014	62,785
Goodwill	746,719	706,224
Deferred income taxes	54,536	46,985
Other assets	54,165	21,843
Total assets	1,511,659	1,635,584
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	10,628	5,512
Accrued compensation	55,367	55,185
Other accrued expenses	42,646	32,600
Loans payable	576	521
Deferred revenue	338,003	324,121
Total current liabilities	447,220	417,939
Long-term liabilities:
Deferred revenue	104,316	100,264
Income taxes payable	42,106	41,385
Loans payable	32,460	32,730
Other long-term liabilities	15,689	11,000
Total long-term liabilities	194,571	185,379
Total liabilities	641,791	603,318
Commitments and contingencies (Note 17)
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued or outstanding
Common stock, $0.001 par value, 200,000 shares authorized; 85,752 and 92,893 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	86	93
Additional paid-in-capital	557,317	729,640
Retained earnings	311,655	301,697
Accumulated other comprehensive income	810	836
Total stockholders' equity	869,868	1,032,266
Total liabilities and stockholders' equity	$ 1,511,659	$ 1,635,584

[1] See Note 16 - Fair Value Measurements for details regarding fair value measurements.

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Geographic And Segment Reporting (Schedule Of Business Segment Information) (Details) (USD $) In Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Licenses	$ 77,632	$ 77,100		$ 144,367		$ 142,081
Services	125,338	109,002		246,760		215,192
Total revenues	202,970	186,102	[1]	391,127	[1]	357,273
Cost of licenses	2,550	1,893		4,334		3,714
Cost of services	22,634	15,636		43,600		30,360
Amortization of purchased technology	5,249	3,965		9,899		8,458
Total cost of revenues	30,433	21,494		57,833		42,532
Gross profit	172,537	164,608		333,294		314,741
Licenses [Member]
Licenses	77,632	77,100		144,367		142,081
Cost of licenses	7,799	5,858		14,233		12,172
Gross profit	69,833	71,242		130,134		129,909
Maintenance Services [Member]
Services	110,276	98,520		218,342		194,288
Cost of services	10,469	7,409		20,480		14,638
Gross profit	99,807	91,111		197,862		179,650
Professional Services [Member]
Services	15,062	10,482		28,418		20,904
Cost of services	12,165	8,227		23,120		15,722
Gross profit	$ 2,897	$ 2,255		$ 5,298		$ 5,182

[1] Includes property and equipment, net and other assets

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Net Income Per Share (Reconciliation Of Denominator Of Net Income Per Share) (Details)	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Net Income Per Share
Shares used in computing basic net income per share	88,320,000		89,434,000		90,301,000		89,548,000
Dilutive effect of stock options and restricted stock units	2,043,000	[1]	2,486,000	[1]	2,441,000	[1]	2,587,000	[1]
Shares used in computing diluted net income per share	90,363,000		91,920,000		92,742,000		92,135,000
Common stock outstanding excluded from computation of diluted EPS	4,800,000		5,800,000		2,800,000		5,500,000

[1] Options to purchase 4.8 million and 5.8 million shares of common stock were outstanding during the three months ended June 30, 2011 and 2010, respectively, and 2.8 million and 5.5 million shares of common stock during the six months ended June 30, 2011 and 2010, respectively, were outstanding but were not included in the computation of diluted net income per share as inclusion would have been anti-dilutive.

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Derivative Instruments (Summary Of Fair Value Of Foreign Currency Contracts) (Details) (Foreign Currency Contracts [Member], USD $) In Thousands	Jun. 30, 2011		Dec. 31, 2010
Prepaid Expenses and Other Current Assets [Member]
Derivative assets fair value designated as hedging instruments	$ 998	[1]	$ 1,123	[1]
Derivative assets fair value not designated as hedging instruments	197	[1]		[1]
Other Accrued Expenses [Member]
Derivative liabilities fair value designated as hedging instruments	(364)	[1]	424	[1]
Derivative liabilities fair value not designated as hedging instruments	$ (296)	[1]	$ 956	[1]

[1] See Note 16 - Fair Value Measurements for details.

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Cost Method Investments (Details) (USD $) In Millions	Jun. 30, 2011	Dec. 31, 2010
Cost Method Investments
Cost Method Investments	$ 41.4	$ 14.4

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Loans Payable (Details) (USD $)	1 Months Ended		6 Months Ended
	Aug. 31, 2009	Feb. 28, 2009	Jun. 30, 2011	Dec. 31, 2010
Loans Payable
Revolving credit facility, maximum borrowing capacity		$ 100,000,000
Credit agreement potential floating interest rate plus Federal Funds rate			0.50%
Revolving credit facility, fees		500,000
Revolving credit facility, amount outstanding			0
Loan, principal amount outstanding	34,000,000
Loan, fixed interest rate			7.03%
Loan, amortization period (years)			25
Incremental interest rate due to default in repayment	5.00%
Loan, outstanding balance			33,036,000
Current portion of loans payable			576,000	521,000
Long-term portion of loans payable			$ 32,460,000	$ 32,730,000

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Stock-Based Compensation (Summary Activity Of RSU Awards) (Details) (Restricted Stock Awards [Member], USD $)	6 Months Ended
	Jun. 30, 2011
Restricted Stock Awards [Member]
Number of Shares, Nonvested at January 1, 2011	787,798
Weighted-Average Grant Date Fair Value, Nonvested at January 1, 2011	$ 14.99
Number of Shares, Granted
Weighted-Average Grant Date Fair Value, Granted
Number of Shares, Vested	(293,418)
Weighted-Average Grant Date Fair Value, Vested	$ 14.26
Number of Shares, Forfeited	(34,513)
Weighted-Average Grant Date Fair Value, Forfeited	$ 15.47
Number of Shares, Nonvested at June 30, 2011	459,867	[1]
Weighted-Average Grant Date Fair Value, Nonvested at June 30, 2011	$ 15.43	[1]
Number of shares, expected to vest	435,998

[1] Of which, 435,998 shares are expected to vest.

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Geographic And Segment Reporting (Schedule Of Geographical Segment Information) (Details) (USD $) In Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2011		Jun. 30, 2010		Jun. 30, 2011		Jun. 30, 2010
Revenues	$ 202,970		$ 186,102	[1]	$ 391,127	[1]	$ 357,273
Long-lived assets	135,350	[1]	97,546		135,350	[1]	97,546
United States [Member]
Revenues	120,152		117,248	[1]	232,899	[1]	220,291
Long-lived assets	113,636	[1]	84,902		113,636	[1]	84,902
Ireland [Member]
Revenues	36,359		22,520	[1]	67,324	[1]	43,547
Long-lived assets	7,802	[1]	8		7,802	[1]	8
Other International [Member]
Revenues	46,459	[2]	46,334	[1],[2]	90,904	[1],[2]	93,435	[2]
Long-lived assets	$ 13,912	[1],[2]	$ 12,636	[2]	$ 13,912	[1],[2]	$ 12,636	[2]

[1] Includes property and equipment, net and other assets

[2] No single location within Other International accounts for greater than 10% of total revenues