NOTE 3 — ACQUISITIONS

2011 Acquisitions

BakBone Software Incorporated – In January 2011, we acquired 100% of the voting equity interest of BakBone Software Incorporated ("BakBone"), a publicly-held provider of data protection software, for cash consideration of approximately $56 million. BakBone provides us with additional technologies and products 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 nine months ended September 30, 2011. These acquisitions have been accounted for as business combinations. The aggregate purchase price for these transactions was approximately $40 million. The 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 nine months ended September 30, 2011 and 2010, and therefore are not presented.

2010 Acquisitions

Völcker Informatik AG – In July 2010, we acquired 100% voting equity interest of Germany-based Völcker Informatik AG ("Völcker"), a privately held identity management solutions provider, for cash consideration of approximately $20.2 million. The acquisition further extends the Quest^® One Identity Solution product portfolio. In connection with the acquisition, Quest also agreed to certain post-closing payments with a maximum potential payout of approximately $5.0 million paid over three years, of which $2.5 million relates to an earn-out contingent upon achieving certain sales targets and the remainder to retention bonuses tied to continued employment. The estimated fair value of the earn-out contingency of $2.0 million has been recorded as an accrual, making the total purchase price approximately $22.2 million.

The earn-out contingency requires payments of up to $2.5 million that will be due and payable if certain levels of revenues for Völcker products are met during the three-year period subsequent to the close of the acquisition. The fair value of the earn-out contingency was determined using the income approach with significant inputs that are not observable in the market. A key assumption is a discount rate consistent with our estimated pre-tax cost of debt. The expected outcomes were recorded at net present value. Subsequent changes in the fair value of the earn-out contingency will be recorded in earnings.

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 Völcker are included in our consolidated financial statements from the date of acquisition. Our final allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows (in thousands).


Current assets	$	2,823
Acquired technologies with a useful life of 4.5 years		5,416
Customer relationships with a useful life of 4.5 years		3,401
Goodwill		13,930
Other assets		490
Current liabilities		(1,246	)
Deferred income tax liabilities – non-current		(2,645	)

Total purchase price	$	22,169

The intangible assets will be amortized over the pattern in which the economic benefits of the intangible assets are being utilized, which in general reflects the cash flows generated from such assets. 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 50% to Licenses, 36% to Maintenance Services and 14% to Professional Services is based on both historical and projected relative contribution from licenses and 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.

Surgient, Inc. – In August 2010, we acquired 100% voting equity interest of Texas-based Surgient, Inc. ("Surgient"), a privately held cloud management company for cash consideration of $35.0 million. 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 Surgient are included in our consolidated financial statements from the date of acquisition. As a result of finalizing our analysis of the Surgient pre-acquisition U.S. net operating loss carryovers and other deferred tax items, we recorded a purchase price adjustment that resulted in an increase of $6.1 million in goodwill and a decrease of $6.1 million in non-current deferred income tax assets. Management has concluded that this purchase price adjustment is not material and we did not revise comparative prior period information to reflect the effect of this adjustment. Our final allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows (in thousands):


Current assets	$	789
Acquired technologies with a useful life of 3.5 years		1,030
In-process research and development		120
Customer relationships with a useful life of 3.5 years		1,240
Goodwill		26,011
Deferred income tax assets – non-current		9,178
Other assets		1,271
Deferred revenue – current		(2,943	)
Other current liabilities		(1,124	)
Deferred revenue – non-current		(572	)

Total purchase price	$	35,000

The intangible assets will be amortized over the pattern in which the economic benefits of the intangible assets are being utilized, which in general reflects the cash flows generated from such assets. We acquired one in-process research and development ("IPR&D") project. The value assigned to the IPR&D project was determined utilizing the income approach by determining cash flow projections relating to the project. We applied a discount rate of 12% to determine 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 over the pattern in which the economic benefit of the intangible asset is being utilized. During the quarter ended September 30, 2011, we identified certain intangible assets as impaired due to change of plans for certain products that were to include these technology assets. These intangible assets were held at their net book value of $1.6 million. The impairment losses were recorded in Cost of revenues and General and administrative expense for $0.8 million each.

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 55% to Licenses, 37% to Maintenance Services and 8% to Professional Services is based on both historical and projected relative contribution from licenses and 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.

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