STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2012

Weighted-Average Assumptions For Option Awards Granted

We used the following weighted-average assumptions for option awards granted during the three months and six months ended June 30, 2012 and 2011:


	Three Months Ended June 30					Six Months Ended June 30
	2012 (a)		2011			2012			2011
Expected volatility		n/a		34	%		36	%		34	%
Expected term (in years)		n/a		5.3			5.7			5.7
Risk-free interest rate		n/a		1.9	%		1.0	%		2.1	%
Expected dividend yield		None		None			None			None

(a)	No options were granted during the three months ended June 30, 2012.

Summary Of Employee Stock Options Activity

A summary of the activity of employee stock options during the six months ended June 30, 2012, and details regarding the options outstanding and exercisable at June 30, 2012, 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, 2011		15,779		$	17.26
Granted		133		$	19.36
Exercised		(1,418	)	$	16.79
Canceled/forfeited/expired		(578	)	$	18.39

Outstanding at June 30, 2012		13,916		$	17.27		7.04	$	146,675

Vested or expected to vest at June 30, 2012 ⁽²⁾		12,939		$	17.23		6.91	$	136,847

Exercisable at June 30, 2012		5,680		$	15.41		4.89	$	70,426

(1)	These amounts represent the difference between the exercise price and $27.81, the closing price of Quest Software, Inc. stock on June 30, 2012 as reported on the NASDAQ National Market, for all options outstanding that have an exercise price currently below the closing price.

(2)	Contractual vesting may be altered by the ultimate terms and conditions associated with the completion of the pending merger transaction with Dell. (See Note 1).

Summary Of RSU Awards Activity

A summary of our RSU awards activity during the six months ended June 30, 2012 is provided below:


	Number of Shares			Weighted-Average Grant Date Fair Value (per share)
Nonvested at January 1, 2012		236,331		$	15.88
Granted		—		$	—
Vested		(128,948	)	$	15.36
Forfeited		(16,268	)	$	15.76

Nonvested at June 30, 2012⁽¹⁾⁽²⁾		91,115		$	16.64

(1)	81,224 of these shares are expected to vest.

(2)	Contractual vesting may be altered by the ultimate terms and conditions associated with the completion of the pending merger transaction with Dell (See Note 1).

Classification Of Stock-Based Compensation Expense

The following table presents the statement of operations classification of all stock-based compensation expense for the three months and six months ended June 30, 2012 and 2011 (in thousands):


	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
Cost of services	$	217	$	238	$	450	$	554
Sales and marketing		1,736		1,682		3,464		3,791
Research and development		1,387		1,614		2,884		3,767
General and administrative		1,851		1,958		4,476		4,794

Total stock-based compensation		5,191		5,492		11,274		12,906
Tax benefit associated with stock-based compensation expense ⁽¹⁾		2,035		2,125		4,419		4,995

Reduction of net income	$	3,156	$	3,367	$	6,855	$	7,911

(1)

The recognized tax benefit related to stock-based compensation expense was estimated to be 39.2% for the three months and six months ended June 30, 2012, and 38.7% for the three months and six months ended June 30, 2011. This approximates the blended Federal and State statutory tax rate after the benefit for state taxes.

- Definition

Tabular disclosure of components of a stock option or other award plan under which equity-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares (or other type of equity) granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from equity-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from equity-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate.

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- Definition

Tabular disclosure of the allocation of equity-based compensation costs to a given line item on the balance sheet and income statement for the period. This may include the reporting line for the costs and the amount capitalized and expensed.

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