EMC 2003 Annual Report Download - page 44

In January 2003, the FASB issued FASB Interpretations ("FIN") No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB 51." FIN
No. 46 provides guidance on the identification of entities for which control is achieved through means other than through voting rights called "variable
interest entities" or "VIEs" and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model
for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at
risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46
requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The adoption of
FIN No. 46 did not have a material impact on our financial position or results of operations.
In February 2003, the FASB issued Emerging Issues Task Force 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables." EITF
00-21 requires revenue arrangements with multiple deliverables to be divided into separate units of accounting. If the deliverables in the arrangement meet
certain criteria, arrangement consideration should be allocated among the separate units based on their relative fair values. Applicable revenue recognition
criteria should be considered separately for each unit. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on our financial position or results of operations.
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement
amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In
general, this Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003.
The adoption of FAS No. 149 did not have a material impact on our financial position or results of operations.
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EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for an issuer to classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires
an issuer to classify a financial instrument that meets certain characteristics as a liability (or an asset in some circumstances). This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of FAS No. 150 did not have a material impact on our financial position or results of operations.
In December 2003, the FASB issued FAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits," that
improves financial statement disclosures for defined benefit plans. The change replaces existing FAS No. 132 disclosure requirements for pensions and other
postretirement benefits and revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement of
recognition of those plans required by FAS No. 87, "Employers' Accounting for Pensions" or FAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits." FAS No. 132 revised retains the disclosure requirements contained in the
original FAS No. 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. FAS No. 132 revised is effective for annual and interim periods with fiscal years ending after
December 15, 2003. We have adopted the revised disclosure provisions.
In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, which supersedes SAB No. 101, Revenue
Recognition in Financial Statements. SAB No. 104 rescinds accounting guidance in SAB No. 101 related to multiple-element arrangements as this guidance
has been superseded as a result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The adoption of SAB
No. 104 did not have a material impact on our financial position or results of operations.
B. Business Acquisitions, Goodwill and Intangible Assets
Acquisition of LEGATO Systems, Inc.
In October 2003, we acquired all of the shares of outstanding common stock of LEGATO Systems, Inc. ("LEGATO"). LEGATO develops, markets and
supports software products and services for information protection and recovery, hierarchal storage management, automated availability, e-mail and content
management. We determined that the acquisition would expand our portfolio of open storage software, provide software-focused sales expertise, extensive
channel partner relationships and strong service capabilities. The aggregate purchase price was approximately $1.4 billion, which consisted of $1.2 billion of
our Common Stock, $141.5 million in fair value of our stock options and $15.2 million of transaction costs, which primarily consisted of fees paid for
financial advisory, legal and accounting services. We issued approximately 106 million shares of our Common Stock, the fair value of which was based upon
a five-day average of the closing price two days before and two days after the terms of the acquisition were agreed to and publicly announced. The fair value
of our stock options issued to employees was estimated using a Black-Scholes option pricing model. The fair value of the stock options was estimated
assuming no expected dividends and the following weighted-average assumptions:
Expected life (in years) 4.0
Expected volatility 60.0%
Risk free interest rate 2.0%
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EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
The intrinsic value allocated to the unvested options issued in the transaction that had yet to be earned as of the transaction date was approximately
$40.8 million and has been recorded as deferred compensation in the purchase price allocation.