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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the results of LEGATO from the date of acquisition. The purchase price has been allocated based on
estimated fair values as of the acquisition date (table in thousands):
Current assets $ 83,321
Property, plant & equipment 29,553
Deferred income taxes 121,849
Goodwill 1,093,133
Intangible assets:
Customer relationships (estimated useful life of 9 years) 110,120
Developed technology (estimated useful life of 5 years) 64,730
Tradenames and trademarks (estimated useful life of 5 years) 1,744
Non-competition agreements (estimated useful life of 2 years) 227
IPR&D 19,640
Total intangible assets 196,461
Deferred compensation 31,247
Other long-term assets 2,299
Current liabilities (176,936)
Long-term liabilities (29,270)
Total purchase price $ 1,351,657
In determining the purchase price allocation, we considered, among other factors, our intention to use the acquired assets, historical demand and estimates
of future demand of LEGATO's products and services. The fair value of intangible assets was primarily based upon the income approach. The rate used to
discount the net cash flows to their present values was based upon a weighted average cost of capital of 16%. The discount rate was determined after
consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving
forecast sales related to the technology and assets acquired from LEGATO.
The total weighted-average amortization period for the intangible assets is 7.5 years. The intangible assets are being amortized based upon the pattern in
which the economic benefits of the intangible assets are being utilized. None of the goodwill is deductible for income tax purposes. The $1.1 billion of
goodwill is classified within our EMC Software Group products and services segment and information storage products segment in the amounts of
$867.1 million and $226.0 million, respectively.
Of the $196.5 million of acquired intangible assets, $19.6 million was allocated to IPR&D and was written off at the date of acquisition because the
IPR&D had no alternative uses and had not reached technological feasibility. The write-off is included in restructuring and other special charges in our
statement of operations. Six IPR&D projects were identified relating to information protection software and content and messaging software. The projects
relating to information protection software had a value of $16.3 million and the projects relating to content and messaging software had a value of
$3.3 million. The value assigned to IPR&D was determined utilizing the income approach by determining cash flow projections relating to the projects. The
stage of completion of each in process project was estimated to determine the discount rate to be applied to the valuation of the in process technology. Based
upon the level of completion and the risk associated with in process technology, a discount rate of 50% was deemed appropriate for valuing IPR&D.
In connection with the LEGATO acquisition, we commenced integration activities which have resulted in involuntary terminations and lease and contract
terminations. The liability for involuntary 64