EMC 2004 Annual Report Download - page 68

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
termination benefits covers approximately 250 employees, primarily in general and administrative and engineering functions. We expect to pay the remaining
balance for involuntary termination benefits through 2006. The liability for lease and other contractual termination benefits will be paid over the remaining
contract periods through 2011. The following summarizes the obligations recognized in connection with the LEGATO acquisition and activity to date (table
in thousands):
Year Ended December 31, 2004 Beginning Ending
Category Balance Adjustments Utilization Balance
Involuntary termination benefits $ 1,337 $ 18,578 $ (9,633) $ 10,282
Lease and other contractual terminations 28,185 13,805 (9,803) 32,187
Total $ 29,522 $ 32,383 $ (19,436) $ 42,469
Year Ended December 31, 2003 Beginning Ending
Category Balance Adjustments Utilization Balance
Involuntary termination benefits $ 2,700 $ – $ (1,363) $ 1,337
Lease and other contractual terminations 29,084 – (899) 28,185
Total $ 31,784 $ – $ (2,262) $ 29,522
In accordance with EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," upon consummation of the acquisition
of LEGATO, management began to assess and formulate a plan to exit certain activities of LEGATO. The finalization of the plan occurred within one year
after the acquisition date. The adjustments for involuntary termination benefits and lease and other contractual terminations resulted from management's
finalization of its purchase price allocation and integration plans.
Acquisition of Documentum, Inc.
In December 2003, we acquired all of the shares of outstanding common stock of Documentum, Inc. ("Documentum"). Documentum provided enterprise
content management software, enabling organizations to organize and manage unstructured data. We determined that the acquisition would provide us the
opportunity to expand our product offerings, enabling customers to implement a total information storage solution for managing unstructured content.
Additionally, the acquisition expanded our software-focused sales expertise and provided strong service capabilities. The aggregate purchase price was
approximately $1.8 billion, which consisted of $1.6 billion of common stock, $207.6 million in fair value of our stock options and $20.5 million of transaction
costs, which primarily consisted of fees paid for financial advisory, legal and accounting services. We issued approximately 115 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 1.5%
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
$27.2 million and has been recorded as deferred compensation in the purchase price allocation.
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