EMC 2004 Annual Report Download - page 69

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the results of Documentum 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 $ 367,534
Property, plant & equipment 16,940
Goodwill 1,439,671
Intangible assets:
Customer relationships (estimated useful life of 12 years) 130,050
Developed technology (estimated useful life of 5 years) 97,440
Tradenames and trademarks (estimated useful life of 5 years) 7,150
Acquired IPR&D 9,500
Total intangible assets 244,140
Deferred compensation 27,186
Deferred income taxes (631)
Other long-term assets 13,558
Current liabilities (139,960)
Long-term convertible debt (129,966)
Long-term liabilities (13,810)
Fair value of the convertible debt conversion feature (26,284)
Total purchase price $ 1,798,378
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 Documentum'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 15%. 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
forecasted sales related to the technology and assets acquired from Documentum.
The total weighted-average amortization period for the intangible assets is 8.9 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 $1.4 billion of
goodwill is classified within our EMC Software Group products and services segment and information storage products segment in the amounts of
$1,171.7 million and $268.0 million, respectively.
Of the $244.1 million of acquired intangible assets, $9.5 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. Four IPR&D projects were identified relating to content management and collaboration software. 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 40% was deemed appropriate for valuing IPR&D.
In connection with the Documentum acquisition, we commenced integration activities which have resulted in involuntary terminations and lease
terminations. The liability for involuntary termination benefits covers approximately 45 employees, primarily in general and administrative functions. We
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