EMC 2006 Annual Report Download - page 58

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to the adoption date for which the requisite service has not been rendered as of the adoption date shall be recognized as the requisite service is rendered. The
compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated in the prior period pro forma disclosures
under FAS No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"). Changes to the grant-date fair value of equity awards granted before the
effective date are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the adoption date using the
attribution method that was used under FAS No. 123, which was the straight-line method. Instead of recognizing forfeitures only as they occur, we now
estimate an expected forfeiture rate which is factored in to determine our quarterly expense. Deferred compensation which related to those earlier awards has
been eliminated against additional paid-in capital. FAS No. 123R also changes the reporting of tax-related amounts within the statement of cash flows. The
gross amount of windfall tax benefits resulting from stock-based compensation will be reported as financing inflows.
For stock options, we have selected the Black-Scholes option-pricing model to determine the fair value of our stock option awards. For stock options,
restricted stock and restricted stock units, we recognize compensation cost on a straight-line basis over the awards' vesting periods for those awards which
contain only a service vesting feature. For awards with a performance condition vesting feature, we recognize compensation cost on a graded-vesting basis
over the awards' expected vesting periods.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109" ("FIN No. 48"). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FAS No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes a two-step process to determine the
amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external
examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then assessed to determine the amount of benefit to
recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of
being realized upon ultimate settlement. We are required to adopt FIN No. 48 effective as of January 1, 2007. We are currently evaluating the effect FIN No.
48 will have on our financial statements. We do not expect the impact will be material.
In September 2006, the FASB issued FAS No. 157, "Fair Value Measurements" ("FAS No. 157"), which addresses how companies should measure fair
value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. FAS No. 157
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value
measurements. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments that require retrospective application. We are currently evaluating the potential
impact of FAS No. 157 on our financial position and results of operations.
In February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of
FAS 115" ("FAS No. 159"). The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair
value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair
value in subsequent reporting periods must be recognized in current earnings. FAS No. 159 is effective for fiscal years beginning after November 15, 2007.
We are currently evaluating the potential impact of FAS No. 159 on our financial position and results of operations.
B. Business Acquisitions, Goodwill and Intangible Assets
2006 Acquisitions
Acquisition of RSA Security Inc.
In September 2006, we acquired all of the outstanding capital stock of RSA. RSA provides technologies to secure information no matter where it
resides or travels inside or outside of an organization and throughout its lifecycle. The acquisition adds industry-leading identity and access management
solutions and encryption and key management software to our product offerings.
The purchase price, net of cash received, was approximately $2.0 billion, which consisted of $2.0 billion of cash, $27.9 million in fair value of our
stock options and $11.6 million of transaction costs, which primarily consisted of fees incurred by us
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