EMC 2007 Annual Report Download - page 66

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
these acquisitions were individually material to EMC. The fair value of our stock options was estimated assuming no expected dividends and the following
weighted average assumptions:
Expected life (in years) 2.6
Expected volatility 29.8%
Risk-free interest rate 4.4%
The consolidated financial statements include the results of the aforementioned companies from their respective dates of acquisition. The purchase price
for each company has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the respective acquisition dates.
The purchase price allocations are preliminary and a final determination of required purchase accounting adjustments will be made upon the finalization of
our integration activities. The total goodwill recognized from the aforementioned acquisitions was $537.9 million, of which none was deductible for tax
purposes. Of this amount, we allocated $316.5 million to our Information Storage segment, $3.9 million to our Content Management and Archiving segment,
$146.5 million to our RSA Information Security segment and $71.2 million to our VMware Virtual Infrastructure segment.
The following represents the aggregate allocation of the purchase price for the aforementioned companies to intangible assets (table in thousands):
Developed technology (weighted-average useful life of 5.5 years) $ 48,260
Customer relationships (weighted-average useful life of 9.3 years) 73,800
Tradename and trademark (weighted-average useful life of 10.4 years) 3,860
Non-competition agreement (weighted-average useful life of 2.4 years) 760
Backlog (weighted-average useful life of 0.5 years) 3,300
Acquired in-process research and development ("IPR&D") 1,150
Total intangible assets $ 131,130
The fair value of intangible assets was primarily based upon the income approach. The rates used to discount the net cash flows to their present values for
each acquisition were based upon weighted average costs of capital that ranged from 8.3% – 21.0%. The discount rates were determined after consideration of
market rates of return on debt and equity capital, the weighted average returns on invested capital and the risk associated with achieving forecasted sales
related to the technology and assets acquired. The total weighted average amortization period for the intangible assets is 7.6 years. The intangible assets are
being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.
Of the $131.1 million of acquired intangible assets, $1.2 million was allocated to IPR&D which was written off at the respective dates of acquisition
because the IPR&D had no alternative uses and had not reached technological feasibility. The value assigned to IPR&D was determined utilizing the income
approach by determining cash flow projections relating to identified IPR&D projects. The stage of completion of each in-process project was estimated to
determine the discount rates 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, we applied discount rates that ranged from 19.0% – 25.0% to value the IPR&D projects acquired.
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 for financial advisory, legal and accounting services. The fair
value of our stock options issued to employees of RSA was estimated
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