EMC 2007 Annual Report Download - page 67

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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) 1.6
Expected volatility 31.0%
Risk-free interest rate 5.0%
The consolidated financial statements include the results of RSA from the date of acquisition. The purchase price has been allocated to the assets
acquired and the liabilities assumed based on estimated fair values as of the acquisition date.
The following represents the final allocation of the purchase price (table in thousands):
Current assets $ 60,860
Property, plant and equipment 66,991
Other long-term assets 20,517
Goodwill 1,693,149
Intangible assets:
Developed technology (weighted-average useful life of 5.1 years) 231,600
Customer relationships (weighted-average useful life of 8.6 years) 162,900
Tradename and trademark (weighted-average useful life of 10.0 years) 77,500
Non-competition agreement (weighted-average useful life of 3.0 years) 1,400
IPR&D 10,500
Total intangible assets 483,900
Current liabilities (174,763)
Deferred income taxes (80,274)
Long-term liabilities (21,893)
Total purchase price $ 2,048,487
In determining the purchase price allocation, we considered, among other factors, our intention to use the acquired assets and historical and estimated
future demand of RSA 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 13.0%. 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 RSA.
The total weighted average amortization period for the intangible assets is 7.1 years. The intangible assets are being amortized based upon the pattern in
which the economic benefits of the intangible assets are being utilized, which in general reflects the cash flows generated from such assets. None of the
goodwill is deductible for income tax purposes. Of the total goodwill acquired from the acquisition of RSA, $1,273.4 million was allocated to our RSA
Information Security segment and $419.7 million was allocated to our Information Storage segment.
Of the $483.9 million of acquired intangible assets, $10.5 million was allocated to IPR&D which was written off at the respective date 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 the 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 a discount rate of 18.0% to value the IPR&D projects.
In connection with the acquisition of RSA, we commenced integration activities which resulted in the recognition of $4.6 million in liabilities for
employee termination benefits and $6.8 million for lease and contract terminations, of which $4.6 million was paid through December 31, 2007. We expect to
pay the liabilities associated with the employee termination benefits through 2008 and the liabilities associated with the lease and contract terminations
through 2016.
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