EMC 2007 Annual Report Download - page 69

EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 5.6 years) $ 89,147
Customer relationships (weighted-average useful life of 7.0 years) 16,600
Tradenames and trademarks (weighted-average useful life of 0.5 years) 26
Non-competition agreement (weighted-average useful life of 3.0 years) 200
Backlog (weighted-average useful life of 2.0 years) 900
Acquired IPR&D 24,910
Total intangible assets $ 131,783
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 5.3% – 25.0%. 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 5.8 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 $131.8 million of acquired intangible assets, $24.9 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 22.0% – 35.0% to value the IPR&D projects acquired.
Total IPR&D for all of these acquisitions and RSA was $35.4 million in 2006.
2005 Acquisitions
Acquisition of Captiva Software Corporation
In December 2005, we acquired all of the outstanding capital stock of Captiva Software Corporation. Captiva is a provider of software solutions that
capture and manage business-critical information from paper, faxed and scanned forms and documents, Internet forms and XML data streams, converting
them into information that is usable in database, document, content and other information management systems. The acquisition enables us to deliver an
expanded solution to our customers, enabling them to gain a richer understanding of their information and become better equipped to classify it, create policy
based workflow and automate information lifecycle management.
The purchase price, net of cash received, was $322.6 million, which consisted of $280.8 million of cash, $36.3 million in fair value of our stock options
and $5.5 million of transaction costs, which primarily consisted of financial advisory, legal and accounting services. 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 40.0%
Risk-free interest rate 4.32%
The intrinsic value allocated to the unvested options issued in the acquisition that had yet to be earned as of the acquisition date was $8.0 million and was
initially recorded as deferred compensation in the purchase price allocation. As a result of our adoption of FAS No. 123R in 2006, we reclassified all deferred
compensation balances to additional paid-in capital.
62