EMC 2010 Annual Report Download - page 65

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other adjustments to goodwill include the transfer of the goodwill related to the Ionix information technology management business from the
Information Storage segment to the VMware Virtual Infrastructure segment. The goodwill transfer related to the common control acquisition of certain
software product technology and related capabilities of our Ionix business by VMware. See Note R for additional details.
Year Ended December 31, 2009
Information
Storage
Information
Intelligence
Group
RSA
Information
Security
VMware
Virtual
Infrastructure Total
Balance, beginning of the year $ 3,253,966 $ 1,442,281 $ 1,535,872 $ 814,680 $ 7,046,799
Goodwill acquired 1,804,873 38,245 — 346,083 2,189,201
Tax deduction from exercise of stock options (101) (2,022) (834) — (2,957)
Finalization of purchase price allocations (13,652) (1,984) (5,630) (1,401) (22,667)
Balance, end of the year $ 5,045,086 $ 1,476,520 $ 1,529,408 $ 1,159,362 $ 9,210,376
Valuation of Goodwill and Intangibles
We perform an assessment of the recoverability of goodwill, at least annually, in the fourth quarter of each year. Our assessment is performed at the
reporting unit level which, for certain of our segments, is one step below our reporting segment level. For each assessment, we compare the market value of
the reporting unit to its carrying value. We estimate fair value by employing various methodologies, including comparisons to similar industry companies as
well as discounted cash flow estimates. The determination of relevant comparable industry companies impacts our assessment of fair value. Should the
operating performance of our reporting units change in comparison to these companies or should the valuation of these companies change, this could impact
our assessment of the fair value of the reporting units. Our discounted cash flow analyses factor in assumptions on revenue and expense growth rates. These
estimates are based upon our historical experience and projections of future activity, factoring in customer demand, changes in technology and a cost structure
necessary to achieve the related revenues. Additionally, these discounted cash flow analyses factor in expected amounts of working capital and weighted
average cost of capital. Changes in judgments on any of these factors could materially impact the value of the reporting unit. All of these estimates were based
on information used by the business for planning purposes. There was no impairment in 2010, 2009 or 2008.
Other intangible assets are evaluated based upon the expected period the asset will be utilized, forecasted cash flows, changes in technology and
customer demand. Changes in judgments on any of these factors could materially impact the value of the asset.
E. Convertible Debt
In November 2006, we issued our Notes for total gross proceeds of $3.45 billion. The Notes are senior unsecured obligations and rank equally with all
other existing and future senior unsecured debt. Holders may convert their Notes at their option on any day prior to the close of business on the scheduled
trading day immediately preceding (i) September 1, 2011, with respect to the 2011 Notes, and (ii) September 1, 2013, with respect to the 2013 Notes, in each
case only under the following circumstances: (1) during the five business-day period after any five consecutive trading-day period (the "measurement period")
in which the price per Note of the applicable series for each day of that measurement period was less than 98% of the product of the last reported sale price of
our common stock and the conversion rate on each such day; (2) during any calendar quarter, if the last reported sale price of our common stock for 20 or
more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of
the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (3) upon the occurrence of certain events
specified in the Notes. Additionally, the Notes will become convertible during the last three months prior to the respective maturities of the 2011 Notes and
the 2013 Notes.
Upon conversion, we will pay cash up to the principal amount of the debt converted. With respect to any conversion value in excess of the principal
amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our
common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the
relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand dollars of principal
amount of Notes, which represents a 27.5% conversion premium from the date the Notes were issued and is equivalent to a conversion price of approximately
$16.08 per share of our common stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a
"fundamental change" (as defined in the indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes
that elects to convert its Notes in connection with such fundamental change.
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