EMC 2002 Annual Report Download - page 55

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. EMC does not expect that this Interpretation will have a material
impact on EMC's financial position or results of operations.
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB
Statement No. 123." FAS No. 148 amends FAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS No. 148 amends the disclosure
requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. As provided for in FAS No. 123, EMC has elected to apply APB No. 25
"Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans. APB No. 25 does not require
options to be expensed when granted with an exercise price equal to fair market value. EMC intends to continue to apply the provisions of APB No. 25.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." In general, a variable interest entity is a
corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets,
including loans or receivables, real estate or other property. Variable interest entities have been commonly referred to as special-purpose entities or off-
balance sheet structures. This Interpretation requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. EMC does not expect that this
Interpretation will have a material impact on its financial position or results of operations.
B. Business Acquisitions, Goodwill and Intangible Assets
In September 2002, EMC acquired all of the outstanding common and preferred stock of Prisa Networks, Inc. ("Prisa"), a software development
company, for $22.0 million in cash. The purchase price has been allocated to Prisa's assets and liabilities based upon their fair market value at the date of
acquisition. The allocation resulted in $4.5 million being allocated to developed technology, $1.9 million to an original equipment manufacturer ("OEM")
contract and $5.1 million to goodwill, all of which are classified within EMC's information storage products segment. The consolidated financial statements
include the operating results of Prisa from the date of acquisition. Pro forma results of operations have not been presented because the effects of the
acquisition were not material to EMC. The intangible assets, with the exception of the goodwill, are being amortized on a straight-line basis over their
estimated useful life of four years. None of the goodwill is deductible for income tax purposes.
A summary of the assets acquired and liabilities assumed in the 2002 transaction set forth above is as follows (table in thousands):
Fair value of assets acquired $ 23,483
Cash paid for stock, net of cash acquired (21,993)
Liabilities assumed $ 1,490
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