-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SfBhD0Y/PkyrY1JkECSTv7gUkl4pI3zPEiFSxAwJ9qGbx4lvWYGa67pAIj7VOJxX mgcb9L+vnF8o2C/l+tRCxw== 0000790070-95-000015.txt : 19951119 0000790070-95-000015.hdr.sgml : 19951119 ACCESSION NUMBER: 0000790070-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMC CORP CENTRAL INDEX KEY: 0000790070 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042680009 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09853 FILM NUMBER: 95592256 BUSINESS ADDRESS: STREET 1: 35 PARKWOOD DR CITY: HOPKINTON STATE: MA ZIP: 01748-9103 BUSINESS PHONE: 5084351000 MAIL ADDRESS: STREET 1: 171 SOUTH STREET CITY: HOPKINTON STATE: MA ZIP: 01748-9103 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarter Ended: September 30,1995 Commission File Number 1-9853 EMC CORPORATION ----------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2680009 ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) organization or incorporation) 171 South Street Hopkinton, Massachusetts 01748-9103 - ------------------------------------------------------------ Address of principal executive offices, including zip code) (508) 435-1000 ----------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ________ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, par value $.01 per share 216,015,620 - -------------------------------------- ------------------------------------ Class Outstanding as of September 30, 1995 -2- EMC CORPORATION Page No. Part I - Financial Information Consolidated Balance Sheets September 30, 1995 and December 31, 1994 3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1995 and October 1, 1994 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and October 1, 1994 5 Notes to Interim Consolidated Financial Statements 6 - 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 -14 Part II - Other Information 15 Signatures 16 Exhibit Index 17 -3- EMC CORPORATION CONSOLIDATED BALANCE SHEETS (amounts in thousands except share amounts) Sept. 30, Dec. 31, ASSETS 1995 1994 Current assets: Cash and cash equivalents $208,997 $240,506 Trade and notes receivable less allowance for doubtful accounts of $7,244 and $6,272, respectively 527,209 361,191 Inventories 350,189 251,096 Deferred income taxes 42,551 40,754 Other assets 10,912 8,258 Total current assets 1,139,858 901,805 Long-term investments 149,548 175,631 Notes receivable, net 32,338 38,945 Property, plant and equipment, net 199,070 173,016 Deferred income taxes 5,268 4,473 Other assets, net 45,780 23,630 Total assets $1,571,862 $1,317,500 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $718 $9,502 Accounts payable 87,218 122,264 Accrued expenses 110,794 106,107 Income taxes payable 101,145 55,521 Deferred revenue 8,250 8,070 Total current liabilities 308,125 301,464 Deferred revenue 7,827 2,289 Long-term obligations: 4 1/4% convertible subordinated notes due 2001 229,598 229,598 6 1/4% convertible subordinated debentures due 2002 -- 39,536 Notes payable and capital lease oblig. 17,140 16,972 Total liabilities 562,690 589,859 Stockholders' equity: Series Preferred Stock, par value $.01; authorized 25,000,000 shares --- --- Common Stock, par value $.01; authorized 500,000,000 shares; issued 218,662,073 and 201,738,042, in 1995 and 1994, respectively 2,187 2,017 Additional paid-in capital 333,006 281,625 Deferred compensation (1,846) (2,607) Retained earnings 672,420 443,713 Cumulative translation adjustment 4,643 3,716 Treasury stock, at cost, 2,646,453 and 2,627,467 shares, respectively (1,238) (823) Total stockholders' equity 1,009,172 727,641 Total liabilities and stockholders' equity $1,571,862 $1,317,500 The accompanying notes are an integral part of the consolidated financial statements. -4- EMC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except per share amounts) (unaudited) Three Months Ended Nine Months Ended Sept. 30, Oct. 1, Sept. 30, Oct. 1, 1995 1994 1995 1994 Revenues: Net sales $423,393 $363,748 $1,257,643 $921,608 Service and rental 9,323 7,834 30,938 25,148 432,716 371,582 1,288,581 946,756 Costs and expenses: Cost of sales and service 222,603 176,333 641,423 447,123 Research and development 38,566 32,407 117,138 81,000 Selling, general and administrative 75,289 63,940 219,415 175,269 Operating income 96,258 98,902 310,605 243,364 Investment income 4,803 5,619 16,770 15,549 Interest expense (3,066) (3,652) (9,598) (11,247) Other income/(expense), net (167) (1,832) 732 (1,950) Income before taxes 97,828 99,037 318,509 245,716 Income tax provision 26,903 29,642 89,802 72,912 Net income $70,925 $69,395 $228,707 $172,804 Net income per weighted average share, primary $0.31 $0.32 $1.01 $0.82 Net income per weighted average share, fully diluted $0.31 $0.30 $1.00 $0.76 Weighted average number of common shares outstanding, primary 234,730 218,331 230,228 216,558 Weighted average number of common shares outstanding, fully diluted 234,730 234,216 234,389 233,753 The accompanying notes are an integral part of the consolidated financial statements. -5- EMC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) (unaudited) For the Nine Months Ended Sept. 30, Oct. 1, 1995 1994 Cash flows from operating activities: Net income $228,707 $172,804 Adjustments to reconcile net income to net cash provided/(used) by operating activities: Depreciation and amortization 38,924 22,556 Deferred income taxes (2,592) (13,989) Minority interest in consolidated subsidiaries --- 852 Changes in assets and liabilities: Trade and notes receivable (159,326) (143,469) Inventories (98,708) (121,188) Other assets (28,721) (12,253) Accounts payable (35,120) 70,902 Accrued expenses 4,815 32,888 Income taxes payable 45,624 22,959 Deferred revenue 5,729 (92) Net cash provided/(used) by operating activities (668) 31,970 Cash flows from investing activities: Additions to property, plant and equipment (61,560) (71,358) Net loss on disposal of property and equipment 449 70 Proceeds from sales of property and equipment --- 445 Net maturity/(purchase) of long-term investments 26,083 (117,586) Net cash used by investing activities (35,028) (188,429) Cash flows from financing activities: Issuance of common stock 12,776 10,391 Purchase of treasury stock (415) (149) Issuance of 4 1/4% convertible subordinated notes due 2001, net of issuance costs --- 29,350 Payment of long-term and short-term obligations (9,161) (1,159) Issuance of long-term and short-term obligations 545 2,988 Net cash provided by financing activities 3,745 41,421 Effect of exchange rate changes on cash 442 1,990 Net decrease in cash and cash equivalents (31,951) (115,038) Cash and cash equivalents at beginning of period 240,506 345,300 Cash and cash equivalents at end of period $208,997 $232,252 Non-Cash Activity - Conversions of Debentures 39,536 13,436 The accompanying notes are an integral part of the consolidated financial statements. -6- EMC CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Company EMC Corporation ("EMC" or the "Company") designs, manufactures, markets and supports high performance storage products and provides related services for mainframe and midrange computer systems manufactured primarily by International Business Machines Corporation ("IBM"). The Company also designs, manufactures, markets and supports a family of products aimed at the open systems storage marketplace. Accounting The accompanying consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles. These statements include the accounts of EMC and its subsidiaries. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the results for the interim periods ended September 30, 1995 and October 1, 1994. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the entire fiscal year. It is suggested that these interim consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1994, which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 1995. 2. Inventory Sept. 30, 1995 Dec. 31, 1994 Inventories consist of: Purchased parts $ 10,802,000 $ 8,946,000 Work-in-process 167,379,000 133,116,000 Finished goods 172,008,000 109,034,000 $350,189,000 $251,096,000 3. Convertible Subordinated Debentures In March 1992, the Company issued $60,000,000 of 6 1/4% convertible subordinated debentures due 2002 (the "Debentures"). The Debentures were generally convertible at the option of the holder at any time prior to maturity into shares of Common Stock of the Company at a conversion price of $3.063 per share, subject to adjustment in certain events. In February 1995, the Company notified holders of the Debentures that the Company intended to redeem the Debentures on April 1, 1995, unless the holders chose to convert on or prior to such date. The Company redeemed $1,000 of the Debentures on April 1, 1995. All other Debentures were converted on or prior to that date. -7- EMC CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 4. Net Income Per Share Net income per share was computed on the basis of weighted average common and dilutive common equivalent shares outstanding. Weighted average shares outstanding and earnings used in primary per share computations for the three and nine months ended September 30, 1995 and October 1, 1994, and used in fully diluted per share computations for the third quarter of 1995, reflect the dilutive effects of the 4 1/4% convertible subordinated notes due 2001 (the "Notes") and outstanding stock options. Weighted average shares outstanding and earnings used in fully diluted per share computations for the nine months ended September 30, 1995 and the three and nine months ended October 1, 1994, reflect the dilutive effects of the Debentures, in addition to the dilutive effect of the Notes and outstanding stock options. 5.Litigation On June 10, 1993, Storage Technology Corporation ("STK") filed suit against EMC in the United States District Court for the District of Colorado alleging that EMC is infringing three patents. In the complaint, STK seeks injunctive relief, unspecified damages, including treble damages, plus attorney's fees and costs. On July 20, 1993, EMC answered the complaint, denied STK's allegations and counterclaimed. In the counterclaims, EMC seeks unspecified damages, attorney's fees, costs and interest. In a court hearing on October 12, 1994, STK's claims on two of the three patents were dismissed with prejudice. On September 23, 1994, EMC filed suit against STK in the United States District Court for Delaware alleging that STK is infringing one EMC patent. In the complaint, EMC seeks injunctive relief and unspecified damages, including treble damages, plus attorney's fees and costs. On October 12, 1994, STK answered the complaint, denied any infringement and counterclaimed. STK has subsequently filed an additional counterclaim. EMC has denied STK's allegations. A trial is set for March 1996. The Company is a party to other litigation which it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material adverse effect on the Company's business or financial condition. 6. Subsequent Event In October 1995, the Company announced an agreement to acquire McDATA Corporation, a leader in data network switching solutions, in a stock transaction which is currently valued at approximately $235,000,000. The Company intends to account for the transaction as a pooling of interests. -8- EMC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Third Quarter of 1995 compared to Third Quarter of 1994 - ------------------------------------------------------------ Revenues Revenues for the quarter ended September 30, 1995 were $432,716,000 compared to $371,582,000 for the third quarter of 1994, an increase of $61,134,000 or 16%. While the Company expects total revenue to continue to increase in the fourth quarter of 1995 as compared to the comparable period in 1994, such increase may not, on a percentage basis, continue at the level experienced in the third quarter of 1995. The increase in revenues was due to continued demand for the Company's series of Integrated Cached Disk Array ("ICDA") based products, which include the Symmetrix series of products for the mainframe market, the Symmetrix 3000 series of products for the open systems storage market, the Centriplex series of products for the open systems storage market and the Harmonix series of products for the midrange market. Revenues from the Symmetrix series of products in the mainframe market increased by $6,512,000, or 2%, to $342,688,000 in the third quarter of 1995 from $336,176,000 in the third quarter of 1994. Revenues from the Company's products in the open systems storage market increased $53,199,000, or 979%, to $58,635,000 in the third quarter of 1995, from $5,436,000 in the third quarter of 1994. Revenues from the Harmonix series of IBM compatible disk products for the midrange market decreased by $12,024,000, or 44%, to $15,015,000 in the third quarter of 1995 from $27,039,000 in the third quarter of 1994. Revenues on sales and service into the markets of North and South America increased by $51,104,000, or 22%, to $279,698,000 in the third quarter of 1995 from $228,594,000 in the third quarter of 1994. This increase was primarily due to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market and unit sales of the Company's products in the open systems storage market. Revenues on sales and service into the markets of Europe, Africa and the Middle East increased by $7,863,000, or 7%, to $126,401,000 in the third quarter of 1995 from $118,538,000 in the third quarter of 1994, due primarily to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market. Revenues on sales and service into the markets in the Asia Pacific region increased by $2,167,000, or 9%, to $26,617,000 in the third quarter of 1995 from $24,450,000 in the third quarter of 1994, due to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market and growth in service revenues. -9- EMC CORPORATION The Company purchases certain components and products from suppliers who the Company believes are currently the only suppliers of those components or products that meet the Company's requirements. Among the most important components that the Company uses are high density memory components ("DRAMs") and 5 1/4" and 3 1/2" disk drives, which the Company purchases from a small number of qualified suppliers. A failure by any supplier of high density DRAMs or disk drives to meet the Company's requirements for an extended period of time could have a material adverse effect on the Company. From time to time, because of high industry demand and/or the inability of certain vendors to consistently meet on a timely basis the Company's component quality standards, the Company experienced delays in deliveries of high density DRAMs and disk drives needed to satisfy orders for ICDA products. The Company is currently working with vendors to correct these problems and is also seeking alternative sources of supply. If shortages and quality problems were to intensify, the Company could lose some time-sensitive customer orders which could affect quarterly revenues and earnings. Cost of Sales and Service As a percentage of revenues, cost of sales and service increased to 51.4% in the third quarter of 1995 from 47.5% in the third quarter of 1994. Demand for the Company's products has continued, but competitive pricing pressures in the mainframe storage market in the third quarter of 1995 were greater than usual and adversely affected the margin percent for the quarter. Research and Development Research and development ("R&D") expenses were $38,566,000 and $32,407,000 in the third quarters of 1995 and 1994, respectively, an increase of $6,159,000, or 19%. R&D expenses were 8.9% and 8.7% of revenues in the third quarters of 1995 and 1994, respectively. Dollar increases in R&D spending reflect additional purchases of state-of-the- art CAE/CAD design tools, the cost of additional technical staff and costs to develop new products for the open systems storage market. The Company expects to continue to spend substantial amounts for R&D in the fourth quarter of 1995. Selling, General and Administrative Selling, general and administrative ("SG&A") expenses were $75,289,000 and $63,940,000 in the third quarters of 1995 and 1994, respectively, an increase of $11,349,000 or 18%. SG&A expenses were 17.4% and 17.2% of revenues in the third quarters of 1995 and 1994, respectively. The dollar increase is due primarily to costs associated with additional sales and support personnel and their related overhead costs, both domestically and internationally, in connection with the Company's increased revenue levels and the Company's initiative to expand its open systems storage group, international direct selling offices and OEM programs. SG&A expenses are expected to increase in dollar terms in the fourth quarter of 1995. -10- EMC CORPORATION Investment Income and Interest Expense Investment income was $4,803,000 in the third quarter of 1995 compared with $5,619,000 in the same period a year ago. Interest income was earned from investments in cash equivalents and long-term investments and, to a lesser extent, from sales-type leases of the Company's products. Investment income decreased in the third quarter of 1995 primarily due to lower average cash and investment balances in the third quarter of 1995 compared to the balances in the same period in 1994. Interest expense decreased in the third quarter of 1995 from the third quarter of 1994, primarily due to conversions of the Debentures in March 1995. Provision for Income Taxes The provision for income taxes was $26,903,000 and $29,642,000 in the third quarters of 1995 and 1994, respectively, which resulted in effective tax rates of 27.5% and 29.9%, respectively. The effective tax rate in the third quarter of 1995 decreased from the same period in 1994 as a result of utilization of foreign net operating losses and the realization of tax benefits associated with the Company's tax strategies. The Company provides for income taxes based upon its estimate of full year earnings on a country-by-country basis. Earnings Fluctuations Due to (i) customers' tendencies to make purchase decisions late in each fiscal quarter, (ii) the desire by customers to evaluate new, more expensive products for longer periods of time, (iii) the timing of product and technology announcements by the Company and its competitors, and (iv) fluctuating currency exchange rates, the Company's period to period revenues and earnings can fluctuate significantly. -11- EMC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - First Nine Months of 1995 compared to First Nine Months of 1994 - ------------------------------------------------------------ Revenues Revenues for the nine months ended September 30, 1995 were $1,288,581,000 compared to $946,756,000 for the first nine months of 1994, an increase of $341,825,000 or 36%. While the Company expects revenue to continue to increase in all of its markets throughout 1995 as compared to the respective periods in 1994, such increase may not, on a percentage basis, continue at the levels experienced in the first nine months of 1995. The increase in revenues was due to continued demand for the Company's series of Integrated Cached Disk Array ("ICDA") based products, which include the Symmetrix series of products in the mainframe market, the Symmetrix series of products in the open systems storage market, the Centriplex series of products in the open systems storage market and the Harmonix series of products in the midrange market. Revenues from the Symmetrix series of products in the mainframe market increased by $269,824,000, or 33%, to $1,083,453,000 in the first nine months of 1995 from $813,629,000 in the first nine months of 1994. Revenues from the Company's products in the open systems storage market were $99,276,000 in the first nine months of 1995, an increase of $82,725,000, or 500%, over the $16,551,000 for the first nine months of 1994. Revenues from the Harmonix series of IBM compatible disk products in the midrange market decreased by $24,735,000, or 31%, to $55,848,000 in the first nine months of 1995 from $80,583,000 in the first nine months of 1994. Revenues on sales and service into the markets of North and South America increased by $182,082,000, or 30%, to $790,691,000 in the first nine months of 1995 from $608,609,000 in the same period of 1994. This increase was primarily due to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market and unit sales of the Company's products in the open systems storage market. Revenues on sales and service into the markets of Europe, Africa and the Middle East increased by $112,972,000, or 40%, to $396,266,000 in the first nine months of 1995 from $283,294,000 in the same period of 1994, due primarily to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market. Revenues on sales and service into the markets in the Asia Pacific region increased by $46,771,000, or 85%, to $101,624,000 in the first nine months of 1995 from $54,853,000 in the same period of 1994, primarily due to growth in unit sales of the Symmetrix series of products in the IBM mainframe storage market. -12- EMC CORPORATION The Company purchases certain components and products from suppliers who the Company believes are currently the only suppliers of those components or products that meet the Company's requirements. Among the most important components that the Company uses are high density memory components ("DRAMs") and 5 1/4" and 3 1/2" disk drives, which the Company purchases from a small number of qualified suppliers. A failure by any supplier of high density DRAMs or disk drives to meet the Company's requirements for an extended period of time could have a material adverse effect on the Company. From time to time, because of high industry demand and/or the inability of certain vendors to consistently meet on a timely basis the Company's component quality standards, the Company experienced delays in deliveries of high density DRAMs and disk drives needed to satisfy orders for ICDA products. The Company is currently working with vendors to correct these problems and is also seeking alternative sources of supply. If shortages and quality problems were to intensify, the Company could lose some time-sensitive customer orders which could affect quarterly revenues and earnings. Cost of Sales and Service As a percentage of revenues, cost of sales and service increased to 49.8% in the first nine months of 1995 from 47.2% in the first nine months of 1994. Demand for the Company's products has continued, but competitive pricing pressures in the mainframe storage market in the third quarter of 1995 were greater than usual and adversely affected the margin percent for the first nine months of 1995. Research and Development Research and development ("R&D") expenses were $117,138,000 and $81,000,000 in the first nine months of 1995 and 1994, respectively, an increase of $36,138,000, or 45%. R&D expenses were 9.1% and 8.6% of revenues in the first nine months of 1995 and 1994, respectively. Dollar increases in R&D spending reflect additional purchases of state-of-the- art CAE/CAD design tools, the cost of additional technical staff and costs to develop new products for the open systems storage market. The Company expects to continue to spend substantial amounts for R&D in the fourth quarter of 1995. Selling, General and Administrative Selling, general and administrative ("SG&A") expenses were $219,415,000 and $175,269,000 in the first nine months of 1995 and 1994, respectively, an increase of $44,146,000 or 25.2%. SG&A expenses were 17.0% and 18.5% of revenues in the first nine months of 1995 and 1994, respectively. The dollar increase is due primarily to costs associated with additional sales and support personnel and their related overhead costs, both domestically and internationally, in connection with the Company's increased revenue levels and the Company's initiative to expand its open systems storage group, international direct selling offices and OEM programs. SG&A expenses are expected to increase in dollar terms in the fourth quarter of 1995. -13- EMC CORPORATION Investment Income and Interest Expense Investment income was $16,770,000 in the first nine months of 1995 compared with $15,549,000 in the same period a year ago. Interest income was earned from investments in cash equivalents and long-term investments and, to a lesser extent, from sales-type leases of the Company's products. Investment income increased in the first nine months of 1995 due to investments made in the first quarter of 1995 at which time interest rates were higher than interest rates over the same period in 1994. Interest expense decreased in the first nine months of 1995 from the first nine months of 1994, primarily due to conversions of the Debentures in March 1995. Provision for Income Taxes The provision for income taxes was $89,802,000 and $72,912,000 in the first nine months of 1995 and 1994, respectively, which resulted in effective tax rates of 28.2% and 29.7%, respectively. The effective tax rate in the first nine months of 1995 decreased from the same period in 1994 as a result of utilization of foreign net operating losses and the realization of tax benefits associated with the Company's tax strategies. The Company provides for income taxes based upon its estimate of full year earnings on a country-by-country basis. Earnings Fluctuations Due to (i) customers' tendencies to make purchase decisions late in each fiscal quarter, (ii) the desire by customers to evaluate new, more expensive products for longer periods of time, (iii) the timing of product and technology announcements by the Company and its competitors, and (iv) fluctuating currency exchange rates, the Company's period to period revenues and earnings can fluctuate significantly. -14- EMC CORPORATION FINANCIAL CONDITION Cash and cash equivalents were $208,997,000 and $240,506,000 at September 30, 1995 and December 31, 1994. In the first nine months of 1995, the Company's working capital increased by $231,392,000 from $600,341,000 at December 31, 1994 to $831,733,000 at September 30, 1995. In the first nine months of 1994, the Company's working capital increased by $34,977,000, from $516,876,000 at January 1, 1994 to $551,853,000 at October 1, 1994, mainly due to increased receivable and inventory balances. In the first nine months of 1995, cash and cash equivalents decreased by $31,509,000. Cash used by operating activities was $668,000 as a result of increased receivable and inventory balances which offset increased net income and taxes payable balances. The increase in receivables resulted principally from customers making purchase decisions late in the quarter and the Company's granting of certain extended payment terms due to competitive pressures in the marketplace generally. The increase in inventory is primarily attributable to an increase in the number of units in the field for trade-in, evaluation and other purposes and an increase in production inventory of finished units. Cash used by investing activities was $35,028,000 caused by additions to property, plant and equipment of $61,560,000, offset by net maturities of long-term investments of $26,083,000 and losses on disposals of property and equipment of $449,000. Cash provided by financing activities was $3,745,000 caused primarily by issuances of common stock of $12,776,000, pursuant to stock option exercises and stock purchase plan activity, partially offset by payments of long-term obligations of $9,161,000. In October 1995, the Company announced an agreement to acquire McDATA Corporation, a leader in data network switching solutions, in a stock transaction which is currently valued at approximately $235,000,000. The Company intends to account for the transaction as a pooling of interests. At September 30, 1995, the Company had available for use its credit lines of $65,000,000. Based on its current operating and capital expenditure forecasts, the Company believes funds currently available, funds generated from operations and its available lines of credit will be adequate to finance its operations. To date, inflation has not had a material impact on the Company's financial results. -15- EMC CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 10, 1993, Storage Technology Corporation ("STK") filed suit against EMC in the United States District Court for the District of Colorado alleging that EMC is infringing three patents. In the complaint, STK seeks injunctive relief, unspecified damages, including treble damages, plus attorney's fees and costs. On July 20, 1993, EMC answered the complaint, denied STK's allegations and counterclaimed. In the counterclaims, EMC seeks unspecified damages, attorney's fees, costs and interest. In a court hearing on October 12, 1994, STK's claims on two of the three patents were dismissed with prejudice. On September 23, 1994, EMC filed suit against STK in the United States District Court for Delaware alleging that STK is infringing one EMC patent. In the complaint, EMC seeks injunctive relief and unspecified damages, including treble damages, plus attorney's fees and costs. On October 12, 1994, STK answered the complaint, denied any infringement and counterclaimed. STK has subsequently filed an additional counterclaim. EMC has denied STK's allegations. A trial is set for March 1996. The Company is a party to other litigation which it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material adverse effect on the Company's business or financial condition. Item 6. Exhibits and Reports on Form 8-K (a)Exhibits 11.1 Computation of Primary and Fully Diluted Net Income Per Share (filed herewith). (b)Reports on Form 8-K No reports on Form 8-K were filed by the Company for the quarter ended September 30, 1995. -16- EMC CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMC CORPORATION Date: November 14, 1995 By: /s/ Colin G. Patteson Colin G. Patteson Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By: /s/ William J. Teuber, Jr. William J. Teuber, Jr. Vice President and Controller (Principal Accounting Officer) -17- EMC CORPORATION EXHIBIT INDEX Exhibit 11.1 Computation of Primary and Fully Diluted Net Income Per Share EMC CORPORATION Exhibit 11.1 Computation of Primary and Fully Diluted Net Income Per Share (Amounts in thousands except share and per share data) Three months ended Nine months ended Sept.30, Oct. 1, Sept. 30, Oct. 1, 1995 1994 1995 1994 Primary Net income $70,925 $69,395 $228,707 $172,804 Add back interest expense on convertible notes 2,440 2,440 7,320 7,292 Less tax effect on interest expense on convertible notes (976) (976) (2,928) (2,917) Net income for purposes of calculating primary net income per share $72,389 $70,859 $233,099 $177,179 Weighted average shares outstanding during the period 215,531,575 195,075,782 209,982,246 192,189,894 Common equivalent shares 19,198,208 23,255,484 20,245,579 24,367,834 Common and common equivalent shares outstanding for purpose of calculating primary net income per share 234,729,783 218,331,266 230,227,825 216,557,728 Primary net income per share (1) $0.31 $0.32 $1.01 $0.82 Fully Diluted Net income $70,925 $69,395 $228,707 $172,804 Add back interest expense on convertible notes and debentures 2,440 3,156 7,934 9,644 Less tax effect on interest expense on convertible notes and debentures (976) (1,263) (3,173) (3,859) Net income for purpose of calculating fully diluted net income per share $72,389 $71,288 $233,468 $178,589 Common and common equivalent shares outstanding for purpose of calculating primary net income per share 234,729,783 218,331,266 230,227,825 216,557,728 Incremental shares to reflect full dilution (1) -0- 15,884,597 4,161,578 17,195,237 Total shares for purpose of calculating fully diluted net income per share 234,729,783 234,215,863 234,389,403 233,752,965 Fully diluted net income per share (1) $0.31 $0.30 $1.00 $0.76 (1) See Footnote 4 in Notes to Interim Consolidated Financial Statements. EX-27 2
5 This schedule contains summary financial information extracted from EMC Corporation financial statements and is qualified in its entirety by reference to such financial statements. 1000 9-MOS DEC-30-1995 SEP-30-1995 208,997 0 534,453 7,244 350,189 1,139,858 309,012 109,942 1,571,862 308,125 246,738 2,187 0 0 1,006,985 1,571,862 1,288,581 1,288,581 641,423 641,423 336,553 0 9,598 318,509 89,802 228,707 0 0 0 228,707 $1.01 $1.00
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