-----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, La2p//MDcVOJNjIujr1/tCQrv/5sOwl4CvoY2sr2u8T1s+bgMTqPJplO6x03VKPT UA/3W750wiIBkAYVFpp26A== 0000912057-00-012165.txt : 20000320 0000912057-00-012165.hdr.sgml : 20000320 ACCESSION NUMBER: 0000912057-00-012165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMC CORP CENTRAL INDEX KEY: 0000790070 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 042680009 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09853 FILM NUMBER: 572351 BUSINESS ADDRESS: STREET 1: 35 PARKWOOD DRIVE CITY: HOPKINTON STATE: MA ZIP: 01748-9103 BUSINESS PHONE: 5084351000 MAIL ADDRESS: STREET 1: 35 PARKWOOD DRIVE CITY: HOPKINTON STATE: MA ZIP: 01748-9103 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999 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 organization or incorporation) Number)
35 PARKWOOD DRIVE HOPKINTON, MASSACHUSETTS 01748 (Address of principal executive offices, including zip code) (508) 435-1000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: - --------------------------------------------- ------------------------------------------ Common Stock, $.01 par value New York Stock Exchange 6% Convertible Subordinated Notes due 2004 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None -------------------------- 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of voting stock held by nonaffiliates of the registrant was $109,479,197,772 as of January 31, 2000. The number of shares of Common Stock, $.01 par value, outstanding as of January 31, 2000 was 1,041,079,616. DOCUMENTS INCORPORATED BY REFERENCE The information required in response to Part III of Form 10-K is hereby incorporated by reference to the specified portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 3, 2000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal Securities Laws. The Company's future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE SECTION OF THIS REPORT ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--FACTORS THAT MAY AFFECT FUTURE RESULTS." Readers should also carefully review the risk factors described in the other documents the Company files from time to time with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL EMC Corporation and its subsidiaries ("EMC" or the "Company") design, manufacture, market and support a wide range of hardware and software products and provide services for the storage, management, protection and sharing of electronic information. These integrated solutions enable organizations to create an electronic information infrastructure, or what EMC calls an E-Infostructure. EMC is the leading supplier of these solutions, which are comprised of enterprise storage systems, networks, software and services. Its products are sold to customers utilizing a variety of the world's most popular computing platforms for key applications, including electronic commerce, data warehousing and transaction processing. EMC believes these and other information-intensive applications provide it with significant growth opportunities. The effective management, sharing, protection and availability of critical information is a major challenge for organizations as the number, size and scope of and reliance on computer systems continues to grow. To address this market opportunity, EMC has introduced the Enterprise Storage Network, or "ESN." An EMC ESN is a dedicated network connecting EMC storage systems and software to all major computing platforms via various network protocols, including fibre channel. An ESN provides the basis for an E-Infostructure by enabling customers to consolidate all of their information resources for more effective and efficient management, sharing and protection. The Company's objective is to extend its position as the enterprise storage solutions leader in the IT industry and to strengthen the EMC E-Infostructure as the standard for networked storage. EMC develops its products by integrating technologically advanced, industry standard components with Company-designed hardware and software that the Company believes provide competitive advantages for its customers. The customers for the Company's products are located worldwide and represent a cross section of industries and government agencies. EMC products continue to be accepted widely by both existing customers and new accounts in all major industries worldwide. In 1999, the Company acquired Data General Corporation ("Data General"), a leading provider of CLARiiON Fibre Channel storage systems and AViiON computer systems. The Company integrated the CLARiiON product line into EMC's primary storage line of business and formed a new Data General division to continue to develop, market and service AViiON computers and related services. EMC, a Massachusetts corporation, was incorporated in 1979 and has its corporate headquarters at 35 Parkwood Drive, Hopkinton, Massachusetts. 1 PRODUCTS AND OFFERINGS STORAGE SYSTEMS EMC SYMMETRIX ENTERPRISE STORAGE SYSTEMS The Company's flagship product line is the EMC Symmetrix Enterprise Storage family of systems. The Company believes that the Symmetrix Enterprise Storage systems offer the highest levels of functionality, performance and availability in data centers and the high-end of the storage market. EMC's common hardware architecture on which its Symmetrix products are based is called MOSAIC:2000, a modular design and interface that allows new technologies to be rapidly incorporated. This hardware architecture enables EMC to deliver advanced technologies to market quickly while maintaining a consistent platform upon which its customers can expand capacity, performance, connectivity and functionality. This architectural hardware design has enabled the Company to expand its Symmetrix products into existing markets and to enter new, strategic markets quickly with proven storage products and services. Since the introduction of the first Symmetrix model in 1991, EMC has continued to enhance and increase the capabilities of the Symmetrix family, including increasing the host connectivity capabilities and adding advanced software functionality. The Company intends to continue to introduce new versions of the Symmetrix systems with increased performance and other capabilities. The Company also continues to engage in research and development of new hardware technology for the enterprise storage market. EMC CLARIION FIBRE CHANNEL STORAGE SYSTEMS The EMC CLARiiON Fibre Channel family of products represents a range of flexible and scalable midrange storage systems for Microsoft Windows NT and UNIX platforms. EMC CLARiiON Fibre Channel storage systems offer fast, scalable and dependable storage solutions for applications in the distributed environments of large enterprises and for emerging companies with moderate but rapidly growing demands on the performance, availability and manageability of their storage infrastructure. The Company believes that the EMC CLARiiON Fibre Channel storage systems offer storage with the highest performance and availability in the midrange storage market. The Company intends to continue to introduce new versions of the EMC CLARiiON systems with increased performance and other capabilities. EMC CONNECTRIX ENTERPRISE STORAGE NETWORK SYSTEMS The EMC Connectrix Enterprise Storage Network System, introduced in March 1999, is the industry's first fully integrated fibre channel network connectivity solution. EMC Connectrix facilitates the connection of a large number of servers to a single storage system through fibre channel links. EMC Connectrix offers up to 64-port switched Fibre Channel (FC-SW) connectivity between EMC Symmetrix Enterprise Storage systems, EMC CLARiiON Fibre Channel storage systems and distributed servers. Connectrix systems quadruple the number of servers that can connect to these systems, when compared with direct fibre channel server-to-storage connections. The Company believes that its EMC Connectrix systems, combined with its storage systems with fibre channel connectivity, facilitate the implementation of the EMC ESN and enable customers to build an E-Infostructure in which a single pool of storage will handle all information storage requirements of even the largest, most complex organizations. The Company intends to continue to introduce new versions of the EMC Connectrix system with additional features and capabilities. 2 EMC CELERRA FILE SERVER The EMC Celerra File Server is a network-attached storage system providing high performance, high availability and scalability for enterprise file storage. The system features EMC-developed software and hardware, known as Data Movers, within a common enclosure and with a common management environment. The Data Movers and management environment connect to Symmetrix Enterprise Storage systems and external customer networks through a variety of interfaces. A file server's purpose is to provide end users with the ability to access, update and store common files to a central location directly from their desktop computer without the need to utilize a general purpose server. The Company intends to continue to introduce new versions of the EMC Celerra File Server system with additional features and capabilities. Revenue from enterprise storage systems (including Symmetrix, Connectrix and Celerra products) represented approximately 60%, 58% and 56% of revenues in 1999, 1998 and 1997, respectively. Revenue from CLARiiON storage systems represented approximately 6%, 8% and 11% of revenues in 1999, 1998 and 1997, respectively. ENTERPRISE STORAGE SOFTWARE EMC offers highly innovative software that provides customers with superior information management, sharing and protection capabilities. These capabilities include enhanced backup/restore, disaster recovery, business continuance, data migration and data movement. The Company's enterprise storage software is intended to be used with its storage systems as well as with a variety of host computers and applications developed by third parties. During 1999, the Company introduced several new software products and enhancements to existing products. EMC's information management software includes EMC Control Center, EMC PowerPath and EMC VolumeLogix. Examples of information sharing software are Symmetrix Enterprise Storage Platform (ESP) and EMC InfoMover. The Company's information protection software includes Symmetrix Remote Data Facility (SRDF), EMC TimeFinder and EMC Data Manager (EDM). In August 1999, the Company announced its E-Infostructure Developers Program, which makes certain of its application programming interfaces (APIs) available to third-party independent software vendors (ISVs) to facilitate the development and sale of software optimized to run on EMC systems. Customers are then able to select from a wider range of software tools when deploying EMC systems and to more easily integrate EMC systems into their existing software environments. EMC also sponsored the formation of the FibreAlliance in 1999. The FibreAlliance is an independent standards group comprised of numerous hardware and software companies. The goal of the FibreAlliance is to develop and implement common methods for managing the heterogeneous fibre channel-based networks of storage systems and computer servers, which EMC calls ESNs. The FibreAlliance is submitting these methods to independent standards bodies for consideration as an industry-wide standard. The Company finalized its acquisition of software developer Softworks, Inc. in January 2000. Softworks, Inc.'s products improve the management, performance and integrity of critical corporate information across Windows NT, UNIX and mainframe platforms and will be incorporated into the Company's software portfolio. During 1999, EMC completed construction of a state-of-the-art software development lab in Hopkinton, Massachusetts to support the Company's growing software research and development efforts. EMC believes that its investments in software development will accelerate adoption of EMC Enterprise Storage Network models and facilitate implementation of an E-Infostructure by customers. 3 Revenues from enterprise storage software represented approximately 12%, 8% and 4% of revenues in 1999, 1998 and 1997, respectively. ENTERPRISE STORAGE SERVICES PROFESSIONAL SERVICES EMC's Enterprise Storage Professional Services business, formed in 1997, designs and delivers world-class professional services to its global customer base. Such professional services assist customers in assessing, designing and implementing storage solutions and an E-Infostructure customized to maximize their return on information assets. INTERNET SERVICES EMC's Internet Services Group, formed in 1997, provides a comprehensive web site management service, leveraging the Company's resources, including its Symmetrix systems and its suite of enterprise storage software. Through this service, the Company develops, implements, maintains and monitors all the technical aspects of a customer's internet presence, including management of internet-based electronic commerce and database applications as well as web and online advertising. DATA GENERAL DIVISION EMC's Data General division, formed in 1999, designs, manufactures, markets and supports the Company's line of AViiON open systems servers, which range from dual-processor departmental servers to enterprise-wide systems. These servers, combined with software and services, address market requirements for a simplified computing environment that eliminates the complexity, reduces the total cost of ownership, and provides reliability, high availability and increased control of information. EMC's Data General division also provides integrated, pre-packaged solutions, function-specific servers and related services that provide customers with the highest levels of information availability. Revenue from EMC's Data General division server products represented approximately 9%, 12% and 15% of revenues in 1999, 1998 and 1997, respectively. CUSTOMER SERVICE EMC's Customer Service organization, which includes over 3,000 technical, field and support personnel, monitors the status of the Company's storage solutions at customer sites 24 hours a day, seven days a week, 365 days a year. These hardware and software solutions contain remote support features which enable EMC customer service personnel to continuously monitor, diagnose and resolve issues, wherever the product is located, often without the need for on-site service. In 1999, the Company expanded its customer service capabilities with the addition of new customer support centers in Japan and Australia. MARKETS AND CHANNELS STORAGE SYSTEMS MARKET During 1999, the Company focused primarily on two major customer markets: the Global 2000 and Internet businesses. These markets are characterized by their requirements for large amounts of information storage capacity and the advanced functionality provided by EMC's products. 4 GLOBAL 2000 The Global 2000, defined as the world's 2000 largest corporations, represent a significant percentage of the Company's customer base. The Global 2000's computing requirements encompass multiple computer platforms, including mainframes, and those running the UNIX and Windows NT operating systems. As the size and scope of those systems increases, the Company's Global 2000 customers are deploying EMC's Enterprise Storage Networks for the consolidation, management, sharing and protection of the information generated by those platforms. By building an E-Infostructure to support multiple business applications, these customers are able to quickly, cost-effectively and reliably deploy and expand applications and systems. The Company believes it is the leading storage supplier to the Global 2000. INTERNET BUSINESS Internet-related businesses, those that conduct their primary business over the Internet or provide Internet-related services to end users or other businesses, represent a rapidly growing segment of the Company's customer base. These businesses require rapid and constant access to extremely large volumes of information. The Internet-related businesses' computing requirements are typically standardized on a single computer platform, incorporating components from several leading suppliers. EMC believes it is the leading storage provider to Internet-related businesses. In October 1999, the Company launched its EMC Proven E-Infostructure program. The EMC Proven program provides Internet-based businesses and service providers with a marketing vehicle to effectively communicate the inherent value of their investments in information infrastructure to customers and investors. EMC Proven members have implemented the necessary enterprise storage resources to operate at peak efficiency, adapt to a constantly changing business climate and easily manage Internet-driven growth. MARKETING AND CUSTOMERS EMC markets its products through multiple distribution channels, including its direct sales force and selected distributors, systems integrators, resellers and OEMs. The Company has a direct sales presence throughout North America, Latin America, Europe, the Middle East, South Africa and the Asia Pacific region and uses distributors as its primary distribution channel in other areas of the world. During 1999, the Company continued broadening its direct and indirect sales presence worldwide. During 1999, the Company derived 63% of its revenue from North America; 3% from Latin America; 27% from Europe, the Middle East and Africa; and 7% from the Asia Pacific region. INDIRECT CHANNELS The Company believes its Symmetrix and CLARiiON products are well suited for sale by resellers, systems integrators and OEMs. The Company has reseller or OEM agreements with several systems vendors. These agreements enable the reseller or OEM to market and resell certain of the Company's systems worldwide, subject to certain terms and conditions, for connection to certain of the reseller or OEM's respective computing platforms. The Company's principal reseller and OEM agreements are with Unisys Corporation, Fujitsu/Siemens Computers ("FSC"), International Business Machines Corporation ("IBM") (formerly Sequent Computer Corporation), Selectron, a subsidiary of AT&T/ NCR Corporation, Compagnie des Machines Bull S.A. and NEC Corporation ("NEC"). EMC also had a reseller agreement with Hewlett-Packard Company for enterprise storage products until June 30, 1999, at which time the parties agreed to terminate this contract. 5 ALLIANCES The Company has alliances with leading software, relational database and application companies, including Microsoft Corporation, SAP AG, Oracle Corporation and other major independent software applications vendors. EMC intends to continue to form additional strategic alliances. EMC's strategy is to work closely with leading software companies to provide added value to its customers by integrating EMC solutions with software applications that customers rely on to manage their day-to-day business operations. NEW BUSINESS DEVELOPMENT The Company actively pursues new business development through a dedicated organization focused on developing new businesses aligned to the Company's markets. This is accomplished by maintaining a long-term view on the industry's potential and continually assessing the market. Key objectives are to identify and close significant business development opportunities (mergers, acquisitions and investments) that are aligned with the Company's strategic direction, including hardware, software and services businesses that complement and augment those of the Company, and to manage, develop and integrate such new businesses into EMC. MANUFACTURING AND QUALITY EMC's products are assembled and tested primarily at the Company's facilities in Massachusetts, North Carolina and Cork, Ireland. Product components manufactured by subcontractors in the United States and Europe are assembled in accordance with production standards and quality controls established by EMC. See "Properties." The Company employs a corporate-wide Total Quality Management philosophy to ensure the quality of its designs, manufacturing processes and suppliers. The Company's manufacturing operations in Massachusetts currently hold an ISO 9001 Certificate of Registration. This internationally recognized endorsement of ongoing quality management represents the highest level of certification available. The Company's manufacturing operations in Ireland currently hold an ISO 9002 Certificate of Registration and ISO 14001 Environmental Management Standard Certification. In addition, EMC sites in the United Kingdom, Italy, France, Australia, New Zealand and South Africa hold ISO certifications. RAW MATERIALS EMC's products utilize the Company's engineering designs, with industry standard and semi-custom components and subsystems. Among the most important components that EMC uses are disk drives, high density memory components and power supplies. See "Factors that May Affect Future Results--If EMC's suppliers do not meet its quality or delivery requirements, EMC could have decreased revenues and earnings." PATENTS EMC has been granted or owns by assignment approximately 500 patents. The Company also has a number of patent applications pending relating to its hardware and software products. BACKLOG The Company manufactures its products on the basis of its forecast of near-term demand and maintains inventory in advance of receipt of firm orders from customers. Products are configured to customer specifications and are generally shipped by the Company shortly after receipt of the order. Customers may reschedule orders with little or no penalty. For these reasons, the Company's backlog at any particular time is not meaningful because it is not necessarily indicative of future sales levels. 6 COMPETITION In the Global 2000 and Internet markets, EMC competes primarily with computer systems manufacturers. In the Company's opinion, these companies compete based on their overall market presence and their ability to sell both computer systems and storage systems. The Company believes that it has a number of competitive advantages over these companies, including product, distribution and customer service. The Company believes the advantages in its products include performance, capacity, availability, connectivity, value-added software, time to market enhancements and total value of ownership. The Company believes its advantages in distribution include its direct sales force and its broad network of indirect sales channels. The Company believes its advantages in customer service include its ability to effectively monitor and provide service (which is often remote and without interruption to a company's business) for its systems and software 24 hours a day, seven days a week, 365 days a year. EMPLOYEES As of January 31, 2000, EMC had approximately 17,700 employees worldwide. None of the Company's domestic employees is represented by a labor union, and the Company has never suffered an interruption of business as a result of a labor dispute. The Company considers its relations with its employees to be good. FINANCIAL INFORMATION ABOUT SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company is active in three business segments: storage products; server products; and services. Sales and marketing operations outside the United States are conducted through sales subsidiaries and branches located principally in Europe, Latin America and the Asia Pacific region. The Company has three primary manufacturing facilities, one in Massachusetts, which provides Symmetrix products to the North American markets, one in North Carolina, which manufactures CLARiiON systems and AViiON servers, and one in Ireland which manufactures Symmetrix systems and CLARiiON systems. Total exports, in millions, from these facilities amounted to approximately $2,575, $2,184, and $1,884 in 1999, 1998 and 1997, respectively. (See Note P to the Company's Consolidated Financial Statements.) ITEM 2. PROPERTIES The Company's principal corporate offices are located at 35 Parkwood Drive, Hopkinton, Massachusetts. As of December 31, 1999, the Company owned or leased a total of approximately 4.5 million square feet of space worldwide which is used primarily for manufacturing, research and development, customer service, sales, marketing and general administration. The Company also owns and leases space for its sales and services offices and for general administration worldwide, and owns land in the Hopkinton, Massachusetts and Cork, Ireland areas for possible expansion purposes. The Company believes its present level of manufacturing and other capacity, along with its plans for expansion, will be sufficient to accommodate its requirements. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain 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, results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year covered by this report. 7 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION - ------------------------------------------ -------- ------------------------------------------ Richard J. Egan........................... 64 Chairman of the Board of Directors Michael C. Ruettgers...................... 57 Chief Executive Officer and Director Joseph M. Tucci........................... 52 President and Chief Operating Officer Paul E. Noble, Jr......................... 44 Executive Vice President, Products and Offerings Michael A. Ruffolo........................ 38 Executive Vice President, Global Sales, Services and Marketing Paul T. Dacier............................ 42 Senior Vice President and General Counsel David A. Donatelli........................ 34 Senior Vice President, New Business Development Colin G. Patteson......................... 51 Senior Vice President, Chief Administrative Officer and Treasurer William J. Teuber, Jr..................... 48 Senior Vice President and Chief Financial Officer
Richard J. Egan is a founder of the Company and has served as a Director of the Company since its inception in 1979. He was elected Chairman of the Board of the Company in January 1988. Prior to January 1988, he was also President of EMC. From 1979 to January 1992, he was Chief Executive Officer of the Company. He is also a Director of Cognition Corporation, a CAD/CAM software supplier, NSTAR, a public utility, and NetScout Systems, Inc., a provider of network and application performance management solutions. Michael C. Ruettgers has been Chief Executive Officer of the Company since January 1992. He has served as a Director of the Company since May 1992. Mr. Ruettgers served as President of EMC from October 1989 to January 2000. He also served as Executive Vice President, Operations of EMC from July 1988 to October 1989, and as Chief Operating Officer of EMC from October 1989 to January 1992. Mr. Ruettgers is also a director of PerkinElmer Inc., a diversified technology company. Joseph M. Tucci joined EMC in January 2000 as President and Chief Operating Officer. Prior to joining EMC, Mr. Tucci served as Deputy Chief Executive Officer of Getronics N.V., an information technology services company, from June 1999 through December 1999 and as Chairman of the Board and Chief Executive Officer of Wang Laboratories, Inc. ("Wang"), an information technology services company, from December 1993 until June 1999. Getronics acquired Wang in June 1999. Mr. Tucci joined Wang in 1990 as its Executive Vice President, Operations. Paul E. Noble, Jr. has been Executive Vice President, Products and Offerings of the Company since September 1998. Mr. Noble has had a number of other executive positions with EMC since 1987, including serving most recently as the Senior Vice President, New Business Development of EMC. Michael A. Ruffolo joined EMC in January 2000 as Executive Vice President, Global Sales, Services and Marketing. Prior to joining EMC, Mr. Ruffolo served as President of the Document Solutions Group for Xerox Corporation, a document processing company, from May 1998 through December 1999. Prior to joining Xerox, Mr. Ruffolo held several positions at AT&T/NCR Corporation, a computer and communications company, from 1988 to 1998, most recently as Vice President and Chief Information Officer and Vice President of Worldwide Services. Paul T. Dacier has been Senior Vice President and General Counsel of the Company since February 2000. Mr. Dacier served as Vice President and General Counsel to EMC from February 1993 until February 2000 and also served as General Counsel to EMC from March 1990 until February 1993. 8 Prior to joining EMC, Mr. Dacier was Senior Counsel, Corporate Operations at Apollo Computer Inc., a computer manufacturer, from January 1987 to January 1990. David A. Donatelli has been Senior Vice President, New Business Development of the Company since February 2000. Mr. Donatelli served as Vice President, New Business Development of EMC from April 1999 until February 2000 and has also had a number of other executive positions with EMC since 1987, including serving most recently as the Vice President, General Manager of the Company's EDM business. Colin G. Patteson has been Senior Vice President, Chief Administrative Officer and Treasurer of the Company since February 1997. Mr. Patteson served as European Controller of EMC from January 1989 to March 1991, Corporate Controller from March 1991 to February 1993, Vice President and Corporate Controller from February 1993 to April 1995, and Vice President, Chief Financial Officer and Treasurer from April 1995 to February 1997. William J. Teuber, Jr. has been Senior Vice President and Chief Financial Officer of the Company since February 2000. Mr. Teuber served as Vice President and Chief Financial Officer of the Company from February 1997 until February 2000. He also served as Vice President and Controller of the Company from August 1995 to February 1997. From 1988 to August 1995, Mr. Teuber was a partner at Coopers & Lybrand L.L.P., a predecessor to PricewaterhouseCoopers, LLP, an accounting firm. ------------------------ Richard J. Egan, Chairman of the Board of Directors, is the husband of Maureen E. Egan, a Director of the Company. He is also the brother-in-law of W. Paul Fitzgerald, a Director of the Company. W. Paul Fitzgerald is the brother of Maureen E. Egan. John R. Egan, a Director of the Company, is the son of Richard J. and Maureen E. Egan. Paul E. Noble, Jr., Executive Vice President, Products and Offerings of the Company, is the nephew of Richard J. and Maureen E. Egan and of W. Paul Fitzgerald. ------------------------ The President and Treasurer are elected annually to serve until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their successors are elected and qualified. ------------------------ EMC(2), EMC, Celerra, Connectrix, Control Center, ManageSuite, EDM, E-Infostructure, ESN, EMC Proven, InfoMover, MOSAIC:2000, PowerPath, Symmetrix, SRDF, TimeFinder, VolumeLogix, CLARiiON and AViiON are either registered trademarks or trademarks of the Company. Other trademarks and logos are either registered trademarks or trademarks of their respective owners. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS EMC's common stock, $.01 par value (the "Common Stock"), began trading on the over-the-counter market on April 4, 1986 under the NASDAQ symbol EMCS. On March 22, 1988, the Company's stock began trading on the New York Stock Exchange (the "NYSE") under the symbol EMC. During the last five fiscal years, the following stock splits have been effected in the form of a stock dividend: - a two-for-one stock split effective November 17, 1997, for stockholders of record on October 31, 1997; and - a two-for-one stock split effective May 28, 1999, for stockholders of record on May 14, 1999. The following table sets forth the range of high and low prices on the NYSE for the past two years during the fiscal periods shown, adjusted to reflect the effects of the November 17, 1997 and May 28, 1999 stock splits.
FISCAL 1999 HIGH LOW - ----------- -------------- ------------- First Quarter..................................... $ 64 7/8 $43 1/2 Second Quarter.................................... 67 7/16 47 3/4 Third Quarter..................................... 74 5/8 53 5/8 Fourth Quarter.................................... 110 5/16 63 FISCAL 1998 HIGH LOW - ----------- -------------- ------------- First Quarter..................................... $ 19 11/32 $12 19/32 Second Quarter.................................... 23 15/32 18 Third Quarter..................................... 30 15/16 22 1/4 Fourth Quarter.................................... 42 1/2 22 19/32
As of January 31, 2000, there were approximately 10,700 holders of record of Common Stock. The Company has never paid cash dividends on its Common Stock. While subject to periodic review, the current policy of its Board of Directors is to retain all earnings primarily to provide funds for the continued growth of the Company. 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA(1) EMC CORPORATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED ----------------------------------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 30, 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- SUMMARY OF OPERATIONS: Revenues...................... $6,715,610 $5,436,158 $4,487,851 $3,616,746 $3,125,995 Operating income(2)........... 1,241,094 834,267 716,958 539,039 376,242 Net income(2)................. 1,010,570 653,978 587,511 420,080 260,645 Net income per weighted average share, basic(2)(3)................. $ 0.98 $ 0.64 $ 0.59 $ 0.45 $ 0.29 Net income per weighted average share, diluted(2)(3)............... $ 0.92 $ 0.61 $ 0.56 $ 0.42 $ 0.26 Weighted average shares, basic(3).................... 1,030,551 1,015,371 1,001,016 939,337 912,955 Weighted average shares, diluted(3).................. 1,109,532 1,094,215 1,065,484 1,010,159 1,007,304 BALANCE SHEET DATA: Working capital............... $2,922,481 $2,825,000 $2,581,640 $1,597,486 $1,185,491 Total assets.................. 7,173,288 5,627,020 4,627,936 3,178,101 2,600,529 Long-term obligations(4)...... 686,609 751,646 771,204 339,232 397,879 Stockholders' equity.......... $4,951,786 $3,728,990 $2,900,941 $1,978,025 $1,426,318
- ------------------------ (1) The selected consolidated financial data for 1995-1998 has been restated for the effects of the acquisition of Data General on October 12, 1999, which was accounted for as a pooling-of-interests. The Company changed its fiscal year to a calendar year end basis beginning with the fiscal year ended December 31, 1996. (2) In 1999, the Company incurred charges totaling $223,598 (pre-tax) which consists of restructuring, merger and asset impairment charges of $208,246 included in operating expenses and other cost of sales charges of $15,352. Net income for the year ended December 31, 1999, adjusted to exclude the impact of the charges was $1,180,468 or $1.07 per diluted share. In 1998, the Company incurred charges totaling $135,000 consisting of $82,400 of restructuring charges and $52,600 of other cost of sales charges related to asset writedowns. Net income for the year ended December 31, 1998 adjusted to exclude the impact of the charges was $788,978 or $0.73 per diluted share. (3) All share and per share amounts have been restated to reflect the stock splits effective November 17, 1997 and May 28, 1999 for all periods presented. (4) Excludes current portion of long-term debt. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All historical financial information and analysis have been restated to reflect the acquisition of Data General in October 1999, which was accounted for as a pooling-of-interests. This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with "Factors that May Affect Future Results" included herein. All dollar amounts in this MD&A are in millions except per share amounts. The following table presents certain consolidated statement of operations information stated as a percentage of total revenues.
FISCAL YEAR ENDED --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- REVENUES Enterprise storage hardware........................... 59.7% 58.3% 55.6% Enterprise storage software........................... 12.2 8.2 4.0 Enterprise switching products (McDATA)................ 2.1 3.3 4.2 CLARiiON storage products............................. 6.2 7.6 11.1 ------ ------ ------ Total storage products revenue........................ 80.2 77.4 74.9 AViiON server products................................ 8.9 12.0 14.7 Services.............................................. 10.9 10.6 10.4 ------ ------ ------ TOTAL REVENUE........................................... 100.0% 100.0% 100.0% COST AND EXPENSES Cost of product sales................................. 41.0% 47.9% 51.6% Cost of service....................................... 7.5 7.3 6.6 Research and development.............................. 8.5 8.0 7.4 Selling, general and administrative................... 21.4 20.0 18.4 Restructuring, merger and other charges............... 3.1 1.5 -- ------ ------ ------ OPERATING INCOME........................................ 18.5 15.3 16.0 Investment income, interest expense and other income, net................................................. 1.7 1.5 1.1 ------ ------ ------ Income before income taxes............................ 20.2 16.8 17.1 Provision for income taxes............................ 5.2 4.8 4.0 ------ ------ ------ NET INCOME.............................................. 15.0% 12.0% 13.1% ====== ====== ======
REVENUES Total revenues were $6,715.6, $5,436.2 and $4,487.9 in 1999, 1998 and 1997, respectively, representing increases of $1,279.4, or 24%, from 1998 to 1999, and $948.3 or 21% from 1997 to 1998. Enterprise storage hardware revenues from products sold directly and through OEMs and resellers were $4,006.5, $3,167.1 and $2,496.7 in 1999, 1998 and 1997, respectively, representing increases of $839.4, or 27%, from 1998 to 1999 and $670.4, or 27%, from 1997 to 1998. The increase in enterprise systems revenues was primarily due to the continued strong demand for the Company's Symmetrix series of products. These products address the growing demand for enterprise-wide storage solutions, allowing users to move, store and protect mission critical information in UNIX, Windows NT and mainframe environments. 12 Enterprise storage software revenues from products sold directly and through OEMs and resellers were $821.7, $445.4 and $176.9 in 1999, 1998 and 1997, respectively, representing increases of $376.3, or 85%, from 1998 to 1999 and $268.5, or 152%, from 1997 to 1998. The increase in software revenues was primarily due to increased licenses of enterprise storage software on Symmetrix systems, both newly shipped and already installed, and the successful introduction of new and enhanced software products. Revenues from enterprise switching products sold directly by McDATA, primarily the ESCON director series of products, were $142.8, $178.8 and $189.1 in 1999, 1998 and 1997, respectively, representing a decrease of $36.0, or 20%, from 1998 to 1999 and a decrease of $10.3, or 5%, from 1997 to 1998. The decreases from 1998 to 1999 and from 1997 to 1998 were primarily due to the product transition from ESCON-based to fibre-channel-based directors. The Company anticipates that revenues from ESCON directors will continue to decline. Revenues from the CLARiiON line of storage products, excluding related service revenues, were $415.6, $413.9 and $499.4 in 1999, 1998 and 1997, respectively, representing an increase of $1.7, or 0.4%, from 1998 to 1999 and a decrease of $85.5, or 17%, from 1997 to 1998. The increase in 1999 CLARiiON revenues reflects an increase in direct sales offset by decreased sales volume from indirect channels. The decrease in 1998 is primarily the result of a longer than anticipated product transition from SCSI-based to fibre-based storage products, and the resultant decrease in sales volume from indirect channels. Total storage products revenues were $5,386.7, $4,205.2 and $3,362.0 in 1999, 1998 and 1997, respectively, representing an increase of $1,181.5, or 28%, from 1998 to 1999 and an increase of $843.2, or 25%, from 1997 to 1998. The increase in both periods is due primarily to sales of enterprise storage hardware and software. Revenues from AViiON server products were $596.3, $655.6 and $660.6 in 1999, 1998 and 1997, respectively, representing decreases of $59.3, or 9%, from 1998 to 1999 and $5.0, or 1%, from 1997 to 1998. The decrease in revenue from 1998 to 1999 was primarily the result of the closing of certain international sales offices in an effort to refocus the business and improve profitability. Service revenues were $732.6, $575.3 and $465.3 in 1999, 1998 and 1997, respectively representing an increase of $157.3, or 27%, from 1998 to 1999 and an increase of $110.0, or 24%, from 1997 to 1998. The increase in both periods was primarily a result of the growth in EMC professional services and the acquisitions of the professional services businesses Groupe MCI and Millennia III, Inc. in the second and third quarters of 1998, respectively. In addition, service revenues continue to grow as a result of the larger installed base driven by increased product unit sales. Enterprise hardware and software revenues for 1999, 1998 and 1997 under the Company's reseller agreement with Hewlett-Packard Company ("HP") were $217.1, $718.0 and $504.1, respectively, representing 3%, 13% and 11% of total revenues, respectively. The Company and HP agreed to terminate their reseller contract for enterprise storage products effective as of June 30, 1999. The Company also has a reseller agreement with HP for CLARiiON and AViiON products, which represented 2%, 3% and 6% of revenues in 1999, 1998 and 1997, respectively. Revenues on sales into the North American markets were $4,257.1, $3,367.8 and $2,708.2 in 1999, 1998 and 1997, respectively, representing increases of $889.3, or 26%, from 1998 to 1999, and $659.6, or 24%, from 1997 to 1998. The revenue growth reflects continued strong demand for the Company's products and services. Revenues on sales into the markets of Europe, the Middle East and Africa were $1,844.3, $1,597.6 and $1,323.2 in 1999, 1998 and 1997, respectively, representing increases of $246.7, or 15%, from 1998 to 1999, and $274.4, or 21%, from 1997 to 1998. The reduced growth rate in 1999 reflects the impact of closing certain Data General sales offices. 13 Revenues on sales into the markets in the Asia Pacific region were $439.0, $381.5 and $396.3 in 1999, 1998 and 1997, respectively, representing an increase of $57.5, or 15%, from 1998 to 1999, and a decrease of $14.8, or 4%, from 1997 to 1998. The increase in 1999 was due to the Company's efforts to expand its business in this region combined with strong demand for the Company's products and services. The decrease in 1998 was principally attributable to a downturn in economic trends in the Asia Pacific market. Revenues on sales into the markets of Latin America were $175.2, $89.2 and $60.2 in 1999, 1998 and 1997, respectively, representing increases of $86.0, or 96%, from 1998 to 1999 and $29.0, or 48%, from 1997 to 1998. The increase in both periods was primarily due to the Company's efforts to expand its business in this region combined with strong demand for the Company's products and services. GROSS MARGINS Overall gross margins increased to 51.5% in 1999, compared to 44.9% in 1998 and 41.8% in 1997. Product gross margins increased to 54.0% in 1999, compared to 46.5% in 1998 and 42.4% in 1997. The increase in product margins for both periods is primarily attributable to increased licensing of the Company's enterprise software products, which have higher gross margins than sales of the Company's hardware products. Software revenue as a percentage of total revenues increased to 12% in 1999 from 8% in 1998 and 4% in 1997. Other factors affecting product gross margins include the impact of component cost declines being greater than the impact of product price declines. The Company currently believes that product price declines will continue. Service gross margins decreased to 30.8% in 1999, compared to 31.2% in 1998 and 36.5% in 1997. The decrease in service margins from 1998 to 1999 is primarily due to a decrease in Data General service revenues caused by the closure of certain international sales offices. The decrease in service margins from 1997 to 1998 is primarily due to a significant investment in EMC professional services during 1998. RESEARCH AND DEVELOPMENT Research and development ("R&D") expenses were $572.5, $435.3 and $332.1 in 1999, 1998 and 1997, respectively. As a percentage of revenues, R&D expenses were 9%, 8% and 7% in 1999, 1998 and 1997, respectively. The increase in R&D spending levels from 1997 to 1998 and 1998 to 1999 reflects the Company's ongoing research and development efforts in a variety of areas, including EMC ESN technologies, network attached storage products, enhancements to the Symmetrix family of products, new enterprise storage software products and fibre channel connectivity. R&D for 1998 also includes costs associated with the integration of Conley Corporation, acquired in August 1998, which became the EMC Cambridge Software Development Center. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses were $1,435.5, $1,087.7 and $826.4 in 1999, 1998 and 1997, respectively. As a percentage of revenues, SG&A expenses were 21%, 20% and 18% in 1999, 1998 and 1997, respectively. The increase in spending levels for both periods is primarily due to the Company's efforts to build an infrastructure to achieve broader coverage and greater account depth around the world and to expand its technical sales organization to support the current and expected growth in software revenues. In addition, during 1999, the Company increased its direct sales presence where it previously relied upon resellers. 14 RESTRUCTURING, MERGER AND OTHER CHARGES During fiscal year 1999, the Company recorded a total charge of $223.6 related to restructuring, merger and other charges primarily related to the acquisition of Data General. During 1998, the Company recorded charges totaling $135.0 related to a restructuring program and other charges. During the fourth quarter of 1999, the Company approved and implemented a restructuring program in connection with its acquisition of Data General. The restructuring plan, which is expected to be completed by December 2000, provides for the consolidation of the Company's operations and elimination of duplicative facilities worldwide. Accordingly, during 1999, the Company recorded a charge of approximately $170.6 related to employee termination benefits, facility closure costs, asset disposals and other exit costs which the Company has recorded in operating expenses. The expected cash impact of the charge is approximately $140.7 of which $52.4 was paid in 1999. The restructuring program includes an aggregate net reduction of the workforce by approximately 1,100 employees, approximately 59% of whom are or were based in North America and 23% of whom are or were based in Europe. The employee separations affect the majority of business functions and job classes. Of the approximately 1,100 employees identified, approximately 500 were terminated in 1999. In 1999, the Company also recorded a charge for merger costs of $23.5 for financial advisory services, legal, accounting and other direct expenses related to the Data General acquisition which has been recorded in operating expenses. In addition, the Company recorded a $14.1 charge related to asset impairments recorded in operating expenses and recorded a charge of $15.4 for capitalized software and inventory write-downs which is included in cost of product sales. In 1998, the Company recorded a charge of $135.0 related to a restructuring program and certain asset write-downs resulting from the program. The charge included approximately $82.4 related to employee termination benefits, asset write downs and other exit costs which the Company has recorded in operating expenses and approximately $52.6 for capitalized software and inventory write downs which are included in cost of product sales. The total cash impact of the restructuring charge is approximately $58.5, of which $24.4 was paid in 1998 and $21.6 was paid in 1999. As of December 31, 1999, the remaining accruals of $15.7 from the 1998 restructuring program are primarily related to excess vacant rental properties in Europe. The 1998 restructuring program included an aggregate net reduction of the workforce by approximately 480 employees, approximately 65% of whom were based in North America and the remainder of whom were based in Europe and the Asia Pacific region. The employee separations affected the majority of business functions and job classes. Of the 480 employees identified, approximately 400 were terminated during 1998 and 80 were terminated in 1999. 15 The amounts accrued and charged against the established provisions described above were as follows:
BEGINNING CURRENT YEAR CURRENT YEAR BALANCE PROVISION UTILIZATION ENDING BALANCE --------- ------------ ------------ -------------- 1999 Employee termination benefits................. $21.4 $121.5 $ 67.4 $ 75.5 Lease abandonments............................ 13.3 11.2 5.9 18.6 Asset disposals............................... 5.7 17.9 19.5 4.1 Other exit costs.............................. 3.1 20.0 11.9 11.2 ----- ------ ------ ------ $43.5 $170.6 $104.7 $109.4 ===== ====== ====== ====== 1998 Employee termination benefits................. $ -- $ 43.7 $ 22.3 $ 21.4 Lease abandonments............................ 6.5 11.3 4.5 13.3 Asset disposals............................... -- 19.9 14.2 5.7 Other exit costs.............................. -- 7.5 4.4 3.1 ----- ------ ------ ------ $ 6.5 $ 82.4 $ 45.4 $ 43.5 ===== ====== ====== ======
INVESTMENT INCOME AND INTEREST EXPENSE Investment income increased to $131.9 in 1999, from $114.4 in 1998 and $82.6 in 1997. Investment income was earned primarily from investments in cash equivalents and short and long-term investments. Investment income increased in 1999 and 1998 primarily due to higher average cash and investment balances which were derived from operations. Interest expense decreased to $33.5 in 1999 from $34.8 in 1998. Interest expense increased to $34.8 in 1998 from $31.3 in 1997. The decrease in 1999 from 1998 is primarily due to conversions of the 3 1/4% Convertible Subordinated Notes due 2002 of the Company (the "3 1/4% Notes") to Common Stock. The increase in 1998 from 1997 was primarily due to the issuance of the 3 1/4% Notes and the 6% Convertible Subordinated Notes due 2004 of the Company (the "6% Notes"). OTHER INCOME/(EXPENSE), NET The net other income was $17.7 in 1999 compared with the net other income of $0.4 in 1998 and $1.1 in 1997. The increase in the net other income from 1998 to 1999 is primarily attributable to gains on the sale of publicly traded securities acquired as part of the Data General acquisition. PROVISION FOR INCOME TAXES The provision for income taxes was $346.6 in 1999, $260.3 in 1998 and $181.8 in 1997, which resulted in effective tax rates of 25.5%, 28.5% and 23.6% in 1999, 1998 and 1997, respectively. The effective tax rates in 1999, 1998, and 1997 were lower than the statutory federal rate (35%) due primarily to the realization of the benefits of the Company's global tax strategies and the benefits derived from its offshore manufacturing operations. The major impact of the Data General acquisition to the tax provision under the pooling of interest method of acquisition accounting was a reduction in the valuation reserve formerly recorded for certain Data General net operating loss carryforwards and the non-deductibility of certain restructuring charges. The Company anticipates that the effective tax rate for fiscal 2000 will be approximately 27%. FINANCIAL CONDITION Cash and cash equivalents and short and long-term investments were $3,173.7 and $2,380.3 at December 31, 1999 and 1998, respectively, an increase of $793.4. In 1999, cash and cash equivalents 16 increased by $273.9 and short and long-term investments increased by $519.5. This reflects the Company's continued efforts to invest excess cash in short and long-term investments, which generate a higher yield than cash and cash equivalents. Cash provided by operating activities was $1,371.6. This was primarily generated from net income offset by an increase in working capital, primarily attributable to an increase in accounts receivable, consistent with the growth of the business. Cash used by investing activities was $1,170.9, principally for purchases of investments and additions to property, plant and equipment. Cash provided by financing activities was $73.2, principally from the issuance of Common Stock from stock option exercises. The Company has available for use a credit line of $50.0 and may elect to borrow at any time. In March 1997, the Company sold $517.5 of the 3 1/4% Notes. The 3 1/4% Notes are generally convertible into shares of Common Stock at any time prior to the redemption date at a conversion price of $11.33 per share. As of December 31, 1999, $57.1 of the 3 1/4% Notes have been converted into Common Stock. On February 15, 2000, the Company announced that it would redeem all of the outstanding 3 1/4% Notes on March 15, 2000; however, the Company believes that substantially all of the outstanding 3 1/4% Notes were converted into Common Stock on or prior to such date. In May 1997, the Company sold $212.8 of the 6% Notes. The 6% Notes are generally convertible into shares of common stock at a conversion price of $83.82 per share, subject to adjustment in certain events. As of December 31, 1999, none of the 6% Notes have been converted into Common Stock. Based on its current operating and capital expenditure forecasts, the Company believes that the combination of funds currently available, funds generated from operations and its available line of credit will be adequate to finance its ongoing operations. To date, inflation has not had a material impact on the Company's financial results. 17 FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal Securities Laws. The Company's future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to those set forth below, other one-time events and other important factors disclosed previously and from time to time in EMC's other filings with the Securities and Exchange Commission. IF EMC'S SUPPLIERS DO NOT MEET ITS QUALITY OR DELIVERY REQUIREMENTS, EMC COULD HAVE DECREASED REVENUES AND EARNINGS. EMC purchases several sophisticated components and products from one or a limited number of qualified suppliers, including some of its competitors. These components and products include disk drives, high density memory components and power supplies. EMC has experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet its quality and delivery requirements. If any of its suppliers were to fail to meet the quality or delivery requirements needed to satisfy customer orders for its products, EMC could lose time-sensitive customer orders and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on EMC's business, results of operations or financial condition. Additionally, EMC periodically transitions its product line to incorporate new technologies. The importance of transitioning its customers smoothly to new technologies, along with its historically uneven pattern of quarterly sales, intensifies the risk that a supplier who fails to meet its delivery or quality requirements will have an adverse impact on EMC's revenues and earnings. EMC MAY BE UNABLE TO KEEP PACE WITH RAPID INDUSTRY CHANGES. The computer storage and server markets are characterized by rapid technological change, frequent new product introductions and evolving industry standards. Sales of the Symmetrix series of products constitute the principal source of revenues for EMC and EMC expects these sales to continue to be the principal source of its revenues in the near future. Customer preferences in these markets are difficult to predict, however, and there can be no assurance that the Symmetrix series or other of the Company's products will continue to be properly positioned in the market or to receive customer acceptance. In addition, as a significant number of EMC's products are designed to be fully compatible with the computers and operating systems of IBM and others, EMC's business could also be adversely affected by modifications in the design or configuration of these computers and operating systems. Risks inherent in the transition to new products include the difficulty in forecasting customer demand accurately, the inability to expand production capacity to meet demand for new products, the impact of customers' demand for new products on the products being replaced and delays in initial shipments of new products. Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors' responses to the introductions and the desire by customers to evaluate new products for longer periods of time. There can be no assurance that EMC will be able to effectively manage the transitions to new products or new technologies. THE MARKETS EMC SERVES ARE HIGHLY COMPETITIVE, AND EMC MAY BE UNABLE TO COMPETE EFFECTIVELY. EMC competes with many established companies in the computer storage and server industries and certain of these companies have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and more opportunity to address 18 customers' various information technology requirements than EMC. EMC's business may be adversely affected by the announcement or introduction of new products by its competitors, including hardware, software and services, price reductions of its competitors' equipment or services and the implementation of effective marketing strategies by its competitors. COMPETITIVE PRICING COULD ADVERSELY AFFECT EMC'S REVENUES AND EARNINGS. Competitive pricing pressures exist in the computer storage and server markets and have had and may in the future have an adverse effect on EMC's revenues and earnings. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices in order to preserve or gain market share, which EMC cannot foresee. EMC currently believes that pricing pressures are likely to continue. To date, EMC has been able to manage its component and product design costs. However, there can be no assurance that EMC will be able to continue to achieve reductions in component and product design costs. The relative and varying rates of product price and component cost declines could have an adverse effect on EMC's earnings. CHANGES IN FOREIGN LAWS, RULES OR REGULATIONS OR OTHER CONDITIONS COULD IMPAIR EMC'S INTERNATIONAL SALES. A substantial portion of EMC's revenues is derived from sales outside the United States. In addition, a substantial portion of EMC's products is manufactured outside of the United States. Accordingly, EMC's future results could be adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade restrictions, import or export licensing requirements, the overlap of different tax structures or changes in international tax laws, changes in regulatory requirements, compliance with a variety of foreign laws and regulations and longer payment cycles in certain countries. RISKS ASSOCIATED WITH EMC'S INDIRECT CHANNELS OF DISTRIBUTION MAY ADVERSELY AFFECT EMC'S FINANCIAL RESULTS. EMC derives a significant percentage of its product revenues from indirect channels of distribution, including resellers, systems integrators and distributors. EMC's financial results could be adversely affected if its contracts with its indirect channels of distribution were terminated, if EMC's relationship with its indirect channels were to deteriorate or if the financial condition of its indirect channels were to weaken. In addition, as EMC's business grows, EMC may have an increased reliance on indirect channels of distribution. There can be no assurance that EMC will be successful in maintaining or expanding these channels. If EMC is not successful, EMC may lose certain sales opportunities. Furthermore, the partial reliance on indirect channels of distribution may materially reduce the visibility to management of potential orders, thereby making it more difficult to accurately forecast such orders. In addition, there can be no assurance that indirect channels will not develop or market products in competition with EMC in the future. HISTORICALLY UNEVEN SALES PATTERNS COULD SIGNIFICANTLY IMPACT QUARTERLY REVENUES AND EARNINGS. EMC's quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter's total sales occur in the last month and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. EMC believes this uneven sales pattern is a result of many factors including: 19 - the significant size of EMC's average product price in relation to its customers' budgets, resulting in long lead times for customers' budgetary approval, which tends to be given late in a quarter - the tendency of customers to wait until late in a quarter to commit to purchase in the hope of obtaining more favorable pricing from one or more competitors seeking their business - the fourth quarter influence of customers spending their remaining capital budget authorization prior to new budget constraints in the first quarter of the following year - seasonal influences EMC's uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity accordingly. If orders vary substantially from the predicted demand, the ability to assemble, test and ship orders received in the last weeks and days of each quarter may be limited, which could adversely affect quarterly revenues and earnings. In addition, EMC's revenues in any quarter are substantially dependent on orders booked and shipped in that quarter, and its backlog at any particular time is not necessarily indicative of future sales levels. This is because: - EMC manufactures its products on the basis of its forecast of near-term demand and maintains inventory in advance of receipt of firm orders from customers - EMC generally ships products shortly after receipt of the order - customers may reschedule orders with little or no penalty Moreover, delays in product shipping, caused by loss of power or telecommunications or similar services, or an unexpected decline in revenues without a corresponding and timely slowdown in expenses, could intensify the impact of these factors on EMC's business, results of operations and financial condition. EMC MAY HAVE DIFFICULTY SUSTAINING AND MANAGING ITS GROWTH. EMC has a history of rapid growth. EMC's future operating results will depend on its management's ability to manage growth, including, but not limited to, hiring and retaining significant numbers of qualified employees, forecasting revenues, controlling expenses and managing its manufacturing capacity and other assets and executing on its plans. An unexpected decline in the growth rate of revenues without a corresponding and timely reduction in expense growth or a failure to manage other aspects of growth could have a material adverse effect on EMC's business, results of operations or financial condition. In addition, EMC's growth requires enhancement and expansion of its infrastructure, including its management team, information systems and manufacturing operations. The Company's continued success and profitability depends on its ability to continue to improve its infrastructure to keep pace with the growth in its overall business. EMC'S BUSINESS MAY SUFFER IF IT IS UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL. EMC's continued growth and success depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. Competition for highly skilled personnel is intense in the high technology industry. There can be no assurance that EMC will be successful in continuously recruiting new personnel or in retaining existing personnel. The loss of one or more key or other employees or EMC's inability to attract additional qualified employees or retain other employees could have a material adverse effect on EMC's business, results of operations or financial condition. 20 MANUFACTURING RISKS COULD DIRECTLY IMPAIR EMC'S FINANCIAL RESULTS. EMC's products operate near the limits of electronic and physical performance and are designed and manufactured with relatively small tolerances. If flaws in design, production, assembly or testing were to occur by EMC or its suppliers, EMC could experience a rate of failure in its products that would result in substantial repair or replacement costs and potential damage to EMC's reputation. Continued improvement in manufacturing capabilities and control of material and manufacturing quality and costs are critical factors in the future growth of EMC. EMC frequently revises and updates manufacturing and test processes to address engineering and component changes to its products and evaluates the reallocation of manufacturing resources among its facilities. There can be no assurance that EMC's efforts to monitor, develop and implement appropriate test and manufacturing processes for its products will be sufficient to permit EMC to avoid a rate of failure in its products that results in substantial delays in shipment, significant repair or replacement costs and potential damage to EMC's reputation, any of which could have a material adverse effect on EMC's business, results of operations or financial condition. EMC'S BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED AS A RESULT OF THE RISKS ASSOCIATED WITH ACQUISITIONS AND INVESTMENTS. As part of its business strategy, EMC seeks to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business including, among other things: - the effect of the acquisition on EMC's financial and strategic position and reputation - the failure of an acquired business to further EMC's strategies - the difficulty of integrating the acquired business - the lack of experience in new markets, products or technologies - the diversion of EMC's management's attention from other business concerns - the impairment of relationships with customers of the acquired business - the potential loss of key employees of the acquired company - the implementation and maintenance of uniform company-wide standards, procedures and policies - the potential incompatibility of business cultures These factors could have a material adverse effect on EMC's business, results of operations or financial condition. EMC expects that the consideration paid for future acquisitions, if any, could be in the form of cash, stock, rights to purchase stock or a combination of these. To the extent that EMC issues shares of stock or other rights to purchase stock in connection with any future acquisition, existing stockholders will experience dilution and potentially decreased earnings per share. EMC also seeks to invest in businesses that offer complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business. EMC'S BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED AS A RESULT OF THE RISKS ASSOCIATED WITH ALLIANCES. EMC has alliances with leading software, relational database and enterprise application companies, and EMC plans to continue its strategy of developing key alliances. EMC works with these companies to integrate its products with their software applications. There can be no assurance that EMC will be 21 successful in its ongoing strategic alliances or that EMC will be able to find further suitable business relationships as it develops new products. Any failure to continue or expand such relationships could have a material adverse effect on EMC's business, results of operations or financial condition. There can be no assurance that companies with which EMC has strategic alliances, certain of which have substantially greater financial, marketing and technological resources than EMC, will not develop or market products in competition with EMC in the future, discontinue their alliances with EMC or form alliances with EMC's competitors. EMC'S BUSINESS MAY SUFFER IF IT CANNOT PROTECT ITS INTELLECTUAL PROPERTY. EMC generally relies upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain EMC's proprietary rights in its technology and products. However, there can be no assurance that any of EMC's proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect EMC's proprietary rights to the same extent as do the laws of the United States. Therefore, there can be no assurance that EMC will be able to adequately protect its proprietary technology against unauthorized third-party copying or use, which could adversely affect EMC's competitive position. Further, there can be no assurance that EMC will be able to obtain licenses to any technology that it may require to conduct its business or that, if obtainable, such technology can be licensed at a reasonable cost. From time to time, EMC receives notices from third parties claiming infringement by EMC's products of third-party patent or other intellectual property rights. Responding to any such claim, regardless of its merit, could be time-consuming, result in costly litigation, divert management's attention and resources and cause EMC to incur significant expenses. In the event there is a temporary or permanent injunction entered prohibiting EMC from marketing or selling certain of its products or a successful claim of infringement against EMC requiring EMC to pay royalties to a third party, and EMC fails to develop or license a substitute technology, EMC's business, results of operations or financial condition could be materially adversely affected. YEAR 2000 PROBLEMS MAY DISRUPT EMC'S BUSINESS. The information provided below constitutes a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act. In February 1997, EMC established a Year 2000 program to address systems and software problems in interpreting certain dates in calendar year 2000. Under this program, EMC completed, prior to January 1, 2000, an assessment of the hardware and software in its business information systems and completed the necessary modifications. To date, EMC has not experienced, and is not aware of, any Year 2000 problems or disruptions in its internal systems; however, EMC cannot, at this time, be assured that any such problems or disruptions, if they were to occur, would not have a material impact on EMC's business, results of operations or financial condition. Under its Year 2000 program, EMC sought and has received certifications of Year 2000 compliance from all of its key vendors and suppliers. EMC has also received certifications or statements of Year 2000 compliance from other vendors and suppliers and has assessed questionnaire responses and related information from other third parties. To date, EMC has not received any notification from any of its key vendors, suppliers or other third parties of any Year 2000 problems or disruptions; however, EMC cannot, at this time, be assured that Year 2000 problems of third parties will not have a material impact on EMC's business, results of operations or financial condition. EMC has designed and tested the current versions of its Symmetrix series of products and the current versions of its other products to be Year 2000 compliant. EMC has made upgrades available for 22 the older versions of its Symmetrix series of products and for certain other of its older products that have not been tested for Year 2000 compliance so that such products will test as Year 2000 compliant. EMC's CLARiiON storage products and AViiON servers test as Year 2000 ready or EMC has made upgrades available to make such products test as Year 2000 ready. There can be no assurance that Year 2000 problems in EMC's products, if they were to occur, would not have a material impact on EMC's business, results of operations or financial condition. The assessment, remediation, testing and contingency planning phases of EMC's Year 2000 program are complete. The total cost of such program has not had, and EMC does not anticipate that the total cost of such program will have, a material effect on its business, results of operations or financial condition. The most reasonably likely worst case scenarios regarding failures to interpret certain dates in calendar Year 2000 would include a hardware failure, the corruption or loss of data contained in EMC's internal information systems, a failure affecting EMC's key vendors, suppliers or customers, the failure of infrastructure services provided by government agencies or other third parties, and customer dissatisfaction related to the performance of EMC's products. Under its program, EMC developed a Year 2000 contingency plan. This contingency plan includes, among other things, manual "work-arounds" for hardware and software failures, as well as substitution of systems, if required. Further information about EMC's Year 2000 readiness is available at the Company's website at HTTP://WWW.EMC.COM/YEAR2000. LITIGATION THAT EMC MAY BECOME INVOLVED IN MAY ADVERSELY AFFECT EMC. In the ordinary course of business, EMC may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management's attention and resources and cause EMC to incur significant expenses. Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on its business, results of operations or financial condition. CHANGES IN REGULATIONS COULD ADVERSELY AFFECT EMC. EMC's business, results of operations and financial condition could be adversely affected if laws, regulations or standards relating to EMC or its products were newly implemented or changed. EMC'S STOCK PRICE IS VOLATILE. EMC's stock price, like that of other technology companies, is subject to significant volatility because of factors such as: - the announcement of new products, services or technological innovations by EMC or its competitors - quarterly variations in its operating results - changes in revenue or earnings estimates by the investment community - speculation in the press or investment community In addition, EMC's stock price may be affected by general market conditions and domestic and international economic factors unrelated to EMC's performance. Because of these factors, recent trends should not be considered reliable indicators of future stock prices or financial results. 23 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK The Company is exposed to market risk, primarily from changes in interest rates, foreign exchange rates and credit risk. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies to hedge against known or forecasted market exposures. FOREIGN EXCHANGE RISK MANAGEMENT As a multinational corporation, the Company is exposed to changes in foreign exchange rates. These exposures may change over time and could have a material adverse impact on our financial results. Historically, the Company's primary exposures related to sales denominated in the Euro, the Japanese yen and the British pound. Additionally, the Company's exposure to emerging market economies, particularly in Latin America and South East Asia, has recently increased because of its expanding presence in these markets. Despite the relative size of the Company's exposures in these markets, the inherent volatility of these economies could negatively impact the Company's financial results. The Company uses foreign currency forward and option contracts to manage the risk of exchange rate fluctuations. In all cases, the Company uses these derivative instruments to reduce its foreign exchange risk by essentially creating offsetting market exposures. The instruments held by the Company are not leveraged and are not held for trading or speculative purposes. The Company uses forward exchange contracts to hedge its net asset position and uses a combination of option and forward contracts to hedge anticipated cash flows. The hedging activity is intended to offset the impact of currency fluctuations on assets, liabilities and cash flows denominated in foreign currencies. The success of the hedging program depends on forecasts of transaction activity in the various currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, the Company could experience unanticipated currency gains or losses. The Company employs a variance/covariance model to calculate value-at-risk for its combined foreign exchange position. This model assumes that the relationships among market rates and prices that have been observed over the last year are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics dataset as of December 31, 1999. This model measures the potential loss in fair value that could arise from changes in market conditions, using a 95% confidence level and assuming a one-day holding period. The value-at-risk on the combined foreign exchange position was $0.4 million as of December 31, 1999. INTEREST RATE RISK The Company maintains an investment portfolio consisting of debt securities of various issuers, types and maturities. The investments are classified as available for sale and all are denominated in U.S. dollars. These securities are recorded on the balance sheet at market value, with any unrealized gain or loss recorded in other comprehensive income/(loss). These instruments are not leveraged, and are not held for trading purposes. A portion of the Company's investment portfolio is comprised of mortgage-backed securities which are subject to prepayment risk. The Company employs a variance/covariance model to calculate value-at-risk for its combined investment portfolios. This model assumes that the relationships among market rates and prices that have been observed over the last year are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics dataset as of December 31, 1999. This model measures the potential loss in fair value that could arise from changes 24 in market conditions, using a 95% confidence level and assuming a one day holding period. The value at risk on the investment portfolios was $2.2 million as of December 31, 1999. CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, short and long-term investments and trade and notes receivable. The Company places its temporary cash investments and short and long-term investments in investment grade instruments and limits the amount of investment with any one financial institution. The credit risk associated with trade receivables is minimal due to the large number of customers and their broad dispersion over many different industries and geographic areas. 25 EMC CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
FORM 10-K ---------- Report of Independent Accountants........................... p. 27 Consolidated Balance Sheets at December 31, 1999 and 1998... p. 28 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997.................................................. p. 29 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.................................................. p. 30 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997.......... p. 31 Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997.......... p. 32 Notes to Consolidated Financial Statements.................. pp. 33-58 Schedule: Schedule II--Valuation and Qualifying Accounts............ p. S-1
Note: All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 26 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and the Board of Directors of EMC Corporation: In our opinion, the consolidated financial statements listed in the accompanying index on page 26 present fairly in all material respects, the financial position of EMC Corporation and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts January 21, 2000 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA EMC CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- ASSETS Current assets: Cash and cash equivalents................................. $1,109,409 $ 835,466 Short-term investments.................................... 714,730 982,482 Trade and notes receivable less allowance for doubtful accounts of $34,279 and $26,755 in 1999 and 1998, respectively...... 1,625,438 1,292,790 Inventories............................................... 618,885 620,025 Deferred income taxes..................................... 147,471 49,682 Other assets.............................................. 104,463 85,570 ---------- ---------- Total current assets........................................ 4,320,396 3,866,015 Long-term investments....................................... 1,349,599 562,360 Notes receivable, net....................................... 76,756 34,870 Property, plant and equipment, net.......................... 1,023,179 823,160 Deferred income taxes....................................... 108,587 26,561 Intangible and other assets, net............................ 294,771 314,054 ---------- ---------- Total assets............................................ $7,173,288 $5,627,020 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations.................. $ 9,116 $ 29,361 Accounts payable.......................................... 370,055 299,412 Accrued expenses.......................................... 611,052 457,122 Income taxes payable...................................... 249,234 160,792 Deferred revenue.......................................... 158,458 94,328 ---------- ---------- Total current liabilities................................... 1,397,915 1,041,015 Deferred income taxes....................................... 125,353 75,290 Long-term obligations: 3 1/4% convertible subordinated notes due 2002............ 460,399 517,500 6% convertible subordinated notes due 2004................ 212,750 212,750 Notes payable............................................. 13,460 21,396 Other liabilities........................................... 11,625 30,079 ---------- ---------- Total liabilities....................................... 2,221,502 1,898,030 ---------- ---------- Commitments and contingencies Stockholders' equity: Series Preferred Stock, par value $.01; authorized 25,000 shares; none outstanding................................ -- -- Common Stock, par value $.01; authorized 3,000,000 shares; issued and outstanding 1,039,275 and 1,022,952 in 1999 and 1998, respectively.................................. 10,393 10,230 Additional paid-in capital................................ 1,706,387 1,479,823 Deferred compensation..................................... (30,282) (36,516) Retained earnings......................................... 3,299,821 2,289,251 Accumulated other comprehensive income/(loss)............. (34,533) (7,890) ---------- ---------- Subtotal................................................ 4,951,786 3,734,898 Treasury stock............................................ -- (5,908) ---------- ---------- Total stockholders' equity............................ 4,951,786 3,728,990 ---------- ---------- Total liabilities and stockholders' equity.......... $7,173,288 $5,627,020 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 28 EMC CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- Revenues: Net sales............................................. $5,983,009 $4,860,838 $4,022,584 Services.............................................. 732,601 575,320 465,267 ---------- ---------- ---------- 6,715,610 5,436,158 4,487,851 Costs and expenses: Cost of sales......................................... 2,751,360 2,600,405 2,317,189 Cost of service....................................... 506,885 395,995 295,269 Research and development.............................. 572,517 435,344 332,078 Selling, general and administrative................... 1,435,508 1,087,747 826,357 Restructuring, merger and other charges............... 208,246 82,400 -- ---------- ---------- ---------- Operating income........................................ 1,241,094 834,267 716,958 Investment income....................................... 131,911 114,355 82,582 Interest expense........................................ (33,490) (34,786) (31,302) Other income/(expense), net............................. 17,650 397 1,082 ---------- ---------- ---------- Income before taxes..................................... 1,357,165 914,233 769,320 Income tax provision.................................... 346,595 260,255 181,809 ---------- ---------- ---------- Net income.............................................. $1,010,570 $ 653,978 $ 587,511 ========== ========== ========== Net income per weighted average share, basic............ $ 0.98 $ 0.64 $ 0.59 ========== ========== ========== Net income per weighted average share, diluted.......... $ 0.92 $ 0.61 $ 0.56 ========== ========== ========== Weighted average shares, basic.......................... 1,030,551 1,015,371 1,001,016 Weighted average shares, diluted........................ 1,109,532 1,094,215 1,065,484
The accompanying notes are an integral part of the consolidated financial statements. 29 EMC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- Cash flows from operating activities: Net income............................................ $ 1,010,570 $ 653,978 $ 587,511 Adjustments to reconcile net income to net cash provided/ (used) by operating activities: Depreciation and amortization....................... 447,114 366,403 241,789 Deferred income taxes............................... (122,973) (615) 8,538 Net loss on disposal of property and equipment...... 9,896 9,073 10,432 Tax benefit from stock options exercised............ 58,033 43,670 18,540 Minority interest................................... 135 (499) (337) Changes in assets and liabilities: Trade and notes receivable........................ (383,547) (212,988) (197,895) Inventories....................................... 12,483 (18,671) (120,109) Other assets...................................... (49,789) (13,250) (57,916) Accounts payable.................................. 70,798 (45,383) 42,771 Accrued expenses.................................. 158,191 145,396 13,049 Income taxes payable.............................. 88,442 15,978 46,063 Deferred revenue.................................. 67,116 34,394 458 Other liabilities................................. 5,166 (6,816) (3,842) ----------- ----------- ---------- Net cash provided by operating activities....... 1,371,635 970,670 589,052 ----------- ----------- ---------- Cash flows from investing activities: Additions to property, plant and equipment............ (524,279) (484,708) (328,669) Proceeds from sales of property and equipment......... 1 6 313 Capitalized software development costs................ (88,201) (71,689) (66,010) Purchase of short and long-term held-to-maturity securities.......................................... (191,254) (1,100,361) (904,308) Maturity of short and long-term held-to-maturity securities.......................................... 940,483 1,016,607 669,198 Purchase of short and long-term available for sale securities.......................................... (2,752,925) (1,758,564) (192,818) Sales of short and long-term available for sale securities.......................................... 1,445,237 1,157,077 2,590 Business acquisitions................................. -- (53,903) -- ----------- ----------- ---------- Net cash used by investing activities........... (1,170,938) (1,295,535) (819,704) ----------- ----------- ---------- Cash flows from financing activities: Issuance of common stock.............................. 101,424 64,269 50,928 Redemption of 4 1/4% convertible subordinated notes due 2001............................................ -- -- (65) Proceeds from investment in new McDATA................ -- -- 10,000 Issuance of convertible subordinated notes, net of issuance costs...................................... -- -- 713,524 Payment of long-term and short-term obligations....... (30,435) (12,413) (36,754) Issuance of long-term and short-term obligations...... 2,256 14,553 4,732 ----------- ----------- ---------- Net cash provided by financing activities....... 73,245 66,409 742,365 ----------- ----------- ---------- Effect of exchange rate changes on cash................. 1 (2,020) (8,039) Net (decrease)/increase in cash and cash equivalents.... 273,942 (258,456) 511,713 Cash and cash equivalents at beginning of period........ 835,466 1,095,942 592,268 ----------- ----------- ---------- Cash and cash equivalents at end of period.............. $ 1,109,409 $ 835,466 $1,095,942 =========== =========== ========== Non-cash activity--conversions of debentures and notes................................................. $ 57,101 -- $ 140,682 --business acquisitions................. -- $ 51,755 --
The accompanying notes are an integral part of the consolidated financial statements. 30 EMC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 --------------------------------------------------------------- COMMON STOCK --------------------- ADDITIONAL PAR PAID-IN DEFERRED RETAINED SHARES VALUE CAPITAL COMPENSATION EARNINGS ---------- -------- ---------- ------------- ---------- Balance, December 31, 1996.................... 965,463 $ 9,655 $ 935,479 $(17,512) $1,047,762 Exercise of stock options............... 12,615 126 50,802 -- -- Tax benefit from stock options exercised..... -- -- 18,540 -- -- Grant of stock options............... -- -- 20,778 (20,778) -- Issuance of common stock pursuant to conversions of notes................. 30,792 308 265,474 -- -- Amortization of deferred compensation.......... -- -- -- 8,678 -- Treasury stock transactions.......... -- -- (579) -- -- Proceeds in excess of minority interest in new McDATA............ -- -- 6,625 -- -- Unrealized gain/(loss) on investments........ -- -- -- -- -- Translation adjustment............ -- -- -- -- -- Net income.............. -- -- -- -- 587,511 ---------- ------- ---------- -------- ---------- Balance, December 31, 1997.................... 1,008,870 10,089 1,297,119 (29,612) 1,635,273 ---------- ------- ---------- -------- ---------- Exercise of stock options............... 11,868 119 64,150 -- -- Tax benefit from stock options exercised..... -- -- 43,670 -- -- Grant of stock options............... -- -- 21,341 (21,341) -- Amortization of deferred compensation.......... -- -- -- 14,437 -- Business acquisitions... 2,214 22 51,175 -- -- Other adjustments....... -- -- 2,335 -- -- Treasury stock transactions.......... -- -- 33 -- -- Unrealized gain/(loss) on investments........ -- -- -- -- -- Minimum pension liability............. -- -- -- -- -- Translation adjustment............ -- -- -- -- -- Net income.............. -- -- -- -- 653,978 ---------- ------- ---------- -------- ---------- Balance, December 31, 1998.................... 1,022,952 10,230 1,479,823 (36,516) 2,289,251 ---------- ------- ---------- -------- ---------- Exercise of stock options............... 11,373 113 103,219 -- -- Tax benefit from stock options exercised..... -- -- 58,033 -- -- Grant of stock options............... -- -- 16,077 (16,077) -- Issuance of common stock pursuant to conversion of notes.............. 5,041 50 57,051 -- -- Amortization of deferred compensation.......... -- -- -- 22,311 -- Retirement of treasury stock................. (91) -- (7,816) -- -- Minimum pension liability............. -- -- -- -- -- Unrealized gain/(loss) on investments........ -- -- -- -- -- Translation adjustment............ -- -- -- -- -- Net income.............. -- -- -- -- 1,010,570 ---------- ------- ---------- -------- ---------- Balance, December 31, 1999.................... 1,039,275 $10,393 $1,706,387 $(30,282) $3,299,821 ========== ======= ========== ======== ========== FOR THE THREE YEARS ENDED DECEMBER 31, 1999 ---------------------------------------------------- ACCUMULATED TREASURY OTHER STOCK TOTAL COMPREHENSIVE ------------------- STOCKHOLDERS' INCOME SHARES COST EQUITY -------------- -------- -------- ------------- Balance, December 31, 1996.................... $ 9,095 69 $(6,454) $1,978,025 Exercise of stock options............... -- -- -- 50,928 Tax benefit from stock options exercised..... -- -- -- 18,540 Grant of stock options............... -- -- -- -- Issuance of common stock pursuant to conversions of notes................. -- -- -- 265,782 Amortization of deferred compensation.......... -- -- -- 8,678 Treasury stock transactions.......... -- (4) 579 -- Proceeds in excess of minority interest in new McDATA............ -- -- -- 6,625 Unrealized gain/(loss) on investments........ (5,608) -- -- (5,608) Translation adjustment............ (9,540) -- -- (9,540) Net income.............. -- -- -- 587,511 -------- ---- ------- ---------- Balance, December 31, 1997.................... (6,053) 65 (5,875) 2,900,941 -------- ---- ------- ---------- Exercise of stock options............... -- -- -- 64,269 Tax benefit from stock options exercised..... -- -- -- 43,670 Grant of stock options............... -- -- -- -- Amortization of deferred compensation.......... -- -- -- 14,437 Business acquisitions... -- -- -- 51,197 Other adjustments....... -- -- -- 2,335 Treasury stock transactions.......... -- -- (33) -- Unrealized gain/(loss) on investments........ 6,777 -- -- 6,777 Minimum pension liability............. (6,252) -- -- (6,252) Translation adjustment............ (2,362) -- -- (2,362) Net income.............. -- -- -- 653,978 -------- ---- ------- ---------- Balance, December 31, 1998.................... (7,890) 65 (5,908) 3,728,990 -------- ---- ------- ---------- Exercise of stock options............... -- 26 (1,908) 101,424 Tax benefit from stock options exercised..... -- -- -- 58,033 Grant of stock options............... -- -- -- -- Issuance of common stock pursuant to conversion of notes.............. -- -- -- 57,101 Amortization of deferred compensation.......... -- -- -- 22,311 Retirement of treasury stock................. -- (91) 7,816 -- Minimum pension liability............. 6,252 -- -- 6,252 Unrealized gain/(loss) on investments........ (30,592) -- -- (30,592) Translation adjustment............ (2,303) -- (2,303) Net income.............. -- -- -- 1,010,570 -------- ---- ------- ---------- Balance, December 31, 1999.................... $(34,533) -- $ -- $4,951,786 ======== ==== ======= ==========
The accompanying notes are an integral part of the consolidated financial statements. 31 EMC CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS)
FOR THE YEAR ENDED --------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- Net income.............................................. $1,010,570 $653,978 $587,511 Other comprehensive income/(loss) net of tax benefit: Foreign currency translation adjustments, net of tax of $(768), $(787) and $(3,180)...................... (2,303) (2,362) (9,540) Equity adjustment for minimum pension liability, net of tax of $2,084, $(2,084) and $0................... 6,252 (6,252) -- Unrealized gain/(loss) on investments and derivatives, net of tax of $(10,197), $2,259 and $(1,869)........ (30,592) 6,777 (5,608) ---------- -------- -------- Other comprehensive income/(loss)....................... (26,643) (1,837) (15,148) ---------- -------- -------- Comprehensive income.................................... $ 983,927 $652,141 $572,363 ========== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 32 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY EMC Corporation and its subsidiaries ("EMC" or the "Company") design, manufacture, market and support a wide range of hardware and software and provide services for the storage, management, protection and sharing of electronic information. These integrated solutions enable organizations to create an electronic information infrastructure or what EMC calls an E-Infostructure. EMC is the leading supplier of those solutions, which are comprised of enterprise storage systems, networks, software and services. Its products are sold to customers utilizing a variety of the world's most popular computing platforms for key applications, including electronic commerce, data warehousing and transaction processing. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company treats gains/ losses on sales of subsidiary stock of development stage companies as equity transactions. BASIS OF PRESENTATION The Company's fiscal year ends on December 31. On October 12, 1999, EMC completed the acquisition of Data General Corporation ("Data General"), which was accounted for as a pooling-of-interests. Prior to the acquisition, Data General's fiscal year end was the last Saturday in September and its month end was the last Saturday of the month. Data General's financial information has been conformed to a calendar year end for each of the years presented. EMC's consolidated financial statements include the results of Data General. Certain prior year amounts have been reclassified to conform with the 1999 presentation. USE OF ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. REVENUE RECOGNITION The Company generally recognizes revenue from product sales upon shipment provided that no significant post-delivery obligations remain and collection of the resulting receivable is reasonably assured. When significant post-delivery obligations exist, revenue is deferred until such obligations are fulfilled. The Company accrues for warranty costs, sales returns, and other allowances at the time of shipment based on its experience. Revenue from sales-type leases is recognized at the net present value of expected future payments. Service revenue is recognized over the contractual period or as services are rendered. In transactions that include multiple products and/or services, the Company allocates the sales value among each of the deliverables based on their relative fair values. 33 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOREIGN CURRENCY TRANSLATION The local currency is the functional currency of the majority of the Company's subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the period, except for property, plant and equipment which is translated at historical exchange rates. The Company's subsidiaries in Ireland, Israel and Hong Kong are generally dependent on the U.S. dollar and therefore, their functional currency is the U.S. dollar. Consolidated foreign currency transaction results included in other income/(expense), net were gains of $2,712 in 1999, $5,746 in 1998 and $2,959 in 1997. DERIVATIVES In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company adopted SFAS 133 on January 1, 1999. As a result of this adoption, all derivatives are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income. The Company does not engage in currency speculation. The Company may, from time to time, enter into derivative instruments to hedge against known or forecasted market exposures. The Company uses forward exchange contracts to hedge its net asset position and a combination of forward and option contracts to hedge anticipated cash flows. The gains or losses arising from forward contracts hedging the Company's net asset position are recorded in other income or expense as offsets to the gains or losses resulting from the underlying hedged items. Gains and losses from contracts hedging cash flow exposures are recognized in the income statement as appropriate in the same period in which the related underlying hedged item is recognized. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments with a maturity of ninety days or less at the time of purchase. These investments are stated at amortized cost plus accrued interest, which approximates market. Total cash equivalents were $598,684 and $565,420 at December 31, 1999 and 1998, respectively. Cash equivalents consist primarily of commercial paper and money market securities. INVESTMENTS The Company's investments are comprised primarily of debt securities which are classified at purchase as either held-to-maturity or available for sale during 1998 and as available for sale in 1999. Investments with remaining maturities of less than twelve months from the balance sheet date are classified as short-term investments. Investments with remaining maturities of more than twelve months from the balance sheet date are classified as long-term investments. 34 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
1999 1998 1997 -------- -------- -------- Cash paid for: Income taxes................................ $325,990 $214,727 $112,645 Interest.................................... 31,285 34,666 28,649
INVENTORIES Inventories are stated at the lower of cost (first in, first out) or market, not in excess of net realizable value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows: Furniture and fixtures...................................... 7 years Equipment................................................... 3-10 years Improvements................................................ 5-25 years Buildings................................................... 25-31 1/2 years
When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed from the accounts and the related gains or losses are included in the statement of income. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Research and development costs are expensed as incurred. Software development costs incurred subsequent to establishment of technological feasibility through the general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a working model. Capitalized costs are amortized on a straight-line basis over a period of two to four years. Unamortized software development costs were $123,936 and $96,013 at December 31, 1999 and 1998, respectively, and are included in intangible and other assets. Amortization expense was $60,278, $48,017 and $40,064 in 1999, 1998 and 1997, respectively. INCOME TAXES Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note J). Tax credits are generally recognized as reductions of income tax provisions in the year in which the credits arise. The Company does not provide for U.S. income tax liability on undistributed earnings of its foreign subsidiaries. The earnings of non-U.S. subsidiaries, which reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or will be remitted substantially free of 35 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) additional tax. Accordingly, no material provision has been made for taxes that might be payable upon remittance of such non-U.S. earnings. EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") beginning with the fiscal year ended December 31, 1997. This Statement requires the presentation of basic and diluted net income per share. Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options and convertible debt. The Company has restated all prior period per share data presented as required by SFAS 128. RETIREMENT/POST EMPLOYMENT BENEFITS Net pension cost for the Company's domestic defined benefit pension plan is funded as accrued, to the extent that current pension cost is deductible for U.S. Federal tax purposes and to comply with the General Agreement on Tariff and Trade Bureau (GATT) additional minimum funding requirements for the plan year beginning October 1, 1995. Net pension cost for the Company's international defined benefit pension plans are generally funded as accrued. The net transition surplus or obligation for these international plans are amortized over periods ranging from 15 to 20 years. Net post-retirement benefit costs for the Company's domestic post-retirement benefits plan are generally funded as accrued, to the extent that current cost is deductible for U.S. Federal tax purposes. The net transition obligation for the plan is amortized over 18 years. ACCOUNTING FOR STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), issued in 1995, defined a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. As provided for in SFAS 123, the Company elected to apply Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations in accounting for its stock-based compensation plans. The required disclosures under SFAS 123 are included in Note M. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, short and long-term investments and trade and notes receivable. The Company places its temporary cash investments and short and long-term investments in investment grade instruments and limits the amount of investment with any one financial institution. The credit risk associated with trade receivables is minimal due to the large number of customers and their broad dispersion over many different industries and geographic areas. Hewlett-Packard Company ("HP") represented 5%, 16% and 17% of the Company's total revenues in 1999, 1998 and 1997, respectively. The Company and HP agreed to terminate their reseller contract effective as of June 30, 1999. 36 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) B. ACQUISITIONS On October 12, 1999, EMC acquired Data General, a designer, manufacturer and marketer of CLARiiON Fibre Channel storage systems and AViiON computer systems servers for fast growing segments of the server market, in a transaction accounted for as a pooling-of-interests. EMC issued an aggregate of approximately 16 million shares of common stock, or 0.3125 shares of EMC common stock for each share of outstanding Data General common stock, in the acquisition. Separate company results for 1999 before the combination was consummated were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1999 ----------------------- REVENUES NET INCOME ---------- ---------- EMC................................................... $3,753,434 $819,126 Data General.......................................... 1,086,423 (15,162) ---------- -------- Total................................................. $4,839,857 $803,964 ========== ========
The Company acquired several companies during 1998, in transactions accounted for using the purchase method, which are not significant to its financial position or results of operations. Under the purchase method, the results of operations of acquired companies are included prospectively from the date of acquisition, and the acquisition cost is allocated to the acquirees' assets and liabilities based upon their fair market values at the date of acquisition. On December 31, 1999 and 1998 the net book value of goodwill associated with all acquisitions was $66,915 and $102,610, respectively. Goodwill is being amortized on a straight-line basis over periods ranging from five to ten years and is included in intangible and other assets, net. Accumulated amortization was $41,769 and $18,925 on December 31, 1999 and 1998, respectively. C. RESTRUCTURING, MERGER AND OTHER CHARGES During fiscal year 1999, the Company recorded a total charge of $223.6 million related to restructuring, merger and other charges primarily related to the acquisition of Data General. During 1998, the Company recorded charges totaling $135.0 million related to a restructuring program and other charges. During the fourth quarter of 1999, the Company approved and implemented a restructuring program in connection with its acquisition of Data General. The restructuring plan, which is expected to be completed by December 2000, provides for the consolidation of the Company's operations and elimination of duplicative facilities worldwide. Accordingly, during 1999, the Company recorded a charge of approximately $170.6 million related to employee termination benefits, facility closure costs, asset disposals and other exit costs which the Company has recorded in operating expenses. The expected cash impact of the charge is approximately $140.7 million of which $52.4 million was paid in 1999. The restructuring program includes an aggregate net reduction of the workforce of approximately 1,100 employees approximately 59% of whom are or were based in North America and 23% of whom are or were based in Europe. The employee separations affect the majority of business functions and 37 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) job classes. Of the approximately 1,100 employees identified, approximately 500 were terminated in 1999. In 1999, the Company also recorded a charge for merger costs of $23.5 million for financial advisory services, legal, accounting and other direct expenses related to the Data General acquisition which has been recorded in operating expenses. In addition, the Company recorded a $14.1 million charge related to asset impairments recorded in operating expenses and recorded a charge of $15.4 million for capitalized software and inventory write-downs which is included in cost of product sales. In 1998, the Company recorded a charge of $135.0 million related to a restructuring program and certain asset write-downs resulting from the program. The charge included approximately $82.4 million related to employee termination benefits, asset write-downs and other exit costs which the Company has recorded in operating expenses and approximately $52.6 million for capitalized software and inventory write-downs which are included in cost of product sales. The total cash impact of the restructuring charge is approximately $58.5 million of which $24.4 million was paid in 1998 and $21.6 million was paid in 1999. As of December 31, 1999, the remaining accruals of $15.7 million from the 1998 restructuring program are primarily related to excess vacant rental properties in Europe. The 1998 restructuring program included an aggregate net reduction of the workforce by approximately 480 employees, approximately 65% of whom were based in North America and the remainder of whom were in Europe and Asia Pacific. The employee separations affected the majority of business functions and job classes. Of the 480 employees identified, approximately 400 were terminated during 1998 and 80 were terminated in 1999. The amounts accrued and charged against the established provisions described above were as follows:
CURRENT CURRENT BEGINNING YEAR YEAR ENDING BALANCE PROVISION UTILIZATION BALANCE --------- --------- ----------- -------- 1999 Employee termination benefits........................ $21,359 $121,539 $ 67,417 $ 75,481 Lease abandonments................................... 13,321 11,193 5,859 18,655 Asset disposals...................................... 5,747 17,930 19,561 4,116 Other exit costs..................................... 3,109 19,948 11,862 11,195 ------- -------- -------- -------- $43,536 $170,610 $104,699 $109,447 ======= ======== ======== ======== 1998 Employee termination benefits........................ $ -- $ 43,709 $ 22,350 $ 21,359 Lease abandonments................................... 6,500 11,341 4,520 13,321 Asset disposals...................................... -- 19,850 14,103 5,747 Other exit costs..................................... -- 7,500 4,391 3,109 ------- -------- -------- -------- $ 6,500 $ 82,400 $ 45,364 $ 43,536 ======= ======== ======== ========
D. DERIVATIVES The Company uses derivatives to hedge foreign currency cash flows on a continuing basis for periods consistent with its net asset and forecasted exposures. Since the Company is using foreign 38 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) exchange derivative contracts to hedge foreign exchange exposures, the changes in the value of the derivatives are highly effective in offsetting changes in the fair value or cash flows of the hedged item. Any ineffective portion of the derivatives is recognized in current earnings, which represented an immaterial amount for fiscal year 1999. The ineffective portion of the derivatives is primarily related to option premiums and to discounts or premiums on forward contracts. The Company hedges its net asset position with forward exchange contracts. Since these derivatives hedge existing net assets that are denominated in foreign currencies, the contracts do not qualify for hedge accounting under SFAS 133. The changes in fair value from these contracts as well as the underlying exposures are generally offsetting, and are recorded in other income/(expense) on the income statement. These derivative contracts generally mature within six months. At December 31, 1999 and 1998, the Company had $592,581 and $477,251, respectively, of forward exchange contracts outstanding. The Company uses foreign currency forward and option contracts to hedge a portion of its forecasted transactions. These derivatives are designated as cash flow hedges, and changes in their fair value are carried in accumulated other comprehensive income/(expense) until the underlying forecasted transaction occurs. Once the underlying forecasted transaction is realized, the appropriate gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive income/(expense) to the income statement, in revenue and expense, as appropriate. In the event the underlying forecasted transaction does not occur, the amount recorded in accumulated other comprehensive income/(expense) will be reclassified to the other income/(expense) line of the income statement in the then-current period. The Company's cash flow hedges generally mature within nine months or less. At December 31, 1999 and 1998, the Company had $40,545 and $0, respectively, of forward contracts outstanding. In addition, at December 31, 1999 and 1998, the Company had $55,000 and $10,000, respectively, of foreign currency options outstanding. The Company recorded in revenue and expense approximately $1,814 in net losses from cash flow hedges related to items forecasted for fiscal year 1999. The amount that will be reclassified from other accumulated comprehensive income/(expense) to earnings over the next twelve months is a gain of approximately $1,212, net of tax. As permitted with the adoption of SFAS133, the Company also reclassified $602,575 of held-to-maturity securities as "available for sale" in the first quarter of 1999. This reclassification resulted in an immaterial adjustment recorded to accumulated other comprehensive income/(expense) to reflect the difference between the carrying cost and market value of these securities. 39 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) E. FAIR VALUE OF FINANCIAL INSTRUMENTS FAIR VALUE The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, current portion of long-term debt and accounts payable approximate fair value due to the short maturities of these instruments. The carrying and estimated fair values of the Company's 3 1/4% Convertible Subordinated Notes due 2002 (the "3 1/4% Notes") at December 31, 1999 were $460,399 and $4,440,375, respectively. The carrying and estimated fair values of the Company's 6% Convertible Subordinated Notes due 2004 (the "6% Notes") at December 31, 1999 were $212,750 and $277,277, respectively. The fair values of the 3 1/4% Notes and the 6% Notes are based on the closing price of the Common Stock as of December 31, 1999. INVESTMENTS The Company's investment portfolio includes available for sale securities only. Prior to 1999, the Company's investment portfolio included held-to-maturity and available for sale securities. The following tables summarize the composition of the Company's held-to-maturity short and long-term investments at December 31, 1998.
DECEMBER 31, 1998 ----------------------- AMORTIZED AGGREGATE COST BASIS FAIR VALUE ---------- ---------- U.S. corporate debt securities.......................... $509,478 $508,923 U.S. government and agencies............................ 218,363 218,214 Foreign debt securities................................. 21,388 21,221 -------- -------- Total due within one year............................. $749,229 $748,358 ======== ========
There were no for held-to-maturity securities at December 31, 1999. The net unrealized loss of $871 at December 31, 1998 consisted of gross unrealized gains of $160 and gross unrealized losses of $1,031. 40 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following tables summarize the composition of the Company's available for sale short and long-term investments at December 31, 1999 and 1998, respectively.
DECEMBER 31, 1999 ----------------------- AMORTIZED AGGREGATE COST BASIS FAIR VALUE ---------- ---------- Asset and mortgage-backed securities................. $ 374,511 $ 369,037 U.S. government and agencies......................... 792,354 777,800 U.S. corporate debt securities....................... 863,736 855,191 Foreign debt securities.............................. 62,445 62,301 ---------- ---------- Total.............................................. $2,093,046 $2,064,329 ========== ==========
DECEMBER 31, 1998 ----------------------- AMORTIZED AGGREGATE COST BASIS FAIR VALUE ---------- ---------- Asset and mortgage-backed securities................. $ 411,098 $ 411,251 U.S. government and agencies......................... 218,855 218,996 U.S. corporate debt securities....................... 153,140 153,823 U.S. corporate equity securities..................... 1,254 10,530 Foreign debt securities.............................. 1,011 1,013 ---------- ---------- Total.............................................. $ 785,358 $ 795,613 ========== ==========
The contractual maturities of available for sale investments held at December 31, 1999 and 1998 are as follows:
DECEMBER 31, 1999 ----------------------- AMORTIZED AGGREGATE COST BASIS FAIR VALUE ---------- ---------- Due within one year.................................. $ 717,589 $ 714,730 Due after one year through five years................ 1,375,457 1,349,599 ---------- ---------- Total.............................................. $2,093,046 $2,064,329 ========== ==========
DECEMBER 31, 1998 ----------------------- AMORTIZED AGGREGATE COST BASIS FAIR VALUE ---------- ---------- Due within one year.................................. $ 224,252 $ 233,253 Due after one year through five years................ 561,106 562,360 ---------- ---------- Total.............................................. $ 785,358 $ 795,613 ========== ==========
The net unrealized loss on available for sale securities at December 31, 1999 was $28,717, which consisted of gross unrealized gains of $54 and gross unrealized losses of $28,771. The gross unrealized gain at December 31, 1998 was $10,255 consisting of $12,164 of gross unrealized gains and $1,909 of gross unrealized losses. The unrealized gains and losses are included in other comprehensive income/ (loss). 41 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Investment income consists principally of interest income, including interest on notes receivable from sales-type leases. F. INVENTORIES Inventories consist of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Purchased parts..................................... $ 38,204 $ 33,692 Work-in-process..................................... 379,679 347,695 Finished goods...................................... 201,002 238,638 -------- -------- $618,885 $620,025 ======== ========
G. NOTES RECEIVABLE Notes receivable are primarily from installment sales and sales-type leases of the Company's products. The payment schedule for such notes at December 31, 1999 is as follows: 2000........................................................ $ 65,843 2001........................................................ 42,933 2002........................................................ 39,917 2003........................................................ 11,454 2004........................................................ 2,703 Thereafter.................................................. 184 -------- Face value.................................................. 163,034 Less amounts representing interest.......................... 16,514 -------- Present value............................................... 146,520 Current portion............................................. 69,764 -------- Long-term portion........................................... $ 76,756 ========
Implicit interest rates range from approximately 7% to 14%. Actual cash collections may differ from amounts shown on the table due to early customer buyouts, upgrades or refinancings. The Company may receive proceeds for its sales-type leases through third-party financing arrangements with various financial institutions on a nonrecourse basis, which may either be collateralized by a lien on the equipment, which is returned to the Company at the end of the lease, or title to the equipment may pass to the funding source at the time of financing. Residual values recorded by the Company for equipment under leases at December 31, 1999 and 1998 were $3,215 and $21,878, respectively, and are included in intangible and other assets. 42 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) H. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Furniture and fixtures.............................. $ 101,954 $ 72,044 Equipment........................................... 1,237,247 1,162,695 Buildings and improvements.......................... 439,924 347,686 Land................................................ 32,451 22,268 Construction in progress............................ 106,304 51,205 ---------- ---------- 1,917,880 1,655,898 Accumulated depreciation............................ (894,701) (832,738) ---------- ---------- $1,023,179 $ 823,160 ========== ==========
Depreciation expense was $301,480, $226,151 and $168,548 in 1999, 1998 and 1997, respectively. I. ACCRUED EXPENSES Accrued expenses consist of:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Salaries and benefits............................... $204,222 $167,215 Warranty............................................ 60,165 47,119 Restructure......................................... 109,447 43,536 Other............................................... 237,218 199,252 -------- -------- $611,052 $457,122 ======== ========
J. INCOME TAXES The Company's provision for income taxes consists of:
1999 1998 1997 --------- -------- -------- Federal and state Current.................................... $ 424,274 $247,280 $163,142 Deferred................................... (115,056) (1,811) 7,790 --------- -------- -------- 309,218 245,469 170,932 --------- -------- -------- Foreign Current.................................... 45,294 13,590 10,129 Deferred................................... (7,917) 1,196 748 --------- -------- -------- 37,377 14,786 10,877 --------- -------- -------- Total provision for income taxes............. $ 346,595 $260,255 $181,809 ========= ======== ========
43 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net undistributed earnings of foreign subsidiaries at December 31, 1999 and 1998 approximated $1,384,035 and $984,946, respectively. Based on the Company's policy of indefinite reinvestment in non-U.S. operations, it is not currently practicable to determine the tax liability associated with the repatriation of these earnings. The Company's manufacturing facility in Ireland incurs a 10% tax rate on income from manufacturing operations until the year 2010. Income before income taxes from foreign operations for 1999, 1998 and 1997 approximated $449,775, $374,297 and $265,628, respectively. A reconciliation of the Company's income tax provision to the statutory federal tax rate is as follows:
1999 1998 1997 -------- -------- -------- Statutory federal tax rate................................. 35.0% 35.0% 35.0% State taxes, net of federal tax benefits................... 2.4 2.2 1.9 International tax benefits................................. (9.6) (13.3) (10.6) U.S. tax credits........................................... (1.1) (0.4) (0.6) Rate detriment/(benefit) from Data General net operating losses................................................... 0.8 5.5 (2.3) Merger related costs and change in valuation allowance................................................ (1.2) -- -- Other...................................................... (0.8) (0.5) 0.2 ------ ------ ------ 25.5% 28.5% 23.6% ====== ====== ======
The components of the current and noncurrent deferred tax assets and liabilities are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Current deferred tax assets: Accounts receivable........................................ $ 24,120 $ 14,072 Inventory.................................................. 49,650 33,277 Other liabilities.......................................... 27,412 27,141 Other assets............................................... 9,085 1,860 Fringe..................................................... 20,616 28,445 Restructuring.............................................. 16,588 8,894 Valuation reserve.......................................... -- (64,007) --------- --------- Total current deferred tax assets........................ $ 147,471 $ 49,682 ========= ========= Noncurrent deferred tax assets/(liabilities): Fixed assets............................................... $ -- $ 6,590 Intangible assets.......................................... 15,049 11,963 Net operating loss carryforwards........................... 128,416 162,371 Credit carryforwards....................................... 19,770 20,287 Other...................................................... 31,390 8,015 Deferred compensation...................................... 14,382 12,400 Restructuring.............................................. 19,919 11,817 Valuation reserve.......................................... (120,339) (206,882) --------- --------- Deferred tax assets........................................ 108,587 26,561 --------- --------- Fixed assets............................................... (27,246) -- Deferral of lease revenue.................................. (39,256) (33,537) Software development costs................................. (54,774) (38,753) Other...................................................... (4,077) (3,000) --------- --------- Deferred tax liabilities................................... (125,353) (75,290) --------- --------- Total noncurrent deferred tax liabilities, net........... $ (16,766) $ (48,729) ========= =========
44 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The Company had federal and foreign net operating loss carryforwards of $388 million and tax credit carry forwards of $20 million. The utilization of these tax attributes is limited under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), for U.S. tax purposes and similar provisions under local country tax laws. Certain net operating losses will begin to expire in the year 2000, while others have an unlimited carryforward period. As of December 31, 1999, the valuation allowance primarily relates to foreign operating losses which are subject to limitation. In conjunction with the acquisition of Data General, the Company reviewed the net realizability of its deferred tax assets and recorded a benefit of $65 million in 1999. The realization of the remaining net deferred tax assets is considered more likely than not. K. RETIREMENT PLANS AND RETIREE MEDICAL BENEFITS 401(K) PLAN The Company has established a deferred compensation program for certain employees which is qualified under Section 401(k) of the Code. At the end of each calendar quarter, the Company makes a contribution that matches 100% of the employee's contribution up to 3% of the employee's quarterly compensation. Additionally, provided that certain quarterly profit goals are attained, the Company in succeeding quarters, provides an additional matching contribution of 1% of the employee's quarterly compensation up to a maximum quarterly matching contribution not to exceed 5% of compensation or $750 per quarter. The Company's contribution amounted to approximately $12,729 in 1999, $6,880 in 1998 and $4,990 in 1997, pursuant to this formula. DEFINED BENEFIT PENSION PLANS The Company has a noncontributory defined benefit pension plan which was assumed as part of the Data General acquisition, which covers substantially all former Data General employees located in the U.S. The Company also has a supplemental retirement benefit plan, which covers certain former Data General employees located in the U.S. In addition, certain of the former Data General foreign subsidiaries also have retirement plans covering substantially all of their employees. Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method which includes significant actuarial assumptions and estimates which are subject to change in the near term. Prior service cost is amortized over the average remaining service period of employees expected to receive benefits under the plan. Funds contributed to the plans are invested primarily in common stock, mutual funds, bond funds and cash equivalent securities. The Data General U.S. pension plan, U.S. supplemental retirement benefit plan and foreign retirement plans (the "Pension Plans") are summarized in the following tables. 45 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The components of the change in benefit obligation of the Pension Plans are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Benefit obligation at beginning of year............. $273,826 $213,229 Service cost........................................ 10,635 9,879 Interest cost....................................... 17,890 17,135 Participant contributions........................... 802 848 Plan amendments..................................... 390 114 Foreign exchange (gain)/loss........................ (2,144) 1,964 Curtailment gain.................................... (13,568) (1,490) Special termination benefits........................ -- 1,044 Benefits paid....................................... (5,566) (4,397) Settlement payments................................. (100) (214) Actuarial (gain)/loss............................... (28,715) 35,714 -------- -------- Benefit obligation at end of year................... $253,450 $273,826 ======== ========
The reconciliation of the beginning and ending balances of the fair value of the assets of the Pension Plans is as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Fair value of plan assets at beginning of year...... $238,198 $198,264 Actual return on plan assets........................ 30,269 17,238 Employer contributions.............................. 9,505 24,470 Participant contributions........................... 802 848 Foreign exchange gain/(loss)........................ (1,297) 1,989 Benefits paid....................................... (5,566) (4,397) Settlement payments................................. (100) (214) -------- -------- Fair value of plan assets at end of year............ $271,811 $238,198 ======== ========
The funded status of the Pension Plans is as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Funded status....................................... $18,361 $(35,628) Unrecognized actuarial (gain)/loss.................. (15,854) 23,081 Unrecognized transition asset....................... (3,780) (5,598) Unrecognized prior service cost/(credit)............ (648) 22,112 ------- -------- Net amount recognized at year end................... $(1,921) $ 3,967 ======= ========
46 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Amounts recognized in the balance sheet consist of the following:
1999 1998 ---------- ---------- Prepaid benefit cost................................ $ 4,874 $ 1,875 Accrued benefit liability........................... (6,795) (24,544) Intangible asset.................................... -- 20,384 Accumulated other comprehensive income.............. -- 6,252 ------- -------- Net amount recognized at year end................... $(1,921) $ 3,967 ======= ========
The components of net periodic benefit cost of the Pension Plans are as follows:
1999 1998 1997 ---------- ---------- ---------- Service cost............................ $ 10,635 $ 9,879 $ 7,989 Interest cost........................... 17,890 17,135 14,533 Expected return on plan assets.......... (21,427) (19,963) (15,830) Amortization of transition asset........ (772) (849) (853) Amortization of prior service cost...... 1,286 1,806 1,374 Recognized actuarial (gain)/loss........ 229 27 (32) Curtailment, net of settlements......... 7,947 183 (63) Special termination benefit............. -- 1,044 -- -------- -------- -------- Net periodic benefit cost............... $ 15,788 $ 9,262 $ 7,118 ======== ======== ========
The weighted-average assumptions used in the Pension Plans are as follows:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- Discount rate........................... 8% 7% 8% Expected long-term rate of return on plan assets........................... 9% 9% 10% Rate of compensation increase........... 4% 4% 4%
As of December 31, 1999, the U.S. Data General pension plan was frozen. In 1998, the terms of some severance benefits from the reduction in workforce resulted in special termination benefits paid from the pension plan of $1,044 and resulted in a small curtailment loss. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the Pension Plans with accumulated benefit obligations in excess of plan assets was $8,130, $6,496 and $3,137, respectively, as of December 31, 1999, and $264,040, $244,670 and $229,152, respectively as of December 31, 1998. POST RETIREMENT MEDICAL AND LIFE INSURANCE PLAN The Company's post-retirement benefit plan, which was assumed in connection with the acquisition of Data General, provides certain medical and life insurance benefits for retired former Data General employees. With the exception of certain participants who retired prior to 1986, the medical benefit plan requires monthly contributions by retired participants in an amount equal to insured equivalent costs less a fixed Company contribution which is dependent on the participant's length of service and Medicare eligibility. Benefits are continued to dependents of eligible retiree participants for 39 weeks 47 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) after the death of the retiree. The life insurance benefit plan is noncontributory. Funds contributed to the plan are invested primarily in common stocks, mutual funds, and cash equivalent securities. The components of the change in benefit obligation are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Benefit obligation at beginning of year............. $10,421 $ 9,669 Service cost........................................ 319 327 Interest cost....................................... 752 727 Participant contributions........................... -- 162 Plan amendments..................................... (3,939) -- Curtailment gain.................................... -- (237) Special termination benefits........................ -- 132 Benefits paid....................................... (1,047) (952) Settlement payments................................. -- -- Actuarial (gain)/loss............................... (99) 593 ------- ------- Benefit obligation at end of year................... $ 6,407 $10,421 ======= =======
The reconciliation of the beginning and ending balances of the fair value of plan assets is as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Fair value of plan assets at beginning of year...... $ 335 $ 174 Actual return on plan assets........................ 36 (1) Employer contributions.............................. 1,047 952 Participant contributions........................... -- 162 Benefits paid....................................... (1,047) (952) ------- ------- Fair value of plan assets at end of year............ $ 371 $ 335 ======= =======
The funded status of the plan is as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Funded status....................................... $ (6,036) $(10,086) Unrecognized actuarial gain......................... (761) (685) Unrecognized transition obligation.................. 1,768 1,933 Unrecognized prior service cost/(credit)............ (3,420) 587 -------- -------- Accrued benefit liability........................... $ (8,449) $ (8,251) ======== ========
48 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The components of net periodic benefit cost are as follows:
1999 1998 1997 ---------- ---------- ---------- Service cost............................ $ 319 $ 327 $ 304 Interest cost........................... 752 727 696 Expected return on plan assets.......... (54) (19) (19) Amortization of transition asset........ 67 69 72 Amortization of prior service cost...... 164 170 175 Recognized actuarial gain............... (4) (18) (11) Curtailment, net........................ -- (46) -- Special termination benefit............. -- 132 -- ------- ------- ------- Net periodic benefit cost............... $ 1,244 $ 1,342 $ 1,217 ======= ======= =======
The weighted-average assumptions used in the plan are as follows:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------- ------------- ------------- Discount rate........................... 8% 7% 8% Expected long-term rate of return on plan assets........................... 10% 10% 10% Rate of compensation increase........... 4% 5% 4%
The effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates are as follows:
1% INCREASE 1% DECREASE ----------- ----------- Effect on total service and interest cost components for 1999................................................ $ 4 $ (4) Effect on year-end post retirement obligation......... 45 (45)
L. COMMITMENTS AND LONG-TERM OBLIGATIONS OPERATING LEASE COMMITMENTS The Company leases office and warehouse facilities and other equipment under various operating leases. Facilities rent expense amounted to $61,326, $52,664, and $41,850 in 1999, 1998 and 1997, respectively. The Company's commitments under its operating leases are as follows:
OPERATING FISCAL YEAR LEASES - ----------- --------- 2000........................................................ $124,998 2001........................................................ 79,901 2002........................................................ 50,383 2003........................................................ 36,549 2004........................................................ 25,420 Thereafter.................................................. 75,473 -------- Total minimum lease payments................................ $392,724 ========
49 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) LINES OF CREDIT EMC has a line of credit providing a maximum of $50,000. There were no borrowings outstanding at either December 31, 1999 or 1998. The Company must maintain certain minimum financial ratios, including a minimum level of working capital and tangible net worth, upon utilization of the line of credit. 3 1/4% NOTES In March 1997, the Company sold $517,500 of 3 1/4% Notes. The 3 1/4% Notes are generally convertible into shares of Common Stock, $.01 par value per share, of the Company (the "Common Stock") at a conversion price of $11.33 per share, subject to adjustment in certain events. Interest is payable semiannually and the 3 1/4% Notes are redeemable at the option of the Company at set redemption prices (which range from 100.65% to 101.30% of principal), plus accrued interest, commencing March 15, 2000. On February 15, 2000, the Company announced that it would redeem all of the outstanding 3 1/4% Notes on March 15, 2000; however, the Company believes that substantially all of the outstanding 3 1/4% Notes were converted into Common Stock on or prior to such date. 4 1/4% NOTES In December 1993 and January 1994, the Company sold $230 million of its 4 1/4% Convertible Subordinated Notes due 2001 (the "4 1/4% Notes"). The 4 1/4% Notes were generally convertible into shares of Common Stock at any time prior to the redemption date at a conversion price of $4.96 per share. On January 2, 1997, the Company paid approximately sixty-five thousand dollars to redeem the outstanding 4 1/4% Notes and converted the remainder into Common Stock. 6% NOTES In May 1997, Data General sold $212,750 of the 6% Notes. The 6% Notes are generally convertible into shares of Common Stock at a conversion price of $83.82 per share, subject to adjustment in certain events. Interest is payable semi-annually and the 6% Notes are redeemable at the option of the Company at set redemption prices (which range from 100.857% to 103.429% of principal), plus accrued interest, commencing May 14, 2000. IDA GRANT The Industrial Development Authority ("IDA") of Ireland has granted the Company a total of $5,189 towards the purchase price and improvements to the Company's facility in Ireland. The grants are included in long-term obligations and are amortized over the related estimated useful lives of the assets purchased of twenty-five years for building improvements and seven years for equipment. Remaining unpaid grants at December 31, 1999 are $3,582, of which $324 is current and $3,258 is long-term. PURCHASE OF PATENT PORTFOLIO In February 1996, the Company acquired a patent portfolio valued at $40 million. Payments of approximately $26 million have been made to date with the remainder due in annual installments over two years. The asset is being amortized over the remaining estimated useful life of one year and is 50 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) included in intangible and other assets, net. Accumulated amortization at December 31, 1999 and 1998 was approximately $37,833 and $28,333, respectively. Payments remaining on the above commitments and other noncurrent liabilities (excluding the IDA grant, the 3 1/4% Notes and the 6% Notes) are as follows:
FISCAL YEAR ----------- 2000........................................................ $ 8,989 2001........................................................ 9,771 2002........................................................ 540 2003........................................................ -- 2004........................................................ -- ------- Total minimum payments...................................... 19,300 Less amounts representing interest.......................... 306 ------- Present value of net payments............................... 18,994 Current portion............................................. 8,792 ------- Long-term portion........................................... $10,202 =======
MINORITY INTEREST On October 1, 1997, the Company reorganized McDATA Corporation ("McDATA"), acquired by the Company in 1995, into a new McDATA Corporation ("New McDATA") and McDATA Holdings Corporation ("McDATA Holdings"). New McDATA designs, develops and markets fibre channel solutions for switched enterprise environments. McDATA Holdings, a wholly-owned subsidiary of EMC, is currently the majority shareholder in New McDATA. New McDATA is also currently performing services under the ESCON OEM Agreement with IBM on behalf of McDATA Holdings. The minority interest amounts are included in other liabilities and other income/(expense), net. M. STOCKHOLDERS' EQUITY STOCK SPLIT On October 21, 1997, the Company announced a 2-for-1 stock split in the form of a 100% stock dividend with a record date of October 31, 1997 and a distribution date of November 17, 1997. On February 25, 1999, the Company announced a 2-for-1 stock split in the form of a 100% stock dividend with a record date of May 14, 1999 and a distribution date of May 28, 1999. Share and per share amounts have been restated to reflect the stock splits for all periods presented. 51 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET INCOME PER SHARE Calculation of per share earnings is as follows:
1999 1998 1997 ---------- ---------- ---------- BASIC: Net income............................................... $1,010,570 $ 653,978 $ 587,511 Weighted average common shares outstanding............... 1,030,551 1,015,371 1,001,016 Net income per share, basic.............................. $ 0.98 $ 0.64 $ 0.59 ========== ========== ========== DILUTED: Net income............................................... $1,010,570 $ 653,978 $ 587,511 Add back of interest expense on convertible notes........ 15,974 16,819 13,502 Less tax effect of interest expense on convertible 3 1/4% notes.................................................. (6,390) (6,728) (5,401) ---------- ---------- ---------- Net income for calculating diluted earnings per share.... $1,020,154 $ 664,069 $ 595,612 Weighted average common shares outstanding............... 1,030,551 1,015,371 1,001,016 Weighted common stock equivalents........................ 78,981 78,844 64,468 ---------- ---------- ---------- Total weighted average shares............................ 1,109,532 1,094,215 1,065,484 Net income per share, diluted............................ $ 0.92 $ 0.61 $ 0.56 ========== ========== ==========
The calculation of earnings per share excludes the 6% Notes as these are considered antidilutive. PREFERRED STOCK The Company's Series Preferred Stock may be issued from time to time in one or more series, with such terms as the Board of Directors may determine, without further action by the stockholders of the Company. STOCK OPTION PLANS The Board of Directors and stockholders adopted the EMC Corporation 1993 and 1985 Stock Option Plans (the "1993 Plan" and the "1985 Plan," respectively). These plans provide qualified incentive stock options and nonqualified stock options to key employees of the Company. A total of 80 million and 144 million shares of Common Stock have been reserved for issuance under the 1993 Plan and the 1985 Plan, respectively. Under the terms of each of the 1993 Plan and the 1985 Plan, the exercise price of incentive stock options issued must be equal to at least the fair market value of the Common Stock on the date of grant. In the event that nonqualified stock options are granted under the 1993 Plan, the exercise price may be less than the fair market value at the time of grant but not less than par value which is $.01 per share. In the event that nonqualified stock options are granted under the 1985 Plan, the exercise price may be less than the fair market value at the time of grant, but in the case of employees not subject to Section 16 of the Securities Exchange Act of 1934 ("Section 16"), not less than par value which is $.01 per share, and in the case of employees subject to Section 16, not less than 50% of the fair market value on the date of grant. Since May 1995, no new incentive stock options have been available for grant under the 1985 Plan. 52 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) In 1999, options to purchase an aggregate of 261 thousand shares of Common Stock at $.01 per share were granted to certain employees. Also in 1999, options to purchase an aggregate of 145 thousand shares of Common Stock at $64.25 per share were granted to certain employees, representing 73% of the per share fair market value on the date of grant. In 1998, options to purchase an aggregate of 424 thousand shares of Common Stock at $.01 per share were granted to an executive officer and certain other employees. Also in 1998, an executive officer was granted options to purchase 250 thousand shares at $12.97 per share, representing 50% of the per share fair market value on the date of grant. In 1997, options to purchase 1 million shares at $6.12 per share and 800 thousand shares at $13.78 per share were granted to executive officers, representing 50% and 90%, respectively, of the per share fair market value on the date of grant. Discounts from fair market value have been recorded as deferred compensation and are being amortized over the vesting periods of the options, which range from eighteen months to five years. The EMC Corporation 1992 Stock Option Plan for Directors (the "Directors Plan") was adopted by the Board of Directors and stockholders. A total of 7.2 million shares of Common Stock have been reserved for issuance under the Directors Plan. The exercise price for each option granted under the Directors Plan will be at a price per share determined at the time the option is granted, but not less than 50% of the per share fair market value of Common Stock on the date of grant. In 1998, options to purchase 240 thousand shares of Common Stock at $10.56 per share were granted to three directors, representing 50% of the per share fair market value on the date of grant. In 1997, options to purchase 320 thousand shares of Common Stock at $6.12 per share were granted to two directors, representing 50% of the per share fair market value on the date of grant. Discounts from fair market value have been recorded as deferred compensation and are being amortized over the three-year vesting period of the options. Generally, when shares acquired pursuant to the exercise of incentive stock options are sold within one year of exercise or within two years from the date of grant, the Company derives a tax deduction measured by the amount that the fair market value exceeds the option price at the date the options are exercised. When nonqualified stock options are exercised, the Company derives a tax deduction measured by the amount that the fair market value exceeds the option price on the date the options are exercised. As of December 31, 1999, there were options to acquire an aggregate of approximately 19.6 million shares of Common Stock exercisable under the 1993 Plan, the 1985 Plan and the Directors Plan, as well as under certain plans assumed in connection with the acquisition of Data General. At December 31, 1999, there were an aggregate of approximately 24.1 million shares available for issuance pursuant to future option grants under the 1993 Plan, the 1985 Plan and the Directors Plan. Options generally become exercisable in equal annual installments over a period of three to five years after the date of grant and expire ten years after the date of grant. The Company has, in connection with the acquisition of various companies, assumed the stock option plans of these companies. Details of the stock option plans assumed in connection with the acquisition of Data General are set out below. The Company does not intend to make future grants under any of such plans. Data General had authorized the grant of either incentive stock options or non-qualified stock options to employees to purchase up to an aggregate of 7.5 million shares of Common Stock under certain stock option plans. For incentive options, the purchase price is equal to the fair market value 53 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) on the date of grant. For non-qualified options, the purchase price is determined within limits as set forth in the plans. Options granted under the plans generally are immediately exercisable and include restrictions against disposition of the shares and a requirement, upon termination of employment, to offer unvested shares for resale to the Company at their original purchase price. Options may expire up to ten years after the date of grant. All former Data General employees were eligible to participate in the Data General Corporation 1998 Employee Stock Option Plan (the "1998 Plan"). The 1998 Plan authorizes the grant of stock options to employees to purchase up to 781 thousand shares of Common Stock. The purchase price per share shall not be lower than 25% of the fair market value of the Common Stock on the date of grant or 50% of the Company's book value per share of Common Stock as of the fiscal year end preceding the date of grant. In 1999, 71 thousand shares were granted at an average price of $17.25, representing 40% of the per share fair market value on the date of grant. In 1998, 464 thousand shares were granted at an average price of $52.22, representing 50% of the per share fair market value on the date of grant. In 1997, 342 thousand shares were granted at an average price of $69.18, representing 50% of the per share fair market value on the date of grant. The Data General Corporation 1994 Non-Employee Director Stock Option Plan (the "1994 Plan") and the Data General Corporation 1998 Non-Employee Director Stock Option Plan (the "1998 Director's Plan") authorize the grant of options to acquire shares of Common Stock to each non-employee director on the date of the director's annual election(s) to the Board of Directors. Options to acquire 1,250, 1,250 and 2,188 shares of Common Stock were granted to each Data General director in 1997, 1998 and 1999, respectively. These options were granted at fair market value on the date of grant. SUPPLEMENTAL DISCLOSURES FOR STOCK-BASED COMPENSATION Activity under the Plans and option activity relating to business acquisitions for the three years ended December 31, 1999 is as follows:
WTD. AVG. NUMBER OF EXERCISE SHARES PRICE --------- --------- Outstanding, December 31, 1996........................... 51,353 $ 3.92 Granted................................................ 17,358 12.74 Canceled............................................... (1,923) 5.30 Exercised.............................................. (11,225) 3.24 ------- ------ Outstanding, December 31, 1997........................... 55,563 6.76 Options relating to business acquisitions.............. 429 6.67 Granted................................................ 10,418 24.13 Canceled............................................... (893) 10.84 Exercised.............................................. (10,756) 3.83 ------- ------ Outstanding, December 31, 1998........................... 54,761 10.56 Granted................................................ 9,584 59.78 Canceled............................................... (1,214) 19.18 Exercised.............................................. (10,631) 7.12 ------- ------ Outstanding, December 31, 1999........................... 52,500 $20.04 ======= ======
54 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Summarized information about stock options outstanding at December 31, 1999 is as follows:
EXERCISABLE WEIGHTED -------------------- AVG. WEIGHTED WEIGHTED NUMBER OF REMAINING AVG. AVG. RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE - --------------- ----------- ----------- --------- --------- -------- $0.01 - 2.86 5,739 4.78 $1.32 4,870 1.36 2.87 - 5.22 10,766 5.77 4.44 6,777 4.32 5.23 - 8.88 5,144 6.00 5.89 2,750 5.75 8.89 - 13.78 10,341 7.33 11.74 2,800 11.78 13.79 - 21.13 3,667 7.61 16.16 1,009 15.37 21.14 - 30.75 7,159 8.34 26.53 1,080 26.45 30.76 - 49.31 652 8.70 45.34 77 34.33 49.32 - 106.61 9,032 9.28 62.52 277 59.21
Options exercisable at December 31, 1999, 1998 and 1997 were 19,640, 17,787 and 15,330, respectively. The fair value of each option granted during 1999, 1998 and 1997 is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1999 1998 1997 -------- -------- -------- Dividend yield........................................ None None None Expected volatility................................... 52.0% 52.0% 45.0% Risk-free interest rate............................... 5.5% 5.4% 6.1% Expected life......................................... 5.0 5.0 5.0
Weighted average fair value of options granted at fair market value during: 1999........................................................ $31.72 1998........................................................ $13.04 1997........................................................ $ 5.76 Weighted average fair value of options granted below fair market value during: 1999........................................................ $45.94 1998........................................................ $21.30 1997........................................................ $13.94
55 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Had compensation cost for the Company's 1999, 1998 and 1997 stock option grants and employee stock purchase plan issuances been determined consistent with SFAS 123, the Company's net income and net income per share would approximate the pro forma amounts below:
NET INCOME PER NET INCOME PER NET INCOME SHARE, DILUTED SHARE, BASIC ---------- -------------- -------------- As reported: 1999................................. $1,011 $0.92 $0.98 1998................................. $ 654 $0.61 $0.64 1997................................. $ 588 $0.56 $0.59 Pro forma: 1999................................. $ 945 $0.86 $0.92 1998................................. $ 615 $0.57 $0.61 1997................................. $ 567 $0.54 $0.57
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards made prior to 1995. Additional awards in future years are anticipated. EMPLOYEE STOCK PURCHASE PLAN The Board of Directors and stockholders adopted the 1989 Employee Stock Purchase Plan (the "1989 Plan"). Under the 1989 Plan, eligible employees of the Company may purchase shares of Common Stock, through payroll deductions, at the lower of 85% of fair market value of the stock at the time of grant or 85% of fair market value at the time of exercise. A total of 24 million shares have been reserved for issuance under the 1989 Plan. Options to purchase shares are granted twice yearly, on January 1 and July 1, and are exercisable on the succeeding June 30 or December 31. Grants for the last three years are as follows:
1999 1998 1997 -------- -------- -------- Shares.............................................. 742 1,192 1,388 Weighted average exercise price..................... $39.53 $13.10 $ 8.20 Weighted average fair value......................... $19.20 $ 7.32 $ 4.77
N. LITIGATION The Company is a party to certain 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, results of operations or financial condition. O. RISKS AND UNCERTAINTIES The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, dependence on suppliers, rapid technology and industry changes, competition, competitive pricing pressures, changes in foreign laws and regulations, risks associated with indirect channels of distribution, historically uneven quarterly sales patterns, ability to sustain and manage growth, dependence upon key personnel, manufacturing risks, risks associated 56 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) with acquisitions, investments and alliances, enforcement of the Company's intellectual property rights, Year 2000 issues, litigation and changes in regulations. P. SEGMENT INFORMATION The Company operates the following three segments: storage products, server products and services. The majority of the Company's revenues are generated from the sale of storage hardware and software products. The Company designs, manufactures, markets and supports open systems server products through its Data General division. The Company also provides a wide range of services to both storage and server customers. The following table presents revenues for groups of similar storage products and similar services:
1999 1998 1997 ---------- ---------- ---------- Enterprise storage hardware.............. $4,006,488 $3,167,125 $2,496,697 Enterprise storage software.............. 821,727 445,350 176,859 Enterprise switching products (McDATA)... 142,824 178,816 189,090 CLARiiON storage products................ 415,644 413,909 499,368 ---------- ---------- ---------- Total storage products revenue........... $5,386,683 $4,205,200 $3,362,014 ========== ========== ========== Storage related services................. $ 361,806 $ 190,286 $ 78,085 Server related services.................. 370,795 385,034 387,182 ---------- ---------- ---------- Total service revenue.................... $ 732,601 $ 575,320 $ 465,267 ========== ========== ==========
The Company's management makes financial decisions and allocates resources based on product segment. The Company's financial reporting focuses on the revenues and gross profit for product segments. The Company does not allocate marketing, engineering or administrative expenses to product segments, as management does not use this information to measure the performance of the operating segments. The revenues and gross margins attributable to these segments are included in the following table:
STORAGE SERVER PRODUCTS PRODUCTS SERVICES CONSOLIDATED ---------- -------- -------- ------------ 1999 Revenues......................... $5,386,683 $596,326 $732,601 $6,715,610 Gross profit..................... 3,034,062 197,587 225,716 3,457,365 1998 Revenues......................... $4,205,200 $655,638 $575,320 $5,436,158 Gross profit..................... 2,070,923 189,510 179,325 2,439,758 1997 Revenues......................... $3,362,014 $660,570 $465,267 $4,487,851 Gross profit..................... 1,505,992 199,403 169,998 1,875,393
57 EMC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The Company's revenues are attributed to the geographic areas according to the location of the customers. Intercompany transfers between geographic areas are accounted for at prices which are designed to be representative of unaffiliated party transactions.
EUROPE, NORTH LATIN MIDDLE EAST, ASIA INTERCOMPANY CONSOLIDATED AMERICA AMERICA AFRICA PACIFIC ELIMINATIONS TOTAL ---------- -------- ------------ -------- ------------ ------------ 1999 Revenues......................... $4,257,116 $175,207 $1,844,320 $438,967 $ -- $6,715,610 Identifiable assets at year end............................ 4,630,506 73,195 2,245,460 306,266 (82,139) 7,173,288 1998 Revenues......................... $3,367,835 $ 89,223 $1,597,648 $381,452 $ -- $5,436,158 Identifiable assets at year end............................ 3,954,985 38,677 1,626,823 253,144 (246,609) 5,627,020 1997 Revenues......................... $2,708,212 $ 60,171 $1,323,173 $396,295 $ -- $4,487,851 Identifiable assets at year end............................ 3,590,457 36,021 1,153,521 236,357 (388,420) 4,627,936
Q. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Q1 1999 Q2 1999 Q3 1999 Q4 1999 ---------- ---------- ---------- ---------- 1999 Net sales and service......................... $1,483,305 $1,647,642 $1,708,910 $1,875,753 Gross profit.................................. 717,414 836,211 886,162 1,017,578 Net income.................................... 222,325 285,871 295,768 206,606 Net income per share, (diluted)............... $ 0.20 $ 0.26 $ 0.27 $ 0.19 Q1 1998 Q2 1998 Q3 1998 Q4 1998 ---------- ---------- ---------- ---------- 1998 Net sales and service......................... $1,190,161 $1,303,272 $1,386,295 $1,556,430 Gross profit.................................. 505,213 531,641 643,927 758,977 Net income.................................... 141,612 34,406 204,990 272,970 Net income per share, (diluted)............... $ 0.13 $ 0.03 $ 0.19 $ 0.25
R. SUBSEQUENT EVENTS (UNAUDITED) In January 2000, the Company acquired all of the outstanding common stock of Softworks, Inc. in exchange for cash. The transaction is valued at approximately $212 million and is being accounted for using the purchase method. Softworks' products improve the management, performance and integrity of critical corporate information across Windows NT, UNIX, OS/390, and MVS platforms. 58 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company will furnish to the Securities and Exchange Commission a definitive Proxy Statement (the "Proxy Statement") not later than 120 days after the close of the fiscal year ended December 31, 1999. The information required by this item is incorporated herein by reference to the Proxy Statement. Also see "Executive Officers of the Registrant" in Part I of this form. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the Index to Consolidated Financial Statements and Schedule on page 26 are filed as part of this report. 2. Schedule The schedule listed in the Index to Consolidated Financial Statements and Schedule on page 26 is filed as part of this report. 3. Exhibits See Index to Exhibits on page 62 of this report. The exhibits are filed with or incorporated by reference in this report. (b) Reports on Form 8-K. On October 20, 1999, EMC filed a Current Report on Form 8-K reporting under Item 2 the acquisition of Data General Corporation. On November 4, 1999, EMC filed a Current Report on Form 8-K/A incorporating pro forma combined condensed statements of operations for the six month periods ended June 30, 1999 and 1998 and for the years ended December 31, 1998, 1997 and 1996, as well as a pro forma combined condensed balance sheet as of June 30, 1999, in each case giving retroactive effect to EMC's acquisition of Data General for all periods presented. 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, EMC Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 16, 2000. EMC CORPORATION By: /s/ RICHARD J. EGAN ------------------------------------------ Richard J. Egan CHAIRMAN OF THE BOARD OF DIRECTORS
60 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of EMC Corporation and in the capacities indicated as of March 16, 2000.
SIGNATURE TITLE --------- ----- /s/ RICHARD J. EGAN - --------------------------------------------- Chairman of the Board of Directors Richard J. Egan (Principal Executive Officer) /s/ MICHAEL C. RUETTGERS - --------------------------------------------- Chief Executive Officer and Director Michael C. Ruettgers /s/ COLIN G. PATTESON Senior Vice President, Chief Administrative - --------------------------------------------- Officer and Treasurer Colin G. Patteson (Principal Financial Officer) /s/ WILLIAM J. TEUBER, JR. - --------------------------------------------- Senior Vice President and Chief Financial Officer William J. Teuber, Jr. (Principal Accounting Officer) /s/ MICHAEL J. CRONIN - --------------------------------------------- Director Michael J. Cronin /s/ JOHN R. EGAN - --------------------------------------------- Director John R. Egan /s/ MAUREEN E. EGAN - --------------------------------------------- Director Maureen E. Egan /s/ W. PAUL FITZGERALD - --------------------------------------------- Director W. Paul Fitzgerald /s/ JOSEPH F. OLIVERI - --------------------------------------------- Director Joseph F. Oliveri /s/ ALFRED M. ZEIEN - --------------------------------------------- Director Alfred M. Zeien
61 EXHIBIT INDEX The exhibits listed below are filed with or incorporated by reference in this Annual Report on Form 10-K. 3.1 Restated Articles of Organization of EMC Corporation.* 3.2 Amended and Restated By-laws of EMC Corporation.* 4.1 Form of Stock Certificate. (1) 4.2 Indenture, dated as of March 11, 1997 between EMC Corporation and State Street Bank and Trust Company, Trustee. (2) 4.3 Form of 3 1/4% Convertible Subordinated Note due 2002 of EMC Corporation. (2) 4.4 Indenture dated as of May 21, 1997 between Data General Corporation and The Bank of New York, as Trustee (the "6% Note Indenture").(3) 4.5 First Supplemental Indenture dated as of October 12, 1999 to the 6% Note Indenture by and between Data General Corporation and The Bank of New York, as Trustee. (3) 4.6 Second Supplemental Indenture dated as of November 4, 1999 to the 6% Note Indenture by and between EMC Corporation and The Bank of New York, as Trustee.* 4.7 Form of 6% Convertible Subordinated Note due 2004 of EMC Corporation. (4) 10.1 EMC Corporation 1985 Stock Option Plan, as amended. * 10.2 EMC Corporation 1992 Stock Option Plan for Directors, as amended. * 10.3 EMC Corporation 1993 Stock Option Plan, as amended. * 21.1 Subsidiaries of Registrant. * 23.1 Consent of Independent Accountants. * 27.1 Financial Data Schedule. *
- ------------------------ * Filed herewith (1) Incorporated by reference to the Company's Annual Report on Form 10-K filed March 31, 1988. (2) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 333-24901). (3) Incorporated by reference to the Company's Post-Effective Amendment No. 1 to a Registration Statement on Form S-4 (No. 333-86659). (4) Incorporated by reference to the Registration Statement on Form 8-A of Data General Corporation filed March 16, 1998. 62 EMC CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ----------- ---------- ---------- ---------- ---------- --------- Year ended December 31, 1999 allowance for doubtful accounts.................. $26,755 $25,817 -- $(18,293) $34,279 Year ended December 31, 1998 allowance for doubtful accounts.................. $23,342 $14,150 -- $(10,737) $26,755 Year ended December 31, 1997 allowance for doubtful accounts.................. $23,053 $13,171 -- $(12,882) $23,342
S-1 EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 FEDERAL IDENTIFICATION NO. 04-2680009 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN SECRETARY OF THE COMMONWEALTH ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512 RESTATED ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 74) We, Joseph M. Tucci, President, and Paul T. Dacier, Assistant Clerk, of EMC Corporation located at 171 South Street, Hopkinton, Massachusetts 01748, do hereby certify that the following Restatement of the Articles of Organization was duly adopted at a meeting held on December 31, 1999 by a vote of the directors. ARTICLE I The name of the corporation is: EMC Corporation ARTICLE II The purpose of the corporation is to engage in the following business activity(ies): 1. To develop, manufacture and sell computer peripheral and enhancement equipment and related products and to engage in all other lawful business related thereto. 2. To carry on any manufacturing, mercantile, selling, management, service or other business, operation or activity which may lawfully be carried on by a corporation organized under the Business Corporation Law of The Commonwealth of Massachusetts, whether or not related to those referred to in the foregoing paragraph. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue:
- ---------------------------------------------------------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------------------------------------------------------------------------------------------- Common: Common: 3,000,000,000 $.01 - ---------------------------------------------------------------------------------------------- Preferred: Preferred: 25,000,000 $.01 - ----------------------------------------------------------------------------------------------
ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. The total number of shares of all classes of capital stock which the Company shall be authorized to issue is 3,025,000,000 shares, consisting of 3,000,000,000 shares of common stock, $.01 par value per share (the "Common Stock"), and 25,000,000 shares of preferred stock, $.01 par value per share (the "Series Preferred Stock"). Common Stock The holders of the Common Stock shall have the exclusive right to vote for the election of directors and on all other matters requiring action by the stockholders or submitted to the stockholders for action, except as may be determined by votes of the directors pursuant to Article 4 hereof or as may otherwise be required by law, and each share of the Common Stock shall entitle the holder thereof to one vote. The holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may from time to time be declared by the directors. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Common Stock shall be entitled to receive the net assets of the Company, after the Company shall have satisfied or made provision for its debts and obligations and for payment to the holders of shares of any class or series having preferential rights to receive distributions of the net assets of the Company. 2 Preferred Stock The shares of Series Preferred Stock may be issued from time to time in one or more series. The directors may determine, in whole or in part, the preferences, voting powers, qualifications and special or relative rights or privileges, if any, of any such series before the issuance of any shares of that series; provided, however, that if and to the extent that shares of any series have voting rights, such rights shall not be in excess of the greater of (i) one vote per share of such series or (ii) if the shares of such series are convertible into shares of Common Stock, such number of votes per share as equals the number of shares of Common Stock into which one share of such series is at the time of such vote convertible. The directors shall determine the number of shares constituting each series of Series Preferred Stock and each series shall have a distinguishing designation. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None. ARTICLE VI ** Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: (a) The corporation may carry on any business, operation or activity referred to in Article 2 to the same extent as might an individual, whether as principal, agent, contractor or otherwise, and either alone or in conjunction or joint venture or other arrangement with any corporation, association, trust, firm or individual. (b) The corporation may carry on any business, operation or activity through a wholly or partly owned subsidiary. (c) The corporation may be a partner in any business enterprise which it would have power to conduct by itself. (d) The directors may make, amend or repeal the bylaws in whole or in part, except with respect to any provision thereof which by law or the bylaws requires action by the stockholders. 3 (e) Meetings of the stockholders may be held anywhere in the United States. (f) No stockholder shall have any right to examine any property or any books, accounts or other writings of the corporation if there is reasonable ground for belief that such examination will for any reason be adverse to the interests of the corporation, and a vote of the directors refusing permission to make such examination and setting forth that in the opinion of the directors such examination would be adverse to the interests of the corporation shall be prima facie evidence that such examination would be adverse to the interests of the corporation. Every such examination shall be subject to such reasonable regulations as the directors may establish in regard thereto. (g) The directors may specify the manner in which the accounts of the corporation shall be kept and may determine what constitutes net earnings, profits and surplus, what amounts, if any, shall be reserved for any corporate purpose, and what amounts, if any, shall be declared as dividends. Unless the board of directors otherwise specifies, the excess of the consideration for any share of its capital stock with par value issued by it over such par value shall be paid-in surplus. The board of directors may allocate to capital stock less than all of the consideration for any share of its capital stock without par value issued by it, in which case the balance of such consideration shall be paid-in surplus. All surplus shall be available for any corporate purpose, including the payment of dividends. (h) The purchase or other acquisition or retention by the corporation of shares of its own capital stock shall not be deemed a reduction of its capital stock. Upon any reduction of capital or capital stock, no stockholder shall have any right to demand any distribution from the corporation, except as and to the extent that the stockholders shall have provided at the time of authorizing such reduction. (i) The directors shall have the power to fix from time to time their compensation. No person shall be disqualified from holding any office by reason of any interest. In the absence of fraud, any director, officer or stockholder of this corporation, individually, or any individual having any interest in any concern which is a stockholder of this corporation, or any concern in which any of such directors, officers, stockholders or individuals has any interest, may be a party to, or may be pecuniarily or otherwise interested in, any contract, transaction or other act of this corporation, and (1) such contract, transaction or act shall not be in any way invalidated or otherwise affected by that fact; (2) no such director, officer, stockholder or individual shall be liable to account to this corporation for any profit or benefit realized through any such contract, transaction or act; and 4 (3) any such director of this corporation may be counted in determining the existence of a quorum at any meeting of the directors or of any committee thereof which shall authorize any such contract, transaction or act, and may vote to authorize the same; provided, however, that any contract, transaction or act in which any director or officer of this corporation is so interested individually or as a director, officer, trustee or member of any concern which is not a subsidiary or affiliate of this corporation, or in which any directors or officers are so interested as holders, collectively, of a majority of shares of capital stock or other beneficial interest at the time outstanding in any concern which is not a subsidiary or affiliate of this corporation, shall be duly authorized or ratified by a majority of the directors who are not so interested, to whom the nature of such interest has been disclosed and who have made any findings required by law; the term "interest" including personal interest and interest as a director, officer, stockholder, shareholder, trustee, member or beneficiary of any concern; the term "concern" meaning any corporation, association, trust, partnership, firm, person or other entity other than this corporation; and the phrase "subsidiary or affiliate" meaning a concern in which a majority of the directors, trustees, partners or controlling persons is elected or appointed by the directors of this corporation, or is constituted of the directors or officers of this corporation. To the extent permitted by law, the authorizing or ratifying vote of the holders of a majority of the shares of each class of the capital stock of this corporation outstanding and entitled to vote for directors at any annual meeting or a special meeting duly called for the purpose (whether such vote is passed before or after judgment rendered in a suit with respect to such contract, transaction or act) shall validate any contract, transaction or act of this corporation, or of the board of directors or any committee thereof, with regard to all stockholders of this corporation, whether or not of record at the time of such vote, and with regard to all creditors and other claimants under this corporation; provided, however, that A. with respect to the authorization or ratification of contracts, transactions or acts in which any of the directors, officers or stockholders of this corporation have an interest, the nature of such contracts, transactions or acts and the interest of any director, officer or stockholder therein shall be summarized in the notice of any such annual or special meeting, or in a statement or letter accompanying such notice, and shall be fully disclosed at any such meeting; 5 B. the stockholders so voting shall have made any findings required by law; C. stockholders so interested may vote at any such meeting except to the extent otherwise provided by law; and D. any failure of the stockholders to authorize or ratify such contract, transaction or act shall not be deemed in any way to invalidate the same or to deprive this corporation, its directors, officers or employees of its or their right to proceed with such contract, transaction or act. No contract, transaction or act shall be avoided by reason of any provision of this paragraph (i) which would be valid but for such provision or provisions. (j) The corporation shall have all powers granted to corporations by the laws of The Commonwealth of Massachusetts, provided that no such power shall include any activity inconsistent with the Business Corporation Law or the general laws of said Commonwealth. (k) No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the extent provided by applicable law notwithstanding any provision of law imposing such liability; provided, however, that to the extent, and only to the extent, required by Section 13(b) (1 1/2) or any successor provision of the Massachusetts Business Corporation Law, this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under sections 61 or 62 of the Massachusetts Business Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This provision shall not be construed in any way so as to impose or create liability. The foregoing provisions of this Article 6(k) shall not eliminate the liability of a director for any act or omission occurring prior to the date on which this Article 6(k) becomes effective. No amendment to or repeal of this Article 6(k) shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE VII The effective date of the restated Articles of Organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a LATER effective date is desired, specify such date which shall not be more than THIRTY DAYS after the date of filing. 6 ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation IN MASSACHUSETTS is: 171 South Street, Hopkinton, Massachusetts 01748 b. The name, residential address and post office address of each director and officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS ---- ------------------- ------------------- President: Joseph M. Tucci 10 Mountain Laurel Drive c/o EMC Corporation Nashua, NH 03062 171 South St., Hopkinton, MA 01748 Treasurer: Colin G. Patteson 5 Elizabeth Road c/o EMC Corporation Hopkinton, MA 01748 171 South St., Hopkinton, MA 01748 Clerk: Thomas J. Dougherty 247 Adams Street c/o EMC Corporation Milton, MA 02186 171 South St., Hopkinton, MA 01748 Directors: Michael C. Ruettgers 453 Bedford Road c/o EMC Corporation Carlisle, MA 01741 171 South St., Hopkinton, MA 01748 Michael J. Cronin 19 Wight Street c/o EMC Corporation Medfield, MA 02052 171 South St., Hopkinton, MA 01748 John R. Egan 22 Old Farm Road c/o EMC Corporation Hopkinton, MA 01748 171 South St., Hopkinton, MA 01748 Maureen Egan 8 Queen Anne Road c/o EMC Corporation Hopkinton, MA 01748 171 South St., Hopkinton, MA 01748 W. Paul Fitzgerald 27 Seacrest Drive c/o EMC Corporation Orleans, MA 02653 171 South St., Hopkinton, MA 01748 Joseph F. Oliveri 13 Steel Road c/o EMC Corporation Hopedale, MA 01747 171 South St., Hopkinton, MA 01748 Richard J. Egan 8 Queen Anne Road c/o EMC Corporation Hopkinton, MA 01748 171 South St., Hopkinton, MA 01748 Alfred M. Zeien 300 Boylston Street, #1104 c/o EMC Corporation Boston, MA 02116 171 South St., Hopkinton, MA 01748
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: December d. The name and business address of the resident agent, if any, of the corporation is: CT Corporation, 2 Oliver Street, Boston, Massachusetts 02109 ** We further certify that the foregoing Restated Articles of Organization affect no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following articles. Briefly describe amendments below: None. 7 SIGNED UNDER THE PENALTIES OF PERJURY, this 1st day of February, 2000. /s/ Joseph M. Tucci Joseph M. Tucci President /s/ Paul T. Dacier Paul T. Dacier Assistant Clerk 8 THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 74) -------------------------------------- -------------------------------------- I hereby approve the within Restated Articles of Organization and, the filing fee in the amount of $___________ having been paid, said articles are deemed to have been filed with me this _____ day of ____________, 1999. EFFECTIVE DATE: _____________________________ WILLIAM FRANCIS GALVIN SECRETARY OF THE COMMONWEALTH TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Paul T. Dacier Vice President and General Counsel EMC Corporation 171 South Street, Hopkinton, MA 01748 Telephone: (508) 435-1000 EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS --------------------------- of EMC CORPORATION SECTION 1. ARTICLES OF ORGANIZATION The name and purposes of the corporation shall be as set forth in the articles of organization. These bylaws, the powers of the corporation and of its directors and stockholders, or of any class of stockholders if there shall be more than one class of stock, and all matters concerning the conduct and regulation of the business and affairs of the corporation shall be subject to such provisions in regard thereto, if any, as are set forth in the articles of organization as from time to time in effect. SECTION 2. STOCKHOLDERS 2.1. ANNUAL MEETING. The annual meeting of stockholders of the corporation for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on such date and at such time as shall be determined by the board of directors each year, which date and time may subsequently be changed at any time, including the year any such determination occurs. 2.2. SPECIAL MEETINGS. Except as provided in the articles of organization with respect to the ability of holders of preferred stock to call a special meeting in certain circumstances, special meetings of the stockholders may be called by the president at the direction of the chairman of the board or by a majority of the directors, and shall be called by the clerk, or in case of the death, absence, incapacity or refusal of the clerk, by any other officer, upon the written application of stockholders who hold eighty-five percent (85%) in interest of the capital stock of the corporation entitled to be voted at the proposed meeting. Such request shall state the purpose or purposes of the proposed meeting and may designate the place, date and hour of such meeting; provided, however, that no such request shall designate a date not a full business day or an hour not within normal business hours as the date or hour of such meeting. As used in these bylaws, the expression "business day" means a day other than a day which, at a particular place, is a public holiday or a day other than a day on which banking institutions at such place are allowed or required, by law or otherwise, to remain closed. 2.3. PLACE OF MEETING; ADJOURNMENT. Meetings of the stockholders may be held at the principal office of the corporation in the Commonwealth of Massachusetts, or at such places within or without the Commonwealth of Massachusetts as may be specified in the notices of such meetings; provided, that, when any meeting is convened, the chairman of the board or other presiding officer may adjourn the meeting for a period of time not to exceed 30 days if (a) no quorum is present for the transaction of business or (b) the chairman of the board or other presiding officer determines that adjournment is necessary or appropriate to enable the stockholders (i) to consider fully information which such officer determines has not been made sufficiently or timely available to stockholders or (ii) otherwise to exercise effectively their voting rights. The chairman of the board or other presiding officer in such event shall announce the adjournment and date, time and place of reconvening and shall cause notice thereof to be posted at the place of meeting designated in the notice which was sent to the stockholders, and if such date is more than 10 days after the original date of the meeting, the clerk shall give notice thereof in the manner provided in Section 2.4. 2.4. NOTICE OF MEETINGS. A written or electronic notice of each meeting of stockholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the articles of organization or by these bylaws, is entitled to notice, by leaving such notice with such stockholder or at such stockholder's residence or usual place of business, by mailing it, postage prepaid, addressed to such stockholder at such stockholder's address as it appears in the records of the corporation or by sending such notice electronically to such stockholder's e-mail address as it appears in the records of the corporation. Such notice shall be given by the clerk or an assistant clerk or by an officer designated by the directors. Whenever notice of a meeting is required to be given to a stockholder under any provision of the Business Corporation Law of the Commonwealth of Massachusetts or of the articles of organization or these bylaws, a written waiver thereof, executed before or after the meeting by such stockholder or such stockholder's attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. No business may be transacted at a meeting of stockholders except that (a) specified in the notice thereof, or in a supplemental notice given also in compliance with the provisions hereof, (b) brought before the meeting by or at the direction of the board of directors or the presiding officer, or (c) properly brought before the meeting by or on behalf of any stockholder who shall have been a stockholder of record at the time of giving of notice provided for in this Section 2.4 and who shall continue to be entitled to vote thereat and who complies with the notice procedures set forth in this Section 2.4 or, with respect to the election of directors, Section 3.2 of these bylaws. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder (other than a stockholder proposal included in the corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the stockholder must have given timely notice thereof in writing to the clerk of the corporation. In order to be timely given, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation (a) not less than 95 nor more than 125 days prior to the anniversary date of the immediately preceding annual meeting of 2 stockholders of the corporation or (b) in the case of a special meeting or if the annual meeting is called for a date (including any change in a date determined by the board pursuant to Section 2.1) not within 30 days before or after such anniversary date, not later than the close of business on the 10th day following the day on which notice of the date of such meeting was mailed or public disclosure of the date of such meeting was made, whichever first occurs. Such stockholder's notice to the clerk shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of capital stock of the corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice by the stockholder, and (d) all other information which would be required to be included in a proxy statement or other filings required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Exchange Act (the "Proxy Rules"). Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any meeting of stockholders except in accordance with the procedures set forth in this Section 2.4; PROVIDED, HOWEVER, that nothing in this Section 2.4 shall be deemed to preclude discussion by any stockholder of any business properly brought before such meeting. The chairman of the board or other presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedures, and if such officer should so determine, such officer shall so declare to the meeting and that business shall be disregarded. 2.5. QUORUM OF STOCKHOLDERS. At any meeting of stockholders, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting, except when a larger quorum is required by law, by the articles of organization or by these bylaws. Stock owned directly or indirectly by the corporation, if any, shall not be deemed outstanding for this purpose. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 2.6. ACTION BY VOTE. When a quorum is present at any meeting of stockholders, a plurality of the votes properly cast for election to any office shall elect to such office, and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the articles of organization or by these bylaws. No ballot shall be required for 3 any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.7. VOTING. Stockholders entitled to vote shall have one vote for each share of stock entitled to vote held by them of record according to the records of the corporation, unless otherwise provided by the articles of organization. The corporation shall not, directly or indirectly, vote any share of its own stock. 2.8. ACTION BY WRITING. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting. 2.9. PROXIES. To the extent permitted by law, stockholders entitled to vote may vote either in person or by proxy (which proxy may be authorized in writing, by telephone or by electronic means). No proxy dated more than six months before the meeting named therein shall be valid. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. SECTION 3. BOARD OF DIRECTORS 3.1. NUMBER. The number of directors shall be fixed at any time or from time to time only by the affirmative vote of a majority of the directors then in office, but shall be not less than three, except that whenever there shall be only two stockholders the number of directors shall be not less than two and whenever there shall be only one stockholder there shall be at least one director; no decrease in the number of directors shall shorten the term of any incumbent director. No director need be a stockholder of the corporation. 3.2. NOMINATIONS FOR DIRECTOR. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors, except as provided in the articles of organization with respect to nominations by holders of preferred stock in certain circumstances. Nominations of persons for election to the board of directors at the annual meeting of stockholders may be made at such annual meeting (a) by or at the direction of the board of directors by any nominating committee or person appointed by the board or (b) by any stockholder of record at the time of giving of notice provided for in this Section 3.2 and who shall continue to be entitled to vote thereat and who complies with the notice procedures set forth in this Section 3.2. Nominations by stockholders shall be made only after giving timely notice in writing to the clerk of the corporation. In order to be timely given, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation (a) not less than 95 nor more than 125 days prior to the anniversary 4 date of the immediately preceding annual meeting of stockholders of the corporation or (b) if the annual meeting is called for a date (including any change in a date determined by the board pursuant to Section 2.1) not within 30 days before or after such anniversary date, not later than the close of business on the 10th day following the day on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever first occurs. Such stockholder's notice to the clerk shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation, if any, which are beneficially owned by the person, (iv) any other information regarding the nominee as would be required to be included in a proxy statement or other filings required to be filed pursuant to the Proxy Rules, and (v) the consent of each nominee to serve as a director of the corporation if so elected; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iv) a representation that the stockholder (and any party on whose behalf such stockholder is acting) is qualified at the time of giving such notice to have such individual serve as the nominee of such stockholder (and any party on whose behalf such stockholder is acting) if such individual is elected, accompanied by copies of any notifications or filings with, or orders or other actions by, and governmental authority which are required in order for such stockholder (and any party on whose behalf such stockholder is acting) to be so qualified, (v) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder, and (vi) such other information regarding such stockholder as would be required to be included in a proxy statement or other filings required to be filed pursuant to the Proxy Rules. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director. No person shall be eligible for election as a director unless nominated in accordance with the provisions set forth herein. The chairman of the board or other presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures, and if such officer should so determine, such officer shall so declare to the meeting and the defective nomination shall be disregarded. 3.3. POWERS. Except as reserved to the stockholders by law, by the articles of organization or by these bylaws, the business of the corporation shall be managed by the 5 directors who shall have and may exercise all the powers of the corporation. In particular, and without limiting the generality of the foregoing, the directors may at any time issue all or from time to time any part of the unissued capital stock of the corporation from time to time authorized under the articles of organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. 3.4 RESIGNATION AND REMOVAL. Any director may resign at any time by delivering a resignation in writing to the president, the treasurer or the clerk or to a meeting of the directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Any director or directors or the entire board of directors may be removed from office (a) only for Cause (as defined in Section 50A of the Business Corporation Law of the Commonwealth of Massachusetts) by the affirmative vote of a majority of the shares entitled to vote at an election of directors and (b) only after reasonable notice and an opportunity to be heard by the stockholders. No director resigning, and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director removed, shall have the right to any compensation as such director for any period following such director's removal, or any right to damages on account of such removal, whether such director's compensation be by the month or by the year or otherwise, unless in the case of a resignation, the directors, or in case of a removal, the stockholders, shall in their discretion provide for compensation. 3.5 VACANCIES. Vacancies and newly created directorships, whether resulting from an increase in the size of the board of directors, the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any director elected in accordance with this Section 3.5 shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or the new directorship was created and until such director's successor shall have been elected and qualified. 3.6. COMMITTEES. The directors may, by vote of a majority of the directors then in office, elect from their number an executive committee and other committees and delegate to any such committee or committees some or all of the power of the directors except those which by law, by the articles of organization or by these bylaws they are prohibited from delegating. Except as the directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these bylaws for the conduct of business by the directors. 3.7. REGULAR MEETINGS. Regular meetings of the directors may be held without call or notice at such places and at such times as the directors may from time to time determine, provided that reasonable notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may 6 be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 3.8. SPECIAL MEETINGS. Special meetings of the directors may be held at any time and at any place designated in the call of the meeting, when called by the president or the treasurer or by two or more directors, reasonable notice thereof being given to each director by the secretary or an assistant secretary, or, if there be none, by the clerk or an assistant clerk, or by the officer or one of the directors calling the meeting. 3.9. NOTICE. It shall be sufficient notice to a director to send notice by mail or express overnight courier at least forty-eight hours or by facsimile at least twenty-four hours before the meeting addressed to a director at such director's usual or last known business or residence address or to give notice to a director in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by such director before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to such director. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.10. QUORUM. At any meeting of the directors a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.11. ACTION BY VOTE. When a quorum is present at any meeting, a majority of the directors present may take any action, except when a larger vote is required by law, by the articles of organization or by these bylaws. 3.12. ACTION BY WRITING. Unless the articles of organization otherwise provide, any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if all the directors consent to the action in writing and the written consents are filed with the records of the meetings of the directors. Such consents shall be treated for all purposes as a vote taken at a meeting. 3.13. PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Unless otherwise provided by law or by the articles of organization, members of the board of directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 7 SECTION 4. OFFICERS AND AGENTS 4.1. ENUMERATION; QUALIFICATION. The officers to the corporation shall be a president, a treasurer, a clerk, and such other officers, if any, as the incorporators at their initial meeting, or the directors from time to time, may in their discretion elect or appoint. The corporation may also have such agents, if any, as the incorporators at their initial meeting, or the directors from time to time, may in their discretion appoint. Any officer may be but none need be a director or stockholder of the corporation. The clerk shall be a resident of the Commonwealth of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any two or more offices may be held by the same person. Any officer may be required by the directors to give bond for the faithful performance of such officer's duties to the corporation in such amount and with such sureties as the directors may determine. 4.2. POWERS. Subject to law, to the articles of organization and to these bylaws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to such individual's office and such duties and powers as the directors may from time to time designate. 4.3. ELECTION. The president, the treasurer and the clerk shall be elected annually by the directors at their first meeting following the annual meeting of the stockholders. Other officers, if any, may be elected or appointed by the board of directors at said meeting or at any other time. 4.4. TENURE. Except as otherwise provided by law, by the articles of organization or by these bylaws, the president, the treasurer and the clerk shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until their respective successors are chosen and qualified or until such officer dies, resigns, is removed (whether or not such individual remains in a different capacity within the corporation (either as an officer or employee)) or becomes disqualified, and each other officer shall hold office until such officer dies, resigns, is removed or becomes disqualified unless a shorter period shall have been specified by the terms of such officer's election or appointment. Each agent shall retain authority as an agent at the pleasure of the directors. 4.5 RESIGNATION AND REMOVAL. Any officer may resign at any time by delivering a resignation in writing to the president, the treasurer or the clerk or to a meeting of the directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The directors may remove (whether or not such individual remains in a different capacity within the corporation (either as an officer or employee)) any officer elected by them with or without cause by the vote of the majority of the directors then in office. An officer may be removed for cause only after reasonable notice and an opportunity to be heard before the directors. No officer resigning, and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no officer removed, shall have the right to any compensation as such officer for any period following such removal, or any 8 right to damages on account of such removal, whether such officer's compensation be by the month or by the year or otherwise, unless the directors in their discretion provide for compensation. 4.6. VACANCIES. If the office of any officer becomes vacant, the directors may elect or appoint a successor by vote of a majority of the directors present. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the clerk, until such individual's successor is chosen and qualified, or in each case until the successor sooner dies, resigns, is removed (whether or not such individual remains in a different capacity within the corporation (either as an officer or an employee)) or becomes disqualified. 4.7. CHIEF EXECUTIVE OFFICER. The chief executive officer of the corporation shall be the president or such other officer as is designated by the directors and shall, subject to the control of the directors, have general charge and supervision of the business of the corporation and, except as the directors shall otherwise determine, preside at all meetings of the stockholders and of the directors. If no such designation is made, the president shall be the chief executive officer. 4.8. PRESIDENT AND VICE PRESIDENT. The president shall have the duties and powers specified in these bylaws and shall have such other duties and powers as may be determined by the directors. Any vice presidents shall have such duties and powers as shall be designated from time to time by the directors. 4.9. TREASURER AND ASSISTANT TREASURERS. Except as the directors shall otherwise determine, the treasurer shall be the chief financial and accounting officer of the corporation and shall be in charge of its funds and valuable papers, books of account and accounting records, and shall have such other duties and powers as may be designated from time to time by the directors. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the directors. 4.10. CLERK AND ASSISTANT CLERKS. The clerk shall record all proceedings of the stockholders in a book or series of books to be kept therefor, which book or books shall be kept at the principal office of the corporation or at the office of its transfer agent or of its clerk and shall be open at all reasonable times to the inspection of any stockholder. In the absence of the clerk from any meeting of stockholders, an assistant clerk, or if there be none or such assistant clerk is absent, a temporary clerk or temporary secretary chosen at the meeting, shall record the proceedings thereof in the aforesaid book. Unless a transfer agent has been appointed, the clerk shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the amount of stock held by each. The clerk shall keep a true record of the proceedings of all meetings of the directors and in the clerk's absence from any 9 such meeting an assistant clerk, or if there be none or such assistant clerk is absent, a temporary clerk or temporary secretary chosen at the meeting, shall record the proceedings thereof. Any assistant clerks shall have such other duties and powers as shall be designated from time to time by the directors. 4.11. SECRETARY AND ASSISTANT SECRETARIES. If a secretary or assistant secretary is elected, such individual shall have the authority to keep a true record of the proceedings of the directors and stockholders, and shall have such other duties and powers as shall be designated from time to time by the directors. SECTION 5. CAPITAL STOCK 5.1. NUMBER AND PAR VALUE. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue shall be as stated in the articles of organization. 5.2. STOCK CERTIFICATES. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by such stockholder, in such form as shall, in conformity to law, be prescribed from time to time by the directors. Such certificate shall be signed by the president or a vice president and by the treasurer or an assistant treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a director, officer or employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if such individual were such officer at the time of its issue. 5.3. LOSS OF CERTIFICATES. In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such conditions as the directors may prescribe. SECTION 6. TRANSFER OF SHARES OF STOCK 6.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the directors or the transfer agent of the corporation may reasonably require. Except as may otherwise be required by law, by the articles of organization or by these bylaws, the corporation shall be entitled to treat the record holder of stock as 10 shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these bylaws. It shall be the duty of each stockholder to notify the corporation of such stockholder's address. 6.2. RECORD DATE AND CLOSING TRANSFER BOOKS. The directors may fix in advance a time, which shall not be more than sixty days before the date of any meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed: (1) The record date for determining stockholders having the right to notice of and to vote at a meeting of stockholders shall be at the close of business on the date next preceding the date on which notice is given; and (2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors acts with respect thereto. SECTION 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the extent legally permissible, indemnify each of its directors and officers (including persons who act at its request as directors, officers or trustees of another organization or in any capacity with respect to any employee benefit plan) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by such director or officer in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which such director or officer may be involved or with which such director or officer may be threatened, while in office or thereafter, by reason of such individual being or having been such a director or officer, except with respect to any matter as to which such director or officer shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such individual's action was in the best interests of the corporation (any person serving another organization in one or more of the indicated capacities at the request of the corporation who shall have acted in good faith in the reasonable belief that such individual's action was in the best interests of such other organization to be deemed as having acted in such manner with respect to the corporation) or, to the extent that such 11 matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan; provided, however, that as to any matter disposed of by a compromise payment by such director or officer, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the corporation, after notice that it involves such indemnification: (a) by a disinterested majority of the directors then in office; or (b) by a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director or officer appears to have acted in good faith in the reasonable belief that such individual's action was in the best interests of the corporation; or (c) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. Expenses, including counsel fees, reasonably incurred by any director or officer in connection with the defense or disposition of any such action, suit or other proceeding may be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by such director or officer to repay to the corporation the amounts so paid by the corporation if it is ultimately determined that indemnification for such expenses is not authorized under this Section 7. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director or officer may be entitled. As used in this Section, the terms, "director" and "officer" include their respective heirs, executors and administrators, and an "interested" director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending. Nothing contained in this Section shall affect any rights to indemnification to which corporate personnel other than directors or officers may be entitled by contract or otherwise under law. SECTION 8. CORPORATE SEAL The seal of the corporation shall, subject to alteration by the directors, consist of a flat-faced circular die with the word "Massachusetts", together with the name of the corporation and the year of its organization, cut or engraved thereon. SECTION 9. EXECUTION OF PAPERS Except as the directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation shall be signed by the president or by one of the vice presidents or by the treasurer. 12 SECTION 10. FISCAL YEAR The fiscal year of the corporation shall end on December 31. SECTION 11. AMENDMENTS These bylaws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, by vote of the stockholders. These bylaws may also be altered, amended or repealed by vote of a majority of the directors then in office, except that the directors shall not take any action which provides for indemnification of directors nor any action to amend this Section 11, and except that the directors shall not take any action unless permitted by law. Any bylaw so altered, amended or repealed by the directors may be further altered or amended or reinstated by the stockholders in the above manner. SECTION 12. MASSACHUSETTS CONTROL SHARE ACQUISITIONS ACT The provisions of Chapter 110D shall not apply to control share acquisitions of the corporation. If the provisions of Chapter 110D shall become applicable to control share acquisitions of the corporation through amendment of these bylaws or otherwise, the following provisions shall apply: (a) The corporation is authorized to redeem shares acquired in a control share acquisition to the extent and in accordance with the procedures specified in Section 6 of Chapter 110D and in this Section. (b) The additional procedures for redemption specified in this Section are as follows: (i) Fair value shall be determined by the board of directors or a committee of the board of directors of the corporation, and the amount so determined shall be included in the notice of redemption given by the corporation pursuant to Section 6 of Chapter 110D. (ii) The person whose shares are being redeemed (the "Holder") may within ten days after the date of the notice of redemption advise the corporation in writing that the Holder believes that the value so determined is not fair, and in such event the corporation shall, 13 within the 30-day period following its receipt of the Holder's notice, permit the Holder to submit such written and oral evidence of value as the Holder may wish and the board of directors or committee considers appropriate. The board of directors or committee shall affirm or revise its determination of fair value within fifteen days after the completion of the 30-day period, and shall promptly advise the Holder in writing of its decision. (iii) The notice of redemption shall specify a redemption date, which shall be 30 days after the date of the notice (or the first business day after the 30-day period), and a redemption office, which shall be the principal office of the corporation or an office of a commercial bank specified by the corporation in the notice. The redemption date so fixed shall not be deferred by a request of the Holder for a redetermination of fair value. The Holder shall cause the certificate or certificates representing the shares being redeemed to be delivered to the redemption office not later than the redemption date, duly endorsed or assigned for transfer, with signature guaranteed, if such an endorsement or assignment is required in the notice of redemption. (iv) The certificate or certificates representing the shares being redeemed having been deposited in accordance with item (iii) above, the redemption price shall be paid by the corporation on the redemption date specified in its notice of redemption or such later date as the redemption price may be determined if the Holder has duly requested a redetermination of fair value. (v) Notice of redemption having been given, from and after the redemption date the shares being redeemed shall no longer be deemed to be outstanding, and all rights of the holder or holders thereof as a stockholder or stockholders of the corporation shall cease, except the right to receive the redemption price. If the corporation shall default in payment of the redemption price, interest shall accrue thereon from the date of default at the base or prime rate of the corporation's principal lending bank or if none, the base or prime rate of Fleet Bank or its successor, as in effect from time to time during the period of default. (vi) Notice given by the corporation by first class mail or delivered in person on the basis of a good faith determination by the corporation of the identity and address of the person who had made a control share acquisition shall be deemed to have been duly given. 14 (vii) Any person who makes a control share acquisition of the corporation shall be deemed to have consented to and shall be bound by the provisions of this Section and shall indemnify and hold the corporation harmless from and against any damage, loss or expense which the corporation may suffer as a result of any non-compliance with the provisions of this Section. References in this Section to Chapter 110D mean Chapter 110D of the Massachusetts General Laws as in effect from time to time. SECTION 13. MASSACHUSETTS BUSINESS COMBINATION ACT The provisions of Chapter 110F of the Massachusetts General Laws shall not apply to "business combinations" (as defined therein) involving the corporation. 15 EX-4.6 4 EXHIBIT 4.6 EXHIBIT 4.6 SECOND SUPPLEMENTAL INDENTURE ----------------------------- SECOND SUPPLEMENTAL INDENTURE, dated as of November 4, 1999, by and among EMC Corporation, a Massachusetts corporation (the "Company"), as successor in interest to Data General Corporation ("Data General"), and The Bank of New York, as Trustee (the "Trustee"), under the Indenture dated as of May 21, 1997, as supplemented by the First Supplemental Indenture, dated as of October 12, 1999, by and between Data General and the Trustee (the "Indenture"). WHEREAS, the Indenture was authorized, executed and delivered by Data General to provide for the issuance by Data General of Data General's 6% Convertible Subordinated Notes Due 2004 (the "Notes"); and WHEREAS, pursuant to Section 6.7 of the Agreement and Plan of Merger (the "Merger Agreement") dated as of August 6, 1999 by and among the Company, Emerald Merger Corporation, a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub"), and Data General, Data General may be merged with and into the Company with the Company surviving the merger; and WHEREAS, the merger of Data General with and into the Company, with the Company surviving the merger, has become effective. NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH, that, in consideration of the premises, it is mutually agreed, for the benefit of each other and for the equal and proportionate benefit of all holders from time to time of the Notes, as follows: ARTICLE I SECTION 1. DEFINITIONS Terms defined in the Indenture and used without other definition herein have the respective meanings ascribed to them in the Indenture. SECTION 1.2 EXPRESS ASSUMPTION. The Company hereby expressly assumes the due and punctual performance and observance of all of the covenants and conditions of the Indenture to be performed by Data General. ARTICLE II MISCELLANEOUS SECTION 1. SEVERABILITY. In case any provision in this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 2. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SECOND SUPPLEMENTAL INDENTURE. SECTION 3. RATIFICATION. This Second Supplemental Indenture is a supplement to the Indenture. As supplemented by this Second Supplemental Indenture, the Indenture is in all respects ratified, approved and confirmed and the Indenture and this Second Supplemental Indenture shall together constitute one and the same instrument. SECTION 4. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 5. THE TRUSTEE. The Trustee shall not be responsible in any matter whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or for or in respect of the Recitals contained herein. IN WITNESS WHEREOF, EMC CORPORATION has caused this Second Supplemental Indenture to be signed in its corporate name and acknowledged by one of its duly authorized officers; and THE BANK OF NEW YORK, as Trustee, has caused this Indenture to be signed and acknowledged by one of its duly authorized signatories as of the day and year first above written. EMC CORPORATION By: /s/ Paul T. Dacier Paul T. Dacier Senior Vice President and General Counsel THE BANK OF NEW YORK, as Trustee By: /s/ Mary Jane Schmalzel Mary Jane Schmalzel Vice President EX-10.1 5 EXHIBIT 10.1 EXHIBIT 10.1 EMC CORPORATION 1985 STOCK OPTION PLAN, as amended December 1, 1999 1. PURPOSE. The purpose of the EMC Corporation 1985 Stock Option Plan is to enable EMC Corporation to provide a special incentive to a limited number of key employees of the Company and its Subsidiaries, if any, who are in a position to have a significant effect upon the Company's business and earnings. In order to accomplish this purpose, the Plan authorizes the grant to such key employees of options to purchase Common Stock of the Company. Increased ownership of Common Stock will provide such key employees with an additional incentive to take into account the long-term interests of the Company. 2. DEFINITIONS. As used herein, the following words or terms have the meanings set forth below. The masculine gender is used throughout the Plan but is intended to apply to members of both sexes. 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 2.3 "Committee" means the Committee appointed by the Board of Directors to administer the Plan or the Board of Directors as a whole if no appointment is made. 2.4 "Common Stock" means the Common Stock of the Company. 2.5 "Company" means EMC Corporation, a corporation established under the laws of The Commonwealth of Massachusetts. 2.6 "Fair Market Value" in the case of a share of Common Stock on a particular day, means the fair market value as determined from time to time by the Board of Directors or, where appropriate, by the Committee, taking into account all information which the Board of Directors, or the Committee, considers relevant. 2.7 "Incentive Stock Option" means a stock option that satisfies the requirements of Section 422 of the Code. 2.8 "Participant" means an individual holding a stock option or stock options granted to him under the Plan. 2.9 "Plan" means the EMC Corporation 1985 Stock Option Plan set forth herein. 2.10 "Subsidiary" or "Subsidiaries" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing 50 percent or more of the total combined voting power of all classes of stock. 2.11 "Ten Percent Stockholder" means any person who, at the time an option is granted, owns or is deemed to own stock (as determined in accordance with Sections 422 and 424 of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or a subsidiary. 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Committee and, to the extent provided herein, the Board of Directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 3.2 Subject to the provisions set forth herein, each of the Committee and the Board of Directors shall have full authority to determine the provisions of options to be granted under the Plan. Subject to the provisions set forth herein, the Committee shall have full authority to interpret the terms of the Plan and of options granted under the Plan, to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan; PROVIDED, HOWEVER, that any change to the terms of an option granted hereunder shall be approved by the Board of Directors to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3.3 The decision of the Committee or the Board of Directors, as applicable, on any matter as to which the Committee or the Board of Directors, as applicable, is given authority under subsection 3.2 shall be final and binding on all persons concerned. 3.4 Nothing in the Plan shall be deemed to give any officer or employee, or his legal representatives or assigns, any right to participate in the Plan, except to such extent, if any, as the Committee or the Board, as applicable, may have determined or approved pursuant to the provisions of the Plan. 2 4. SHARES SUBJECT TO THE PLAN. 4.1 The maximum number of shares of Common Stock that may be delivered upon the exercise of options granted under the Plan shall be 144,000,000, subject to adjustment in accordance with the provisions of Section 8. 4.2 If any option granted under the Plan terminates without having been exercised in full (including an option which terminates by agreement between the Company and the Participant), the number of shares of Common Stock as to which such option has not been exercised prior to termination shall be available for future grants within the limits set forth in subsection 4.1. 4.3 Shares of Common Stock delivered upon the exercise of options shall consist of shares of authorized and unissued Common Stock, except that the Board of Directors may from time to time in its discretion determine in any case the shares to be so delivered shall consist of shares of authorized and issued Common Stock reacquired by the Company and held in its Treasury. No fractional shares of Common Stock shall be delivered upon the exercise of an option. 5. ELIGIBILITY FOR OPTIONS. Employees eligible to receive options under the Plan shall be those key employees of the Company and its Subsidiaries, if any, who, in the opinion of the Committee, are in a position to have a significant effect upon the Company's business and earnings. Members of the Board of Directors of the Company or a Subsidiary who are not employed as regular salaried officers or employees of the Company or a Subsidiary may not participate in the Plan. 6. GRANT OF OPTIONS. 6.1 From time to time while the Plan is in effect, each of the Committee and the Board of Directors may, in its absolute discretion, select from among the persons eligible to receive options (including persons to whom options were previously granted) those persons to whom options are to be granted. 6.2 Each of the Committee and the Board of Directors shall, in its absolute discretion, determine the number of shares of Common Stock to be subject to each option granted by it under the Plan. 6.3 No Incentive Stock Option may be granted under the Plan after May 16, 1995, but options theretofore granted may extend beyond that date. 3 7. PROVISIONS OF OPTIONS. 7.1 INCENTIVE STOCK OPTIONS OR OTHER OPTIONS. Options granted under the Plan may be either Incentive Stock Options or options which do not qualify as Incentive Stock Options, as the Committee or the Board of Directors shall determine at the time of each grant of options hereunder. 7.2 STOCK OPTION CERTIFICATES OR AGREEMENTS. Options granted under the Plan shall be evidenced by certificates or agreements in such form as the Committee shall from time to time approve. Such certificates or agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of options intended to qualify as Incentive Stock Options, the certificates or agreements shall contain such provisions relating to exercise and other matters as are required of incentive stock options under the Code. 7.3 TERMS AND CONDITIONS. All options granted under the Plan shall be subject to the following terms and conditions to the extent applicable and to such other terms and conditions not inconsistent therewith as the Committee or the Board of Directors shall determine: 7.3.1 Exercise Price. The exercise price per share of Common Stock with respect to each option shall be as determined by the Committee but in the case of an Incentive Stock Option not less than 100% (110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) of the Fair Market Value per share at the time the option is granted. In the case of an option which does not qualify as an Incentive Stock Option, the exercise price per share of Common Stock shall be not less than par value. However, for those employees subject to Section 16 of the Securities Exchange Act of 1934, the per share exercise price for an option which does not qualify as an Incentive Stock Option shall not be less than 50% of the Fair Market Value at the time the option is granted. 7.3.2 VALUE OF SHARES OF COMMON STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. Each eligible employee may be granted Incentive Stock Options only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any related corporation, such Incentive Stock Options do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the Incentive Stock Options were granted) of Common Stock in that year. Any options granted to any employee in excess of such amount will be granted as Non-Qualified Options. 7.3.3 PERIOD OF OPTIONS. An option shall be exercisable during such period of time as the Committee or the Board of Directors may specify (subject to subsection 7.4 below), but in the case of an Incentive Stock Option not after the 4 expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the option is granted. 7.3.4 EXERCISE OF OPTIONS. 7.3.4.1 Each option shall be made exercisable at such time or times as the Committee or the Board of Directors shall determine. In the case of an option made exercisable in installments, the Committee or the Board of Directors may later determine to accelerate the time at which one or more of such installments may be exercised. 7.3.4.2 Any exercise of an option shall be in writing signed by the proper person and delivered or mailed to the General Counsel of the Company, accompanied by an option exercise notice and payment in full for the number of shares in respect to which the option is exercised. 7.3.4.3 In the event an option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver stock thereunder until the Company is satisfied that the person or persons exercising the option is or are the duly appointed executor or administrator of the deceased Participant or the person or persons to whom the option has been transferred by the Participant's will or by the applicable laws of descent and distribution. 7.3.4.4 The Committee or the Board of Directors may at the time of grant condition the exercise of an option upon agreement by the Participant to subject the Common Stock to any restrictions on transfer or repurchase rights in effect on the date of exercise, upon representations of continued employment and upon other terms not inconsistent with this Plan. Any such conditions shall be set forth in the option certificate or other document evidencing the option. 7.3.4.5 In the case of an option that is not an Incentive Stock Option, the Committee shall have the right to require that the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or makes other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any Common Stock pursuant to the exercise of the option. In the case of an Incentive Stock Option, if at the time the Incentive Stock Option is exercised the Committee determines that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Common Stock received upon exercise, the Committee may require as a 5 condition of exercise that the individual exercising the Incentive Stock Option agree (i) to inform the Company promptly of any disposition (within the meaning of Section 422 (a) (1) of the Code and the regulations thereunder) of Common Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 7.3.4.6 In the case of an option that is exercised by an individual that is subject to taxation in a foreign jurisdiction, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal or withholding requirement of that foreign jurisdiction (or make other arrangements satisfactory to the Company with regard to such taxes prior to the delivery of any Common Stock pursuant to the exercise of the option). 7.3.5 PAYMENT FOR AND DELIVERY OF STOCK. The shares of stock purchased on any exercise of an option granted hereunder shall be paid for in full in cash or, if permitted by the terms of the option, in shares of unrestricted Common Stock at the time of such exercise or, if so permitted, a combination of such cash and Common Stock. A Participant shall not have the rights of a stockholder with respect to awards under the Plan except as to stock actually issued to him. 7.3.6 LISTING OF STOCK, WITHHOLDING AND OTHER LEGAL REQUIREMENTS. The Company shall not be obligated to deliver any stock until all federal and state laws and regulations which the Company may deem applicable have been complied with, nor, in the event the outstanding Common Stock is at the time listed upon any stock exchange, until the stock to be delivered has been listed or authorized to be added to the list upon official notice of issuance to such exchange. In addition, if the shares of stock subject to any option have not been registered in accordance with the Securities Act of 1933, as amended, the Company may require the person or persons who wishes or wish to exercise such option to make such representation or agreement with respect to the sale of stock acquired on exercise of the option as will be sufficient, in the opinion of the Company's counsel, to avoid violation of said Act, and may also require that the certificates evidencing said stock bear an appropriate restrictive legend. 7.3.7 NON-TRANSFERABILITY OF OPTIONS. No option may be transferred by the Participant otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the Participant's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of non-qualified stock options by the Participant to "Immediate Family Members". Immediate Family Members means children, 6 grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. 7.3.8 DEATH. If a Participant dies at a time when he is entitled to exercise an Incentive Stock Option, then at any time or times within three years after his death such Incentive Stock Option may be exercised, as to all or any of the shares which the Participant was entitled to purchase thereunder immediately prior to his death, by his executor or administrator or the person or persons to whom the Incentive Stock Option is transferred by will or the applicable laws of descent and distribution, and except as so exercised such Incentive Stock Option shall expire at the end of such three-year period. In no event, however, may any Incentive Stock Option granted under the Plan be exercised after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted. 7.3.9 TERMINATION OF EMPLOYMENT. If the employment of a Participant terminates for any reason other than his death, all options held by the Participant shall thereupon expire on the date of termination unless the option by its terms, or the Committee or the Board of Directors by resolution, shall allow the Participant to exercise any or all of the options held by him after termination. In the case of an Incentive Stock Option, the Incentive Stock Option shall in any event expire at the end of three months after such termination of employment, or after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted, whichever occurs first. If the Committee or the Board of Directors so decides, an option may provide that a leave of absence granted by the Company or Subsidiary is not a termination of employment for the purpose of this subsection 7.3.9, and in the absence of such a provision the Committee may in any particular case determine that such a leave of absence is not a termination of employment for such purpose. The Committee shall also determine all other matters relating to continuous employment. 7.3.10 CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 7.3.10 shall apply to options granted on or after July 1, 1998 to (i) Participants who are classified by the Company or a Subsidiary as an executive officer, senior officer, or officer (collectively, an "Officer") of the Company or a Subsidiary; and (ii) certain other Participants designated by the Committee or the Board of Directors to be subject to the terms of this Section 7.3.10 (such designated Participants together with Officers referred to collectively as "Senior Participants"). The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the 7 Senior Participant engages in "Detrimental Activity" (as defined below). Furthermore, in the event a Senior Participant engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the Senior Participant to (i) deliver and transfer to the Company the shares of Common Stock received by the Senior Participant upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the Senior Participant from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Senior Participant by the Company. As used in this subsection 7.3.10, "Detrimental Activity"shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Participant is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Participant's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the Senior Participant being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. 7.3.11 JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts, County of Middlesex, to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7.4 AUTHORITY OF THE COMMITTEE. The Committee shall have the authority, either generally or in particular instances, to waive compliance by a Participant with any obligation to be performed by him under an option and to waive any condition or provision of an option, except that the Committee may not (i) increase the total number of shares covered by any Incentive Stock Option (except in accordance with Section 8), (ii) reduce the option price per share of any Incentive Stock Option (except in accordance with Section 8) or (iii) extend the term of any Incentive Stock Option to more than ten years, subject, however, to the provisions of Section 10. 8. CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock that becomes effective after the adoption of 8 the Plan by the Board of Directors, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock on which options may thereafter be granted hereunder, (ii) the number and kind of shares of stock remaining subject to each option outstanding at the time of such change and (iii) the option price. The Committee's determination shall be binding on all persons concerned. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation (other than a merger or consolidation in which the Company survives but in which a majority of its outstanding shares are converted into securities of another corporation or are exchanged for other consideration), any option granted hereunder shall pertain and apply to the securities which a holder of the number of shares of stock of the Company then subject to the option would have been entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so converted or exchanged shall cause every option hereunder to terminate; provided that if any such dissolution, liquidation, merger or consolidation is contemplated, the Company shall either arrange for any corporation succeeding to the business and assets of the Company to issue to the Participants replacement options (which, in the case of Incentive Stock Options, satisfy, in the determination of the Committee, the requirements of Section 424 of the Code) on such corporation's stock which will to the extent possible preserve the value of the outstanding options or shall make the outstanding options fully exercisable at least 20 days before the effective date of any such dissolution, liquidation, merger or consolidation. The existence of the Plan shall not prevent any such change or other transaction and no Participant thereunder shall have any right except as herein expressly set forth. 9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor any grant of options confers upon any employee of the Company or a Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor does it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. 10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Committee or the Board of Directors may at any time discontinue granting options under the Plan and, with the consent of the Participant, may at any time cancel an existing option in whole or in part and grant another option to the Participant for such number of shares as the Committee or the Board of Directors specifies. The Board of Directors may at any time or times amend the Plan for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law or may at any time terminate the Plan as to any further grants of options, provided that no such amendment shall without the approval of the stockholders of the Company (a) increase the maximum number of shares available 9 under the Plan, (b) change the group of employees eligible to receive options under the Plan, (c) reduce the exercise price of outstanding incentive options or reduce the price at which incentive options may be granted, (d) extend the time within which options may be granted, (e) alter the Plan in such a way that incentive options granted or to be granted hereunder would not be considered incentive stock options under Section 422 of the Code, or (f) amend the provisions of this Section 10, and no such amendment shall adversely affect the rights of any employee (without his consent) under any option previously granted. 11. EFFECTIVE DATE. The Plan shall become effective upon its adoption by the Board of Directors, and options may be granted under the Plan from and after the date of such adoption; provided, however, that if prior to May 16, 1986 the stockholders of the Company have not approved the Plan, the Plan shall terminate to the extent that it relates to the issuance of Incentive Stock Options and all Incentive Stock Options theretofore granted shall terminate and cease to be of any force or effect. No Incentive Stock Option granted hereunder shall be exercisable unless and until the Plan has been so approved. EX-10.2 6 EXHIBIT 10.2 EXHIBIT 10.2 EMC CORPORATION 1992 EMC CORPORATION STOCK OPTION PLAN FOR DIRECTORS, as amended December 1, 1999 1. PURPOSE The purpose of this 1992 Stock Option Plan for Directors (the "Plan") is to advance the interests of EMC Corporation (the "Company") by enhancing the ability of the Company to attract and retain directors who are in a position to make significant contributions to the success of the Company and to reward directors for such contributions through ownership of shares of the Company's Common Stock (the "Stock"). 2. ADMINISTRATION The Plan shall be administered by the Board of Directors (the "Board") of the Company and the Executive Compensation and Stock Option Committee (the "Committee") of the Board, as set forth herein. The Board and the Committee shall each have authority, not inconsistent with the express provisions of the Plan to grant options in accordance with the Plan to such directors as are eligible to receive options. The Committee shall in addition have authority, not inconsistent with the express provisions of the Plan, (a) to prescribe the form or forms of instruments evidencing options and any other instruments required under the Plan and to change such forms from time to time; (b) to adopt, amend and rescind rules and regulations for the administration of the Plan; and (c) to interpret the Plan and decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee or the Board, as the case may be, shall be conclusive and shall bind all parties. Subject to Section 7, the Committee shall also have the authority, both generally and in particular instances, to waive compliance by a director with any obligation to be performed by him or her under an option and to waive any condition or provision of an option. Notwithstanding the preceding two sentences, any change to the terms of an option granted hereunder shall be approved by the Board to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3. EFFECTIVE DATE AND TERM OF PLAN The Plan shall become effective on the date on which the Plan is approved by the stockholders of the Company. No option shall be granted under the Plan after the completion of ten years from the date on which the Plan was adopted by the Board, but options granted may extend beyond that date. 4. SHARES SUBJECT TO THE PLAN (a) NUMBER OF SHARES. Subject to adjustment as provided in Section 4(c), the aggregate number of shares of Stock that may be delivered upon the exercise of options granted under the Plan shall be 7,200,000. If any option granted under the Plan terminates without having been exercised in full, the number of shares of Stock as to which such option was not exercised shall be available for future grants within the limits set forth in this Section 4(a). (b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be authorized but unissued Stock or, if the Board so decides in its sole discretion, previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock shall be delivered under the Plan. (c) CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Stock, the number and kind of shares of stock or securities of the Company to be subject to options then outstanding or to be granted under the Plan, and the option price, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. 5. ELIGIBILITY FOR OPTIONS Directors eligible to receive options under the Plan ("Eligible Directors") shall be those directors who (i) are not employees of the Company; and (ii) are not holders of more than 5% of the outstanding shares of the Stock or persons in control of such holders. 6. TERMS AND CONDITIONS OF OPTIONS (a) FORMULA OPTIONS. Eligible Directors who are directors on the date of stockholder approval of the Plan shall be awarded options to purchase up to 40,000 shares of Stock. Following stockholder approval of the plan, each newly elected Eligible Director shall be awarded options to purchase up to 40,000 shares of Stock on the date of his or her first election. (b) DISCRETIONARY OPTIONS. In addition to the formula options provided for above, the Committee or the Board may award options to purchase shares of Stock to Eligible Directors on such terms as it may determine not inconsistent with this Plan. (c) EXERCISE PRICE. The exercise price of each option shall be not less than 50% of the fair market value per share of the Stock at the time of the grant. For this purpose "fair market value" shall mean the last sales price of the Stock as reported on the New York Stock Exchange on the date of the grant (based on THE WALL STREET JOURNAL report of composite transactions) or, if the Stock is no longer listed on such Exchange, it shall have the same meaning as it does in the provisions of the Internal Revenue Code of 1986 (the "Code") and the regulations thereunder applicable to incentive options. (d) DURATION OF OPTIONS. The latest date on which an option may be exercised (the "Final Exercise Date ") shall be the date which is ten years from the date the option was granted. (e) EXERCISE OF OPTIONS. (1) Each formula option shall become exercisable in increments of 331/3% of the shares covered thereby on each of the first through third anniversaries of the grant. Each discretionary option shall become exercisable at such time or times as the Committee or the Board shall determine. (2) Any exercise of an option shall be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (a) an option exercise notice and any other documents required by the Committee; and (b) payment in full for the number of shares for which the option is exercised. (3) If any option is exercised by the executor or administrator of a deceased director, or by the person or persons to whom the option has been transferred by the director's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of the person or persons exercising the option. (4) The Company shall have the right to settle any option, and to terminate the rights of the holder thereof, by paying to the option holder the difference between the fair market value of the Stock at the time of settlement and the purchase price. (f) PAYMENT FOR AND DELIVERY OF STOCK. Stock purchased under the Plan shall be paid for as follows: (i) in cash or by certified check, bank draft or money order payable to the order of the Company; (ii) through the delivery of shares of Stock having a fair market value on the last business day preceding the date of exercise equal to the purchase price; or (iii) by a combination of cash and Stock as provided in clauses (i) and (ii) above. An option holder shall not have the rights of a stockholder with regard to awards under the Plan except as to Stock actually received by him or her under the Plan. The Company shall not be obligated to deliver any shares of Stock (a) until, in the opinion of the Company's counsel, all applicable Federal and state laws and regulations have been complied with; and (b) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance; and (c) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the option, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. (g) NONTRANSFERABILITY OF OPTIONS/EXCEPTIONS. No option may be transferred by a director otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the director's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of options by the Participant to "Immediate Family Members." Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. (h) DEATH. If a director dies at the time he or she is entitled to exercise an option, then the portion formerly exercisable by the director may be exercised by the director's executor or administrator, or by the person to whom the option is transferred under the applicable laws of descent and distribution, within three years of the death of the director, subject to earlier termination of an option pursuant to Section 6(d). (i) OTHER TERMINATION OF STATUS OF DIRECTOR. All previously unexercised options terminate and are forfeited automatically upon the termination of the director's service with the Company, unless the Committee or the Board of Directors specifies otherwise. (j) MERGERS, ETC. In the event of a dissolution, liquidation, consolidation or merger in which the Company is not the surviving corporation, or which results in the acquisition of substantially all of the Company's stock by a single person or entity or by a group of persons and entities acting in concert all outstanding options will thereupon terminate, provided at least twenty days prior to the effective date of any such dissolution, liquidation, consolidation or merger, the Committee or the Board may either (i) make all outstanding options immediately exercisable or (ii) arrange to have the surviving corporation grant replacement options for the option holders. (k) CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 6(k) shall apply to options granted on or after July 1. The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the director engages in "Detrimental Activity" (as defined below). Furthermore, in the event a director engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the director to (i) deliver and transfer to the Company the shares of Common Stock received by the director upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the director from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the director by the Company. As used in this subsection 6(k), "Detrimental Activity" shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the director is a party to the Key Employee Agreement), (iii) any activity that results in termination of the director's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the director being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. (l) JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts, County of Middlesex, to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION Neither adoption of the Plan nor the grant of options to a director shall affect the Company's right to grant to such director or any director options that are not subject to the Plan, to issue to such directors Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued to directors. The Committee or the Board may at any time discontinue granting options under the Plan. The Board may at any time, or times, amend the Plan for the purpose of satisfying any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of options, provided that (except to the extent expressly required or permitted herein above) no such amendment shall, without the approval of the stockholders of the Company, (a) increase the maximum number of shares available under the Plan; (b) increase the number of options to be granted to Eligible Directors; (c) amend the definition of Eligible Directors so as to enlarge the group of directors eligible to receive options under the Plan; (d) reduce the price at which options may be granted other than as permitted in the Plan; or (e) amend the provisions of this Section 7. EX-10.3 7 EXHIBIT 10.3 EXHIBIT 10.3 EMC CORPORATION 1993 STOCK OPTION PLAN, as amended March 5, 2000 1. PURPOSE. The purpose of the EMC Corporation 1993 Stock Option Plan is to enable EMC Corporation to provide a special incentive to a limited number of key employees of the Company and its Subsidiaries, if any, who are in a position to have a significant effect upon the Company's business and earnings. In order to accomplish this purpose, the Plan authorizes the grant to such key employees of options to purchase Common Stock of the Company. Increased ownership of Common Stock will provide such key employees with an additional incentive to take into account the long-term interests of the Company. 2. DEFINITIONS. As used herein, the following words or terms have the meanings set forth below. The masculine gender is used throughout the Plan but is intended to apply to members of both sexes. 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 2.3 "Committee" means the Committee appointed by the Board of Directors to administer the Plan or the Board of Directors as a whole if no appointment is made. 2.4 "Common Stock" means the Common Stock of the Company. 2.5 "Company" means EMC Corporation, a corporation established under the laws of The Commonwealth of Massachusetts. 2.6 "Fair Market Value" in the case of a share of Common Stock on a particular day, means the fair market value as determined from time to time by the Board of Directors or, where appropriate, by the Committee, taking into account all information which the Board of Directors, or the Committee, considers relevant. 2.7 "Incentive Stock Option" means a stock option that satisfies the requirements of Section 422 of the Code. 2.8 "Participant" means an individual holding a stock option or stock options granted to him under the Plan. Page 1 of 10 2.9 "Plan" means the EMC Corporation 1993 Stock Option Plan set forth herein. 2.10 "Subsidiary" or "Subsidiaries" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing 50 percent or more of the total combined voting power of all classes of stock. 2.11 "Ten Percent Stockholder" means any person who, at the time an option is granted, owns or is deemed to own stock (as determined in accordance with Sections 422 and 424 of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or a subsidiary. 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Committee and, to the extent provided herein, the Board of Directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 3.2 Subject to the provisions set forth herein, each of the Committee and the Board of Directors shall have full authority to determine the provisions of options to be granted under the Plan. Subject to the provisions set forth herein, the Committee shall have full authority to interpret the terms of the Plan and of options granted under the Plan, to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan; PROVIDED, HOWEVER, that any change to the terms of an option granted hereunder shall be approved by the Board of Directors to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3.3 The decision of the Committee or the Board of Directors, as applicable, on any matter as to which the Committee or the Board of Directors, as applicable, is given authority under subsection 3.2 shall be final and binding on all persons concerned. 3.4 Nothing in the Plan shall be deemed to give any officer or employee, or his legal representatives or assigns, any right to participate in the Plan, except to such extent, if any, as the Committee or the Board, as applicable, may have determined or approved pursuant to the provisions of the Plan. Page 2 of 10 4. SHARES SUBJECT TO THE PLAN. 4.1 The maximum number of shares of Common Stock that may be delivered upon the exercise of options granted under the Plan shall be 90,000,000*, subject to adjustment in accordance with the provisions of Section 8. 4.2 If any option granted under the Plan terminates without having been exercised in full (including an option which terminates by agreement between the Company and the Participant), or if shares of Common Stock are reacquired by the Company upon the rescission of an exercise of an option, the number of shares of Common Stock as to which an option has not been exercised prior to termination, or have been reacquired upon the rescission of an option, shall be available for future grants within the limits set forth in subsection 4.1. 4.3 Shares of Common Stock delivered upon the exercise of options shall consist of shares of authorized and unissued Common Stock, except that the Board of Directors may from time to time in its discretion determine in any case the shares to be so delivered shall consist of shares of authorized and issued Common Stock reacquired by the Company and held in its Treasury. No fractional shares of Common Stock shall be delivered upon the exercise of an option. 5. ELIGIBILITY FOR OPTIONS. Employees eligible to receive options under the Plan shall be those key employees of the Company and its Subsidiaries, if any, who, in the opinion of the Committee, are in a position to have a significant effect upon the Company's business and earnings. Members of the Board of Directors of the Company or a Subsidiary who are not employed as regular salaried officers or employees of the Company or a Subsidiary may not participate in the Plan. 6. GRANT OF OPTIONS. 6.1 From time to time while the Plan is in effect, each of the Committee and the Board of Directors may, in its absolute discretion, select from among the persons eligible to receive options (including persons to whom options were previously granted) those persons to whom options are to be granted. 6.2 Each of the Committee and the Board of Directors shall, in its absolute discretion, determine the number of shares of Common Stock to be subject to each option granted by it under the Plan. *Subject to stockholder approval Page 3 of 10 6.3 No Incentive Stock Option may be granted under the Plan after May 12, 2003, but options theretofore granted may extend beyond that date. 7. PROVISIONS OF OPTIONS. 7.1 INCENTIVE STOCK OPTIONS OR OTHER OPTIONS. Options granted under the Plan may be either Incentive Stock Options or options which do not qualify as Incentive Stock Options, as the Committee or the Board of Directors shall determine at the time of each grant of options hereunder. 7.2 STOCK OPTION CERTIFICATES OR AGREEMENTS. Options granted under the Plan shall be evidenced by certificates or agreements in such form as the Committee shall from time to time approve. Such certificates or agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of options intended to qualify as Incentive Stock Options, the certificates or agreements shall contain such provisions relating to exercise and other matters as are required of incentive stock options under the Code. 7.3 TERMS AND CONDITIONS. All options granted under the Plan shall be subject to the following terms and conditions to the extent applicable and to such other terms and conditions not inconsistent therewith as the Committee or the Board of Directors shall determine: 7.3.1 EXERCISE PRICE. The exercise price per share of Common Stock with respect to each option shall be as determined by the Committee but in the case of an Incentive Stock Option not less than 100% (110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) of the Fair Market Value per share at the time the option is granted. In the case of an option which does not qualify as an Incentive Stock Option, the exercise price per share of Common Stock shall be not less than par value. 7.3.2 VALUE OF SHARES OF COMMON STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. Each eligible employee may be granted Incentive Stock Options only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any related corporation, such Incentive Stock Options do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the Incentive Stock Options were granted) of Common Stock in that year. Any options granted to an employee in excess of such amount will be granted as Non-Qualified Options. 7.3.3 PERIOD OF OPTIONS. An option shall be exercisable during such period of time as the Committee or Board of Directors may specify (subject to Page 4 of 10 subsection 7.4 below), but in the case of an Incentive Stock Option not after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the option is granted. 7.3.4 EXERCISE OF OPTIONS. 7.3.4.1 Each option shall be made exercisable at such time or times as the Committee or the Board of Directors shall determine. In the case of an option made exercisable in installments, the Committee or the Board of Directors may later determine to accelerate the time at which one or more of such installments may be exercised. 7.3.4.2 Any exercise of an option shall be in writing signed by the proper person and delivered or mailed to the General Counsel of the Company, accompanied by an option exercise notice and payment in full for the number of shares in respect to which the option is exercised. 7.3.4.3 In the event an option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver stock thereunder until the Company is satisfied that the person or persons exercising the option is or are the duly appointed executor or administrator of the deceased Participant or the person or persons to whom the option has been transferred by the Participant's will or by the applicable laws of descent and distribution. 7.3.4.4 The Committee or the Board of Directors may at the time of grant condition the exercise of an option upon agreement by the Participant to subject the Common Stock to any restrictions on transfer or repurchase rights in effect on the date of exercise, upon representations of continued employment and upon other terms not inconsistent with this Plan. Any such conditions shall be set forth in the option certificate or other document evidencing the option. 7.3.4.5 In the case of an option that is not an Incentive Stock Option, the Committee shall have the right to require that the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or makes other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any Common Stock pursuant to the exercise of the option. In the case of an Incentive Stock Option, if at the time the Incentive Stock Option is exercised the Committee determines that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Page 5 of 10 Common Stock received upon exercise, the Committee may require as a condition of exercise that the individual exercising the Incentive Stock Option agree (i) to inform the Company promptly of any disposition (within the meaning of Section 422 (a) (1) of the Code and the regulations thereunder) of Common Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 7.3.4.6 In the case of an option that is exercised by an individual that is subject to taxation in a foreign jurisdiction, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal or withholding requirement of that foreign jurisdiction (or make other arrangements satisfactory to the Company with regard to such taxes prior to the delivery of any Common Stock pursuant to the exercise of the option). 7.3.5 PAYMENT FOR AND DELIVERY OF STOCK. The shares of stock purchased on any exercise of an option granted hereunder shall be paid for in full in cash or, if permitted by the terms of the option, in shares of unrestricted Common Stock at the time of such exercise or, if so permitted, a combination of such cash and Common Stock. A Participant shall not have the rights of a stockholder with respect to awards under the Plan except as to stock actually issued to him. 7.3.6 LISTING OF STOCK, WITHHOLDING AND OTHER LEGAL REQUIREMENTS. The Company shall not be obligated to deliver any stock until all federal and state laws and regulations which the Company may deem applicable have been complied with, nor, in the event the outstanding Common Stock is at the time listed upon any stock exchange, until the stock to be delivered has been listed or authorized to be added to the list upon official notice of issuance to such exchange. In addition, if the shares of stock subject to any option have not been registered in accordance with the Securities Act of 1933, as amended, the Company may require the person or persons who wishes or wish to exercise such option to make such representation or agreement with respect to the sale of stock acquired on exercise of the option as will be sufficient, in the opinion of the Company's counsel, to avoid violation of said Act, and may also require that the certificates evidencing said stock bear an appropriate restrictive legend. 7.3.7 NON-TRANSFERABILITY OF OPTIONS. No option may be transferred by the Participant otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the Participant's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of non-qualified stock options by the Participant to Page 6 of 10 "Immediate Family Members." Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. 7.3.8 DEATH. If a Participant dies at a time when he is entitled to exercise an Incentive Stock Option, then at any time or times within three years after his death such Incentive Stock Option may be exercised, as to all or any of the shares which the Participant was entitled to purchase thereunder immediately prior to his death, by his executor or administrator or the person or persons to whom the Incentive Stock Option is transferred by will or the applicable laws of descent and distribution, and except as so exercised such Incentive Stock Option shall expire at the end of such three-year period. In no event, however, may any Incentive Stock Option granted under the Plan be exercised after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted. 7.3.9 TERMINATION OF EMPLOYMENT. If the employment of a Participant terminates for any reason other than his death, all options held by the Participant shall thereupon expire on the date of termination unless the option by its terms, or the Committee or the Board of Directors by resolution, shall allow the Participant to exercise any or all of the options held by him after termination. In the case of an Incentive Stock Option, the Incentive Stock Option shall in any event expire at the end of three months after such termination of employment, or after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted, whichever occurs first. If the Committee or the Board of Directors so decides, an option may provide that a leave of absence granted by the Company or Subsidiary is not a termination of employment for the purpose of this subsection 7.3.9, and in the absence of such a provision the Committee may in any particular case determine that such a leave of absence is not a termination of employment for such purpose. The Committee shall also determine all other matters relating to continuous employment. 7.3.10 CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 7.3.10 shall apply to options granted on or after July 1, 1998 to (i) Participants who are classified by the Company or a Subsidiary as an executive officer, senior officer, or officer (collectively, an "Officer") of the Company or a Subsidiary; and (ii) certain other Participants designated by the Committee or the Board of Directors to be subject to the terms of this Section 7.3.10 (such designated Participants together with Officers referred to collectively as "Senior Participants"). The Committee or the Board of Directors may cancel, rescind, Page 7 of 10 suspend or otherwise limit or restrict any unexpired option at any time if the Senior Participant engages in "Detrimental Activity" (as defined below). Furthermore, in the event a Senior Participant engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the Senior Participant to (i) deliver and transfer to the Company the shares of Common Stock received by the Senior Participant upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the Senior Participant from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Senior Participant by the Company. As used in this subsection 7.3.10, "Detrimental Activity" shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Participant is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Participant's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the Senior Participant being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. 7.3.11 JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts, County of Middlesex, to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7.4 AUTHORITY OF THE COMMITTEE. The Committee shall have the authority, either generally or in particular instances, to waive compliance by a Participant with any obligation to be performed by him under an option and to waive any condition or provision of an option, except that the Committee may not (i) increase the total number of shares covered by any Incentive Stock Option (except in accordance with Section 8), (ii) reduce the option price per share of any Incentive Stock Option (except in accordance with Section 8) or (iii) extend the term of any Incentive Stock Option to more than ten years, subject, however, to the provisions of Section 10. Page 8 of 10 8. CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock that becomes effective after the adoption of the Plan by the Board of Directors, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock on which options may thereafter be granted hereunder, (ii) the number and kind of shares of stock remaining subject to each option outstanding at the time of such change and (iii) the option price. The Committee's determination shall be binding on all persons concerned. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation (other than a merger or consolidation in which the Company survives but in which a majority of its outstanding shares are converted into securities of another corporation or are exchanged for other consideration), any option granted hereunder shall pertain and apply to the securities which a holder of the number of shares of stock of the Company then subject to the option would have been entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so converted or exchanged shall cause every option hereunder to terminate; provided that if any such dissolution, liquidation, merger or consolidation is contemplated, the Company shall either arrange for any corporation succeeding to the business and assets of the Company to issue to the Participants replacement options (which, in the case of Incentive Stock Options, satisfy, in the determination of the Committee, the requirements of Section 424 of the Code) on such corporation's stock which will to the extent possible preserve the value of the outstanding options or shall make the outstanding options fully exercisable at least 20 days before the effective date of any such dissolution, liquidation, merger or consolidation. The existence of the Plan shall not prevent any such change or other transaction and no Participant thereunder shall have any right except as herein expressly set forth. 9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor any grant of options confers upon any employee of the Company or a Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor does it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. 10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Committee or the Board of Directors may at any time discontinue granting options under the Plan and, with the consent of the Participant, may at any time cancel an existing option in whole or in part and grant another option to the Participant for such number of shares as the Committee or the Board of Directors specifies. The Board of Directors may at any time or times amend the Plan for the purpose of satisfying the Page 9 of 10 requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law or may at any time terminate the Plan as to any further grants of options, provided that no such amendment shall without the approval of the stockholders of the Company (a) increase the maximum number of shares available under the Plan, (b) change the group of employees eligible to receive options under the Plan, (c) reduce the exercise price of outstanding incentive options or reduce the price at which incentive options may be granted, (d) extend the time within which options may be granted, (e) alter the Plan in such a way that incentive options granted or to be granted hereunder would not be considered incentive stock options under Section 422 of the Code, or (f) amend the provisions of this Section 10, and no such amendment shall adversely affect the rights of any employee (without his consent) under any option previously granted. 11. EFFECTIVE DATE. The Plan became effective immediately upon its approval by the stockholders of the Company at the Annual Meeting on May 12, 1993. Page 10 of 10 EX-21.1 8 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT The following is a list of the Corporation's consolidated subsidiaries as of January 31, 2000. The Corporation owns, directly or indirectly, 100% of the voting securities of each subsidiary, unless noted otherwise and except for director's qualifying shares.
NAME STATE OR JURISDICTION OF ORGANIZATION Asia Data General Corp. Delaware Conley Corporation Delaware China Data General Corp. Delaware CLARiiON Storage Systems, Inc. Delaware D G Foreign Sales Corp. Barbados D.G. Venezuela, C.A. Venezuela Datagen, Inc. Delaware Data General AB Sweden Data General A.G. Switzerland Data General A/S Denmark Data General A/S Norway Data General Africa SARL Africa Data General Argentina S.A. Argentina Data General Australia Pty., Ltd. Australia Data General Bahamas Limited Bahamas Data General BVI Ltd. British Virgin Island Data General Canada Canada Data General Chile S.A. Chile Data General (Canada) Company Canada Data General Computers Hungary Ltd. Hungary Data General Computers Sdn Bhd Malaysia Data General de Mexico S.A. de C.V. Mexico Data General Del Peru, S.A. Peru Data General do Brasil LTDA Brazil Data General France S.A.S. France Data General Gesellschaft mbH Austria Data General GmbH Germany Data General Hong Kong Sales & Service Limited Hong Kong Data General Hong Kong, Limited Hong Kong Data General International Inc. Delaware Data General International Manufacturing Pte., Ltd. Singapore Data General International Sales Corp. Delaware Data General Investment Corp. Delaware Data General Ireland Limited Ireland Data General Israel, Ltd. Israel Data General Japan YK Japan Data General Korea Ltd. Korea Data General Latin America, Inc. Delaware Data General Limited United Kingdom Data General Nederland BV The Netherlands Data General New Zealand, Limited New Zealand Data General Puerto Rico, Inc. Delaware Data General S.A. Belgium Data General S.A. Spain Data General S.r.l. Italy Data General Singapore Pte.Ltd. Singapore
Data General South Africa (Proprietary) Limited South Africa Data General Systems (Thailand) Limited Thailand Data General Technology (1990) Ltd. Israel Data General Telecommunications, Inc. Delaware Digital Computer Controls, Inc. Delaware EMC (Benelux) B.V. The Netherlands EMC Computer Storage Systems (Israel) Ltd. Israel EMC Computer Storage Systems (Sales and Services) Ltd Israel EMC Computer Systems AG Switzerland EMC Computer Systems Argentina S.A. Argentina EMC Computer-Systems A/S Denmark EMC Computer-Systems AS Norway EMC Computer Systems Austria GmbH Austria EMC Computer Systems (Benelux) B.V. The Netherlands EMC Computer-Systems Brazil Ltda. Brazil EMC Computer Systems California, Inc Delaware EMC Computer-Systems Deutschland GmbH Germany EMC Computer Systems (F.E.) Ltd. Hong Kong EMC Computer Systems France S.A. France EMC Computer-Systems Ireland Limited Ireland EMC Computer Systems Italia S.p.A. Italy EMC Computer-Systems OY Finland EMC Computer Systems Philippines, Inc. Philippines EMC Computer Systems Poland Poland EMC Computer Systems (S.A.) (Pty.) Ltd. South Africa EMC Computer Systems (South Asia) Pte. Ltd. Singapore EMC Computer Systems Spain S.L. Spain EMC Computer-Systems Svenska AB Sweden EMC Computer Systems (U.K.) Limited United Kingdom EMC Computer Systems Venezuela, S.A. Venezuela EMC Corporation of Canada Canada EMC Foreign Sales Corporation (F.S.C.) Barbados EMC International Holdings, Inc. Delaware EMC Japan K.K.* Japan EMC Securities Corporation Massachusetts Epoch, Inc. Delaware General Risk Insurance Company Ltd. (DG) Bermuda Hankook EMC Computer Systems Chusik Hoesa South Korea M.C.I. Management and Computer Consulting Canada, Inc. Canada M.C.I. Management and Computer Consulting, Inc. Canada M.C.I. Management and Computer Consulting International, Inc. Canada MCI S.A. France Management Consulting & Informatic Ltd. Israel McDATA Asia Pacific Pte. Ltd. Singapore McDATA Corporation** Delaware McDATA Holdings Corporation Delaware McDATA International Inc. U.S. Virgin Islands Millennia III, Inc. Delaware P2I France Softworks, Inc. Delaware Terascape Software Inc. Massachusetts
- ----------------------------- * 95% owned by EMC Corporation. ** 81% owned by McDATA Holdings Corporation. EX-23.1 9 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of EMC Corporation on Form S-3 (File Nos. 333-24901, 333-41079 and 333-60177) and on Form S-8 (File Nos. 33-51800, 33-54860, 33-63665, 333-31471, 333-55801, 333-01375, 333-05133, 333-61113, 333-63045, 333-57263, 333-90329, 333-90331 and 333-86659) of our report dated January 21, 2000, on our audits of the consolidated financial statements and consolidated financial statement schedule of EMC Corporation as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 17, 2000 EX-27.1 10 EXHIBIT 27.1
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. 1,000 12-MOS DEC-31-1999 DEC-31-1999 1,109,409 714,730 1,625,438 34,279 618,885 4,320,396 1,023,179 894,701 7,173,288 1,397,915 673,149 10,393 0 0 4,941,393 7,173,288 5,983,009 6,715,610 3,258,245 2,216,271 0 0 33,490 1,357,165 346,595 1,010,570 0 0 0 1,010,570 .98 .92
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