Prepared by MERRILL CORPORATION

-----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, FzceMPvCEGIOtwW1205MgeO4Lh0uEBKgF/0493Me9zKaP+rcML72y95HWTcpCr8L OGpDJ5sRjRtBKyFkOVzh9Q== 0000912057-01-538203.txt : 20020410 0000912057-01-538203.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-538203 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011108 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-03656 FILM NUMBER: 1778210 BUSINESS ADDRESS: STREET 1: 35 PARKWOOD DR 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-Q 1 a2062710z10-q.htm FORM 10-Q Prepared by MERRILL CORPORATION
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended: September 30, 2001 Commission File Number 1-9853

EMC CORPORATION
(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of
incorporation or organization)

04-2680009
(I.R.S. Employer
Identification Number)

35 Parkwood Drive
Hopkinton, Massachusetts 01748-9103
(Address of principal executive offices, including zip code)

(508) 435-1000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/ No / /

The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of September 30, 2001 was 2,215,564,720.

EMC CORPORATION

		Page No.
Part I—Financial Information
	Consolidated Balance Sheets at September 30, 2001 and December 31, 2000	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2001 and 2000	6
	Notes to Interim Consolidated Financial Statements	7-13
	Management's Discussion and Analysis of Financial Condition and Results of Operations	14-28
Part II—Other Information		29
Signatures		30
Exhibit Index		31

EMC CORPORATION

PART I
FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

				September 30, 2001			December 31, 2000
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	1,850,598		$	1,983,221
	Short-term investments				461,933			673,731
	Accounts and notes receivable, less allowance for doubtful accounts of $31,305 and $38,560				1,268,027			2,114,368
	Inventories				865,960			1,024,964
	Deferred income taxes				371,341			188,074
	Other assets				118,397			115,693

Total current assets					4,936,256			6,100,051
Long-term investments					2,655,591			2,088,379
Notes receivable, net					148,415			241,234
Property, plant and equipment, net					1,733,657			1,510,088
Deferred income taxes					20,925			—
Intangible and other assets, net					499,751			598,047

		Total assets		$	9,994,595		$	10,537,799

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term obligations			$	16,812		$	11,816
	Accounts payable				439,263			516,469
	Accrued expenses				1,112,579			823,079
	Income taxes payable				377,797			477,318
	Deferred revenue				317,306			284,965

Total current liabilities					2,263,757			2,113,647
Deferred income taxes					—			100,913
Notes payable					20,373			14,457
Other liabilities					43,051			20,538
Minority interest					—			111,035
Commitments and contingencies
Stockholders' equity:
	Series preferred stock, par value $.01; authorized 25,000 shares, none outstanding				—			—
	Common stock, par value $.01; authorized 6,000,000 shares; issued 2,216,625 and 2,195,489				22,166			21,955
	Additional paid-in capital				3,428,123			3,138,061
	Deferred compensation				(38,069	)		(49,525	)
	Retained earnings				4,258,917			5,072,600
	Treasury stock, at cost—1,060 and 0 shares				(18,258	)		—
	Accumulated other comprehensive income (loss)				14,535			(5,882	)

		Total stockholders' equity			7,667,414			8,177,209

			Total liabilities and stockholders' equity	$	9,994,595		$	10,537,799

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

		For the Three Months Ended						For the Nine Months Ended
		September 30, 2001			September 30, 2000			September 30, 2001			September 30, 2000
Revenues:
	Net sales	$	925,736		$	2,050,573		$	4,719,147		$	5,611,492
	Services		286,537			232,432			858,776			640,038

			1,212,273			2,283,005			5,577,923			6,251,530
Costs and expenses:
	Cost of sales		984,476			813,648			2,753,308			2,221,136
	Cost of services		183,969			152,948			538,964			438,951
	Research and development		242,149			204,807			711,816			560,873
	Selling, general and administrative		510,888			533,124			1,721,260			1,487,392
	Restructuring and other special charges		398,508			—			398,508			—

Operating income (loss)			(1,107,717	)		578,478			(545,933	)		1,543,178
Investment income			64,627			54,370			200,475			143,064
Interest expense			(3,673	)		(2,196	)		(10,528	)		(12,023	)
Other expense, net			(121,172	)		(3,011	)		(116,530	)		(4,080	)

Income (loss) before taxes			(1,167,935	)		627,641			(472,516	)		1,670,139
Income tax provision (benefit)			(222,728	)		169,463			(34,966	)		450,937

Net income (loss)		$	(945,207	)	$	458,178		$	(437,550	)	$	1,219,202

Net income (loss) per weighted average share, basic		$	(0.43	)	$	0.21		$	(0.20	)	$	0.57

Net income (loss) per weighted average share, diluted		$	(0.43	)	$	0.20		$	(0.20	)	$	0.54

Weighted average shares, basic			2,213,328			2,183,409			2,208,302			2,154,647

Weighted average shares, diluted			2,213,328			2,250,121			2,208,302			2,242,228

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

			For the Nine Months Ended
			September 30, 2001			September 30, 2000
Cash flows from operating activities:
Net income (loss)			$	(437,550	)	$	1,219,202
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
	Depreciation and amortization			484,637			376,623
	Noncash restructuring and other special charges, including provision for obsolete and excess inventory			407,535			—
	Other than temporary declines in equity investments			106,560			—
	Amortization of deferred compensation			16,242			20,196
	Provision for doubtful accounts			11,811			19,587
	Deferred income taxes			(322,013	)		4,248
	Net loss on disposal of property and equipment			974			12,870
	Tax benefit from stock options exercised			134,389			174,041
	Minority interest			29			2,341
Changes in assets and liabilities, net of acquired assets and liabilities:
	Accounts and notes receivable			882,061			(311,529	)
	Inventories			(128,983	)		(250,700	)
	Other assets			(10,430	)		(113,551	)
	Accounts payable			(65,896	)		109,264
	Accrued expenses			292,305			97,047
	Income taxes payable			(89,460	)		175,460
	Deferred revenue			29,220			68,349
	Other liabilities			3,841			(6	)

		Net cash provided by operating activities		1,315,272			1,603,442

Cash flows from investing activities:
	Additions to property, plant and equipment			(692,739	)		(591,453	)
	Proceeds from sales of property, plant and equipment			17,310			—
	Capitalized software development costs			(87,866	)		(76,569	)
	Purchase of short-term and long-term available for sale securities			(4,153,019	)		(1,415,082	)
	Sale of short-term and long-term available for sale securities			3,508,093			907,363
	Maturity of short-term and long-term available for sale securities			109,318			387,823
	Business acquisitions, net of cash acquired			(102,889	)		(233,554	)

		Net cash used for investing activities		(1,401,792	)		(1,021,472	)

Cash flows from financing activities:
	Issuance of common stock			125,959			174,538
	Purchase of treasury stock			(18,258	)		—
	Issuance of subsidiary stock			—			376,607
	Redemption of 6% convertible subordinated notes			—			(155	)
	Payment of long-term and short-term obligations			(13,353	)		(9,263	)
	Issuance of long-term and short-term obligations			5			11,224
	Cash portion of McDATA Corporation dividend			(141,981	)		—

		Net cash provided (used) by financing activities		(47,628	)		552,951

Effect of exchange rate changes on cash				1,525			(8,421	)

Net increase (decrease) in cash and cash equivalents				(134,148	)		1,134,921
Cash and cash equivalents at beginning of period				1,983,221			1,109,409

Cash and cash equivalents at end of period			$	1,850,598		$	2,235,909

Non-cash activity:
—Conversion of convertible subordinated notes, net of debt issuance costs			$	—		$	672,994
—Options issued in business acquisitions				1,050			11,372
—Issuance of capital lease obligations				24,490			—
—Distribution of net assets in McDATA Corporation dividend				234,152			—

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

		For the Three Months Ended						For the Nine Months Ended
		September 30, 2001			September 30, 2000			September 30, 2001			September 30, 2000
Net income (loss)		$	(945,207	)	$	458,178		$	(437,550	)	$	1,219,202
Other comprehensive income (loss), net of tax:
	Foreign currency translation adjustments, net of tax of $2,002, $(1,263), $200 and $(3,069)		5,413			(3,421	)		547			(6,908	)
	Equity adjustment for minimum pension liability, net of tax of $0, $0, $(7,616) and $0		—			—			(20,592	)		—
	Changes in unrealized gains and losses on derivatives net of tax of $(2,706), $2,591, $(535) and $1,977		(7,315	)		7,006			(1,446	)		5,224
	Changes in unrealized gains and losses on investments, net of tax of $12,646, $3,844, $15,500 and $4,658		34,190			10,391			41,908			14,723

Other comprehensive income (loss)			32,288			13,976			20,417			13,039

Comprehensive income (loss)		$	(912,919	)	$	472,154		$	(417,133	)	$	1,232,241

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Company

EMC Corporation and its subsidiaries ("EMC") 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. EMC is the leading supplier of these solutions, which are comprised of information storage systems, 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.

Accounting

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles. These statements include the accounts of EMC and its subsidiaries. Certain information and footnote disclosures normally included in EMC's annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to fairly present the results as of and for the periods ended September 30, 2001 and 2000.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000, which are contained in EMC's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2001.

Certain prior year amounts have been reclassified to conform with the 2001 presentation.

2. Inventories

Inventories consist of (in thousands):

	September 30, 2001		December 31, 2000
Purchased parts	$	38,140	$	62,636
Work-in-process		556,714		701,907
Finished goods		271,106		260,421

	$	865,960	$	1,024,964

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. Property, Plant and Equipment

Property, plant and equipment consists of (in thousands):

	September 30, 2001			December 31, 2000
Furniture and fixtures	$	121,256		$	129,721
Equipment		1,627,976			1,539,510
Buildings and improvements		627,751			499,823
Land		92,727			69,522
Construction in progress		399,984			321,587

		2,869,694			2,560,163
Accumulated depreciation		(1,136,037	)		(1,050,075	)

	$	1,733,657		$	1,510,088

4. Accrued Expenses

Accrued expenses consist of (in thousands):

	September 30, 2001		December 31, 2000
Salary and benefits	$	279,785	$	313,094
Warranty		117,212		107,266
Restructuring		297,083		41,746
Other		418,499		360,973

	$	1,112,579	$	823,079

5. Net Income (Loss) Per Share

Calculation of diluted earnings (loss) per share is as follows (table in thousands, except per share amounts):

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2001			September 30, 2000		September 30, 2001			September 30, 2000
Net income (loss)	$	(945,207	)	$	458,178	$	(437,550	)	$	1,219,202
Add back of interest expense on 3¹/4% convertible notes, net of tax of $1,195		—			—		—			1,792

Net income (loss) for calculating diluted earnings per share	$	(945,207	)	$	458,178	$	(437,550	)	$	1,220,994

Weighted average shares, basic		2,213,328			2,183,409		2,208,302			2,154,647
Common stock equivalents		—			66,712		—			87,581

Weighted average shares, diluted		2,213,328			2,250,121		2,208,302			2,242,228

Net income (loss) per weighted average share, diluted	$	(0.43	)	$	0.20	$	(0.20	)	$	0.54

Options to acquire 115.0 million and 109.5 million shares of common stock, par value $.01 per share, of EMC ("Common Stock") for the three and nine months ended September 30, 2001,

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

respectively, were excluded from the calculation of diluted earnings per share. These options were excluded because of their antidilutive effect.

6. Equity Transactions

On February 7, 2001, EMC distributed to its stockholders of record as of the close of business on January 24, 2001, all of its shares of McDATA Corporation ("McDATA") Class A common stock. The distribution was effected by means of a pro rata dividend of approximately .0368069 of a share of McDATA Class A common stock for each share of Common Stock. In lieu of fractional shares of McDATA Class A common stock, each stockholder received a cash payment. The distribution, which totaled $376,133,000, has been accounted for as a tax-free dividend to EMC stockholders and charged to retained earnings based on the book value as of the date of the distribution. As a result of the distribution, EMC no longer has any equity ownership interest in McDATA.

At EMC's Annual Meeting of Stockholders held on May 9, 2001, EMC's stockholders approved an amendment to EMC's Restated Articles of Organization to increase the authorized shares of Common Stock to 6 billion shares from 3 billion shares and approved the EMC Corporation 2001 Stock Option Plan. 80 million shares of Common Stock have been reserved for issuance under the 2001 Stock Option Plan.

On May 9, 2001, EMC's Board of Directors authorized the purchase of up to 50 million shares of Common Stock from time to time. The purchased shares will be available for various corporate purposes, including for use in connection with employee stock option and employee stock purchase plans. EMC utilizes the cost method to account for the purchase of treasury stock that presents the aggregate cost of reacquired shares as a component of stockholders' equity. Through September 30, 2001, EMC had acquired 1,060,000 shares of treasury stock at a cost of $18,257,864.

7. Litigation

EMC 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 EMC's business, results of operations or financial condition.

8. Segment Information

EMC operates in the following segments: information storage products, information storage services and other businesses. The following table presents the revenue components for information storage products (in thousands):

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2001		September 30, 2000		September 30, 2001		September 30, 2000
Information storage systems	$	675,591	$	1,646,869	$	3,465,503	$	4,429,949
Information storage software		242,521		332,344		1,207,578		952,589

	$	918,112	$	1,979,213	$	4,673,081	$	5,382,538

EMC's management makes financial decisions and allocates resources based on revenues and gross profit achieved at the segment level. EMC does not allocate marketing, engineering or administrative expenses to each segment, as management does not use this information to measure the performance

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of the operating segments. The revenues and gross profit attributable to these segments are included in the following tables (tables in thousands, except for footnote):

For the Three Months Ended	Information Storage Products		Information Storage Services		Other Businesses		Consolidated
September 30, 2001
Revenues	$	918,112	$	236,734	$	57,427	$	1,212,273
Gross profit		258,887		83,659		21,348		363,894⁽¹⁾
September 30, 2000
Revenues	$	1,979,213	$	161,395	$	142,397	$	2,283,005
Gross profit		1,205,812		55,143		55,454		1,316,409

For the Nine Months Ended	Information Storage Products		Information Storage Services		Other Businesses		Consolidated
September 30, 2001
Revenues	$	4,673,081	$	700,715	$	204,127	$	5,577,923
Gross profit		2,274,926		259,574		71,217		2,605,717⁽¹⁾
September 30, 2000
Revenues	$	5,382,538	$	412,237	$	456,755	$	6,251,530
Gross profit		3,299,703		128,680		163,060		3,591,443

(1): Excludes a $320.1 million provision for excess and obsolete inventory and impaired capitalized software.

EMC's revenues are attributed to the geographic areas according to the location of customers. Revenues and identifiable assets by geographic area are included in the following tables (in thousands):

		For the Three Months Ended				For the Nine Months Ended
		September 30, 2001		September 30, 2000		September 30, 2001		September 30, 2000
Sales:
Domestic		$	703,633	$	1,388,290	$	3,167,524	$	3,812,803
Other North America			10,550		23,302		117,971		78,506
Europe, Middle East, Africa			283,488		568,456		1,409,166		1,633,894
Asia Pacific			158,051		248,001		700,590		592,418
Latin America			56,551		54,956		182,672		133,909

	Total	$	1,212,273	$	2,283,005	$	5,577,923	$	6,251,530

	September 30, 2001			December 31, 2000
Identifiable assets:
Domestic	$	7,874,451		$	8,080,476
Other North America		118,218			103,581
Europe, Middle East, Africa		3,574,420			3,274,841
Asia Pacific		437,252			352,279
Latin America		117,550			116,300
Intercompany eliminations		(2,127,296	)		(1,389,678	)

Total	$	9,994,595		$	10,537,799

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At September 30, 2001, long-lived assets, excluding financial instruments, intangible assets and deferred tax assets, were $1.5 billion in the United States and $182 million in Ireland. At December 31, 2000, the long-lived assets totaled $1.3 billion in the United States. No other country accounted for 10% or more of these assets at September 30, 2001 or December 31, 2000.

9. Restructuring Costs and Other Special Charges

As a result of the decline in general economic and business conditions, EMC implemented a restructuring program during the quarter ended September 30, 2001 to reduce its cost structure and focus its resources on the highest potential growth areas of its business. During the quarter, EMC also recorded a provision for excess and obsolete inventory and recognized an other than temporary decline in certain of its equity investments. As a result, EMC incurred an aggregate charge of $825.2 million for restructuring costs and other special charges that included the following components:

Worldwide Reduction in Force

The restructuring program includes a reduction in force of approximately 4,000 employees across all business functions and geographic regions. Approximately 62% of such employees are or were based in North America and the remainder are or were based in Europe, Latin America and the Asia Pacific region. The majority of the workforce reduction will be completed by December 31, 2001. The workforce reduction resulted in a pre-tax charge of $111.5 million for termination benefits. As a result of labor laws in certain foreign countries in which EMC operates, the amount of termination benefits for employees in such countries was not determinable as of September 30, 2001. As these amounts are finalized, EMC will recognize additional charges. As of September 30, 2001, approximately 50 employees had been terminated.

Impairment of Goodwill, Purchased Intangibles and Other Long-Lived Assets

The restructuring program includes terminating the sale of AViiON servers, exiting certain aspects of the media solutions business and certain aspects of the information storage services business and discontinuing the sale of certain software products. As a result, a pre-tax charge of $104.5 million related to the impairment of goodwill, purchased intangibles and other long-lived assets was taken. The impairment charge is equal to the amount by which the assets' carrying amount exceeded the present value of their estimated discounted future cash flows. Additionally, a pre-tax charge of $34.5 million was taken to recognize the cost of related and other contractual obligations for which EMC will no longer derive an economic benefit.

Consolidation of Excess Facilities and Other Special Charges

The restructuring program includes a pre-tax charge of $158.1 million for the consolidation of space within EMC's corporate headquarters and nearby facilities and elimination of excess field office space worldwide. Included in the charge is $110.1 million for lease terminations and estimated losses on subleases and $48.0 million for non-recoverable investments in buildings and leasehold improvements.

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of the restructuring costs is outlined as follows (in millions):

Category		Provision		Amount Charged to the Provision		Accrual Balance at September 30, 2001		Non-Cash Portion of the Provision
Workforce reduction		$	111.5	$	1.3	$	110.2	$	—
Impairment of goodwill, purchased intangibles and other long-lived assets and related and other contractual obligations			139.0		104.5		34.5		104.5
Consolidation of excess facilities			158.1		48.0		110.1		48.0

	Total	$	408.6	$	153.8	$	254.8	$	152.5

Provision for Excess and Obsolete Inventory

EMC recorded a $310.0 million pre-tax provision for excess and obsolete inventory. Due to the decline in demand for information storage products and the development by EMC of new technologies, EMC evaluated its inventory and determined that $310.0 million was not recoverable.

Other than Temporary Investment Declines

EMC recorded a pre-tax charge of $106.6 million for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry, many of which are in the start-up or development stage. These investments are carried at cost, subject to adjustment for impairment. Due to the continued global economic slow down, as well as the downturn in the storage industry, EMC determined that the decline in these investments was other than temporary and recognized an impairment loss.

The classification of the restructuring costs and other special charges in the statement of operations consists of $398.5 million contained within restructuring and other special charges, $320.1 million contained in cost of sales and $106.6 million contained in other expense, net.

10. Second Quarter Charge

In May 2001, EMC announced a reduction in force of approximately 1,100 employees, resulting in a pre-tax charge of $24.0 million. Approximately 64% of such employees are or were based in North America and the remainder are or were based in Europe, Latin America and the Asia Pacific region. The reduction in force affected the majority of business functions and, accordingly, was classified in the income statement within all operating cost and expense categories. As of September 30, 2001, substantially all of the employees had been terminated and $6.0 million remained accrued to cover termination benefits, the majority of which is expected to be paid by the end of 2001.

11. Acquisitions

During the first nine months of 2001, EMC acquired all of the outstanding shares of capital stock of FilePool N.V. and Luminate Software Corporation ("Luminate"), both software development companies, for an aggregate of $102.9 million, net of cash acquired. EMC accounted for both of these acquisitions under the purchase method of accounting. Accordingly, the consolidated financial

EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

statements include the results of each business from the date of their respective acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not material to EMC on either an individual or an aggregate basis. Based upon a preliminary purchase price allocation, $16.3 million was allocated to developed technology and $80.2 million was allocated to goodwill. The intangible assets, with the exception of the goodwill arising from the Luminate acquisition, are being amortized on a straight-line basis over their estimated useful life of five years. In accordance with Statement of Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"), goodwill from the Luminate acquisition is not being amortized. A summary of the assets acquired and liabilities assumed is as follows (in millions):

Fair value of assets acquired	$	108.0
Cash paid for stock, net of cash acquired		(102.9	)

Liabilities assumed	$	5.1

12. New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (the "FASB") issued FAS No. 141, "Business Combinations" ("FAS 141"), and FAS No. 142, "Goodwill and Other Intangible Assets." FAS 141 supercedes Accounting Principles Bulletin No. 16, "Business Combinations" and FAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." FAS 142 supercedes Accounting Principles Bulletin No. 17, "Intangible Assets." These statements require use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. Goodwill will no longer be amortized but will be tested for impairment. Additionally, new criteria have been established that determine whether an acquired intangible asset should be recognized separately from goodwill. The statements are effective for business combinations initiated after June 30, 2001, with the entire provisions of FAS 141 and FAS 142 becoming effective for EMC commencing with its 2002 fiscal year. EMC is currently evaluating the impact these statements will have on its results of operations and financial position.

In August 2001, the FASB issued FAS No. 143 "Accounting for Obligations Associated with the Retirement of Long-Lived Assets" ("FAS 143"). The provisions of FAS 143 apply to all entities that incur obligations associated with the retirement of tangible long-lived assets. FAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and will become effective for EMC commencing with its 2003 fiscal year. This accounting pronouncement is not expected to have a significant impact on EMC's financial position or results of operations.

In October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides guidance on the accounting for the impairment or disposal of long-lived assets. The objectives of FAS 144 are to address issues relating to the implementation of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and will become effective for EMC commencing with its 2002 fiscal year. This accounting pronouncement is not expected to have a significant impact on EMC's financial position or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report and with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in EMC's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2001. The following discussion contains forward-looking statements and should also be read in conjunction with "FACTORS THAT MAY AFFECT FUTURE RESULTS" beginning on page 22.

All dollar amounts in this Management's Discussion and Analysis are in millions.

Results of Operations—Third Quarter of 2001 Compared to Third Quarter of 2000

General

Worldwide Reduction in Force

The restructuring program includes a reduction in force of approximately 4,000 employees across all business functions and geographic regions. Approximately 62% of such employees are or were based in North America and the remainder are or were based in Europe, Latin America and the Asia Pacific region. The majority of the workforce reduction will be completed by December 31, 2001. The workforce reduction resulted in a pre-tax charge of $111.5 for termination benefits. As a result of labor laws in certain foreign countries in which EMC operates, the amount of termination benefits for employees in such countries was not determinable as of September 30, 2001. As these amounts are finalized, EMC will recognize additional charges. As of September 30, 2001, approximately 50 employees had been terminated.

Impairment of Goodwill, Purchased Intangibles and Other Long-Lived Assets

The restructuring program includes terminating the sale of AViiON servers, exiting certain aspects of the media solutions business and certain aspects of the information storage services business and discontinuing the sale of certain software products. As a result, a pre-tax charge of $104.5 related to the impairment of goodwill, purchased intangibles and other long-lived assets was taken. The impairment charge is equal to the amount by which the assets' carrying amount exceeded the present value of their estimated discounted future cash flows. Additionally, a pre-tax charge of $34.5 was taken to recognize the cost of related and other contractual obligations for which EMC will no longer derive an economic benefit.

Consolidation of Excess Facilities and Other Special Charges

The restructuring program includes a pre-tax charge of $158.1 for the consolidation of space within EMC's corporate headquarters and nearby facilites and elimination of excess field office space worldwide. Included in the charge is $110.1 for lease terminations and estimated losses on subleases and $48.0 for non-recoverable investments in buildings and leasehold improvements.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

A summary of the restructuring costs is outlined as follows:

Category		Provision		Amount Charged to the Provision		Accrual Balance at September 30, 2001		Non-Cash Portion of the Provision
Workforce reduction		$	111.5	$	1.3	$	110.2	$	—
Impairment of goodwill, purchased intangibles and other long-lived assets and related and other contractual obligations			139.0		104.5		34.5		104.5
Consolidation of excess facilities			158.1		48.0		110.1		48.0

	Total	$	408.6	$	153.8	$	254.8	$	152.5

Provision for Excess and Obsolete Inventory

EMC recorded a $310.0 pre-tax provision for excess and obsolete inventory. Due to the decline in demand for information storage products and the development by EMC of new technologies, EMC evaluated its inventory and determined that $310.0 was not recoverable.

Other than Temporary Investment Declines

EMC recorded a pre-tax charge of $106.6 for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry, many of which are in the start-up or development stage. These investments are carried at cost, subject to adjustment for impairment. Due to the continued global economic slow down, as well as the downturn in the storage industry, EMC determined that the decline in these investments was other than temporary and recognized an impairment loss.

The classification of the restructuring costs and other special charges in the statement of operations consists of $398.5 contained within restructuring and other special charges, $320.1 contained in cost of sales and $106.6 contained in other expense, net.

The restructuring program is expected to be substantially completed by June 30, 2002, although the ability to sell and sublet facilities is subject to appropriate market conditions. Remaining cash expenditures relating to workforce reductions and contractual obligations will be substantially paid by the end of 2002. Amounts relating to the consolidation of facilities will be paid over the respective lease terms through 2015. EMC expects to reduce costs in all areas of its operations as a result of the restructuring program, favorably impacting cost of sales, selling, general and administrative ("SG&A") expenses and research and development ("R&D") expenses. Once fully implemented, the restructuring program, together with the previously announced second quarter 2001 reduction in force, is expected to reduce costs by approximately $800.0 per year. The cost benefits of the third quarter restructuring program will begin to be realized in the fourth quarter of 2001.

Revenues

Total revenues for the third quarter of 2001 were $1,212.3, compared to $2,283.0 for the third quarter of 2000, representing a decrease of $1,070.7, or 47%.

Information storage systems revenues were $675.6 in the third quarter of 2001, compared to $1,646.9 in the third quarter of 2000, representing a decrease of $971.3, or 59%. Information storage software revenues were $242.5 in the third quarter of 2001, compared to $332.3 in the third quarter of

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

2000, representing a decrease of $89.8, or 27%. The decreases were primarily due to declining sales volumes. The continued global economic slow down experienced during 2001 has led to a reduction in information technology spending. Additionally, the impact of the terrorist attacks on September 11, 2001 negatively impacted revenues. EMC generally receives most of its orders in the last month and weeks and days of the quarter. The terrorist attacks contributed to the decline in orders received in the month of September 2001. Competitive pricing pressures also had an adverse effect on revenues.

Information storage services revenues were $236.7 in the third quarter of 2001, compared to $161.4 in the third quarter of 2000, representing an increase of $75.3, or 47%. The increase was primarily related to increased volume from professional services engagements and increased maintenance revenues on information storage systems and information storage software.

Total information storage revenues were $1,154.8 in the third quarter of 2001, compared to $2,140.6 in the third quarter of 2000, representing a decrease of $985.8, or 46%.

Other businesses revenues were $57.4 in the third quarter of 2001, compared to $142.4 in the third quarter of 2000, representing a decrease of $85.0, or 60%. Other businesses revenues consist of revenues from AViiON server products and related services. The decrease in other businesses revenues was due to refocusing efforts on more profitable lines of business within the storage segments. In the third quarter of 2001, EMC stopped selling the AViiON server products. Accordingly, in the future, other businesses revenues will be comprised only of AViiON services revenues. These revenues are expected to continue to decline in future quarters.

Revenues declined in all geographic regions, with the exception of Latin America. Revenues on sales into North American markets were $714.2 in the third quarter of 2001, compared to $1,411.6 in the third quarter of 2000, representing a decrease of $697.4, or 49%. Revenues on sales into Europe, the Middle East and Africa were $283.5 in the third quarter of 2001, compared to $568.5 in the third quarter of 2000, representing a decrease of $285.0, or 50%. Revenues on sales into the Asia Pacific markets were $158.1 in the third quarter of 2001, compared to $248.0 in the third quarter of 2000, representing a decrease of $89.9, or 36%. Revenues on sales into the Latin American markets were $56.6 in the third quarter of 2001, compared to $55.0 in the third quarter of 2000, representing an increase of $1.6, or 3%. International revenues accounted for 41.1% of total revenues during the third quarter of 2001, compared to 38.2% in the third quarter of 2000. Changes in exchange rates in the third quarter of 2001 compared to the third quarter of 2000 negatively impacted revenues by approximately 3%.

Gross Margins

Overall gross margin dollars decreased to $43.8 in the third quarter of 2001 from $1,316.4 in the third quarter of 2000, a decrease of $1,272.6, or 97%. Included in this amount for the third quarter of 2001 is a charge of $320.1 for excess and obsolete inventory and impaired capitalized software. Excluding this charge, gross margin dollars decreased to $363.9, a decrease of $952.5 or 72%. The decline in gross margin dollars was primarily attributable to the reduction in revenues. The overall gross margin percentage, excluding the charge, decreased to 30.0% in the third quarter of 2001, compared to 57.7% in the third quarter of 2000.

Due to the decline in demand for information storage products and the development by EMC of new technologies, EMC evaluated its inventory and determined that $310.0 of inventories was not recoverable. In addition, EMC discontinued selling certain information storage software products, resulting in the write-off of $10.0 of unamortized capitalized software.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

Excluding the charge, the gross margin on information storage products decreased to 28.2% in the third quarter of 2001, compared to 60.9% in the third quarter of 2000. The decrease was primarily attributable to lower sales volume resulting in the absorption of fixed overhead costs over a lower revenue base. In addition, reduced sales prices associated with competitive pricing negatively impacted margins. Partially offsetting these factors was a change in the product mix with information storage software revenues accounting for a greater percentage of total information storage product revenues. Information storage software has a higher gross margin than information storage systems. Information storage software revenues, as a percentage of total revenues, increased to 20.0% in the third quarter of 2001 from 14.6% in the third quarter of 2000.

The gross margin for information storage services increased to 35.3% in the third quarter of 2001, compared to 34.2% in the third quarter of 2000. The improvement in the gross margin percentage was attributable to greater productivity of EMC customer service and professional services personnel.

The gross margin for other businesses declined to 37.2% in the third quarter of 2001, compared to 38.9% in the third quarter of 2000. The decline was attributable to lower margins realized on the sale of AViiON server products, resulting from winding down the business.

Research and Development

R&D expenses were $242.1 and $204.8 in the third quarters of 2001 and 2000, respectively, representing an increase of $37.3, or 18%. R&D expenses were 20.0% and 9.0% of revenues in the third quarters of 2001 and 2000, respectively. The increase in R&D spending reflects EMC's efforts to continue to improve its long-term competitive position. These efforts include enhancements to information storage software, enabling improved management, protection and sharing of information, and enhancements to information storage systems, including networked information storage systems. EMC will continue with its R&D efforts; however, the overall level of R&D spending is expected to decline in the next several quarters.

Selling, General and Administrative

SG&A expenses were $510.9 and $533.1 in the third quarters of 2001 and 2000, respectively, representing a decrease of $22.2, or 4%. SG&A expenses were 42.1% and 23.4% of revenues in the third quarters of 2001 and 2000, respectively. The decrease in SG&A expenses resulted from reduced selling costs associated with a reduction in sales and reductions in general and administrative expenses instituted to achieve a cost structure commensurate with the reduced revenue level.

Investment Income

Investment income increased to $64.6 in the third quarter of 2001 from $54.4 in the third quarter of 2000. Investment income increased primarily due to higher cash and investment balances that were derived primarily from operations.

Other Expense, net

Other expense, net was $121.2 in the third quarter of 2001, compared to $3.0 in the third quarter of 2000. Included in the 2001 amount was a $106.6 non-cash charge for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry, many of which are in the start-up or development stage. These investments are carried at cost, subject to adjustment for impairment. Due to the continued global economic slow down, as well as the

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

downturn in the storage industry, EMC determined that the decline in value in these investments was other than temporary and recognized an impairment loss.

Provision (Benefit) for Income Taxes

The benefit for income taxes was $222.7 in the third quarter of 2001 compared to an income tax provision of $169.5 in the third quarter of 2000. The effective tax rate was 19.1% in the third quarter of 2001 compared to 27.0% in the third quarter of 2000. The rate of the tax benefit in 2001 is lower than the rate of the tax provision in 2000 due to the apportionment of income and losses in foreign countries. Included in the rate for the third quarter of 2001 was an increase in foreign taxes, offset by certain benefits realized from a prior acquisition.

Results of Operations—First Nine Months of 2001 Compared to First Nine Months of 2000

Revenues

Total revenues for the first nine months of 2001 were $5,577.9, compared to $6,251.5 for the first nine months of 2000, representing a decrease of $673.6, or 11%.

Information storage systems revenues were $3,465.5 in the first nine months of 2001, compared to $4,429.9 in the first nine months of 2000, representing a decrease of $964.4, or 22%. The decreases were primarily due to declining sales volumes. The continued global economic slow down experienced during 2001 has led to a reduction in information technology spending. Additionally, the impact of the terrorist attacks on September 11, 2001 negatively impacted revenues. EMC generally receives most of its orders in the last month and weeks and days of the quarter. The terrorist attacks contributed to the decline in orders received in the month of September 2001. Competitive pricing pressures also had an adverse effect on revenues.

Information storage software revenues were $1,207.6 in the first nine months of 2001, compared to $952.6 in the first nine months of 2000, representing an increase of $255.0, or 27%. The increase was primarily due to greater demand during the first six months of 2001 for information storage software on both newly shipped and already installed systems, partially offset by reduced demand during the third quarter of 2001.

Information storage services revenues were $700.7 in the first nine months of 2001, compared to $412.2 in the first nine months of 2000, representing an increase of $288.5, or 70%. The increase was primarily related to increased volume from professional services engagements and increased maintenance revenues on information storage systems and information storage software.

Information storage software revenues and information storage services revenues increased, despite the decline in revenues for information storage systems, due to greater demand from customers to consolidate their storage networks. These consolidation efforts increased demand for EMC professional services to provide solutions and increased demand for software to provide centralized management of customers' storage networks.

Total information storage revenues were $5,373.8 in the first nine months of 2001, compared to $5,794.8 in the first nine months of 2000, representing a decrease of $421.0, or 7%.

Other businesses revenues were $204.1 in the first nine months of 2001, compared to $456.8 in the first nine months of 2000, representing a decrease of $252.7, or 55%. Other businesses revenues consist of revenues from AViiON server products and related services. The decrease in other businesses revenues was due to refocusing efforts on more profitable lines of business within the storage segments.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

In the third quarter of 2001, EMC stopped selling the AViiON server products. Accordingly, in the future, other businesses revenues will be comprised only of AViiON services revenues. These revenues are expected to decline in future quarters.

Revenues on sales into North American markets were $3,285.5 in the first nine months of 2001, compared to $3,891.3 in the first nine months of 2000, representing a decrease of $605.8, or 16%. Revenues on sales into Europe, the Middle East and Africa were $1,409.2 in the first nine months of 2001, compared to $1,633.9 in the first nine months of 2000, representing a decrease of $224.7, or 14%. Revenues on sales into the Asia Pacific markets were $700.6 in the first nine months of 2001, compared to $592.4 in the first nine months of 2000, representing an increase of $108.2, or 18%. Revenues on sales into the Latin American markets were $182.7 in the first nine months of 2001, compared to $133.9 in the first nine months of 2000, representing an increase of $48.8, or 36%. International revenues accounted for 41.1% of total revenues in the first nine months of 2001, compared to 37.8% in the first nine months of 2000. Changes in exchange rates in the first nine months of 2001 compared to the first nine months of 2000 negatively impacted revenues by approximately 3%. The impact was most predominant in Japan, Germany, South America and the United Kingdom.

The decline in revenues in the North American markets and Europe, the Middle East and Africa were attributable to the global economic slow down, the impact of the terrorist attacks of September 11, 2001 and price reductions. The increases in international sales in the Asia Pacific and Latin American markets were a result of EMC's efforts to expand its sales infrastructure throughout the world to meet demand for information storage products and services. While revenues increased in these markets, the amount of the increases were lower than anticipated due to the aforementioned factors affecting the other regions.

Gross Margins

Overall gross margin dollars decreased to $2,285.7 in the first nine months of 2001 from $3,591.4 in the first nine months of 2000, a decrease of $1,305.7, or 36%. Included in this amount for the first nine months of 2001 is a charge of $320.1 for excess and obsolete inventory and impaired capitalized software. Excluding this charge, gross margin dollars decreased to $2,605.8, a decrease of $985.6 or 27%. The decline in gross margin dollars was primarily attributable to the reduction in revenues. The overall gross margin percentage, excluding the charge, decreased to 46.7% in the first nine months of 2001, compared to 57.4% in the first nine months of 2000.

Excluding the charge, the gross margin on information storage products decreased to 48.7% in the first nine months of 2001, compared to 61.3% in the first nine months of 2000. The decrease was primarily attributable to lower sales volume resulting in the absorption of fixed overhead costs over a lower revenue base. In addition, reduced sales prices associated with competitive pricing negatively impacted margins. Partially offsetting these factors was a change in the product mix with information storage software revenues accounting for a greater percentage of total information storage product revenues. Information storage software has a higher gross margin than information storage systems. Information storage software revenues, as a percentage of total revenues, increased to 21.6% in the first nine months of 2001 from 15.2% in the first nine months of 2000.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

The gross margin for information storage services increased to 37.0% in the first nine months of 2001, compared to 31.2% in the first nine months of 2000. The improvement in the gross margin percentage was attributable to greater productivity of EMC customer service and professional services personnel.

The gross margin for other businesses remained relatively constant at 34.9% in the first nine months of 2001, compared to 35.7% in the first nine months of 2000.

Research and Development

R&D expenses were $711.8 and $560.9 in the first nine months of 2001 and 2000, respectively, representing an increase of $150.9, or 27%. R&D expenses were 12.8% and 9.0% of revenues in the first nine months of 2001 and 2000, respectively. The increase in R&D spending from 2000 to 2001 reflects EMC's efforts to continue to improve its long-term competitive position. These efforts include enhancements to information storage software, enabling improved management, protection and sharing of information, and enhancements to information storage systems, including networked information storage systems. EMC will continue with its R&D efforts; however, the overall level of R&D spending is expected to decline in the next several quarters.

Selling, General and Administrative

SG&A expenses were $1,721.3 and $1,487.4 in the first nine months of 2001 and 2000, respectively, representing an increase of $233.9, or 16%. SG&A expenses were 30.9% and 23.8% of revenues in the first nine months of 2001 and 2000, respectively. Included in the 2001 results was a charge of $18.4 for a reduction in force announced in May 2001. Additionally, the increase in spending was attributable to efforts to expand sales and build an infrastructure to support an increased revenue base, partially offset by reductions in general and administrative expenses instituted in the third quarter of 2001 to achieve a cost structure commensurate with the reduced revenue level.

Investment Income

Investment income increased to $200.5 in the first nine months of 2001 from $143.1 in the first nine months of 2000. Investment income increased primarily due to higher cash and investment balances that were derived primarily from operations.

Other Expense, net

Other expense, net was $116.5 in the third quarter of 2001, compared to $4.1 in the third quarter of 2000. Included in the 2001 amount was a $106.6 non-cash charge for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry, many of which are in the start-up or development stage. These investments are carried at cost, subject to adjustment for impairment. Due to the continued global economic slow down, as well as the downturn in the storage industry, EMC determined that the decline in value in these investments was other than temporary and recognized an impairment loss.

Provision (Benefit) for Income Taxes

The benefit for income taxes was $35.0 in the first nine months of 2001 and the provision for income taxes was $450.9 in the first nine months of 2000. The effective tax rate was 7.4% for the first nine months of 2001 and 27.0% for the first nine months of 2000. The rate of the tax benefit in 2001 is lower than the rate of the tax provision in 2000 due to the apportionment of income and losses in

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

foreign countries. The tax rate for the remainder of the year will be impacted by fourth quarter operating results. Included in the rate for the nine months ended September 30, 2001, was an increase in foreign taxes, offset by certain benefits realized from a prior acquisition.

Financial Condition

Cash and cash equivalents and short and long-term investments were $4,968.1 and $4,745.3 at September 30, 2001 and December 31, 2000, respectively, representing an increase of $222.8. Included in the first nine months of 2001 was a reduction in cash and cash equivalents and short and long-term investments of $388.1 resulting from the distribution of EMC's interest in McDATA.

Cash provided by operating activities for the first nine months of 2001 was $1,315.3, compared to $1,603.4 for the first nine months of 2000. In the first nine months of 2001, working capital increased by $912.7, compared to a $225.7 reduction in working capital in the first nine months of 2000. This change was due primarily to a reduction in accounts and notes receivable and accrued expenses. Offsetting the improvement in working capital was a reduction in cash generated from operations as a result of the loss incurred in the first nine months of 2001.

Cash used for investing activities was $1,401.8 for the first nine months of 2001, compared to $1,021.5 for the first nine months of 2000. The increase was principally due to purchases of longer term securities to provide a better return on investments and the purchase of property, plant and equipment to support the needs of the business.

Cash used for financing activities was $47.6 for the first nine months of 2001, compared to cash provided by financing activities of $553.0 for the first nine months of 2000. In 2000, the initial public offering of McDATA generated $376.6 in cash. In 2001, EMC distributed its ownership interest in McDATA. As a result of the distribution, McDATA's net assets are no longer consolidated with EMC, which resulted in a $141.9 reduction in cash.

EMC has available for use a credit line of $50.0 and may elect to borrow at any time. Based on its current operating and capital expenditure forecasts, EMC 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 for the next twelve months.

New Accounting Pronouncements

In July 2001, the FASB issued FAS No. 141, "Business Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets." FAS 141 supercedes Accounting Principles Bulletin No. 16, "Business Combinations" and FAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." FAS 142 supercedes Accounting Principles Bulletin No. 17, "Intangible Assets." These statements require use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. Goodwill will no longer be amortized but will be tested for impairment. Additionally, new criteria have been established that determine whether an acquired intangible asset should be recognized separately from goodwill. The statements are effective for business combinations initiated after June 30, 2001, with the entire provisions of FAS 141 and FAS 142 becoming effective for EMC commencing with its 2002 fiscal year. EMC is currently evaluating the impact these statements will have on its results of operations and financial position.

In August 2001, the FASB issued FAS No. 143 "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." The provisions of FAS 143 apply to all entities that incur obligations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

associated with the retirement of tangible long-lived assets. FAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and will be adopted by EMC in fiscal year 2003. This accounting pronouncement is not expected to have a significant impact on EMC's financial position or results of operations.

In October 2001, the FASB issued FAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS 144 provides guidance on the accounting for the impairment or disposal of long-lived assets. The objectives of FAS 144 are to address issues relating to the implementation of FAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and will be adopted by EMC in fiscal 2002. This accounting pronouncement is not expected to have a significant impact on EMC's financial position or results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

EMC's prospects are subject to certain uncertainties and risks. This Quarterly Report also contains certain forward-looking statements within the meaning of the Federal securities laws. EMC'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.

EMC's business could continue to be materially adversely affected as a result of general economic and market conditions.

EMC is subject to the effects of general global economic and market conditions. EMC's operating results have been materially adversely affected as a result of recent unfavorable economic conditions and reduced information technology spending. If economic and market conditions do not improve, EMC's business, results of operations or financial condition could continue to be materially adversely affected.

EMC's business could continue to be materially adversely affected as a result of a lessening demand in the information technology market.

EMC's revenues and profitability depend on the overall demand for information storage systems, software and services, particularly in the product segments in which EMC competes. Recently, there has been a decrease in demand for information storage systems, software and services as customers delay or reduce information technology expenditures. Sales expected to occur in the last month and weeks and days of a quarter have been cancelled or deferred until future quarters. There can be no assurance that such cancellations or deferrals will result in sales in the near term, or at all. Further delays or reductions in information technology spending, domestically or internationally, could continue to materially adversely affect demand for EMC's products and services which could result in decreased revenues or earnings.

EMC may have difficulty managing operations.

With the weakened global economy, EMC has experienced lower than expected revenues and has implemented a restructuring program to reduce its cost structure and focus its resources on the highest

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

potential growth areas of its business. EMC's future operating results will depend on the success of the restructuring program as well as on EMC's overall ability to manage operations, which includes, among other things:

•: retaining and hiring, as required, the appropriate number of qualified employees
•: enhancing and expanding, as appropriate, EMC's infrastructure, including but not limited to its information systems and management team
•: accurately forecasting revenues
•: managing inventory levels to minimize excess and obsolete inventory
•: controlling expenses
•: managing EMC's manufacturing capacity, real estate facilities and other assets
•: executing on its plans

An unexpected further decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of operations could have a further material adverse effect on EMC's business, results of operations or financial condition.

Competitive pricing and difficulty managing product costs could materially adversely affect EMC's revenues and earnings.

Competitive pricing pressures exist in the computer information storage market and have had, and in the future may have, a material 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 or provide information storage products or services, together with other products or services, at minimal or no additional cost in order to preserve or gain market share. 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. Further, the relative and varying rates of increases or decreases in product price and component cost could have a material adverse effect on EMC's earnings.

EMC's business could be materially adversely affected as a result of war or acts of terrorism.

The recent terrorist attacks have exacerbated global economic conditions and have adversely impacted many businesses, including that of EMC. Terrorist acts or acts of war may cause damage or disruption to EMC's employees, facilities, customers, partners, suppliers and distributors and resellers, which could have a material adverse effect on EMC's business, results of operations or financial condition. Such conflicts may also cause damage or disruption to transportation and communication systems and on EMC's ability to manage logistics in such an environment, including receipt of components and distribution of products.

EMC may be unable to keep pace with rapid industry, technological and market changes.

The markets in which EMC competes are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that EMC's existing products will continue to be properly positioned in the market or

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

receive customer acceptance or that EMC will be able to introduce new or enhanced products into the market on a timely basis, or at all.

Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking and operating system technologies which could require EMC to modify existing products or to develop new products. Risks inherent in the transition to new products include the difficulty in forecasting customer preferences or 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, thereby causing an excessive obsolete supply of inventory, 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. EMC's failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on EMC's business, results of operation or financial condition.

If EMC's suppliers do not meet its quality or delivery requirements, EMC could have decreased revenues and earnings.

EMC purchases many 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 cancel contracts or commitments with EMC or 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 and 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 quality or delivery requirements will have a material adverse impact on EMC's revenues and earnings.

EMC's business may suffer if it is unable to retain or attract key personnel.

EMC's business 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. Because of the importance of stock-based incentive compensation in EMC's total compensation program, the volatility or lack of positive performance in EMC's stock price may from time to time adversely affect EMC's ability to retain or attract key employees. There can be no assurance that EMC will be successful in retaining existing personnel or recruiting new personnel. The loss of one or more key or other employees, EMC's inability to attract additional qualified employees or the delay in hiring key personnel could have a material adverse effect on EMC's business, results of operations or financial condition.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

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:

•: 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 predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed 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 materially 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 assembles 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.

Risks associated with EMC's indirect channels of distribution may materially adversely affect EMC's financial results.

EMC uses indirect channels of distribution, including distributors, systems integrators, resellers and original equipment manufacturers, in connection with marketing and selling EMC products and services. EMC may, from time to time, derive a significant percentage of its revenues from such indirect distribution channels. EMC's financial results could be materially 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 market opportunities change, EMC may have an increased reliance on indirect channels of distribution, which may negatively impact gross margins. There can be no assurance that EMC will be successful in maintaining or expanding these channels. If EMC is not successful,

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

EMC may lose sales opportunities, customers and market share. Furthermore, the partial reliance on indirect channels of distribution may materially reduce the visibility to management of potential customers and demand for products and services, thereby making it more difficult to accurately forecast such demand. In addition, there can be no assurance that EMC's indirect channels will not develop or market products or services in competition with EMC in the future.

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 or the initial dependence on unfamiliar supply or distribution partners
•: 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 potential impairment of acquired assets

These factors could have a material adverse effect on EMC's business, results of operations or financial condition. To the extent that EMC issues shares of its common stock or other rights to purchase common stock in connection with any future acquisition, existing stockholders may 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.

The markets EMC serves are highly competitive, and EMC may be unable to compete effectively.

EMC competes with many established companies in the markets it serves and some of these companies may have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and more opportunity to address customers' various information technology requirements than EMC. EMC also competes with many smaller, less established companies in specific product segments. Some of these companies may develop new technologies or products in advance of EMC or establish business models or technologies disruptive to EMC. EMC's business may be materially adversely affected by the announcement or introduction of new products by its competitors, including hardware and software products and services, and the implementation of effective marketing or sales strategies by its competitors.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

Changes in foreign 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 materially 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.

Undetected problems in EMC's products could directly impair EMC's financial results.

If flaws in design, production, assembly or testing of EMC's products 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, control of material and manufacturing quality and costs and product testing, are critical factors in the future growth of EMC. There can be no assurance that EMC's efforts to monitor, develop, modify 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 or 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 alliances.

EMC has alliances with leading information technology companies and EMC plans to continue its strategy of developing key alliances in order to expand its reach into emerging markets. There can be no assurance that EMC will be successful in its ongoing strategic alliances or that EMC will be able to find further suitable business relationships as it develops new products and strategies. 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 or 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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS—(Continued)

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.

EMC may become involved in litigation that may materially 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 materially adversely affect EMC.

EMC's business, results of operations or financial condition could be materially 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 is affected by general economic and market conditions and has recently been negatively affected by unfavorable global economic conditions. If such conditions continue to deteriorate, EMC's stock price could decline further.

EMC CORPORATION

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

See index to Exhibits on page 31 of this report.

(b) Reports on Form 8-K

EMC did not file any current report on Form 8-K during the quarter ended September 30, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		EMC CORPORATION
Date: November 8, 2001		By:		/s/ WILLIAM J. TEUBER, JR. William J. Teuber, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


3.1		Restated Articles of Organization of EMC Corporation, as amended (1)
3.2		Amended and Restated By-laws of EMC Corporation (2)
4.1		Form of Stock Certificate (3)
10.1		EMC Corporation Executive Deferred Compensation Retirement Plan, as amended (filed herewith)

(1): Incorporated by reference to EMC Corporation's Quarterly Report on Form 10-Q filed August 9, 2001 (No. 1-9853).
(2): Incorporated by reference to EMC Corporation's Annual Report on Form 10-K filed March 17, 2000 (No. 1-9853).
(3): Incorporated by reference to EMC Corporation's Annual Report on Form 10-K filed March 31, 1988 (No. 0-14367).

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EMC CORPORATION
EMC CORPORATION PART I FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
EMC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
EMC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
EMC CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
EMC CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EMC CORPORATION
PART II OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX
EX-10.1 3 a2062710zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 EMC CORPORATION EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN (ADOPTED EFFECTIVE JANUARY 1, 2001 AND AMENDED EFFECTIVE SEPTEMBER 5, 2001) EMC CORPORATION EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN (ADOPTED EFFECTIVE JANUARY 1, 2001 AND AMENDED EFFECTIVE SEPTEMBER 5, 2001) ARTICLE 1. INTRODUCTION 1.1. ADOPTION OF PLAN. The EMC Corporation Executive Deferred Compensation Retirement Plan has been adopted effective as of January 1, 2001. The Plan has been amended effective as of September 5, 2001. 1.2. PURPOSE OF PLAN. The Company (as defined below) has adopted the Plan (as defined below) to provide a competitive level of retirement benefits to certain designated employees and directors of the Company or any of its Subsidiaries by allowing them to defer receipt of designated percentages of their Compensation (as defined below) and to provide, in the sole discretion of the Company, Company Credits (as defined below). 1.3. STATUS OF PLAN. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA (as defined below), and shall be interpreted and administered to the fullest extent possible in a manner consistent with that intent. ARTICLE 2. DEFINITIONS Wherever used herein, the following terms shall have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1. "ACCOUNT" means, for each Participant, the account established for his or her benefit under Section 5.1. 2.2. "ADMINISTRATOR" means initially the Executive Compensation and Stock Option Committee of the Board (as defined below) as it may be constituted from time to time, or otherwise means a committee comprised of such members of the Board or executive officers of the Company as may be appointed by the Board or the Company's President or Chief Executive Officer from time to time. 2.3. "BOARD" means the Board of Directors of the Company, as it may be constituted from time to time. 2.4. "CHANGE OF CONTROL" means the determination by the Administrator, in its sole discretion, that any of the following shall have occurred: (a) a reorganization, consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or 1 pursuant to which the Company's common stock, par value $.01 per share (the "Common Stock") is converted into cash, securities or other property, in either case other than a reorganization, consolidation or merger of the Company in which the holders of Common Stock immediately prior to the reorganization, consolidation or merger hold, directly or indirectly, at least a majority of the voting stock of the continuing or surviving corporation immediately after such reorganization, consolidation or merger; or (b) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. 2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.6. "COMPANY" means EMC Corporation, a corporation formed under the laws of The Commonwealth of Massachusetts. 2.7. "COMPANY CREDIT" means any credit from the Company which is received by a Participant under Section 4.2. 2.8. "COMPANY CREDIT SUBACCOUNT" means the subaccount within the Participant's Account to which Company Credits and allocable earnings credits, if any, are credited. 2.9 "COMPANY CREDIT ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries selected by the Administrator as eligible for Company Credits under Section 4.2 from among the group of highly compensated or managerial employees of the Company or any of its Subsidiaries. 2.10. "COMPANY STOCK" means the Company's common stock, par value $.01 per share. 2.11. "COMPENSATION" means any cash bonuses and directors' fees payable from time to time by the Company or any of its Subsidiaries to a Participant and a Participant's income from exercised vested stock options to purchase Company Stock; provided, however, that with respect to each Participant, the Administrator in its sole discretion may determine which specific types of Compensation may be deferred under the Plan by such Participant; provided further, however, that the Administrator may, in its sole discretion, amend this Section 2.11 to cover other types of compensation payable from time to time by the Company or any of its Subsidiaries to a Participant, including, without limitation, cash commissions and salary. 2.12. "ELECTIVE DEFERRAL" means the portion of Compensation which is deferred by a Participant under Section 4.1. 2.13. "ELECTIVE DEFERRAL SUBACCOUNT" means the subaccount within the Participant's Account to which Elective Deferrals and allocable earnings credits are credited. 2 2.14. "ELECTIVE DEFERRAL ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries selected by the Administrator as eligible for Elective Deferrals under Section 4.1 from among the group of highly compensated or managerial employees of the Company or any of its Subsidiaries. 2.15 "ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries who is a Company Credit Eligible Employee, an Elective Deferral Eligible Employee, or both. 2.16 "ELIGIBLE DIRECTOR" means any member of the Board. 2.17. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.18. "PARTICIPANT" means any individual who participates in the Plan in accordance with Article 3. 2.19. "PLAN" means the EMC Corporation Executive Deferred Compensation Retirement Plan as set forth herein and all subsequent amendments hereto. 2.20. "PLAN YEAR" means in the case of the first Plan Year, the period beginning January 1, 2001 and ending on December 31, 2001, and thereafter, the 12-month period ending each December 31. 2.21. "RESIGNATION OF SERVICE" means the voluntary resignation from service for the Company by an Eligible Director. 2.22. "RETIREMENT" means the voluntary retirement by a Participant from service with the Company (a) after such Participant has attained 55 years of age and five years of service with the Company or (b) after such Participant has attained twenty years of service with the Company or any of its Subsidiaries; provided, in each such case, that such Participant complies with the terms set forth in the Company's form of Key Employee Agreement (which agreement (i) shall be deemed to apply to such Participant whether or not such Participant is a party to a Key Employee Agreement and (ii) is expressly incorporated by reference herein and made a part of the Plan). 2.23. "SUBSIDIARY" OR "SUBSIDIARIES" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock. 3 ARTICLE 3. PARTICIPATION 3.1. COMMENCEMENT OF PARTICIPATION. Any individual who is an Eligible Employee or an Eligible Director and who has elected to defer part of his or her Compensation for the Plan Year in accordance with Section 4.1, or who has been selected by the Company in its sole discretion to receive a Company Credit in accordance with Section 4.2, shall become a Participant on the date such election or credit is made. 3.2. CONTINUED PARTICIPATION. Subject to Section 3.3, an individual who has become a Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. 3.3. TERMINATION OF PARTICIPATION. The Administrator may terminate a Participant's participation in the Plan prospectively or retroactively for any reason, including but not limited to the Administrator's determination that such termination is necessary in order to maintain the Plan as a "plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Upon termination of a Participant's participation in the Plan, amounts credited to a Participant's Account, if any, shall be paid to a Participant in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. ARTICLE 4. DEFERRALS AND CREDITS 4.1. ELECTIVE DEFERRALS (a) IN GENERAL. An Elective Deferral Eligible Employee or Eligible Director may elect to defer a designated portion of his or her Compensation to be earned or payable during a Plan Year, by filing a written election with the Administrator prior to the first day of the Plan Year in which such Compensation is to be earned or by such other date as may be determined by the Administrator in its sole discretion; provided, however, that with respect to each Participant, the Administrator in its sole discretion may determine which specific types of Compensation may be deferred under the Plan by such Participant. An individual who first becomes an Elective Deferral Eligible Employee or Eligible Director on or after the first day of any Plan Year may elect to defer a designated portion of his or her Compensation to be earned during the Plan Year by filing a written election with the Administrator by such date as may be determined by the Administrator in its sole discretion. (b) NATURE OF ELECTION. Each election under this Section 4.1 for a Plan Year (or the balance of a Plan Year) shall be made on a form prescribed or approved by the Administrator, shall be irrevocable by the Participant for the applicable Plan Year, and shall apply only to Compensation earned after the date the election form is completed and filed with the Administrator. The election form shall specify the whole percentage or flat dollar amount of each type of Compensation that is to be deferred for the applicable Plan Year. In accordance with Article 6, each Participant shall indicate on the election form 4 when the amount that is to be deferred for the applicable Plan Year is to be paid (e.g., upon Retirement or Resignation of Service, upon a fixed distribution date pursuant to Section 6.6, or upon a Change of Control) and the method of payment (e.g., in a single lump sum payment, in a number of annual installments or in any other method approved by the Administrator). The deferred amounts shall be credited to the Participant's Elective Deferral Subaccount as of the date such Compensation would otherwise have been paid to the Participant. 4.2. COMPANY CREDITS. Notwithstanding any other provisions of the Plan, the Company shall not be obligated to credit a Company Credit to the Company Credit Subaccount of a Company Credit Eligible Employee. The Company may determine from time to time, in its sole discretion, to credit a Company Credit, in an amount the Company may determine in its sole discretion, to the Company Credit Subaccount of a Company Credit Eligible Employee. ARTICLE 5. ACCOUNTS; INTEREST 5.1. ACCOUNTS. The Administrator shall establish an Account for each Participant consisting of an Elective Deferral Subaccount and Company Credit Subaccount, reflecting Elective Deferrals and Company Credits, respectively, and any adjustments hereunder. As soon as reasonably practical after the end of each Plan Year, the Administrator shall provide the Participant with a statement of his or her Account. 5.2. EARNINGS MEASUREMENT. The Administrator shall identify one or more funds (such as mutual funds or bank collective funds) from time to time for the purpose of measuring earnings credits to Participants' Accounts. Each Participant may specify which one or more of such funds he or she wishes to be used as a measuring vehicle for designated percentages of his or her Account, in such form and manner, and with such notice, as the Administrator may prescribe, provided that such directions may be given on a prospective basis only, and further provided that any deferrals of stock option gain Compensation shall be invested exclusively and permanently in Company Stock. Changes in Participant directions hereunder may be made by a Participant no more than once every thirty (30) days or at such other times or as frequently as the Administrator may prescribe. Each Participant's Account shall be adjusted from time to time (at least quarterly) to reflect the fair market value that would be ascribed to the Account if the amounts credited to the Account were actually invested in the funds as directed by the Participant. For purposes of Company Credits, earnings credits (if any) shall begin to accrue as of the actual date of contribution and investment by the Company of such funds into a grantor trust pursuant to Section 9.1. 5.3. PAYMENTS. Each Participant's Account shall be reduced by the amount of any payment made to or on behalf of the Participant under Article 6 as of the date such payment is made. 5.4. VESTING. A Participant will at all times be 100% vested in his or her Elective Deferral Subaccount. A Participant will earn an interest to be vested in his or her Company Credit Subaccount according to any vesting schedule(s) adopted by the Company in its sole 5 discretion; provided, however, that in the event (a) that a Participant becomes totally and permanently disabled as determined in the sole discretion of the Company or (b) of a Change of Control a Participant will become 100% vested in his or her Company Credit Subaccount. 5.5 DETRIMENTAL ACTIVITY. (a) Notwithstanding any other provisions of the Plan, in the event that a Participant engages in "Detrimental Activity" (as defined below) at any time, the Administrator may in its sole discretion (i) direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock; and (ii) cancel, rescind, suspend or otherwise limit or restrict at any time all amounts, if any, credited to such Participant's Company Credit subaccount, whether or not fully vested. Furthermore, in the event that a Participant engages in Detrimental Activity at any time during the twelve (12) months after the termination of his or her employment with the Company or any of its Subsidiaries for any reason or termination of service as a director of the Company for any reason, as the case may be, the Company may require such Participant at any time until the later of (A) two years after such Participant's termination of employment for any reason or termination of service as a director of the Company for any reason, as the case may be, or (B) two years after such Participant engaged in Detrimental Activity to pay to the Company (1) an amount equal to any distributions previously made by the Company to such Participant from such Participant's Company Credit Account and (2), if the Company commences an action against such Participant (by way of a claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such Participant engaged in Detrimental Activity or otherwise violated this Section 5.5, an amount equal to the Company's costs and fees incurred in such action, including but not limited to, the Company's reasonable attorneys' fees. The Company shall be entitled to set off any such amounts owed to the Company against any amounts owed to such Participant by the Company, including without limitation, any amounts to be distributed from such Participant's Elective Deferral Subaccount. For this purpose "Detrimental Activity" means, in the Company's sole determination, that the Participant has, directly or indirectly, (a) become associated in any capacity with any enterprise that is, or may be deemed to be, in competition with any business of the Company or any of its Subsidiaries, (b) solicited, induced or attempted to induce, in any enterprise that is competitive with the Company or any of its Subsidiaries, any customers or employees of the Company to curtail or discontinue their relationship with the Company or any of its Subsidiaries, (c) disclosed, communicated or misused, to the detriment of the Company or any of its Subsidiaries, any confidential or proprietary information relating to the Company or any of its Subsidiaries to any person or entity not associated with the Company or any of its Subsidiaries, (d) failed to comply with the terms of the Plan, (e) failed to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Participant is a party to the Key Employee Agreement), (f) engaged in any activity that results in termination of the Participant's employment for cause, (g) violated any rule, policy, procedure or guideline of the Company or any of its Subsidiaries, or (h) been convicted of, or has entered a guilty plea with respect to, a crime whether or not connected with the Company or any of its Subsidiaries. 6 (b) Notwithstanding anything herein to the contrary, this Section 5.5 shall not in any way amend, modify or affect any other plan, agreement, instrument or understanding, including without limitation, any of the Company's stock option plans, or any of the rights of the Company or any of its Subsidiaries thereunder with respect to any Detrimental Activity or similar activity committed by a Participant. The Company expressly reserves all of its rights under any such other plan, agreement, instrument or understanding and this Section 5.5 shall not be construed in any way as a waiver of any such rights. ARTICLE 6. - PAYMENTS 6.1 PAYMENT UPON RETIREMENT OR RESIGNATION OF SERVICE. In the event a Participant's employment with the Company or any of its Subsidiaries is terminated due to the Participant's Retirement, or in the event that a Participant's service as a director of the Company is terminated due to the Participant's Resignation of Service, then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: (a) With respect to the Participant's Elective Deferral Subaccount, unless the Participant elects an alternative form of payment as described in Section 6.1(c) either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to Retirement or Resignation of Service, payments to be made upon Retirement or Resignation of Service will be made in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. (b) With respect to the vested portion, if any, of the Participant's Company Credit Subaccount, unless the Participant elects an alternative form of payment as described in Section 6.1(c) at least 13 months prior to Retirement, payments to be made upon Retirement will be made in a single lump sum cash payment. The unvested portion, if any, of the Participant's Company Credit Subaccount shall be forfeited automatically upon Retirement. (c) A Participant may elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, to receive the balance of the Participant's Account in payments of five, ten or fifteen annual installment payments comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. A Participant shall elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, the date upon which the first installment shall be made following Retirement or Resignation of Service and succeeding installments shall be made on the next four anniversaries of the date of Retirement or Resignation of Service (for a total of five installments), on the next nine anniversaries of the date of Retirement or Resignation of Service (for a total of ten installments), or on the next fourteen anniversaries of the date of Retirement or Resignation of Service (for a total of fifteen installments). If a Participant shall fail to elect the date upon which the first 7 installment shall be made following Retirement or Resignation of Service, then the first installment shall be made as soon as administratively practicable following Retirement or Resignation of Service and succeeding installments shall be made on the next four anniversaries of the date of Retirement or Resignation of Service (for a total of five installments), on the next nine anniversaries of the date of Retirement or Resignation of Service (for a total of ten installments), or on the next fourteen anniversaries of the date of Retirement or Resignation of Service (for a total of fifteen installments). The amount of each installment shall be determined by dividing the Participant's applicable Account balance (adjusted through the day before the installment is paid) by the number of installments remaining. Notwithstanding the foregoing, subject to the prior approval of the Administrator in its sole discretion, a Participant make elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, to receive the balance of the Participant's Account in such amounts and at such times as the Participant shall describe in such election. Any election made under this Section 6.1(c) shall be made in writing on a form prescribed or approved by the Administrator, and may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the Participant's Retirement or Resignation of Service. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the Participant's Retirement or Resignation of Service, direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.2 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR DUE TO DISABILITY. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated due to the Participant's disability as determined by the Administrator in its sole discretion ("Disability"), then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: (a) With respect to the Participant's Elective Deferral Subaccount, payments will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. (b) With respect to the vested portion (after any acceleration of vesting pursuant to Section 5.4, if applicable), if any, of the Participant's Company Credit Subaccount, payments will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement. The unvested portion, if any, of the Participant's Company Credit Subaccount shall be forfeited automatically upon termination of the Participant's employment with the Company of any of its Subsidiaries due to Disability. 8 Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company due to Disability, direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.3 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR DUE TO DEATH. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated due to the Participant's death, then as soon as administratively practicable thereafter, payments will be made to the Participant's beneficiary or estate, in accordance with Section 6.3(c), as follows: (a) With respect to the Participant's Elective Deferral Subaccount, payments will be made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. (b) With respect to the vested portion of the Participant's Company Credit Subaccount, payments, if any, will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement. The unvested portion of the Participant's Company Credit Subaccount shall be forfeited automatically upon termination of the Participant's employment with the Company or any of its Subsidiaries due to death. (c) A Participant shall designate his or her beneficiary or beneficiaries who, in the event of the Participant's death, shall be entitled to receive the balance of the Participant's Account. Such designation shall be made in writing on a form prescribed or approved by the Administrator, and may be revoked in writing on a form prescribed or approved by the Administrator at any time prior to the Participant's death. If a Participant fails to designate a beneficiary or no designated beneficiary survives the Participant, then payments hereunder shall be made to the Participant's estate. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the Participant's death, direct the Company to pay the balance of the Participant's Account to the Participant's beneficiary or estate, as the case may be, in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.4 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR FOR ANY OTHER REASON. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated for any reason other than Retirement, Resignation of Service, Disability or death, then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: 9 (a) With respect to the Participant's Elective Deferral Subaccount, payment will be made in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. (b) With respect to the vested portion, if any, of the Participant's Company Credit Subaccount, payment will be made in a single lump sum cash payment. The unvested portion of the Participant's Company Credit Subaccount shall be forfeited automatically upon the termination of the Participant's employment with the Company or any of its Subsidiaries for any reason other than Retirement, Disability or death. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment with the Company or any of its Subsidiaries for any reason other than Retirement, Disability or death, direct the Company to pay the balance of the Participant's Account as if the Participant's employment had terminated due to his or her Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. 6.5 SEVERE FINANCIAL HARDSHIP DISTRIBUTION. At any time, a Participant who believes he or she is suffering a severe financial hardship may apply to the Administrator for a distribution under the Plan in order to alleviate such hardship. The Administrator, in its sole discretion (but after taking into account, among other factors, the nature and foreseeability of the alleged hardship, the Participant's other resources, and the effect of making a distribution on the intended tax status of the deferrals made under the Plan), may direct the Company to pay to the Participant an amount which it determines is necessary or appropriate, not to exceed the Participant's Elective Deferral Subaccount balance, if any, and the Company shall pay such amount to the Participant in a single lump sum distribution to be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.6 IN-SERVICE DISTRIBUTION. In connection with his or her election to defer Compensation pursuant to Section 4.1, a Participant may specify a fixed distribution date for the commencement of payment of his or her Elective Deferral Subaccount which may be prior to termination of employment or termination of service as a director of the Company, which shall be payable in a single lump sum distribution or in five annual installments commencing on the fixed distribution date; provided, however, that such fixed distribution date shall not be earlier than the third anniversary of the last day of the Plan Year in which such Compensation was deferred. Any lump sum or installment distributions shall be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. Such distribution dates may be extended to later dates so long as elections to extend are made at least 13 months prior to the fixed distribution date. If such distribution is to be paid in five annual installments, then the first installment shall be made on the fixed distribution date and succeeding installments shall be made on the next four anniversaries of the fixed distribution date (for a total of five installments). The amount of each installment shall be determined by dividing the Participant's applicable Account balance 10 (adjusted through the day before the installment is paid) by the number of installments remaining. Any election made under this Section 6.6 shall be made in writing on a form prescribed or approved by the Administrator and may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the fixed distribution date. In the event the Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated prior to the fixed distribution date, then no payments shall be made pursuant to this Section 6.6 and, instead, the balance of the Participant's Elective Deferral Subaccount shall be paid based on the Participant's termination of employment by reason of Retirement, Disability, death or otherwise, or termination of service as a director of the Company by reason of Resignation of Service, Disability, death or otherwise, as the case may be. In the event the Participant's employment with the Company or any of its Subsidiaries is terminated by reason of Retirement, Disability or death or the Participant's service as a director of the Company is terminated by reason of Resignation of Service, Disability or death, as the case may be, after the fixed distribution date has occurred and the Participant had elected to receive such distribution under this Section 6.6 in five annual installments, then payments shall be made at the same time and in the same manner as elected by the Participant under this Section 6.6. In the event the Participant's employment with the Company or any of its Subsidiaries is terminated for any reason other than Retirement, Disability or death or the Participant's service as a director of the Company is terminated for any reason other than Resignation of Service, Disability or death after the fixed distribution date has occurred and the Participant had elected to receive such distribution under this Section 6.6 in five annual installments, then notwithstanding such election, the remaining portion of the distribution shall be made in a single lump sum payment to the Participant as soon as administratively practicable after the Participant's employment with the Company or any of its Subsidiaries is terminated for any reason other than Retirement, Disability or death or the Participant's service as a director of the Company is terminated for any reason other than Resignation of Service, Disability or death. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment for any reason or the termination of the Participant's service as a director of the Company for any reason, direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment. Any lump sum or installment distributions shall be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.7 IMMEDIATE DISTRIBUTION. At any time, a Participant may elect to have all or any portion of the balance of the Participant's Elective Deferral Subaccount distributed in a single lump sum distribution payable in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. Such distribution shall be made as soon as administratively practicable following the Administrator's receipt of the Participant's election. Any election made under this Section 6.7 shall be made in writing on a form prescribed or approved by the Administrator. The actual amount to be distributed to the Participant hereunder shall equal ninety percent (90%) of the elected distribution amount and the remaining ten percent (10%) of the elected distribution amount shall be forfeited to the Company. The Participant shall not be eligible to make any elective deferrals 11 into the Plan at any time during the twelve month period immediately following the date of such distribution. 6.8 PAYMENT UPON A CHANGE OF CONTROL. In connection with his or her election to defer Compensation pursuant to Section 4.1, a Participant may elect to receive the balance of the Participant's Account in a single lump sum distribution payable in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock upon a Change of Control. Any election made under this Section 6.8 shall be made in writing on a form prescribed or approved by the Administrator and may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the Change of Control. 6.9. PAYMENTS TO A PARTICIPANT WHO IS AN ELIGIBLE DIRECTOR AND AN ELIGIBLE EMPLOYEE. Notwithstanding anything in this Article 6 to the contrary, in the event that payments are to be made from a Participant's Account pursuant to this Article 6 and such Participant is or was both an Eligible Director and an Eligible Employee, then, subject to the discretion of the Administrator, the payments shall be made such that the portion of the balance of the Participant's Account attributable to Compensation earned by the Participant as an employee of the Company or any of its Subsidiaries shall be paid in accordance with the applicable provisions of this Article 6 relating to the termination of such Participant's employment by reason of Retirement, Disability, death or otherwise, as the case may be, and the portion of the balance of the Participant's Account attributable to Compensation earned by the Participant for his or her service as a director of the Company shall be paid in accordance with the applicable provisions of this Article 6 relating to the termination of such Participant's service as a director by reason of Resignation of Service, Disability, death or otherwise, as the case may be. ARTICLE 7. ADMINISTRATOR 7.1. PLAN ADMINISTRATION AND INTERPRETATION. The Administrator shall oversee the administration of the Plan. The Administrator shall have complete discretionary control and authority to administer all aspects of the Plan and to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or any other person having or claiming to have any interest under the Plan. The Administrator shall have the exclusive discretionary power to interpret the Plan and to decide all matters under the Plan. The Administrator also shall have the exclusive discretionary power to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. Any individual serving as Administrator, or on a committee acting as Administrator, who is a Participant, shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Administrator shall be entitled to conclusively rely on information furnished by a Participant, a beneficiary, or any other person or entity. The Administrator shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. 12 The Administrator may employ such counsel, agents and advisers, and obtain such administrative, clerical and other services, as it may deem necessary or appropriate in carrying out the provisions of the Plan and its duties hereunder. 7.2. CLAIMS PROCEDURE. (a) IN GENERAL. If any person believes he or she has been denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). Notwithstanding the foregoing, if such notification is not given within such 90 or 180 day period, the claim will be considered denied as of the last day of such period and such person may request a review of his or her claim in accordance with Section 7.2(b). (b) APPEALS. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his or her duly authorized representative) may file a written request with the Administrator for a review of his or her denied claim. The Administrator will notify such person of its decision on review in writing. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). Notwithstanding the foregoing, if the decision on review is not made within such 60 or 120 day period, the claim will be considered denied. The Administrator may, in its sole discretion amend or revise this Section 7.2, provided, that the claims procedure for the Plan pursuant to which persons may claim an interest in the Plan and appeal denials of such claims, as amended or changed, shall meet the minimum standards of Section 503 of ERISA. 7.3. INDEMNIFICATION OF ADMINISTRATOR. The Company shall indemnify and defend to the fullest extent permitted by law any director, officer or employee of the Company or its Subsidiaries who serves as the Administrator or as a member of a committee appointed to serve as Administrator, or who assists the Administrator in carrying out its duties (including any such individual who formerly served in any such capacity) against any and all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved in writing by the Company) arising out of or relating to any act or omission to act in connection with the Plan, if such act or omission is in good faith. 13 ARTICLE 8. AMENDMENT, TERMINATION AND ASSIGNMENT 8.1. AMENDMENTS. Prior to a Change of Control, the Company shall have the right to amend the Plan from time to time, subject to Section 8.3, by an instrument in writing which has been executed on its behalf by the Administrator or by vote of the Board. No amendment to the Plan with respect to any Participant may be made after a Change of Control without the written consent of such Participant (or beneficiary, if applicable). 8.2. TERMINATION OF PLAN. The Company currently intends to continue the Plan indefinitely. However, the Plan is voluntary on the part of the Company and the Company expressly reserves the right to terminate the Plan at any time, subject to Section 8.3, for any reason whatsoever. Subject to Section 8.1, the Company from time to time may, by amendment to the Plan, suspend the Plan or discontinue provisions thereof. The Company may terminate the Plan at any time by an instrument in writing which has been executed on its behalf by the Administrator or by vote of the Board. 8.3. EXISTING RIGHTS. No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts credited to his or her Account as of the date of such amendment or termination (subject to future adjustments as a result of investment measurements). 8.4. ASSIGNMENT. The rights and obligations of the Company shall inure to the benefit of and shall be binding upon its successors and assigns. ARTICLE 9. - MISCELLANEOUS 9.1. GRANTOR TRUST. The Company may establish a trust of which the Company is treated as the owner under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and may deposit with the trustee of the grantor trust an amount of cash or marketable securities sufficient to cause the fair market value of the assets held in the grantor trust to be not less than the sum of the Account balances under the Plan. Notwithstanding the foregoing, nothing in this Plan will be construed to create a trust or to obligate the Company, any of its Subsidiaries or any other person or entity to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any distributions or payments hereunder, nor will anything herein be construed to give any employee or any other person any right to any specific assets of the Company, any of its Subsidiaries or of any other person or entity. Any distributions or payments which become payable hereunder that are not paid out of the grantor trust shall be paid from the general assets of the Company. 9.2. NATURE OF CLAIM FOR PAYMENT. Each Participant and beneficiary will be an unsecured general creditor of the Company with respect to any distributions or payments to be made under the Plan. Nothing in the Plan will be construed to give any person any right to any specific assets of the Company, any of its Subsidiaries or any other person or entity. 14 9.3. NONALIENATION OF BENEFITS. No Participant, beneficiary or any other person having any interest under the Plan shall alienate, anticipate, commute, pledge, encumber, assign or otherwise transfer ("Alienate") any right or interest under the Plan, including, without limitation, with respect to rights to or interests in any payments, distributions, claims or other benefits which he or she may expect to receive, contingently or otherwise, under this Plan ("Rights"). Any attempt to Alienate any Right shall be ineffective. No Right shall be subject to any claim of, subject to attachment, execution, garnishment or other legal process by, any creditor of such Participant, beneficiary or other person. 9.4. NO EMPLOYMENT OR SERVICE CONTINUATION RIGHTS. Neither the adoption or the establishment and maintenance of the Plan, the participation in the Plan nor any action of the Company, any Subsidiary or the Administrator, shall be held or construed to confer upon any employee or director of the Company or any of its Subsidiaries any right to continued employment or service with the Company or any of its Subsidiaries, as the case may be, nor does it interfere in any way with the right of the Company or any of its Subsidiaries to terminate the services of any of its employees or directors at any time. Each of the Company and its Subsidiaries expressly reserves the right to terminate or discharge any of its employees or directors at any time. 9.5. RECEIPT AND RELEASE. Any payment or distribution to any Participant or beneficiary in accordance with the provisions of the Plan shall be, to the extent thereof, in full satisfaction of all claims against the Company, its Subsidiaries and the Administrator under the Plan, and the Administrator may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Administrator to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Administrator may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Administrator or the Company to follow the application of such funds. 9.6. SEVERABILITY OF PROVISION. If any provision of the Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced to the fullest extent possible as if such provision had not been included. 9.7. GOVERNMENT REGULATIONS. It is intended that the Plan comply with all applicable laws and government regulations. Neither the Company, any of its Subsidiaries, nor the Administrator shall not be obligated to perform any obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in the violation of any law or regulation. 9.8. GOVERNING LAW; JURISDICTION. This Plan shall be construed, administered, and governed in all respects under and by the laws of The Commonwealth of Massachusetts without regard to the conflict of law provisions thereof. The Company, the Administrator, the Participants and their beneficiaries, and any persons having or claiming to have any interest 15 under the Plan submit to the exclusive jurisdiction and venue of the federal or state courts of The Commonwealth of Massachusetts, County of Middlesex, to resolve any and all issues that may arise out of or relate to the Plan or the same subject matter. 9.9 HEADINGS AND SUBHEADINGS. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. 9.10 EXPENSES AND TAXES. Expenses, including fees and expenses associated with the grantor trust, associated with the administration or operation of the Plan shall be paid by the Company from its general assets unless, in the sole discretion of the Administrator, the Administrator elects to charge such expenses against the appropriate Participant's Account or Participants' Accounts. Any taxes allocable to an Account (or subaccount or portion thereof) maintained under the Plan which are payable prior to the distribution of the Account (or subaccount or portion thereof), as determined by the Administrator in its sole discretion, shall be charged against the appropriate Participant's Account or Participants' Accounts. 16 IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officer. EMC Corporation By: /S/ MICHAEL C. RUETTGERS ----------------------------- Name: Michael C. Ruettgers Title: Executive Chairman 17 -----END PRIVACY-ENHANCED MESSAGE-----