UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended: June 30, 2005 | Commission File Number 1-9853 |
EMC CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts | 04-2680009 | |||||
---|---|---|---|---|---|---|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Hopkinton, Massachusetts 01748
(Address of principal executive offices, including zip code)
(508) 435-1000
(Registrant’s telephone number, including area code)
Yes [X] | No [ ] |
Yes [X] | No [ ] |
EMC CORPORATION
Page No. | ||||||
---|---|---|---|---|---|---|
PART I — FINANCIAL INFORMATION | ||||||
Item 1. Financial Statements (unaudited) | ||||||
Consolidated Balance Sheets at June 30, 2005 and December 31, 2004 | 3 | |||||
Consolidated Income Statements for the Three and Six Months Ended June 30, 2005 and 2004 | 4 | |||||
Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2005 and 2004 | 5 | |||||
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2005 and 2004 | 6 | |||||
Notes to Interim Consolidated Financial Statements | 7 | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 40 | |||||
Item 4. Controls and Procedures | 40 | |||||
PART II — OTHER INFORMATION | ||||||
Item 1. Legal Proceedings | 41 | |||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 42 | |||||
Item 4. Submission of Matters to a Vote of Security Holders | 42 | |||||
Item 6. Exhibits | 43 | |||||
SIGNATURES | 44 | |||||
EXHIBIT INDEX | 45 |
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements |
EMC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
June 30, 2005 | December 31, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 1,852,443 | $ | 1,476,803 | ||||||
Short-term investments | 1,720,592 | 1,236,726 | ||||||||
Accounts and notes receivable, less allowance for doubtful accounts of $37,935 and $39,901 | 1,163,935 | 1,162,387 | ||||||||
Inventories | 696,738 | 514,065 | ||||||||
Deferred income taxes | 302,153 | 289,810 | ||||||||
Other current assets | 172,883 | 151,135 | ||||||||
Total current assets | 5,908,744 | 4,830,926 | ||||||||
Long-term investments | 4,101,231 | 4,727,237 | ||||||||
Property, plant and equipment, net | 1,619,452 | 1,571,810 | ||||||||
Intangible assets, net | 491,196 | 499,478 | ||||||||
Other assets, net | 520,416 | 509,041 | ||||||||
Goodwill, net | 3,532,663 | 3,284,414 | ||||||||
Total assets | $ | 16,173,702 | $ | 15,422,906 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Notes payable and current portion of long-term obligations | $ | 249 | $ | 183 | ||||||
Accounts payable | 479,751 | 522,587 | ||||||||
Accrued expenses | 1,139,825 | 1,090,666 | ||||||||
Income taxes payable | 494,990 | 404,772 | ||||||||
Deferred revenue | 1,021,235 | 930,492 | ||||||||
Total current liabilities | 3,136,050 | 2,948,700 | ||||||||
Deferred revenue | 604,614 | 570,995 | ||||||||
Long-term convertible debt | 127,707 | 128,456 | ||||||||
Deferred income taxes | 172,873 | 141,600 | ||||||||
Other liabilities | 104,454 | 109,868 | ||||||||
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 and outstanding 2,410,635 and 2,404,969 shares | 24,106 | 24,050 | ||||||||
Additional paid-in capital | 6,260,420 | 6,221,099 | ||||||||
Deferred compensation | (205,876 | ) | (124,286 | ) | ||||||
Retained earnings | 6,000,544 | 5,437,346 | ||||||||
Accumulated other comprehensive loss, net | (51,190 | ) | (34,922 | ) | ||||||
Total stockholders’ equity | 12,028,004 | 11,523,287 | ||||||||
Total liabilities and stockholders’ equity | $ | 16,173,702 | $ | 15,422,906 |
The accompanying notes are an integral part of the consolidated financial statements.
3
EMC CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Revenues: | |||||||||||||||||||
Product sales | $ | 1,688,330 | $ | 1,455,779 | $ | 3,308,833 | $ | 2,834,375 | |||||||||||
Services | 656,485 | 515,405 | 1,279,113 | 1,008,438 | |||||||||||||||
2,344,815 | 1,971,184 | 4,587,946 | 3,842,813 | ||||||||||||||||
Costs and expenses: | |||||||||||||||||||
Cost of product sales | 813,080 | 738,899 | 1,611,619 | 1,444,845 | |||||||||||||||
Cost of services | 275,093 | 234,360 | 545,464 | 462,374 | |||||||||||||||
Research and development | 253,342 | 205,107 | 487,639 | 409,703 | |||||||||||||||
Selling, general and administrative | 642,654 | 548,859 | 1,258,400 | 1,083,484 | |||||||||||||||
Restructuring and other special charges | — | 4,460 | 968 | 32,688 | |||||||||||||||
Operating income | 360,646 | 239,499 | 683,856 | 409,719 | |||||||||||||||
Investment income | 43,494 | 36,007 | 86,489 | 77,037 | |||||||||||||||
Interest expense | (1,983 | ) | (1,722 | ) | (4,016 | ) | (3,695 | ) | |||||||||||
Other expense, net | (1,069 | ) | (2,195 | ) | (3,373 | ) | (7,972 | ) | |||||||||||
Income before taxes | 401,088 | 271,589 | 762,956 | 475,089 | |||||||||||||||
Income tax provision | 107,724 | 78,785 | 199,758 | 142,480 | |||||||||||||||
Net income | $ | 293,364 | $ | 192,804 | $ | 563,198 | $ | 332,609 | |||||||||||
Net income per weighted average share, basic | $ | 0.12 | $ | 0.08 | $ | 0.24 | $ | 0.14 | |||||||||||
Net income per weighted average share, diluted | $ | 0.12 | $ | 0.08 | $ | 0.23 | $ | 0.14 | |||||||||||
Weighted average shares, basic | 2,391,826 | 2,403,786 | 2,393,658 | 2,409,690 | |||||||||||||||
Weighted average shares, diluted | 2,442,359 | 2,445,902 | 2,442,897 | 2,452,049 |
The accompanying notes are an integral part of the consolidated financial statements.
4
EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Six Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | ||||||||||
Cash flows from operating activities: | |||||||||||
Cash received from customers | $ | 4,722,463 | $ | 4,030,155 | |||||||
Cash paid to suppliers and employees | (3,761,901 | ) | (3,147,095 | ) | |||||||
Dividends and interest received | 111,090 | 78,325 | |||||||||
Interest paid | (5,107 | ) | (2,857 | ) | |||||||
Income taxes paid | (37,721 | ) | (73,866 | ) | |||||||
Net cash provided by operating activities | 1,028,824 | 884,662 | |||||||||
Cash flows from investing activities: | |||||||||||
Additions to property, plant and equipment | (253,652 | ) | (174,465 | ) | |||||||
Capitalized software development costs | (82,536 | ) | (86,374 | ) | |||||||
Purchases of short and long-term available for sale securities | (4,822,195 | ) | (4,112,923 | ) | |||||||
Sales and maturities of short and long-term available for sale securities | 4,937,156 | 3,849,958 | |||||||||
Business acquisitions, net of cash acquired | (262,125 | ) | (537,701 | ) | |||||||
Other | (2,100 | ) | (22,506 | ) | |||||||
Net cash used in investing activities | (485,452 | ) | (1,084,011 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Issuance of common stock | 136,845 | 106,188 | |||||||||
Purchase of treasury stock | (270,906 | ) | (309,643 | ) | |||||||
Payment of long-term and short-term obligations | (88 | ) | (3,088 | ) | |||||||
Proceeds from long-term and short-term obligations | 192 | — | |||||||||
Net cash used in financing activities | (133,957 | ) | (206,543 | ) | |||||||
Effect of exchange rate changes on cash | (33,775 | ) | 443 | ||||||||
Net increase (decrease) in cash and cash equivalents | 375,640 | (405,449 | ) | ||||||||
Cash and cash equivalents at beginning of period | 1,476,803 | 1,752,976 | |||||||||
Cash and cash equivalents at end of period | $ | 1,852,443 | $ | 1,347,527 | |||||||
Reconciliation of net income to net cash provided by operating activities: | |||||||||||
Net income | $ | 563,198 | $ | 332,609 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 316,516 | 297,111 | |||||||||
Non-cash restructuring and other special charges | 3,100 | 17,051 | |||||||||
Amortization of deferred compensation | 34,393 | 26,465 | |||||||||
Provision for doubtful accounts | 3,748 | 3,106 | |||||||||
Deferred income taxes, net | 24,312 | 40,129 | |||||||||
Tax benefit from stock options exercised | 30,659 | 24,122 | |||||||||
Other | 24,618 | (987 | ) | ||||||||
Changes in assets and liabilities, net of acquisitions: | |||||||||||
Accounts and notes receivable | 22,750 | 1,153 | |||||||||
Inventories | (167,209 | ) | (21,371 | ) | |||||||
Other assets | (10,630 | ) | 3,655 | ||||||||
Accounts payable | (62,700 | ) | 15,570 | ||||||||
Accrued expenses | 37,416 | (64,858 | ) | ||||||||
Income taxes payable | 107,756 | 24,097 | |||||||||
Deferred revenue | 108,019 | 183,083 | |||||||||
Other liabilities | (7,122 | ) | 3,727 | ||||||||
Net cash provided by operating activities | $ | 1,028,824 | $ | 884,662 | |||||||
Non-cash activity: | |||||||||||
Issuance of stock options exchanged in business combinations | $ | 37,360 | $ | 72,026 |
The accompanying notes are an integral part of the consolidated financial statements.
5
EMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Net income | $ | 293,364 | $ | 192,804 | $ | 563,198 | $ | 332,609 | |||||||||||
Other comprehensive income (loss), net of taxes: | |||||||||||||||||||
Foreign currency translation adjustments, net of taxes (benefit) of $(8,797), $463, $(10,716), and $(73) | (9,857 | ) | 5,087 | (14,114 | ) | (5,347 | ) | ||||||||||||
Changes in market value of derivatives, net of taxes of $259, $0, $278 and $0 | 2,335 | 396 | 2,535 | (1 | ) | ||||||||||||||
Changes in market value of investments, net of taxes (benefit) of $8,844, $(20,231), $395 and $(13,002) | 26,178 | (55,886 | ) | (4,689 | ) | (43,005 | ) | ||||||||||||
Other comprehensive income (loss) | 18,656 | (50,403 | ) | (16,268 | ) | (48,353 | ) | ||||||||||||
Comprehensive income | $ | 312,020 | $ | 142,401 | $ | 546,930 | $ | 284,256 |
The accompanying notes are an integral part of the consolidated financial statements.
6
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of Presentation |
7
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and errors made occurring in fiscal years beginning after May 31, 2005. The adoption of FAS No. 154 is not expected to have a material impact on our financial position or results of operations.
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Net income | $ | 293,364 | $ | 192,804 | $ | 563,198 | $ | 332,609 | |||||||||||
Add back: Stock compensation costs, net of taxes, on stock-based awards | 13,111 | 8,465 | 22,130 | 18,408 | |||||||||||||||
Less: Stock compensation costs, net of taxes, had stock compensation expense been measured at fair value | (97,898 | ) | (104,731 | ) | (191,744 | ) | (202,464 | ) | |||||||||||
Incremental stock compensation expense per FAS No. 123, net of taxes | (84,787 | ) | (96,266 | ) | (169,614 | ) | (184,056 | ) | |||||||||||
Adjusted net income | $ | 208,577 | $ | 96,538 | $ | 393,584 | $ | 148,553 | |||||||||||
Net income per weighted average share, basic – as reported | $ | 0.12 | $ | 0.08 | $ | 0.24 | $ | 0.14 | |||||||||||
Net income per weighted average share, diluted – as reported | $ | 0.12 | $ | 0.08 | $ | 0.23 | $ | 0.14 | |||||||||||
Adjusted net income per weighted average share, basic | $ | 0.09 | $ | 0.04 | $ | 0.16 | $ | 0.06 | |||||||||||
Adjusted net income per weighted average share, diluted | $ | 0.09 | $ | 0.04 | $ | 0.16 | $ | 0.06 |
9
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Dividend | None | None | None | None | |||||||||||||||
Expected volatility | 45.0% | 55.0% | 45.0% | 55.0% | |||||||||||||||
Risk-free interest rate | 3.72% | 3.76% | 3.77% | 3.60% | |||||||||||||||
Expected life (in years) | 4.0 | 5.0 | 4.0 | 5.0 |
2. | Business Acquisitions and Goodwill |
Expected life (in years) | 4.0 | |||||
Expected volatility | 45.0 | % | ||||
Risk-free interest rate | 2.7 | % |
10
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
purchase price allocation is preliminary and a final determination of required purchase accounting adjustments will be made upon the finalization of our integration activities.
Current assets | $ | 21,181 | ||||
Property, plant and equipment | 7,596 | |||||
Other long-term assets | 533 | |||||
Goodwill | 260,129 | |||||
Intangible assets: | ||||||
Developed technology (estimated useful lives 4–7 years) | 24,870 | |||||
Customer relationships (estimated useful lives of 4–8 years) | 16,170 | |||||
Tradenames and trademarks (estimated useful lives of 2–7 years) | 1,660 | |||||
Non-solicitation agreements (estimated useful life of 3 years) | 1,570 | |||||
Acquired IPR&D | 3,100 | |||||
Total intangible assets | 47,370 | |||||
Deferred compensation | 3,536 | |||||
Current liabilities | (28,133 | ) | ||||
Deferred income taxes | (11,374 | ) | ||||
Long-term liabilities | (7,354 | ) | ||||
Total purchase price | $ | 293,484 |
11
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Information Storage Products | Information Storage and Management Services | EMC Software Group Products and Services | VMware Products and Services | Other Businesses | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, January 1, 2005 | $ | 551,888 | $ | 1,615 | $ | 2,204,230 | $ | 526,681 | $ | — | $ | 3,284,414 | ||||||||||||||
Goodwill acquired | — | — | 260,129 | 4,427 | — | 264,556 | ||||||||||||||||||||
Tax deduction from exercise of stock options | — | — | (7,134 | ) | — | — | (7,134 | ) | ||||||||||||||||||
Finalization of purchase price allocations | — | — | (692 | ) | (8,481 | ) | — | (9,173 | ) | |||||||||||||||||
Balance, June 30, 2005 | $ | 551,888 | $ | 1,615 | $ | 2,456,533 | $ | 522,627 | $ | — | $ | 3,532,663 |
3. | Inventories |
June 30, 2005 | December 31, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Purchased parts | $ | 34,208 | $ | 46,823 | ||||||
Work-in-process | 414,545 | 349,788 | ||||||||
Finished goods | 247,985 | 117,454 | ||||||||
$ | 696,738 | $ | 514,065 |
4. | Property, Plant and Equipment |
June 30, 2005 | December 31, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Furniture and fixtures | $ | 130,359 | $ | 136,441 | ||||||
Equipment | 1,922,444 | 1,803,480 | ||||||||
Buildings and improvements | 875,503 | 865,184 | ||||||||
Land | 105,940 | 105,184 | ||||||||
Construction in progress | 199,651 | 155,904 | ||||||||
3,233,897 | 3,066,193 | |||||||||
Accumulated depreciation | (1,614,445 | ) | (1,494,383 | ) | ||||||
$ | 1,619,452 | $ | 1,571,810 |
12
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. | Accrued Expenses |
June 30, 2005 | December 31, 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Salaries and benefits | $ | 415,711 | $ | 426,408 | ||||||
Product warranties | 217,792 | 180,758 | ||||||||
Restructuring | 87,778 | 115,262 | ||||||||
Other | 418,544 | 368,238 | ||||||||
$ | 1,139,825 | $ | 1,090,666 |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Balance, beginning of the period | $ | 209,595 | $ | 123,826 | $ | 180,758 | $ | 118,816 | |||||||||||
Current year accrual | 35,382 | 29,499 | 85,042 | 54,318 | |||||||||||||||
Amounts charged to the accrual | (27,185 | ) | (20,524 | ) | (48,008 | ) | (40,333 | ) | |||||||||||
Balance, end of the period | $ | 217,792 | $ | 132,801 | $ | 217,792 | $ | 132,801 |
6. | Net Income Per Share |
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Numerator: | |||||||||||||||||||
Net income, as reported, basic | $ | 293,364 | $ | 192,804 | $ | 563,198 | $ | 332,609 | |||||||||||
Adjustment for interest expense on convertible debt, net of taxes | 643 | 643 | 1,286 | — | |||||||||||||||
Net income-diluted | $ | 294,007 | $ | 193,447 | $ | 564,484 | $ | 332,609 | |||||||||||
Denominator: | |||||||||||||||||||
Basic weighted average common shares outstanding | 2,391,826 | 2,403,786 | 2,393,658 | 2,409,690 | |||||||||||||||
Weighted common stock equivalents | 41,477 | 33,060 | 40,183 | 42,359 | |||||||||||||||
Assumed conversion of convertible debt | 9,056 | 9,056 | 9,056 | — | |||||||||||||||
Diluted weighted average shares outstanding | 2,442,359 | 2,445,902 | 2,442,897 | 2,452,049 |
13
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. | Commitments and Contingencies |
14
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Purchase Period, $21,660,000 for each of the second, third and fourth Purchase Periods and $32,490,000 for the final Purchase Period. If HP does not make the required amount of additional purchases of EMC products and services attributable to such Purchase Period, HP will be required to pay the difference to EMC in cash. For purposes of computing the amount of credit applied per dollar of HP products that EMC purchases, hardware products shall be deemed to have been purchased for 50% of the actual purchase price.
8. | Segment Information |
15
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the Three Months Ended | Information Storage Products | Information Storage and Management Services | EMC Software Group Products and Services | VMware Products and Services | Other Businesses | Consolidated | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | ||||||||||||||||||||||||||
Systems revenues | $ | 1,068,725 | $ | — | $ | — | $ | — | $ | — | $ | 1,068,725 | ||||||||||||||
Software license revenues | 312,827 | — | 240,870 | 65,908 | — | 619,605 | ||||||||||||||||||||
Services revenues | — | 455,566 | 167,396 | 25,019 | 8,504 | 656,485 | ||||||||||||||||||||
Total revenues | $ | 1,381,552 | $ | 455,566 | $ | 408,266 | $ | 90,927 | $ | 8,504 | $ | 2,344,815 | ||||||||||||||
Gross profit | $ | 619,196 | $ | 242,481 | $ | 317,216 | $ | 73,489 | $ | 4,260 | $ | 1,256,642 | ||||||||||||||
Gross profit percentage | 44.8 | % | 53.2 | % | 77.7 | % | 80.8 | % | 50.1 | % | 53.6 | % | ||||||||||||||
June 30, 2004 | ||||||||||||||||||||||||||
Systems revenues | $ | 930,230 | $ | — | $ | — | $ | — | $ | — | $ | 930,230 | ||||||||||||||
Software license revenues | 263,168 | — | 223,550 | 38,831 | — | 525,549 | ||||||||||||||||||||
Services revenues | — | 360,898 | 129,184 | 8,367 | 16,956 | 515,405 | ||||||||||||||||||||
Total revenues | $ | 1,193,398 | $ | 360,898 | $ | 352,734 | $ | 47,198 | $ | 16,956 | $ | 1,971,184 | ||||||||||||||
Gross profit | $ | 492,423 | $ | 183,659 | $ | 275,989 | $ | 36,944 | $ | 8,910 | $ | 997,925 | ||||||||||||||
Gross profit percentage | 41.3 | % | 50.9 | % | 78.2 | % | 78.3 | % | 52.5 | % | 50.6 | % |
For the Six Months Ended | Information Storage Products | Information Storage and Management Services | EMC Software Group Products and Services | VMware Products and Services | Other Businesses | Consolidated | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | ||||||||||||||||||||||||||
Systems revenues | $ | 2,094,696 | $ | — | $ | — | $ | — | $ | — | $ | 2,094,696 | ||||||||||||||
Software license revenues | 597,312 | — | 488,622 | 128,203 | — | 1,214,137 | ||||||||||||||||||||
Services revenues | — | 896,701 | 320,969 | 42,814 | 18,629 | 1,279,113 | ||||||||||||||||||||
Total revenues | $ | 2,692,008 | $ | 896,701 | $ | 809,591 | $ | 171,017 | $ | 18,629 | $ | 4,587,946 | ||||||||||||||
Gross profit | $ | 1,175,928 | $ | 472,548 | $ | 634,854 | $ | 138,764 | $ | 8,769 | $ | 2,430,863 | ||||||||||||||
Gross profit percentage | 43.7 | % | 52.7 | % | 78.4 | % | 81.1 | % | 47.1 | % | 53.0 | % | ||||||||||||||
June 30, 2004 | ||||||||||||||||||||||||||
Systems revenues | $ | 1,825,186 | $ | — | $ | — | $ | — | $ | — | $ | 1,825,186 | ||||||||||||||
Software license revenues | 514,303 | — | 422,903 | 71,983 | — | 1,009,189 | ||||||||||||||||||||
Services revenues | — | 703,676 | 253,419 | 14,509 | 36,834 | 1,008,438 | ||||||||||||||||||||
Total revenues | $ | 2,339,489 | $ | 703,676 | $ | 676,322 | $ | 86,492 | $ | 36,834 | $ | 3,842,813 | ||||||||||||||
Gross profit | $ | 968,273 | $ | 356,911 | $ | 523,559 | $ | 66,936 | $ | 19,915 | $ | 1,935,594 | ||||||||||||||
Gross profit percentage | 41.4 | % | 50.7 | % | 77.4 | % | 77.4 | % | 54.1 | % | 50.4 | % |
16
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | ||||||||||||||||
Revenues: | |||||||||||||||||||
United States | $ | 1,333,932 | $ | 1,128,024 | $ | 2,609,897 | $ | 2,158,095 | |||||||||||
Canada | 39,076 | 28,166 | 71,310 | 57,707 | |||||||||||||||
Europe, Middle East, Africa | 663,082 | 552,039 | 1,304,147 | 1,107,299 | |||||||||||||||
Asia Pacific | 257,682 | 221,995 | 505,549 | 442,508 | |||||||||||||||
Latin America | 51,043 | 40,960 | 97,043 | 77,204 | |||||||||||||||
Total | $ | 2,344,815 | $ | 1,971,184 | $ | 4,587,946 | $ | 3,842,813 |
9. | Restructuring and Other Special Charges |
17
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Category | Balance as of March 31, 2005 | Additions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 14,125 | $ | — | $ | (2,047 | ) | $ | 12,078 | |||||||||
Consolidation of excess facilities | 1,271 | — | (322 | ) | 949 | |||||||||||||
Total | $ | 15,396 | $ | — | $ | (2,369 | ) | $ | 13,027 |
Category | Balance as of December 31, 2004 | Additions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 16,380 | $ | 583 | $ | (4,885 | ) | $ | 12,078 | |||||||||
Consolidation of excess facilities | 1,662 | — | (713 | ) | 949 | |||||||||||||
Total | $ | 18,042 | $ | 583 | $ | (5,598 | ) | $ | 13,027 |
Category | Balance as of March 31, 2005 | Reductions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 2,250 | $ | — | $ | (341 | ) | $ | 1,909 | |||||||||
Consolidation of excess facilities | 79,678 | — | (11,309 | ) | 68,369 | |||||||||||||
Other contractual obligations | 2,391 | — | (64 | ) | 2,327 | |||||||||||||
Total | $ | 84,319 | $ | — | $ | (11,714 | ) | $ | 72,605 |
Category | Balance as of December 31, 2004 | Reductions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 3,300 | $ | (369 | ) | $ | (1,022 | ) | $ | 1,909 | ||||||||
Consolidation of excess facilities | 91,281 | (5,225 | ) | (17,687 | ) | 68,369 | ||||||||||||
Other contractual obligations | 2,639 | (244 | ) | (68 | ) | 2,327 | ||||||||||||
Total | $ | 97,220 | $ | (5,838 | ) | $ | (18,777 | ) | $ | 72,605 |
18
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. | Retirement Plans and Retiree Medical Benefits |
For the Three Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | ||||||||||
Interest cost | $ | 4,774 | $ | 4,639 | |||||||
Expected return on plan assets | (7,064 | ) | (6,625 | ) | |||||||
Amortization of transition asset | (153 | ) | (214 | ) | |||||||
Recognized actuarial loss | 1,659 | 1,442 | |||||||||
Net periodic benefit credit | $ | (784 | ) | $ | (758 | ) |
For the Six Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | ||||||||||
Interest cost | $ | 9,482 | $ | 9,234 | |||||||
Expected return on plan assets | (14,102 | ) | (13,250 | ) | |||||||
Amortization of transition asset | (306 | ) | (428 | ) | |||||||
Recognized actuarial loss | 3,179 | 2,744 | |||||||||
Net periodic benefit credit | $ | (1,747 | ) | $ | (1,700 | ) |
19
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the Three Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | ||||||||||
Interest cost | $ | 60 | $ | 69 | |||||||
Expected return on plan assets | (7 | ) | (8 | ) | |||||||
Amortization of transition asset | (25 | ) | (25 | ) | |||||||
Recognized actuarial gain | (10 | ) | (11 | ) | |||||||
Net periodic benefit cost | $ | 18 | $ | 25 |
For the Six Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | ||||||||||
Interest cost | $ | 120 | $ | 138 | |||||||
Expected return on plan assets | (15 | ) | (16 | ) | |||||||
Amortization of transition asset | (50 | ) | (50 | ) | |||||||
Recognized actuarial gain | (20 | ) | (22 | ) | |||||||
Net periodic benefit cost | $ | 35 | $ | 50 |
11. | Stockholders’ Equity |
20
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. | Income Taxes |
21
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All dollar amounts in this MD&A are in millions.
INTRODUCTION
Results of Operations
Revenues
For the Three Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | $ Change | % Change | ||||||||||||||||
Information storage products | $ | 1,381.6 | $ | 1,193.4 | $ | 188.2 | �� | 16 | % | ||||||||||
Information storage and management services | 455.6 | 360.9 | 94.7 | 26 | |||||||||||||||
EMC Software Group products and services | 408.3 | 352.7 | 55.6 | 16 | |||||||||||||||
VMware products and services | 90.9 | 47.2 | 43.7 | 93 | |||||||||||||||
Other businesses | 8.5 | 17.0 | (8.5 | ) | (50 | ) | |||||||||||||
Total revenues | $ | 2,344.8 | $ | 1,971.2 | $ | 373.6 | 19 | % |
For the Six Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | $ Change | % Change | ||||||||||||||||
Information storage products | $ | 2,692.0 | $ | 2,339.5 | $ | 352.5 | 15 | % | |||||||||||
Information storage and management services | 896.7 | 703.7 | 193.0 | 27 | |||||||||||||||
EMC Software Group products and services | 809.6 | 676.3 | 133.3 | 20 | |||||||||||||||
VMware products and services | 171.0 | 86.5 | 84.5 | 98 | |||||||||||||||
Other businesses | 18.6 | 36.8 | (18.2 | ) | (49 | ) | |||||||||||||
Total revenues | $ | 4,587.9 | $ | 3,842.8 | $ | 745.1 | 19 | % |
22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
For the Three Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | Percentage Change | |||||||||||||
North America, excluding Mexico | $ | 1,373.0 | $ | 1,156.2 | 19 | % | |||||||||
Europe, Middle East and Africa | 663.1 | 552.0 | 20 | ||||||||||||
Asia Pacific | 257.7 | 222.0 | 16 | ||||||||||||
Latin America and Mexico | 51.0 | 41.0 | 25 |
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
For the Six Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | Percentage Change | |||||||||||||
North America, excluding Mexico | $ | 2,681.2 | $ | 2,215.8 | 21 | % | |||||||||
Europe, Middle East and Africa | 1,304.1 | 1,107.3 | 18 | ||||||||||||
Asia Pacific | 505.5 | 442.5 | 14 | ||||||||||||
Latin America and Mexico | 97.0 | 77.2 | 26 |
Costs and expenses
For the Three Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | $ Change | % Change | ||||||||||||||||
Cost of revenue: | |||||||||||||||||||
Information storage products | $ | 762.4 | $ | 701.0 | $ | 61.4 | 9 | % | |||||||||||
Information storage and management services | 213.1 | 177.2 | 35.9 | 20 | |||||||||||||||
EMC Software Group products and services | 91.1 | 76.7 | 14.4 | 19 | |||||||||||||||
VMware products and services | 17.4 | 10.3 | 7.1 | 69 | |||||||||||||||
Other businesses | 4.2 | 8.1 | (3.9 | ) | (48 | ) | |||||||||||||
Total cost of revenue | 1,088.2 | 973.3 | 114.9 | 12 | |||||||||||||||
Gross margins: | |||||||||||||||||||
Information storage products | 619.2 | 492.4 | 126.8 | 26 | |||||||||||||||
Information storage and management services | 242.5 | 183.7 | 58.8 | 32 | |||||||||||||||
EMC Software Group products and services | 317.2 | 276.0 | 41.2 | 15 | |||||||||||||||
VMware products and services | 73.5 | 37.0 | 36.5 | 99 | |||||||||||||||
Other businesses | 4.3 | 8.9 | (4.6 | ) | (52 | ) | |||||||||||||
Total gross margins | 1,256.6 | 997.9 | 258.7 | 26 | |||||||||||||||
Operating expenses: | |||||||||||||||||||
Research and development | 253.3 | 205.1 | 48.2 | 24 | |||||||||||||||
Selling, general and administrative | 642.7 | 548.9 | 93.8 | 17 | |||||||||||||||
Restructuring and other special charges | — | 4.5 | (4.5 | ) | (100 | ) | |||||||||||||
Total operating expenses | 896.0 | 758.4 | 137.6 | 18 | |||||||||||||||
Operating income | 360.6 | 239.5 | 121.1 | 51 | |||||||||||||||
Investment income, interest expense, and other expense, net | 40.4 | 32.1 | 8.3 | 26 | |||||||||||||||
Income before income taxes | 401.1 | 271.6 | 129.5 | 48 | |||||||||||||||
Income tax provision | 107.7 | 78.8 | 28.9 | 37 | |||||||||||||||
Net income | $ | 293.4 | $ | 192.8 | $ | 100.6 | 52 | % |
24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
For the Six Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2005 | June 30, 2004 | $ Change | % Change | ||||||||||||||||
Cost of revenue: | |||||||||||||||||||
Information storage products | $ | 1,516.1 | $ | 1,371.2 | $ | 144.9 | 11 | % | |||||||||||
Information storage and management services | 424.2 | 346.8 | 77.4 | 22 | |||||||||||||||
EMC Software Group products and services | 174.7 | 152.7 | 22.0 | 14 | |||||||||||||||
VMware products and services | 32.2 | 19.5 | 12.7 | 65 | |||||||||||||||
Other businesses | 9.8 | 16.9 | (7.1 | ) | (42 | ) | |||||||||||||
Total cost of revenue | 2,157.0 | 1,907.2 | 249.8 | 13 | |||||||||||||||
Gross margins: | |||||||||||||||||||
Information storage products | 1,175.9 | 968.3 | 207.6 | 21 | |||||||||||||||
Information storage and management services | 472.5 | 356.9 | 115.6 | 32 | |||||||||||||||
EMC Software Group products and services | 634.9 | 523.6 | 111.3 | 21 | |||||||||||||||
VMware products and services | 138.8 | 67.0 | 71.8 | 107 | |||||||||||||||
Other businesses | 8.8 | �� | 19.9 | (11.1 | ) | (56 | ) | ||||||||||||
Total gross margins | 2,430.9 | 1,935.6 | 495.3 | 26 | |||||||||||||||
Operating expenses: | |||||||||||||||||||
Research and development | 487.6 | 409.7 | 77.9 | 19 | |||||||||||||||
Selling, general and administrative | 1,258.4 | 1,083.5 | 174.9 | 16 | |||||||||||||||
Restructuring and other special charges | 1.0 | 32.7 | (31.7 | ) | (97 | ) | |||||||||||||
Total operating expenses | 1,747.0 | 1,525.9 | 221.1 | 14 | |||||||||||||||
Operating income | 683.9 | 409.7 | 274.2 | 67 | |||||||||||||||
Investment income, interest expense, and other expense, net | 79.1 | 65.4 | 13.7 | 21 | |||||||||||||||
Income before income taxes | 763.0 | 475.1 | 287.9 | 61 | |||||||||||||||
Income tax provision | 199.8 | 142.5 | 57.3 | 40 | |||||||||||||||
Net income | $ | 563.2 | $ | 332.6 | $ | 230.6 | 69 | % |
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
primarily attributable to a more efficient cost structure for software maintenance and professional services offerings, slightly offset by a greater proportion of revenues in the six months ended June 30, 2005 being derived from services contracts compared to software licenses.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
Category | Balance as of March 31, 2005 | Additions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 14.1 | $ | — | $ | (2.0 | ) | $ | 12.1 | |||||||||
Consolidation of excess facilities | 1.3 | — | (0.4 | ) | 0.9 | |||||||||||||
Total | $ | 15.4 | $ | — | $ | (2.4 | ) | $ | 13.0 |
Category | Balance as of December 31, 2004 | Additions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 16.3 | $ | 0.6 | $ | (4.8 | ) | $ | 12.1 | |||||||||
Consolidation of excess facilities | 1.7 | — | (0.8 | ) | 0.9 | |||||||||||||
Total | $ | 18.0 | $ | 0.6 | $ | (5.6 | ) | $ | 13.0 |
Category | Balance as of March 31, 2005 | Reductions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 2.3 | $ | — | $ | (0.4 | ) | $ | 1.9 | |||||||||
Consolidation of excess facilities | 79.7 | — | (11.3 | ) | 68.4 | |||||||||||||
Other contractual obligations | 2.3 | — | — | 2.3 | ||||||||||||||
Total | $ | 84.3 | $ | — | $ | (11.7 | ) | $ | 72.6 |
Category | Balance as of December 31, 2004 | Reductions to the Provision | Current Utilization | Balance as of June 30, 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Workforce reduction | $ | 3.3 | $ | (0.3 | ) | $ | (1.1 | ) | $ | 1.9 | ||||||||
Consolidation of excess facilities | 91.3 | (5.2 | ) | (17.7 | ) | 68.4 | ||||||||||||
Other contractual obligations | 2.6 | (0.3 | ) | — | 2.3 | |||||||||||||
Total | $ | 97.2 | $ | (5.8 | ) | $ | (18.8 | ) | $ | 72.6 |
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
Financial Condition
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
New Accounting Pronouncements
30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our business could be materially adversely affected as a result of general economic and market conditions.
Our business could be materially adversely affected as a result of a lessening demand in the information technology market.
Component costs, competitive pricing, and sales volume and mix could materially adversely affect our revenues, gross margins and earnings.
If our suppliers are not able to meet our requirements, we could have decreased revenues and earnings.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell certain products cost-effectively or on a timely basis, if at all, and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on our business, results of operations and financial condition. Additionally, we periodically transition our product line to incorporate new technologies. The importance of transitioning our customers smoothly to new technologies, along with our historically uneven pattern of quarterly sales, intensifies the risk that the failure of a supplier to meet our quality or delivery requirements will have a material adverse impact on our revenues and earnings.
Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.
• | the effect of the acquisition on our financial and strategic position and reputation |
• | the failure of an acquired business to further our strategies |
• | the failure of the acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, costs savings, operating efficiencies and other synergies |
• | the difficulty and cost of integrating the acquired business, including costs and delays in implementing common systems and procedures and costs and delays caused by communication difficulties or geographic distances between the two companies’ sites |
• | the assumption of liabilities of the acquired business, including litigation-related liabilities |
• | the potential impairment of acquired assets |
• | the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners |
• | the diversion of our management’s attention from other business concerns |
• | the impairment of relationships with customers or suppliers of the acquired business or our customers or suppliers |
• | the potential loss of key employees of the acquired company |
• | the potential incompatibility of business cultures |
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
We may be unable to keep pace with rapid industry, technological and market changes.
• | 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 a decline in sales of existing products and an excessive, obsolete supply of inventory |
• | delays in initial shipments of new products |
The markets we serve are highly competitive and we may be unable to compete effectively.
34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
We may have difficulty managing operations.
• | retaining and hiring, as required, the appropriate number of qualified employees |
• | managing, protecting and enhancing, as appropriate, our infrastructure, including but not limited to, our information systems and internal controls |
• | accurately forecasting revenues |
• | training our sales force to sell more software and services |
• | successfully integrating new acquisitions |
• | managing inventory levels, including minimizing excess and obsolete inventory, while maintaining sufficient inventory to meet customer demands |
• | controlling expenses |
• | managing our manufacturing capacity, real estate facilities and other assets |
• | executing on our plans |
Our business could be materially adversely affected as a result of war or acts of terrorism.
Our business may suffer if we are unable to retain or attract key personnel.
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
Our quarterly revenues and earnings could be materially adversely affected by uneven sales patterns and changing purchasing behaviors.
• | the relative dollar amount of our product and services offerings in relation to many of our 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 six months of the following year |
• | seasonal influences |
• | we assemble our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers |
• | we generally ship products shortly after receipt of the order |
• | customers may reschedule or cancel orders with little or no penalty |
Risks associated with our distribution channels may materially adversely affect our financial results.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
reliance on channel partners, which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the visibility to our 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 our channel partners will not develop, market or sell products or services in competition with us in the future.
Changes in foreign conditions could impair our international operations.
Undetected problems in our products could directly impair our financial results.
Our business could be materially adversely affected as a result of the risks associated with alliances.
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
Our business may suffer if we cannot protect our intellectual property.
We may become involved in litigation that may materially adversely affect us.
We may have exposure to additional income tax liabilities.
Changes in regulations could materially adversely affect us.
38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – (Continued)
Our stock price is volatile.
• | the announcement of acquisitions, new products, services or technological innovations by us or our competitors |
• | quarterly variations in our operating results |
• | changes in revenue or earnings estimates by the investment community |
• | speculation in the press or investment community |
39
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
40
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings |
41
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
ISSUER PURCHASES OF EQUITY SECURITIES IN THE SECOND QUARTER OF 2005
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs3 | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 1, 2005 – April 30, 2005 | 6,459,500 | $ | 12.97 | 6,459,500 | 175,079,600 | |||||||||||||
May 1, 2005 – May 31, 2005 | 3,826,604 | 1 | $ | 12.95 | 3,822,900 | 171,256,700 | ||||||||||||
June 1, 2005 – June 30, 2005 | 743,034 | 2 | $ | 14.61 | 720,800 | 170,535,900 | ||||||||||||
Total | 11,029,138 | $ | 13.07 | 11,003,200 | 170,535,900 |
1 | Includes an aggregate of 3,704 shares acquired from employees for tax withholding purposes. |
2 | Includes an aggregate of 22,234 shares acquired from employees for tax withholding purposes. |
3 | All shares were purchased in open-market transactions pursuant to a previously announced authorization by our Board of Directors in October 2002 to repurchase 250.0 million shares of our common stock. The repurchase program does not have a termination date. In addition, in May 2001, our Board authorized the repurchase of up to 50.0 million shares of our common stock, which shares were repurchased in 2001 and 2002. |
Item 4. | Submission of Matters to a Vote of Security Holders |
1. | Proposal 1 — Election of Class III Directors: |
For | Withheld | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Michael J. Cronin | 2,014,187,302 | 102,431,416 | ||||||||
W. Paul Fitzgerald | 1,377,343,133 | 739,275,585 | ||||||||
Joseph M. Tucci | 2,014,459,990 | 102,158,728 |
2. | Proposal 2 — To approve amendments to the 2003 Plan to increase by 100,000,000 the number of shares of common stock available for grant under such plan and increase the number of shares which may be issued pursuant to awards of restricted stock and/or restricted stock units to 30% of the total authorized shares under the plan: |
For: | 1,300,045,576 | |||||||||
Against: | 261,526,114 | |||||||||
Abstain: | 16,013,244 | |||||||||
Broker Non-Vote: | 539,033,784 |
42
3. | Proposal 3 — To ratify the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as EMC’s independent auditors for the fiscal year ending December 31, 2005: |
For: | 2,054,984,260 | |||||||||||||
Against: | 48,088,809 | |||||||||||||
Abstain: | 13,545,649 |
4. | Proposal 4 — To act upon a shareholder proposal relating to performance-based stock options: |
For: | 675,778,152 | |||||||||||||
Against: | 882,696,973 | |||||||||||||
Abstain: | 19,109,809 | |||||||||||||
Broker Non-Vote: | 539,033,784 |
5. | Proposal 5 — To act upon a shareholder proposal relating to EMC’s Audit Committee: |
For: | 345,331,649 | |||||||||||||
Against: | 1,210,582,116 | |||||||||||||
Abstain: | 21,671,169 | |||||||||||||
Broker Non-Vote: | 539,033,784 |
Item 6. | Exhibits |
(a) | Exhibits |
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SIGNATURES
EMC CORPORATION | ||||||
Date: August 2, 2005 | By:/s/ William J. Teuber, Jr. William J. Teuber, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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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 2003 Stock Plan, as amended. (4) |
31.1 | Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
31.2 | Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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 Quarterly Report on Form 10-Q filed November 3, 2004 (No. 1-9853). |
(3) | Incorporated by reference to EMC Corporation’s Annual Report on Form 10-K filed March 31, 1988 (No. 0-14367). |
(4) | Incorporated by reference to EMC Corporation’s Definitive Proxy Statement on Schedule 14A filed March 11, 2005 (No. 033-03656). |
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