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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: MARCH 31, 2001 COMMISSION FILE NUMBER 1-9853
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EMC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2680009
(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) 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)
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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 March 31, 2001 was 2,206,848,917.
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EMC CORPORATION
PAGE NO
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Part I--Financial Information
Consolidated Balance Sheets at March 31, 2001 and
December 31, 2000....................................... 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2001 and 2000........................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000........................... 5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2001 and 2000.............. 6
Notes to Interim Consolidated Financial Statements........ 7-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 12-14
Part II--Other Information.................................. 15
Signatures................................................ 16
Exhibit Index............................................. 17
2
EMC CORPORATION
PART I.
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,969,605 $ 1,983,221
Short-term investments.................................... 439,215 673,731
Accounts and notes receivable, less allowance for doubtful
accounts of $40,557 and $38,560......................... 1,915,406 2,114,368
Inventories............................................... 1,067,336 1,024,964
Deferred income taxes..................................... 185,369 188,074
Other assets.............................................. 208,719 115,693
------------ -----------
Total current assets........................................ 5,785,650 6,100,051
Long-term investments....................................... 2,240,827 2,088,379
Notes receivable, net....................................... 195,466 241,234
Property, plant and equipment, net.......................... 1,640,606 1,510,088
Intangible and other assets, net............................ 592,980 598,047
------------ -----------
Total assets............................................ $ 10,455,529 $10,537,799
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 4,268 $ 11,816
Accounts payable.......................................... 464,769 516,469
Accrued expenses.......................................... 781,773 823,079
Income taxes payable...................................... 353,263 477,318
Deferred revenue.......................................... 315,224 284,965
------------ -----------
Total current liabilities................................... 1,919,297 2,113,647
Deferred income taxes....................................... 101,278 100,913
Notes payable............................................... 9,949 14,457
Other liabilities........................................... 46,702 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 3,000,000 shares;
issued 2,206,849 and 2,195,489.......................... 22,068 21,955
Additional paid-in capital................................ 3,312,150 3,138,061
Deferred compensation..................................... (49,231) (49,525)
Retained earnings......................................... 5,095,262 5,072,600
Accumulated other comprehensive loss...................... (1,946) (5,882)
------------ -----------
Total stockholders' equity.............................. 8,378,303 8,177,209
------------ -----------
Total liabilities and stockholders' equity............ $ 10,455,529 $10,537,799
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
EMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Revenues:
Net sales.......................................... $2,056,926 $1,625,447
Services........................................... 287,869 197,151
---------- ----------
2,344,795 1,822,598
Costs and expenses:
Cost of sales...................................... 876,611 650,880
Cost of services................................... 175,673 140,179
Research and development........................... 224,040 161,780
Selling, general and administrative................ 593,036 448,119
---------- ----------
Operating income..................................... 475,435 421,640
Investment income.................................... 71,609 40,643
Interest expense..................................... (3,258) (6,871)
Other income/(expense), net.......................... 2,506 (636)
---------- ----------
Income before taxes.................................. 546,292 454,776
Income tax provision................................. 147,497 122,789
---------- ----------
Net income........................................... $ 398,795 $ 331,987
========== ==========
Net income per weighted average share, basic......... $ 0.18 $ 0.16
========== ==========
Net income per weighted average share, diluted....... $ 0.18 $ 0.15
========== ==========
Weighted average shares, basic....................... 2,203,865 2,105,673
========== ==========
Weighted average shares, diluted..................... 2,248,773 2,236,181
========== ==========
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 THREE MONTHS
ENDED
-------------------------
MARCH 31, MARCH 31,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 398,795 $ 331,987
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization............................. 144,931 116,166
Amortization of deferred compensation..................... 5,256 3,589
Provision for doubtful accounts........................... 8,989 4,943
Deferred income taxes..................................... (7,743) 19,829
Net loss on disposal of property and equipment............ 1,324 7,514
Tax benefit from stock options exercised.................. 90,315 64,939
Minority interest......................................... 29 951
Changes in assets and liabilities, net of acquired assets
and liabilities:
Accounts and notes receivable............................. 188,603 16,748
Inventories............................................... (75,507) (59,813)
Other assets.............................................. (85,361) (42,310)
Accounts payable.......................................... (43,002) 90,995
Accrued expenses.......................................... (37,429) (25,517)
Income taxes payable...................................... (113,949) (6,838)
Deferred revenue.......................................... 32,920 13,472
Other liabilities......................................... 3,130 (5)
----------- -----------
Net cash provided by operating activities............... 511,301 536,650
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (281,121) (183,047)
Proceeds from sales of property, plant and equipment...... 17,128 --
Capitalized software development costs.................... (29,737) (28,084)
Purchase of short-term and long-term available for sale
securities.............................................. (1,133,922) (286,454)
Sale of short-term and long-term available for sale
securities.............................................. 927,925 189,967
Maturity of short-term and long-term available for sale
securities.............................................. 74,175 238,831
Business acquisitions, net of cash acquired............... -- (198,251)
----------- -----------
Net cash used for investing activities.................. (425,552) (267,038)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 54,835 64,256
Payment of long-term and short-term obligations........... (8,484) (7,225)
Issuance of long-term and short-term obligations.......... -- 6,935
Cash portion of McDATA Corporation dividend............... (141,981) --
----------- -----------
Net cash provided/(used) by financing activities........ (95,630) 63,966
----------- -----------
Effect of exchange rate changes on cash..................... (3,735) (3,486)
----------- -----------
Net increase/(decrease) in cash and cash equivalents........ (9,881) 333,578
Cash and cash equivalents at beginning of period............ 1,983,221 1,109,409
----------- -----------
Cash and cash equivalents at end of period.................. $ 1,969,605 $ 1,439,501
=========== ===========
Non-cash activity:
- --Conversion of convertible subordinated notes, net of debt
issuance costs............................................ $ -- $ 460,677
- --Options issued in business acquisitions................... -- 11,372
- --Distribution of net assets in McDATA Corporation
dividend.................................................. 234,152 --
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
---------------------
MARCH 31, MARCH 31,
2001 2000
--------- ---------
Net income.................................................. $ 398,795 $ 331,987
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments, net of tax of
$(2,090) and $374....................................... (5,647) (3,327)
Equity adjustment for minimum pension liability, net of
tax of $(7,616) and $0.................................. (20,592) --
Unrealized gain/(loss) on investments and derivatives, net
of tax of $11,160 and $(824)............................ 30,175 (2,473)
--------- ---------
Other comprehensive income/(loss)........................... 3,936 (5,800)
--------- ---------
Comprehensive income........................................ $ 402,731 $ 326,187
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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. These
integrated solutions enable organizations to create an enterprise information
infrastructure, or what EMC calls an E-Infostructure. 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 March 31, 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 restated to conform with the 2001
presentation.
2. INVENTORIES
Inventories consist of:
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Purchased parts..................................... $ 60,696 $ 62,636
Work-in-process..................................... 707,778 701,907
Finished goods...................................... 298,862 260,421
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$1,067,336 $1,024,964
========== ==========
7
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
Furniture and fixtures............................. $ 122,517 $ 129,721
Equipment.......................................... 1,566,338 1,539,510
Buildings and improvements......................... 530,916 499,823
Land............................................... 71,522 69,522
Construction in progress........................... 390,366 321,587
----------- -----------
2,681,659 2,560,163
Accumulated depreciation........................... (1,041,053) (1,050,075)
----------- -----------
$ 1,640,606 $ 1,510,088
=========== ===========
4. NET INCOME PER SHARE
Calculation of diluted earnings per share is as follows:
FOR THE THREE MONTHS
ENDED
-----------------------
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Net income........................................... $ 398,795 $ 331,987
Add back of interest expense on 3 1/4% convertible
notes, net of tax of $1,195........................ -- 1,792
---------- ----------
Net income for calculating diluted earnings per
share.............................................. $ 398,795 $ 333,779
========== ==========
Weighted average shares, basic....................... 2,203,865 2,105,673
Common stock equivalents............................. 44,908 130,508
---------- ----------
Weighted average shares, diluted..................... 2,248,773 2,236,181
========== ==========
Net income per weighted average share, diluted....... $ 0.18 $ 0.15
========== ==========
5. 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
Class A common stock. The distribution was effected by the means of a pro rata
dividend of approximately .0368069 of a share of McDATA Class A common stock for
each share of EMC 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, 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.
8
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (CONTINUED)
6. 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.
7. DERIVATIVES
EMC uses derivatives to hedge foreign currency cash flows on a continuing
basis consistent with its net asset and forecasted revenue and expense
exposures. Since EMC is using foreign exchange derivative contracts to hedge
foreign exchange exposures, the changes in the value of the derivatives are
highly effective in offsetting changes in the fair value or cash flows of the
hedged item. Any ineffective portion of the derivatives is recognized in current
earnings, which represented immaterial amounts for all periods presented. The
ineffective portion of the derivatives relates to forecasted transactions that
did not occur, option premiums and discounts or premiums on forward contracts.
EMC's derivative contracts generally mature within twelve months.
EMC hedges its net asset position with forward exchange contracts. Since
these derivatives hedge existing net assets that are denominated in foreign
currencies, the contracts do not qualify for hedge accounting under SFAS 133.
The changes in fair value from these contracts as well as the underlying
exposures are generally offsetting, and are recorded in other income/(expense)
on the income statement. These derivative contracts generally mature within
twelve months.
EMC uses foreign currency forward and option contracts to hedge a portion of
its forecasted transactions. These derivatives are designated as cash flow
hedges, and changes in their fair value are carried in accumulated other
comprehensive income/(loss) until the underlying forecasted transaction occurs.
Once the underlying forecasted transaction is realized, the appropriate gain or
loss from the derivative designated as a hedge of the transaction is
reclassified from accumulated other comprehensive income/(loss) to the income
statement, in revenue and expense, as appropriate. In the event the underlying
forecasted transaction does not occur, the amount recorded in accumulated other
comprehensive income/(loss) will be reclassified to the other income/(expense)
line of the income statement in the then-current period.
EMC recorded in revenues and expenses, $22,794 in net gains from cash flow
hedges related to items forecasted for the first quarter of 2001. The amount
that will be reclassified from accumulated other comprehensive income/(loss) to
earnings over the next twelve months is a gain of $9,867, net of tax.
9
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
FOR THE THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Information storage systems....................... $1,564,312 $1,267,164
Information storage software...................... 467,519 269,988
---------- ----------
$2,031,831 $1,537,152
========== ==========
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 of the operating
segments. The revenues and gross margins attributable to these segments are
included in the following table:
INFORMATION INFORMATION
STORAGE STORAGE OTHER
FOR THE THREE MONTHS ENDED PRODUCTS SERVICES BUSINESSES CONSOLIDATED
- -------------------------- ----------- ----------- ---------- ------------
MARCH 31, 2001
Revenues........................ $2,031,831 $231,986 $ 80,978 $2,344,795
Gross profit.................... 1,173,904 91,517 27,090 1,292,511
MARCH 31, 2000
Revenues........................ $1,537,152 $116,405 $169,041 $1,822,598
Gross profit.................... 941,303 33,138 57,098 1,031,539
EMC's revenues are attributed to the geographic areas according to the
location of customers. Intercompany transfers between geographic areas are
accounted for at prices which are designed to be
10
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
representative of unaffiliated party transactions. Revenues and identifiable
assets by geographic area are included in the following table:
FOR THE THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
2001 2000
----------- -----------
SALES:
North America (primarily U.S.).................. $ 1,414,707 $ 1,151,064
Europe, Middle East, Africa..................... 596,694 494,002
Asia Pacific.................................... 279,226 139,011
Latin America................................... 54,168 38,521
----------- -----------
Total....................................... $ 2,344,795 $ 1,822,598
=========== ===========
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
IDENTIFIABLE ASSETS:
North America (primarily U.S.).................. $ 7,915,382 $ 8,130,018
Europe, Middle East, Africa..................... 3,613,013 3,274,841
Asia Pacific.................................... 492,040 352,279
Latin America................................... 111,909 116,300
Intercompany eliminations....................... (1,676,815) (1,335,639)
----------- -----------
Total....................................... $10,455,529 $10,537,799
=========== ===========
9. SUBSEQUENT EVENTS
At EMC's Annual Meeting of Stockholders held on May 9, 2001, EMC's
stockholders elected John R. Egan, Joseph F. Oliveri and Michael C. Ruettgers to
the Board of Directors for a three-year term, approved an amendment to EMC's
Restated Articles of Organization to increase the authorized shares of common
stock, par value $.01 per share, 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 pursuant to the exercise of stock options
under the EMC Corporation 2001 Stock Option Plan. The full text of the EMC
Corporation 2001 Stock Option Plan appears in Exhibit 10.1 hereto.
On May 9, 2001, EMC's Board of Directors authorized the purchase of up to
50 million shares of its 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.
11
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 "Factors That May Affect Future
Results" set forth on page 14 and in EMC's other filings with the U.S.
Securities and Exchange Commission.
ALL DOLLAR AMOUNTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS ARE IN MILLIONS.
RESULTS OF OPERATIONS--FIRST QUARTER OF 2001 COMPARED TO FIRST QUARTER OF 2000
REVENUES
Total revenues for the first quarter of 2001 were $2,344.8, compared to
$1,822.6 for the first quarter of 2000, representing an increase of $522.2, or
29%.
Information storage systems revenues were $1,564.3 in the first quarter of
2001, compared to $1,267.2 in the first quarter of 2000, representing an
increase of $297.1, or 23%. The increase was primarily due to increased sales
volume resulting from the continued strong demand for EMC's Symmetrix and
CLARiiON series of products and the successful introduction of new products
within those existing product lines.
Information storage software revenues were $467.5 in the first quarter of
2001, compared to $270.0 in the first quarter of 2000, representing an increase
of $197.5, or 73%. The increase was primarily due to increased licenses of
information storage software on both newly shipped and already installed systems
and the successful introduction of new and enhanced software products.
Information storage services revenues were $232.0 in the first quarter of
2001, compared to $116.4 in the first quarter of 2000, representing an increase
of $115.6, or 99%. The increase was primarily related to increased volume from
professional services engagements and increased maintenance revenues on
information storage systems and information storage software products.
Total information storage revenues were $2,263.8 in the first quarter of
2001, compared to $1,653.6 in the first quarter of 2000, representing an
increase of $610.2, or 37%. While EMC anticipates revenues will continue to grow
for the remainder of 2001, as a result of slower economic growth, both in the
United States and internationally, EMC believes that its revenue growth rate
will be lower than that experienced in the first quarter of 2001.
Other businesses revenues were $81.0 in the first quarter of 2001, compared
to $169.0 in the first quarter of 2000, representing a decrease of $88.0, or
52%. 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. EMC anticipates further declines in revenues from AViiON server
products and related services throughout 2001.
Revenues on sales into North American markets were $1,414.7 in the first
quarter of 2001, compared to $1,151.1 in the first quarter of 2000, representing
an increase of $263.6, or 23%. The revenue growth reflects continued strong
demand for EMC products and services.
Revenues on sales into Europe, the Middle East and Africa were $596.7 in the
first quarter of 2001, compared to $494.0 in the first quarter of 2000,
representing an increase of $102.7, or 21%. Revenues on sales into the Asia
Pacific markets were $279.2 in the first quarter of 2001, compared to $139.0 in
the first quarter of 2000, representing an increase of $140.2, or 101%. Revenues
on sales into the Latin America markets were $54.2 in the first quarter of 2001,
compared to $38.5 in the first quarter of 2000, representing an increase of
$15.7, or 41%.
The increases in international sales were a result of EMC's efforts to
expand its sales infrastructure throughout the world to meet increasing demand
for information storage. International
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
revenues accounted for 40% of total revenues during the first quarter of 2001,
compared to 37% in the first quarter of 2000. EMC anticipates that international
revenues will continue to account for an increasing percentage of its total
sales.
GROSS MARGINS
Overall gross margin dollars increased to $1,292.5 in the first quarter of
2001 from $1,031.5 in the first quarter of 2000, an increase of $261.0, or 25%.
The increase was attributable to an increase in total revenues.
Overall gross margin percentage decreased to 55.1% in the first quarter of
2001, compared to 56.6% in the first quarter of 2000. Information storage
products' gross margin decreased to 57.8% in the first quarter of 2001, compared
to 61.2% in the first quarter of 2000. The decrease was primarily attributable
to a reduction in sales to Internet-related companies, which generally included
large systems with high software content which positively impacted gross margins
in the first quarter of 2000, EMC's continued efforts to reduce customer cost to
purchase EMC information storage products, and lower absorption of overhead
costs. Partially offsetting these factors was an increase in information storage
software revenues, which has a higher gross margin than information storage
systems. Information storage software revenues, as a percentage of total
revenues, increased to 20% in the first quarter of 2001 from 15% in the first
quarter of 2000.
The gross margin for information storage services increased to 39.4% in the
first quarter of 2001, compared to 28.5% in the first quarter of 2000. The
improvement in the gross margin percentage was attributable to greater
productivity of EMC field personnel in EMC's Global Services organization and
efforts to refocus business on the most profitable services. The gross margin
for other businesses remained relatively constant at 33.5% in the first quarter
of 2001, compared to 33.8% in the first quarter of 2000.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses were $224.0 and $161.8 in the
first quarters of 2001 and 2000, respectively, representing an increase of
$62.2, or 38%. R&D expenses were 9.6% and 8.9% of revenues in the first quarters
of 2001 and 2000, respectively. The increase in R&D spending from 2000 to 2001
reflects EMC's ongoing research and development efforts in a variety of areas,
including networked information storage products, enhancements to the Symmetrix
family of products, new enterprise storage software products and fibre channel
connectivity products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses were $593.0 and $448.1
in the first quarters of 2001 and 2000, respectively, an increase of $144.9, or
32%. SG&A expenses were 25.3% and 24.6% of revenues in the first quarters of
2001 and 2000, respectively. The increase in spending included increases in
salaries due to additional personnel, travel expenses and marketing costs
associated with efforts to expand sales and build an infrastructure to support
an increased revenue base.
INVESTMENT INCOME AND INTEREST EXPENSE
Investment income increased to $71.6 in the first quarter of 2001 from $40.6
in the first quarter of 2000. Investment income increased in the first quarter
of 2001 primarily due to higher cash and investment balances, which were derived
from operations and realized gains on investments.
Interest expense decreased to $3.3 in the first quarter of 2001 from $6.9 in
the first quarter of 2000. The decrease was primarily due to the conversion of
EMC's 3 1/4% convertible subordinated notes due 2002 in March 2000 and EMC's 6%
convertible subordinated notes due 2004 in May 2000.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PROVISION FOR INCOME TAXES
The provision for income taxes was $147.5 and $122.8 in the first quarters
of 2001 and 2000, respectively, which resulted in an effective tax rate of 27.0%
for each period.
FINANCIAL CONDITION
Cash and cash equivalents and short and long-term investments were $4,649.6
and $4,745.3 at March 31, 2001 and December 31, 2000, respectively, representing
a decrease of $95.7. Included in the first quarter 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 Corporation.
Cash provided by operating activities in the first quarter of 2001 was
$511.3, compared to $536.7 in the first quarter of 2000. The reduction was due
to a decrease in working capital partially offset by an increase in net income.
Cash used for investing activities was $425.6 in the first quarter of 2001,
compared to $267.0 in the first quarter of 2000. The increase was principally
due to purchases of short and long-term securities and an increase in property,
plant and equipment.
Cash used for financing activities was $95.6 in the first quarter of 2001,
compared to cash provided by financing activities of $64.0 in the first quarter
of 2000. The decrease was primarily attributable to the distribution of EMC's
interest in McDATA and a decrease in proceeds from stock option exercises.
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 throughout 2001.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This release contains "forward-looking statements" as defined under the
Federal Securities Laws. 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: (i) adverse changes in economic conditions in
various geographic markets and fluctuating currency exchange rates; (ii) an
unexpected decline in the revenue growth rate without a corresponding decline in
costs; (iii) competitive factors, including but not limited to pricing
pressures, in the computer storage and server markets; (iv) component quality
and availability; (v) rapid technological and market change and the transition
to new products; (vi) the relative and varying rates of product price and
component cost declines; (vii) the ability to attract and retain highly
qualified employees; (viii) the uneven pattern of quarterly sales; (ix) risks
associated with strategic investments and acquisitions; (x) EMC's ability to
execute on its plans; and (xi) other one-time events and other important factors
disclosed previously and from time to time in EMC's filings with the U.S.
Securities and Exchange Commission.
14
EMC CORPORATION
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See index to Exhibits on page 17 of this report.
(B) REPORTS ON FORM 8-K
On January 12, 2001, the registrant filed a Current Report on Form 8-K,
reporting under Item 5 the declaration of a stock dividend of all the shares of
Class A common stock of McDATA Corporation, with a record date of January 24,
2001 and a distribution date of February 7, 2001.
On January 25, 2001, the registrant filed a Current Report on Form 8-K,
reporting under Item 5 the issuance of an Information Statement describing the
proposed distribution to the registrant's stockholders of the shares of Class A
common stock of McDATA Corporation held by the registrant.
On February 2, 2001, the registrant filed a Current Report on Form 8-K,
reporting under Item 5 the commencement of "when issued" trading in shares of
Class A common stock of McDATA Corporation on the Nasdaq National Market on
February 5, 2001.
On February 8, 2001, the registrant filed a Current Report on Form 8-K,
reporting under Item 5 the distribution of 81,000,000 shares of Class A common
stock of McDATA Corporation to the registrant's stockholders of record as of
January 24, 2001.
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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
By: /s/ WILLIAM J. TEUBER, JR.
-----------------------------------------
William J. Teuber, Jr.
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
Date: May 14, 2001 OFFICER)
16
EXHIBIT INDEX
3.1 Restated Articles of Organization of EMC Corporation. (1)
3.2 Amended and Restated By-laws of EMC Corporation. (1)
4.1 Form of Stock Certificate. (2)
10.1 EMC Corporation 2001 Stock Option Plan. (3)
- ------------------------
(1) Incorporated by reference to EMC's Annual Report on Form 10-K filed
March 17, 2000 (No. 1-9853).
(2) Incorporated by reference to EMC's Annual Report on Form 10-K filed
March 31, 1988 (No. 0-1436).
(3) Incorporated by reference to Exhibit A of EMC's Proxy Statement filed
March 16, 2001, in connection with EMC's 2001 Annual Meeting of
Stockholders.
17