SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended: October 1, 1994 Commission File
Number 1-9853
EMC CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2680009
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(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) Identification Number)
171 South Street
Hopkinton, Massachusetts 01748-9103
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(Address of principal executive offices, including zip code)
(508) 435-1000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO ________
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Common Stock, par value $.01 per share 195,875,257
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Class Outstanding as of October 1, 1994
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EMC CORPORATION
Page No.
Part I - Financial Information
Consolidated Balance Sheets
October 1, 1994 and January 1, 1994 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
October 1, 1994 and October 2, 1993 4
Consolidated Statements of Cash Flows
for the Nine Months Ended October 1, 1994
and October 2, 1993 5
Notes to Interim Consolidated Financial Statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
Part II - Other Information 16
Signatures 17
Exhibit Index 18
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EMC CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
October 1,
January 1,
ASSETS 1994 1994
Current assets:
Cash and cash equivalents $232,252 $345,300
Trade and notes receivable less allowance for doubtful
accounts of $6,596 and $5,262, respectively 295,719 157,225
Inventories 238,787 118,263
Deferred income taxes 35,509 24,199
Other assets 9,273 5,023
Total current assets 811,540 650,010
Long-term investments, at cost 167,978 50,392
Notes receivable 26,376 21,808
Property, plant and equipment, net 145,639 96,480
Deferred income taxes 5,440 2,761
Other assets, net 15,491 8,195
Total assets $1,172,464 $829,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $941 $1,262
Accounts payable 114,822 44,179
Accrued expenses 92,513 59,755
Income taxes payable 43,851 20,892
Deferred revenue 7,560 7,046
Total current liabilities 259,687 133,134
Deferred revenue 2,780 3,389
Long-term obligations:
4 1/4% Conv. Subordinated Notes due 2001 229,598 200,000
6 1/4% Conv. Subordinated Debentures due 2002 45,826 59,260
Notes payable 16,632 14,013
Capital lease obligations 287 756
Minority interest in consolidated subsidiaries 852 ---
Total liabilities 555,662 410,552
Stockholders' equity:
Series Preferred Stock, par value $.01;
authorized 25,000,000 shares --- ---
Common Stock, par value $.01; authorized
330,000,000 shares; issued 198,500,342
and 189,936,120, respectively; outstanding
195,875,257 and 187,328,124, respectively 1,985 1,899
Additional paid-in capital 249,663 226,668
Deferred compensation (2,806) (3,552)
Retained earnings 365,849 193,045
Cumulative translation adjustment 2,763 1,537
Treasury stock, at cost, 2,625,085 and
2,607,996 shares, respectively (652) (503)
Total stockholders' equity 616,802 419,094
Total liabilities and stockholders'equity $1,172,464 $829,646
The accompanying notes are an integral part of the consolidated
financial statements
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EMC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
October 1, October 2, October 1, October 2,
1994 1993 1994 1993
Revenues:
Net sales $363,748 $209,857 $921,608 $516,226
Service and rental 7,834 5,890 25,148 17,836
371,582 215,747 946,756 534,062
Costs and expenses:
Cost of sales and service 176,333 102,024 447,123 264,863
Research and development 32,407 16,504 81,000 40,671
Selling, general and
administrative 63,940 42,895 175,269 113,956
Operating income 98,902 54,324 243,364 114,572
Investment income 5,619 2,317 15,549 5,707
Interest expense (3,652) (1,399) (11,247) (4,230)
Other (expense), net (1,832) (652) (1,950) (2,494)
Income before taxes 99,037 54,590 245,716 113,555
Income tax provision 29,642 16,103 72,912 33,267
Net income $69,395 $38,487 $172,804 $80,288
Net income per weighted
average share, primary $0.32 $0.19 $0.82 $0.41
Net income per weighted
average share, fully diluted$0.30 $0.18 $0.76 $0.38
Weighted average number of
common shares outstanding,
primary 218,331 201,003 216,558 194,041
Weighted average number of
common shares outstanding,
fully diluted 234,216 221,112 233,753 215,637
The accompanying notes are an integral part of the consolidated
financial statements
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EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
For the Nine Months Ended
October 1, October 2,
1994 1993
Cash flows from operating activities:
Net income $172,804 $80,288
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,556 15,977
Deferred income taxes (13,989) (8,534)
Net loss on disposal of property and
equipment 70 1,885
Minority interest in consolidated subsidiaries852 ---
Changes in assets and liabilities:
Trade and notes receivable (143,469) (66,718)
Inventories (121,188) (44,555)
Other assets (12,253) 3,108
Accounts payable 70,902 14,641
Accrued expenses 32,888 23,356
Income taxes payable (22,959) 5,732
Deferred revenue (92) (721)
Total adjustments (140,764) (55,829)
Net cash provided by operating activities 32,040 24,459
Cash flows from investing activities:
Additions to property and equipment (71,358) (32,731)
Proceeds from sale of property and equipment 445 562
Purchase of long-term investments (117,586) (22,866)
Net cash used by investing activities (188,499) (55,035)
Cash flows from financing activities:
Issuance of common stock, net of
issuance costs 10,391 107,542
Purchase of treasury stock (149) ---
Issuance of 4 1/4% convertible subordinated
notes due 2001, net of issuance costs 29,350 ---
Payment long-term and short-term obligations (1,159) (2,043)
Issuance long-term and short-term obligations 2,988 ---
Net cash provided by financing activities 41,421 105,499
Effect of exchange rate changes on cash 1,990 486
Net (decrease)/increase in cash and cash
equivalents (115,038) 74,923
Cash and cash equivalents at
beginning of period 345,300 62,103
Cash and cash equivalents at end of period $232,252 $137,512
Non-Cash Activity:
Conversion of Debentures and Notes 13,436 710
The accompanying notes are an integral part of the consolidated
financial statements.
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EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Accounting
The accompanying consolidated financial statements are unaudited
and have been prepared in accordance with generally accepted
accounting principles. These statements include the accounts of
EMC and its subsidiaries ("EMC" or the "Company"). Certain
information and footnote disclosures normally included in the
Company's annual consolidated financial statements have been
condensed or omitted. The interim consolidated financial
statements, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended October 1,
1994 and October 2, 1993.
The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected
for the entire fiscal year. It is suggested that these interim
consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the year ended
January 1, 1994, which are contained in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on
March 24, 1994.
Restatement for Pooling of Interests
On August 31, 1993, EMC acquired, in separate transactions, Epoch
Systems, Inc. ("Epoch") of Westborough, Massachusetts and Magna
Computer Corporation ("Magna") of Salem, New Hampshire. Epoch
designs, manufactures, markets and supports high performance
client/server data management software. Magna manufactures and
markets IBM compatible AS/400 tape storage products. Each of these
acquisitions has been accounted for as a "pooling of interests" for
accounting purposes, and accordingly all periods prior to the
acquisition have been restated to include the results of Epoch and
Magna. Epoch is now a wholly-owned subsidiary of EMC. As of August
27, 1994, Magna's business was consolidated into EMC and Magna's
corporate entity was dissolved.
Restatement for Stock Splits
All share data in this document has been adjusted for all stock
splits.
Subsidiaries and Acquisitions
Minority interest in consolidated subsidiaries represents the
minority shareholders' proportionate share in the equity of EMC
Japan K.K. ("EMC Japan") and Copernique, S.A. ("Copernique"), in
which the Company acquired majority interests in the first quarter
of 1994. Copernique specializes in high performance data
management hardware and software systems. At October 1, 1994 the
Company had a 60% interest in EMC Japan and a 93% interest in
Copernique.
During the first quarter of 1994, the Company acquired certain
assets of Colorado-based Array Technology Corporation ("Array"),
which specializes in RAID ("Redundant Arrays of
Independent Disks") technology. Other assets, non-current at
October 1, 1994 included patents acquired in the purchase of Array
of $7,272,000, net of $848,000 of accumulated amortization. These
assets are being amortized over their estimated useful life of five
years.
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EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
2. Inventories
Inventories consist of: October 1, 1994 January 1,1994
Purchased parts $ 14,086,000 $ 17,319,000
Work-in-process 148,427,000 46,348,000
Finished goods 76,274,000 54,596,000
$238,787,000 $118,263,000
3. Property, Plant and Equipment
Property, plant and equipment
consist of: October 1, 1994 January 1,1994
Furniture and fixtures $ 5,748,000 $ 4,278,000
Equipment 163,251,000 102,670,000
Vehicles 1,081,000 923,000
Buildings and improvements 41,896,000 29,864,000
Land 1,870,000 1,870,000
Construction in progress 4,380,000 4,891,000
218,226,000 144,496,000
Accumulated depreciation
and amortization (72,587,000) (48,016,000)
$145,639,000 $96,480,000
4. Long-Term Obligations
Convertible Subordinated Notes
In December 1993, the Company issued $200,000,000 of 4 1/4%
convertible subordinated notes due 2001 (the "Notes"). The Notes
are generally convertible into shares of Common Stock of the
Company at a conversion price of $19.84 per share, subject to
adjustment in certain events.
Since their issuance, $2,000 of Notes have been converted into
Common Stock. Interest is payable semi-annually and the Notes are
redeemable at the option of the Company at set redemption prices
(which range from 100.61% to 102.43% of principal), plus accrued
interest, commencing January 1, 1997. In January 1994, the
Company issued an additional $29,600,000 of Notes in accordance
with overallotment provisions of this offering.
Convertible Subordinated Debentures
In March 1992, the Company issued $60,000,000 of 6 1/4%
convertible subordinated debentures due 2002 (the "Debentures").
The Debentures are generally convertible at the option of the
holder at any time prior to maturity into shares of Common Stock of
the Company at a conversion price of $3.063 per share, subject to
adjustment in certain events. Since their issuance, $14,174,000
of Debentures have been converted into Common Stock. Interest is
payable semi-annually and the Debentures are redeemable at the
option of the Company at set redemption prices (which range from
100.63% to 104.38% of principal), plus accrued interest, commencing
April 1, 1995.
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EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5. Net Income Per Share
Net income per share was computed on the basis of weighted average
common and dilutive common equivalent shares outstanding. Primary
and fully diluted weighted average shares outstanding for the three
and nine months ended October 1, 1994 considers the dilutive effects
of the Notes and stock options. Fully diluted weighted average
shares outstanding for the three and nine months ended October 1,
1994 and October 2, 1993 considers the dilutive effects of the
Debentures, in addition to the Notes and stock options.
6.Other Contingencies
On June 10, 1993, Storage Technology Corporation ("STK") filed suit
against EMC in the United States District Court for the District of
Colorado alleging that EMC is infringing three patents. In the
complaint, STK seeks injunctive relief, unspecified damages,
including treble damages plus attorney's fees and costs. On July
20, 1993, EMC answered the complaint and denied STK's allegations.
In addition, EMC counterclaimed against STK alleging that the
patents in suit are invalid and unenforceable. EMC has
subsequently added counterclaims based on antitrust laws and
implied license theories. In the counterclaims, EMC seeks
unspecified damages, attorney's fees, costs and interest. In a
hearing on October 12, 1994, two of the three patents in suit were
dismissed by the Court with prejudice. Discovery in the matter is
currently in process and expert witness reports have been
exchanged. The trial date originally scheduled for October 24, 1994
has been postponed to an undetermined date.
EMC is involved in other litigation which it considers routine and
incidental to its business. Management does not expect the results
of these actions to have a material adverse effect on
EMC's business or financial condition.
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EMC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter of 1994 compared to Third
Quarter of 1993
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Revenues
Revenues for the quarter ended October 1, 1994 were $371,582,000
compared to $215,747,000 for the third quarter of 1993, an increase
of $155,835,000 or 72%. Product revenues for the quarter ended
October 1, 1994 were $363,748,000 compared to $209,857,000 for the
third
quarter of 1993, an increase of $153,891,000 or 73%. While the
Company expects revenue to continue to grow in all of its markets
throughout 1994, such growth may not, on a percentage basis,
continue at the levels experienced in the third quarter of 1994.
The increase in net sales was due primarily to the continued strong
demand for the Company's Symmetrix and Harmonix series of
Integrated Cached Disk Array ("ICDA") based products. Revenues
from the Symmetrix series of products in the IBM Corporation
("IBM"), Unisys Corporation ("Unisys") and Compagnie des Machines
Bull S.A. ("Bull") mainframe markets increased by $160,000,000 or
91%, from $176,176,000 in the third quarter of 1993 to $336,176,000
in the third quarter of 1994. Revenues from the Harmonix series of
IBM compatible midrange disk products, increased by $2,324,000 or
9%, from $24,715,000 in the third quarter of 1993 to $27,039,000 in
the third quarter of 1994. In the third quarter of 1994, the
Company generated approximately 96% of its product revenues from
sales of ICDA-based products versus approximately 93% in the same
period a year ago. It is expected that revenues from ICDA-based
products for the mainframe and midrange storage markets will remain
the major component of the Company's revenues throughout 1994.
Revenues on product sales into the markets of North and South
America increased by $74,111,000, or 50% from $148,827,000 in the
third quarter of 1993 to $222,938,000 in the third quarter of 1994.
This increase was due to increased unit sales of the Symmetrix 5500
series of products and the introduction in 1994 of the Symmetrix
5200 series of products, both in the IBM mainframe storage market.
Symmetrix series 5500 revenues increased $99,987,000, or 161%, to
$162,072,000 in the third quarter of 1994 versus $62,085,000 in the
third quarter of 1993, and Symmetrix series 5200 revenues were
$10,625,000 in the third quarter of 1994. Increases in sales of the
Symmetrix 5500 product and the introduction of the Symmetrix 5200
product in this region were partially offset by decreases in sales
of the Company's earlier versions of Symmetrix products.
Revenues on product sales into the markets of Europe, Africa, and
the Middle East increased by $63,381,000, or 123%, from $51,678,000
in the third quarter of 1993 to $115,059,000 in the same period of
1994, due primarily to growth in unit sales of the Symmetrix series
of products in the IBM, Unisys and Bull mainframe storage markets.
Revenues on product sales into the markets in the Asia Pacific
region increased by $16,398,000, or 175%, from $9,352,000 in the
third quarter of 1993 to $25,750,000 in the third quarter of 1994,
due to growth in unit sales of the Symmetrix series of products in
the IBM mainframe
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EMC CORPORATION
storage market. The Company strengthened its sales presence in the
Asia Pacific region with the formation of EMC Japan in January
1994.
The Company has Original Equipment Manufacturer ("OEM") agreements
with Bull and Unisys. Revenues from product sales of the Symmetrix
series of products to Bull increased by $6,661,000, or 98%, from
$6,799,000 in the third quarter of 1993 to $13,460,000 in the third
quarter of 1994. Revenues from product sales of the Symmetrix
series under the OEM agreement with Unisys increased by $6,452,000,
or 93%, from $6,932,000 in the third quarter of 1993 to $13,384,000
in the third quarter of 1994.
The Company purchases certain components and products from
suppliers who the Company believes are currently the only suppliers
of those components or products that meet the Company's
requirements. Among the most important components that the Company
uses are high density memory components ("DRAMs") and 5 1/4" and 3
1/4" disk drives, which the Company purchases from a small number
of qualified suppliers, and in some instances, there is only a
single source for such components. A failure by any supplier of
high density DRAMs or disk drives to meet the Company's
requirements for an extended period of time could have a material
adverse effect on the Company. From time to time, the Company has
experienced delays in deliveries of high density DRAMs and disk
drives needed to satisfy orders for ICDA products. If such
shortages were to intensify or the suppliers were not able to meet
the Company's quarterly requirements in a timely manner,
cancellation of some time-sensitive customer orders could occur.
Cost of Sales and Service
As a percentage of revenues, cost of sales and service was
consistent at 47.5% and 47.3% in the third quarters of 1994 and
1993, respectively. Cost of sales and service percentage in the
third quarter of 1993 improved from previous quarters in 1993 due
to increased revenues in the 5500 product series as a percentage of
total revenues.
Research and Development
Research and development ("R&D") expenses were $32,407,000 and
$16,504,000 in the third quarters of 1994 and 1993, respectively,
an increase of $15,903,000, or 96%. R&D expenses were 8.7% and
7.6% of revenues in the third quarters of 1994 and 1993,
respectively. Increases in R&D spending reflect additional
purchases of state-of-the-art CAE/CAD design tools and the cost of
additional technical staff. Increases over third quarter 1993
levels reflect the costs of the Company's R&D facilities at Epoch,
Copernique and Array and at EMC's subsidiary in Israel. The
Company expects to continue to spend substantial amounts for R&D
throughout 1994.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were
$63,940,000 and $42,895,000 in the third quarters of 1994 and 1993,
respectively, an increase of $21,015,000 or 49%. SG&A expenses
were 17.2% and 19.9% of revenues in the third quarters of 1994 and
1993, respectively. The dollar increase is due primarily to costs
associated with additional sales and support personnel
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EMC CORPORATION
and their related overhead costs, both domestically and
internationally, in connection with the Company's increased revenue
levels and the Company's initiative to expand its OEM and
international distribution programs. SG&A expenses are expected to
increase throughout 1994 approximately in proportion to growth in
revenues.
Investment Income and Interest Expense
Investment income was $5,619,000 in the third quarter of 1994
compared with $2,317,000 in the same period a year ago. Interest
income was earned from investments in cash equivalents and long-
term investments and, to a lesser extent, from sales-type leases of
the Company's products. Investment income increased in 1994
primarily due to higher average cash balances throughout the
quarter, compared to the similar period in 1993, caused primarily
by the availability of funds received in December 1993 and January
1994 from the offering of the Notes.
Interest expense increased from $1,399,000 in the third quarter of
1993 to $3,652,000 in the third quarter of 1994, mainly due to
interest accruals required on the Notes.
Other Expense, Net
Other expense, net, was $1,832,000 for the third quarter of 1994
compared with other expense, net, of $652,000 in the third quarter
of 1993. Other expense in 1994 related to income items including
$375,000 in technology fees and $312,000 of minority interest in
subsidiary results, net of expenses including $448,000 in
amortization of intangibles, $335,000 loss on sale of assets,
$280,000 in amortization of charges deferred in the offerings of
the Notes and Debentures, $283,000 in importation charges, $110,000
of currency transaction losses, and other losses totaling
$1,063,000. Other expense in the third quarter of 1993 related
primarily to currency transaction losses of $1,156,000 and other
losses totaling $160,000, net of other income of $664,000 primarily
from technology license fees.
Provision for Income Taxes
The provision for income taxes was $29,642,000 and $16,103,000 in
the third quarter of 1994 and 1993, respectively, which resulted in
effective tax rates of 29.9% and 29.5%, respectively. The Company
provides for income taxes based upon its estimate of full year
earnings on a country-by-country basis. In addition, net operating
loss carrybacks were not available in all countries in which the
Company expects to, or did, experience losses in 1994 and 1993.
Earnings Fluctuations
Due to (i) customers' tendencies to make purchase decisions late in
each fiscal quarter, (ii) the desire by customers to evaluate new,
more expensive products for longer periods of time, (iii) the
timing of product and technology announcements by the Company and
its competitors, and (iv) fluctuating currency exchange rates, the
Company's period to period revenues and earnings can fluctuate
significantly.
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EMC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - First nine months of 1994 compared to First
nine months of 1993
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Revenues
Revenues for the nine months ended October 1, 1994 were
$946,756,000 compared to $534,062,000 for the nine months ended
October 2, 1993, an increase of $412,694,000 or 77%. Product
revenues for the first nine months of 1994 were $921,608,000
compared to $516,226,000 for the first nine months of 1993, an
increase of $405,382,000 or 79%. While the Company expects revenue
to continue to grow in its markets throughout 1994, such growth may
not, on a percentage basis, continue at the levels experienced in
the first nine months of 1994.
The increase in net sales was due primarily to the continued strong
demand for the Company's Symmetrix and Harmonix series of
Integrated Cached Disk Array ("ICDA") based products. Revenues
from the Symmetrix series of products in the IBM Corporation
("IBM"), Unisys Corporation ("Unisys") and Compagnie des Machines
Bull S.A. ("Bull") mainframe markets increased by $393,373,000 or
94%, from $420,256,000 in the first nine months of 1993 to
$813,629,000 in the first nine months of 1994. Revenues from the
Harmonix series of IBM compatible midrange disk products, increased
by $15,636,000 or 24%, from $64,947,000 in the first nine months of
1993 to $80,583,000 in the first nine months of 1994. The Company
generated approximately 96% and 91% of its product revenues from
sales of ICDA-based products in the first nine months of 1994 and
1993, respectively. It is expected that revenues from ICDA-based
products for the mainframe and midrange storage markets will remain
the major component of the Company's revenues throughout 1994.
Revenues on product sales into the markets of North and South
America increased by $244,414,000, or 71%, to $590,445,000 in the
first nine months of 1994 from $346,031,000 in the first nine
months of 1993. This increase was primarily due to increased unit
sales of the Symmetrix 5500 series of products in the IBM mainframe
storage market, from which revenues increased by $265,954,000, or
239%, to $377,393,000 in the first nine months of 1994 from
$111,439,000 in the first nine months of 1993. Increases in
Symmetrix 5500 product sales in this region were partially offset
by decreases in sales of the Company's earlier versions of
Symmetrix products.
Revenues on product sales into the markets of Europe, Africa, and
the Middle East increased by $129,115,000, or 88%, to $276,400,000
in the first nine months of 1994 from $147,285,000 in the same
period of 1993, due primarily to growth in unit sales of the
Symmetrix series of products in the IBM and Bull mainframe storage
markets.
Revenues on product sales into the markets in the Asia Pacific
region increased by $31,853,000, or 139%, to $54,763,000 in the
first nine months of 1994 from $22,910,000 in the same period of
1993, primarily due to growth in unit sales of the Symmetrix 5500
series of products in the IBM mainframe storage market. The
Company strengthened its sales presence in the Asia Pacific region
with the formation of EMC Japan in January 1994.
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EMC CORPORATION
The Company has OEM agreements with Bull and Unisys. Revenues from
product sales of the Symmetrix series of products to Bull increased
by $25,719,000, or 250%, from $10,297,000 in the first nine months
of 1993 to $36,016,000 in the first nine months of 1994. Revenues
from product sales of the Symmetrix series under the OEM agreement
with Unisys increased by $882,000, or 3%, from $31,691,000 in the
first nine months of 1993 to $32,573,000 in the first nine months
of 1994.
Cost of Sales and Service
As a percentage of revenues, cost of sales and service amounted to
47.2% in the first nine months of 1994 versus 49.6% in the first
nine months of 1993. The improvement in the cost of sales
percentage was due primarily to increased sales in the higher
margin Symmetrix series of products through the Company's direct
sales force in 1994 over 1993.
Research and Development
Research and development ("R&D") expenses were $81,000,000 and
$40,671,000 in the first nine months of 1994 and 1993,
respectively, an increase of $40,329,000, or 99%. R&D expenses
were 8.6% and 7.6% of revenues in the first nine months of 1994 and
1993, respectively. Increases in R&D spending reflect additional
purchases of state-of-the-art CAE/CAD design tools and the cost of
additional technical staff. Increases in the first nine months of
1994 over the same period in 1993 reflect the costs of the
Company's R&D facilities at Epoch, Copernique and Array and at
EMC's subsidiary in Israel. The Company expects to continue to
spend substantial amounts for R&D throughout 1994.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were
$175,269,000 and $113,956,000 in the first nine months of 1994 and
1993, respectively, an increase of $61,313,000 or 54%. SG&A
expenses were 18.5% and 21.3% of revenues in the first nine months
of 1994 and 1993,
respectively. The dollar increase in SG&A spending reflects costs
associated with additional sales
and support personnel and their related overhead costs, both
domestically and internationally, in connection with the Company's
increased revenue levels and the Company's initiative to expand its
OEM and international distribution programs. SG&A expenses are
expected to increase throughout 1994 approximately in proportion to
growth in revenues.
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EMC CORPORATION
Investment Income and Interest Expense
Investment income was $15,549,000 and $5,707,000 in the first nine
months of 1994 and 1993, respectively. Interest income was earned
from investments in cash equivalents and long-term investments and,
to a lesser extent, from sales-type leases of the Company's
products. Investment income in 1994 is higher primarily
due to higher average cash balances throughout the period,
primarily due to the availability of funds received in the December
1993 and January 1994 offerings of the Notes.
Interest expense increased from $4,230,000 in the first nine months
of 1993 to $11,247,000 in the first nine months of 1994, mainly due
to interest accruals required on the Notes.
Other Expense, Net
Other expense, net was $1,950,000 and $2,494,000 in the first nine
months of 1994 and 1993, respectively. Other expense in 1994
included $1,359,000 of currency transaction losses, $800,000 in
amortization of charges deferred in the offerings of the Notes and
Debentures, $848,000 in amortization of patents and $396,000 in
losses on sale of assets and other miscellaneous losses totaling
$476,000, net of income from sales of assets of $326,000,
technology fees of $1,125,000 and $478,000 in minority interest in
subsidiary. Other expense in the first nine months of 1993 related
to a net loss on disposal of assets of $1,885,000, technology
license costs of $417,000, currency transaction losses of
$1,757,000 and other expenses of $189,000, net of other income of
$1,754,000 primarily from technology license fees.
Provision for Income Taxes
The provision for income taxes was $72,912,000 and $33,267,000 in
the first nine months of 1994 and 1993, respectively, which
resulted in effective tax rates of 29.7% and 29.3%, respectively.
The Company provides for income taxes based upon its estimate of
full year earnings on a country-by-country basis. In addition, net
operating loss carrybacks were not available in all countries in
which the Company expects to, or did, experience losses in 1994 and
1993.
-15-
EMC CORPORATION
FINANCIAL CONDITION
Since January 1, 1994, cash and cash equivalents decreased by
$113,048,000 caused primarily by the Company's transfer of
approximately $117,586,000 of cash equivalents into long-term
investments. Major sources of cash in the first nine months of
1994 included proceeds from the Company's issuance of $29,600,000
of Notes in January 1994 under the overallotment provision of the
December 1993 offering, and increases in accounts payable and
accrued expenses of $70,643,000 and $32,758,000, respectively.
Major uses of cash in the first nine months of 1994 included the
purchase of Copernique stock, the acquisition of certain assets of
Array, and increases in property, plant and equipment of
$71,358,000 needed to support the continued growth of the Company.
The Company's working capital increased by $34,977,000 in the first
nine months of 1994 from $516,876,000 at January 1, 1994 to
$551,853,000 at October 1, 1994, mainly due to increased receivable
and inventory balances.
Current net trade and notes receivable increased by $138,494,000,
or 88%, during the first nine months of 1994, supporting a 77%
increase in revenues during the first nine months of 1994 over the
first nine months of 1993.
The increase in inventory, from $118,263,000 at January 1, 1994, to
$238,787,000 at October 1, 1994 was necessary to support revenue
volume increases primarily with respect to the Company's ICDA-based
products. This increase is related to the inventory investment
required to support the extensive test cycles and customer
evaluations for the Company's ICDA-based products.
Based on its current operating and capital expenditure forecasts,
the Company believes funds currently available and funds generated from
operations will be adequate to finance its operations. In addition,
the Company has available to it a $50 million line of credit that may
be utilized from time to time.
-16-
EMC CORPORATION
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
On June 10, 1993, Storage Technology Corporation ("STK") filed suit
against EMC in the United States District Court for the District of
Colorado alleging that EMC is infringing three patents. In the
complaint, STK seeks injunctive relief, unspecified damages,
including treble damages, plus attorney's fees and costs. On July
20, 1993, EMC answered the complaint and denied STK's allegations.
In addition, EMC counterclaimed against STK alleging that the
patents in suit are invalid and unenforceable. EMC has
subsequently added counterclaims based on antitrust laws and
implied license theories. In the counterclaims, EMC seeks
unspecified damages, attorney's fees, costs and interest. In a
hearing on October 12, 1994, two of the three patents in suit were
dismissed by the Court with prejudice. Discovery in the matter is
currently in process and expert witness reports have been
exchanged. The originally scheduled trial date of October 24, 1994
has been postponed to an undetermined date.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
11.1 Computation of Primary and Fully Diluted Net
Income Per Share
(filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company for the
quarter ended October 1, 1994.
-17-
EMC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMC CORPORATION
Date: November 10, 1994 By: /s/ W. Paul Fitzgerald
W. Paul Fitzgerald
Senior Vice President, Finance and
Administration, Chief Financial Officer
and Treasurer (Principal Financial Officer)
By: /s/ Colin G. Patteson
Colin G. Patteson
Vice President and Controller
(Principal Accounting Officer)
-18-
EMC CORPORATION
EXHIBIT INDEX
Exhibit 11.1 Computation of Primary and Fully Diluted Net Income
Per Share
EMC CORPORATION
Exhibit 11.1 Computation of Primary and Fully Diluted Net
Income Per Share
(Amounts in thousands except share and per share data)
Three Months Ended Nine months Ended
October 1, October 2, October 1, October 2,
1994 1993 1994 1993
Primary
Net income $69,395 $38,487 $172,804 $80,288
Add back interest expense
on convertible notes 2,440 -- 7,292 --
Less tax effect on interest
expense on convertible
notes (976) -- (2,917) --
Net income for purposes
of calculating primary
net income per share $70,859 $38,487 $177,179 $80,288
Weighted average shares
outstanding during
the period 195,075,782 184,394,752 192,189,894 178,193,432
Common equivalent
shares 23,255,484 16,607,982 24,367,834 15,847,436
Common and common equivalent shares
outstanding for purpose
of calculating primary net
income per share 218,331,266 201,002,734 216,557,728 194,040,868
Primary net income
per share (Note 5) $0.32 $0.19 $0.82 $0.41
Fully Diluted
Net income $69,395 $38,487 $172,804 $80,288
Add back interest expense
on convertible notes
and debt 3,156 927 9,644 2,799
Less tax effect on
interest expense on
convertible notes
and debt (1,263) (371) (3,859) (1,083)
Net income for purpose
of calculating fully
diluted net income
per share $71,288 $39,043 $178,589 $82,004
Common and common
equivalent shares
outstanding for purpose
of calculating primary
net income per share 218,331,266 201,002,734 216,557,728 194,040,868
Incremental shares to reflect
full dilution, primarily from
convertible subordinated
debentures 15,884,597 20,109,372 17,195,237 21,595,748
Total shares for purpose of
calculating fully diluted
net income per share 234,215,863 221,112,106 233,752,965 215,636,616
Fully diluted net income
per share (Note 5) $0.30 $0.18 $0.76 $0.38
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 232,252
<SECURITIES> 0
<RECEIVABLES> 295,719
<ALLOWANCES> 0
<INVENTORY> 238,787
<CURRENT-ASSETS> 811,540
<PP&E> 218,226
<DEPRECIATION> 72,587
<TOTAL-ASSETS> 1,172,464
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<BONDS> 292,343
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0
0
<OTHER-SE> 614,817
<TOTAL-LIABILITY-AND-EQUITY> 1,172,464
<SALES> 921,608
<TOTAL-REVENUES> 946,756
<CGS> 447,123
<TOTAL-COSTS> 447,123
<OTHER-EXPENSES> 1,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,247
<INCOME-PRETAX> 245,716
<INCOME-TAX> 72,912
<INCOME-CONTINUING> 172,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,804
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