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: July 2, 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 194,482,824
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Class Outstanding as of July 2,1994
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EMC CORPORATION
Page No.
Part I - Financial Information
Consolidated Balance Sheets
July 2, 1994 and January 1, 1994 3
Consolidated Statements of Operations
for the Three and Six Months Ended
July 2, 1994 and July 3, 1993 4
Consolidated Statements of Cash Flows
for the Six Months Ended July 2, 1994
and July 3, 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)
July 2, January 1,
ASSETS 1994 1994
Current assets:
Cash and cash equivalents $219,952 $345,300
Trade and notes receivable less allowance
for doubtful accounts of $6,162 and
$5,262, respectively 249,668 157,225
Inventories 182,839 118,263
Deferred income taxes 26,194 24,199
Other assets 9,260 5,023
Total current assets 687,913 650,010
Long-term investments, at cost 173,313 50,392
Notes receivable 24,496 21,808
Property, plant and equipment, net 130,908 96,480
Deferred income taxes 3,787 2,761
Other assets, net 15,318 8,195
Total assets $1,035,735 $829,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $2,155 $1,262
Accounts payable 95,613 44,179
Accrued expenses 76,280 59,755
Income taxes payable 14,700 20,892
Deferred revenue 9,083 7,046
Total current liabilities 197,831 133,134
Deferred revenue 2,942 3,389
Long-term obligations:
4 1/4% Convertible Subordinated Notes due 2001 229,600 200,000
6 1/4% Convertible Subord. Debentures due 2002 45,831 59,260
Notes payable 14,105 14,013
Capital lease obligations 413 756
Minority interest in consolidated subsidiaries 932 --
Total liabilities 491,654 410,552
Stockholders' equity:
Series Preferred Stock, par value $.01;
authorized 25,000,000 shares --- ---
Common Stock, par value $.01; authorized
330,000,000 shares; issued 197,099,288 and
189,936,120, respectively; outstanding
194,482,824 and 187,328,124, respectively 1,971 1,899
Additional paid-in capital 247,090 226,668
Deferred compensation (3,055) (3,552)
Retained earnings 296,454 193,045
Cumulative translation adjustment 2,264 1,537
Treasury stock, at cost, 2,616,464 and
2,607,996 shares, respectively (643) (503)
Total stockholders' equity 544,081 419,094
Total liabilities and stockholders' equity $1,035,735 $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 Six Months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Revenues:
Net sales $300,140 $173,516 $557,860 $306,369
Service and rental 7,976 6,026 17,314 11,946
308,116 179,542 575,174 318,315
Cost and expenses:
Cost of sales and service 146,383 90,546 270,790 162,839
Research and development 26,245 12,755 48,593 24,167
Selling, general and
administrative 59,725 38,221 111,329 71,061
Operating income 75,763 38,020 144,462 60,248
Investment income 4,951 2,186 9,930 3,390
Interest expense (3,793) (1,407) (7,595) (2,831)
Other income/(expense), net 490 (861) (118) (1,842)
Income before taxes 77,411 37,938 146,679 58,965
Income tax provision 22,842 11,050 43,270 17,164
Net income $54,569 $26,888 $103,409 $41,801
Net income per weighted
average share, primary $0.26 $0.14 $0.49 $0.22
Net income per weighted
average share, fully diluted $0.24 $0.13 $0.46 $0.20
Weighted average number of
common shares outstanding,
primary 217,064 198,020 215,640 190,475
Weighted average number of
common shares outstanding,
fully diluted 232,966 218,774 233,207 211,871
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 Six Months Ended
July 2, July 3,
1994 1993
Cash flows from operating activities:
Net income $103,409 $41,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 15,084 9,761
Deferred income taxes (3,021) (8,736)
Net (gain)/loss on disposal of property
and equipment (295) 1,687
Minority interest in consolidated subsidiaries 932 ---
Changes in assets and liabilities:
Trade and notes receivable (94,844) (21,483)
Inventories (64,680) (19,383)
Other assets (12,035) 2,863
Accounts payable 51,596 6,520
Accrued expenses 16,540 18,571
Income taxes payable (6,192) 10,032
Deferred revenue 1,567 (940)
Total adjustments (95,348) (1,108)
Net cash provided by
operating activities 8,061 40,693
Cash flows from investing activities:
Additions to property and equipment, net (48,742) (20,261)
Proceeds from sale of property and equipment 445 67
Purchase of long-term investments (122,921) (16,317)
Net cash used by investing activities (171,218) (36,511)
Cash flows from financing activities:
Issuance of common stock, net of issuance costs 20,991 105,853
Purchase of treasury stock (140) ---
Issuance of 4 1/4% convertible subordinated
notes due 2001, net of issuance costs 29,350 ---
Conversion of 6 1/4% convertible subordinated
debentures due 2002 (13,429) (188)
Payment of long-term and short-term obligations (895) (1,572)
Issuance of long-term and short-term obligations 1,536 ---
Net cash provided by financing
activities 37,413 104,093
Effect of exchange rate changes on cash 396 (241)
Net (decrease)/increase in cash and cash
Equivalents (125,744) 108,275
Cash and cash equivalents at beginning
of period 345,300 62,103
Cash and cash equivalents at end of period $219,952 $170,137
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 July 2, 1994
and July 3, 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 and Magna are now wholly-owned subsidiaries of EMC.
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. At July 2, 1994 the Company owned 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
Inexpensive Disks") technology, and a majority interest in
Copernique, which specializes in high performance data management
hardware and software systems. Other assets, non-current at July
2, 1994 included patents acquired in the purchase of Array of
$7,272,000, net of approximately $400,000 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: July 2,1994 January 1,1994
Purchased parts $ 14,457,000 $ 17,319,000
Work-in-process 112,170,000 46,348,000
Finished goods 56,212,000 54,596,000
$182,839,000 $118,263,000
3. Property, Plant and Equipment
Property, plant and equipment
consist of: July 2,1994 January 1,1994
Furniture and fixtures $ 5,505,000 $ 4,278,000
Equipment 144,107,000 102,670,000
Vehicles 1,091,000 923,000
Buildings and improvements 36,926,000 29,864,000
Land 1,870,000 1,870,000
Construction in progress 6,393,000 4,891,000
195,892,000 144,496,000
Accumulated depreciation
and amortization (64,984,000) (48,016,000)
$130,908,000 $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. 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, $14,169,000
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 six months ended July 2, 1994 considers the dilutive effect of
the Notes. Fully diluted weighted average shares outstanding for
the three and six months ended July 2, 1994 and July 3, 1993
considers the dilutive effects of the Debentures.
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.
Discovery in the matter is currently in process. A scheduling
order has been entered and a trial date has been set for October
1994. Several motions, filed by both parties, are now pending
before the Court.
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 - Second Quarter of 1994 compared to Second
Quarter of 1993
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Revenues
Revenues for the quarter ended July 2, 1994 were $308,116,000
compared to $179,542,000 for the second quarter of 1993, an
increase of $128,574,000 or 72%. Product revenues for the quarter
ended July 2, 1994 were $300,140,000 compared to $173,516,000 for
the second quarter of 1993, an increase of $126,624,000 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 second 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 $122,754,000 or
86%, from $142,903,000 in the second quarter of 1993 to
$265,657,000 in the second quarter of 1994. Revenues from the
Harmonix series of IBM compatible midrange disk products, increased
by $1,205,000 or 6%, from $20,999,000 in the second quarter of 1993
to $22,204,000 in the second quarter of 1994. In the second quarter
of 1994, the Company generated approximately 96% of its product
revenues from sales of ICDA-based products versus approximately 94%
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 $79,961,000, or 67% from $118,763,000 in the
second quarter of 1993 to $198,724,000 in the second quarter of
1994. This increase was due to increased unit sales of the
Symmetrix 5500 series of products in the IBM mainframe storage
market, from which revenues increased $93,711,000 to $127,378,000
in the second quarter of 1994 versus $33,667,000 in the second
quarter 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 $35,888,000, or 71%, from $50,621,000
in the second quarter of 1993 to $86,509,000 in the same period of
1994, 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 $10,775,000, or 261%, from $4,132,000 in the
second quarter of 1993 to $14,907,000 in the second quarter of
1994, due to growth in unit sales of the Symmetrix 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 Original Equipment Manufacturer ("OEM") agreements
with Bull and Unysis. Revenues from product sales of the Symmetrix
series of products to Bull increased by $10,115,000, or 289%, from
$3,497,000 in the second quarter of 1993 to $13,612,000 in the
second quarter of 1994. Revenues from product sales of the
Symmetrix series under the OEM agreement with Unisys increased by
$495,000, or 5%, from $10,100,000 in the second quarter of 1993 to
$10,595,000 in the second 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 amounted to
47.5% in the second quarter of 1994 versus 50.4% in the first
quarter 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 $26,245,000 in the
second quarter of 1994 compared to $12,755,000 in the comparable
period in 1993, an increase of $13,490,000, or 106%.
As a percentage of revenue, such expenses were 8.5% in the
second quarter of 1994 and 7.1% in the same period in 1993.
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 second quarter 1993 levels reflect
the costs of the Company's R&D facilities at Epoch and Copernique
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 19.4%
and 21.3% of revenues in the second quarters of 1994 and 1993,
respectively. Total SG&A expenses increased by $21,504,000 or 56%
from the second quarter 1993 level of $38,221,000, to $59,725,000
in the second quarter of 1994. This increase is due
primarily to costs associated with additional sales
and support personnel and their related overhead costs,
both domestically and internationally, in connection
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EMC CORPORATION
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 $4,951,000 in the second quarter of 1994
compared with $2,186,000 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 $1,407,000 in the second quarter of
1993 to $3,793,000 in the second quarter of 1994, mainly due to
interest accruals required on the Notes.
Other Income/(Expense), Net
Other income, net, was $490,000 for the second quarter of 1994
compared with other expense, net, of $861,000 in the second quarter
of 1993. Other income in 1994 related to gains on sales of assets
of $441,000, $375,000 in technology fees, $240,000 from relief on
importation tax, $147,000 of minority interest in subsidiary
results and $546,000 of other miscellaneous income items, net of
expenses, including $654,000 of currency transaction losses,
$305,000 in amortization of charges deferred in the offerings of
the Notes and Debentures, and $300,000 in amortization of
intangibles. Other expense in the second quarter of 1993 was due
primarily to a net loss on the disposal of certain assets of
$1,000,000, and currency transaction losses of $270,000, net of
other income of $409,000 primarily from technology license fees.
Provision for Income Taxes
The provision for income taxes was $22,842,000 and $11,050,000 in
the second quarter of 1994 and 1993, respectively, which resulted
in effective tax rates of 29.5% and 29.1%, 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 - For the first six months of 1994 compared
to the first six months of 1993
- - -------------------------------------------------------------------
Revenues
Revenues for the six months ended July 2, 1994 were $575,174,000
compared to $318,315,000 for the six months ended July 3, 1993, an
increase of $256,859,000 or 81%. Product revenues for the first
six months of 1994 were $557,860,000 compared to $306,369,000 for
the first six months of 1993, an increase of $251,491,000 or 82%.
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 half 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 $233,373,000 or
96%, from $244,080,000 in the first six months of 1993 to
$477,453,000 in the first six months of 1994. Revenues from the
Harmonix series of IBM compatible midrange disk products, increased
by $13,311,000 or 33%, from $40,233,000 in the first six months of
1993 to $53,544,000 in the first six months of 1994. The Company
generated approximately 95% and 93% of its revenues from sales of
ICDA-based products in the first six 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 $170,303,000, or 86%, to $367,506,000 in the
first six months of 1994 from $197,203,000 in the first six 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 $165,967,000 to
$215,321,000 in the first six months of 1994 from $49,354,000 in
the first six months of 1993.
Revenues on product sales into the markets of Europe, Africa, and
the Middle East increased by $65,733,000, or 69%, to $161,341,000
in the first six months of 1994 from $95,608,000 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 $15,455,000, or 114%, to $29,013,000 in the
first six months of 1994 from $13,558,000 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 Unysis. Revenues from
product sales of the Symmetrix series of products to Bull increased
by $19,059,000, or 545%, from $3,497,000 in the first six months of
1993 to $22,556,000 in the first six months of 1994. Revenues from
product sales of the Symmetrix series under the OEM agreement with
Unisys decreased by $5,570,000, or 22%, from $24,759,000 in the first
six months of 1993 to $19,189,000 in the first six months 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 amounted to
47.1% in the first six months of 1994 versus 51.2% in the first
six 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 $48,593,000 and
$24,167,000 in the first six months of 1994 and 1993, respectively,
an increase of $24,426,000, or 101%. R&D expenses were 8.4% and
7.6% of revenues in the first six 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 six months of
1994 over the same period in 1993 reflect the costs of the
Company's R&D facilities at Epoch and Copernique 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
$111,329,000 and $71,061,000 in the first six months of 1994 and
1993, respectively, an increase of $40,268,000 or 57%. SG&A
expenses were 19.4% and 22.3% of revenues in the first six months
of 1994 and 1993, respectively. Increases in SG&A spending reflect
costs associated with additional sales and
<PAGE>
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EMC CORPORATION
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 $9,930,000 and $3,390,000 in the first six
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 $2,831,000 in the first six months
of 1993 to $7,595,000 in the first six months of 1994, mainly due
to interest accruals required on the Notes.
Other Expense, Net
Other expense was $118,000 and $1,842,000 in the first six months
of 1994 and 1993, respectively. Other expense in 1994 included
$1,249,000 of currency transaction losses, $566,000 in amortization
of charges deferred in the offerings of the Notes and Debentures,
$400,000 in amortization of patents, net of income from gains on
sales of assets of $295,000, $750,000 in technology fees, $240,000
from relief on importation tax, $166,000 in minority interest in
subsidiary and other miscellaneous income of $646,000. Other
expense in the first six months of 1993 included a net loss on the
disposal of certain assets of $1,687,000, $602,000 of currency
transaction losses, $417,000 in technology license costs and
$64,000 of other expenses, net of other income of $928,000
primarily from technology license fees.
Provision for Income Taxes
The provision for income taxes was $43,270,000 and $17,164,000 in
the first six months of 1994 and 1993, respectively, which resulted
in effective tax rates of 29.5% and 29.1%, 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
FINANCIAL CONDITION
Since January 1, 1994, cash and cash equivalents decreased by
$125,348,000 caused primarily by the Company's investment of
approximately $122,921,000 of cash equivalents into long-term
investments. Major sources of cash in the first six months of 1994
were the 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 $51,596,000 and $16,540,000, respectively.
Major uses of cash in the first six months of 1994 included the
purchase of Copernique stock, the acquisition of certain assets of
Array, and increases in property, plant and equipment of $48,742,000
needed to support the continued growth of the Company. The
Company's working capital decreased by $26,794,000 in the first
six months of 1994 from $516,876,000 at January 1, 1994 to
$490,082,000 at July 2, 1994.
Net trade and notes receivable increased by $94,844,000, or 53%,
during the first six months of 1994, supporting an 81% increase in
revenues during the first six months of 1994 over the first six
months of 1993.
The increase in inventory, from $118,263,000 at January 1, 1994, to
$182,839,000 at July 2, 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 introduction of new higher cost products.
Based on its current operating and capital expenditure forecasts,
the Company believes its funds currently available and funds
generated from operations, will be adequate to finance its
operations.
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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. Discovery in the matter is currently in
process. A scheduling order has been entered and a trial date
has been set for October 1994. Several motions, filed by both
parties, are now pending before the Court.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 11, 1994.
There was no solicitation in opposition to the management's
nominees as listed in the Company's proxy statement and all of
such nominees were elected. The results of the votes were as
follows:
1. Election of Class I Directors:
The following Class I Directors were elected to serve
until the 1997 Annual Meeting of Stockholders or Special
Meeting in lieu thereof, and until that director's successor
is elected and qualified:
For Withheld
John F. Cunningham 137,895,802 270,586
Richard J. Egan 137,900,142 266,246
There were no broker non-votes on any of the proposals.
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 July 2, 1994.
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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: August 12, 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)
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EMC CORPORATION
EXHIBIT INDEX
Exhibit 11.1 Computation of Primary and Fully Diluted Net Income
Per Share
<PAGE>
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 Six months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Primary
Net income $54,569 $26,888 $103,409 $41,801
Add back interest expense
on convertible notes 2,440 -- 4,852 --
Less tax effect on interest
expense on convertible notes (976) -- (1,941) --
Net income for purposes of
calculating primary net
income per share $56,033 $26,888 $106,320 $41,804
Weighted average shares
outstanding during the
period 192,986,404 182,911,374 190,729,785 175,562,174
Common equivalent shares 24,077,765 15,108,500 24,910,665 14,913,242
Common and common
equivalent shares
outstanding for purpose
of calculating primary
net income per share 217,064,169 198,019,874 215,640,450 190,475,416
Primary net income
per share (Note 5) $0.26 $0.14 $0.49 $0.22
Fully Diluted
Net income $54,569 $26,888 $103,409 $41,801
Add back interest expense on
convertible notes and debt 3,156 936 6,488 1,872
Less tax effect on interest
expense on convertible notes
and debt (1,263) (356) (2,596) (712)
Net income for purpose of
calculating fully diluted
net income per share $56,462 $27,468 $107,301 $42,961
Common and common equivalent
shares outstanding for purpose
of calculating primary net
income per share 217,064,169 198,019,874 215,640,450 190,475,416
Incremental shares to
reflect full dilution,
primarily from convertible
subordinated debentures 15,901,873 20,754,332 17,566,576 21,395,490
Total shares for purpose
of calculating fully diluted
net income per share 232,966,042 218,774,206 233,207,026 211,870,906
Fully diluted net income
per share (Note 5) $0.24 $0.13 $0.46 $0.20
