<PAGE>
================================================================================
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: COMMISSION FILE NUMBER 1-9853
SEPTEMBER 30, 1999
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)
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 1,017,505,161
-------------------------------------- ------------------
CLASS OUTSTANDING AS OF
SEPTEMBER 30, 1999
================================================================================
<PAGE>
EMC CORPORATION
<TABLE>
<CAPTION>
Page No
-------
<S> <C>
Part I - Financial Information
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998.......................... 3
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1999 and 1998..................................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998...... 5
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended
September 30, 1999 and 1998..................................................................... 6
Notes to Interim Consolidated Financial Statements............................................... 7-12
Management's Discussion and Analysis of Financial Condition and Results of Operations............ 13-19
Part II - Other Information......................................................................... 20
Signatures.......................................................................................... 21
Exhibit Index....................................................................................... 22
</TABLE>
2
<PAGE>
EMC CORPORATION
PART I.
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 678,767 $ 705,177
Short-term investments .............................................. 579,057 825,298
Trade and notes receivable less allowance for doubtful accounts of
$13,061 and $6,562 in 1999 and 1998, respectively ................. 1,260,744 984,412
Inventories ......................................................... 529,857 485,844
Deferred income taxes ............................................... 74,583 49,682
Other assets ........................................................ 74,392 54,400
----------- -----------
Total current assets .................................................. 3,197,400 3,104,813
Long-term investments ................................................. 1,373,132 562,360
Notes receivable, net ................................................. 65,344 34,870
Property, plant and equipment, net .................................... 770,549 637,534
Deferred income taxes ................................................. 30,699 7,974
Intangible and other assets, net ...................................... 220,699 221,020
----------- -----------
Total assets ........................................................ $ 5,657,823 $ 4,568,571
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations ............................ $ 8,849 $ 29,361
Accounts payable .................................................... 255,084 173,285
Accrued expenses .................................................... 296,906 246,894
Income taxes payable ................................................ 186,176 167,580
Deferred revenue .................................................... 69,509 36,073
----------- -----------
Total current liabilities ............................................. 816,524 653,193
Deferred income taxes ................................................. 69,678 50,591
Long-term obligations:
3 1/4 % convertible subordinated notes due 2002 ..................... 491,636 517,500
Notes payable ....................................................... 13,703 21,396
Other liabilities ..................................................... 2,865 1,755
----------- -----------
Total liabilities ................................................... 1,394,406 1,244,435
----------- -----------
Commitments and contingencies
Stockholders' equity:
Series Preferred Stock, par value $.01; authorized 25,000,000 shares,
none outstanding .................................................. -- --
Common Stock, par value $.01; authorized 3,000,000,000 shares; issued
1,017,505,161 and 1,007,266,980 in 1999 and 1998, respectively ... 10,175 10,073
Additional paid-in capital .......................................... 967,531 825,201
Deferred compensation ............................................... (20,805) (17,022)
Retained earnings ................................................... 3,323,845 2,504,719
Accumulated other comprehensive income/(expense) .................... (17,329) 1,165
----------- -----------
Total stockholders' equity ....................................... 4,263,417 3,324,136
----------- -----------
Total liabilities and stockholders' equity .................... $ 5,657,823 $ 4,568,571
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
EMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales .................................. $ 1,244,414 $ 945,806 $ 3,509,928 $ 2,670,561
Service and rental ......................... 89,242 56,735 243,506 112,333
----------- ----------- ----------- -----------
1,333,656 1,002,541 3,753,434 2,782,894
Costs and expenses:
Cost of sales and service .................. 566,615 478,187 1,664,840 1,376,803
Research and development ................... 117,611 80,422 329,237 220,325
Selling, general and administrative ........ 261,638 193,068 731,326 523,917
----------- ----------- ----------- -----------
Operating income ............................. 387,792 250,864 1,028,031 661,849
Investment income ............................ 32,039 25,765 84,496 72,226
Interest expense ............................. (4,337) (4,862) (14,220) (14,591)
Other income/(expense), net .................. (2,744) (3,380) (6,138) (3,616)
----------- ----------- ----------- -----------
Income before taxes .......................... 412,750 268,387 1,092,169 715,868
Income tax provision ......................... 103,188 67,097 273,043 178,967
----------- ----------- ----------- -----------
Net income ................................... $ 309,562 $ 201,290 $ 819,126 $ 536,901
=========== =========== =========== ===========
Net income per weighted average share, basic . $ 0.30 $ 0.20 $ 0.81 $ 0.54
=========== =========== =========== ===========
Net income per weighted average share, diluted $ 0.29 $ 0.19 $ 0.76 $ 0.51
=========== =========== =========== ===========
Weighted average shares, basic ............... 1,015,701 1,002,222 1,012,567 998,012
Weighted average shares, diluted ............. 1,093,199 1,080,598 1,091,798 1,075,888
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE>
EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 819,126 $ 536,901
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ....................................... 225,812 142,995
Deferred income taxes ............................................... (28,539) 305
Net loss on disposal of property and equipment ...................... 562 646
Tax benefit from stock options exercised ............................ 42,155 23,470
Minority interest ................................................... (225) (404)
Changes in assets and liabilities:
Trade and notes receivable ..................................... (305,928) (60,745)
Inventories .................................................... (44,013) (117,088)
Other assets ................................................... (58,224) (32,554)
Accounts payable ............................................... 81,288 32,689
Accrued expenses ............................................... 49,964 51,039
Income taxes payable ........................................... 18,597 (3,817)
Deferred revenue ............................................... 33,398 25,029
Other liabilities .............................................. 1,335 (1,040)
--------- ---------
Net cash provided by operating activities ................... 835,308 597,426
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment .............................. (277,250) (280,677)
Capitalized software development costs .................................. (34,175) (27,294)
Maturity/(purchase) of short-term and long-term investments, net ........ (580,646) (318,893)
Business acquisitions ................................................... -- (53,903)
--------- ---------
Net cash used by investing activities ....................... (892,071) (680,767)
--------- ---------
Cash flows from financing activities:
Issuance of common stock ................................................ 61,370 33,012
Payment of long-term and short-term obligations ......................... (30,184) (11,304)
Issuance of long-term and short-term obligations ........................ 1,978 11,558
--------- ---------
Net cash provided by financing activities ................... 33,164 33,266
--------- ---------
Effect of exchange rate changes on cash .................................... (2,811) (794)
Net decrease in cash and cash equivalents .................................. (23,599) (50,075)
Cash and cash equivalents at beginning of period ........................... 705,177 954,595
--------- ---------
Cash and cash equivalents at end of period ................................. $ 678,767 $ 903,726
========= =========
Non-cash activity:
Conversion of 3 1/4 % convertible subordinated notes to common stock . $ 25,864 --
Business acquisitions ................................................ -- $ 51,755
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE>
EMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income .................................................... $ 309,562 $ 201,290 $ 819,126 $ 536,901
Other comprehensive income/(expense), net of tax:
Foreign currency translation adjustments, net of tax of
$(444), $16, $(793), and $(54) .............................. (1,331) 47 (2,379) (162)
Unrealized gains/(losses) on investment securities and
derivatives:
Unrealized holding gains/(losses) arising during the period,
net of tax of $(1,055), $1,963, $(5,372), and $2,001 ...... (3,166) 5,888 (16,115) 6,004
--------- --------- --------- ---------
Other comprehensive income/(expense) .......................... (4,497) 5,935 (18,494) 5,842
--------- --------- --------- ---------
Comprehensive income .......................................... $ 305,065 $ 207,225 $ 800,632 $ 542,743
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
6
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Company
EMC Corporation and its subsidiaries ("EMC" or the "Company") design,
manufacture, market and support a wide range of enterprise systems and software
products and related services for the worldwide enterprise storage market.
EMC's products provide solutions for a wide range of customer information
storage requirements, from the highest performance mission critical applications
to extremely high capacity business support applications. EMC's solutions
integrate with major open systems operating systems such as UNIX and Windows NT
as well as major mainframe operating systems.
Accounting
On August 9, 1999, EMC announced that it would acquire Data General
Corporation ("Data General"), a designer, manufacturer and marketer of CLARiiON
mid-range storage products and AViiON high-end servers for fast growing segments
of the server market. EMC completed this acquisition on October 12, 1999. (See
Note 7 "Subsequent Event.") The financial statements included in this Quarterly
Report on Form 10-Q do not include the financial results of Data General.
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. 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 September 30, 1999 and
1998.
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. For further information, please refer to and read these interim
consolidated financial statements in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1998, which
are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") on March 11, 1999.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Purchased parts................................ $ 46,782 $ 29,562
Work-in-process ............................... 312,191 283,815
Finished goods ................................ 170,884 172,467
-------- --------
$529,857 $485,844
======== ========
</TABLE>
7
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. Net Income Per Share
Calculation of earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
<S> <C> <C>
Basic:
Net income ............................................. $ 309,562 $ 201,290
Weighted average shares, basic ......................... 1,015,701,387 1,002,221,654
Net income per share, basic ............................ $ 0.30 $ 0.20
=============== ===============
Diluted:
Net income ............................................. $ 309,562 $ 201,290
Add back of interest expense on convertible notes ...... 4,037 4,205
Less tax effect of interest expense on convertible notes (1,615) (1,682)
--------------- ---------------
Net income for calculating diluted earnings per share .. $ 311,984 $ 203,813
Weighted average shares ................................ 1,015,701,387 1,002,221,654
Weighted common stock equivalents ...................... 77,497,810 78,376,018
--------------- ---------------
Total weighted average shares, diluted ................. 1,093,199,197 1,080,597,672
Net income per share, diluted .......................... $ 0.29 $ 0.19
=============== ===============
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
<S> <C> <C>
Basic:
Net income ............................................. $ 819,126 $ 536,901
Weighted average shares, basic ......................... 1,012,567,394 998,011,908
Net income per share, basic ............................ $ 0.81 $ 0.54
=============== ===============
Diluted:
Net income ............................................. $ 819,126 $ 536,901
Add back of interest expense on convertible notes ...... 12,178 12,614
Less tax effect of interest expense on convertible notes (4,871) (5,046)
--------------- ---------------
Net income for calculating diluted earnings per share .. $ 826,433 $ 544,469
Weighted average shares ................................ 1,012,567,394 998,011,908
Weighted common stock equivalents ...................... 79,230,984 77,876,346
--------------- ---------------
Total weighted average shares, diluted ................. 1,091,798,378 1,075,888,254
Net income per share, diluted .......................... $ 0.76 $ 0.51
=============== ===============
</TABLE>
8
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. LITIGATION
The Company acquired Data General on October 12, 1999. See Note 7 "Subsequent
Event." Data General had filed two suits against International Business Machines
Corporation ("IBM") in the United States District Court for the District of
Massachusetts in Worcester alleging that certain IBM products were infringing
certain Data General patents. Both suits seek compensatory damages and, where
appropriate, injunctive relief. IBM's responses deny Data General's
infringement claims and interpose counterclaims alleging that the CLARiiON
storage systems infringe certain IBM patents. Trials have not yet commenced
with respect to either suit and discovery in each case is ongoing.
The Company is a party to other 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 the Company's business,
results of operations or financial condition.
5. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000.
The Company adopted SFAS 133 on January 1, 1999. As a result of this
adoption, all derivatives are recognized on the balance sheet at fair value.
The Company uses derivatives to hedge foreign currency cash flows on a
continuing basis for periods consistent with its net asset and forecasted
exposures. Since the Company 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 an immaterial amount in the third quarter of
1999. The ineffective portion of the derivatives is primarily related to option
premiums and discounts or premiums on forward contracts. All derivative
contracts generally mature within six months.
9
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company hedges its net asset (balance sheet) 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.
The Company uses forward exchange 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/(expense) 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/(expense) 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/(expense) will be reclassified to the other
income/(expense) line of the income statement in the then-current period.
As a result of adoption of SFAS 133, the Company recorded an unrealized loss
of $340 in accumulated other comprehensive income/(expense) to recognize the
fair value of derivative instruments that are designated as cash-flow hedging
instruments in the first quarter of 1999. In addition, net realized losses of
$2,720 from derivatives designated as cash-flow hedging instruments have been
recorded in accumulated other comprehensive income/(expense) in the first
quarter of 1999. The Company recorded in revenue and expense as appropriate,
approximately $9,420 in net losses from cash flow hedges related to items
forecasted for the third quarter of 1999 and approximately $5,256 in net losses
from cash flow hedges related to items forecasted for the nine months ended
September 30, 1999. The amount that will be reclassified from other accumulated
comprehensive income/(expense) to earnings over the next twelve months is a
charge of approximately $2,370, net of tax.
As permitted with the adoption of SFAS133, the Company also reclassified
$602,575 of held-to-maturity securities as "available for sale" in the first
quarter of 1999. This reclassification resulted in an immaterial adjustment
recorded to accumulated other comprehensive income/(expense) to reflect the
difference between the carrying cost and market value of these securities. The
net unrealized loss on available for sale securities at September 30, 1999 was
$12,766, net of tax.
10
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. SEGMENT INFORMATION
The Company operates exclusively in the enterprise storage market. See Note
7 "Subsequent Event." Substantially all of the Company's revenues are generated
from the sale or license of storage-related hardware and software and the sale
of related services. The classes of products and services are included in the
following table:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Enterprise storage hardware .. $1,013,546 $ 792,031 $2,860,181 $2,256,624
Enterprise storage software .. 206,598 117,541 540,651 281,411
Enterprise switching products 24,270 36,234 109,096 132,526
Service and rental ........... 89,242 56,735 243,506 112,333
---------- ---------- ---------- ----------
Total revenue ................ $1,333,656 $1,002,541 $3,753,434 $2,782,894
========== ========== ========== ==========
</TABLE>
The Company's sales are attributed to geographic areas according to the
customer's location. Revenues and identifiable assets by geographic area are
included in the following table:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES
North/Latin America ....... $ 870,801 $ 639,667 $2,441,494 $1,714,553
Europe, Middle East, Africa 364,549 294,949 1,059,679 852,323
Asia Pacific .............. 98,306 67,925 252,261 216,018
---------- ---------- ---------- ----------
Consolidated total ........ $1,333,656 $1,002,541 $3,753,434 $2,782,894
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Identifiable assets
North/Latin America ........ $ 3,756,909 $ 3,162,263
Europe, Middle East, Africa 1,830,106 1,437,871
Asia Pacific ............... 164,882 147,379
Intercompany eliminations .. (94,074) (178,942)
----------- -----------
Consolidated total ......... $ 5,657,823 $ 4,568,571
=========== ===========
</TABLE>
11
<PAGE>
EMC CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. SUBSEQUENT EVENT
On August 9, 1999, EMC announced that it would acquire Data General, a
designer, manufacturer and marketer of CLARiiON mid-range storage products and
AViiON high-end servers for fast growing segments of the server market. EMC
completed this acquisition on October 12, 1999. In the acquisition, the
outstanding common stock of Data General was converted into the right to receive
an aggregate of approximately 16 million shares of EMC common stock, or 0.3125
shares of EMC common stock for each share of Data General common stock. The
transaction was accounted for as a pooling-of-interests. A restructuring charge
to operations by the combined company is expected to occur subsequent to the
acquisition to reflect the combination of the two companies. This charge
has not yet been finalized, but is expected to be at least $100 million and will
be recorded in the fourth quarter of 1999, will include amounts with respect to
payments under employment agreements, the elimination of excess facilities, the
write-off of certain assets, changes to employee benefit plans, transaction
costs, severance costs and other related costs.
The financial statements included in this Quarterly Report on Form 10-Q do
not include the financial results of Data General. The following pro forma
financial data summarizes the consolidated results of operations for the periods
indicated, assuming the acquisition of Data General had taken place prior to
September 30, 1999 and restates the periods presented to reflect this
transaction (on an unaudited basis). Prior to fiscal year 1999, Data General's
fiscal year ended on the last Saturday in September.
<TABLE>
<CAPTION>
Pro Forma
For the Nine Months Ended(1)
-----------------------------
September 30, September 30,
1999 1998
---------- ----------
<S> <C> <C>
Net sales .................................. $4,839,857 $3,879,728
Net income (2) (3) ......................... 803,964 381,008
Net income per common share (2) (3)
Basic ................................ $ .78 $ 0.37
Diluted .............................. $ .73 $ 0.36
</TABLE>
(1) The unaudited pro forma financial data for the nine months ended September
30, 1999 and 1998 combine the unaudited historical consolidated statements
of operations of EMC for the nine months ended September 30, 1999 and 1998
and the unaudited historical consolidated statements of operations of Data
General for the nine months ended September 30, 1999 and September 26,
1998.
(2) The unaudited pro forma financial data for the nine months ended September
30, 1999 does not include any of the restructuring charges or any
adjustments related to recording the tax attributes of the combined
company.
(3) Net income includes a one time restructuring charge of $135 million
incurred by Data General in 1998.
12
<PAGE>
EMC CORPORATION
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 19 and with EMC's other filings with the Commission.
- --------------------------------------------------------------------------------
ALL DOLLAR AMOUNTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ARE IN MILLIONS.
RESULTS OF OPERATIONS-THIRD QUARTER OF 1999 COMPARED TO THIRD QUARTER OF 1998
Revenues
Total revenues for the third quarter of 1999 were $1,333.7 compared to
$1,002.5 for the third quarter of 1998, an increase of $331.2 or 33%.
Enterprise systems revenues from products sold directly and through resellers
and original equipment manufacturers ("OEMs") were $1,013.5 in the third quarter
of 1999, compared to $792.0 in the third quarter of 1998, an increase of $221.5
or 28%. The increase was due to continued strong demand for the Company's
Symmetrix series of products. These products address the growing demand for
enterprise-wide storage solutions, allowing users to move, store and protect
mission critical information in UNIX, Windows NT and mainframe environments.
Enterprise software revenues from products sold directly and through resellers
and OEMs were $206.6 in the third quarter of 1999 compared to $117.5 in the
third quarter of 1998, an increase of $89.1 or 76%. The increase in software
revenues was primarily due to increased licenses of enterprise storage software
on Symmetrix systems, both newly shipped and already installed, and the
successful introduction of new and enhanced software products.
Revenues from enterprise switching products sold by McDATA Corporation,
primarily the ESCON director series of products, were $24.3 in the third quarter
of 1999, compared to $36.2 in the third quarter of 1998, a decrease of $11.9 or
33%, due to a reduction in orders for ESCON directors from IBM. The Company
anticipates that revenues from ESCON directors will remain at these lower
levels.
Service and rental revenues were $89.2 in the third quarter of 1999, compared
to $56.7 in the third quarter of 1998, an increase of $32.5 or 57%, primarily as
a result of the growth of EMC professional services and maintenance revenue.
There were no revenues under the Company's reseller agreement with Hewlett-
Packard Company ("HP") for the third quarter of 1999. Revenues under the
agreement were $164.7, or 16% of total revenues, for the third quarter of 1998.
The Company and HP agreed to terminate this contract effective as of June 30,
1999.
Revenues on sales into the North American markets were $838.7 in the third
quarter of 1999 compared to $624.1 in the third quarter of 1998, an increase of
$214.6 or 34%. The revenue growth reflects continued strong demand for the
Company's products and services.
Revenues on sales into the markets of Europe, the Middle East and Africa were
$364.5 in the third quarter of 1999 compared to $294.9 in the third quarter of
1998, an increase of $69.6 or 24%. The revenue growth reflects continued strong
demand for the Company's products and services across this region.
Revenues on sales into the markets of the Asia Pacific region were $98.3 in
the third quarter of 1999 compared to $67.9 in the third quarter of 1998, an
increase of $30.4 or 45%. The increase was due to the Company's efforts to
expand its business in this region combined with strong demand for the Company's
products and services.
13
<PAGE>
Revenues on sales into the markets of Latin America were $32.1 in the third
quarter of 1999 compared to $15.6 in the third quarter of 1998, an increase of
$16.5 or 106%. The increase was due to the Company's efforts to expand its
business in this region combined with strong demand for the Company's products
and services.
Gross Margins
Gross margins increased to 57.5% of revenues in the third quarter of 1999,
compared to 52.3% of revenues in the third quarter of 1998. This increase is
primarily attributable to increased licensing of the Company's enterprise
software, which has higher gross margins than sales of enterprise systems.
Other factors contributing to the increase include a larger percentage of direct
sales, a trend towards larger configurations of enterprise systems, and the
impact of component cost declines being greater than the impact of product price
declines. The Company currently believes that product price declines will
continue.
Research and Development
Research and development ("R&D") expenses were $117.6 and $80.4 in the third
quarters of 1999 and 1998, respectively, an increase of $37.2 or 46%. R&D
expenses were 8.8% and 8.0% of revenues in the third quarters of 1999 and 1998,
respectively. The increase reflects the Company's ongoing research and
development efforts in a variety of areas, including EMC Enterprise Storage
Network technologies, enhancements to the Symmetrix family of products, new and
enhanced enterprise storage software products and fibre channel connectivity.
The Company expects to continue to spend substantial amounts for R&D for the
balance of 1999 and thereafter.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were $261.6 and $193.1
in the third quarters of 1999 and 1998, respectively, an increase of $68.5 or
36%. SG&A expenses were 19.6% and 19.3% of revenues in the third quarters of
1999 and 1998, respectively. This increase primarily reflects the Company's
objective of building an infrastructure to achieve broader coverage and greater
account depth around the world and to expand its technical sales organization to
support the current and expected growth in software revenues. The increase also
reflects the Company's expanded direct sales presence where it previously relied
upon resellers.
Investment Income and Interest Expense
Investment income was $32.0 in the third quarter of 1999 compared with $25.8
in the third quarter of 1998. Interest income was earned from investments in
cash equivalents and short and long-term investments. Investment income
increased in the third quarter of 1999 primarily due to higher cash and
investment balances which were derived from operations.
Interest expense decreased to $4.3 in the third quarter of 1999 from $4.9 in
the third quarter of 1998. This decrease is attributable to conversions of the
Company's 3 1/4% convertible subordinated notes due 2002 in the first and
second quarters of 1999.
Provision for Income Taxes
The provision for income taxes was $103.2 and $67.1 in the third quarters of
1999 and 1998, respectively, which resulted in an effective tax rate of 25.0% in
each period. The effective tax rate is mainly attributable to the realization of
benefits associated with the Company's various tax strategies and benefits
related to offshore manufacturing. The Company anticipates the effective tax
rate will remain at 25% for the fourth quarter of 1999 prior to the impact of
the restructuring charge or adjustments related to recording the tax attributes
of the combined company (see Note 7 "Subsequent Event" to EMC's interim
unaudited consolidated financial statements included elsewhere herein) and will
increase in fiscal 2000.
14
<PAGE>
RESULTS OF OPERATIONS - FIRST NINE MONTHS OF 1999 COMPARED TO
FIRST NINE MONTHS OF 1998
Revenues
Total revenues for the first nine months of 1999 were $3,753.4 compared to
$2,782.9 for the first nine months of 1998, an increase of $970.5 or 35%.
Enterprise systems revenues from products sold directly and through resellers
and original equipment manufacturers ("OEMs") were $2,860.2 in the first nine
months of 1999, compared to $2,256.6 in the first nine months of 1998, an
increase of $603.6 or 27%. The increase was due to continued strong demand for
the Company's Symmetrix series of products. These products address the growing
demand for enterprise-wide storage solutions, allowing users to move, store and
protect mission critical information in UNIX, Windows NT and mainframe
environments.
Enterprise software revenues from products sold directly and through resellers
and OEMs were $540.7 in the first nine months of 1999 compared to $281.4 in the
first nine months of 1998, an increase of $259.3 or 92%. The increase in
software revenues was primarily due to increased licenses of enterprise storage
software on Symmetrix systems, both newly shipped and already installed, and the
successful introduction of new and enhanced software products.
Revenues from enterprise switching products sold by McDATA Corporation,
primarily the ESCON director series of products, were $109.1 in the first nine
months of 1999, compared to $132.5 in the first nine months of 1998, a decrease
of $23.4 or 18%, due to a reduction in orders for ESCON directors from IBM. The
Company anticipates that revenues from ESCON directors will remain at these
lower levels.
Service and rental revenues were $243.5 in the first nine months of 1999,
compared to $112.3 in the first nine months of 1998, an increase of $131.2 or
117%, primarily as a result of the growth of EMC professional services and
maintenance revenues.
Revenues under the Company's reseller agreement with HP were approximately
$219.0 and $507.7, or 6% and 18% of total revenues, for the first nine months of
1999 and 1998, respectively. The Company and HP agreed to terminate this
contract effective as of June 30, 1999.
Revenues on sales into the North American markets were $2,357.3 in the first
nine months of 1999 compared to $1,683.0 in the first nine months of 1998, an
increase of $674.3 or 40%. The revenue growth reflects continued strong demand
for the Company's products and services.
Revenues on sales into the markets of Europe, the Middle East and Africa were
$1,059.7 in the first nine months of 1999 compared to $852.3 in the first nine
months of 1998, an increase of $207.4 or 24%. The revenue growth reflects
continued strong demand for the Company's products and services across this
region.
Revenues on sales into the markets of the Asia Pacific region were $252.3 in
the first nine months of 1999 compared to $216.0 in the first nine months of
1998, an increase of $36.3 or 17%. The increase was due to the Company's
efforts to expand its business in this region combined with strong demand for
the Company's products and services.
Revenues on sales into the markets of Latin America were $84.2 in the first
nine months of 1999 compared to $31.6 in the first nine months of 1998, an
increase of $52.6 or 167%. The increase was due to the Company's efforts to
expand its business in this region combined with strong demand for the Company's
products and services.
In March 1999, the Company announced a five-year strategic technology and
business alliance with IBM. Under the terms of the accord, the Company will
continue to purchase IBM disk drives for incorporation into EMC's Symmetrix
Enterprise Storage systems. The alliance also provides for a broad patent
cross-license between the two companies for storage and other technologies.
15
<PAGE>
Gross Margins
Gross margins increased to 55.6% of revenues in the first nine months of 1999,
compared to 50.5% of revenues in the first nine months of 1998. This increase
is primarily attributable to increased licensing of the Company's enterprise
software, which has higher gross margins than sales of enterprise systems.
Other factors contributing to the increase include a larger percentage of direct
sales, a trend towards larger configurations of enterprise systems, and the
impact of component cost declines being greater than the impact of product price
declines. The Company currently believes that product price declines will
continue.
Research and Development
Research and development ("R&D") expenses were $329.2 and $220.3 in the first
nine months of 1999 and 1998, respectively, an increase of $108.9 or 49%. R&D
expenses were 8.8% and 7.9% of revenues in the first nine months of 1999 and
1998, respectively. The increase reflects the Company's ongoing research and
development efforts in a variety of areas, including EMC Enterprise Storage
Network technologies, enhancements to the Symmetrix family of products, new and
enhanced enterprise storage software products and fibre channel connectivity.
The Company expects to continue to spend substantial amounts for R&D for the
balance of 1999 and thereafter.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were $731.3 and $523.9
in the first nine months of 1999 and 1998, respectively, an increase of $207.4
or 40%. SG&A expenses were 19.5% and 18.8% of revenues in the first nine months
of 1999 and 1998, respectively. This increase primarily reflects the Company's
objective of building an infrastructure to achieve broader coverage and greater
account depth around the world and to expand its technical sales organization to
support the current and expected growth in software revenues. In addition, the
Company has increased its direct sales presence where it previously relied upon
resellers.
Investment Income and Interest Expense
Investment income was $84.5 in the first nine months of 1999 compared with
$72.2 in the first nine months of 1998. Interest income was earned from
investments in cash equivalents and short and long-term investments. Investment
income increased in the first nine months of 1999 primarily due to higher cash
and investment balances which were derived from operations.
Interest expense decreased to $14.2 in the first nine months of 1999 from
$14.6 in the first nine months of 1998.
Provision for Income Taxes
The provision for income taxes was $273.0 and $179.0 in the first nine months
of 1999 and 1998, respectively, which resulted in an effective tax rate of 25.0%
in each period. The effective tax rate is mainly attributable to the realization
of benefits associated with the Company's various tax strategies and benefits
related to offshore manufacturing. The Company anticipates the effective tax
rate will remain at 25% for the fourth quarter of 1999 prior to the impact of
the restructuring charge or adjustments related to recording the tax attributes
of the combined company (see Note 7 "Subsequent Event" to EMC's interim
unaudited consolidated financial statements included elsewhere herein) and will
increase in fiscal 2000.
Financial Condition
Cash and cash equivalents and short and long-term investments were $2,631.0
and $2,092.8 at September 30, 1999 and December 31, 1998, respectively, an
increase of $538.2. Cash provided by operating activities for the first nine
months of 1999 was $835.3, generated primarily from net income. Cash used by
investing activities was $892.1, principally from the purchases of short and
long-term investments and additions to property, plant and equipment. Cash
provided by financing activities was $33.2, principally from the issuance of
common stock from stock option exercises, offset by payments of short and long-
term obligations.
16
<PAGE>
At September 30, 1999, the Company had available for use its credit line of
$50.0 and may elect to borrow at any time. Based on its current operating and
capital expenditure forecasts, the Company 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.
Adoption of New Accounting Pronouncement
In June 1998, FASB issued SFAS 133 which is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company adopted SFAS 133
on January 1, 1999. (See Note 5 "Adoption of New Accounting Pronouncement" to
EMC's interim unaudited consolidated financial statements included elsewhere
herein.)
Data General Acquisition
On October 12, 1999, EMC completed its acquisition of Data General, a
designer, manufacturer and marketer of CLARiiON mid-range storage products and
AViiON high-end servers for fast growing segments of the server market. In the
acquisition, the outstanding common stock of Data General was converted into the
right to receive an aggregate of approximately 16 million shares of EMC common
stock, or 0.3125 shares of EMC common stock for each share of Data General
common stock. The transaction was accounted for as a pooling-of-interests. A
restructuring charge to operations by the combined company is expected to occur
subsequent to the acquisition to reflect the combination of the two companies.
This charge, which has not yet been finalized, will include amounts with respect
to payments under employment agreements, the elimination of excess facilities,
the write-off of certain assets, changes to employee benefit plans, transaction
costs, severance costs and other related costs. See Note 7 "Subsequent Event" to
EMC's interim unaudited consolidated financial statements included elsewhere
herein.
Year 2000 Issues
The information provided below constitutes a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act.
Certain computer hardware and software is unable to appropriately interpret
the upcoming calendar year 2000. These systems and software refer to years in
terms of their final two digits only and may interpret the year 2000 as the year
1900 in error. Therefore, they will need to be modified prior to the year 2000
in order to remain functional. EMC has established a Year 2000 program that
involves assessing EMC's key hardware and software, assessing Year 2000
compliance by third parties with which EMC has a material relationship,
assessing Year 2000 compliance of EMC's products, and modifying and testing
hardware and software in EMC's internal systems and products, where necessary.
EMC has completed an assessment of the hardware and software in its core
business information systems and has substantially completed the necessary
modifications. EMC has also completed an assessment of the hardware and
software in other information systems used in its operations and has
substantially completed the necessary modifications. In addition, EMC has
completed an assessment of the hardware and software used in its business that
is not supported by EMC's information system department. The necessary
modifications have been completed for such hardware and software.
EMC has contacted key vendors and suppliers and other third parties whose
systems failures could potentially have a significant impact on EMC's
operations. EMC has received certifications of Year 2000 compliance from all of
its key vendors and suppliers. EMC has received certifications or statements of
Year 2000 compliance from other vendors and suppliers and has assessed
questionnaire responses and related information from other third parties.
EMC has designed and tested the current versions of its Symmetrix series of
products and the current versions of its other products to be Year 2000
compliant. Some of EMC's customers are running earlier versions of its
Symmetrix series of products and other products that have not been tested for
Year 2000 compliance. EMC has made upgrades available for the older versions of
its Symmetrix series of products and for certain other of its older products so
that such products will test as Year 2000 compliant.
17
<PAGE>
EMC believes the assessment and remediation phases of its Year 2000 conversion
program are complete, although the testing phase and the contingency planning
phase will continue extensively throughout 1999. The total cost of such program
has not had, and EMC does not anticipate that the total cost of such program
will have, a material effect on its business, results of operations or financial
condition.
The most reasonably likely worst case scenarios regarding the Year 2000 issue
would include a hardware failure, the corruption or loss of data contained in
EMC's internal information systems, a failure affecting EMC's key vendors,
suppliers or customers, the failure of infrastructure services provided by
government agencies or other third parties, and customer dissatisfaction related
to the performance of EMC's products.
EMC has developed a Year 2000 contingency plan. This contingency plan
includes, among other things, manual "work-arounds" for hardware and software
failures, as well as substitution of systems, if required.
Further information about EMC's Year 2000 readiness is available at the
Company's website at http://www.emc.com/year2000/.
EMC acquired Data General on October 12, 1999. (See Note 7 "Subsequent Event"
to EMC's interim unaudited consolidated financial statements included elsewhere
herein.) Prior to the acquisition, Data General assessed the Year 2000 readiness
of its AViiON servers and CLARiiON storage products. Based on these efforts,
Data General determined that its AViiON servers and CLARiiON storage products
test as Year 2000 ready or made upgrades available to make such products
test as Year 2000 ready. Data General also assessed the Year 2000 readiness
of several of its other products and determined that certain of its older
products do not test as Year 2000 ready, although EMC does not believe that
the impact of any Year 2000 issues associated with any such products will have a
material effect on the combined company's business, results of operations or
financial condition. Data General also completed the Year 2000 readiness
assessment, testing and remediation phases for all of its key internal systems
and EMC does not believe that the impact of Year 2000 issues on any such systems
will have a material effect on the combined company's business, results of
operations or financial condition. While Data General substantially completed
the risk assessment and readiness assessment phases of its Year 2000 program for
its other systems, equipment, processes and facilities, certain remediation
activities are ongoing. EMC does not anticipate that the impact of any Year 2000
issues on any such systems, equipment, processes or facilities will have a
material effect on the combined company's business, results of operations or
financial condition. Data General received statements of Year 2000 readiness
from substantially all of its key vendors and suppliers. EMC is currently
developing a Year 2000 contingency plan for the former Data General business.
EMC expects this contingency plan will include, among other things, manual
"work-arounds" for hardware and software failures to mitigate or avoid potential
interruptions in normal business operations. EMC does not anticipate that the
total cost of Data General's Year 2000 program will have a material effect on
the combined company's business, results of operations or financial condition.
Further information about Data General's Year 2000 readiness and about
the Year 2000 readiness of specific products is available at Data General's
web sites at http://www.dg.com/year2000 and
http://www.clariion.com/year2000/index.html.
There can be no assurance that conversion of the combined company's hardware
and software will be successful, that key third parties will have successful
conversion programs, that the combined company's products do not contain
undetected errors or defects associated with Year 2000 date functions, or that
other factors relating to Year 2000 compliance, including but not limited to
litigation, will not have a material adverse effect on the combined company's
business, results of operations or financial condition.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro. The Company has developed and implemented the
necessary modifications for the technical adaptation of its internal IT and
other systems to accommodate Euro-denominated transactions. The Company is
continuing to assess certain business implications of conversion to the Euro,
including the long term competitive implications of the conversion and the
impact on market risk with respect to financial instruments. Management is also
continuing to evaluate other impacts of this conversion on the Company,
including the potential actions which may or may not be taken by the Company's
competitors and suppliers.
18
<PAGE>
Factors That May Affect Future Results
This Quarterly Report on Form 10-Q 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) component quality and
availability; (ii) delays in the development of new technology and the
transition to new products; (iii) competitive factors, including but not limited
to pricing pressures, in the computer storage market; (iv) the relative and
varying rates of product price and component cost declines; (v) economic trends
in various geographic markets and fluctuating currency exchange rates; (vi)
deterioration or termination of the agreements with certain of the Company's
resellers or OEMs; (vii) the uneven pattern of quarterly sales; (viii) risks
associated with strategic investments and acquisitions; (ix) Year 2000 issues;
and (x) other one-time events and other important factors disclosed previously
and from time to time in EMC's other filings with the the Commission.
19
<PAGE>
EMC CORPORATION
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company acquired Data General on October 12, 1999. See Note 7 "Subsequent
Event" to EMC's interim unaudited consolidated financial statements included
elsewhere herein. Data General had filed two suits against IBM in the United
States District Court for the District of Massachusetts in Worcester alleging
that certain IBM products were infringing certain Data General patents. Both
suits seek compensatory damages and, where appropriate, injunctive relief.
IBM's responses deny Data General's infringement claims and interpose
counterclaims alleging that the CLARiiON storage systems infringe certain IBM
patents. Trials have not yet commenced with respect to either suit and
discovery in each case is ongoing.
The Company is a party to other 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 the Company's business,
results of operations or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
On August 10, 1999, the registrant filed a Current Report on Form 8-K,
reporting under Item 5 the announcement of the execution of an Agreement and
Plan of Merger dated as of August 6, 1999 by and among the registrant, Data
General Corporation and Emerald Merger Corporation.
On October 20, 1999, the registrant filed a Current Report on Form 8-K,
reporting under Item 2 the completion of the registrant's acquisition of Data
General Corporation. On November 4, 1999, the registrant filed a Current Report
on Form 8-K/A to file certain required financial data and information in
connection with such Current Report on Form 8-K.
20
<PAGE>
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 12, 1999
By: /s/ Colin G. Patteson
------------------------------------------
Colin G. Patteson
Senior Vice President,
Chief Administrative Officer and Treasurer
(Principal Financial Officer)
By: /s/ William J. Teuber, Jr.
------------------------------------------
William J. Teuber, Jr.
Vice President and Chief Financial Officer
(Principal Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule (filed herewith).
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMC
CORPORATION FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 678,767
<SECURITIES> 579,057
<RECEIVABLES> 1,260,744
<ALLOWANCES> 13,061
<INVENTORY> 529,857
<CURRENT-ASSETS> 3,197,400
<PP&E> 770,549
<DEPRECIATION> 475,324
<TOTAL-ASSETS> 5,657,823
<CURRENT-LIABILITIES> 816,524
<BONDS> 491,636
0
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<COMMON> 10,175
<OTHER-SE> 4,253,242
<TOTAL-LIABILITY-AND-EQUITY> 5,657,823
<SALES> 3,509,928
<TOTAL-REVENUES> 3,753,434
<CGS> 1,664,840
<TOTAL-COSTS> 2,725,403
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<INTEREST-EXPENSE> 6,138
<INCOME-PRETAX> 1,092,169
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