Back to GetFilings.com
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 30, 1995 Commission File No 1-9853
____________________
EMC CORPORATION
Massachusetts No. 04-2680009
State of Incorporation I.R.S. Employer Identification
Number
171 South Street, Hopkinton, Massachusetts 01748
Telephone: (508) 435-1000
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: Commission File Number 1-9853
December 30, 1995
EMC CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2680009
(State or other jurisdiction (I.R.S. Employer Identification
of organization or incorporation) Number)
171 South Street
Hopkinton, Massachusetts 01748
(Address of principal executive offices, including zip code)
(508) 435-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Name of Each Exchange on Which Registered:
Common Stock, $.01 par value New York Stock Exchange
4 1/4% Convertible Subordinated New York Stock Exchange
Notes due 2001
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by
nonaffiliates of the registrant was $4,522,704,964 as of March
15, 1996.
The number of shares of Common Stock, $.01 par value,
outstanding as of March 15, 1996 was 230,690,570.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in response to Part III of Form
10-K is hereby incorporated by reference to the specified
portions of the registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 8, 1996.
ITEM 1. BUSINESS
EMC Corporation and its subsidiaries ("EMC" or the
"Company") design, manufacture, market and support a wide
range of storage-related hardware, software and service
products for the mainframe, open systems and network
computer storage markets worldwide. These products are sold
as storage solutions for customers utilizing a variety of
computer system platforms, including, but not limited to,
International Business Machines Corporation ("IBM") and IBM-
compatible mainframe, Unisys Corporation ("Unisys"),
Compagnie des Machines Bull S.A. ("Bull"), Hewlett-Packard
Company ("HP"), NCR Corporation ("NCR") and other open
systems platforms. EMC storage products provide solutions
for a wide range of customer disk storage requirements, from
the highest performance mission critical applications to
extremely high capacity business support applications.
The Company develops its products by integrating
technologically advanced, industry standard components and
devices with Company-designed proprietary hardware and
software technology. The Company's principal products are
based on Integrated Cached Disk Array ("ICDA") technology,
which combines high-speed semiconductor cache memory managed
by advanced caching algorithms, with industry standard disk
drives. These products include two families of Symmetrix
high speed ICDA-based storage systems, the Symmetrix 5000
(introduced in 1992) and the Symmetrix 3000 (announced in
June 1995), for the IBM and IBM-compatible mainframe, Unisys
and Bull mainframe, IBM AS/400 and open systems storage
markets.
The Company also designs, manufactures and markets the
Harmonix series of high speed ICDA-based systems for the IBM
AS/400 computer market, and the Centriplex family of ICDA
products for the open systems storage marketplace. In March
1996, the Company introduced its new Extended-Online Storage
("EOS") system. This product is unique in the computer
industry as a new tier of storage solution for high
capacity, business support applications.
Additionally, the Company markets tape back-up systems
and information management software for the mainframe, open
systems, IBM AS/400 and network storage markets. In March
1996, the Company introduced EMC Data Manager ("EDM"), an
integrated turnkey solution providing the highest
performance for network storage backup and recovery
requirements.
EMC also develops software products to enhance the
capabilities and value of EMC's storage solutions. These
software products are either optional EMC controller-based
or host-based software. Controller-based software resides
within the EMC system, while host-based software resides
within the customer's Central Processing Unit ("CPU").
Controller-based software is offered in both the
mainframe and open systems storage markets. Examples of this
software include: Symmetrix Remote Data Facility ("SRDF"),
providing customer solutions to requirements such as
disaster recovery and extended distance data center
migration; Symmetrix Data Migration Services ("SDMS"), which
is a combined software and services offering that enables
customers to migrate mainframe data from older technology
disk devices to Symmetrix 5000 systems while applications
remain online; and Symmetrix Enterprise Storage Platform
("Symmetrix ESP"), which enables a single system from the
Symmetrix 5000 family to simultaneously store both mainframe
and open systems data.
The Company's host-based software products provide
mainframe customers the ability to better manage their EMC
hardware environments. These products include the Symmetrix
Manager and SRDF Host Component software solutions.
The customers for the Company's products are located
worldwide and represent a cross section of industries and
government agencies that range in size from Fortune 1000
companies to small businesses, and national to local
governments. The Company markets its products worldwide
through its direct sales force, distributors and original
equipment manufacturers ("OEMs"). During 1995, the Company
increased its direct sales capabilities by purchasing
certain assets of distributors and/or beginning direct sales
operations in the Nordic countries, South Africa and the
Asia Pacific region. All products sold directly to end users
are maintained and serviced by the Company or authorized
third party providers. Products sold through distributors or
OEMs are normally maintained by the resellers.
EMC, a Massachusetts corporation, was incorporated in
1979 and has its corporate headquarters located at 171 South
Street, Hopkinton, Massachusetts.
Company Strategy
The Company's objective is to be the industry's
independent storage solutions leader by providing hardware,
software and service products to the mainframe, open systems
and network computer storage markets. Part of the Company's
strategy is to differentiate its products by incorporating
features and functions that provide competitive advantage
for EMC customers. This differentiation has traditionally
been delivered through EMC's high performance and
availability storage products.
Innovative Architectural Design.
The Company has developed a common architecture, called
MOSAIC:2000, on which its principal products are based. This
architectural philosophy is based upon a modular design and
industry standard interfaces that allow new technologies to
be incorporated more rapidly than with traditional
architectures. This facilitates integration into a variety
of computer environments, and upgrade and enhancement
capabilities that extend the useful life of the Company's
storage systems and, potentially, customer's other computer-
related assets. This architectural design has enabled the
Company to expand its offerings in existing markets and has
enabled the Company to continue to enter new, strategic markets.
Proprietary Software Technology
A major strategic asset of the Company is the
proprietary software utilized to provide primary and
extended functionality for the Company's storage products.
This proprietary controller software provides significant
flexibility, enabling the Company to scale hardware
platforms for many customer application requirements. The
primary functionality provided by the controller-based
software provides advanced intelligence to the ICDA
architecture, integrating industry standard hardware
components, such as high speed cache memory, disk drives and
other devices to enhance the performance, reliability,
availability, connectivity and functionality of the
Company's storage systems.
Mainframe Market
The mainframe storage market is estimated to be a multi-
billion dollar market, which the Company has penetrated with
its ICDA-based products. Product sales to the mainframe
market represented approximately 76%, 88% and 82%,
respectively, of EMC's 1995, 1994 and 1993 product revenues.
In 1990, EMC introduced the first Symmetrix series for
the IBM and IBM-compatible mainframe storage market.
Symmetrix was the first commercially available intelligent
disk storage system for this marketplace that integrated
highly sophisticated controller software with large amounts
of cache memory and arrays of industry standard 5.25" (and
more recently, 3.5") disk drives. This combination continues
to provide customers with unique advantages and capabilities
including: high performance disk storage, operating system
independence for easy integration into existing computer
environments; built-in redundancy and availability features
allowing for higher data availability and continuous
operations; and small footprint and low environmental
requirements for low cost of ownership.
Since the first Symmetrix model, with a maximum
capacity of 24GB, the Company has continued to enhance and
increase the capabilities of the Symmetrix family. The
Company's current mainframe product offering is the
Symmetrix 5000 family which includes the 5100, 5200, and
5500 series of systems. The Symmetrix 5000 family members
share a common architecture and components, with the main
differentiator being capacity and host connectivity
capabilities. The Symmetrix 5100, 5200, and 5500 offer up to
136GB, 402GB, and 1 terabyte of mainframe storage capacity,
respectively. The Company believes that the Symmetrix 5000
family is the highest performance and availability mainframe
storage solution in the market.
A significant factor in Symmetrix market success has
been the unique controller-based software that all Symmetrix
5000 family members support. These include SRDF and SDMS as
business continuance solutions, Symmetrix ESP for
simultaneous support of mainframe and open systems
computers, and Multi-Path Locking Facility ("MPLF"), which
enhances transportation industry application support.
Additionally, EMC offers mainframe host-based software
products that improve the management of specific EMC systems
and products including Symmetrix Manager and SRDF Host
Component.
In March 1996, EMC entered a new segment of the
mainframe market with a unique solution for high capacity
applications that require disk-based storage and better
application response time than can be provided by
traditional offline storage offerings. EOS has defined a
new tier in the storage hierarchy, between traditional
online disk storage and offline storage, such as tape or
optical disk. EOS is targeted at specific business support
applications that previously had no appropriate storage
platform. EOS provides over one terabyte of maximum
capacity.
Open Systems Market
The open systems storage market is estimated to be a
multi-billion dollar market with extremely fast growth in
storage requirements, which EMC's products have only
recently begun to penetrate. The driving force behind this
growth is the focus on developing new customer applications
on open systems platforms. Unix and client/server
application developments continue to increase the storage
requirements for the many processing platforms available in
this market. Revenues to the open systems market
represented approximately 11% of EMC's product revenues in
1995.
The Company's first major product in this market was
the Centriplex family of ICDA products introduced in
November 1994. In June 1995, the Company introduced the
Symmetrix 3000 family for the open systems storage
marketplace. The Symmetrix 3000 family provides a unique
solution for the open systems marketplace, with high
performance and availability for mission and business
critical applications. The Symmetrix 3000 family includes
the 3100, 3200 and 3500 series of systems, which support up
to 139GB, 408GB, and 1 terabyte of open systems storage
capacity, respectively. The Symmetrix 3000 family also
supports the SRDF software for mission critical information
availability requirements.
HP and NCR, formerly AT&T Global Information Solutions,
signed agreements with EMC during 1995 to market and resell
the Symmetrix 3000 family of products worldwide into their
respective markets. See "OEM Channels".
IBM AS/400 Market
In 1992, the Company introduced the first ICDA-based
storage systems for the IBM AS/400 computer market, the
Harmonix family. The Harmonix family integrates cache
memory with both 5.25" and 3.5" disk drives to provide high
performance, high capacity storage solutions. During 1994,
the Company expanded the Harmonix family to include models
featuring high capacity at a lower cost, and models
emphasizing high availability. Revenues from the Harmonix
family declined during 1995, with product sales representing
approximately 5%, 10%, and 15%, respectively, of EMC product
revenue in 1995, 1994 and 1993.
During 1995, both the Symmetrix 5000 and Symmetrix 3000
families introduced support for the AS/400 computer environments.
EMC also offers the Voyager family of 8 millimeter
("mm") based Intelligent Cached Tape Subsystems, which
provide AS/400 users high capacity, high performance and
unattended backup capabilities. These products feature an
advanced controller design and cache buffer combined with
the ability to interleave data to up to four 8mm tape
transports simultaneously, greatly improving the speed of
backup operations. EMC's acquisition of Magna Computer
Corporation ("Magna") augmented the Voyager family by adding
4mm, additional 8mm, and reel-to-reel tape products to the
Company's portfolio.
Network Market
The network market is estimated to have extremely high
potential for storage requirements, which EMC's products
have only recently begun to penetrate. In 1995, product
sales to the network market represented 8% of EMC's product
revenue.
In 1995, the Company introduced Epoch Data Manager, the
Company's first network attached storage solution. In March
1996, the Company introduced EDM, a significant enhancement
of Epoch Data Manager. EDM is an integrated network storage
backup solution, with intelligent proprietary software
providing resource management to integrated disk and
automated tape library hardware components. EDM offers high
performance integrated network backup and recovery. In
addition, EDM is extremely scalable in both capacity and
performance, and is the leading solution for relational
database backup requirements.
EMC is currently engaging in research and development
of products for the network market in the areas of network
file access, video, centralized backup repository and other
network data access services.
In December 1995, the Company completed the acquisition
of McDATA Corporation ("McDATA"). McDATA designs,
manufactures, markets and supports high performance
information switching products, delivering innovative
networking solutions for large-scale computing applications,
including local, metropolitan and wide-area connectivity.
McDATA's primary product is the ESCON Director, a high-speed
fiber-optic-based network switch designed to connect
computers and peripherals within data center environments.
The ESCON Director is marketed by IBM under an exclusive OEM
agreement with McDATA. The Company believes that this
acquisition will help position EMC at the center of the
networked data and open systems marketplaces, thereby
permitting EMC to play an even more critical role in helping
EMC's customers establish information-centric computing
strategies.
Marketing and Customers
EMC markets its products through multiple distribution
channels, including its direct sales force, selected
distributors and OEMs. The Company has a direct sales
presence throughout North America, Europe, South Africa and
the Asia Pacific region and uses distributors as its primary
distribution channel in other areas of the world. Over the
past two years, the Company has expanded its sales and
marketing organizations significantly in all major
geographies of the world. In June 1995, EMC purchased
certain assets from its South African distributor and has
been selling direct in South Africa since that time. In
September 1995, EMC purchased certain assets from its
distributor in Sweden and has been selling direct in the
Nordic countries since that time.
During 1995, the Company derived 64% of its product
revenue from shipments into North and South America, 29%
from shipments into Europe, the Middle East and Africa, and
7% from shipments into the Asia Pacific region. The Company
has dedicated personnel to support the needs of its
customers in the mainframe, open systems and IBM AS/400
storage markets and also of its distributors and OEM
customers, both domestically and internationally.
The Company's strategy is to continue to expand its
markets in storage solutions. Specific targeted storage
markets include: the IBM and IBM-compatible mainframe
storage market, the open systems market, the network storage
market and the Bull and Unisys storage markets.
Multi-Channel Distribution Focus
The Company has adopted a multi-channel distribution
approach to sell its products in those large markets of the
world which the Company believes have a demand for its
products. The Company's distribution channels include a
direct sales force, distributors and OEMs.
OEM Channels
The MOSAIC:2000 architectural philosophy, and the
flexibility it provides, make EMC's products well suited for
sale by strategic OEMs in partnership with the Company. The
Company believes that with the new open systems capabilities
introduced in 1995, revenues from the OEM market will increase.
Since January 1992, EMC has had an OEM Agreement with
Unisys for the sale of Unisys-compatible Symmetrix systems.
Unisys maintains worldwide marketing rights to both the
Symmetrix and Modarray products for use with Unisys systems,
subject to certain terms and conditions.
In February 1993, the Company entered into an OEM
agreement with Bull. This agreement granted Bull exclusive
worldwide marketing rights, with the exception of Japan, to
EMC's Symmetrix 4800 series for use with Bull mainframe
computers as Bull's solution for all high speed disk
requirements. In June 1995, certain systems in the
Symmetrix 5000 family were added to this agreement. In
March 1996, the Company extended this agreement to add the
Symmetrix ESP.
On October 31, 1995, the Company entered into a
reseller agreement with HP wherein HP will market and resell
the Symmetrix 3000 family of systems worldwide for
connection to HP's 9000 series computers. The agreement
currently extends to June 30, 1997.
On November 2, 1995, the Company entered into an OEM
agreement with NCR to market and sell the Symmetrix 3000
family of systems under an NCR label worldwide for
connection to NCR's WorldMark brand of enterprise server
systems. The agreement currently extends to November 2, 1998.
Operations
EMC's products utilize the Company's engineering
designs, with industry standard and semi-custom components
and subsystems. EMC's products are assembled and tested
primarily at the Company's facilities in Massachusetts and
Cork, Ireland. Product components manufactured by
subcontractors in the U.S. and Europe are assembled in
accordance with production standards and quality controls
established by EMC. The Company believes its present level
of manufacturing capacity, along with its current plans for
expansion, will be sufficient to accommodate its requirements.
The Company has implemented a Total Quality Management
philosophy to ensure the quality of its designs,
manufacturing process and suppliers. The Company's
operations in Massachusetts currently hold an ISO 9001
Certificate of Registration from National Quality Assurance,
Ltd. This internationally recognized endorsement of ongoing
quality management represents the highest level of
certification available. The Company's Irish manufacturing
operation holds ISO 9002 registration. The Company's
principal manufacturing operation in Hopkinton,
Massachusetts has also been awarded Class A MRP II status by
an independent evaluation organization.
Manufacturing Risks
The Company's products operate near the limits of
electronic and physical performance and are designed and
manufactured with relatively small tolerances. If flaws in
design, production, assembly or testing occur on the part of
EMC or its suppliers, EMC may experience a rate of failure
in its products that results in substantial repair or
replacement costs and potential damage to EMC's reputation.
Continued improvement in manufacturing capabilities and
control of material and manufacturing quality and costs will
be critical factors in the future growth of EMC. EMC
frequently revises and updates manufacturing and test
processes to address engineering and component changes to
its products and evaluates the reallocation of manufacturing
resources among its facilities. There can be no assurance
that EMC's efforts to monitor, develop and implement
appropriate test and manufacturing processes for its
products, especially the Symmetrix series of products will
be sufficient to permit EMC to avoid a rate of failure in
its products that results in substantial delays in shipment,
repair or replacement costs and potential damage to EMC's
reputation, any of which could have substantial adverse
effects on EMC's operations and ultimately on its financial results.
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 5.25" and 3.5" disk drives, which the Company
purchases from a small number of qualified suppliers. 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 during 1995, because of high industry
demand and/or the inability of certain vendors to
consistently meet on a timely basis the Company's component
quality standards, the Company experienced delays in
deliveries of high density DRAMs and disk drives needed to
satisfy orders for ICDA products. The Company is currently
working with such vendors to correct these problems and is
also seeking alternative sources of supply. If shortages
and/or quality problems were to intensify, the Company could
lose some time-sensitive customer orders which could
adversely affect quarterly revenues and earnings.
Competition
In the mainframe market, EMC competes primarily with
IBM for the sale of the Company's storage products. The
Company believes that it has a number of competitive
advantages over IBM, especially in the areas of product
performance, value-added software capabilities, time to
market enhancements and cost of ownership. The Company
realizes that IBM has certain competitive advantages
including significantly greater financial and technological
resources, the ability to provide more complex hardware and
software in packaged solutions, a larger distribution
capability, access to high-level customer decision makers,
and high levels of customer loyalty. Other important
elements of competition in the computer storage industry are
product reliability and quality, continuing technological
improvements, marketing and customer service, and product
design. There are also a number of independent competitors
in the mainframe market including Hitachi Data Systems,
Storage Technology Corporation ("STK") and Amdahl Corporation.
In the open systems market the Company's major
competition is provided by systems vendors who integrate
internal disk devices within their CPU platforms, including
IBM, Digital Equipment Corporation and Sun Microsystems
Corporation. The Company believes that its major
independent storage competitor in this market is Data
General Corporation. In the Company's opinion, the major
competitive advantage of the open systems vendors is their
overall market presence and ability to provide integrated
CPU, storage and software packages. However, EMC believes
that it has advantages over these competitors in
performance, capacity and software features.
In the IBM AS/400 market, competition has historically
come from IBM, STK and smaller companies. IBM's market
presence and its integrated solutions afford IBM a
significant advantage in this marketplace. With regard to
independent storage providers, EMC believes that it has
advantages over these AS/400 competitors in performance,
availability and feature capabilities.
Technological Factors
The computer data storage industry is characterized by
rapidly changing technology and user needs which require
ongoing technological development and introduction of new
products. Recognizing this fact, the Company developed a
storage system architecture called MOSAIC:2000 to allow the
Company to take better advantage of technological
developments. By employing this architectural approach to
product development, EMC is able to quickly integrate new
technologies into its basic design. The Company works
closely with its suppliers to understand their technology
direction and to plan for the integration of this technology
into its product architecture. The Symmetrix series, the
Harmonix series and the Centriplex family of products all
use the MOSAIC:2000 architecture.
In 1995, sales of the Symmetrix series remained the
most significant source of revenues for the Company and
sales of such products are expected to continue to be the
principal source of revenues during 1996. The Company
expects competition in the sales of ICDA-based products to
increase and there can be no assurance that the Symmetrix
series of products will continue to achieve market
acceptance. Significant delays in the development of ICDA
technology for future products or product enhancements would
be to the advantage of the Company's competitors, some of
whom have significantly greater resources, and could
ultimately affect the Company's financial condition.
Furthermore, the continued development of ICDA technology
and its incorporation into the Company's future generations
of products cannot be assured even with significant
additional investments.
Product Development
EMC's ability to compete successfully in present and
future markets depends upon the timely development and
introduction of products offering price/performance or
capacity advantages and compatibility with the computer
systems or networks for which they are designed. Achieving
these goals requires that the Company remain abreast of
changing technology and design products that operate within
the architecture of various computer systems and deliver
performance or capacity advantages not offered by the
original systems developer or by other storage competitors.
Moreover, the computer industry is subject to rapid
technological developments. Consequently, achieving such
goals may become more difficult, costly and time consuming
as a result of technological developments that cannot now be
foreseen. Research and development costs were $162,611,000,
$117,922,000, and $58,977,000 for the fiscal years ended
December 30, 1995, December 31, 1994, and January 1, 1994,
respectively.
Backlog
The Company manufactures its products on the basis of
its forecast of near-term demand and maintains inventory in
advance of receipt of firm orders from customers. Orders
are generally shipped by the Company shortly after receipt
of the order. Customers may reschedule orders with little
or no penalty. For these reasons, the Company's backlog at
any particular time is not necessarily indicative of future
sales levels.
Employees
As of February 29, 1996, EMC had approximately 4,100
employees worldwide including temporary employees.
Continued growth in the Company's business will require the
hiring of additional personnel qualified in the Company's
leading edge technology, of which there can be no assurance.
None of the Company's domestic employees is represented by a
labor union, and the Company has never suffered an
interruption of business as a result of a labor dispute.
The Company considers its relations with its employees to be
good.
Dependence Upon Key Personnel
The Company's success is highly dependent upon senior
management and other key employees, the loss of whom could
adversely affect the Company. The Company also believes
that its future success will depend in large part upon its
ability to attract and retain additional key employees, of
which there can be no assurance.
Environment
The Company's manufacturing facilities are subject to
numerous laws and regulations designed to protect the
environment, particularly from wastes generated as a result
of assembling certain EMC products. The cost of compliance
with such regulations has not to date involved a significant
expense or had a material effect on the capital
expenditures, earnings or competitive position of the Company.
Patents
EMC has been granted and/or owns by assignment over
fifty (50) United States patents. The Company also has over
one hundred (100) patent applications pending in the U.S.
relating to its products for the mainframe, midrange, open
systems and network storage markets. While the Company
believes that the pending applications relate to patentable
devices or concepts, there can be no assurance that any
patents will issue or that any patent issued can be
successfully defended or held valid by a court of competent
jurisdiction, or that such patents will provide protection
against competitive technology that circumvents such
patents. Although the Company believes that its patents and
applications have significant value, the rapidly changing
technology of the computer industry makes EMC's future
success dependent upon the technical competence and creative
skills of its personnel rather than on patent protection.
See also "Recent Developments" and "Legal Proceedings".
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.
Recent Developments
On January 25, 1996, the Company announced that its
Board of Directors had authorized a common stock repurchase
program of up to 15 million shares over a five-year period.
The repurchased shares will be used primarily to issue
shares upon exercise of options and purchase of shares under
the Company's stock option and stock purchase plans,
respectively.
On February 12, 1996, the Company announced that it had
signed a definitive agreement to acquire the patent
portfolio of MTI Technology Corporation, covering 29 patents
and pending applications in the areas of RAID (Redundant
Arrays of Independent Disks), fault tolerant and network
technologies.
Financial Information About Foreign and Domestic Operations
and Export Sales
The Company is active in primarily one business
segment: designing, manufacturing and marketing high
performance storage products. Information by geographic
area is presented below with exports shown in their area of
origin. Sales and marketing operations outside the U.S. are
conducted through sales subsidiaries and branches located
principally in Europe and the Asia Pacific region. The U.S.
market amounted to greater than 95% of the Company's sales,
income and identifiable assets in the North/South America
segment.
Intercompany transfers between geographic areas are
accounted for at prices which are designed to be
representative of unaffiliated party transactions.
(Amounts are in thousands.)
Europe,
North/South Middle East, Asia Elimi- Consolidated
America Africa Pacific nations Total
1995
Sales $1,230,223 $567,303 $123,749 $ --- $1,921,275
Transfers between
areas 134,073 141,003 10 (275,086) ---
Total sales 1,364,296 708,306 123,759 (275,086) 1,921,275
Income from
operations 264,168 176,293 1,805 (6,487) 435,779
Identifiable assets at
year end 1,669,928 144,081 77,923 (146,203) 1,745,729
1994
Sales $871,048 $449,467 $56,977 $ --- $1,377,492
Transfers between
areas 123,587 61,577 110 (185,274) ---
Total sales 994,635 511,044 57,087 (185,274) 1,377,492
Income (loss)
from operations 155,544 196,658 (97) (1,573) 350,532
Identifiable assets at
year end 1,230,883 171,233 36,437 (121,053) 1,317,500
1993
Sales $526,771 $251,363 $4,487 $ --- $782,621
Transfers between
areas 100,237 83,726 --- (183,963) ---
Total sales 627,008 335,089 4,487 (183,963) 782,621
Income (loss)
from operations 107,512 70,324 (990) 3,582 180,428
Identifiable assets at
year end 684,576 192,682 2,383 (49,995) 829,646
ITEM 2. PROPERTIES
The Company's mainframe marketing, research and
development, and manufacturing functions are located in a
249,000 square foot complex at 171 South Street in
Hopkinton, Massachusetts. This building complex consists of
a building purchased in December 1986, and an adjacent
building constructed in 1988 and occupied in January 1989.
In October 1992, EMC purchased a 62,000 square foot
facility and an additional 9 acres of land at 42 South
Street in Hopkinton, Massachusetts. This facility has been
renovated by the Company and is in use as its customer
demonstration center and for certain administrative
functions. In November 1993, the Company transferred
certain of its corporate and administrative functions to a
leased 80,000 square foot building at 35 Parkwood Drive in
Hopkinton, Massachusetts.
In July 1994, the Company leased a 255,000 square foot
building at 5-9 Technology Drive, Milford, Massachusetts
that is in use for the Company's customer service, OEM
sales, quality and certain research and development and
production functions. The Company currently leases other
buildings in Hopkinton, Massachusetts for certain
manufacturing, quality control and marketing functions.
Production currently is carried on in the Hopkinton
facilities at 171 South Street and Avenue E, the Milford
facility and an 87,000 square foot facility owned by the
Company in Cork, Ireland. The Company is currently
expanding the facility in Ireland by 80,000 square feet.
The Company also leases space for its sales and service
offices and certain research and development facilities worldwide.
ITEM 3. LEGAL PROCEEDINGS
On June 10, 1993, 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, denied STK's
allegations and counterclaimed. In the counterclaims, EMC
seeks unspecified damages, attorney's fees, costs and
interest. In a court hearing on October 12, 1994, STK's
claims on two of the three patents were dismissed with
prejudice. No trial date has been set in this proceeding.
On September 23, 1994, EMC filed suit against STK in
the United States District Court for Delaware alleging that
STK is infringing one EMC patent. In the complaint, EMC
seeks injunctive relief and unspecified damages, including
treble damages, plus attorney's fees and costs. On October
12, 1994, STK answered the complaint, denied any
infringement and counterclaimed. STK has subsequently filed
an additional counterclaim. EMC has denied STK's
allegations. Discovery on this case is currently in
process. A trial is currently scheduled for October 1996.
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 or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's
stockholders during the fourth quarter of the fiscal year
covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
Richard J. Egan 60 Chairman of the Board and Director
Michael C. Ruettgers 53 President, Chief Executive Officer
and Director
John R. Egan 38 Executive Vice President, Sales and
Marketing and Director
Joel Beck 57 Senior Vice President, Operations
L. Daniel Butler 57 Senior Vice President, Customer Service
Raymond Fortune 56 Senior Vice President, International Sales
Michael A. Klayko 41 Senior Vice President, North American Sales
Robert T. O'Connell 57 Senior Vice President, Chief Staff Officer
James B. Rothnie 47 Senior Vice President, Corporate Marketing
Neal M. Waddington 49 Senior Vice President, Enterprise Alliances
Paul T. Dacier 38 Vice President and General Counsel
Colin G. Patteson 47 Vice President, Chief Financial Officer
and Treasurer
William J. Teuber, Jr. 44 Vice President and Controller
Richard J. Egan is a founder of the Company and has
served as a Director since the Company's inception in 1979.
He was elected Chairman of the Board of the Company in
January 1988. Prior to January 1988, he was also President
of EMC. From 1979 to January 1992, he was Chief Executive
Officer of the Company. He is also a director of Cognition
Corporation, a CAD/CAM software supplier.
Michael C. Ruettgers served as Executive Vice
President, Operations of EMC from July 1988 to October 1989,
when he became President. From October 1989 to January 1992,
Mr. Ruettgers served as Chief Operating Officer of EMC. In
January 1992, he became Chief Executive Officer and in May
1992, he was elected a Director of the Company. Before
joining EMC, he was Chief Operating Officer at Technical
Financial Services, Incorporated, a high technology
consulting company, from February 1987 to July 1988. He is
also a director of Cross Comm, Inc., a manufacturer of
computer network products, and Commonwealth Energy Corp., a
diversified energy company.
John R. Egan became Executive Vice President, Sales and
Marketing of EMC in January 1992 and was elected a Director
in May 1992. Previously he held several executive positions
with the Company, including Executive Vice President,
International Sales and Executive Vice President, Marketing.
Joel Beck joined EMC in July 1995 as Senior Vice
President, Operations. Previously, he served in several
executive positions with Bull Electronics-U.S., a computer
manufacturer, including Vice President of U.S. manufacturing
from 1987 to July 1993 and as President from July 1993 to
July 1995.
L. Daniel Butler joined EMC in August 1990 as Vice
President of Customer Service and became Senior Vice
President of Customer Service in February 1993. Prior to
joining EMC, Mr. Butler was the founder and President of
DMX, Inc., an electronic board assembling company, from
October 1989 to August 1990. From October 1987 to September
1989, he was Director of Logistics Planning at Data General
Corporation, a computer manufacturer.
Raymond Fortune joined EMC in July 1994 as Senior Vice
President, International Sales. From November 1989 to March
1991, Mr. Fortune was Executive Vice President of Commercial
Products, and from May 1993 to June 1994 he was Chief
Operating Officer, at Kendall Square Research Corporation, a
computer manufacturer. From May 1991 to April 1993, Mr.
Fortune was Chief Executive Officer at Ultra Network
Technologies, Incorporated, a high speed networking products
manufacturer.
Michael A. Klayko joined EMC in March 1996 as Senior
Vice President, North American Sales. From August 1992 to
February 1996, Mr. Klayko was Worldwide Marketing Manager,
Computer Systems Organization at Hewlett-Packard Company, a
computer manufacturer. From 1979 to 1992, Mr. Klayko held
various positions in marketing and sales at IBM Corporation,
a computer manufacturer.
Robert T. O'Connell joined EMC in July 1995 as Senior
Vice President, Chief Staff Officer. Previously, he held
several executive positions with General Motors Corporation,
an automotive manufacturer, including Chairman and CEO of
General Motors Acceptance Corporation from 1992 to 1994 and
Chief Financial Officer of General Motors Corporation from
1988 to 1992.
James B. Rothnie joined EMC in October 1995 as Senior
Vice President, Corporate Marketing. Previously, he was
Vice President of Software Development at Data General
Corporation, a computer manufacturer, from October 1994 to
October 1995. From 1987 to 1994, Mr. Rothnie served in
several executive capacities at Kendall Square Research
Corporation, a computer manufacturer, most recently as
Executive Vice President.
Neal M. Waddington joined EMC in November 1994 as
Senior Vice President and General Manager of EMC's Open
Storage Group and became Senior Vice President, Enterprise
Alliances in January 1996. From May 1992 to October 1994,
Mr. Waddington was Vice President and General Manager of the
Integrity Systems Division of Tandem Computers Incorporated,
a computer manufacturer. From October 1991 to April 1992,
Mr. Waddington was Vice President-Marketing and President of
North American Sales at Concurrent Computer Systems, a
computer manufacturer. From May 1990 to June 1991, he was
Vice President of Marketing at Sequent Computer Systems, a
computer manufacturer. Previously, Mr. Waddington held
various senior-level positions at Sperry Computer Systems
and Unisys Corporation, computer manufacturers, in senior
marketing, product development and division general
management positions. Mr. Waddington has resigned as an
executive officer of the Company effective as of April 12, 1996.
Paul T. Dacier joined EMC in March 1990 as General
Counsel and became Vice President and General Counsel in
February 1993. Prior to joining EMC he was Senior Counsel,
Corporate Operations at Apollo Computer Inc., a computer
manufacturer, from January 1987 to January 1990.
Colin G. Patteson joined EMC in January 1989 as
European Controller. He has been Chief Financial Officer
and Treasurer of EMC since April 1995. He was Corporate
Controller from March 1991 to April 1995 and has been a Vice
President of EMC since February 1993.
William J. Teuber, Jr. joined EMC in August 1995 as
Vice President and Controller. From 1988 to August 1995,
Mr. Teuber was a partner at Coopers & Lybrand L.L.P., an
accounting firm.
____________
Richard J. Egan, Chairman of the Board and a Director, is the
husband of Maureen E. Egan, a Director of the Company. He also is
the brother-in-law of W. Paul Fitzgerald, a Director of the
Company. W. Paul Fitzgerald is the brother of Maureen E. Egan.
John R. Egan, Executive Vice President, Sales and Marketing and a
Director of the Company is the son of Richard J. and Maureen E. Egan.
____________
The President and Treasurer are elected annually to
serve until the first meeting of the Board of Directors
following the next annual meeting of stockholders and until
their successors are elected and qualified. The other
executive officers are appointed to serve in such positions
and serve at the pleasure of the Board of Directors.
**************************************************************
EMC2, EMC, Symmetrix, Harmonix, Centriplex, ICDA,
Modarray and MOSAIC: 2000 are trademarks of EMC Corporation.
WorldMark is a trademark of NCR Corporation. IBM, ESCON and
AS/400 are trademarks of IBM Corporation.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
EMC's common stock $0.01 par value (the "Common Stock")
began trading on the over-the-counter market on April 4,
1986 under the NASDAQ symbol EMCS. On March 22, 1988, the
Company's stock began trading on the New York Stock Exchange
under the symbol EMC.
The following stock splits were effected in the form of
stock dividends in the following amounts and at the
following dates: a three-for-two stock split effective
November 24, 1992, for stockholders of record on November 9,
1992, a two-for-one stock split effective June 8, 1993, for
stockholders of record on May 24, 1993, and a two-for-one
stock split effective December 10, 1993, for stockholders of
record on November 26, 1993.
The following table sets forth the range of high and
low prices on the New York Stock Exchange for the past two
years during the fiscal periods shown.
Fiscal 1995 High Low
First Quarter $23.25 $14.75
Second Quarter 25.88 16.63
Third Quarter 27.38 17.75
Fourth Quarter 19.13 13.13
Fiscal 1994 High Low
First Quarter $23.00 $15.50
Second Quarter 21.25 12.63
Third Quarter 20.13 12.75
Fourth Quarter 24.00 18.25
As of March 15, 1996, there were approximately 5,080
holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common
Stock. While subject to periodic review, the current policy
of its Board of Directors is to retain all earnings primarily
to provide funds for the continued growth of the Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA
EMC Corporation
(amounts in thousands except per share amounts)
Summary of Operations
1995 1994 1993 1992 1991
Revenues $1,921,275 $1,377,492 $782,621 $385,706 $260,337
Operating income 435,779 350,532 180,428 48,575 20,378
Net income 326,845 250,668 127,122 29,508 11,409
Net income per
weighted average
common share
(fully diluted) (1) $ 1.34 $ 1.10 $ 0.60 $ 0.16 $ 0.07
Weighted average
common shares
(fully diluted) (1) 248,296 234,255 217,225 190,548 166,220
Other Statistics
Working capital $ 959,595 $ 600,341 $516,876 $149,335 $ 77,033
Total assets 1,745,729 1,317,500 829,646 338,780 205,503
Long-term
obligations (2) 245,845 286,106 274,029 76,093 16,165
Stockholders'
equity $1,140,301 $ 727,641 $419,094 $168,266 $135,009
(1) In addition to common stock equivalents, fully diluted
earnings per share for 1995, 1994 and 1993 reflect the
dilutive effects of the Company's 4 1/4% Convertible
Subordinated Notes due 2001 and fully diluted earnings per
share for 1995 (through conversion date), 1994, 1993 and 1992
reflect the dilutive effects of the Company's 6 1/4%
Convertible Subordinated Debentures.
(2) Excludes current portion of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table represents certain statement of
operations information stated as a percentage of revenues.
Fiscal year ended
Dec. 30, 1995 Dec. 31, 1994 Jan. 1, 1994
Revenues
Net sales 97.8% 97.5% 96.8%
Service and rental income 2.2 2.5 3.2
100.0 100.0 100.0
Cost and expenses
Cost of sales and service 52.2 47.9 48.7
Research and development 8.5 8.6 7.5
Selling, general and admin. 16.6 18.1 20.8
Operating income 22.7 25.4 23.0
Investment income and
interest expense, net 0.6 0.5 -
Other income/(expense), net 0.2 (0.1) -
Income before income taxes 23.5 25.8 23.0
Provision for income taxes 6.5 7.6 6.8
Net income 17.0% 18.2% 16.2%
Revenues
Total revenues increased by $543,783,000, or 39.5%, in
1995 from 1994 compared to an increase of $594,871,000 or
76% in 1994 from 1993. Revenues from net sales increased by
$535,150,000 or 39.8%, in 1995 from 1994 levels, while
revenues from service and rental income increased by
$8,633,000, or 25%, in 1995 from 1994. While the Company
expects revenue to continue to grow in 1996, the Company
does not expect such growth, on a percentage basis, to
continue at the level experienced in 1995 or 1994.
In 1995, the Company continued to derive the majority
of its revenues from the sale of products featuring the
Company's Integrated Cached Disk Array ("ICDA") technology
which include the Symmetrix series of products for the
mainframe market, the Symmetrix 3000 series of products and
Centriplex series of products for the open systems storage
market and the Harmonix series of IBM compatible disk
products in the AS/400 market. Revenues from the Symmetrix
series of products in the mainframe market were
$1,425,531,000 in 1995, $1,177,014,000 in 1994 and
$620,178,000 in 1993, representing an increase in 1995 over
1994 of $248,517,000, or 21%. Revenues from the Company"s
products in the open systems storage market were
$200,892,000 in 1995, $24,323,000 in 1994 and $19,081,000
in 1993, representing an increase in 1995 over 1994 of
$176,569,000, or 726%. Revenues from the Harmonix series of
products were $68,402,000 in 1995, $110,717,000 in 1994 and
$92,672,000 in 1993, representing a decrease in 1995 from
1994 of $42,315,000, or 38%.
Revenues on sales and service into the markets of North
and South America increased by $357,496,000, or 41%, to
$1,223,183,000 in 1995 from $865,687,000 in 1994. This
increase was primarily due to growth in unit sales of the
Symmetrix series of products in the mainframe storage market
and unit sales of the Company's products in the open systems
storage market. Revenues into this market increased by
$346,750,000, or 67%, to $865,687,000 in 1994 from
$518,937,000 in 1993.
Revenues on sales and service into the markets of
Europe, Africa and the Middle East increased by
$116,789,000, or 27%, to $556,313,000 in 1995 from
$439,524,000 in 1994, due primarily to growth in unit sales
of the Symmetrix series of products in the mainframe storage
market. During 1995, the Company opened sales offices in
South Africa, Sweden, Denmark, Norway and Finland. Revenues
into this market increased by $213,291,000, or 94%, to
$439,524,000 in 1994 from $226,233,000 in 1993.
Revenues on sales and service into the markets in the
Asia Pacific region increased by $69,498,000 or 96%, to
$141,779,000 in 1995 from $72,281,000 in 1994, primarily due
to growth in unit sales of the Symmetrix series of products
in the mainframe storage market. During 1995, the Company
opened sales offices in Korea and Singapore. Revenues into
this market increased by $34,830,000, or 93%, to $72,281,000
in 1994 from $37,451,000 in 1993.
Worldwide revenue data presented in the segment
footnote shows revenues on shipments originating from each
area as follows. Revenues on shipments from the North and
South America region were $1,230,223,000 in 1995,
$871,048,000 in 1994 and $526,771,000 in 1993. Revenues on
shipments from the Europe, Middle East and Africa region
were $567,303,000 in 1995, $449,467,000 in 1994 and
$251,363,000 in 1993. Revenues on shipments from the Asia
Pacific region were $123,749,000 in 1995, $56,977,000 in
1994 and $4,487,000 in 1993.
Historically, the Company has competed with OEM
manufacturers and other independent suppliers on the basis
of product performance, quality and price. The Company
expects that there will be performance and pricing pressures
with respect to the sale of its products throughout 1996.
See also "Cost of Sales and Service".
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 1/2" disk drives, which the
Company purchases from a small number of qualified
suppliers. 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, because of high industry
demand and/or the inability of certain vendors to
consistently meet on a timely basis the Company's component
quality standards, the Company experienced delays in
deliveries of high density DRAMs and disk drives needed to
satisfy orders for ICDA products. The Company is currently
working with such vendors to correct these problems and is
also seeking alternative sources of supply. If shortages
and quality problems were to intensify, the Company could
lose some time-sensitive customer orders which could
adversely affect quarterly revenues and earnings.
Cost of Sales and Service
As a percentage of revenues, cost of sales and service
amounted to 52.2% in 1995, 47.9% in 1994 and 48.7% in 1993.
Demand for the Company's products has continued in 1995, but
competitive pricing pressures in the mainframe storage
market during 1995 were greater than in prior years and
adversely affected the margin percent in 1995 over 1994 and
1993. Also in 1995, cost of goods sold included one-time
charges of approximately $31,000,000, net of tax, relating
to end-of-life products and excess inventory. The Company
believes that pricing pressures are likely to continue due
to competitive product offerings.
Research and Development
Research and development ("R&D") expenses were
$162,611,000, $117,922,000 and $58,977,000 in 1995, 1994 and
1993, respectively. As a percentage of revenue, R&D
expenses were 8.5%, 8.6% and 7.5% of revenues in 1995, 1994
and 1993, respectively. Dollar increases in R&D spending in
1995 over 1994 reflect costs to develop new products for the
open systems storage market, the cost of additional
technical staff and depreciation expenses associated with
capital equipment acquired to facilitate development. The
Company expects to continue to spend substantial amounts for
R&D in 1996.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses
increased by $71,005,000, or 28.5%, in 1995, $86,543,000, or
53% in 1994 and $66,200,000, or 69% in 1993. As a percentage
of revenues, SG&A expenses were 16.7%, 18.1% and 20.8% in
1995, 1994 and 1993, respectively. The dollar increase in
1995 over 1994 is due primarily to costs associated with
additional sales and support personnel and their related
overhead costs, both domestically and internationally, in
connection with the Company's increased revenue levels and
the Company's initiative to expand its open systems storage
group, international direct selling offices and OEM
programs. Expenses in 1995 also include approximately
$8,000,000 of costs related to the acquisition of McDATA.
SG&A expenses are expected to increase in dollar terms
during 1996.
Investment Income and Interest Expense
Investment income increased to $23,620,000 in 1995 from
$21,619,000 in 1994 and $7,988,000 in 1993. 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 1995 over 1994 primarily due to slightly higher
average cash and investment balances in 1995 over 1994.
Investment income increased in 1994 over 1993 due to higher
average cash and investment balances caused primarily by the
availability of funds from the issuance of the 4 1/4%
Convertible Subordinated Notes due 2001 (the "Notes") in
December 1993 and January 1994.
Interest expense decreased to $12,857,000 in 1995, from
$15,311,000 in 1994 and $6,043,000 in 1993. The decrease in
1995 from 1994 is primarily due to conversions of the 6 1/4%
Convertible Subordinated Debentures due 2002 (the
"Debentures") in March 1995.
Provision for Taxes
The provision for income taxes was $123,976,000 in
1995, $104,716,000 in 1994 and $52,534,000 in 1993,
respectively, which resulted in effective tax rates of
27.5%, 29.5% and 29.2% in 1995, 1994 and 1993, respectively.
The decrease in the effective tax rate in 1995 from 1994 is
mainly attributable to the realization of tax benefits
associated with the Company's tax strategies and the
utilization of tax credits. The increased rate in 1994 from
1993 is mainly attributable to a decrease in the utilization
of tax credits.
See Note C of the Notes to Consolidated Financial
Statements for a detailed analysis of the Company's
effective tax rates for 1995, 1994 and 1993.
Cash Flows
In 1995 cash and cash equivalents increased by
$139,122,000. Cash provided by operating activities was
$172,378,000 as a result of increased net income which was
partially offset by increased receivable and inventory
balances. Cash used by investing activities was $41,806,000
primarily caused by additions to property, plant and
equipment of $92,200,000, offset by net maturities of long-
term investments of $50,355,000. Cash provided by financing
activities of $8,833,000 was primarily from issuances of
common stock of $19,438,000 pursuant to stock option
exercises and stock purchase plan activity and was partially
offset by payments of long-term obligations of $10,735,000.
Financial Position
At the end of the fiscal years 1995, 1994 and 1993,
cash and cash equivalents were $379,628,000, $240,506,000
and $345,300,000, respectively. In 1995, working capital
increased by $359,254,000 to $959,595,000 from $600,341,000.
In 1994, working capital increased by $83,465,000 to
$600,341,000 from $516,876,000.
It is typical for companies in the computer industry to
require significant amounts of working capital to finance
their business. The Company believes that its working
capital requirements are in accordance with industry
practices. In 1995, the Company financed its working
capital requirements from internally generated funds and
existing cash and investments. As the Company's business
expands, the Company's working capital is expected to
increase.
As of January 31, 1996, the Company had available for
use its credit lines of $72,000,000. The Company may elect
to borrow at any time from these credit lines. Based on its
current operating and capital expenditure forecasts, the
Company believes funds currently available, funds generated
from operations and its available lines of credit will be
adequate to finance its operations.
In December 1995, the Company issued 13,567,112 shares
of EMC common stock, $.01 par value (the "Common Stock") in
the acquisition of McDATA, a leader in data network
switching solutions, in a transaction which the Company has
accounted for as a pooling of interests.
The Company will adopt Statement of Financial
Accounting Standards No.121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" in 1996. This Statement requires recognition
of impairment losses pertaining to long-term assets based
upon the excess of the carrying amount of such assets over
their fair values. The Company believes that adoption will
not have a material effect on its financial statements.
The Company will adopt Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" in 1996. This Statement defines a fair value-
based method of accounting for employee stock options. The
compensation expense arising from this method of accounting
can be reflected in the financial statements or
alternatively, the pro forma net income and earnings per
share effect of the fair value-based accounting can be
disclosed in the financial statement footnotes. The Company
expects to adopt the footnote disclosure alternative.
To date, inflation has not had a material impact on the
Company's financial results.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and the Board of Directors of EMC
Corporation:
We have audited the accompanying consolidated
balance sheets and the financial statement schedule of
EMC Corporation as of December 30, 1995 and December 31,
1994, and the related consolidated statements of income,
cash flows and stockholders' equity and the financial
statement schedule for each of the three years in the
period ended December 30, 1995. These financial
statements and the financial statement schedule are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of EMC Corporation as of
December 30, 1995 and December 31, 1994, and the
consolidated results of its operations and its cash flows
for each of the three years in the period ended December
30, 1995 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in
relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 25, 1996
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMC CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
Dec. 30, Dec. 31,
ASSETS 1995 1994
Current assets:
Cash and cash equivalents $379,628 $240,506
Trade and notes receivable less allowance for doubtful
accounts of $7,062 and $6,272, respectively 550,473 361,191
Inventories 330,160 251,096
Deferred income taxes 44,061 40,754
Other assets 14,633 8,258
Total current assets 1,318,955 901,805
Long-term investments 125,276 175,631
Notes receivable, net 26,497 38,945
Property, plant and equipment, net 218,901 173,016
Deferred income taxes 9,200 4,473
Other assets, net 46,900 23,630
Total assets $1,745,729 $1,317,500
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $915 $9,502
Accounts payable 111,721 122,264
Accrued expenses 130,596 106,107
Income taxes payable 107,717 55,521
Deferred revenue 8,411 8,070
Total current liabilities 359,360 301,464
Deferred revenue 223 2,289
Long-term obligations:
4 1/4% convertible subordinated notes due 2001 229,598 229,598
6 1/4% convertible subordinated debentures due 2002 -- 39,536
Notes payable and capital lease obligations 16,247 16,972
Total liabilities 605,428 589,859
Stockholders' equity:
Series Preferred Stock, par value $.01;
authorized 25,000,000 shares --- ---
Common Stock, par value $.01; authorized 500,000,000
shares; issued 232,517,845 and 201,738,042,
in 1995 and 1994, respectively 2,325 2,017
Additional paid-in capital 350,989 281,625
Deferred compensation (2,140) (2,607)
Retained earnings (see Footnote B) 786,599 443,713
Cumulative translation adjustment 3,766 3,716
Treasury stock, at cost, 2,646,453 and
2,627,467 shares, in 1995 and 1994,
respectively (1,238) (823)
Total stockholders' equity 1,140,301 727,641
Total liabilities and stockholders' equity $1,745,729 $1,317,500
The accompanying notes are an integral part of the
consolidated financial statements.
ITEM 8 continued....
EMC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
Year Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Revenues:
Net sales $1,878,215 $1,343,065 $757,793
Service and rental 43,060 34,427 24,828
1,921,275 1,377,492 782,621
Costs and expenses:
Cost of sales and service 1,002,876 660,034 380,755
Research and development 162,611 117,922 58,977
Selling, general and
administrative 320,009 249,004 162,461
Operating income 435,779 350,532 180,428
Investment income 23,620 21,619 7,988
Interest expense (12,857) (15,311) (6,043)
Other income/(expense), net 4,279 (1,456) (2,717)
Income before taxes 450,821 355,384 179,656
Income tax provision 123,976 104,716 52,534
Net income $326,845 $250,668 $127,122
Net income per weighted
average share, primary $1.36 $1.18 $0.65
Net income per weighted
average share, fully diluted $1.34 $1.10 $0.60
The accompanying notes are an integral part of the
consolidated financial statements.
ITEM 8 continued....
EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the Year Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Cash flows from operating activities:
Net income $326,845 $250,668 $127,122
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization 53,617 32,728 21,741
Deferred income taxes (6,587) (18,267) (21,172)
Net loss on disposal of property and equipment 635 262 2,324
Tax benefit from stock options exercised 11,165 26,698 8,776
Changes in assets and liabilities:
Trade and notes receivable (156,719) (221,708) (73,252)
Inventories (74,351) (133,159) (60,937)
Other assets (35,984) (19,526) 4,381
Accounts payable (16,061) 78,698 16,500
Accrued expenses 22,432 46,448 28,893
Income taxes payable 49,275 34,629 3,520
Deferred revenue (1,889) (65) (1,100)
Net cash provided by operating activities 172,378 77,406 56,796
Cash flows from investing activities:
Additions to property, plant and equipment (92,200) (108,968) (51,303)
Proceeds from sales of property and equipment 39 445 574
Net maturity/(purchase) of long-term investments 50,355 (125,239) (29,100)
Net cash used by investing activities (41,806) (233,762) (79,829)
Cash flows from financing activities:
Issuance of common stock 19,438 9,596 112,451
Purchase of treasury stock (415) (320) ---
Issuance of 4 1/4% convertible subordinated notes
due 2001, net of issuance costs --- 29,350 194,987
Payment of long-term and short-term obligations (10,735) (1,272) (2,430)
Issuance of long-term and short-term obligations 545 11,715 ---
Net cash provided by financing activities 8,833 49,069 305,008
Effect of exchange rate changes on cash (283) 2,493 1,222
Net increase/(decrease) in
cash and cash equivalents 139,405 (107,287) 281,975
Cash and cash equivalents
at beginning of period 240,506 345,300 62,103
Cash and cash equivalents at end of period $379,628 $240,506 $345,300
Non-cash activity - conversions of debentures 39,535 19,724 740
The accompanying notes are an integral part of the
consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EMC Corporation
(amounts in thousands except share amounts)
For the three years ended December 30, 1995
Addi- Cumu-
Common Stock tional Deferred lative Treasury Total
Par Paid-in Compen- Retained Transl. Stock Stockholders'
Shares Value Capital sation Earnings Adj. Shares Cost Equity
Balance
Jan. 2, 1993 166,505,268 1,665 105,873 (4,545) 65,923 (147) 2,607,996 (503) 168,266
Exercise of
stock options 5,839,240 58 11,424 --- --- --- --- --- 11,482
Tax benefit from
disqualifying
disposition of
stock options --- --- 8,776 --- --- --- --- --- 8,776
Issuance of common
stock pursuant to
stock offering 17,350,000 174 99,857 --- --- --- --- --- 100,031
Issuance of common
stock pursuant to
bond conversions 241,612 2 738 --- --- --- --- --- 740
Amortization of
deferred compensation --- --- --- 993 --- --- --- --- 993
Cumulative translation
adjustment --- --- --- --- --- 1,684 --- --- 1,684
Net income --- --- --- --- 127,122 --- --- --- 127,122
Balance
Jan. 1, 1994 189,936,120 1,899 226,668 (3,552) 193,045 1,537 2,607,996 (503) 419,094
Exercise of
stock options 5,361,342 54 8,548 --- --- --- --- --- 8,602
Tax benefit from
disqualifying disposition
of stock options and
nonqualifying stock
options exercised --- --- 26,698 --- --- --- --- --- 26,698
Issuance of stock
options --- --- 49 (49) --- --- --- --- ---
Issuance of common
stock pursuant to
bond and note
conversions 6,440,580 64 19,662 --- --- --- --- --- 19,726
Amortization of deferred
compensation --- --- --- 994 --- --- --- --- 994
Purchase of
treasury stock --- --- --- --- --- --- 19,471 (320) (320)
Cumulative translation
adjustment --- --- --- --- --- 2,179 --- --- 2,179
Net income --- --- --- --- 250,668 --- --- --- 250,668
Balance
Dec. 31, 1994 201,738,042 2,017 281,625 (2,607) 443,713 3,716 2,627,467 (823) 727,641
Pooling of interests
with McDATA
Corporation 13,567,112 136 1,794 --- 16,041 --- --- --- 17,971
Balance
as restated 215,305,154 2,153 283,419 (2,607) 459,754 3,716 2,627,467 (823) 745,612
Exercise of stock
options 4,303,305 43 16,454 --- --- --- --- --- 16,497
Tax benefit from
disqualifying disposition
of stock options and
nonqualifying stock
options exercised --- --- 11,165 --- --- --- --- --- 11,165
Issuance of stock
options --- --- 545 (545) --- --- --- --- ---
Issuance of common
stock pursuant
to bond
conversions 12,909,386 129 39,406 --- --- --- --- --- 39,535
Amortization of
deferred compensation --- --- --- 1,012 --- --- --- --- 1,012
Purchase of
treasury stock --- --- --- --- --- --- 18,986 (415) (415)
Cumulative translation
adjustment --- --- --- --- --- 50 --- --- 50
Net income --- --- --- --- 326,845 --- --- --- 326,845
Balance
Dec. 30, 1995 232,517,845 2,325 350,989 (2,140) 786,599 3,766 2,646,453 (1,238)1,140,301
The accompanying notes are an integral part of the consolidated
financial statements.
ITEM 8 continued. . . .
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMC Corporation
A. Company
EMC Corporation and its subsidiaries ("EMC" or the
"Company") design, manufacture, market and support a
wide range of storage-related hardware, software and
service products for the mainframe, open systems, IBM
AS/400 and network computer storage markets worldwide.
These products are sold as storage solutions for
customers utilizing a variety of computer system
platforms including, but not limited to, International
Business Machines Corporation ("IBM") and IBM-
compatible mainframe, Unisys Corporation ("Unisys"),
Compagnie des Machines Bull S.A. ("Bull"), Hewlett-
Packard Company ("HP"), NCR Corporation ("NCR") and
other open systems platforms.
B. Summary of Significant Accounting Policies
Basis of Presentation
Certain prior year amounts have been reclassified to
conform with the 1995 presentation.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have
been eliminated.
Acquisitions
In December 1995, EMC exchanged 13,567,112 shares of
EMC common stock, $.01 par value (the "Common Stock")
for all of the outstanding stock and stock options
exercisable as of the closing date of McDATA
Corporation ("McDATA"), a leader in data network
switching solutions. The business combination was
accounted for as a pooling of interests. The
accompanying financial statements for periods prior to
1995 do not include the amounts for this acquisition as
they were deemed to be immaterial. Only 1995 financial
information has been restated as if the transaction had
occurred as of January 1, 1995.
Separate company results for 1995 before the
combinations were consummated were:
Period ended December 6, 1995
Revenues Net Income
EMC $1,402,059,000 $197,303,000
McDATA 148,253,000 41,748,000
Total $1,550,312,000 $239,051,000
Also during 1995, the Company acquired all of the
outstanding stock of Icon International, Inc. (now EMC
Computer Systems California, Inc.) and purchased
certain assets from its distributors in South Africa
and Sweden. These transactions resulted in goodwill of
$9,215,000 which is being amortized over five years and
is included in other assets, non-current at December
30, 1995, net of amortization of $1,231,000.
In January 1994, the Company formed a joint venture,
EMC Japan K.K. ("EMC Japan"), with a Japanese
distributor in which the Company's interest was 60%.
Subsequently, the Company purchased an additional 35%
interest in EMC Japan resulting in goodwill of
$8,971,000 which is included in other assets, non-
current at December 30, 1995 and December 31, 1994, net
of amortization of $1,955,000 and $150,000,
respectively, and is being amortized over five years.
Also in 1994, the Company acquired a 93% interest in
Copernique S.A. ("Copernique") which specializes in
high performance data management and hardware and
software systems, and the Company acquired certain
assets of Array Technology Corporation ("Array") which
specialized in RAID ("Redundant Arrays of Independent
Disks") technology. The Company acquired the remaining
7% interest in Copernique in March 1995. Included in
the Array assets were patents of $7,272,000 which are
being amortized over their estimated useful life of
five years, and are included in other assets, non-
current at December 30, 1995 and December 31, 1994 net
of amortization of $2,666,000 and $1,212,000,
respectively.
Pro forma presentations have not been included as the
acquisitions were not material to the results of
operations of the Company.
In August 1993, EMC exchanged 9,443,996 shares of
Common Stock for all the outstanding stock and stock
options of Epoch Systems, Inc. ("Epoch") and Magna
Computer Corp. ("Magna") in business combinations which
were accounted for as poolings of interests. All
financial information has been restated as if the
transactions occurred as of the first period presented.
Epoch is in the business of high performance
client/server data management software and Magna was in
the business of IBM compatible AS/400 tape products.
Revenue Recognition
The Company recognizes revenue from sales when products
are shipped provided there are no remaining significant
vendor obligations and the resulting receivable is
deemed collectible by management. Revenue from rentals
is recorded over the life of the lease. Revenue from
sales-type leases is recognized at the net present
value of expected future payments, and the resulting
discount is accreted to investment income over the
collection period. Revenue from service contracts is
recognized over the life of the contracts.
Foreign Currency Translation
The local currency is the functional currency of sales
operations in Canada, Europe, South Africa and the Asia
Pacific region (except Hong Kong). Assets and
liabilities of these operations are translated into
U.S. dollars at exchange rates in effect at the balance
sheet date and income and expense items are translated
at average rates for the period. The Company's
operations in Ireland, Israel and Hong Kong are
generally dependent on the U.S. dollar. Assets and
liabilities of these operations are translated into
U.S. dollars at exchange rates in effect at the balance
sheet date except for inventories and property, plant
and equipment which are translated at historical
exchange rates. Consolidated transaction results
included in other income/(expense), net were gains of
$1,667,000 in 1995, and losses of $1,072,000 in 1994
and $1,838,000 in 1993. Accumulated net translation
adjustments included in stockholders' equity were
$3,766,000 in 1995 and $3,716,000 in 1994.
Cash, Cash Equivalents
Cash and cash equivalents include $168,614,000 and $134,954,000
of cash equivalents at December 30, 1995 and December 31, 1994,
respectively. All highly liquid investments which have
a maturity when acquired of ninety days or less are
considered cash equivalents. These investments are
stated at cost plus accrued interest, which approximates market.
Long-Term Investments
The Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities" in 1994.
The adoption of SFAS 115 had no cumulative effect on
net income.
Long-term investments at amortized cost, consisting
primarily of intermediate term debt instruments,
amounted to $125,276,000 and $175,631,000 in 1995 and
1994, with fair values of $126,285,000 and
$173,245,000, respectively. The Company classifies its
long-term investments as held to maturity. The 1995
balances consisted of:
Amortized Aggregate
Cost Basis Fair Value
Corporate debt securities $ 90,674,000 $ 91,557,000
U.S. Government and agencies 24,602,000 24,653,000
Foreign debt securities 10,000,000 10,075,000
Total $125,276,000 $126,285,000
The 1994 balances consisted of:
Amortized Aggregate
Cost Basis Fair Value
Corporate $113,866,000 $112,649,000
Foreign 49,950,000 49,667,000
U.S. Government 11,815,000 10,929,000
Total $175,631,000 $173,245,000
The net unrealized gain of $1,009,000 at December 30, 1995
consisted of gross unrealized gains of $1,372,000 and gross
unrealized losses of $363,000. The contractual maturities of
debt securities held at December 30, 1995 are as follows:
Amortized Aggregate
Cost Fair Value
Basis
Due within one year $ --- $ ---
Due after one year
through five years 109,424,000 110,412,000
Due after five years
through ten years 14,102,000 14,027,000
Due after ten years 1,750,000 1,846,000
Total $125,276,000 $126,285,000
The net unrealized loss of $2,386,000 at December 31, 1994 consisted
of gross unrealized gains of $444,000 and gross unrealized losses of
$2,830,000. The contractual maturities of debt securities held at
December 31, 1994 are as follows:
Amortized Aggregate
Cost Basis Fair Value
Due within one year $ 45,014,000 $ 44,080,000
Due after one year
through five years 128,879,000 127,409,000
Due after ten years 1,738,000 1,756,000
Total $175,631,000 $173,245,000
Investment income consists principally of interest and
dividend income, including interest on notes receivable
from sales-type leases.
Statement of Cash Flows Supplemental Information
December 30, December 31, January 1,
1995 1994 1994
Cash paid during the
years ended for:
Income taxes $70,389,000 $76,539,000 $59,739,000
Interest 12,965,000 10,854,000 6,486,000
Inventories
Inventories are stated at the lower of cost (first in,
first out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Depreciation is computed on a straight-line basis over
the estimated useful lives of the assets, as follows:
Furniture and fixtures 7 years
Equipment 3-7 years
Vehicles 5 years
Improvements 5 years
Buildings 25-31 1/2 years
Customer service spare parts inventory is included in
equipment and depreciated over three years.
When assets are retired or disposed of, the cost and
accumulated depreciation thereon are removed from the
accounts and the related gains or losses are included
in operations.
Warranty and Research and Development
The Company accounts for warranty expense on an accrual
basis. Research and development costs are expensed as
incurred, except for the costs of computer software to
be sold, leased or otherwise marketed incurred after
technological feasibility has been established and
prior to product release for production. In 1995, the
Company capitalized approximately $5,000,000 of
software development costs, which amount is included
in other assets, non-current at December 30, 1995.
These expenses are being amortized on a straight-line
basis over a twenty-four month period. In prior years,
costs qualifying for capitalization were not material.
The current year reflects an increased level of
investment in software development activities over
prior years.
Income Taxes
Deferred tax liabilities and assets are recognized for
the expected future tax consequences of events that have
been included in the financial statements or tax
returns. Under this method, deferred tax liabilities
and assets are determined based on the difference
between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for
the year in which the differences are expected to
reverse (see Note C).
Tax credits are generally recognized as reductions of
income tax provisions in the year in which the credits
arise. Since 1989, the Company has not provided for
U.S. income tax liability on earnings of its foreign
subsidiaries, except for Puerto Rico. These earnings
of non-U.S. subsidiaries, which reflect full provision
for non-U.S. income taxes, are indefinitely reinvested
in non-U.S. operations or will be remitted
substantially free of additional tax. Accordingly, no
material provision has been made for taxes that might
be payable upon remittance of such non-U.S. earnings.
The Company is currently undergoing an examination of
its 1992, 1993 and 1994 tax returns by the Internal
Revenue Service.
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 and earnings used in per
share computations for 1995, 1994 and 1993 reflect the
dilutive effects of the Company's 4 1/4% Convertible
Subordinated Notes due 2001 (the "Notes"). Fully
diluted weighted average shares outstanding and
earnings used in per share computations for 1995, 1994
and 1993 reflect the dilutive effects of the Company's
6 1/4% convertible subordinated debentures due 2002
(the "Debentures"). Net income for computation of
earnings per share includes an add back of $6,224,000,
$7,620,000 and $2,496,000 for fully diluted and
$5,855,000, $5,838,000 and $224,000 for primary, in
1995, 1994 and 1993, respectively, representing
interest expense, net of its tax effect. Primary
weighted average shares were 245,386,209, 218,045,666
and 196,486,160 in 1995, 1994 and 1993, respectively.
Fully diluted weighted average shares were 248,296,143,
234,254,640 and 217,224,726 in 1995, 1994 and 1993,
respectively. These calculations of weighted average
shares have been restated to reflect all stock splits
to date (see Note J).
C. Income Taxes
Provision for income taxes consists of:
1995 1994 1993
Federal and State
Current $123,927,000 $108,459,000 $69,176,000
Deferred (5,867,000) (18,421,000) (21,830,000)
118,060,000 90,038,000 47,346,000
Foreign
Current 6,636,000 14,524,000 4,530,000
Deferred (720,000) 154,000 658,000
5,916,000 14,678,000 5,188,000
Total provision for
income taxes $123,976,000 $104,716,000 $52,534,000
At December 30, 1995 and December 31, 1994, net
undistributed earnings of foreign subsidiaries
approximated $388,411,000 and $220,598,000,
respectively. Income before income taxes for foreign
operations amounted to approximately $172,933,000 in
1995, $152,363,000 in 1994 and $49,392,000 in 1993.
The components of the deferred tax provision are:
1995 1994 1993
Sales Reserve $2,563,000 $ (3,418,000) $ (7,385,000)
Warranty Reserves (723,000) (1,262,000) (1,379,000)
Inventory Reserves (4,612,000) (10,119,000) (6,427,000)
Puerto Rico Tollgate Tax 6,205,000 1,025,000 (5,772,000)
Deferred Revenue 594,000 590,000 531,000
Depreciation (331,000) (2,444,000) (383,000)
Other Reserves (1,009,000) (1,386,000) (2,073,000)
Other Assets (4,943,000) (313,000) 1,716,000
Domestic NOL Carryforward 2,301,000 (546,000) ---
Foreign NOL Carryforward (735,000) (1,721,000) 3,872,000
R&D Credit Carryforward --- 8,000 ---
Valuation Reserve (5,897,000) 1,319,000 (3,872,000)
Total Deferred Provision $(6,587,000) $(18,267,000) $(21,172,000)
A reconciliation of the Company's income tax provision
to the statutory federal tax rate is as follows:
1995 1994 1993
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal tax benefits 3.6 2.6 3.1
Puerto Rico tax benefits --- (.6) (.9)
Ireland tax benefits (8.5) (6.6) (6.4)
Net operating losses not benefited --- .6 .6
Tax credits (1.4) (.7) (1.3)
Utilization of foreign net operating
loss carryforwards (.9) (.9) (.7)
Foreign Sales Corporation tax benefits (.3) (.1) ---
Other --- .2 (.2)
27.5% 29.5% 29.2%
The Company's Puerto Rico operation enjoyed a ten year
exemption which expired in 1995, on up to 90% of EMC
Caribe's income as a result of the Company's Grant of
Industrial Tax Exemption issued by the Commonwealth of
Puerto Rico. EMC Caribe ceased manufacturing operations
in February 1994. The Company's manufacturing facility
in Ireland incurs a 10% tax rate on income from
manufacturing operations until the year 2000.
The components of the current and non-current deferred
tax assets and liabilities as of December 30, 1995 and
December 31, 1994 were as follows:
Current Deferred Tax Assets/(Liabilities) 1995 1994
Sales Reserve $ 10,499,000 $ 13,062,000
Warranty Reserve 4,511,000 3,788,000
Inventory Reserve 23,069,000 18,457,000
Other Reserves 5,793,000 5,107,000
Other Assets 8,273,000 2,219,000
Puerto Rico Tollgate Tax (8,084,000) (1,879,000)
Total Current Deferred Tax
Assets/(Liabilities) $44,061,000 $ 40,754,000
Non-Current Deferred Tax Assets/(Liabilities)
Deferred Revenue 604,000 1,198,000
Other Reserves 815,000 492,000
Other Assets 694,000 358,000
Depreciation 2,756,000 2,425,000
Domestic NOL Carryforward 3,173,000 5,474,000
Foreign NOL Carryforward 6,811,000 6,076,000
Research and Development Credit
Carryforward 1,144,000 1,144,000
Valuation Reserve (6,797,000) (12,694,000)
Total Non-Current Deferred
Tax Assets/(Liabilities) $9,200,000 $4,473,000
In 1994, due to the uncertainty surrounding the
realization of certain favorable tax attributes in
future returns, the Company placed a valuation reserve
against otherwise recognizable deferred tax assets. In
1995, the valuation reserve has been reduced because
the realization of some of these tax attributes is more
likely than not. The valuation reserve has also
decreased due to the utilization of some of the foreign
and domestic net operating losses.
The Company has net operating loss carryforwards as of
December 30, 1995 which are summarized as follows:
Carryforward period
Approximate value during which losses
Country in U.S. dollars will expire
France $17,259,000 5 years/1996 - 1999
Hong Kong 82,000 Indefinite
Japan 837,000 5 years/1999 - 2000
United States 7,943,000 15 Years/2002 - 2008
The U.S. losses relate to the pre-acquisition losses of Epoch and
Magna. The losses in France relate to Copernique, a wholly-owned
subsidiary of EMC; approximately $11,296,000 are remaining
pre-acquisition losses and $5,963,000 are losses generated in 1994.
D. Inventory
Dec. 30, 1995 Dec. 31, 1994
Inventories consist of:
Purchased parts $22,870,000 $8,946,000
Work-in-process 150,216,000 133,116,000
Finished goods 157,074,000 109,034,000
$330,160,000 $251,096,000
The Company wrote off approximately $31,000,000, net of
tax, of inventory in the fourth quarter of 1995,
primarily relating to end-of-life products, excess
inventory and other inventory-related adjustments.
E. Notes Receivable
Notes receivable are primarily from sales-type leases
of equipment. The payment schedule for such notes at
December 30, 1995 is as follows:
1996 $28,717,000
1997 13,847,000
1998 10,204,000
1999 2,755,000
2000 1,006,000
Face value 56,529,000
Less amounts representing interest 5,889,000
Present value 50,640,000
Less allowance for doubtful accounts 216,000
50,424,000
Current portion 23,927,000
Long-term portion $26,497,000
F. Property, Plant and Equipment
Dec. 30, 1995 Dec. 31, 1994
Property, plant and equipment
consist of:
Furniture and fixtures $ 8,950,000 $ 5,989,000
Equipment 260,882,000 190,160,000
Vehicles 873,000 1,010,000
Buildings and improvements 53,748,000 44,664,000
Land 1,870,000 1,870,000
Construction in progress 20,273,000 9,712,000
346,596,000 253,405,000
Accumulated depreciation (127,695,000) (80,389,000)
$218,901,000 $173,016,000
The Company will adopt Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" in 1996. This Statement
requires recognition of impairment losses pertaining to
long-term assets based upon the excess of the carrying
amount of such assets over their fair values. The
Company believes that adoption will not have a material
effect on its financial statements.
G. Accrued Expenses
Dec. 30, 1995 Dec. 31, 1994
Accrued expenses consist of:
Salaries and benefits $67,007,000 $54,159,000
Warranty 17,798,000 15,535,000
Other 45,791,000 36,413,000
$130,596,000 $106,107,000
H. Employee Compensation Plans
In 1983, the Company initiated a profit-sharing plan
(the "1983 Plan") for employees, whose eligibility to
participate is based on certain service requirements.
Contributions are made at the discretion of the Board
of Directors.
Other than matching contributions to the 401(k) plans,
as described below, no profit-sharing contributions
were made in 1995, 1994 or 1993.
In July 1985, the Company supplemented the 1983 Plan
with a deferred compensation program for certain
employees. Under the program, which is qualified under
Section 401(k) of federal tax laws, the Company has
provided a matching contribution, as described below.
Effective January 1, 1993, the Company introduced a new
matching formula for the 1983 Plan. The Company
intends, at the end of each calendar quarter, to make a
contribution that matches 100% of the employee's
contribution up to a maximum of 2% of the employee's
quarterly compensation. Additionally, provided that
certain quarterly profit goals are attained, the
Company in succeeding quarters, will provide an
additional matching contribution of 1% of the
employee's quarterly compensation up to a maximum
quarterly matching contribution not to exceed 5% of
compensation. However, the Company's matching
contribution per participant has a quarterly limit of
$500. The Company's contribution amounted to
approximately $3,124,000 in 1995, $2,277,000 in 1994
and $1,463,000 in 1993, pursuant to the previous formula.
In 1994, the Epoch and Magna retirement savings plans
were merged into the 1983 Plan.
The Company does not offer a worldwide postretirement
or postemployment benefit plan other than plans that
exist in certain foreign subsidiaries as required by law.
McDATA has a profit sharing plan to which the
contribution was $728,000 in 1995.
I. Lease Commitments, Financial Instruments and Long-Term Obligations
Operating Lease Commitments
The Company leases office and warehouse facilities under
various operating leases. Facilities rent expense amounted to
$11,095,000, $10,277,000, and $6,050,000 in 1995, 1994 and 1993,
respectively. The Company's commitments under its operating leases
are as follows:
Operating
Fiscal Year Leases
1996 $30,218,000
1997 17,255,000
1998 9,979,000
1999 2,520,000
2000 755,000
Thereafter 393,000
Total minimum lease payments $61,120,000
Current Obligations and Lines of Credit
EMC has two lines of credit providing a maximum of
$50,000,000 and $15,000,000, respectively, at LIBOR
plus 45 basis points and 62.5 basis points, respectively.
McDATA has a line of credit providing a maximum of $7,000,000.
At December 30, 1995 and December 31, 1994, there were no
borrowings outstanding against these credit lines. The Company
must maintain certain minimum financial ratios including a minimum
level of working capital and tangible net worth under
each line of credit. At December 31, 1994, $8,427,000
was borrowed against the Company's overdraft facility at 6.4%.
Financial Instruments
In December 1993, the Company issued $200,000,000 of
Notes. In January 1994, the Company issued an
additional $29,600,000 of Notes in accordance with
overallotment provisions of the offering. 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. During
1994, $2,000 of notes were converted. Interest is
payable semiannually and the Notes are redeemable at
the option of the Company at set redemption prices,
plus accrued interest, commencing January 1, 1997.
Redemption prices range from 100.61% to 102.43% of principal.
In March 1992, the Company issued $60,000,000 of
Debentures, of which $39,535,000, $19,724,000 and
$740,000 were converted during 1995, 1994 and 1993,
respectively, and $1,000 was redeemed on April 1, 1995.
The Debentures were generally convertible 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. Interest was
paid semiannually.
The carrying amounts reflected in the consolidated
balance sheets for cash and cash equivalents, accounts
receivable, current portion of long term debt, and
accounts payable approximate fair value due to the
short maturities of these instruments. The fair value
for the Notes is based upon the December 30, 1995
prices on the New York Bond Exchange.
1995
Carrying Amount Fair Value
4 1/4% Convertible
Subordinated Notes
due 2001 $229,598,000 $229,024,000
Long-Term Obligations
The Company has a $14,000,000 mortgage collateralized
by the Company's facility at 171 South Street,
Hopkinton, Massachusetts. The mortgage rate is 10.5%
and is payable in monthly installments, calculated on a
30 year amortization schedule, with a lump sum payment
of approximately $12,835,000 due on April 1, 1999.
Payments remaining on the above mortgage note, the
Company's commitments under capital leases and other
miscellaneous notes (excluding the grants of EMC
Ireland) are as follows:
Fiscal Year Amount Payable
1996 $2,186,000
1997 2,243,000
1998 1,781,000
1999 13,091,000
2000 --
Total minimum payments 19,301,000
Less amounts representing interest 4,485,000
Present value of net payments 14,816,000
Current portion 719,000
Long-term portion $14,097,000
The Industrial Development Authority (IDA) of Ireland
granted the Company $790,000 in 1989, $1,650,000 in
1994 and $312,000 in 1995 towards the purchase price
and improvements to the Company's facility in Ireland.
The grants are included in long-term obligations and
are amortized over periods of 25 years for funds used
in building improvements and seven years for funds used
to purchase equipment. Remaining unamortized grants at
December 30, 1995 are $2,347,000, of which $196,000 is
current and $2,151,000 is long-term.
J. Common Stock, Preferred Stock and Stock Options
Common Stock
At the Annual Meetings of the Company in 1995 and 1993,
the stockholders approved amendments to the Company's
Articles of Organization to increase the number of
shares of authorized Common Stock. The current
authorization is 500,000,000 shares.
The following stock splits were effected in the form of
stock dividends in the following amounts and at the
following dates: a three-for-two stock split effective
November 24, 1992, for stockholders of record on
November 9, 1992, a two-for-one stock split effective
June 8, 1993, for stockholders of record on May 24,
1993, and a two-for-one stock split effective December
10, 1993, for stockholders of record on November 26, 1993.
All share and per share data have been restated to
reflect these splits.
Preferred Stock
At the Special Meeting of Stockholders of the Company
on November 17, 1993, the stockholders approved an
amendment to the Company's Articles of Organization to
authorize a new class of capital stock consisting of
25,000,000 shares of Series Preferred Stock, $.01 par
value, which may be issued from time to time in one or
more series, with such terms as the Board of Directors
may determine, without further action by the
stockholders of the Company, except as may be required
by applicable law or stock exchange rules.
Stock Options
In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") which requires adoption of
the disclosure provisions no later than fiscal years
beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for non-employee
transactions no later than December 15, 1995. The new
standard defines a fair value method of accounting for
stock options and other equity instruments. Under the
fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is
recognized over the service period, which is usually
the vesting period.
Pursuant to the new standard, companies are encouraged,
but are not required, to adopt the fair value method of
accounting for employee stock-based transactions.
Companies are also permitted to continue to account for
such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25") but would be required to
disclose in a note to the financial statements pro
forma net income and, if presented, earnings per share
as if the company had applied the new method of
accounting. The Company anticipates that it will
continue to apply Opinion 25 for stock options and
provide the note disclosure under SFAS 123 beginning in
its year ended December 28, 1996.
The Board of Directors and stockholders adopted the EMC
Corporation 1993 and 1985 Stock Option Plans (the "1993
Plan" and the "1985 Plan", respectively) to provide
qualified incentive stock options and nonqualified
stock options to key employees. At the Annual Meeting
of the Company on May 10, 1995, the stockholders
approved an amendment to the 1993 Plan to increase the
number of shares available to 8,000,000 shares from
6,000,000 shares. A total of 36,000,000 shares of
Common Stock have been reserved for issuance under the
1985 Plan.
Under the terms of the 1993 and 1985 Plans the exercise
price of incentive stock options issued must be equal to
at least the fair market value of the Common Stock at the
date of grant. In the event that nonqualified stock
options are granted under the 1993 Plan, the exercise
price may be less than the fair market value at the time
of grant but not less than par value which is $.01 per
share. In the event that nonqualified stock options are
granted under the 1985 Plan, the exercise price may be
less than the fair market value at the time of grant, but
in the case of employees not subject to Section 16 of the
Securities Exchange Act of 1934 ("Section 16") no less
than par value which is $.01 per share, and in the case of
employees subject to Section 16, no less than 50% of the
fair market value at the time of grant. In general,
options become exercisable in equal annual installments
over the first five years after the date of grant.
As of December 30, 1995, options exercisable under the
1993 and 1985 Plans approximated 2,461,050 and shares
available for future options amounted to 4,072,828. Since
May 16, 1995, no new incentive stock option has been able
to be granted under the 1985 Plan. Activity under the
1993 and 1985 Plans for the three years ended December 30,
1995 is as follows:
Number Exercise
of Shares Price
Outstanding,
January 2, 1993 20,041,140 $ .06-3.71
Granted 4,389,200 6.47-17.63
Canceled (331,000) .58-12.44
Exercised (5,448,069) .06-3.71
Outstanding,
January 1, 1994 18,651,271 $ .06-17.63
Granted 2,647,260 9.94-20.88
Canceled (891,200) .75-17.63
Exercised (4,894,124) .06-17.63
Outstanding,
December 31, 1994 15,513,207 $ .58-20.88
Options Relating to
McDATA Merger 493,387 .29-11.42
Granted 2,734,503 13.63-22.00
Canceled (1,415,043) .58-17.63
Exercised (4,131,707) .58-19.88
Outstanding,
December 30, 1995 13,194,347 $ .29-22.00
In 1994, an employee of the Company was granted nonqualified
options to purchase 5,000 shares of Common Stock under the
1993 Plan at $9.94 per share, representing 50% of the per share
fair market value at the date of the grant. Discounts from
fair market value have been recorded as deferred compensation
and are being charged to earnings over the five year vesting
period of the options.
Generally, when shares acquired pursuant to the exercise
of incentive stock options are sold within one year of
exercise or within two years from the date of grant, the
Company derives a tax deduction measured by the amount
that the market value exceeds the option price at the
date the options are exercised. When nonqualified stock
options are exercised, the Company derives a tax
deduction measured by the amount that the market value
exceeds the option price at the date the options are exercised.
On January 31, 1989, the Board of Directors adopted the
1989 Employee Stock Purchase Plan (the "1989 Plan")
which was approved and adopted by the stockholders of
the Company on May 10, 1989. Under the 1989 Plan,
eligible employees of the Company are given the option
to purchase shares of Common Stock at 85% of fair market
value by means of payroll deductions. At the Annual
Meeting of the Company on May 12, 1993 the stockholders
approved an amendment to the 1989 Plan to increase the
number of shares available from 2,700,000 to 3,900,000.
A proposal will be submitted to the stockholders at the
1996 Annual Meeting to increase the number of shares
eligible for grant to 4,900,000 from the current
authorization of 3,900,000 shares. Options are granted
twice yearly, on January 1 and July 1, and are
exercisable on the succeeding June 30 or December 31.
The purchase price for shares is the lower of 85% of the
fair market value of the stock at the time of grant or
85% of said value at the time of exercise. In 1995,
139,598 shares were exercised at $18.67 per share. In
1994, 387,218 shares were exercised at $11.48 per share.
In 1993, 190,492 shares were exercised at $5.05 per
share and 152,679 shares were exercised at $9.19 per share.
At the Annual Meeting of the Company on May 12, 1992,
the stockholders adopted the 1992 EMC Corporation Stock
Option Plan for Directors (the "Directors Plan").
A total of 1,800,000 shares of Common Stock have been
reserved for issuance under the Directors Plan which is
administered by the Executive Stock Option and Compensation
Committee (the "Committee") of the Board of Directors.
The exercise price for each option granted under the Directors
Plan will be at a price per share determined by the Committee
at the time the option is granted, which price shall not be less
than 50% of the fair market value per share of Common Stock
on the date of grant.
The Directors Plan initially provided that formula
options would be exercisable in increments of 20% for
the shares covered thereby on each of the first through
fifth anniversaries of the grant. In October 1995, the
Committee amended the vesting schedule for newly granted
formula options to a period of three years instead of
five years so as to conform to a director's period of
election to the Board of Directors. This amendment will
be submitted to stockholders for approval at the 1996
Annual Meeting. Subject to stockholder approval, formula
options granted subsequent to such amendment will be
exercisable in increments of 33 1/3% for the shares
covered thereby on each of the first through third
anniversaries of the grant.
On October 20, 1995, two directors were granted options
to purchase 80,000 shares of Common Stock at a per share
price of $6.81, which represents 50% of the per share
fair market value at the date of grant. The discount
from fair market value has been recorded as deferred
compensation and is being amortized to earnings over the
three year vesting period of the options. On May 12,
1993, a director was granted options to purchase 160,000
shares of Common Stock at a per share price of $8.25,
which represents 100% of the per share fair market value
at the date of grant. In 1995, options to purchase
32,000 shares were exercised at $8.25. In 1994, options
to purchase 32,000 shares and 48,000 shares were
exercised at $8.25 and $1.26, respectively. In 1993,
options to purchase 48,000 shares were exercised at
$1.26 per share.
In January 1996, the Committee adopted certain
amendments to the Directors Plan, which allow for the
granting of discretionary, non-formula based options.
These amendments will be submitted to stockholders for
approval at the 1996 Annual Meeting.
All stock option plans and the employee stock purchase
plan are administered by the Committee.
Pursuant to the acquisition of McDATA, all options under
McDATA's stock option plans which were outstanding and
not exercisable as of the closing date were assumed by
EMC. Upon exercise of such options, the holders will
receive EMC Common Stock.
K. Litigation
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, denied STK's allegations and counterclaimed.
In the counterclaims, EMC seeks unspecified damages,
attorney's fees, costs and interest. In a court
hearing on October 12, 1994, STK's claims on two of the
three patents were dismissed with prejudice. No trial
date has been set in this proceeding.
On September 23, 1994, EMC filed suit against STK in
the United States District Court for Delaware alleging
that STK is infringing one EMC patent. In the
complaint, EMC seeks injunctive relief and unspecified
damages, including treble damages, plus attorney's fees
and costs. On October 12, 1994, STK answered the complaint,
denied any infringement and counterclaimed. STK has
subsequently filed an additional counterclaim. EMC has
denied STK's allegations. Discovery on this case is currently
in process. A trial is currently scheduled for October 1996.
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 or financial condition.
L. Risks and Uncertainties
Off-Balance-Sheet Risk
The Company enters into forward exchange and foreign
currency option contracts to hedge foreign currency
transactions on a continuing basis for periods
consistent with its committed exposures. The Company
does not engage in currency speculation. The Company's
foreign exchange contracts do not subject the Company
to risk due to exchange rate movements because gains
and losses on these contracts offset losses and gains
on the assets, liabilities and transactions being
hedged. To finance premiums paid on options, the
Company may write offsetting options at exercise prices
which limit but do not eliminate the effect of
purchased options. The maximum amount of foreign
currency contracts outstanding during 1995 and 1994 was
$228,750,000 and $96,479,000, respectively. At December
30, 1995 and December 31, 1994, the Company had
$202,031,000 and $89,691,000 of foreign exchange
contracts outstanding, respectively, and $10,000,000
and $10,000,000 of foreign currency options, respectively.
Concentrations of Credit Risk
Financial instruments which potentially subject the
Company to concentrations of credit risk consist
principally of temporary cash investments, long-term
investments and trade and notes receivable. The Company
places its temporary cash investments and long-term
investments in investment grade instruments and limits
the amount of investment with any one financial
institution. The credit risk associated with trade
receivables is minimal due to the large number of
customers and their broad dispersion over many
different industries and geographic areas. During 1995
and 1994, no single customer accounted for greater than
10% of the Company's revenues.
Manufacturing Risks
The Company's products operate near the limits of
electronic and physical performance and are designed
and manufactured with relatively small tolerances. If
flaws in design, production, assembly or testing occur
on the part of EMC or its suppliers, EMC may experience
a rate of failure in its products that results in
substantial repair or replacement costs and potential
damage to EMC's reputation, any of which could have
substantial adverse effects on EMC's operations and
ultimately on its financial results.
The Company purchases certain components and products,
including high density DRAMS and disk drives, from
suppliers who the Company believes are currently the
only suppliers of those components or products that
meet the Company's requirements. A failure by any such
supplier to meet the Company's requirements for an
extended period of time could cause the Company to lose
some time-sensitive customer orders which could
adversely affect quarterly revenues and earnings.
Use of Accounting Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
the reported amounts of revenues and expenses during
the reporting period and the disclosure of contingent
assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
M. Segment Information
The Company is active in primarily one business
segment: designing, manufacturing and marketing high
performance storage products. Information by
geographic area is presented below with exports shown
in their area of origin. Sales and marketing
operations outside the U.S. are conducted through sales
subsidiaries and branches located principally in Europe
and the Asia Pacific region. The U.S. market amounted
to greater than 95% of the Company's sales, income and
identifiable assets in the North/South America segment.
Intercompany transfers between geographic areas are
accounted for at prices which are designed to be
representative of unaffiliated party transactions.
(Amounts are in thousands.)
Europe,
North/South Middle East, Asia Consolidated
America Africa Pacific Eliminations Total
1995
Sales $1,230,223 $567,303 $123,749 $ --- $1,921,275
Transfers between
areas 134,073 141,003 10 (275,086) ---
Total sales 1,364,296 708,306 123,759 (275,086) 1,921,275
Income from
operations 264,168 176,293 1,805 (6,487) 435,779
Identifiable assets at
year end 1,669,928 144,081 77,923 (146,203) 1,745,729
1994
Sales $871,048 $449,467 $56,977 $ --- $1,377,492
Transfers between
areas 123,587 61,577 110 (185,274) ---
Total sales 994,635 511,044 57,087 (185,274) 1,377,492
Income (loss) from
operations 155,544 196,658 (97) (1,573) 350,532
Identifiable assets at
year end 1,230,883 171,233 36,437 (121,053) 1,317,500
1993
Sales $526,771 $251,363 $4,487 $ --- $782,621
Transfers between
areas 100,237 83,726 --- (183,963) ---
Total sales 627,008 335,089 4,487 (183,963) 782,621
Income (loss) from
operations 107,512 70,324 (990) 3,582 180,428
Identifiable assets at
year end 684,576 192,682 2,383 (49,995) 829,646
N. Selected Quarterly Financial Data (unaudited)
(amounts in thousands except per share amounts)
Fiscal Year 1995 Q1 1995 Q2 1995 Q3 1995 Q4 1995
Net sales, service and rental $448,116 $478,553 $475,460 $519,146
Gross profit 230,008 246,791 235,183 206,417
Net income 85,449 94,111 85,158 62,127
Net income per share,
(fully diluted) $0.35 $0.38 $0.35 $0.26
Fiscal Year 1994 Q1 1994 Q2 1994 Q3 1994 Q4 1994
Net sales, service and rental $267,058 $308,116 $371,582 $430,736
Gross profit 142,651 161,733 195,249 217,825
Net income 48,840 54,569 69,395 77,864
Net income per share,
(fully diluted) $0.22 $0.24 $0.30 $0.34
The first three quarters of 1995 have been restated to reflect the
acquisition of McDATA, accounted for as a pooling of interests.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will furnish to the Securities and Exchange
Commission a definitive Proxy Statement (the "Proxy
Statement") not later than 120 days after the close of the
fiscal year ended December 30, 1995. The information
required by this item is incorporated herein by reference to
the Proxy Statement. Also see "Executive Officers of the
Registrant" in Part I of this form.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated
herein by reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is incorporated
herein by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated
herein by reference to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The financial statements listed in the accompanying
Index to Consolidated Financial Statements and Schedule
on page 59 are filed as part of this report.
2. Schedule
The schedule listed in the accompanying Index to
Consolidated Financial Statements and Schedule on page 60
is filed as part of this report.
3. Exhibits
See Index to Exhibits pages 61 through 62 of this
report.
The exhibits are filed with or incorporated by
reference in this report.
(b) Reports on Form 8-K.
On October 27, 1995, the registrant filed a report
(Date of Report: October 27, 1995) on Form 8-K reporting,
under Item 5, a Plan of Merger and Agreement by and among
the Company, EMC Merger Corporation 1995, a wholly-owned
subsidiary of the Company, and McDATA Corporation.
On December 19,1995, the registrant filed a report
(Date of Report: December 7, 1995) on Form 8-K reporting,
under Item 5, the completion of the acquisition of McDATA
Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, EMC Corporation has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 26, 1996.
EMC CORPORATION
By: /s/ Richard J. Egan
Richard J. Egan
Chairman of the Board
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities on the date indicated as of March 26, 1996.
Signature Title
/s/ Richard J. Egan Chairman of the Board
Richard J. Egan (Principal Executive Officer) and Director
/s/ Michael C. Ruettgers President and Chief Executive Officer
Michael C. Ruettgers and Director
/s/ John R. Egan Executive Vice President Sales and
John R. Egan Marketing and Director
/s/ Colin G. Patteson Vice President, Chief Financial
Colin G. Patteson Officer and Treasurer
(Principal Financial Officer)
/s/ William J. Teuber, Jr. Vice President and Controller
William J. Teuber, Jr. (Principal Accounting Officer)
/s/ Michael J. Cronin Director
Michael J. Cronin
/s/ John F. Cunningham Director
John F. Cunningham
/s/ Maureen E. Egan Director
Maureen E. Egan
/s/ W. Paul Fitzgerald Director
W. Paul Fitzgerald
/s/ Joseph F. Oliveri Director
Joseph F. Oliveri
EMC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
COVERED BY REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
Form 10-K
Consolidated Balance Sheets at
December 30, 1995 and December 31, 1994 p. 29
Consolidated Statements of Income
for the years ended December 30, 1995,
December 31, 1994, and January 1, 1994 p. 30
Consolidated Statements of Cash Flows
for the years ended December 30, 1995,
December 31, 1994, and January 1, 1994 p. 31
Consolidated Statements of Stockholders' Equity
for the years ended December 30, 1995,
December 31, 1994, and January 1, 1994 p. 32
Notes to Consolidated Financial Statements p.p. 33 - 53
Report of Independent Accountants p. 28
Schedule: Form 10-K
Schedule II - Valuation Page S-1
and Qualifying Accounts
Report of Independent
Accountants on Financial
Statement Schedule Page 28
Note: All other financial statement schedules are
omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
The exhibits listed below are filed with or incorporated by reference
in this report.
3.1 Articles of Organization of EMC Corporation.1
3.2 Articles of Amendment filed February 26, 1986.1
3.3 Articles of Amendment filed April 2, 1986.1
3.4 Articles of Amendment filed May 13, 1987.2
3.5 Articles of Amendment filed June 19, 1992.3
3.6 Articles of Amendment filed May 12, 1993.4
3.7 Articles of Amendment filed November 12, 1993.5
3.8 Articles of Amendment filed May 10, 1995.6
3.9 By-laws of EMC Corporation, as amended on July 21, 1995.7
4.1 Form of Stock Certificate.8
4.2 Indenture, dated as of December 17, 1993 between EMC
Corporation and State Street Bank and Trust Company, Trustee.9
4.3 Form of 41/4% Convertible Subordinated Note Due 2001.10
10.1 EMC Corporation 1985 Stock Option Plan, as amended.11
10.2 EMC Corporation 1989 Employee Stock Purchase Plan, as amended.11
10.3 EMC Corporation 1992 Stock Option Plan for Directors, as amended.11
10.4 EMC Corporation 1993 Stock Option Plan, as amended. 11
10.5 McDATA 1990 Class A Stock Option Plan (filed herewith).
10.6 McDATA 1990 Class B Stock Option Plan (filed herewith).
10.7 EMC Corporation Profit-Sharing Plan.1
10.7 Mortgage Agreement with and Note Payable to John Hancock Mutual Life
Insurance Company.1
11.1 Computation of net income (loss) per share (filed herewith).
22.1 Subsidiaries of Registrant (filed herewith).
23.1 Consent of Independent Accountants dated March 26, 1996 (filed herewith).
____________________________________________________________
1 Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (No. 33-3656)
2 Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (No. 33-17218).
3 Incorporated herein from Annual Report on Form 10-K of
EMC Corporation filed February 12, 1993.
4 Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (No. 33-67224).
5 Incorporated herein from Current Report on Form 8-K of
EMC Corporation filed November 19, 1993.
6 Incorporated herein from Current Report on Form 8-K of
EMC Corporation filed May 26, 1995.
7 Incorporated herein from Quarterly Report on Form 10-K
of EMC Corporation filed August 11, 1995.
8 Incorporated herein from Annual Report on Form 10-K of
EMC Corporation filed March 31, 1988.
9 Incorporated herein from Current Report on Form 8-K of
EMC Corporation filed December 29, 1993.
10 Incorporated herein by reference to the Company's
Registration Statement on Form S-3 (No. 33-71916).
11 Incorporated herein from Annual Report on Form 10-K of
EMC Corporation filed March 29, 1995.
EMC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
Year ended December
30, 1995
Allowance for
doubtful accounts $6,272,000 $2,435,000 --- $(1,645,000) $7,062,000
Year ended December
31, 1994
Allowance for
doubtful accounts $5,262,000 $2,223,000 --- $(1,213,000) $6,272,000
Year ended January
1, 1994
Allowance for
doubtful accounts $2,915,000 $2,699,000 --- $ (352,000) $5,262,000
S-1
EMC CORPORATION
Exhibit 11.1 Computation of Primary and Fully Diluted Net Income Per Share
1995 1994 1993
Primary
Net income (in thousands) $326,845 $250,668 $127,122
Add back interest expense
on convertible notes 9,758 9,730 373
Less tax effect on interest
expense on convertible notes (3,903) (3,892) (149)
Net income for purpose of
calculating primary net
income per share $332,700 $256,506 $127,346
Weighted average shares
outstanding during
the period 225,314,314 193,969,252 180,204,169
Common equivalent shares 20,071,895 24,076,414 16,281,991
Common and common equivalent
shares outstanding for purpose of
calculating primary
net income per share 245,386,209 218,045,666 196,486,160
Primary net income per share $1.36 $1.18 $0.65
Fully Diluted
Net income (in thousands) $326,845 $250,668 $127,122
Add back interest expense on
convertible debentures
and notes 10,374 12,700 4,097
Less tax effect on interest
expense on convertible
debentures and notes (4,150) (5,080) (1,601)
Net income for purpose of
calculating fully diluted net
income per share $333,069 $258,288 $129,618
Common and common equivalent
shares outstanding for purpose
of calculating primary
net income per share 245,386,209 218,045,666 196,486,160
Incremental shares to
reflect full dilution 2,909,934 16,208,974 20,738,566
Total shares for purpose of
calculating fully diluted
net income per share 248,296,143 234,254,640 217,224,726
Fully diluted net income
per share (Note B) $1.34 $1.10 $0.60
EXHIBIT 22.1 - SUBSIDIARIES OF REGISTRANT
The following is a list of the Corporation's consolidated
subsidiaries as of March 15, 1996. The Corporation owns,
directly or indirectly, 100% of the voting securities of
each subsidiary, unless noted otherwise and except for
director's qualifying shares.
STATE OR
JURISDICTION OF
NAME ORGANIZATION
Copernique S.A. France
EMC Asset Acquisition Corporation Delaware
EMC (Benelux) B.V. Holland
EMC Caribe, Inc. Delaware
EMC Computer Storage Systems (Israel) Ltd. Israel
EMC Computer Systems AG Switzerland
EMC Computer Systems (Benelux) B.V. Holland
EMC Computer Systems California, Inc. Delaware
EMC Computer Systems (F.E.) Limited Hong Kong
EMC Computer Systems France Sarl France
EMC Computer Systems Italy SPA Italy
EMC Computer Systems (S.A.) Pty. Ltd. South Africa
EMC Computer Systems (South Asia) Pte. Ltd. Singapore
EMC Computer Systems (U.K.) Limited United Kingdom
EMC Computer-Systems AS Norway
EMC Computer-Systems A/S Denmark
EMC Computer-Systems Deutschland GMBH Germany
EMC Computer-Systems Ireland Limited Ireland
EMC Computer-Systems OY Finland
EMC Computer-Systems Svenska AB Sweden
EMC Foreign Sales Corporation (F.S.C.) Barbados
EMC International Holdings, Inc. Delaware
EMC Japan K.K.* Japan
EMC Securities Corporation Massachusetts
EMC System Peripherals Canada, Inc. Canada
Epoch, Inc. Delaware
Hankook EMC Computer Systems Choesik Hoesa Korea
McDATA Asia Pacific Pte. Ltd. Singapore
McDATA Corporation Delaware
McDATA Europa GmbH Germany
McDATA International, Inc. U.S. Virgin Islands
McDATA UK Limited United Kingdom
EXHIBIT 23.1 - CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
Registration Statements of EMC Corporation on Form S-8 (File
Nos. 33-71262, 33-71598, 33-63665 and 333-1375) of our
reports dated January 25, 1996, on our audits of the
consolidated financial statements and financial statement
schedule of EMC Corporation as of December 30, 1995 and
December 31, 1994 and for the years ended December 30, 1995,
December 31, 1994, and January 1, 1994, which reports are
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P
Boston, Massachusetts
March 26, 1996
EXHIBIT 10.5
McDATA CORPORATION
1990 CLASS A STOCK OPTION PLAN
(As approved by the Board of Directors
on August 28, 1990,
and by the Stockholders on
November 16, 1990)
Purpose
The McDATA Corporation 1990 Class A
Stock Option Plan ("Plan") provides for the grant
of Stock Options to Employees of McDATA
Corporation (the "Company"), and such of its
subsidiaries (as defined in Section 425(f) of the
Internal Revenue Code of 1986 (the "Code")) as the
Board of Directors of the Company (the "Board")
shall from time to time designate ("Participating
Subsidiaries"), in order to advance the interests
of the Company and its Participating Subsidiaries
through the motivation, attraction and retention
of their respective Employees.
Incentive Stock Options and Non-Incentive
Stock Options
The Stock Options granted under the Plan may be
either:
Incentive Stock Options ("ISOs") which are
intended to be "Incentive Stock Options" as that
term is defined in Section 422A of the Code; or
Nonstatutory Stock Options ("NSOs") which are
intended to be options that do not qualify as
"Incentive Stock Options" under Section 422A
of the Code.
All Stock Options shall be ISOs unless the
Option Agreement clearly designates the Stock
Options granted thereunder, or a specified portion
thereof, as NSOs or unless the stockholders of the
Company do not approve the Plan within twelve
months after the Plan is adopted by the Board. If
the Plan is not approved by the stockholders of
the Company within twelve months after the Plan is
adopted by the Board, any ISO granted under the
Plan shall be treated as an NSO as of the original
date of grant, but all other terms and conditions
of such Stock Options shall continue in effect.
Subject to the other provisions of the Plan, a
Participant may receive ISOs and NSOs at the same
time, provided that the ISOs and NSOs are clearly
designated as such.
Except as otherwise expressly provided
herein, all of the provisions and requirements of
the Plan relating to Stock Options shall apply to
ISOs and NSOs.
III. Administration
Committee. The Plan shall be
administered by a committee ("Committee")
composed of at least two members of the
Board of Directors. The Board of Directors
may reserve to itself any of the authority
granted to the Committee as set forth
herein, and it may perform and discharge
all of the functions and responsibilities
of the Committee at any time that a duly
constituted Committee is not appointed and
serving. All references in this Plan to
the "Committee" shall be deemed to refer to
the Board of Directors whenever the Board
is discharging the powers and
responsibilities of the Committee. The
Committee or the Board, as the case may be,
shall have full authority to administer the
Plan, including authority to interpret and
construe any provision of the Plan and any
Stock Option granted thereunder, and to
adopt such rules and regulations for
administering the Plan as it may deem
necessary in order to comply with the
requirements of the Code or in order that
Stock Options that are intended to be ISOs
will be classified as incentive stock
options under the Code, or in order to
conform to any regulation or to any change
in any law or regulation applicable
thereto. The Committee or the Board may
delegate any of its responsibilities under
the Plan, other than its responsibility to
grant Stock Options or to interpret and
construe the Plan.
Actions of Committee. All actions taken
and all interpretations and determinations
made by the Committee in good faith
(including determinations of Fair Market
Value) shall be final and binding upon all
Participants, the Company and all other
interested persons. No member of the
Committee shall be personally liable for
any action, determination or interpretation
made in good faith with respect to the
Plan, and all members of the Committee
shall, in addition to their rights as
directors, be fully protected by the
Company with respect to any such action,
determination or interpretation.
Definitions
"Stock Option." A Stock Option is the
right granted under the Plan to an Employee
to purchase, at such time or times and at
such price or prices ("Option Price") as
are determined by the Committee, the number
of shares of Common Stock determined by the
Committee.
"Common Stock." A share of Common Stock
means a share of authorized but unissued or
reacquired Class A Common Stock (par value
$.001 per share) of the Company.
"Fair Market Value." If the Common Stock
is not traded publicly, the Fair Market
Value of a share of Common Stock on any
date shall be determined, in good faith, by
the Board or the Committee after such
consultation with outside legal, accounting
and other experts as the Board or the
Committee may deem advisable, and the Board
or the Committee shall maintain a written
record of its method of determining such
value. If the Common Stock is traded
publicly, the Fair Market Value of a share
of Common Stock on any date shall be the
average of the representative closing bid
and asked prices, as quoted by the National
Association of Securities Dealers through
NASDAQ (its automated system for reporting
quotes), for the date in question or, if
the Common Stock is listed on the NASDAQ
National Market System or is listed on a
national stock exchange, the officially
quoted closing price on NASDAQ or such
exchange, as the case may be, on the date
in question.
"Employee". An Employee is an employee
of the Company or any Participating
Subsidiary.
"Participant". A Participant is an
Employee to whom a Stock Option is granted.
Eligibility and Participation
Grants of Stock Options under this Plan may
be made to Employees who are, at the time of
grant, holders of Class A Common Stock or of
options to acquire Class A Common Stock of the
Company. Any Director of the Company or of a
Participating Subsidiary who is also an Employee
shall also be eligible to receive Stock Options,
but Directors who are not Employees shall not be
eligible to receive Stock Options under the Plan.
The Committee shall from time to time
determine the Employees to whom Stock Options
shall be granted, the number of shares of Common
Stock subject to each Stock Option to be granted
to each such Employee, the Option Price of such
Stock Options, all as provided in this Plan. The
Option Price of any ISO shall be not less than the
Fair Market Value of a share of Common Stock on
the date on which the Stock Option is granted.
The Option Price of an NSO shall not be less than
50% of the Fair Market Value of a share of Common
Stock on the date the NSO is granted. If an ISO
is granted to an Employee who then owns stock
possessing more than 10% of the total combined
voting power of all classes of stock of the
Company or any parent or subsidiary corporation of
the Company, the Option Price of such ISO shall be
at least 110% of the Fair Market Value of the
Common Stock subject to the ISO at the time such
ISO is granted, and such ISO shall not be
exercisable after five years after the date on
which it was granted. Each Stock Option shall be
evidenced by a written agreement ("Option
Agreement") containing such terms and provisions
as the Committee may determine, subject to the
provisions of this Plan.
Shares of Common Stock Subject to the Plan
Maximum Number. The maximum aggregate
number of shares of Common Stock that may
be made subject to stock options under this
Plan shall be 3,000,000 shares; provided
that such number of shares shall be reduced
by the number of shares subject to
outstanding options under the Company's
1982 Incentive Stock Option Plan. To the
extent that if the aggregate Fair Market
Value (determined as of the time a Stock
Option is granted) of the Common Stock
subject to a Stock Option that first
becomes exercisable in a particular
calendar year exceeds $100,000, the Stock
Option shall be treated as an NSO with
respect to the portion of such shares
having a Fair Market Value in excess of
$100,000. If any shares of Common Stock
subject to Stock Options are not purchased
or otherwise paid for before such Stock
Options expire, such shares may again be
made subject to Stock Options.
Capital Changes. In the event any
changes are made to the outstanding shares
of Common Stock (whether by reason of
merger, consolidation, reorganization,
recapitalization, stock dividend in excess
of ten percent (10%) at any single time,
stock split, combination of shares,
exchange of shares, change in corporate
structure or otherwise), appropriate
adjustments shall be made in: (i) the
number of shares of Common Stock
theretofore made subject to Stock Options,
and in the purchase price of said shares;
and (ii) the aggregate number of shares
which may be made subject to Stock Options.
If any of the foregoing adjustments shall
result in a fractional share, the fraction
shall be disregarded, and the Company shall
have no obligation to make any cash or
other payment with respect to such a
fractional share.
VII. Exercise of Stock Options
Time of Exercise. Subject to the
provisions of the Plan, the Committee, in
its discretion, shall determine the time
when a Stock Option, or a portion of a
Stock Option, shall become exercisable, and
the time when a Stock Option, or a portion
of a Stock Option, shall expire. Such time
or times shall be set forth in the Option
Agreement evidencing such Stock Option.
Unless otherwise determined by the
Committee, a Stock Option shall become
exercisable in four equal installments on
the first four anniversaries of the date of
grant. A Stock Option shall expire, to the
extent not exercised, no later than the
tenth anniversary of the date on which it
was granted. The Committee may accelerate
the vesting of any Participant's Stock
Option by giving written notice to the
Participant. Upon receipt of such notice,
the Participant and the Company shall amend
the Option Agreement to reflect the new
vesting schedule. Unless otherwise
determined by the Committee, the
acceleration of the exercise period of a
Stock Option shall not affect the
expiration date of that Stock Option.
Exchange of Outstanding Stock. The
Committee, in its sole discretion, may
permit a Participant to surrender to the
Company shares of the Common Stock
previously acquired by the Participant as
part of full payment for the exercise of a
Stock Option. Such surrendered shares
shall be valued at their Fair Market Value
on the date of exercise. Unless otherwise
determined by the Committee, any such
shares surrendered by the Participant shall
have been held by him for at least six
months prior to surrender.
Stock Restriction Agreement. The
Committee may provide that shares of Common
Stock issuable upon the exercise of a Stock
Option shall, under certain conditions, be
subject to restrictions whereby the Company
has a right of first refusal with respect
to such shares or a right or obligation to
repurchase all or a portion of such shares,
which restrictions may survive a
Participant's term of employment with the
Company. The acceleration of the time or
times at which the Stock Option becomes
exercisable may be conditioned upon the
Participant's agreement to such
restrictions.
Termination of Employment Before
Exercise. If a Participant's employment
with the Company or a Participating
Subsidiary shall terminate for any reason
other than the Participant's disability,
any Stock Option then held by the
Participant, to the extent then exercisable
under the applicable Option Agreement(s),
shall remain exercisable after the
termination of his employment for a period
of three months. If the Participant's
employment is terminated because the
Participant is disabled within the meaning
of Section 22(e)(3) of the Code, any Stock
Option then held by the Participant, to the
extent then exercisable under the
applicable Option Agreement(s), shall
remain exercisable after the termination of
his employment for a period of twelve
months (but in no event beyond ten years
from the date of grant of the Stock
Option). If the Stock Option is not
exercised during the applicable period, it
shall be deemed to have been forfeited and
of no further force or effect.
Disposition of Forfeited Stock Options.
Any shares of Common Stock subject to Stock
Options forfeited by a Participant shall
not thereafter be eligible for purchase by
the Participant but may be made subject to
Stock Options granted to other
Participants.
No Contract of Employment
Nothing in this Plan shall confer upon the
Participant the right to continue in the employ of the
Company, or any Participating Subsidiary, nor shall it
interfere in any way with the right of the Company, or
any such Participating Subsidiary, to discharge the
Participant at any time for any reason whatsoever, with
or without cause. Nothing in this Article VIII shall
affect any rights or obligations of the Company or any
Participant under any written contract of employment.
No Rights as a Stockholder
A Participant shall have no rights as a
stockholder with respect to any shares of Common
Stock subject to a Stock Option. Except as
provided in Section 6.2, no adjustment shall be
made in the number of shares of Common Stock
issued to a Participant, or in any other rights of
the Participant upon exercise of a Stock Option by
reason of any dividend, distribution or other
right granted to stockholders for which the record
date is prior to the date of exercise of the
Participant's Stock Option.
Assignability
No Stock Option granted under this Plan, nor
any other rights acquired by a Participant under
this Plan, shall be assignable or transferable by
a Participant, other than by will or the laws of
descent and distribution, and are exercisable,
during his lifetime, only by him. Notwithstanding
the preceding sentence, the Committee may, in its
sole discretion, permit the assignment or transfer
of an NSO and the exercise thereof by a person
other than a Participant, on such terms and
conditions as the Committee in its sole discretion
may determine. Any such terms shall be determined
at the time the NSO is granted, and shall be set
forth in the Option Agreement. In the event of
his death, the Stock Option may be exercised by
the Personal Representative of the Participant's
estate or, if no Personal Representative has been
appointed, by the successor or successors in
interest determined under the Participant's will
or under the applicable laws of descent and
distribution.
Amendment
The Board may from time to time alter,
amend, suspend or discontinue the Plan, including,
where applicable, any modifications or amendments
as it shall deem advisable in order that ISOs will
be classified as incentive stock options under the
Code, or in order to conform to any regulation or
to any change in any law or regulation applicable
thereto; provided, however, that no such action
shall adversely affect the rights and obligations
with respect to Stock Options at any time
outstanding under the Plan.
XII. Registration of Optioned Shares
The Stock Options shall not be exercisable
unless the purchase of such optioned shares is pursuant to
an applicable effective registration statement under the
Securities Act of 1933, as amended, or unless, in the
opinion of counsel to the Company, the proposed purchase of
such optioned shares would be exempt from the registration
requirements of the Securities Act of 1933, as amended, and
from the registration or qualification requirements of
applicable state securities laws.
Withholding Taxes
The Company or Participating Subsidiary may
take such steps as it may deem necessary or appropriate
for the withholding of any taxes which the Company or
the Participating Subsidiary is required by any law or
regulation or any governmental authority, whether
federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option,
including, but not limited to, the withholding of all
or any portion of any issuance of shares of Common
Stock upon the exercise of any Stock Option until the
Participant reimburses the Company or Participating
Subsidiary for the amount the Company or Participating
Subsidiary is required to withhold with respect to such
taxes, or cancelling any portion of such issuance in an
amount sufficient to reimburse itself for the amount it
is required to so withhold.
Brokerage Arrangements
The Committee, in its discretion, may enter
into arrangements with one or more banks, brokers
or other financial institutions to facilitate the
disposition of shares acquired upon exercise of
Stock Options, including, without limitation,
arrangements for the simultaneous exercise of
Stock Options and sale of the shares acquired upon
such exercise.
Nonexclusivity of the Plan
Neither the adoption of the Plan by the
Board nor the submission of the Plan to
stockholders of the Company for approval shall be
construed as creating any limitations on the power
or authority of the Board to adopt such other or
additional incentive or other compensation
arrangements of whatever nature as the Board may
deem necessary or desirable or preclude or limit
the continuation of any other plan, practice or
arrangement for the payment of compensation or
fringe benefits to employees generally, or to any
class or group of employees, which the Company or
any Subsidiary now has lawfully put into effect,
including, without limitation, any retirement,
pension, savings and stock purchase plan,
insurance, death and disability benefits and
executive short-term incentive plans.
XVI. Effective Date
This Plan was adopted by the Board of
Directors and became effective on August 28, 1990, and was
approved by the Company's stockholders on November 16, 1990.
No Stock Options shall be granted subsequent to ten years
after the effective date of the Plan. Stock Options
outstanding subsequent to ten years after the effective date
of the Plan shall continue to be governed by the provisions
of the Plan.
EXHIBIT 10.6
McDATA CORPORATION
1990 CLASS B STOCK OPTION PLAN
(As approved by the Board of Directors
on July 27, 1990, and by the
Stockholders on November 16, 1990)
Purpose
The McDATA Corporation 1990 Class B Stock
Option Plan ("Plan") provides for the grant of
Stock Options to Employees of McDATA Corporation
(the "Company"), and such of its subsidiaries (as
defined in Section 425(f) of the Internal Revenue
Code of 1986 (the "Code")) as the Board of
Directors of the Company (the "Board") shall from
time to time designate ("Participating
Subsidiaries"), in order to advance the interests
of the Company and its Participating Subsidiaries
through the motivation, attraction and retention
of their respective Employees.
Incentive Stock Options and Non-Incentive Stock
Options
The Stock Options granted under the Plan may be
either:
Incentive Stock Options ("ISOs") which are
intended to be "Incentive Stock Options" as
that term is defined in Section 422A of the
Code; or
Nonstatutory Stock Options ("NSOs") which are
intended to be options that do not qualify as
"Incentive Stock Options" under Section 422A
of the Code.
All Stock Options shall be ISOs unless the
Option Agreement clearly designates the Stock
Options granted thereunder, or a specified portion
thereof, as NSOs or unless the stockholders of the
Company do not approve the Plan within twelve
months after the Plan is adopted by the Board. If
the Plan is not approved by the stockholders of
the Company within twelve months after the Plan is
adopted by the Board, any ISO granted under the
Plan shall be treated as an NSO as of the original
date of grant, but all other terms and conditions
of such Stock Options shall continue in effect.
Subject to the other provisions of the Plan, a
Participant may receive ISOs and NSOs at the same
time, provided that the ISOs and NSOs are clearly
designated as such.
Except as otherwise expressly provided
herein, all of the provisions and requirements of
the Plan relating to Stock Options shall apply to
ISOs and NSOs.
Administration
Committee. The Plan shall be administered by
a committee ("Committee") composed of at
least two members of the Board of Directors.
The Board of Directors may reserve to itself
any of the authority granted to the Committee
as set forth herein, and it may perform and
discharge all of the functions and
responsibilities of the Committee at any time
that a duly constituted Committee is not
appointed and serving. All references in
this Plan to the "Committee" shall be deemed
to refer to the Board of Directors whenever
the Board is discharging the powers and
responsibilities of the Committee. The
Committee or the Board, as the case may be,
shall have full authority to administer the
Plan, including authority to interpret and
construe any provision of the Plan and any
Stock Option granted thereunder, and to adopt
such rules and regulations for administering
the Plan as it may deem necessary in order to
comply with the requirements of the Code or
in order that Stock Options that are intended
to be ISOs will be classified as incentive
stock options under the Code, or in order to
conform to any regulation or to any change in
any law or regulation applicable thereto.
The Committee or the Board may delegate any
of its responsibilities under the Plan, other
than its responsibility to grant Stock
Options or to interpret and construe the Plan.
Actions of Committee. All actions taken and
all interpretations and determinations made
by the Committee in good faith (including
determinations of Fair Market Value) shall be
final and binding upon all Participants, the
Company and all other interested persons. No
member of the Committee shall be personally
liable for any action, determination or
interpretation made in good faith with
respect to the Plan, and all members of the
Committee shall, in addition to their rights
as directors, be fully protected by the
Company with respect to any such action,
determination or interpretation.
Definitions
"Stock Option." A Stock Option is the right
granted under the Plan to an Employee to
purchase, at such time or times and at such
price or prices ("Option Price") as are
determined by the Committee, the number of
shares of Common Stock determined by the
Committee.
"Common Stock." A share of Common Stock means
a share of authorized but unissued or
reacquired Class B Common Stock (par value
$.001 per share) of the Company.
"Fair Market Value." If the Common Stock is
not traded publicly, the Fair Market Value of
a share of Common Stock on any date shall be
determined, in good faith, by the Board or
the Committee after such consultation with
outside legal, accounting and other experts
as the Board or the Committee may deem
advisable, and the Board or the Committee
shall maintain a written record of its method
of determining such value. If the Common
Stock is traded publicly, the Fair Market
Value of a share of Common Stock on any date
shall be the average of the representative
closing bid and asked prices, as quoted by
the National Association of Securities
Dealers through NASDAQ (its automated system
for reporting quotes), for the date in
question or, if the Common Stock is listed on
the NASDAQ National Market System or is
listed on a national stock exchange, the
officially quoted closing price on NASDAQ or
such exchange, as the case may be, on the
date in question.
"Employee". An Employee is an employee of
the Company or any Participating Subsidiary.
"Participant". A Participant is an Employee
to whom a Stock Option is granted.
Eligibility and Participation
Grants of Stock Options may be made to
Employees of the Company or any Participating
Subsidiary. Any Director of the Company or of a
Participating Subsidiary who is also an Employee
shall also be eligible to receive Stock Options,
but Directors who are not Employees shall not be
eligible to receive Stock Options under the Plan.
The Committee shall from time to time determine
the Employees to whom Stock Options shall be
granted, the number of shares of Common Stock
subject to each Stock Option to be granted to each
such Employee, the Option Price of such Stock
Options, all as provided in this Plan. The Option
Price of any ISO shall be not less than the Fair
Market Value of a share of Common Stock on the
date on which the Stock Option is granted. The
Option Price of an NSO shall not be less than 50%
of the Fair Market Value of a share of Common
Stock on the date the NSO is granted. If an ISO
is granted to an Employee who then owns stock
possessing more than 10% of the total combined
voting power of all classes of stock of the
Company or any parent or subsidiary corporation of
the Company, the Option Price of such ISO shall be
at least 110% of the Fair Market Value of the
Common Stock subject to the ISO at the time such
ISO is granted, and such ISO shall not be
exercisable after five years after the date on
which it was granted. Each Stock Option shall be
evidenced by a written agreement ("Option
Agreement") containing such terms and provisions
as the Committee may determine, subject to the
provisions of this Plan.
Shares of Common Stock Subject to the Plan
Maximum Number. The maximum aggregate
number of shares of Common Stock that may be
made subject to stock options under this Plan
shall be 1,500,000 shares; provided that such
number of shares shall be reduced by the
number of shares subject to outstanding
options under the Company's 1988 Incentive
Stock Option Plan and Director Stock Option
Plan, and by the number of shares issued
under the Company's Employee Stock Purchase
Plan and 401(k) Plan. To the extent that if
the aggregate Fair Market Value (determined
as of the time a Stock Option is granted) of
the Common Stock subject to a Stock Option
that first becomes exercisable in a
particular calendar year exceeds $100,000,
the Stock Option shall be treated as an NSO
with respect to the portion of such shares
having a Fair Market Value in excess of
$100,000. If any shares of Common Stock
subject to Stock Options are not purchased or
otherwise paid for before such Stock Options
expire, such shares may again be made subject
to Stock Options.
Capital Changes. In the event any changes
are made to the outstanding shares of Common
Stock (whether by reason of merger,
consolidation, reorganization,
recapitalization, stock dividend in excess of
ten percent (10%) at any single time, stock
split, combination of shares, exchange of
shares, change in corporate structure or
otherwise), appropriate adjustments shall be
made in: (i) the number of shares of Common
Stock theretofore made subject to Stock
Options, and in the purchase price of said
shares; and (ii) the aggregate number of
shares which may be made subject to Stock
Options. If any of the foregoing adjustments
shall result in a fractional share, the
fraction shall be disregarded, and the
Company shall have no obligation to make any
cash or other payment with respect to such a
fractional share. VII. Exercise of Stock
Options
Exercise of Stock Options
Time to Exercise. Subject to the provisions
of the Plan, the Committee, in its
discretion, shall determine the time when a
Stock Option, or a portion of a Stock Option,
shall become exercisable, and the time when a
Stock Option, or a portion of a Stock Option,
shall expire. Such time or times shall be
set forth in the Option Agreement evidencing
such Stock Option. Unless otherwise
determined by the Committee, a Stock Option
shall become exercisable in four equal
installments on the first four anniversaries
of the date of grant. A Stock Option shall
expire, to the extent not exercised, no later
than the tenth anniversary of the date on
which it was granted. The Committee may
accelerate the vesting of any Participant's
Stock Option by giving written notice to the
Participant. Upon receipt of such notice,
the Participant and the Company shall amend
the Option Agreement to reflect the new
vesting schedule. Unless otherwise
determined by the Committee, the acceleration
of the exercise period of a Stock Option
shall not affect the expiration date of that
Stock Option.
Exchange of Outstanding Stock. The
Committee, in its sole discretion, may permit
a Participant to surrender to the Company
shares of the Common Stock previously
acquired by the Participant as part of full
payment for the exercise of a Stock Option.
Such surrendered shares shall be valued at
their Fair Market Value on the date of
exercise. Unless otherwise determined by the
Committee, any such shares surrendered by the
Participant shall have been held by him for
at least six months prior to surrender.
Stock Restriction Agreement. The Committee
may provide that shares of Common Stock
issuable upon the exercise of a Stock Option
shall, under certain conditions, be subject
to restrictions whereby the Company has a
right of first refusal with respect to such
shares or a right or obligation to repurchase
all or a portion of such shares, which
restrictions may survive a Participant's term
of employment with the Company. The
acceleration of the time or times at which
the Stock Option becomes exercisable may be
conditioned upon the Participant's agreement
to such restrictions.
Termination of Employment Before Exercise.
If a Participant's employment with the
Company or a Participating Subsidiary shall
terminate for any reason other than the
Participant's disability, any Stock Option
then held by the Participant, to the extent
then exercisable under the applicable Option
Agreements), shall remain exercisable after
the termination of his employment for a
period of three months. If the Participant's
employment is terminated because the
Participant is disabled within the meaning of
Section 22(e)(3) of the Code, any Stock
Option then held by the Participant, to the
extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable
after the termination of his employment for a
period of twelve months (but in no event
beyond ten years from the date of grant of
the Stock Option). If the Stock Option is
not exercised during the applicable period,
it shall be deemed to have been forfeited and
of no further force or effect.
Disposition of Forfeited Stock Options. Any
shares of Common Stock subject to Stock
Options forfeited by a Participant shall not
thereafter be eligible for purchase by the
Participant but may be made subject to Stock
Options granted to other Participants.
No Contract of Employment
Nothing in this Plan shall confer upon the
Participant the right to continue in the employ of
the Company, or any Participating Subsidiary, nor
shall it interfere in any way with the right of
the Company, or any such Participating Subsidiary,
to discharge the Participant at any time for any
reason whatsoever, with or without cause. Nothing
in this Article VIII shall affect any rights or
obligations of the Company or any Participant
under any written contract of employment.
No Rights as a Stockholder
A Participant shall have no rights as a
stockholder with respect to any shares of Common
Stock subject to a Stock Option. Except as
provided in Section 6.2, no adjustment shall be
made in the number of shares of Common Stock
issued to a Participant, or in any other rights of
the Participant upon exercise of a Stock Option by
reason of any dividend, distribution or other
right granted to stockholders for which the record
date is prior to the date of exercise of the
Participant's Stock Option.
Assignability
No Stock Option granted under this Plan, nor
any other rights acquired by a Participant under
this Plan, shall be assignable or transferable by
a Participant, other than by will or the laws of
descent and distribution, and are exercisable,
during his lifetime, only by him. Notwithstanding
the preceding sentence, the Committee may, in its
sole discretion, permit the assignment or transfer
of an NSO and the exercise thereof by a person
other than a Participant, on such terms and
conditions as the Committee in its sole discretion
may determine. Any such terms shall be determined
at the time the NSO is granted, and shall be set
forth in the Option Agreement. In the event of
his death, the Stock Option may be exercised by
the Personal Representative of the Participant's
estate or, if no Personal Representative has been
appointed, by the successor or successors in
interest determined under the Participant's will
or under the applicable laws of descent and
distribution.
Amendment
The Board may from time to time alter, amend,
suspend or discontinue the Plan, including, where
applicable, any modifications or amendments as it
shall deem advisable in order that ISOs will be
classified as incentive stock options under the
Code, or in order to conform to any regulation or
to any change in any law or regulation applicable
thereto; provided, however, that no such action
shall adversely affect the rights and obligations
with respect to Stock Options at any time
outstanding under the Plan.
Registration of Optioned Shares
The Stock Options shall not be exercisable
unless the purchase of such optioned shares is
pursuant to an applicable effective registration
statement under the Securities Act of 1933, as
amended, or unless, in the opinion of counsel to
the Company, the proposed purchase of such
optioned shares would be exempt from the
registration requirements of the Securities Act of
1933, as amended, and from the registration or
qualification requirements of applicable state
securities laws.
Withholding Taxes
The Company or Participating Subsidiary may
take such steps as it may deem necessary or
appropriate for the withholding of any taxes which
the Company or the Participating Subsidiary is
required by any law or regulation or any
governmental authority, whether federal, state or
local, domestic or foreign, to withhold in
connection with any Stock Option, including, but
not limited to, the withholding of all or any
portion of any issuance of shares of Common Stock
upon the exercise of any Stock Option until the
Participant reimburses the Company or
Participating Subsidiary for the amount the
Company or Participating Subsidiary is required to
withhold with respect to such taxes, or cancelling
any portion of such issuance in an amount
sufficient to reimburse itself for the amount it
is required to so withhold.
Brokerage Arrangements
The Committee, in its discretion, may enter
into arrangements with one or more banks, brokers
or other financial institutions to facilitate the
disposition of shares acquired upon exercise of
Stock Options, including, without limitation,
arrangements for the simultaneous exercise of
Stock Options and sale of the shares acquired upon
such exercise.
Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board
nor the submission of the Plan to stockholders of
the Company for approval shall be construed as
creating any limitations on the power or authority
of the Board to adopt such other or additional
incentive or other compensation arrangements of
whatever nature as the Board may deem necessary or
desirable or preclude or limit the continuation of
any other plan, practice or arrangement for the
payment of compensation or fringe benefits to
employees generally, or to any class or group of
employees, which the Company or any Subsidiary now
has lawfully put into effect, including, without
limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and
disability benefits and executive short-term
incentive plans.
Effective Date
This Plan was adopted by the Board of
Directors and became effective on July 27, 1990, and was
approved by the Company's stockholders on November 16, 1990.
No Stock Options shall be granted subsequent to ten years
after the effective date of the Plan. Stock Options
outstanding subsequent to ten years after the effective date
of the Plan shall continue to be governed by the provisions
of the Plan.
_______________________________
* Majority owned by EMC Corporation, the remainder owned by
CLC Corporation.