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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

EMC CORPORATION

(Exact name of registrant as specified in its charter)

176 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:

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.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes x    No ¨

The aggregate market value of voting stock held by non-affiliates of the registrant was $16,584,800,093 based upon the closing price on the New York Stock Exchange on the last business day of the registrant’s most recently completed second fiscal quarter (June 28, 2002).

The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding as of January 31, 2003 was 2,185,904,746.

DOCUMENTS INCORPORATED BY REFERENCE

Information required in response to Part III of Form 10-K (Items 10, 11, 12 and 13) 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 7, 2003.

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EMC CORPORATION

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FACTORS THAT MAY AFFECT FUTURE RESULTS

Our prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal securities laws. Our future results may differ materially from our current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. Readers should pay particular attention to the considerations described in the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results.”

PART I

ITEM 1.     BUSINESS

General

EMC Corporation and its subsidiaries design, manufacture, market and support a wide range of networked storage platforms, software and related services. EMC products and services are designed to enable organizations of all types and sizes to manage, protect and share their information in the most efficient and cost-effective manner possible.

EMC Automated Networked Storage solutions unify storage networking technologies, systems and software to meet our customers’ storage requirements in Storage Area Network (SAN), Networked Attached Storage (NAS), Content Addressed Storage (CAS) and direct attached storage environments. These technologies enable our customers to manage many different types of information, including transactional, file-based and fixed-content data. As a result, our customers are able to reduce costs, improve business continuity, increase operational flexibility and productively manage their entire storage infrastructures.

The customers for our products are located worldwide and represent a cross-section of industries and government agencies. Our customers use EMC products and services in conjunction with a variety of computing platforms, storage systems and software applications that support key business processes, including transaction processing, enterprise resource planning, customer relationship management, data warehousing, electronic commerce and web hosting. EMC solutions enable them to consolidate, network and generate value from their digital information across heterogeneous storage systems, switches, hubs, servers and software.

We believe that our products and services enable our customers to realize higher returns on information and achieve competitive advantages.

We were incorporated in Massachusetts in 1979. Our corporate headquarters are located at 176 South Street, Hopkinton, Massachusetts.

Products and Offerings

We operate in the following segments: information storage products and information storage services, which are our principal segments, and other businesses. Information storage products are comprised of information storage systems and information storage software.

Information Storage Systems

Symmetrix Systems

We believe that our Symmetrix family of networked storage systems offers the highest levels of functionality, performance and availability in the information storage market. Our operating software for

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Symmetrix is Enginuity, which delivers advanced functionality in areas such as performance management; data integrity; system availability; security; and information protection, replication and sharing within the Symmetrix environment.

Since the introduction of the first Symmetrix model in 1991, we have continued to enhance and increase the capabilities of the Symmetrix family of systems, including increasing server and switch connectivity capabilities, improving performance, increasing capacity and adding advanced software functionality. In February 2003, we introduced a complete new line of Symmetrix systems, the Symmetrix DMX series. The new Symmetrix series is based upon our Direct Matrix Architecture that enables us to significantly and cost-effectively increase performance, availability and functionality of our Symmetrix systems. We believe that this architecture will enable us to continue to significantly increase the capabilities of our Symmetrix systems.

In addition to large-scale integrated systems, the Symmetrix DMX series also includes a modular high-end storage model, the Symmetrix DMX800. With the Symmetrix DMX800, customers are able to purchase Symmetrix storage capabilities in smaller increments and are able to deploy the systems outside data centers, thereby reducing acquisition costs, environmental costs and total cost of ownership. All of our Symmetrix DMX systems operate in conjunction with our open software products.

We intend to continue to enhance the Symmetrix family of systems with additional features and capabilities.

CLARiiON Systems

We believe that our CLARiiON family of networked storage systems, which is based on a modular design, delivers the highest levels of functionality, performance and availability in systems designed for the mid-tier market. Our operating software for CLARiiON is FLARE, which provides capabilities for managing, protecting and replicating information while improving total system availability within the CLARiiON environment.

Since our acquisition of Data General Corporation (“Data General”) and its CLARiiON products in 1999, we have continued to enhance and increase the capabilities of the CLARiiON family of systems, including increasing the server and switch connectivity capabilities, improving performance, increasing capacity and adding advanced software functionality. In 2002, we introduced a complete new series of CLARiiON systems, which includes the CLARiiON CX200, CX400 and CX600. With the CLARiiON CX series, we improved the speed, capacity and connectivity of our CLARiiON systems. This new series of CLARiiON systems allows us to address the requirements of a broader segment of the information storage market.

We intend to continue to enhance the CLARiiON family of systems with additional features and capabilities.

Celerra Systems

We believe that our Celerra family of NAS products offers the highest levels of performance and functionality in the NAS market. Our Celerra products allow users of an internet protocol (IP) network to store, access and update files. Our operating software for Celerra is Data Access in Real Time (DART), designed exclusively for high performance network files access.

Our Celerra products can either serve as a front end NAS connection for an externally attached Symmetrix or CLARiiON storage system, referred to as a Celerra CNS (Clustered Network Server), or can be integrated in a single enclosure with a CLARiiON storage system, referred to as a Celerra NS (Network Server). In 2002, we introduced the first Celerra NS model, the Celerra NS600.

We intend to continue to enhance the Celerra family of systems with additional features and capabilities.

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Centera Systems

In 2002, we introduced the Centera CAS system. We believe Centera is the world’s first storage system specifically designed for the requirements of “fixed content.” We define fixed content as information whose value lies in part on its unchanging nature, such as digital x-rays and other medical records, movies, check images and e-mail correspondence. Our operating software for Centera, CentraStar, incorporates content addressing intelligence that calculates a unique address derived from the content of every stored object. Centera eliminates the need for applications to be aware of the physical location of information, regardless of scale, from single-digit terabytes to petabytes, thereby simplifying the task of having applications access and manage huge numbers of objects. Centera ensures verifiable accuracy of the content for data integrity, authentication and other purposes.

Centera is integrated by third parties with their applications and generally sold as part of an integrated solution. As of December 31, 2002, we had more than 100 partners in the Centera developers program and more than 40 applications available to be used with Centera.

We intend to continue to enhance and improve the Centera system with additional features and capabilities, as well as add new partners to expand the number of applications integrated with Centera.

Connectrix Systems

Our Connectrix family includes high-end directors as well as departmental switches. These fibre-channel based systems significantly increase the connectivity between servers and storage systems in a SAN and provide the ability to centralize monitoring and control of information in a SAN. In 2002, we introduced several new Connectrix models, including three 2- gigabit directors and four switches, increasing the performance and connectivity choices of our Connectrix family.

Our Connectrix family of directors and switches are manufactured by certain third party original equipment manufacturers (“OEMs”).

We intend to continue to enhance the Connectrix family of switches and directors with additional features and capabilities.

Information Storage Systems Revenue

Revenue from information storage systems (including Symmetrix, CLARiiON, Celerra, Centera and Connectrix products) represented approximately 55%, 61% and 70% of revenues in 2002, 2001 and 2000, respectively.

Information Storage Software

Introduction

We offer highly innovative software that provides customers with superior information management, sharing and protection capabilities. EMC software includes: (i) platform-based software; and (ii) open software that manages EMC and other vendors’ products.

We support our software research and development efforts through a state-of-the art software development lab in Massachusetts and at other facilities around the world, and, from time to time, through acquisitions of complementary businesses or products. For example, in 2002, we acquired Prisa Networks, Inc., a developer of SAN management software (“Prisa”).

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Platform-based Software

Our platform-based software generally controls and enables functions that take place within the EMC system, such as replication, optimization and data movement. Examples of such software include TimeFinder, Symmetrix Remote Data Facility (SRDF), Navisphere, SnapView, MirrorView and Symmetrix Optimizer. In 2002, we introduced enhancements to our Navisphere, SnapView and MirrorView software products. EMC is the leading supplier of platform-based software in areas such as local and remote replication, which customers use to protect and share data.

We intend to continue to enhance our platform-based software with additional features and capabilities.

Open Software

Our open software strategy, AutoIS, focuses on the automation, simplification and openness of heterogeneous storage infrastructures. Our open software provides management and other capabilities for multi-vendor storage infrastructures. These products are designed to operate either with or without EMC storage systems.

During 2002, we introduced a new version of our ControlCenter family of intelligent supervision software and several new and enhanced software products for management of EMC and third party storage systems and network devices. Automated Resource Manager is the first multi-vendor end-to-end automated provisioning software, which currently automates the provisioning of storage for Symmetrix, CLARiiON and certain other storage systems. Additional ControlCenter application enhancements in 2002 include those to our SAN Manager, StorageScope, Common Array Manager and Replication Manager software. We also introduced PowerPath management software support for CLARiiON, expanding our comprehensive line of open software products (i.e. StorageScope and SAN Manager) that support Symmetrix, CLARiiON and other third party storage systems.

As a result of our acquisition of Prisa, we offer the VisualSAN family of intelligent supervision software for management of EMC and third party storage systems and networks devices, targeted primarily at the mid-tier market.

We intend to continue to enhance our open software with additional features and capabilities, introduce new open software products and broaden the scope of our open software products to manage additional non-EMC products.

Interoperability

We actively participate in the development of standards through our work with and support for the Storage Network Industry Association (“SNIA”) and other organizations. In 2002, we announced our commitment to make all of our software and systems compliant with the emerging Storage Management Initiative specifications through our work with SNIA. We also develop and offer a wide range of application programming interfaces (“APIs”), as well as underlying software technologies, which are used to improve heterogeneous management of storage and networked resources in a networked storage environment.

The EMC Developers Program makes many of our APIs available to third-parties to facilitate the development and sale of software optimized to interoperate with EMC and third party storage systems and software. Customers are then able to select from a wider range of software tools when deploying multivendor storage networks.

In 2002, we agreed to cross-license certain storage system APIs with Hewlett-Packard Company to facilitate each company’s development of management software. We also introduced three new APIs that support a wide range of EMC and third party storage systems and software. We also introduced a new API to enable other vendors’ software to use information managed by our StorageScope software regarding storage systems and

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other devices on a storage network. In 2003, we agreed with Veritas Software Corporation to exchange APIs for each party’s products. In 2003, we also agreed on a framework with Hitachi, Ltd. and its subsidiaries for exchanging technology in the form of storage-related APIs.

Through our multi-year investments in interoperability testing capabilities, open standards, software APIs and cooperative service agreements, we believe that we lead the industry in delivering open and multi-platform, dependable storage solutions for customers.

Information Storage Software Revenue

Revenues from information storage software represented approximately 23%, 22% and 16% of revenues in 2002, 2001 and 2000, respectively.

Information Storage Services

In 2002, our Services organization included professional services, customer support and global technical training, to offer customers a full range of expertise before, during and after their purchase of storage solutions from EMC or other storage vendors. With a worldwide staff of approximately 7,500 professionals, EMC Services, together with our global authorized services partners, provide consulting, assessments, implementations, integration, operations management, day-to-day support, maintenance, education and training to our customers.

Professional Services

Our Professional Services organization provides the expertise and services customers need to maximize their return on information assets. Areas of focus include networked storage, open storage management, data migration, business continuity and project management. Our consultants, technology experts and authorized services partners deliver to customers operational, financial and business impact analyses. They also design, integrate and implement information storage infrastructures. In July 2002, we expanded our professional services capabilities to include platform-independent, open storage consulting.

Customer Support

Our Customer Support organization supports EMC information storage solutions at worldwide customer sites 24 hours a day, seven days a week, 365 days a year. This is delivered through a combination of remote and onsite service, direct through us and our global authorized services partners. Automated remote support features designed into our information storage systems enable customer support personnel to continuously monitor, diagnose and resolve issues, wherever the product is located, often without the need for onsite service. Other remote support capabilities are also provided on certain of our software products.

To ensure that customers with multi-vendor storage network environments receive the highest level of support and the fastest issue resolution possible, we have, as of December 31, 2002, entered into cooperative support agreements with more than 120 vendors, including hardware and software companies.

Global Technical Training

Our Global Technical Training organization delivers instruction on our technology, our products and storage management job functions as part of the EMC Proven Professional Certification program. Courses and the certification program are available to customers, prospects and partners. Multi-vendor certification training is also available to employees. Training is worldwide in scope and employs e-learning and geographically dispersed classrooms, labs and testing centers.

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Information Storage Services Revenue

Revenue from information storage services represented approximately 20%, 14% and 7% of revenues in 2002, 2001 and 2000, respectively.

Other Businesses

Following our acquisition of Data General in 1999, we sold AViiON server products. In 2001, as part of our restructuring program, we stopped selling such products. However, we continue to support AViiON servers.

Revenue from other businesses represented approximately 2%, 4% and 7% of revenues in 2002, 2001 and 2000, respectively.

Markets and Distribution Channels

Markets

During 2002, we focused primarily on high-end and mid-tier markets. These markets are characterized by their varying requirements for storage-related features, functions and performance.

Distribution Channels

We market our products through multiple distribution channels. We have a direct sales presence throughout North America, Latin America, Europe, the Middle East, South Africa and the Asia Pacific region. We also have agreements in place with many distributors, systems integrators, resellers and OEMs in certain areas of the world. These agreements, subject to certain terms and conditions, enable these companies to market and resell certain of our systems and software.

Alliances

We have strategic alliances with leading software, networking and services companies. We intend to continue to form additional alliances. Our strategy is to work closely with these and other companies to provide added value to our customers by integrating our solutions with software and networking applications that customers rely on to manage their day-to-day business operations.

Manufacturing and Quality

Our information storage systems are assembled and tested primarily at our facilities in the United States and abroad. See “Properties.” We work closely with our suppliers to design, assemble and test product components in accordance with production standards and quality controls established by us. Our information storage software products are designed, developed and tested primarily at our facilities in the United States and abroad. The products are tested to meet quality standards established by us.

We employ a company-wide Total Quality Management and Continuous Improvement philosophy and have adopted Six Sigma and other quality methodologies to ensure that the quality of our designs, manufacturing, test processes and supplier relationships follow the same methodologies. Our manufacturing and test facilities in Massachusetts, North Carolina and Ireland are ISO 9000 certified. We also hold 12 additional certifications worldwide covering ISO 9000, ISO 14000 Environmental Management Standard Certification and Support Center Practices (SCP) certification for our software customer support centers. These internationally recognized endorsements of ongoing quality management represent the highest levels of certifications available.

Raw Materials

We purchase many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. Our products utilize industry standard and semi-custom

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components and subsystems. Among the most important components that we use are disk drives, high density memory components and power supplies. While such components are generally available, we have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements.

Research and Development

We continually enhance our existing products and develop new products to meet changing customer requirements. In 2002, 2001 and 2000, our research and development expenses totaled $781.5 million, $928.7 million and $783.2 million, respectively.

Backlog

We manufacture our systems on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers. We configure to customer specifications and generally ship systems shortly after receipt of the order. Customers may reschedule or cancel orders with little or no penalty. For these reasons, we believe that our backlog at any particular time is not meaningful because it is not necessarily indicative of future sales levels.

Competition

We compete with many established companies in the markets we serve. We believe that most of these companies compete based on their overall market presence and their ability to address customers’ broad information technology requirements. Certain of these companies also compete by offering information storage products or services, together with other products or services, at minimal or no additional cost in order to preserve or gain market share. We also compete with many smaller, less established companies in specific product segments.

We believe that we have a number of competitive advantages over these companies, including product, distribution and service. We believe the advantages in our products include performance, functionality, scalability, availability, interoperability, connectivity, time to market enhancements and total value of ownership. We believe our advantages in distribution include the world’s largest storage-focused direct sales force and our broad network of channel partners. We believe our advantages in service include our ability to provide our customers with a complete set of storage service solutions, encompassing both professional services and customer service for our information storage systems and software.

Seasonality

Although we do not consider our business to be highly seasonal, we generally experience the greatest demand for our products and services in the last quarter of the year.

Intellectual Property

We generally rely on patent, copyright, trademark and trade secret laws and contract rights to establish and maintain our proprietary rights in our technology and products. While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, license or other intellectual property right.

We have been granted or own by assignment approximately 700 patents issued by, and have over 600 patent applications pending with, the U.S. Patent and Trademark Office, as well as a corresponding number of international patents and patent applications. While the duration of our patents varies, we believe that the duration of our patents is adequate relative to the expected lives of our products.

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We have used, registered or applied to register certain trademarks and copyrights in the United States and in other countries. We also license certain technology from third parties for use in our products and processes and license certain of our technology to third parties.

Employees

As of December 31, 2002, we had approximately 17,400 employees worldwide. None of our domestic employees are represented by a labor union, and we have never suffered an interruption of business as a result of a labor dispute. We consider our relations with our employees to be good.

Financial Information About Segments, Foreign and Domestic Operations and Export Sales

We operate in three business segments: information storage products, information storage services and other businesses. Sales and marketing operations outside the United States are conducted through sales subsidiaries and branches located principally in Europe, Latin America and the Asia Pacific region. We have three primary manufacturing facilities: one in Massachusetts, which manufactures Symmetrix and Celerra systems for the North American markets; one in Ireland, which manufactures Symmetrix, CLARiiON and Celerra systems for markets outside of North America; and one in North Carolina, which manufactures CLARiiON systems for the North American markets and Centera systems for worldwide markets. See Note P to our Consolidated Financial Statements.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are made available free of charge on or through our website at www.emc.com as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). None of the information posted on our website is incorporated by reference into this Annual Report.

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ITEM 2.     PROPERTIES

As of December 31, 2002, we owned or leased the facilities described below:

We also own land in Massachusetts and Ireland for possible future expansion purposes.

While we believe our existing facilities are suitable and adequate for our present purposes, we have and will continue to consolidate space worldwide as part of our restructuring programs implemented during the quarters ended September 30, 2001 and December 31, 2002. For further information regarding our lease obligations, see Note L to our Consolidated Financial Statements.

The portion of our business utilizing our manufacturing facilities is reported in our information storage products segment. Substantially all segments of our business jointly utilize our other facilities.

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ITEM 3.     LEGAL PROCEEDINGS

In April 2002, EMC filed a complaint against Hitachi, Ltd. and Hitachi Data Systems Corporation (together, “Hitachi”) with the International Trade Commission (“ITC”) and in the United States Federal District Court in Worcester, Massachusetts. The ITC complaint alleged that Hitachi engaged in unlawful activities by importing into the United States products that infringed six EMC patents. We asked the ITC to issue an injunction to block importation of Hitachi’s infringing products and in May 2002, the ITC voted to commence an investigation into our claims. The suit in District Court seeks preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In June 2002, the suit in District Court was stayed, pending the outcome of the ITC action. Subsequent to the date we filed a complaint against Hitachi, in April 2002, Hitachi and Hitachi Computer Products (America), Inc. (“HICAM”) filed a complaint against us in the United States Federal District Court for the Western District of Oklahoma alleging that certain of our products infringe eight Hitachi patents and seeking preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In July 2002, this suit was transferred to the United States Federal District Court in Worcester, Massachusetts. In March 2003, EMC and Hitachi jointly announced that the parties had entered into agreements whereby they agreed (i) to settle all pending patent infringement claims between EMC, Hitachi and HICAM, (ii) to cross-license their respective patents and (iii) to a framework for exchanging technology in the form of storage-related APIs. In accordance with the cross-license agreements, we will receive payments from Hitachi. The cross-license agreements expire at the end of 2007. On February 27, 2003, EMC and Hitachi filed a Joint Motion with the ITC to terminate the ITC investigation on the basis of the above-referenced agreements, and on March 11, 2003, the ITC judge signed an order terminating the ITC investigation. The parties intend to move to dismiss the district court actions referenced above once the ITC judge’s order has been accepted by the ITC.

On September 30, 2002, EMC filed a complaint against Hewlett-Packard Company (“HP”) in the United States Federal District Court in Worcester, Massachusetts alleging that certain HP products infringe six EMC patents. The suit seeks a permanent injunction as well as unspecified monetary damages for patent infringement. On September 30, 2002, HP filed a complaint against us in the United States Federal District Court for the Northern District of California alleging that certain of our products infringe seven HP patents. The suit seeks a permanent injunction as well as unspecified monetary damages for patent infringement. We believe that HP’s claims are without merit, and on October 1, 2002, we filed an amended complaint asking the court to declare that the seven HP patents are invalid and not infringed.

We are a party to other litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our stockholders during the fourth quarter of 2002.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

Michael C. Ruettgers has been our Executive Chairman of the Board of Directors since January 2001. Mr. Ruettgers served as our Chief Executive Officer from January 1992 to January 2001 and has been a Director since May 1992. He also served as our President and Chief Operating Officer from October 1989 to January 2000, and as Executive Vice President, Operations, from July 1988 to October 1989. Mr. Ruettgers is also a director of Raytheon Company, a global technology and electronics company, and PerkinElmer, Inc., a diversified technology company.

Joseph M. Tucci has been our Chief Executive Officer and a Director since January 2001 and has served as our President since January 2000. He also served as Chief Operating Officer from January 2000 to January 2001. Prior to joining EMC, Mr. Tucci served as Deputy Chief Executive Officer of Getronics N.V., an information technology services company, from June 1999 through December 1999 and as Chairman of the Board and Chief Executive Officer of Wang Global, an information technology services company, from December 1993 to June 1999. Getronics acquired Wang Global in June 1999. Mr. Tucci joined Wang Global in 1990 as its Executive Vice President, Operations. Mr. Tucci is also a director of Paychex, Inc., a provider of payroll, human resources and benefits outsourcing solutions.

David A. Donatelli has been our Executive Vice President, Storage Platforms Operations, since November 2001. Mr. Donatelli served as Senior Vice President, Corporate Marketing and New Business Development, from April 2001 to November 2001, Senior Vice President, New Business Development, from February 2000 to April 2001 and as Vice President, New Business Development, from April 1999 to February 2000. He has also held a number of other executive positions since he joined EMC in 1987, including serving most recently as Vice President, General Manager of our EDM business from September 1996 to April 1999 and as Vice President of Global Alliances from February 1996 to November 1998.

David I. Goulden has been our Executive Vice President, Global Marketing and Business Development since July 2002. Prior to joining EMC, Mr. Goulden served as a member of the Board of Management, President and Chief Operating Officer for the Americas and Asia Pacific of Getronics N.V., an information technology services company, from April 2000 to July 2002, as President and Chief Operating Officer for the Americas of Getronics from June 1999 to April 2000, and in a number of executive positions at Wang Global, an information technology services company, from September 1990 to June 1999. Getronics acquired Wang Global in June 1999. Prior to joining Wang Global in 1990, Mr. Goulden spent ten years at Unisys Corporation in a number of international sales and marketing positions.

Frank M. Hauck has been our Executive Vice President, Customer Operations, since November 2001. Mr. Hauck served as Executive Vice President, Global Sales and Services, from April 2001 to November 2001 and as Executive Vice President, Products and Offerings, from June 2000 to April 2001. He served as Senior Vice President and Chief Information Officer from January 2000 to June 2000, as Senior Vice President,

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Business Integration, from July 1999 to January 2000, and as Senior Vice President, Customer Service, from November 1997 to July 1999. Mr. Hauck has also held a number of other executive positions since he joined EMC in 1990.

Mark S. Lewis has been our Executive Vice President, New Ventures and Chief Technology Officer since July 2002. Prior to joining EMC, Mr. Lewis served as Vice President of Worldwide Marketing and Solutions in the Network Storage Solutions Group at Hewlett-Packard Company, a provider of information technology products, services and solutions for enterprise customers. Prior to Hewlett-Packard’s acquisition of Compaq Computer Corporation, Mr. Lewis served as Vice President and General Manager of Compaq’s Enterprise Storage Group from January 2001 to April 2002. Prior to joining Compaq, Mr. Lewis spent 14 years at Digital Equipment Corporation, where he helped develop the StorageWorks product line.

Erez Ofer has been our Executive Vice President, Open Software Operations, since November 2001. Mr. Ofer served as Senior Vice President and Chief Software Architect from June 2000 to November 2001 and as Vice President, Open Systems Development, from September 1998 to June 2000. He also served as Principal Design Engineer from 1995 to September 1998. Mr. Ofer has also held a number of other engineering positions since he joined EMC in 1993.

William J. Teuber, Jr. has been our Executive Vice President and Chief Financial Officer since November 2001. Mr. Teuber served as Senior Vice President and Chief Financial Officer from February 2000 to November 2001. Mr. Teuber served as Vice President and Chief Financial Officer from February 1997 to February 2000. He also served as Vice President and Controller from August 1995 to February 1997.

Paul T. Dacier has been our Senior Vice President and General Counsel since February 2000. Mr. Dacier served as Vice President and General Counsel from February 1993 to February 2000 and as General Counsel of EMC from March 1990 to February 1993.

Our President is elected annually to serve until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such person’s successor is elected and qualified.

EMC², EMC, AutoIS, Automated Resource Manager, AViiON, CLARiiON, Celerra, Centera, CentraStar, Connectrix, Direct Matrix Architecture, DMX, EDM, EMC ControlCenter, EMC Developers Program, EMC Proven, Enginuity, FLARE, MirrorView, Navisphere, PowerPath, SAN Manager, SnapView, SRDF, StorageScope, Symmetrix, TimeFinder, VisualSAN and WideSky are either registered trademarks or trademarks of EMC Corporation. Other trademarks are either registered trademarks or trademarks of their respective owners.

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PART II

ITEM 5.     MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, par value $.01 per share, trades on the New York Stock Exchange under the symbol EMC.

The following table sets forth the range of high and low sales prices of our common stock on the New York Stock Exchange for the past two years during the fiscal periods shown.

We had 17,374 holders of record of our common stock as of February 28, 2003.

We have never paid cash dividends on our common stock. While subject to periodic review, the current policy of our Board of Directors is to retain all cash and investments primarily to provide funds for our future growth.

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ITEM 6.     SELECTED CONSOLIDATED FINANCIAL DATA

FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA(1)

EMC Corporation

(in thousands, except per share amounts)

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ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements and should also be read in conjunction with “FACTORS THAT MAY AFFECT FUTURE RESULTS” beginning on page 29.

All dollar amounts in this MD&A are in millions, except per share amounts.

The following table presents certain consolidated statement of operations information stated as a percentage of total revenues. Certain columns may not add due to rounding.

Revenues

Total revenues were $5,438.4, $7,090.6 and $8,872.8 in 2002, 2001 and 2000, respectively, representing decreases of $1,652.2, or 23%, from 2001 to 2002, and $1,782.2, or 20%, from 2000 to 2001.

Information storage systems revenues were $2,985.3, $4,307.2 and $6,245.8 in 2002, 2001 and 2000, respectively, representing decreases of $1,321.9, or 31%, from 2001 to 2002, and $1,938.6, or 31%, from 2000 to 2001. Both annual decreases were primarily due to declining sales volume and increased levels of competition. The global economic slowdown, which commenced in 2001 and continued throughout 2002, led to a reduction in information technology spending. Competitive pricing pressures also had an adverse effect on revenues. Information storage software revenues were $1,233.1, $1,560.0 and $1,435.1 in 2002, 2001 and 2000, respectively, representing a decrease of $326.9, or 21%, from 2001 to 2002, and an increase of $124.9, or 9%, from 2000 to 2001. The decrease in 2002 compared to 2001 was primarily due to declining sales volume caused

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by the global economic slowdown and increased levels of competition. The increase in 2001 compared to 2000 was primarily due to greater demand for storage software on both newly shipped and already installed systems and the successful introduction of new and enhanced software products. Continued negative trends in the economy, further reductions in information technology spending, increased levels of competition or continued pricing pressures may continue to negatively impact information storage systems and software revenues in 2003.

Information storage services revenues were $1,078.4, $972.3 and $612.1 in 2002, 2001 and 2000, respectively, representing increases of $106.1, or 11%, from 2001 to 2002, and $360.2, or 59%, from 2000 to 2001. The increases were primarily due to a greater volume of professional services, largely to support and implement automated networked storage solutions. Additionally, the increases were due to a growth in maintenance revenues associated with a greater number of both software and hardware maintenance contracts.

Total information storage revenues were $5,296.8, $6,839.5 and $8,293.0 in 2002, 2001 and 2000, respectively, representing decreases of $1,542.7, or 23%, from 2001 to 2002, and $1,453.5, or 18%, from 2000 to 2001.

Other businesses revenues were $141.6, $251.1 and $579.8 in 2002, 2001 and 2000, respectively, representing decreases of $109.5, or 44%, from 2001 to 2002, and $328.7, or 57%, from 2000 to 2001. Other businesses revenues consist of revenues from AViiON server products and related services. Included in the 2001 and 2000 amounts were revenues from AViiON server products of $48.4 and $286.1, respectively. In the third quarter of 2001, EMC stopped selling AViiON server products. Accordingly, other businesses revenues for the last quarter of 2001, all of 2002 and future years are and will be comprised only of AViiON services revenues. These revenues are expected to continue to decline in future years.

Revenues on sales into the North American markets were $3,225.4, $4,185.4 and $5,436.2 in 2002, 2001 and 2000, respectively, representing decreases of $960.0, or 23%, from 2001 to 2002, and $1,250.8, or 23%, from 2000 to 2001. Revenues on sales into the European, Middle East and African markets were $1,327.8, $1,774.9 and $2,351.8 in 2002, 2001 and 2000, respectively, representing decreases of $447.1, or 25%, from 2001 to 2002, and $576.9, or 25%, from 2000 to 2001. Revenues on sales into the Asia Pacific markets were $769.8, $893.4 and $880.1 in 2002, 2001 and 2000, respectively, representing a decrease of $123.6, or 14%, from 2001 to 2002, and an increase of $13.3, or 2%, from 2000 to 2001. Revenues on sales into the Latin American markets were $115.4, $237.0 and $204.7 in 2002, 2001 and 2000, respectively, representing a decrease of $121.6, or 51%, from 2001 to 2002, and an increase of $32.3, or 16%, from 2000 to 2001.

The decline in revenues in all markets in 2002 and in the North American and European, Middle East and African markets in 2001 was attributable to the global economic slowdown that began in 2001 and continued throughout 2002, which led to a reduction in information technology spending. Increased levels of competition, including competitive pricing pressures, also had an adverse effect on revenues. The decline in the Latin American markets in 2002 was further impacted by the region’s political and currency instability. The increase  in revenues in 2001 compared to 2000 in the Asia Pacific and the Latin American markets resulted from our efforts to expand our sales infrastructure throughout these regions to meet demand for information storage products and services. While revenues increased in these markets, the increases were lower than anticipated  due to the aforementioned factors causing the decline in revenues in the other regions.

The provision for sales returns was $158.6 in 2002, $635.9 in 2001 and $256.7 in 2000. At the time of  sale, we provide for the potential returns of systems as a reduction of revenue. We estimate the amount of  returns based upon our historical experience, specific identification of probable returns and current market and economic conditions. The decrease in the provision for sales returns in 2002 compared to 2001 was attributable to a decline in revenue and a reduction in the level of returns experienced in 2002 compared to 2001. The increase in the provision for sales returns in 2001 compared to 2000 was attributable to an increase in the level of returns experienced in 2001 over 2000. In 2001, various segments of our customer base to which we sell both directly and indirectly, including telecommunication providers and Internet-related businesses, experienced dramatic declines

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in their respective businesses. As a consequence, we had a higher level of returns in 2001 compared to 2000. We therefore increased our provision for sales returns during 2001 as the economy and our customers’ businesses continued to deteriorate.

Changes in exchange rates in 2002 compared to 2001 had a negligible effect on revenues. Changes in exchange rates in 2001 compared to 2000 negatively impacted revenues by approximately 3%. The impact was most significant in Japan, Brazil and Germany.

Gross Margins

Gross margin dollars decreased to $2,118.8 in 2002 from $2,843.6 in 2001, a decrease of $724.8, or 25%. Gross margin dollars decreased to $2,843.6 in 2001 from $5,143.1 in 2000, a decrease of $2,299.5, or 45%. Included in the 2001 and 2000 amounts is goodwill amortization of $42.3 and $40.0, respectively. As a result of implementing Statement of Financial Accounting Standards (“FAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized. The declines in gross margin dollars in both 2002 and 2001 were primarily in the information storage products segment.

Gross margin percentages for information storage products were 38.0%, 40.5% and 61.4% in 2002, 2001 and 2000, respectively. The gross margin percentage for 2001 was negatively impacted by $320.1, or 5.5%, for a provision for excess and obsolete inventory and impaired capitalized software. The gross margin percentage for 2002 was favorably impacted by $61.6, or 1.5%, resulting from a partial reduction of the 2001 provision for excess and obsolete inventory. The benefit resulted primarily from the sale of previously identified obsolete inventory for which a full reserve had been established. The annual declines in gross margin percentages in 2002 and 2001 were primarily attributable to the reduction in revenues resulting from lower sales volume, which caused fixed overhead costs to be absorbed over a lower sales base. In addition, lower average selling prices due to competitive pricing also contributed to the declines. Partially offsetting the declines were reductions in our fixed overhead costs resulting from measures we took to reduce costs, which were initiated in the second half of 2001. Additionally, the 2002 gross margin percentage was favorably impacted as a result of implementing FAS No. 142.

The gross margin percentage for information storage services increased to 41.7% in 2002 compared to 38.4% in 2001 and 33.8% in 2000. The increases in the gross margin percentages were attributable to greater productivity of our customer service and professional services personnel.

Gross margin percentages for other businesses were 46.1%, 36.8% and 37.8% in 2002, 2001 and 2000, respectively. The increase in the gross margin percentage in 2002 resulted from this segment consisting only of services revenue in 2002 compared to both systems and services revenue in 2001. The decline in the gross margin percentage in 2001 compared to 2000 was primarily caused by the discontinuance of the sale of AViiON server products in the third quarter of 2001.

We anticipate that the overall gross margin percentage will improve in 2003 compared to 2002 as our volume of information storage systems and software sales increases. However, if sales volumes do not increase or competitive pricing pressures increase from those we experienced in 2002, gross margins may be negatively impacted in 2003.

Research and Development

Research and development (“R&D”) expenses were $781.5, $928.7 and $783.2 in 2002, 2001 and 2000, respectively. R&D expenses decreased 16% in 2002 compared to 2001, and increased 19% in 2001 compared to 2000. As a percentage of revenues, R&D expenses were 14.4%, 13.1% and 8.8% in 2002, 2001 and 2000, respectively. In addition, we spent $126.7, $120.7 and $102.8 in 2002, 2001 and 2000, respectively, on software development, which costs were capitalized. R&D spending levels reflect our efforts to continue to improve our long-term competitive position, offset in part by our continued cost cutting. R&D spending includes enhancements to information storage software and information storage systems, including networked information storage systems. We will continue with our R&D efforts in 2003; however, the overall level of spending is

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expected to be slightly lower in 2003 compared to 2002 as we gain further efficiencies in our operating cost structure.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses were $1,680.8, $2,214.2 and $2,103.0 in 2002, 2001 and 2000, respectively. SG&A expenses decreased 24% in 2002 compared to 2001 and increased 5% in 2001 compared to 2000. As a percentage of revenues, SG&A expenses were 30.9%, 31.2% and 23.7% in 2002, 2001 and 2000, respectively. The decrease in SG&A in 2002 compared to 2001 was due to measures we took to reduce costs, which were initiated in the second half of 2001 and continued in 2002, enabling us to begin to achieve a cost structure commensurate with reduced revenue levels. Additionally, lower commission expense due to lower revenues reduced SG&A expenses. The increase in spending in 2001 compared to 2000 was primarily due to efforts to expand sales and build an infrastructure to support an expected increased revenue base, partially offset by reductions implemented in the second half of 2001 to achieve a lower cost structure.

The provision for bad debts was $35.2 in 2002, $32.7 in 2001 and $27.5 in 2000. We maintain an allowance for doubtful accounts to provide for the estimated amount of accounts and notes receivable that will not be collected. The allowance is based upon the credit-worthiness of our customers, our historical experience, the age of our receivables and current market and economic conditions. The increases in the provision in 2002 compared to 2001 and 2001 compared to 2000 were each due to the general economic declines experienced worldwide.

Restructuring and Other Special Charges

Due to the declines in revenues experienced in 2002 and 2001, in each of those years, we implemented a restructuring program to reduce our cost structure and focus our resources on the highest potential growth areas of our business. In 2002 and 2001, we recognized restructuring and other special charges of $100.0 and $825.2, respectively. The 2002 charges consisted of $140.9 associated with the 2002 restructuring program, an $8.9 loss on assets disposed of within the fourth quarter of 2002 associated with the 2002 restructuring program and $11.8 of additional restructuring costs associated with the 2001 restructuring program. Offsetting these costs in 2002 was a $61.6 reduction in the third quarter 2001 provision for excess and obsolete inventory.

The 2001 charge consisted of a $310.0 provision for excess and obsolete inventory, $408.6 for restructuring activities and $106.6 for other than temporary declines in equity investments.

The restructuring and other special charges have been classified within our statement of operations according to their related category. These categories are as follows:

The detail on each of the charges and activity for 2002 and 2001 is explained in the following sections.

2002 Restructuring Program

In the fourth quarter of 2002, we implemented a restructuring program to further reduce our cost structure. As a result of the program, we incurred restructuring and other special charges of $140.9. The restructuring charges consisted of $44.5 for employee termination benefits, $58.0 to consolidate excess facilities, $21.5 related to the impairment of long-lived assets and $16.9 for contractual and other obligations for which we will no longer derive an economic benefit. The 2002 restructuring program impacted all of our segments.

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Worldwide Reduction in Force

The 2002 restructuring program includes a reduction in force of approximately 1,500 employees across all business functions and geographic regions. Approximately 64% of such employees are or were based in North America and the remainder are or were based in Europe, Latin America and the Asia Pacific region. The workforce reduction resulted in a pre-tax charge of $44.5 for termination benefits. As a result of labor laws in certain foreign countries in which we operate, the amount of termination benefits for employees in such countries was not determinable as of December 31, 2002. As these amounts are finalized, which is expected to be in the first quarter of 2003, we will recognize additional charges. As of December 31, 2002, approximately 1,000 employees had been terminated.

Consolidation of Excess Facilities

The 2002 restructuring program includes a pre-tax charge of $58.0 for the consolidation of space within our corporate facilities and the elimination of excess field office space worldwide. Included in the charge are $52.9 for estimated losses on subleases and a $5.1 impairment charge for non-recoverable leasehold improvements. Certain facilities were vacated in the fourth quarter of 2002, with the remainder to be vacated in the first half of 2003. As a result of our decision to vacate the premises earlier than the lease termination dates, we will accelerate the amortization of the related leasehold improvements over the remaining periods of occupancy. This will result in incremental amortization expense of $6.7 in the first half of 2003.

Impairment of Long-Lived Assets

In the fourth quarter of 2002, we implemented a program to consolidate the locations of and made other modifications to our Internet hosting business. As a result, we recognized a pre-tax charge of $17.9 relating to the impairment of long-lived assets. The impairment charge is equal to the amount by which the assets’ carrying amount exceeded the present value of their estimated discounted cash flows. Additionally, in the fourth quarter of 2002, we placed for sale certain assets associated with a portion of our Data General services business. The expected proceeds from this sale were estimated to be less than the related assets’ carrying value, resulting in a pre-tax charge of $3.6. The impaired assets are classified within our information storage services segment.

Contractual and Other Obligations

As a result of the 2002 restructuring program, various contractual obligations will no longer provide any economic benefit to us. These contractual obligations include marketing agreements, equipment leases, maintenance agreements and component part purchase obligations. Additionally, as a result of our restructuring activities, we have certain pending employment-related claims. In light of the above factors, we recognized a pre-tax charge of $16.9.

A summary of the costs for the 2002 restructuring program is outlined as follows:

Loss on the Disposal of Assets

As a result of the 2002 restructuring program, we disposed of certain fixed assets that were no longer essential to the operation of our business. As a result, we recognized a pre-tax charge of $8.9 which is classified within other expense, net, in our statement of operations.

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Impacts of the 2002 Restructuring Program

The 2002 restructuring program is expected to be substantially completed by June 30, 2003, although the ability to sublet facilities is subject to appropriate market conditions. The expected cash impact of the 2002 restructuring program is $114.3, of which $24.2 was paid in 2002. Remaining cash expenditures, relating to workforce reductions and contractual obligations, are expected to be substantially paid by the end of 2003. Amounts relating to the consolidation of facilities will be paid over the respective lease terms through 2015.

As a result of the 2002 restructuring program, we expect to reduce costs in all areas of our operations, favorably impacting cost of sales, SG&A expenses and R&D expenses. The 2002 restructuring program, once fully implemented, is expected to reduce costs by approximately $130.0 per year. We began to realize a portion of the benefits in the fourth quarter of 2002.

2001 Restructuring Program

In the third quarter of 2001, we implemented a restructuring program to reduce our cost structure. As a result of the program, we incurred restructuring and other special charges of $825.2. The restructuring charges consisted of $111.5 for employee termination benefits, $104.5 related to the impairment of goodwill, purchased intangibles and other long-lived assets, $158.1 to consolidate excess facilities and $34.5 for other contractual obligations for which we will no longer derive an economic benefit. The other special charges included a provision for excess and obsolete inventory of $310.0 and an other than temporary decline in certain equity investments of $106.6.

The amounts charged and adjusted against the provisions established in 2001 are as follows:

The 2001 restructuring program included a reduction in force of approximately 4,000 employees across all business functions and geographic regions. As of June 30, 2002, all identified personnel had been terminated.

The adjustment to the provision for workforce reduction in 2002 was primarily attributable to the finalization of severance payments associated with reductions in force in certain foreign jurisdictions. The adjustment to the provision for other contractual obligations in 2002 resulted from favorable settlements.

The adjustment to the provision for the workforce reduction in 2001 primarily related to voluntary employee resignations. The adjustment to the provision for other contractual obligations in 2001 related primarily to a favorable settlement of an estimated liability for the closure of an information storage services business. The adjustment to the provision for the consolidation of excess facilities in 2001 primarily related to additional leased facilities being vacated.

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2001 Inventory Provision

The amounts charged and adjusted against the 2001 established provisions for excess and obsolete inventory are set forth below. The activity is reflected within cost of sales in our statement of operations.

Other Charges

In 2001, we recorded a pre-tax charge of $106.6 for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry, many of which are in the start-up or development stage. These investments are carried at cost, subject to adjustment for impairment. Due to the continued global economic slowdown in 2001, as well as the downturn in the storage industry, we determined that the decline in these investments was other than temporary and recognized an impairment loss.

Impacts of the 2001 Restructuring Program

The 2001 restructuring program has been substantially completed, although our ability to sell and sublet facilities is subject to appropriate market conditions. The expected cash impact of the charge is $266.5, of which $55.4 was paid in 2001 and $110.7 was paid in 2002. The remaining accrual balance primarily relates to the consolidation of facilities that will be paid over the respective lease terms through 2015.

Cost Savings from the Restructuring Programs

Both the 2002 and 2001 restructuring programs have reduced costs in all areas of our operations, favorably impacting cost of sales, SG&A expenses and R&D expenses. As of December 31, 2002, the annualized costs savings, compared to the cost structure in place as of the end of the second quarter of 2001, is in excess of $1,250.0.

Investment Income and Interest Expense

Investment income was $256.2, $265.3 and $206.2 in 2002, 2001 and 2000, respectively. Investment income was earned primarily from investments in cash equivalents, short and long-term investments and sales-

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type leases. Investment income decreased in 2002 compared to 2001 because of lower yields on outstanding investment balances, partially offset by greater realized gains on the sale of investments. Investment income increased in 2001 compared to 2000 primarily due to greater realized gains on the sale of investments. The weighted average return on investments, excluding realized gains, was 3.5%, 4.8% and 5.8% in 2002, 2001 and 2000, respectively.

Interest expense was $11.4 in 2002, $11.3 in 2001 and $14.6 in 2000. The decrease in 2001 compared to 2000 was primarily due to the conversion of our 3 ¼% convertible subordinated notes due 2002 in March 2000 and our 6% convertible subordinated notes due 2004 in May 2000.

Other Expense, Net

Other expense, net was $47.4, $133.1 and $7.3 in 2002, 2001 and 2000, respectively. The 2002 amount was comprised primarily of losses on the disposal of assets totaling $34.1. Included in the 2001 amount was a $106.6 non-cash charge for other than temporary declines in equity investments. These investments were carried at cost, subject to impairment. Due to the continued global economic slowdown in 2001, as well as the downturn in the storage industry, we determined that the decline in value of these investments was other than temporary and recognized an impairment loss.

Provision for Income Taxes

In 2002 and 2001, we reported pre-tax losses resulting in income tax benefits of $177.8 and $69.3, respectively. In 2000, we reported pre-tax income resulting in a provision for income taxes of $659.1. The rates of benefit were 60.0% in 2002 compared to 12.0% in 2001. In 2000, the effective income tax rate was 27.0%. The effective income tax rate is based upon the income (loss) for the year, the composition of the income (loss) in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. For 2002, the effective income tax rate varied from the statutory rate primarily as a result of the overall favorable resolution of international tax matters, which aggregated $67.7. Such amount included the favorable resolution of an international tax audit, partially offset by a provision for tax liabilities on other international tax matters. Additionally, a reduction in the valuation allowance resulting from the realization of capital loss carryforwards contributed to the favorable rate. For 2001, the effective income tax rate varied from the statutory rate due to the mix of income and losses in foreign countries and the establishment of provisions associated with the impact of foreign tax audits, partially offset by a $133.2 tax benefit realized from a prior acquisition. For 2000, the effective income tax rate varied from the statutory rate due to our global tax strategy and the effect of our European manufacturing operations. The valuation allowance decreased by $31.1 in 2002 and $25.4 in 2001. The valuation allowance increased by $0.3 in 2000. The decreases in the valuation allowance in 2002 and 2001 were attributable to the realization of capital loss carryforwards. Additionally, we liquidated certain foreign subsidiaries, resulting in the loss of their net operating loss carryforwards that had been fully offset by a valuation allowance. As a result of the liquidations, both the deferred tax assets associated with the operating loss carryforwards and the related valuation allowance were reversed. Partially offsetting these decreases in the valuation allowance were increases resulting from the generation of additional foreign loss carryforwards. We expect the effective income tax rate for 2003 to be approximately 30%; however, the rate may vary depending upon the actual operating results for the year, the composition of the income (loss) in different countries and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits.

Financial Condition

Cash and cash equivalents and short and long-term investments were $5,685.6 and $5,083.6 at December 31, 2002 and 2001, respectively, an increase of $602.0. In 2002, cash and cash equivalents decreased by $442.4 and short and long-term investments increased by $1,044.4.

Cash provided by operating activities was $1,445.7 in 2002 compared to $1,631.3 in 2001 and $2,108.7 in 2000. The decline in 2002 compared to 2001 was primarily attributable to a lower level of cash generated from

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working capital in 2002 compared to 2001. The 2002 reduction in working capital was primarily driven by a reduction in cash generated from collecting accounts and notes receivable due to lower revenue levels in 2002 compared to 2001. Partially offsetting this reduction were increases in deferred revenue attributable to increased sales of software maintenance contracts. The decline in 2001 compared to 2000 was primarily attributable to the $507.7 loss incurred in the year. Offsetting the loss was an overall improvement in cash generated from working capital associated with substantial reductions in accounts and notes receivable and inventories.

Cash used for investing activities was $1,576.4, $1,513.6 and $1,842.4 in 2002, 2001 and 2000, respectively. Capital additions were $391.1, $889.3 and $858.4 in 2002, 2001 and 2000, respectively. The decrease in capital additions in 2002 compared to 2001 resulted from measures we took to reduce costs, which were initiated in the second half of 2001. Capitalized software development costs were $126.7, $120.7 and $102.8 in 2002, 2001 and 2000, respectively. Net purchases and maturities of investments, consisting of debt securities, were $1,011.6, $409.4 and $647.9 in 2002, 2001 and 2000, respectively. We expect our capital additions for 2003 to be approximately the same to slightly down compared with the $391.1 spent in 2002.

Cash used for financing activities was $311.2 in 2002 compared to cash provided by financing activities of $33.4 and $611.7 in 2001 and 2000, respectively. In 2002, we repurchased 49.5 million shares of our common stock, par value $.01 per share (“Common Stock”), at a cost of $363.9. As of December 31, 2002, we had repurchased 50.6 million shares of the 300.0 million shares of Common Stock authorized for repurchase by our Board of Directors. From time to time, we enter into Rule 10b-5-1 plans to facilitate our share repurchases. In 2000, we generated $376.6 from the issuance of common stock in the initial public offering of McDATA Corporation (“McDATA”). In 2001, we distributed our ownership interest in McDATA. As a result of the distribution, McDATA’s net assets are no longer consolidated with our assets, which resulted in a $142.0 reduction in cash. The majority of the remaining cash generated in 2002, 2001 and 2000 was from the exercise of stock options. In 2000, $665.4 of convertible debt was converted into our Common Stock.

We have available for use credit lines of $50.0 in the United States and $50.0 in Brazil. The Brazilian line of credit has been established to help manage currency volatility between the local currency and the U.S. dollar. The Brazilian line requires us to borrow in Brazilian currency. As of December 31, 2002, we had $11.0 outstanding on our line of credit in Brazil and none outstanding on our line of credit in the United States. The Brazilian line of credit requires us to meet certain financial covenants with respect to limitations on losses and maintaining minimum levels of cash and investments. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance. As of December 31, 2002, we were in compliance with the covenants.

We lend certain fixed income securities to generate investment income. During 2002, we entered into various agreements to loan fixed income securities generally on an overnight basis. Under these securities lending agreements, the value of the collateral is equal to 102% of the fair market value of the loaned securities. The collateral is generally cash, U.S. government-backed securities or letters of credit. At December 31, 2002, there were no outstanding securities lending transactions.

Based on our current operating and capital expenditure forecasts, we believe that the combination of funds currently available, funds generated from operations and our available lines of credit will be adequate to finance our ongoing operations for the next twelve months.

To date, inflation has not had a material impact on our financial results.

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Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments

Contractual Obligations

We have various contractual obligations impacting our liquidity. The following represents our contractual obligations as of December 31, 2002:

Our operating leases are primarily for office space around the world. We believe leasing such space is more cost-effective than purchasing real estate. The other long-term obligations, including notes payable and the current portion of long-term obligations, consist primarily of $151.9 of obligations associated with the Data General pension and post-retirement medical and life insurance plans. The purchase orders are for manufacturing and non-manufacturing related goods and services. While the purchase orders are generally cancelable without penalty, certain vendor agreements provide for percentage-based cancellation fees or minimum restocking charges based on the nature of the product or service.

Off-Balance Sheet Arrangements, Contingent Liabilities and Commitments

Guarantees and Indemnification Obligations

EMC’s subsidiaries have entered into arrangements with financial institutions to provide guarantees for rent, taxes, insurance, leases, performance bonds, bid bonds and customs duties aggregating $38.0 as of December 31, 2002. The guarantees vary in length of time. In connection with these arrangements, we have agreed to guarantee substantially all of the guarantees provided by these financial institutions. We have also agreed to guarantee our Brazilian subsidiary’s $50.0 line of credit.

We enter into agreements in the ordinary course of business with, among others, customers, resellers, OEMs, systems integrators and distributors. Most of these agreements require us to indemnify the other party against third party claims alleging that an EMC product infringes a patent or copyright. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or acts or omissions of EMC, its employees, agents or representatives. In addition, from time to time we have made certain guarantees regarding the performance of our systems to our customers.

We have agreements with certain vendors, financial institutions, lessors and service providers pursuant to which we have agreed to indemnify the other party for certain matters, such as acts and omissions of EMC, its employees, agents or representatives.

We have procurement or license agreements with respect to technology that is used in EMC products and agreements in which we obtain rights to a product from an OEM. Under certain of these agreements, we have agreed to indemnify the supplier for certain claims that may be brought against such party with respect to EMC’s acts or omissions relating to the supplied products or technologies.

We have agreements with each of our directors and executive officers to indemnify such director or executive officer, to the extent legally permissible, against all liabilities reasonably incurred in connection with

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any action in which such individual may be involved by reason of such individual being or having been a director or officer of EMC.

In connection with certain acquisitions, we have agreed to indemnify the current and former directors, officers and employees of the acquired company in accordance with the acquired company’s by-laws and charter in effect immediately prior to the acquisition. In a substantial majority of instances, we have maintained the acquired company’s directors’ and officers’ insurance, which should enable us to recover a portion of any future amounts paid. In connection with certain dispositions, we have agreed to indemnify the buyer for certain matters, such as breaches of representations and warranties. These indemnities vary in length of time.

Based upon our historical experience and information known as of December 31, 2002, we believe our liability on the above guarantees and indemnities at December 31, 2002 is immaterial.

Notes and Accounts Receivable

We derive revenues from both selling and leasing information storage systems. We customarily sell the notes receivable resulting from our leasing activity to provide for current liquidity. Generally, we do not retain any recourse on the sale of these notes. From time to time, we may also sell accounts receivable when it is economically beneficial.

Litigation

In April 2002, EMC filed a complaint against Hitachi with the ITC and in the United States Federal District Court in Worcester, Massachusetts. The ITC complaint alleged that Hitachi had engaged in unlawful activities by importing into the United States products that infringed six EMC patents. We asked the ITC to issue an injunction to block importation of Hitachi’s infringing products and in May 2002, the ITC voted to commence an investigation into our claims. The suit in District Court seeks preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In June 2002, the suit in District Court was stayed, pending the outcome of the ITC action. Subsequent to the date we filed a complaint against Hitachi, in April 2002, Hitachi and HICAM filed a complaint against us in the United States Federal District Court for the Western District of Oklahoma alleging that certain of our products infringe eight Hitachi patents and seeking preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In July 2002, this suit was transferred to the United States Federal District Court in Worcester, Massachusetts. In March 2003, EMC and Hitachi jointly announced that the parties had entered into agreements whereby they agreed (i) to settle all pending patent infringement claims between EMC, Hitachi and HICAM, (ii) to cross-license their respective patents and (iii) to a framework for exchanging technology in the form of storage-related APIs. In accordance with the cross-license agreements, we will receive payments from Hitachi. The cross-license agreements expire at the end of 2007. On February 27, 2003, EMC and Hitachi filed a Joint Motion with the ITC to terminate the ITC investigation on the basis of the above-referenced agreements, and on March 11, 2003, the ITC judge signed an order terminating the ITC investigation. The parties intend to move to dismiss the district court actions referenced above once the ITC judge’s order has been accepted by the ITC.

On September 30, 2002, EMC filed a complaint against HP in the United States Federal District Court in Worcester, Massachusetts alleging that certain HP products infringe six EMC patents. The suit seeks a permanent injunction as well as unspecified monetary damages for patent infringement. On September 30, 2002, HP filed a complaint against us in the United States Federal District Court for the Northern District of California alleging that certain of our products infringe seven HP patents. The suit seeks a permanent injunction as well as unspecified monetary damages for patent infringement. We believe that HP’s claims are without merit, and on October 1, 2002, we filed an amended complaint asking the court to declare that the seven HP patents are invalid and not infringed.

We are a party to other litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

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Pension and Post-Retirement Medical and Life Insurance Plans

EMC has a noncontributory defined benefit pension plan that was assumed as part of the Data General acquisition, which covers substantially all former Data General employees located in the United States. Certain of the former Data General foreign subsidiaries also have foreign retirement plans covering substantially all of their employees. Substantially all of these plans have been frozen resulting in employees no longer accruing pension benefits for future services. The assets for these defined benefit plans are invested primarily in common stock, bonds and cash equivalent securities. The market related value of the plans’ assets is based upon the assets’ fair value. The expected long-term rate of return on assets for the year ended December 31, 2002 was 8.4%. This rate represents the average of the long-term rates of return for all defined benefit plans (international and U.S.) weighted by the plans’ assets as of December 31, 2002. The actual long-term rate of return for the ten years ended December 31, 2002 was 7.9%. In order to reflect current capital market projections, the expected long-term rate of return for the 2003 plans’ expense has been reduced to 7.8%. A 25 basis point change in the expected long-term rate of return on the plans’ assets would have approximately an $0.8 impact on the 2003 pension expense. As of December 31, 2002, the pension plans had a $146.0 unrecognized actuarial loss that will be expensed over the average future working lifetime of active participants. At December 31, 2002, the discount rate was 6.4%. This rate represents the average of the discount rates for all defined benefit plans (international and U.S.) weighted by plan liabilities as of December 31, 2002. The discount rate reflects the rate at which the pension benefits could be effectively settled. For the U.S. plan, this rate is based on Moody’s AA Corporate Bond Index. For international plans, the rate is based upon comparable high quality corporate bond yields. A 25 basis point change in the discount rate would have approximately a $0.7 impact on the 2003 pension expense for all plans (international and U.S.).

EMC also assumed a post-retirement benefit plan as part of the Data General acquisition that provides certain medical and life insurance benefits for retired former Data General employees. The plan’s assets are invested primarily in common stock, bonds and cash equivalent securities. The market related value of the plan’s assets is equal to the assets’ fair value. The expected long-term rate of return on the plan’s assets for the year ended December 31, 2002 was 9.0%. In order to reflect current capital market assumptions, the expected long-term rate of return for 2003 has been reduced to 8.25%. A 25 basis point change in the expected long-term rate of return on the plan’s assets has minimal impact on our benefit expense. As of December 31, 2002, the plan had a $0.2 unrecognized actuarial gain that will be recognized over anticipated remaining years of service for participants. At December 31, 2002, the discount rate was 6.5%. The discount rate is based on Moody’s AA Corporate Bond Index. A 25 basis point change in the discount rate has a minimal impact on the expense.

As a result of the changes in the expected long-term rates of return and discount rate, our pension and post-retirement medical and life insurance obligation increased from $77.2 at December 31, 2001 to $151.9 at December 31, 2002. In January 2003, we funded an additional $107.4 into the U.S. pension plan.

Critical Accounting Policies

Our consolidated financial statements are based on the selection and application of generally accepted accounting principles which require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements. We believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. EMC’s significant accounting policies are presented within Note A to our Consolidated Financial Statements.

Revenue Recognition

Revenue recognition is governed by various accounting principles, including the SEC’s Staff Accounting Bulletin, No. 101, “Revenue Recognition in Financial Statements”; Statement of Position No. 97-2, “Software

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Revenue Recognition”; FAS No. 48, “Revenue Recognition When Right of Return Exists”; FAS No. 13, “Accounting for Leases”; and SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” among others. The application of the appropriate accounting principle to our revenue is dependent upon the specific transaction and whether the sale or lease includes systems, software and services or a combination of these items. As our business evolves, the mix of products and services sold will impact the timing of when revenue and related costs are recognized. Additionally, revenue recognition involves judgments, including assessments of expected returns and the likelihood of nonpayment. We analyze various factors, including a review of specific transactions, the credit-worthiness of our customers, our historical experience and current market and economic conditions. Changes in judgments on these factors could materially impact the timing and amount of revenue and costs recognized.

Warranty Costs

We accrue for systems warranty costs at the time of shipment. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. Should actual product failure rates, material usage or service delivery costs differ from our estimates, the amount of actual warranty costs could materially differ from our estimates.

Asset Valuation

Asset valuation includes assessing the recorded value of certain assets, including accounts and notes receivable, inventories and intangible assets. We use a variety of factors to assess valuation, depending upon the asset. Accounts and notes receivable are evaluated based upon the credit-worthiness of our customers, our historical experience, the age of the receivable and current market and economic conditions. The recoverability of inventories is based upon the types and levels of inventory held, forecasted demand, pricing, competition and changes in technology. Intangible assets are evaluated based upon the expected period the asset will be utilized, forecasted cash flows, changes in technology and customer demand. Changes in judgments on any of these factors could materially impact the value of the asset.

Restructuring Charges

We have recognized restructuring charges in 2002 and 2001. The restructuring charges include, among other items, estimated losses on the sale of real estate, subletting of facilities and termination of various contracts. The amount of the actual obligations may be different than our estimates due to various factors, including market conditions and negotiations with third parties. Should the actual amounts differ from our estimates, the amount of the restructuring charges could be materially impacted.

Accounting for Income Taxes

As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is more likely than not, do not establish a valuation allowance. In the event that actual results differ from these estimates, our provision for income taxes could be materially impacted.

New Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS No. 146 provides guidance on the accounting for

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recognizing, measuring and reporting of costs associated with exit and disposal activities, including restructuring activities. The pronouncement nullifies Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” Under EITF 94-3, a liability is recognized solely upon an entity’s commitment to a plan. FAS No. 146 adjusts the timing of when a liability for termination benefits is to be recognized based upon whether the employee is required to render future service. A liability for costs to terminate an operating lease or other contract before the end of its term is to be recognized when the entity terminates the contract or ceases using the rights conveyed by the contract. All other costs associated with an exit or disposal activity are to be expensed as incurred. FAS No. 146 requires the liability to be measured at its fair value with subsequent changes in fair value to be recognized each reporting period utilizing an interest allocation approach. The pronouncement is effective for exit or disposal activities initiated after December 31, 2002, with earlier application encouraged. We adopted FAS No. 146 effective January 1, 2003, and we do not expect that the pronouncement will have a material impact on our financial position or results of operations.

In November 2002, the EITF reached a consensus on issue 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses revenue recognition on arrangements encompassing multiple elements that are delivered at different points in time, defining criteria that must be met for elements to be considered to be a separate unit of accounting. If an element is determined to be a separate unit of accounting, the revenue for the element is recognized at the time of delivery. We do not expect that the pronouncement will have a material impact on our financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (the “Interpretation”). This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We do not expect that this Interpretation will have a material impact on our financial position or results of operations.

In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” FAS No. 148 amends FAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS No. 148 amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in FAS No. 123, we have elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. We intend to continue to apply the provisions of APB No. 25. See Note A to our Consolidated Financial Statements—“Summary of Significant Accounting Policies—Accounting for Stock-Based Compensation.”

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. Variable interest entities have been commonly referred to as special-purpose entities or off-balance sheet structures. This Interpretation requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. We do not expect that this Interpretation will have a material impact on our financial position or results of operations.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

Our prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal securities laws. Our future results may differ materially from our current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to those set forth below, other one-time events and other important factors disclosed previously and from time to time in our other filings with the SEC.

Our business could continue to be materially adversely affected as a result of general economic and market conditions.

We are subject to the effects of general global economic and market conditions. Our operating results have been materially adversely affected as a result of unfavorable economic conditions and reduced information technology spending. If economic and market conditions do not improve, our business, results of operations or financial condition could continue to be materially adversely affected.

Our business could continue to be materially adversely affected as a result of a lessening demand in the information technology market.

Our revenue and profitability depend on the overall demand for information storage systems, software and services, particularly in the product segments in which we compete. During 2001 and 2002, we experienced a decrease in demand for information storage products as customers delayed or reduced their information technology expenditures. Further delays or reductions in information technology spending, domestically or internationally, could continue to materially adversely affect demand for our products and services which could result in decreased revenues or earnings.

We may be unable to keep pace with rapid industry, technological and market changes.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will continue to be properly positioned in the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no assurance that enhancements to existing products or new products will receive customer acceptance. As competition in the storage industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits.

Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking and operating system technologies which could require us to modify existing products. Risks inherent in the transition to new products include the difficulty in forecasting customer preferences or demand accurately, the inability to expand production capacity to meet demand for new products, the impact of customers’ demand for new products on the products being replaced, thereby causing a decline in sales of existing products and an excessive obsolete supply of inventory, and delays in initial shipments of new products. Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors’ responses to the introductions and the desire by customers to evaluate new products for longer periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on our business, results of operations or financial condition.

The markets we serve are highly competitive, and we may be unable to compete effectively.

We compete with many established companies in the markets we serve and some of these companies (whether independently or by establishing alliances) may have substantially greater financial, marketing and

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technological resources, larger distribution capabilities, earlier access to customers and greater opportunity to address customers’ various information technology requirements than us. We also compete with many smaller, less established companies who may be able to focus more effectively on specific product segments or markets. Historically, we have competed primarily on the basis of our products’ features and performance. As product pricing becomes a more important criteria for our customers, we may experience increased competition from certain low-price competitors.

Companies may develop new technologies or products in advance of us or establish business models or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products, including hardware and software products, and services by our competitors, and the implementation of effective marketing or sales strategies by our competitors. In addition, as we increase our software and services businesses, we may face new competitive challenges.

We may have difficulty managing operations.

In October 2002, we announced a restructuring program to further reduce our cost structure. The restructuring program included a reduction in force of approximately 1,500 employees and the closure of certain facilities. Our future operating results will depend on the success of this restructuring program as well as on our overall ability to manage operations, which includes, among other things:

An unexpected further decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations could have a further material adverse effect on our business, results of operations or financial condition.

Competitive pricing and difficulty managing product costs could materially adversely affect our revenues and earnings.

Competitive pricing pressures exist in the information storage market and have had, and in the future may have, a material adverse effect on our revenues and earnings. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices or provide information storage products or services, together with other products or services, at minimal or no additional cost in order to preserve or gain market share. We currently believe that pricing pressures are likely to continue.

To date, we have been able to manage our component and product design costs. However, there can be no assurance that we will be able to continue to achieve reductions in component and product design costs. Further, the relative and varying rates of increases or decreases in product price and component cost could have a material adverse effect on our earnings.

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If our suppliers are not able to meet our requirements, we could have decreased revenues and earnings.

We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. These components and products include disk drives, high density memory components, power supplies and software developed and maintained by third parties. We have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell certain products cost-effectively or on a timely basis, if at all, and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on our business, results of operations and financial condition.

Additionally, we periodically transition our product line to incorporate new technologies. The importance of transitioning our customers smoothly to new technologies, along with our historically uneven pattern of quarterly sales, intensifies the risk that a supplier who fails to meet our quality or delivery requirements will have a material adverse impact on our revenues and earnings.

Our business could be materially adversely affected as a result of war or acts of terrorism.

Terrorist acts or acts of war may cause damage or disruption to our employees, facilities, customers, partners, suppliers and distributors and resellers, which could have a material adverse effect on our business, results of operations or financial condition. Such conflicts may also cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of components and distribution of products.

Our business may suffer if we are unable to retain or attract key personnel.

Our business depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. There can be no assurance that we will be successful in retaining existing personnel or recruiting new personnel. The loss of one or more key or other employees, our inability to attract additional qualified employees or the delay in hiring key personnel could have a material adverse effect on our business, results of operations or financial condition.

Historically uneven sales patterns could significantly impact our quarterly revenues and earnings.

Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter’s total sales occur in the last month and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. We believe this uneven sales pattern is a result of many factors including:

Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity accordingly. If predicted demand is substantially greater than orders, there will be excess

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inventory. Alternatively, if orders substantially exceed predicted demand, the ability to assemble, test and ship orders received in the last weeks and days of each quarter may be limited, which could materially adversely affect quarterly revenues and earnings.

In addition, our revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and our backlog at any particular time is not necessarily indicative of future sales levels. This is because:

Moreover, delays in product shipping, caused by loss of power or telecommunications or similar services, or an unexpected decline in revenues without a corresponding and timely slowdown in expenses, could intensify the impact of these factors on our business, results of operations and financial condition.

Risks associated with our distribution channels may materially adversely affect our financial results.

In addition to our direct sales force, we have agreements in place with many distributors, systems integrators, resellers and original equipment manufacturers to market and sell our products and services. We may, from time to time, derive a significant percentage of our revenues from such distribution channels. Our financial results could be materially adversely affected if our contracts with channel partners were terminated, if our relationship with channel partners were to deteriorate or if the financial condition of our channel partners were to weaken. In addition, as our market opportunities change, we may have an increased reliance on channel partners, which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the visibility to our management of potential customers and demand for products and services, thereby making it more difficult to accurately forecast such demand. In addition, there can be no assurance that our channel partners will not develop or market products or services in competition with us in the future.

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.

As part of our business strategy, we seek to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business including, among other things:

These factors could have a material adverse effect on our business, results of operations or financial condition. To the extent that we issue shares of our Common Stock or other rights to purchase Common Stock in

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connection with any future acquisition, existing stockholders may experience dilution and potentially decreased earnings per share.

We also seek to invest in businesses that offer complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business.

Changes in foreign conditions could impair our international sales.

A substantial portion of our revenues is derived from sales outside the United States. In addition, a substantial portion of our products is manufactured outside of the United States. Accordingly, our future results could be materially adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a specific country’s or region’s political or economic conditions, trade restrictions, import or export licensing requirements, the overlap of different tax structures or changes in international tax laws, changes in regulatory requirements, compliance with a variety of foreign laws and regulations and longer payment cycles in certain countries.

Undetected problems in our products could directly impair our financial results.

If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate test and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of the risks associated with alliances.

We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to continue or expand such relationships could have a material adverse effect on our business, results of operations or financial condition.

There can be no assurance that companies with which we have strategic alliances, certain of which have substantially greater financial, marketing or technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors.

Our business may suffer if we cannot protect our intellectual property.

We generally rely upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain our proprietary rights in our technology and products. However, there can be no assurance that any of our proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, there can be no assurance that we will be able to adequately protect our proprietary technology against unauthorized third-party copying or use, which could adversely affect our competitive position. Further, there can be no assurance that we will be able to obtain licenses to any technology that we may require to conduct our business or that, if obtainable, such technology can be licensed at a reasonable cost.

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From time to time, we receive notices from third parties claiming infringement by our products of third-party patent or other intellectual property rights. Responding to any such claim, regardless of its merit, could be time-consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products or a successful claim of infringement against us requiring us to pay royalties to a third party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

We may become involved in litigation that may materially adversely affect us.

In the ordinary course of business, we may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of operations or financial condition.

We may have exposure to additional income tax liabilities.

As a multinational corporation, we are subject to income taxes in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. From time to time, we are subject to income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse affect on our results of operations or financial condition.

Changes in regulations could materially adversely affect us.

Our business, results of operations or financial condition could be materially adversely affected if laws, regulations or standards relating to us or our products are newly implemented or changed.

Our stock price is volatile.

Our stock price, like that of other technology companies, is subject to significant volatility because of factors such as:

In addition, our stock price is affected by general economic and market conditions and has been negatively affected by unfavorable global economic and market conditions. If such conditions continue to deteriorate, our stock price could decline further.

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ITEM 7A:     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to market risk, primarily from changes in foreign exchange rates, interest rates and credit risk. To manage the volatility relating to these exposures, we enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures.

Foreign Exchange Risk Management

As a multinational corporation, we are exposed to changes in foreign exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currency other than the U.S. dollar, will be reported in U.S. dollars at the applicable exchange rate. The primary foreign currency denominated transactions include revenue and expenses and the resultant accounts receivable and accounts payable balances reflected on our balance sheet. Therefore, the change in the value of the U.S. dollar as compared to foreign currencies will have either a positive or negative effect on our financial position and results of operations. We enter into derivative contracts with the sole objective of decreasing the volatility of the impact of currency fluctuations. These exposures may change over time and could have a material adverse impact on our financial results. Historically, our primary exposure has related to sales denominated in the Euro, the Japanese yen and the British pound. Additionally, we have exposure to emerging market economies, particularly in Latin America and South East Asia. Despite the relatively small size of our exposure in these markets, the inherent volatility of these economies could negatively impact our financial results.

We use foreign currency forward and option contracts to manage the risk of exchange rate fluctuations. In all cases, we use these derivative instruments to reduce our foreign exchange risk by essentially creating offsetting market exposures. The success of the hedging program depends on our forecasts of transaction activity in the various currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated currency gains or losses. The instruments we hold are not leveraged and are not held for trading or speculative purposes.

We employ a variance/covariance model to calculate value-at-risk for our combined foreign exchange position. This model assumes that the relationships among market rates and prices that have been observed over the last year are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics dataset as of December 31, 2002. This model measures the potential loss in fair value that could arise from changes in market conditions, using a 95% confidence level and assuming a one-day holding period. The value-at-risk on the combined foreign exchange position was $0.3 million as of December 31, 2002 and $1.1 million as of December 31, 2001. The average, high and low value-at-risk amounts for 2002 and 2001 were as follows (in millions):

The average value represents an average of the quarter-end values. The high and low valuations represent the highest and lowest values of the quarterly amounts.

Interest Rate Risk

We maintain an investment portfolio consisting of debt securities of various types and maturities. The investments are classified as available for sale and are all denominated in U.S. dollars. These securities are recorded on the balance sheet at market value, with any unrealized gain or loss recorded in other comprehensive

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income (loss). These instruments are not leveraged, and are not held for trading purposes. A portion of our investment portfolio is comprised of mortgage-backed securities that are subject to prepayment risk.

We employ a variance/covariance model to calculate value-at-risk for our combined investment portfolios. This model assumes that the relationships among market rates and prices that have been observed over the last year are valid for estimating risk over the next trading day. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics dataset as of December 31, 2002. This model measures the potential loss in fair value that could arise from changes in market conditions, using a 95% confidence level and assuming a one-day holding period. The value at risk on the investment portfolios was $5.5 million as of December 31, 2002 and $9.3 million as of December 31, 2001. The average, high and low value-at-risk amounts for 2002 and 2001 were as follows (in millions):

The average value represents an average of the quarter-end values. The high and low valuations represent the highest and lowest values of the quarterly amounts.

Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash investments, short and long-term investments and trade and notes receivable. We place our temporary cash investments and short and long-term investments in investment grade instruments and limit the amount of investment in any one issuer. The credit risk associated with accounts and notes receivables is minimal due to the large number of customers and their broad dispersion over many different industries and geographic areas. We customarily sell the notes receivable we derive from our leasing activity. Generally, we do not retain any recourse on the sale of these notes.

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EMC CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and the

Board of Directors of EMC Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of EMC Corporation and its subsidiaries (the “Company”) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note B to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002.

PricewaterhouseCoopers LLP

Boston, Massachusetts

January 20, 2003, except

for the third to last paragraph

within Note L, as to which the

date is March 11, 2003

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EMC CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)