Back to GetFilings.com

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 ý    No o

        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.    o

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

        The aggregate market value of voting stock held by non-affiliates of the registrant was $22,900,069,174 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 30, 2003).

        The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of January 31, 2004 was 2,418,445,555.

DOCUMENTS INCORPORATED BY REFERENCE

        Information required in response to Part III of Form 10-K (Items 10, 11, 12, 13 and 14) 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 5, 2004.

EMC CORPORATION

FACTORS THAT MAY AFFECT FUTURE RESULTS

        This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Federal securities laws, about our business and prospects, including without limitation statements regarding the following for 2004: our expected revenues, gross margin percentages, research and development expenses and selling, general and administrative expenses as a percentage of revenues, investment income, income tax rate and depreciation and amortization expenses. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures or business combinations that may be completed after the date hereof. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "plans," "intends," "expects," "intends," "goals" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those 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." We disclaim any obligation to update any forward-looking statements contained herein after the date of this Annual Report.

PART I

ITEM 1.    BUSINESS

General

        EMC Corporation and its subsidiaries design, manufacture, market and support a wide range of networked storage products and information storage and management software that are designed to enable organizations of all sizes to extract the maximum value from their information, at the lowest total cost, across every point in the information lifecycle. We also offer extensive services for information storage and management. Our strategy and vision is to focus on the management of information across its entire lifecycle from creation and use to archive and disposal. By doing so, we help customers improve the utilization of their information technology (IT) assets, simplify and automate the management of their information, provide cost-effective business continuity and ensure easier compliance with government and industry regulations and corporate governance requirements. Our best-of-breed technology and depth of services expertise are focused on helping customers implement information lifecycle management.

        The customers for our products are located worldwide and represent a cross-section of industries and government agencies. Our customers use our 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, content management, business intelligence and web hosting. Our products 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

        Our principal segments consist of information storage products, Documentum products and services, LEGATO products and services and information storage services. We established our

1

Documentum and LEGATO products and services segments in 2003 as a result of our acquisitions of LEGATO Systems, Inc. ("LEGATO") in October 2003 and Documentum, Inc. ("Documentum") in December 2003.

Information Storage Products Segment

        Information storage products are comprised of information storage systems and information storage software.

Information Storage Systems

•

Introduction

        We offer a wide range of information storage systems to meet the specific needs of our customers in terms of performance, functionality, availability and cost, whether in a Storage Area Network (SAN), Networked Attached Storage (NAS), Content Address Storage (CAS) or direct attached storage environment. Our product portfolio ranges from the CLARiiON CX300 up to the Symmetrix DMX3000. At their respective price points, we believe that our networked information storage systems offer the highest levels of functionality, performance and availability in the information storage market.

•

CLARiiON Systems

        Our CLARiiON family of networked storage systems is based on a modular design, providing for flexible levels of functionality, performance and availability. In 2003, we began to offer these systems with integrated ATA and Fibre Channel disk drives. Through the integration of both Fibre Channel and ATA drives, our CLARiiON networked storage systems give customers more choices, enabling them to meet differing performance requirements at varying price points. It also enables them to bring more of their offline, tape-based data online to improve accessibility and extend its useful life.

        In February 2004, we introduced a complete new line of our CLARiiON CX series, including the CLARiiON CX300, CX500 and CX700. These systems offer customers higher performance at the same price as previous CLARiiON models and new, cost-effective replication options.

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

•

Symmetrix Systems

        In 2003, we introduced a complete new line of Symmetrix systems, the Symmetrix DMX series. The Symmetrix DMX series is based upon our Direct Matrix Architecture that enables us to significantly and cost-effectively increase performance, availability and functionality. All of our Symmetrix DMX systems operate in conjunction with our multi-platform storage management and infrastructure software products. The Symmetrix DMX series includes:

•

the Symmetrix DMX800, a modular high-end storage model, which enables customers to purchase Symmetrix storage capabilities in smaller increments and deploy the systems outside data centers, thereby reducing acquisition costs, environmental costs and total cost of ownership; and



•

the Symmetrix DMX1000, 2000 and 3000, models designed for customers with demanding high performance, high functionality and high capacity consolidation requirements.

2

        In February 2004, we introduced Symmetrix DMX-2 technology for our 1000, 2000 and 3000 models, which offers customers up to 30% more performance than identically configured Symmetrix DMX systems.

        Our operating software for 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. We intend to continue to enhance our Symmetrix family of systems with additional features and capabilities.

•

NetWin and Celerra Systems – Networked Attached Storage Products

        We offer a range of products designed specifically for the NAS environment, including:

•

the NetWin 200 system, our entry-level NAS offering, which we introduced in 2003. Our NetWin 200 is the first in a new family of Microsoft Windows-powered NAS products. Our NetWin 200 combines the Microsoft Windows Storage Server 2003 with certain of our CLARiiON CX systems. NetWin 200 is used by those customers operating predominantly in a Microsoft Windows environment who require NAS functionality, enabling them to more cost-effectively manage, share and protect business-critical data;



•

the Celerra NS (Network Server), our mid-tier NAS offering, which is integrated in a single enclosure with a CLARiiON storage system. In October 2003, we introduced three new Celerra NS models, the Celerra NS600G, NS600GS and the NS600S, and in February 2004, we introduced two new Celerra NS models, the Celerra NS700G and NS700; and



•

the Celerra CNS (Clustered Network Server) series, our high-end NAS offering, which serves as a front-end NAS connection for an externally attached Symmetrix or CLARiiON storage system. In February 2004, we introduced the Celerra CNS 514 Data Mover, offering customers improved performance.

        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.

        We intend to continue to enhance our NetWin and Celerra families of systems with additional features and capabilities.

•

Centera Systems – Content Addressed Storage Products

        We offer the Centera CAS product to meet 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.

        In April 2003, we introduced a new specialized CAS solution, the Centera Compliance Edition (CE), which provides secure, online storage optimized for long-term retention and instant retrieval of regulated digital assets. Features of Centera CE include retention enforcement, enhanced disposition or "shredding," and application access security.

3

        In February 2004, we introduced enhancements to Centera, including mainframe connectivity and improved performance and data replication speeds.

        Centera is integrated by third parties with their applications and generally sold as part of a joint solution. As of December 31, 2003, we had more than 250 partners in the Centera developers program and more than 90 applications available to be used with Centera.

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

•

Connectrix Systems – Storage Area Network Products

        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. Our Connectrix family of directors and switches are manufactured for us by third-party original equipment manufacturers ("OEMs").

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

•

Information Storage Systems Revenue

        Revenue from information storage systems represented approximately 53%, 55% and 61% of revenues in 2003, 2002 and 2001, respectively.

Information Storage Software

        We offer highly innovative software that provides customers with superior information management, sharing and protection capabilities. Our information storage software includes:

•

platform-based software; and



•

multi-platform storage management and infrastructure software.



•

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 2003, we introduced:

•

SAN Copy, which enables customers to centrally manage the movement and replication of data between CLARiiON and other EMC and third-party systems;



•

SRDF-A, which allows customers to maintain a recoverable and restartable remote copy of data at all times, at any distance and without any host application impact; and



•

EMC Snap, space-saving replication software for high-end storage.

        We are 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.

•

Multi-platform Storage Management and Infrastructure Software

        Our multi-platform storage software strategy focuses on the automation, simplification and openness of heterogeneous storage software infrastructures. Our multi-platform storage management and infrastructure software provides management and other capabilities for multi-vendor storage

4

infrastructures. These products, which are designed to operate either with or without EMC storage systems, include:

•

Storage management software, which simplifies, automates and manages the provisioning, monitoring, optimization and measurement of multi-vendor storage resources. During 2003, we introduced additions to our ControlCenter family of storage management software, including new VisualSRM and VisualSAN software for small-and medium-sized organizations; and



•

Storage infrastructure software, which enables information mobility, device failover and workload balancing in an application-transparent manner. During 2003, we introduced a new version of our PowerPath infrastructure services software, including the addition of integrated volume management, multi-vendor array support and application availability features (such as non-disruptive upgrades).

        We intend to continue to enhance our multi-platform storage management and infrastructure software with additional features and capabilities, introduce new multi-platform storage management and infrastructure software products and broaden the scope of our multi-platform storage management and infrastructure 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 2003, through our work with SNIA, we performed the underlying work to make all of our information storage products compliant with the emerging Storage Management Initiative specifications.

        We also exchange technology and application programming interfaces (APIs) with other companies to improve heterogeneous management of storage and networked resources in a networked storage environment. In 2003, we agreed to exchange APIs with IBM Corporation, Veritas Software Corporation and Hitachi, Ltd.

        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 multi-platform, dependable storage solutions for customers.

•

Information Storage Software Revenue

        Revenues from information storage software represented approximately 22%, 23% and 22% of revenues in 2003, 2002 and 2001, respectively. Our information storage software revenues exclude revenue from our Documentum and LEGATO products and services segments.

Documentum Products and Services Segment

        Our Documentum products and services segment includes multi-platform software and services sold by Documentum, a division of EMC. Documentum's enterprise content management software enables organizations to proactively and collaboratively manage their unstructured content, from documents, records and e-mail, to web pages, graphics and audio/video files. Documentum's software and services help companies manage all enterprise content in one tightly integrated system, including new services for collaboration, enterprise report management, scanning/imaging and records management. Documentum's primary products include Enterprise Content Management (ECM) Platform, Collaboration, Web Content Management, Content Management for Portals, Enterprise Document Management, Digital Asset Management, Enterprise Records Management, Compliance and eRoom Enterprise.

5

        We intend to continue to enhance our software products in this segment with additional features and capabilities and introduce new software products.

•

Documentum Products and Services Revenue

        Revenues from Documentum products and services represented less than 1% of revenues in 2003. We established this segment as a result of our acquisition of Documentum in December 2003.

LEGATO Products and Services Segment

        Our LEGATO products and services segment includes multi-platform software and services sold by LEGATO Software, a division of EMC. LEGATO Software's information protection, automated availability and information access software manage and protect data, assure availability of applications and provide immediate access to information. LEGATO Software's software and services are aimed at helping organizations simplify management and control of information, while enabling business continuity and compliance at the lowest total cost of ownership. LEGATO Software's primary products include NetWorker, DiskXtender, Co-StandbyServer AAdvanced, AAM, RepliStor, ApplicationXtender and EmailXtender.

        We intend to continue to enhance our software products in this segment with additional features and capabilities and introduce new software products.

•

LEGATO Products and Services Revenue

        Revenues from LEGATO products and services represented approximately 1% of revenues in 2003. We established this segment as a result of our acquisition of LEGATO in October 2003.

Information Storage Services Segment

        Our Services organization includes Technology Solutions, Customer Service and Customer Education, to help customers plan, build and manage an integrated IT infrastructure to more cost-effectively manage and protect their information throughout its lifecycle. With a worldwide staff of approximately 7,000 professionals, EMC Services, together with our global Authorized Services Network partners, provide consulting, assessments, implementations, integration, operations management, day-to-day support, maintenance, education and training to our customers.

•

Technology Solutions

        Our Technology Solutions organization provides a full range of storage services designed to help organizations simplify and manage their information assets. It includes our Information Solutions Consulting (ISC) organization, which provides a full range of storage consulting services. Areas of focus include networked storage, storage management and strategy, data migration, business continuity and project management. Our consultants, technology experts and Authorized Service Network partners deliver to customers operational, financial and business impact analyses, and design, integrate and implement information storage infrastructures.

•

Customer Service

        Our Customer Service organization supports our information lifecycle management 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 Network partners. Automated remote support features designed into our information storage systems enable Customer Service 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.

6

        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, 2003, entered into cooperative support agreements with more than 250 vendors, including systems, software and services companies.

•

Customer Education

        Our Customer Education 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 our employees, customers, prospects and partners. Training is worldwide in scope and employs e-learning and geographically dispersed classrooms, labs and testing centers.

•

Information Storage Services Revenue

        Revenue from information storage services represented approximately 22%, 20% and 14% of revenues in 2003, 2002 and 2001, respectively.

Other Businesses Segment

        Following our acquisition of Data General Corporation 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%, 2% and 4% of revenues in 2003, 2002 and 2001, respectively.

VMware

        In January 2004, we acquired VMware, Inc. ("VMware"), a virtual computing software company. VMware's technology enables multiple operating systems, including Microsoft Windows and Linux, to run simultaneously and independently on the same Intel-based server or workstation and move live applications across systems without any business disruption. We expect that our acquisition of VMware will play a key role in our strategy to help customers use virtualization technologies across their heterogeneous IT infrastructure to create a single pool of available storage and computing resources. This "virtual information infrastructure" will enable organizations to dynamically configure and reconfigure their compute and storage environment without any downtime, as their business needs change.

Markets and Distribution Channels

Markets

        During 2003, we focused primarily on the information storage and management markets. These markets consist of both Global 2000 and small and medium-sized businesses.

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. In 2003, we expanded our distribution capabilities through both new and enhanced partner and channel relationships. Also in 2003, as a result of our acquisitions of LEGATO and Documentum, we established additional distribution relationships.

7

Technology Alliances

        We have technology 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. In 2003, we extended our strategic business and technology partnership with Microsoft Corporation to include integration of Windows storage technologies, new marketing and sales initiatives and new service and support agreements. We also expanded our existing relationship with Cisco Systems, Inc. to deliver next generation SAN switching technology.

Manufacturing and Quality

        Our information storage systems are assembled and tested primarily at our facilities in the United States and Ireland. 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 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 certified to ISO 9001, the International Standard for quality management systems. We also hold 14 additional certifications worldwide covering ISO 9001, the ISO 14001 Environmental Management System Standard and Support Center Practices (SCP) certification for our 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 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 2003, 2002 and 2001, our research and development expenses totaled $718.5 million, $781.5 million and $928.7 million, respectively. We support our research and development efforts through state-of-the art development labs worldwide, including in Massachusetts, California, Maryland, North Carolina, Belgium, India and Ireland.

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.

8

Competition

        We compete with many companies in the markets we serve, certain of which offer a broad spectrum of IT products and services and others which offer specific information storage or management products or services. We believe that most of these companies compete based on their market presence, products, services or price. Certain of these companies also compete by offering storage-related products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain market share.

        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 quality, breadth of offerings, 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 a full range of expertise before, during and after their purchase of information lifecycle management solutions from us or other storage vendors.

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 860 patents issued by, and have over 700 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.

        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, 2003, we had approximately 20,000 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 five business segments: information storage products, Documentum products and services, LEGATO products and services, 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 NetWin and Centera systems for worldwide

9

markets. See Note Q to our Consolidated Financial Statements for information about revenues by segment and geographic area.

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"). Copies of our (i) Corporate Governance Guidelines, (ii) charters for the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee and (iii) Business Conduct Guidelines (code of business conduct and ethics) are available at www.emc.com/about/governance. Copies will also be provided to any stockholder upon written request to EMC Corporation, Investor Relations, 176 South Street, Hopkinton, MA 01748 or by contacting EMC Investor Relations at 508-293-6313. None of the information posted on our website is incorporated by reference into this Annual Report.

10

ITEM 2.    PROPERTIES

        As of December 31, 2003, we owned or leased the facilities described below:

* Of the total square feet owned and leased, approximately 2,300,000 square feet was vacant and 517,000 square feet was leased or subleased to non-EMC businesses.

        We also own land in Massachusetts and Ireland for possible future expansion purposes. We believe our existing facilities are suitable and adequate for our present purposes. For further information regarding our lease obligations, see Note M to our Consolidated Financial Statements.

        The portion of our business utilizing our manufacturing facilities is reported in our information storage products segment. All segments of our business generally utilize our other facilities.

11

ITEM 3.    LEGAL PROCEEDINGS

        On September 30, 2002, Hewlett-Packard Company ("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. HP seeks a permanent injunction as well as unspecified monetary damages for patent infringement. We believe that HP's claims are without merit. On July 21, 2003, we answered the complaint and filed counterclaims alleging that certain HP products infringe six EMC patents. EMC seeks a permanent injunction as well as unspecified monetary damages for patent infringement.

        On September 30, 2002, EMC filed a complaint against HP in the United States Federal District Court in Worcester, Massachusetts. The complaint alleged that certain HP products infringe six EMC patents. The suit sought a permanent injunction as well as unspecified monetary damages for patent infringement. On June 20, 2003, the parties filed a joint motion to dismiss the suit without prejudice, and thereafter, the suit was dismissed by the court.

        We are a party (either as plaintiff or defendant) to various other patent litigation matters, including certain matters which we assumed in connection with our acquisitions of LEGATO and VMware.

        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 2003.

12

EXECUTIVE OFFICERS OF THE REGISTRANT

        Our executive officers are as follows:

        Michael C. Ruettgers has been our Chairman of the Board of Directors since January 2004 and has been a Director since May 1992. From January 2001 to December 2003, Mr. Ruettgers served as Executive Chairman of the Board of Directors. Mr. Ruettgers served as our Chief Executive Officer from January 1992 to January 2001, President from January 1990 to January 2000, Chief Operating Officer from October 1989 to January 1990 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.

        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 G. DeWalt has been our Executive Vice President and President of our Documentum Division since December 2003. Prior to joining EMC, Mr. DeWalt served as President and Chief Executive Officer of Documentum, Inc. from July 2001 to December 2003, Executive Vice President and Chief Operating Officer, from October 2000 to July 2001 and Executive Vice President and General Manager, eBusiness Unit, from August 1999 to October 2000. Prior to joining Documentum in 1999, Mr. DeWalt was the Founding Principal and Vice President of Eventus Software, a web content software company, from August 1997 to December 1998. Following Eventus' 1998 acquisition by Segue Software, an e-business software company, Mr. DeWalt served as Vice President, North American sales for Segue.

        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,

13

from April 1999 to February 2000. He has also held a number of other executive positions since he joined EMC in 1987, including serving 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.

        Howard D. Elias has been our Executive Vice President, Corporate Marketing and Office of Technology since November 2003. Prior to joining EMC as Executive Vice President, New Ventures, in October 2003, Mr. Elias served as Senior Vice President of Business Management and Operations in the Enterprise Systems Group at Hewlett-Packard Company, a provider of information technology products, services and solutions for enterprise customers, from May 2003 to August 2003 and Senior Vice President and General Manager of Network Storage Solutions from May 2002 to April 2003. Prior to Hewlett-Packard's acquisition of Compaq Computer Corporation, Mr. Elias served as Senior Vice President and General Manager of Compaq's Business Critical Server Group from January 2001 to April 2002. He served as Vice President and General Manager in the Storage Products Division of Compaq from 1998 to 2000.

        David I. Goulden has been our Executive Vice President, Customer Solutions and Marketing and New Business Development since November 2003. Mr. Goulden served as Executive Vice President, Global Marketing and New Business Development from July 2002 to November 2003. 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.

        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, 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, Open Software Operations, since July 2003. Mr. Lewis served as Executive Vice President, New Ventures and Chief Technology Officer from July 2002 to July 2003. 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 fourteen years at Digital Equipment Corporation, where he helped develop the StorageWorks product line.

        Erez Ofer has been our Executive Vice President, Technology Strategy, since July 2003. Mr. Ofer served as Executive Vice President, Open Software Operations, from November 2001 to July 2003, 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

14

from February 1997 to February 2000. He also served as Vice President and Controller from August 1995 to February 1997.

        David B. Wright has been our Executive Vice President and President of our LEGATO Software division since October 2003. Prior to joining EMC, Mr. Wright served as Chairman of the Board of Directors of LEGATO Systems, Inc. from March 2001 to October 2003 and as President and Chief Executive Officer from October 2000 to October 2003. Prior to joining LEGATO in 2000, Mr. Wright spent thirteen years at Amdahl Corporation, where he held a variety of positions, including President and Chief Executive Officer from 1997 to 2000.

        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, AAM, ApplicationXtender, CLARiiON, Celerra, Centera, CentraStar, Connectrix, Co-Standby Server AAdvanced, Direct Matrix Architecture, DiskXtender, DMX, Documentum, EDM, EmailXtender, EMC ControlCenter, EMC Developers Program, EMC Proven, EMC Snap, Enginuity, eRoom, FLARE, LEGATO, MirrorView, Navisphere, NetWin, NetWorker, PowerPath, RepliStor, SAN Copy, SnapView, SRDF, Symmetrix, TimeFinder, VisualSRM and VMware are either registered trademarks or trademarks of EMC Corporation. Other trademarks are either registered trademarks or trademarks of their respective owners.

15

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        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 18,011 holders of record of our common stock as of February 20, 2004.

        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 cash and investments primarily to provide funds for our future growth. Additionally, from time to time, we use cash to repurchase our common stock.

ISSUER PURCHASES OF EQUITY SECURITIES IN THE FOURTH QUARTER OF 2003

(1)

All shares were purchased in open-market transactions pursuant to a previously announced authorization by our Board of Directors in October 2002 to repurchase 250.0 million shares of our common stock. In addition, in May 2001, our Board authorized the repurchase of up to 50.0 million shares of our common stock, which shares were repurchased in 2001 and 2002.

16

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA

EMC Corporation
(in thousands, except per share amounts)

(1)

The selected consolidated financial data for 1999 include the full year effects of the acquisition of Data General on October 12, 1999, which was accounted for as a pooling-of-interests.

(2)

In 2003, we incurred restructuring costs and other special charges totaling approximately $66,000 pre-tax ($56,000 after-tax). All pre-tax amounts were included in operating income. In 2002, we incurred restructuring costs and other special charges totaling approximately $100,000 pre-tax ($82,000 after-tax). The pre-tax amounts consist of $91,000 included in operating loss and $9,000 included in other expense, net. In 2001, we incurred restructuring costs and other special charges totaling approximately $825,000 pre-tax ($675,000 after-tax). The pre-tax amounts consist of $719,000 included in operating loss and $106,000 included in other expense, net. In 1999, we incurred restructuring, merger and other special charges totaling approximately $224,000 pre-tax ($170,000 after-tax). All pre-tax amounts were included in operating income.

(3)

All share and per share amounts have been restated to reflect the stock splits effective May 28, 1999 and June 2, 2000 for all periods presented.

(4)

Includes long-term convertible debt and capital leases, excluding current portion.

17

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 40. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures or business combinations that may be completed after the date hereof.

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

INTRODUCTION

        We generate revenue through the sale, license and lease of products and services for information lifecycle management. The demand for our products is correlated, in general, to the worldwide economy, and more specifically, to the demand for IT infrastructure. We experienced a decline in demand for our products and services in 2001 and 2002 compared to the late 1990's and 2000. Commencing in 2001, we began to implement programs to reduce costs and to focus our efforts on areas we considered strategic in order to return to profitability. As a result of various initiatives, as well as an increase in demand for IT infrastructure, we returned to profitability in 2003.

        Our financial objective is to achieve profitable growth. Management believes that by providing a combination of systems, software and services to meet customers' demand for information lifecycle management, we will be able to further increase revenues and profitability. In 2003, our operating income was 6.4% of revenue. We believe that by increasing revenues and further controlling costs, we will be able to improve operating income as a percentage of revenue. Our efforts in 2004 will be primarily focused on expanding our portfolio of offerings to satisfy our customers' information lifecycle management requirements. This will include additional investments in research and development and the introduction of new and enhanced product and service offerings, with a goal of increasing our market share. We will focus on improving our gross margins through a combination of providing a more profitable mix of systems, software and services and further leveraging our existing fixed cost component of cost of sales. Additionally, we will further integrate the operations of LEGATO, Documentum and VMware into EMC to streamline operations and reduce costs.

COMPARISON OF FISCAL 2003 AND 2002

        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.

18

Revenues

        The following table presents revenue by our segments:

        Information storage products revenues include information storage systems and information storage software revenues. Information storage systems revenues were $3,314.7 and $2,985.3 in 2003 and 2002, respectively, representing an increase of $329.4, or 11%. The increase was due to greater demand for these products attributable to a broadened product portfolio as well as increased demand throughout the year for IT infrastructure, partially offset by price declines. Information storage software revenues were $1,343.6 and $1,233.1 in 2003 and 2002, respectively, representing an increase of $110.5, or 9%. Information storage software revenue includes platform-based software revenue and multi-platform storage management and infrastructure software revenue. The increase in information storage software revenue was attributable to an expanded product offering and greater demand for software to manage increasingly complex networked storage environments.

        Information storage services revenues increased due to increased demand for software and hardware maintenance contracts. Additionally, increased demand for professional services, largely to support and implement automated networked storage solutions, contributed to the increase. Software and hardware maintenance accounted for 54.4% of total information storage services revenues in 2003 compared to 50.0% in 2002. Professional services accounted for 45.6% of total information storage services revenues in 2003 compared to 50.0% in 2002.

        Our Documentum and LEGATO products and services segments were established as a result of the acquisitions of LEGATO in October 2003 and Documentum in December 2003. Documentum provides enterprise content management software, enabling organizations to organize and manage unstructured data. From the date of acquisition (December 19, 2003) to December 31, 2003, Documentum product and services revenues were $30.7. LEGATO develops, markets and supports software products and services for information protection and recovery, hierarchal storage management, automated availability, e-mail and content management. From the date of acquisition (October 21, 2003) to December 31, 2003, LEGATO product and services revenues were $77.3.

        Other businesses revenues consist of revenues from AViiON maintenance services. These revenues are expected to continue to decline in future years as we have discontinued selling AViiON servers.

        Revenues on sales into the North American markets were $3,740.7 and $3,225.4 in 2003 and 2002, respectively, representing an increase of $515.3, or 16%. Revenues on sales into the European, Middle East and African markets were $1,645.1 and $1,327.8 in 2003 and 2002, respectively, representing an increase of $317.3, or 24%. Revenues on sales into the Asia Pacific markets were $709.4 and $769.8 in 2003 and 2002, respectively, representing a decrease of $60.4, or 8%. Revenues on sales into the Latin American markets were $141.7 and $115.4 in 2003 and 2002, respectively, representing an increase of $26.3, or 23%.

        The increase in revenues in 2003 compared to 2002 in the North American, European, Middle East, African and Latin American markets was attributable to greater demand for our products and services. Also contributing to the increase were new and enhanced distribution channels in all markets,

19

broadened product offerings, favorable foreign currency exchange rates and revenue generated in the fourth quarter of 2003 from the acquisitions of Documentum and LEGATO. The decrease in revenue in 2003 compared to 2002 in the Asia Pacific markets was due to several large non-recurring customer orders received in 2002.

        Changes in exchange rates in 2003 compared to 2002 positively impacted revenues by approximately 3.7%. The impact was most significant in the European market, primarily Germany, the United Kingdom, Italy and France.

        At the time of sale, we provide for the potential returns of products 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. In 2003, we reduced our provision for potential sales returns resulting in a benefit of $19.4. Our provision for sales returns was $158.6 in 2002. The decrease in the provision for sales returns in 2003 compared to 2002 was attributable to improved economic conditions, a reduction in the level of actual returns and lower than expected sales returns for 2003 compared to 2002.

        We expect revenues for 2004 to slightly exceed $7,800; however, our revenues could be negatively impacted by a variety of factors, including the economy, demand for IT infrastructure and competitive factors.

Costs and expenses

        The following table presents our costs and expenses and net income (loss). Certain columns may not add due to rounding.

* Not Measurable

20

•

Gross Margins

        Information storage products gross margins were 43.0% and 38.0% in 2003 and 2002, respectively. The increase in the gross margin percentage in 2003 compared to 2002 was attributable to increased sales volume and a lower fixed cost component of cost of sales due to cost reduction effects. The gross margin percentage for 2002 was favorably impacted by $61.6, or 1.5%, resulting primarily from the sale of previously identified obsolete inventory for which a reserve was established in 2001.

        The gross margin percentage for information storage services increased to 51.1% in 2003 compared to 41.7% in 2002. The increase in the gross margin percentage was primarily attributable to a greater proportion of revenues derived from the sale of software and hardware maintenance contracts compared to professional services revenues. Maintenance revenues provide a higher margin than professional services revenues.

        The gross margin percentage for the Documentum products and services segment was 86.1% in 2003. As a result of this acquisition closing near the end of December 2003, the mix of products and services revenue was not representative of its revenue mix for an entire fiscal year. We expect this segment to achieve gross margins of approximately 70.0% in 2004; however, the percentage will be impacted by the mix of software licenses versus services revenues.

        The gross margin percentage for the LEGATO products and services segment was 77.7% in 2003. We expect this segment to achieve comparable margins in 2004; however, the percentage will be impacted by the mix of software licenses versus services revenues.

        The gross margin percentages for other businesses were 53.7% and 46.1% in 2003 and 2002, respectively. The increase in the gross margin percentage in 2003 compared to 2002 resulted from reducing costs in this segment as the volume of maintenance contracts diminished.

        Our overall gross margin percentage was 45.6% in 2003 compared to 39.0% in 2002. We anticipate our overall gross margin percentage will improve in 2004 compared to 2003, expecting it to slightly exceed 50% at some point prior to the fourth quarter of 2004. However, if sales volumes do not increase, software revenue as a percent of total revenue does not increase or competitive pricing pressures increase, gross margins may be negatively impacted in 2004.

•

Research and Development

        As a percentage of revenues, research and development ("R&D") expenses were 11.5% and 14.4% in 2003 and 2002, respectively. In addition, we spent $113.4 and $126.7 in 2003 and 2002, respectively, on software development, which costs were capitalized. The decline in R&D expenses was attributable to our cost cutting initiatives. R&D spending includes enhancements to our software and information storage systems. We expect the amount of R&D spending to be higher in 2004 compared to 2003, primarily due to the R&D spending of LEGATO, Documentum and VMware. For 2004, we expect R&D expenses, as a percentage of revenues, to be approximately 12.0%. This percentage may vary, however, depending primarily on our 2004 revenues.

•

Selling, General and Administrative

        As a percentage of revenues, selling, general and administrative ("SG&A") expenses were 26.6% and 30.9% in 2003 and 2002, respectively. The decrease in the percentage was primarily attributable to increased revenues in 2003 compared to 2002. The decrease in SG&A expenses was primarily due to savings associated with our cost cutting initiatives and a reduction in bad debt expense. Partially offsetting these declines were additional costs incurred from the LEGATO and Documentum acquisitions. 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 provision for bad debts was $1.8 in 2003 and $35.2 in 2002. The decrease

21

in the provision in 2003 compared to 2002 was due to the improvement in our collection experience and expected collection rate of our outstanding accounts and notes receivable balance. Our quarterly average days sales outstanding decreased from 63 days in 2002 to 47 days in 2003. We expect the overall level of SG&A spending to be higher in 2004 compared to 2003, primarily due to the increased salary and related costs associated with LEGATO, Documentum and VMware. For 2004, we expect SG&A expenses, as a percentage of revenue, to be in the mid 20% range. This percentage may vary, however, depending primarily on our 2004 revenues.

•

Restructuring and Other Special Charges

        During 2003, we recorded restructuring and other special charges, primarily related to the acquisitions of LEGATO and Documentum. In 2002, we implemented a restructuring program to reduce our cost structure and focus our resources on the highest potential growth areas of our business. The restructuring and other special charges were $66.3 and $100.0 in 2003 and 2002, respectively. The 2003 charge consisted of $61.1, associated primarily with the acquisitions consummated in the year and $35.0 of additional restructuring costs associated with the 2002 restructuring program. Partially offsetting these costs in 2003 was a $29.8 reduction in accruals from prior restructuring programs. The reductions resulted from management's decision to utilize a facility for Documentum, LEGATO and certain of our other operations that we had previously vacated. Additionally, we favorably resolved a previously recognized contractual obligation.

        The 2002 charges consisted of $149.8 associated with the 2002 restructuring program and $11.8 of additional restructuring costs associated with our 2001 restructuring program. Offsetting these costs in 2002 was a $61.6 benefit resulting primarily from the sale of previously identified obsolete inventory for which a reserve was established in 2001.

        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 2003 and 2002 is explained in the following sections.

•

2003 Restructuring Program

        In 2003, we recognized restructuring and other special charges of $61.1, primarily relating to the acquisitions of LEGATO and Documentum. Included in the charges are employee termination benefits, write-off of a duplicative software project and consolidation of excess facilities, which aggregated $31.9. The 2003 restructuring program impacted our information storage products and information storage services segments. The expected cash impact of the charge is $20.8, of which $3.9 was paid in 2003. The restructuring and other special charges also included in-process R&D ("IPR&D") charges of $19.6 and $9.5 associated with the acquisitions of LEGATO and Documentum, respectively.

22

        The amounts charged against the provision established in 2003 are as follows:

        Worldwide Reduction in Force.    The 2003 restructuring program included a reduction in force of approximately 200 employees across our major business functions and all major geographic regions. Approximately 48% of such employees were based in North America and the remainder are or were based in Europe, Latin America and the Asia Pacific region. As of December 31, 2003, approximately 125 employees had been terminated.

        Asset impairment.    As a result of the LEGATO acquisition, we recognized an impairment charge of $10.5 for a duplicative EMC software project. The impairment charge was equal to the amount by which the assets' carrying amount exceeded the present value of its estimated discounted cash flows. The impaired asset is classified within our information storage products segment.

        Elimination of excess facilities.    The 2003 restructuring program included a charge of $2.8 for the elimination of excess office space in the United Kingdom.

•

2002 Restructuring Program

        In the fourth quarter of 2002, we implemented a restructuring program to reduce our cost structure. As a result of the program, we incurred restructuring and other special charges of $140.9. The restructuring charge included employee termination benefits, consolidation of excess facilities, impairment of long-lived assets and contractual and other obligations for which we no longer derive an economic benefit. In addition, we recognized a charge of $8.9 related to disposal of certain fixed assets which is classified within other expense, net, in our statement of operations.

        The amounts charged and adjusted against the provisions established in 2002 are as follows:

23

        The $24.1 addition to the provision in 2003 for workforce reduction was primarily attributable to finalizing severance packages for employees in foreign jurisdictions. The $6.1 addition to the provision for the consolidation of excess facilities represents the charges for facilities being vacated, offset by the reversal of reserves related to the reactivation of a facility that had previously been vacated. The $1.3 addition to the provision for contractual and other obligations represents incremental costs associated with previously established obligations.

•

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 $825.1. 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 adjustment to the consolidation of excess facilities in 2003 related to the reactivation of a previously vacated facility. The adjustment to the provision for the workforce reduction in 2002 was primarily attributable to the finalization of severance payments associated with reductions in force in foreign jurisdictions. The adjustment to the provision for other contractual obligations in 2002 resulted from favorable settlements.

        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.

24

        Impact of the 2002 and 2001 Restructuring Programs.    The 2002 and 2001 restructuring programs have been completed, although our ability to sell and sublet facilities is subject to appropriate market conditions. The expected cash impact of the charges is $402.1, of which $101.9 was paid in 2003 and an aggregate of $190.3 was paid in 2002 and 2001. The remaining accrual balances primarily relate to the consolidation of facilities that will be paid over the respective lease terms through 2012.

•

Other Restructuring Programs

        During 1999, we recorded a charge of $223.6 relating to restructuring, merger and other special charges primarily associated with our acquisition of Data General. In 1998, we recorded a charge of $135.0 related to a Data General restructuring program and certain asset write-downs resulting from the program. During 2003, the Data General restructuring accrual was reduced by $16.1. The reduction resulted from management's decision to utilize a facility for Documentum, LEGATO and certain of our other operations that we had previously vacated. Additionally, we favorably resolved a previously recognized contractual obligation. As of December 31, 2003, the remaining accrued obligations associated with the 1999 and 1998 charges are $12.3. The amount relates to remaining lease obligations for vacated facilities that will be paid through 2015 and executive severance obligations attributable to the acquisition of Data General.

•

Cost Savings from the Restructuring Programs

        The 2003, 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, 2003, 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 $1,275.0.

•

Investment Income

        Investment income was $187.8 and $256.2 in 2003 and 2002, respectively. Investment income was earned primarily from investments in cash equivalents, short and long-term investments and sales-type leases. Investment income decreased in 2003 compared to 2002 because of lower yields on outstanding investment balances and reduced realized gains from the sale of investments. The weighted average return on investments, excluding realized gains, was 2.7% and 3.5% in 2003 and 2002, respectively. Realized gains were $30.5 and $63.0 in 2003 and 2002, respectively. As a result of declining interest rates, we expect our investment income to be lower in 2004 compared to 2003.

•

Other Expense, Net

        Other expenses, net were $14.9 and $47.4 in 2003 and 2002, respectively. Other expenses, net decreased due to a reduction in losses on disposal of assets.

25

•

Provision for Income Taxes

        In 2003, we reported pre-tax income of $571.0 resulting in a provision for income taxes of $74.9. In 2002, we reported a pre-tax loss of $296.5 resulting in income tax benefits of $177.8. In 2003, the effective income tax rate was 13.1%. The rate of benefit was 60.0% in 2002. 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 2003, the effective tax rate varied from the statutory tax rate primarily as a result of the favorable resolution of a series of tax matters which aggregated $80.9 and the mix of income attributable to foreign versus domestic jurisdictions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. Partially offsetting this benefit were non-deductible IPR&D charges of $29.1 incurred in connection with the acquisitions of LEGATO and Documentum. We did not derive a tax benefit from these charges. 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. Additionally, a reduction in the valuation allowance resulting from the realization of capital loss carryforwards contributed to the favorable rate.

        We expect our income tax rate to be approximately 30.0% in 2004; however, the rate may vary depending upon the income 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 audits.

COMPARISON OF FISCAL 2002 AND 2001

        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.

Revenue

        The following table presents revenue by our segments:

26

        Information storage systems revenues were $2,985.3 and $4,307.2 in 2002 and 2001, respectively, representing a decrease of $1,321.9, or 31%. This decrease was 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 and $1,560.0 in 2002 and 2001, respectively, representing a decrease of $326.9, or 21%. The decrease was also primarily due to declining sales volume caused by the global economic slowdown and increased levels of competition.

        Information storage services revenues increased due to a greater volume of professional services, largely to support and implement automated networked storage solutions. Additionally, the increase was due to a growth in maintenance revenues associated with a greater volume of both software and hardware maintenance contracts.

        Other businesses revenues consist of revenues from AViiON server products and related services. Included in the 2001 amount was revenue from AViiON server products of $48.4. In the third quarter of 2001, we stopped selling AViiON server products. Accordingly, other businesses revenues for the last quarter of 2001 and all of 2002 were comprised only of AViiON services revenues.

        Revenues on sales into the North American markets were $3,225.4 and $4,185.4 in 2002 and 2001, respectively, representing a decrease of $960.0, or 23%. Revenues on sales into the European, Middle East and African markets were $1,327.8 and $1,774.9 in 2002 and 2001, respectively, representing a decrease of $447.1, or 25%. Revenues on sales into the Asia Pacific markets were $769.8 and $893.4 in 2002 and 2001, respectively, representing a decrease of $123.6, or 14%. Revenues on sales into the Latin American markets were $115.4 and $237.0 in 2002 and 2001, respectively, representing a decrease of $121.6, or 51%.

        The decline in revenues in all markets in 2002 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.

        Changes in exchange rates in 2002 compared to 2001 did not have a material effect on revenues.

        At the time of sale, we provide for the potential returns of systems as a reduction of revenue. Our provision for sales returns was $158.6 in 2002 and $635.9 in 2001. 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, a reduction in the level of actual returns and lower than expected sales returns for 2002 compared to 2001.

27

Costs and expenses

        The following table presents our costs and expenses and net loss. Certain columns may not add due to rounding.

        In 2001, included in our costs and expenses was goodwill amortization of $52.4. As a result of implementing Statement of Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other Intangible Assets," in 2002, goodwill is no longer amortized.

•    Gross Margins

        The gross margin percentages for information storage products were 38.0% and 40.5% in 2002 and 2001, 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 primarily from the sale of previously identified obsolete inventory for which a full reserve had been established. The decline in the gross margin percentage in 2002 compared to 2001 was 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 contributed to the decline. Partially offsetting this decline 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. The increase in the gross margin percentage was primarily attributable to greater productivity of our customer service and professional services personnel.

28

        The gross margin percentages for other businesses were 46.1% and 36.8% in 2002 and 2001, respectively. The increase in the gross margin percentage resulted primarily from this segment consisting only of services revenue in 2002 compared to both systems and services revenue in 2001.

•    Research and Development

        As a percentage of revenues, R&D expenses were 14.4% and 13.1% in 2002 and 2001, respectively. In addition, we spent $126.7 and $120.7 in 2002 and 2001, 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.

•    Selling, General and Administrative

        As a percentage of revenues, SG&A expenses were 30.9% and 31.2% in 2002 and 2001, 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.

        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 provision for bad debts was $35.2 in 2002 and $32.7 in 2001. The increase in the provision in 2002 compared to 2001 was due to the general economic decline experienced worldwide.

•    Restructuring and Other Special Charges

        During 2002 and 2001, we implemented restructuring programs 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 $825.1, respectively. The 2002 charges consisted of $140.9 associated with the 2002 restructuring program, an $8.9 loss on assets 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 benefit resulting primarily from the sale of previously identified obsolete inventory for which a reserve was established in 2001.

        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 activity for 2002 and 2001 is explained in the following sections.

29

•

2002 Restructuring Program

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

•

2001 Restructuring Program

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

        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 primarily related 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.

30

        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.