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Greg Idaris, Lucy (Zhao) Luo, Dana Cochrane, and Shweta Godse

4:35 pm - 5:40 pm (M.W.Th.)

Professor Jackson

March 13th

2014

The Financial Reporting Project: Progress Report 1

EMC CorporationCompany Background:

We chose to assess EMC Corporation for our Financial Reporting Project. The ticker

symbol for EMC Corporation is EMC and the company trades its stocks at the New York Stock

Exchange. The purpose of the Auditors Report is to ensure that the companys financial

statements match its current financial position, examine as to whether or not the companys

managers are providing proper internal control over financial reporting, and offer opinions in

regards to the prosperity of the company. The auditing firm responsible for the Audit Report on

the companys most recent Annual Report is PricewaterhouseCoopers LLP. Richard Egan and

Roger Marino, both alumni of Northeastern University, founded EMC Corporation in 1979.

EMC Corporation is headquartered in Hopkinton, Massachusetts and is considered to be one of

the most highly regarded computer companies. EMC Corporation allows companies to store their

information in a more secure, inexpensive, and quicker way through the use of cloud

computing.1 EMC Corporations major competitors are IBM, Hewlett Packard Company, and

Hitachi Data Systems. The closing price of stock for EMC Corporation on March 7, 2014 was

$27.04.

Developments Relating to the Company:

The Information Storage segments product revenues increased 4% in 2013 while

revenues from the high-end storage business (EMC VMAX) increased by 2%. From 2009 to

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2013, EMC has been experiencing a fairly steady upward trend in revenues, operating income,

and net income. Demand for information technology is increasing. The industry for information

technology is rapidly accelerating, spurred by trends toward technology that is mobile, social,

cloud-based, and Big Data-driven. This has caused what is known as the third platform of IT.

The worlds data is expanding, contributing to the rise of the third platform. A primary obstacle

to fully accessing the benefits of cloud-computing and Big Data is the increasing sophistication

of cyber criminals.

In 2013, EMC continues to be a leader in the Big Data and information storage industry,

as the corporation continues it upward momentum. Some key accomplishments this year include:

EMC successfully launched its ViPR Software-Defined Storage Platform, which helps reduce thecomplexity of the data-storing environment. The software is highly automated and user friendly

due to its self-service portal. The current model that has been released consists of two

components the ViPR Controller and the ViPR Data Service. EMC is also planning to launch a

third platform that includes large web-scale content depots.

The corporation is also implementing courses that give business leaders the tools necessary toefficiently implement and utilize Big Data analytics strategies created by EMC. EMCs global

service extends beyond business leaders but also students. EMC Academic Alliance, a subsidiary

within EMC Corporation, reached a milestone when 1,000 members institutions employed the

technology curricula offered.

EMC continues to strengthen their Information Security Segment by releasing a number of

innovative solutions. The partnership with Jupiter Network will allow joint customers to protect

their private information.

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Understanding the Annual Report and 10-K

According to EMC Corporations 2013 annual report and 10-K filing to the U.S.

Securities and Exchange Commission, EMC reported a net income of $1,088,000,000 in 2009. In

2010, net income grew to $1,900,000,000; a 74.63% increase from the previous year. In 2011,

net income was $2,461,000,000 yielding an annual growth rate of 29.52%. In 2012, net income

had increased to $2,733,000,000, reflecting growth of 11.05% from 2011. By 2013, net income

has risen to $2,889,000,000; a 5.71% increase from 2012. Over the last five-year period, net

income has been increasing at a decreasing pace. One reason is that EMC has been allocating

more resources in research and development over the years, which increases expenses. From

2011 to 2013, expenses in research and development increased by $ 610,000,000. Other

expenses saw slight increases as well. In addition, IT product demand was lower than

expectations in 2013, which directly affected sales revenue. Nevertheless, EMC Corporations

net sales were increasing more than expenses, resulting in a positive earning trend in the past five

years.

The gross margin was 60.8% in 2011, 62.8% in 2012, and 62.3% in 2013. The gross

profit was $12,169,000,000 in 2011, $13,638,000,000 in 2012, and $14,473,000,000 in 2013

with net sales of $20,008,000,000 in 2011, $21,714,000,000 in 2012, and $23,222,000,000 in

2013 respectively. The average gross margin over the past three years was 61.97%, which means

out of the net sales approximately 61.97% becomes gross profit, which is can then used to cover

other operating expenses. EMCs gross profit margin has been increasing slightly over the past

few years as net sales generally increase more substantially that cost of goods sold, indicating the

companys growth over the years. The high gross margin makes EMC a good investment choice.

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EMC Corporations ability to balance its liabilities and assets is a reason for the

companys success as a leader in IT solutions. As of December 31st2013, total assets equaled

$45,849,000,000 out of which $17,278,000,000 were allocated in current assets. Current assets

accounted for 37.68% of total assets. Non-current assets totaled $28,571,000,000, accounted for

62.32% of total assets. A majority of the long-term assets were allocated in Goodwill since EMC

has been a leader in cloud computing, Big Data, and IT solutions. The company has a well-

known reputation and was rated the second World Most Admired Company in 20122. In

comparison to December 31st of 2012, total assets equaled $37,962,000,000 out of which

$12,019,000,000 were current assets and $25,943,000,000 were non-current assets. Current

assets accounted for 31.66% of total assets while non-current assets accounted for the remaining

68.34%.

As of December 31st 2013, EMC has a total of $22,063,000,000 in liabilities. 53.47%

($11,799,000,000) of EMCs liabilities were current liabilities, and the remaining 46.53%

($10,264,000,000) were long-term liabilities. In comparison to December 31st 2012s annual

report, total liabilities were $14,380,000,000 with $10,274,000,000 being current liabilities and

$4,106,000,000 as long-term liabilities. Current liabilities accounted for 71.45% of total

liabilities and long-term liabilities accounted for 28.55% of total liabilities.

EMC Corporation utilizes the straight-line depreciation method for their non-current

assets. EMC evaluates the useful life of their long-lived assets by the following breakdowns: 2-

10 years for furniture and fixtures, 2-10 years for equipment and software, 5-31 years for

improvements, and 15-51 years for buildings. EMC values its inventory using the First-in-First-

out (FIFO) system of inventory accounting, so the oldest pieces of inventory are recorded as

being sold first, regardless of which piece of inventory was actually sold. The inventory turnover

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ratio is calculated as the cost of goods sold over the average total inventory. The ratio for 2011,

2012, and 2013 was 6.06, 4.76, and 4.20 respectively. The inventory turnover ratio is showing a

trend of decreasing over this three-year period.

As of December 31st2013, the shareholders equity of EMC is made up of 2,020,000,000

shares of common stock at $0.01 par value with $1,406,000,000 of additional paid in capital,

$21,114,000,000 of retained earnings, and - $239,000,000 of accumulated comprehensive loss.

Shareholders equity totaled $23,786,000,000 in 2013. In comparison to December 31st2012, the

shareholders equity of EMC was made up of 2,107,000,000 shares of common stock at $0.01

par value, $3,691,000,000 of additional paid in capital, $18,853,000,000 of retained earnings,

and -$208,000,000 of accumulated comprehensive loss. Total shareholders equity at the end of

2012 was $23,524,000,000. There was a small change in shareholders equity between 2012 and

2013, of $262,000,000. This increase was caused by the increase in retained earnings between

the two years.

The 10K form is an annual report that provides essential information to shareholders and

investors, the form provides a variety of different information. Three basic pieces of information

are contained in the report, information about the company, financial reports, and notes to clarify

the financial reports. The beginning portion of the form contains information about the

organizational structure of the company, its history, the nature of its business, subsidiaries, its

risk factors, and similar notes about the company itself. The financial reports provide data about

the finances and operations of the company. The form also contains notes to the financial reports.

These notes provide additional information that clarifies parts of the reports and explains things

that the numbers cannot.

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Appendix A: Work Cited

"EMC - Investor Relations - SEC Filings."EMC - Investor Relations - SEC Filings. N.p., n.d.

Web. 12 Mar. 2014. .

1. "Corporate Profile."EMC. N.p., n.d. Web. 12 Mar. 2014..

2. "Computers." CNNMoney. Cable News Network, n.d. Web. 12 Mar. 2014.

.

EMC Company Financials.NASDAQ. N.p., n.d. Web. 12 Mar. 2014.

http://ir.emc.com/phoenix.zhtml?c=106202&p=irol-sec#9289836http://www.emc.com/corporate/emc-at-glance/corporate-profile/index.htmhttp://money.cnn.com/magazines/fortune/most-admired/2012/industries/7.htmlhttp://www.nasdaq.com/symbol/emc/financials?query=balance-sheethttp://www.nasdaq.com/symbol/emc/financials?query=balance-sheethttp://money.cnn.com/magazines/fortune/most-admired/2012/industries/7.htmlhttp://www.emc.com/corporate/emc-at-glance/corporate-profile/index.htmhttp://ir.emc.com/phoenix.zhtml?c=106202&p=irol-sec#9289836

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Appendix B: Calculations

Calculating Annual Growth Rate

2009 2010 2011 2012 2013

Net Income 1,088,000,000 1,900,000,000 2,461,000,000 2,733,000,000 2,889,000,000

Difference

From Previous

Year 812,000,000 561,000,000 272,000,000 156,000,000

Growth Rate 74.63% 29.53% 11.05% 5.71%

Calculating Gross Margin Percentage

2011 2012 2013

Net Sales 20,008,000,000 21,714,000,000 23,222,000,000

Cost of Revenue 7,839,000,000 8,076,000,000 8,749,000,000

Gross Profit 12,169,000,000 13,638,000,000 14,473,000,000

Gross Profit Margin 60.82% 62.81% 62.32%

Asset Allocation2012 2013

Current Assets 12,019,000,000 17,278,000,000

Noncurrent Assets 25,943,000,000 28,571,000,000

Total Assets 37,962,000,000 45,849,000,000

% in Current Assets 31.66% 37.68%

% in Noncurrent Assets 68.34% 62.32%

Liabilities Allocation

2012 2013

Current Liabilities 10,274,000,000 11,799,000,000

Long-term Liabilities 4,106,000,000 10,264,000,000

Total Liabilities 14,380,000,000 22,063,000,000

% in Current Liabilities 71.45% 53.48%

% in Long-term Liabilities 28.55% 46.52%

Inventory Turnover Ratio

2011 2012 2013

Cost of Goods Sold 5,650,000,000 5,259,000,000 5,320,000,000

Average Inventory 932,500,000 1,105,000,000 1,267,500,000

Inventory Turnover Ratio 6.06 4.76 4.20