EMC 2008 Annual Report Download - page 39

Table of Contents
The Purchased Options and Sold Warrants will generally have the effect of increasing the conversion price of the Notes to approximately $19.55 per
share of our common stock, representing an approximate 55 percent conversion premium based on the closing price of $12.61 per share of our common stock
on November 13, 2006.
The cost of the Purchased Options and net proceeds from the sale of the Sold Warrants were recorded in stockholders' equity.
Depreciation and amortization expense was $1,057.5, $917.3 and $764.2 in 2008, 2007 and 2006, respectively. The increase in depreciation and
amortization expense in each year was primarily attributable to intangible asset amortization expense which increased by $76.1 and $51.8 in 2008 and 2007,
respectively, associated with increased acquisition activity. Higher amortization expense associated with an increase in capitalized software development costs
contributed $33.3 and $26.4 in 2008 and 2007, respectively, to the increase. A general growth in our property, plant and equipment balances in each year also
resulted in greater depreciation expense of $30.8 and $74.9 in 2008 and 2007, respectively.
We have a credit line of $50.0 in the United States. As of December 31, 2008, we had no borrowings outstanding on the line of credit. The credit line
bears interest at the bank's base rate and requires us, upon utilization of the credit line, to meet certain financial covenants with respect to limitations on losses.
In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance, if any. At December 31, 2008, we
were in compliance with the covenants.
At December 31, 2008, our total cash, cash equivalents, and short-term and long-term investments were $9,177.5. This balance includes approximately
$1,840.8 held by VMware and $3,587.5 held by EMC in overseas entities. Our investments are comprised primarily of debt securities that are classified as
available for sale and recorded at their fair market values. At December 31, 2008, with the exception of our auction rate securities, the vast majority of our
investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if
specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, we assess other factors to
determine the security's market value, including broker quotes or model valuations. Each month, we perform independent price verifications of all of our
holdings. In the event a price fails a pre-established tolerance check, it is researched so that we can assess the cause of the variance to determine what we
believe is the appropriate fair market value.
At December 31, 2007, our available for sale, short and long-term investments were recognized at fair value which was determined based upon quoted
market prices. At December 31, 2008, auction rate securities were valued using a discounted cash flow model. The assumptions used in preparing the
discounted cash flow model include an incremental discount rate for the lack of liquidity in the market ("liquidity discount margin") for an estimated period of
time. The discount rate we selected was based on AA-rated banks as the majority of our portfolio is invested in student loans where EMC acts as a financier to
these lenders. The liquidity discount margin represents an estimate of the additional return an investor would require for the lack of liquidity of these
securities over an estimated two-year holding period. During the fourth quarter of 2008, we increased the liquidity discount margin from 3.0% to 5.0% as a
result of declining market conditions.
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