Google 2008 Annual Report Download - page 96

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In accordance with EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, the following table shows gross unrealized losses and fair value for those
investments that were in an unrealized loss position as of December 31, 2007 and 2008, aggregated by
investment category and the length of time that individual securities have been in a continuous loss position (in
thousands):
As of December 31, 2007
Less than 12 Months 12 Months or Greater Total
Security Description Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. government notes ................ $ 30,525 $ (4) $ — $ — $ 30,525 $ (4)
U.S. government agencies ............. 98,682 (41) 19,993 (3) 118,675 (44)
Municipal securities ................... 270,708 (227) 54,832 (104) 325,540 (331)
Total ........................... $399,915 $(272) $74,825 $(107) $474,740 $(379)
As of December 31, 2008
Less than 12 Months Total
Security Description Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. government agencies .................................. $183,054 $ (91) $ 183,054 $ (91)
Municipal securities ........................................ 274,042 (3,352) 274,042 (3,352)
Corporate debt securities ................................... 199,828 (172) 199,828 (172)
Total ................................................ $656,924 $ (3,615) $656,924 $ (3,615)
As of December 31, 2008, we did not have any investments in marketable securities that were in an
unrealized loss position for 12 months or greater.
Auction Rate Securities
At December 31, 2008, we held $197.4 million of ARS. The assets underlying these 36 individual investments
are primarily student loans which are mostly AAA rated and substantially guaranteed by the U.S. government
under the Federal Family Education Loan Program. Historically, these securities have provided liquidity through a
Dutch auction process that resets the applicable interest rate at pre-determined intervals every 7 to 49 days.
However, these auctions began to fail in the first quarter of 2008. Since these auctions have failed, we have
realized higher interest rates for many of these ARS than we would have otherwise. Although we have been
receiving interest payments at these generally higher rates, the related principal amounts will not be accessible
until a successful auction occurs, a buyer is found outside of the auction process, the issuer calls the security, or
the security matures according to contractual terms. Maturity dates for these ARS investments range from 2025
to 2047. Since these auctions have failed, $37.5 million of the related securities were called at par by their issuers.
As a result of the auction failures, these ARS do not have a readily determinable market value. To estimate
their fair values at December 31, 2008, we used a discounted cash flow model based on estimated interest rates,
timing and amount of cash flows, the credit quality of the underlying securities and illiquidity
considerations. Specifically, we estimated the future cash flows of our ARS over the expected workout periods
using a projected weighted average interest rate of 3.4% per annum, which is based on the forward swap curve at
the end of December 2008 plus any additional basis points currently paid by the issuers assuming these auctions
continue to fail. A discount factor was applied over these estimated cash flows of our ARS, which is calculated
based on the interpolated forward swap curve adjusted by up to 1,100 basis points to reflect the current market
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