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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2007
Amortized
Cost Basis Aggregate
Fair Value
U.S. government and agency obligations $ 578,547 $ 589,558
U.S. corporate debt securities 188,512 189,772
Asset and mortgage-backed securities 276,661 277,050
Municipal obligations 1,387,711 1,392,252
Auction rate securities 972,514 972,525
Foreign debt securities 48,523 49,118
Total $3,452,468 $3,470,275
Gross unrealized gains on all of our investments were $45.0 million and $22.4 million at December 31, 2008 and December 31, 2007, respectively. Gross
unrealized losses on these investments were $89.6 million and $4.2 million at December 31, 2008 and December 31, 2007, respectively.
In accordance with FAS No. 157, the following table represents our fair value hierarchy for our financial assets and liabilities measured at fair value as of
December 31, 2008 (in thousands):
Level 1 Level 2 Level 3 Total
Cash $1,336,165 $ — $ — $1,336,165
Cash equivalents 4,275,441 232,079 — 4,507,520
U.S. government and agency obligations 612,793 517,737 — 1,130,530
U.S. corporate debt securities — 451,813 — 451,813
Asset and mortgage-backed securities — 263,384 — 263,384
Municipal obligations — 1,243,308 — 1,243,308
Auction rate securities — — 199,169 199,169
Foreign debt securities — 45,581 — 45,581
Total cash and investments $6,224,399 $2,753,902 $199,169 $9,177,470
Other items:
Foreign exchange derivative assets — 44,042 — 44,042
Foreign exchange derivative liabilities — (39,949) — (39,949)
To determine the estimated fair value of our investment in auction rate securities, we used 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.
The following table provides a summary of changes in fair value of our Level 3 financial assets for the year ended December 31, 2008 (in thousands):
2008
Beginning balance $ —
Transfers in from Level 1 288,500
Sales (58,283)
Unrealized loss included in other comprehensive loss (31,048)
Balance at December 31, 2008 $199,169
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