EMC 2008 Annual Report Download - page 82

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unrealized losses on investments at December 31, 2008 by investment category and length of time the investment has been in a continuous unrealized
loss position are as follows (table in thousands):
Less Than 12 Months 12 Months or Greater Total
Fair Value
Gross
Unrealized
Losses Fair Value
Gross
Unrealized
Losses Fair Value
Gross
Unrealized
Losses
U.S. government and agency obligations $ 42,663 $ (247) $ 174 $ (3)$ 42,837 $ (250)
U.S. corporate debt securities 104,280 (12,081) 4,541 (89) 108,821 (12,170)
Asset and mortgage-backed securities 133,675 (28,490) 18,187 (12,901) 151,862 (41,391)
Municipal obligations 214,900 (3,622) 16,528 (170) 231,428 (3,792)
Auction rate securities 199,169 (31,048) — — 199,169 (31,048)
Foreign debt securities 21,344 (922) — — 21,344 (922)
Total $716,031 $(76,410) $ 39,430 $(13,163)$755,461 $(89,573)
Investment Losses
As of December 31, 2008, the gross unrealized losses on our investment portfolio were $89.6 million. The gross unrealized gains were $45.0 million.
Our unrealized losses were primarily caused by a major disruption to the global capital markets, including a deterioration of confidence and a severe decline
in the availability of capital and demand for debt securities. The result has been to depress securities values in most types of investments.
We considered $2.6 million of unrealized losses to be other than temporary and recognized the losses as a charge to earnings. We considered
$89.6 million of losses to be temporary and recognized the estimated decline in value as a component of other comprehensive loss within our stockholders'
equity. In making this determination, we considered the financial condition and near-term prospects of the issuers, the underlying value and performance of
the collateral, the time to maturity, the length of time the investments have been in an unrealized loss position and our ability and intent to hold the investment
to maturity if necessary to avoid losses. The significant components of the temporary impairments are as follows:
Auction Rate Securities
Our auction rate securities are predominantly rated AAA and are primarily collateralized by student loans. The underlying loans of all but two of our
auction rate securities, with a market value of $17.5 million, have partial guarantees by the U.S. government as part of the Federal Family Education Loan
Program ("FFELP") through the U.S. Department of Education. FFELP guarantees at least 95% of the loans which collateralize the auction rate securities.
The two securities whose underlying loans are not guaranteed by the U.S. government have credit enhancements and are insured by third party agencies. We
believe the quality of the collateral underlying all of our auction rate securities will enable us to recover our principal balance in full. As of December 31,
2007, we held $972.5 million of auction rate securities at par value, which was equal to fair value as of that date. During the first quarter of 2008, we sold
$684.0 million of these auction rate securities at par through the normal auction process. Beginning in mid-February 2008, liquidity issues in the global credit
markets resulted in the complete failure of auctions associated with our auction rate securities as the amount of securities submitted for sale in those auctions
exceeded the amount of bids. For each unsuccessful auction, the interest rate moves to a maximum rate defined for each security, generally reset periodically
at a level higher than defined short-term interest benchmarks. To date, we have collected all interest payable on all of our auction rate securities when due and
expect to continue to do so in the future. The principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found
outside of the auction process, the issuers establish a different form of financing to replace these securities, issuers repay principal over time from cash flows
prior to final maturity, or final payments come due according to contractual maturities ranging from 15 to 40 years. We understand that issuers and financial
markets are in the process of developing alternatives that may improve liquidity, although it is not yet clear when or to what extent such efforts will be
successful. We expect that we will receive the entire principal associated with these auction rate securities through one of the means described above. None of
the auction rate securities in our portfolio are mortgage-backed or collateralized debt obligations.
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