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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy
based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, that may be used to measure fair
value:
• Level 1 – Quoted prices in active markets for identical assets or liabilities.
• Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In the second quarter of 2009, we adopted new authoritative guidance that requires the credit component of an other-than-temporary impairment of
investments in debt securities to be recognized in earnings and the non-credit component to be recognized in other comprehensive loss when the securities are
not intended to be sold and it is more likely than not that we will not be required to sell the security prior to the recovery. The adoption of the guidance
required the recording of a cumulative effect adjustment to retained earnings with a corresponding adjustment to other comprehensive loss equal to the present
value of the cash flows expected to be collected less the amortized cost basis of the debt securities held at March 31, 2009 for which an other-than-temporary
impairment was previously recognized for securities that we do not intend to sell nor is it more likely than not that we will be required to sell before recovery
of its amortized cost basis. We elected not to record the cumulative effect adjustment, as the amount was de minimis to our financial condition.
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, 2009, 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.
In general, investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments.
Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments. As a result of the
lack of liquidity for auction rate securities, we have classified these as long-term investments as of December 31, 2009. At December 31, 2009, all of our
available for sale, short- and long-term investments, excluding auction rate securities, were recognized at fair value, which was determined based upon
observable inputs from our pricing vendors for identical or similar assets. At December 31, 2009 and 2008, auction rate securities were valued using a
discounted cash flow model.
The following tables summarize the composition of our investments at December 31, 2009 and 2008 (tables in thousands):
December 31, 2009
Amortized
Cost
Unrealized
Gains
Unrealized
(Losses)
Aggregate
Fair Value
Other-than-
Temporary
Impairments
U.S. government and agency obligations $ 1,086,773 $ 8,021 $ (2,982) $ 1,091,812 $ —
U.S. corporate debt securities 866,353 13,128 (1,236) 878,245 —
Asset and mortgage-backed securities 14,119 356 (1) 14,474 —
Municipal obligations 583,690 6,902 (118) 590,474 —
Auction rate securities 253,617 — (19,165) 234,452 —
Foreign debt securities 274,312 1,931 (538) 275,705 —
Total $ 3,078,864 $ 30,338 $ (24,040) $ 3,085,162 $ —
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