Freddie Mac 2009 Annual Report Download - page 228

the grant date. The fair value of that award is remeasured subsequently at each reporting date through the settlement date.
Changes in the fair value during the service period are recognized as compensation cost over that period.
Excess tax benefits are recognized in additional paid-in capital. Cash retained as a result of the excess tax benefits is
presented in the consolidated statements of cash flows as financing cash inflows. The write-off of net deferred tax assets
relating to unrealized tax benefits associated with recognized compensation costs reduces additional paid-in capital to the
extent there are excess tax benefits from previous stock-based awards remaining in additional paid-in capital, with any
remainder reported as part of income tax benefit (expense). A valuation allowance was established against the net deferred
assets relating to unrealized tax benefits associated with recognized compensation costs since we determined that it was
more likely than not that sufficient future taxable income of an appropriate nature (ordinary income versus capital gains)
would not be generated to realize the benefits for the net deferred tax assets.
Earnings Per Common Share
Because we have participating securities, we use the “two-class” method of computing earnings per common share. The
“two-class” method is an earnings allocation formula that determines earnings per share for common stock and participating
securities based on dividends declared and participation rights in undistributed earnings. Our participating securities consist
of vested options to purchase common stock as well as vested and unvested restricted stock units that earn dividend
equivalents at the same rate when and as declared on common stock.
Basic earnings per common share is computed as net income available to common stockholders divided by the weighted
average common shares outstanding for the period. The weighted average common shares outstanding for our basic earnings
per share calculation includes the weighted average number of shares during 2008 that are associated with the warrant for
our common stock issued to Treasury as part of the Purchase Agreement. This warrant is included since it is unconditionally
exercisable by the holder at a minimal cost of $0.00001 per share. Diluted earnings per common share is determined using
the weighted average number of common shares during the period, adjusted for the dilutive effect of common stock
equivalents. Dilutive common stock equivalents reflect the assumed net issuance of additional common shares pursuant to
certain of our stock-based compensation plans that could potentially dilute earnings per common share.
Comprehensive Income
Comprehensive income is the change in equity, on a net of tax basis, resulting from transactions and other events and
circumstances from non-owner sources during a period. It includes all changes in equity during a period, except those
resulting from investments by stockholders. We define comprehensive income as consisting of net income plus changes in
the unrealized gains and losses on available-for-sale securities, the effective portion of derivatives accounted for as cash flow
hedge relationships and changes in defined benefit plans.
Reportable Segments
We have three business segments for financial reporting purposes for all periods presented on our consolidated financial
statements under the accounting standards for segment reporting. Certain prior period amounts have been reclassified to
conform to the current period financial statements. See “NOTE 17: SEGMENT REPORTING” for additional information.
Recently Adopted Accounting Standards
FASB Accounting Standards Codification
On September 30, 2009, we adopted an amendment to the accounting standards on the GAAP hierarchy. This
amendment changes the GAAP hierarchy used in the preparation of financial statements of non-governmental entities. It
establishes the FASB Accounting Standards Codification
TM
as the source of authoritative accounting principles recognized by
the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP in
the United States. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. Our adoption of this amendment had no impact on our consolidated financial
statements.
Measuring Liabilities at Fair Value
In August 2009, the FASB amended guidance on the fair value measurement of liabilities. This amendment clarifies the
valuation techniques permitted in measuring fair value of liabilities in circumstances in which a quoted price in an active
market for the identical liability is not available. The amendment also provides that, in measuring the fair value of a liability
in situations where a restriction prevents the transfer of the liability, companies are not required to make a separate input or
adjust other inputs to reflect the existence of such a restriction. It also clarifies that quoted prices for the identical liability
when traded as an asset in an active market are Level 1 fair value measurements, when no adjustments to the quoted price of
the asset are required. The amendment is effective for the reporting periods, including interim periods, beginning after
225 Freddie Mac