Freddie Mac 2009 Annual Report Download - page 275

Table 12.3 provides a summary of activity related to restricted stock units and restricted stock under the Employee
Plans and the Directors’ Plan.
Table 12.3 — Employee Plans and Directors’ Plan Restricted Stock Units and Restricted Stock Activity
(1)
Restricted
Stock Units
Weighted Average
Grant-Date Fair Value Restricted Stock
Weighted Average
Grant-Date Fair Value
Outstanding at January 1, 2009 .......................... 5,180,301 $30.00 41,160 $60.75
Granted . ....................................... — — — —
Lapse of restrictions ................................ (1,758,668) 33.87 — —
Forfeited ....................................... (538,137) 25.15 — —
Outstanding at December 31, 2009 . . ..................... 2,883,496 28.14 41,160 60.75
(1) Following the implementation of the conservatorship, we are no longer making grants under our Employee Plans and our Directors’ Plan.
The total fair value of restricted stock units vested during 2009, 2008 and 2007 was $1 million, $22 million and
$44 million, respectively. No restricted stock vested in 2009, 2008 and 2007. We realized a tax benefit of less than
$1 million as a result of tax deductions available to us upon the lapse of restrictions on restricted stock units and restricted
stock under the Employee Plans and the Directors’ Plan during 2009.
Table 12.4 provides information on compensation expense related to stock-based compensation plans.
Table 12.4 — Compensation Expense Related to Stock-based Compensation
2009 2008 2007
Year Ended
December 31,
(in millions)
Stock-based compensation expense recorded on our consolidated statements of equity (deficit) . . ................... $58 $74 $81
Other stock-based compensation expense
(1)
........................................................ (1) 2 1
Total stock-based compensation expense
(2)
...................................................... $57 $76 $82
Tax benefit related to compensation expense recognized on our consolidated statements of operations
(3)
.............. $20 $25 $28
Compensation expense capitalized within other assets on our consolidated balance sheets . . . . . ................... — 1 7
(1) Primarily consist of dividend equivalents paid on stock options and restricted stock units that have been or are expected to be forfeited and related
subsequent adjustments. Also included expense related to share-based liability awards granted under share-based payment arrangements.
(2) Component of salaries and employee benefits expense as recorded on our consolidated statements of operations.
(3) Amounts represent the tax effect of each years’ book compensation expense resulting in a deferred tax asset. As we determined that the deferred tax
asset cannot be realized, a valuation allowance was established and, therefore, no tax benefit was recognized.
As of December 31, 2009, $42 million of compensation expense related to non-vested awards had not yet been
recognized in earnings. This amount is expected to be recognized in earnings over the next three years. During 2009, the
modification of individual awards, which provided for continued or accelerated vesting, was made to 1 employee, and
resulted in incremental compensation expense of less than $1 million. During 2008 and 2007, the modifications of individual
awards, which provided for continued or accelerated vesting, were made to fewer than 120 and 60 employees, respectively,
and resulted in a reduction of compensation expense of $3 million and less than $1 million, respectively.
NOTE 13: DERIVATIVES
Use of Derivatives
We use derivatives primarily to:
• hedge forecasted issuances of debt;
• synthetically create callable and non-callable funding;
• regularly adjust or rebalance our funding mix in order to more closely match changes in the interest-rate
characteristics of our mortgage assets; and
• hedge foreign-currency exposure.
Hedge Forecasted Debt Issuances
We regularly commit to purchase mortgage investments on an opportunistic basis for a future settlement, typically
ranging from two weeks to three months after the date of the commitment. To facilitate larger and more predictable debt
issuances that contribute to lower funding costs, we use interest-rate derivatives to economically hedge the interest-rate risk
exposure from the time we commit to purchase a mortgage to the time the related debt is issued.
Create Synthetic Funding
We also use derivatives to synthetically create the substantive economic equivalent of various debt funding structures.
For example, the combination of a series of short-term debt issuances over a defined period and a pay-fixed interest rate
272 Freddie Mac