Freddie Mac 2009 Annual Report Download - page 86

For 2007, prior to our election of the fair value option on our foreign-currency denominated debt, we recognized
translation gains (losses) of $(2.3) billion, recorded in foreign-currency gains (losses), net in our consolidated statements of
operations. The gains (losses) related to translation were offset by derivative gains (losses) on foreign-currency swaps of
$2.3 billion.
For a discussion of the instrument-specific credit risk and our election to adopt the fair value option on our foreign-
currency denominated debt see “NOTE 18: FAIR VALUE DISCLOSURES — Fair Value Election — Foreign-Currency
Denominated Debt with Fair Value Option Elected” to our consolidated financial statements.
Derivatives Previously Designated in Cash Flow Hedge Relationships
At December 31, 2009 and 2008, the net cumulative change in the fair value of all derivatives previously designated in
cash flow hedge relationships for which the forecasted transactions had not yet affected earnings (net of amounts previously
reclassified to earnings through each year-end) was an after-tax loss of approximately $2.9 billion and $3.7 billion,
respectively. These amounts relate to net deferred losses on closed cash flow hedges. The majority of all closed cash flow
hedges relate to hedging the variability of cash flows from forecasted issuances of debt. Fluctuations in prevailing market
interest rates have no impact on the deferred portion of AOCI, net of taxes, relating to closed cash flow hedges. The deferred
amounts related to closed cash flow hedges are recognized into earnings as the hedged forecasted transactions affect
earnings, unless it becomes probable that the forecasted transactions will not occur. If it is probable that the forecasted
transactions will not occur, then the deferred amount associated with the forecasted transactions is recognized immediately in
earnings. At both December 31, 2009 and December 31, 2008, we did not have any derivatives in hedge accounting
relationships. For a discussion of the impact of derivatives on our consolidated financial statements and our discontinuation
of derivatives designated as cash flow hedges, see “Derivative Gains (Losses)” and “NOTE 13: DERIVATIVES” to our
consolidated financial statements.
At December 31, 2009, over 70% and 90% of the $2.9 billion net deferred losses in AOCI, net of taxes, relating to
closed cash flow hedges were linked to forecasted transactions occurring in the next 5 and 10 years, respectively. Over the
next 10 years, the forecasted debt issuance needs associated with these hedges range from approximately $12.9 billion to
$91.8 billion in any one quarter, with an average of $42.4 billion per quarter.
Table 17 presents the scheduled amortization of the net deferred losses in AOCI at December 31, 2009 related to closed
cash flow hedges. The scheduled amortization is based on a number of assumptions. Actual amortization will differ from the
scheduled amortization, perhaps materially, as we make decisions on debt funding levels or as changes in market conditions
occur that differ from these assumptions. For example, for the scheduled amortization for cash flow hedges related to future
debt issuances, we assume that no factors affecting debt issuance probabilities will change.
Table 17 — Scheduled Amortization into Earnings of Net Deferred Losses in AOCI Related to Closed Cash Flow
Hedge Relationships
Period of Scheduled Amortization into Earnings
Amount
(Pre-tax)
Amount
(After-tax)
December 31, 2009
(in millions)
2010 . . . . ............................................................................. $ (997) $ (665)
2011 . . . . ............................................................................. (771) (518)
2012 . . . . ............................................................................. (610) (413)
2013 . . . . ............................................................................. (458) (314)
2014 . . . . ............................................................................. (301) (212)
2015 to 2019............................................................................ (807) (586)
Thereafter . ............................................................................. (304) (197)
Total net deferred losses in AOCI related to closed cash flow hedge relationships ........................... $(4,248) $(2,905)
Gains (Losses) on Investments
Gains (losses) on investments include gains and losses on certain assets where changes in fair value are recognized
through earnings, gains and losses related to sales, impairments and other valuation adjustments. Table 18 summarizes the
components of gains (losses) on investments.
83 Freddie Mac