Freddie Mac 2009 Annual Report Download - page 94

tax benefits associated with our ability to carry back net operating tax losses expected to be generated in 2009 to previous
tax years. In 2007, our effective tax rate differed from the federal statutory tax rate of 35% primarily due to the benefit of
our investments in LIHTC partnerships and tax-exempt housing-related securities. See “NOTE 15: INCOME TAXES” to our
consolidated financial statements for additional information.
Segment Earnings
Our operations consist of three reportable segments, which are based on the type of business activities each performs —
Investments, Single-family Guarantee and Multifamily. Certain activities that are not part of a segment are included in the
All Other category; this category consists of certain unallocated corporate items, such as costs associated with remediating
our internal controls and near-term restructuring costs, costs related to the resolution of certain legal matters and certain
income tax items. We manage and evaluate performance of the segments and All Other using a Segment Earnings approach,
subject to the conduct of our business under the direction of the Conservator. The objectives set forth for us under our
charter and by our Conservator, as well as the restrictions on our business under the Purchase Agreement with Treasury, may
negatively impact our Segment Earnings and the performance of individual segments.
Segment Earnings is calculated for the segments by adjusting GAAP net income (loss) for certain investment-related
activities and credit guarantee-related activities. Segment Earnings also includes certain reclassifications among income and
expense categories that have no impact on net income (loss) but provide us with a meaningful metric to assess the
performance of each segment and our company as a whole. We continue to assess the methodologies used for segment
reporting and refinements may be made in future periods. Segment Earnings does not include the effect of the establishment
of the valuation allowance against our deferred tax assets, net.
Segment Earnings differs significantly from, and should not be used as a substitute for, net income (loss) as determined
in accordance with GAAP. There are important limitations to using Segment Earnings as a measure of our financial
performance. Among them, the need to obtain funding under the Purchase Agreement is based on our net worth determined
in accordance with GAAP, which is derived, in part, from our net income (loss) in accordance with GAAP. Net losses in
accordance with GAAP will adversely affect our net worth in accordance with GAAP, and thus our need for funding under
the Purchase Agreement, regardless of Segment Earnings results. Also, our definition of Segment Earnings may differ from
similar measures used by other companies.
In the third quarter of 2009, we reclassified our investments in CMBS and all related income and expenses from the
Investments segment to the Multifamily segment. This reclassification better aligns the financial results related to these
securities with management responsibility. Prior periods have been reclassified to conform to the current presentation.
See “NOTE 17: SEGMENT REPORTING” to our consolidated financial statements for further information regarding
our segments and the adjustments and reclassifications used to calculate Segment Earnings, as well as the allocation process
used to generate our segment results.
Segment Earnings — Results
Investments
Our Investments segment is responsible for investment activity in single-family mortgages and mortgage-related
securities, other investments, debt financing, and managing our interest rate risk, liquidity and capital positions. We invest
principally in mortgage-related securities and single-family mortgages.
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