Freddie Mac 2014 Annual Report Download - page 135

130 Freddie Mac
We are subject to limits on the amount of mortgage assets we can sell in any calendar month without review and approval
by FHFA and, if FHFA so determines, Treasury. See “BUSINESS — Conservatorship and Related Matters — Limits on
Investment Activity and Our Mortgage-Related Investments Portfolio” for more information on the relative liquidity of our
mortgage assets.
Cash Flows
Our cash and cash equivalents decreased by $0.4 billion to $10.9 billion during 2014, as compared to an increase of $2.8
billion to $11.3 billion during 2013 and a decrease of $19.9 billion to $8.5 billion during 2012. Cash flows provided by
operating activities during 2014, 2013 and 2012 were $8.9 billion, $16.6 billion and $5.2 billion, respectively, primarily driven
by cash proceeds from net interest income. Cash flows provided by investing activities during 2014, 2013 and 2012 were
$205.3 billion, $391.3 billion, and $494.4 billion, respectively, primarily resulting from net proceeds received as a result of
repayments of single-family held-for-investment mortgage loans. Cash flows used for financing activities during 2014, 2013
and 2012 were $214.5 billion, $405.0 billion, and $519.6 billion, respectively, largely attributable to funds used to repay debt
securities of consolidated trusts held by third parties and other debt.
Beginning in the first quarter of 2014, we reclassified net discounts paid on retirements of other debt and net premiums
received from issuance of debt securities of consolidated trusts and other debt from cash flows from operating activities to cash
flows from financing activities on our consolidated statements of cash flows. This reclassification resulted in a decrease of $2.0
billion and $3.2 billion to net cash provided by operating activities for 2013 and 2012, respectively, and an increase of $2.0
billion and $3.2 billion to net cash used in financing activities for 2013 and 2012, respectively.
Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our
management of capital. FHFA has suspended capital classification of us during conservatorship. FHFA continues to monitor our
capital levels, but the existing statutory and FHFA-directed regulatory capital requirements are not binding during
conservatorship. See “NOTE 18: REGULATORY CAPITAL” for our minimum capital requirement, core capital, and GAAP
net worth results as of December 31, 2014 and 2013. In addition, notwithstanding our failure to maintain required capital
levels, FHFA directed us to continue to make interest and principal payments on our subordinated debt. For more information,
see “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Subordinated Debt.”
Since our entry into conservatorship, Treasury and FHFA have taken a number of actions that affect our cash requirements
and ability to fund those requirements. The conservatorship, and the resulting support we have received from Treasury, has
enabled us to access debt funding on terms sufficient for our needs. Under the Purchase Agreement, Treasury made a
commitment to provide us with funding, under certain conditions, to eliminate deficits in our net worth. The Purchase
Agreement provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets under GAAP,
Treasury will contribute funds to us in an amount equal to the difference between such liabilities and assets; a higher amount
may be drawn if Treasury and Freddie Mac mutually agree that the draw should be increased beyond the level by which
liabilities exceed assets under GAAP. In each case, the amount of the draw cannot exceed the maximum aggregate amount that
may be funded under the Purchase Agreement. The amount of available funding remaining under the Purchase Agreement is
currently $140.5 billion. This amount will be reduced by any future draws.
Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and have
been less than our obligations for a period of 60 days. Obtaining funding from Treasury pursuant to its commitment under the
Purchase Agreement enables us to avoid being placed into receivership by FHFA. See “BUSINESS — Regulation and
Supervision — Federal Housing Finance Agency — Receivership” for additional information on mandatory receivership.
In addition, the GSE Act requires us to set aside or allocate monies each year to certain funds managed by HUD and
Treasury. For more information, see “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency —
Affordable Housing Allocations.”
At December 31, 2014, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from
Treasury under the Purchase Agreement. In future periods, we may experience variability in our net income and/or
comprehensive income due to changes in factors such as interest rates, yield curves, implied volatility, home prices, and
mortgage spreads. Such changes could adversely affect our net worth and result in additional draws under the Purchase
Agreement. For more information, see “RISK FACTORS — Conservatorship and Related Matters — We may request
additional draws under the Purchase Agreement in future periods.”
Based on our Net Worth Amount at December 31, 2014 and the 2015 Capital Reserve Amount of $1.8 billion (which will
be reduced by $600 million each year thereafter until it reaches zero on January 1, 2018), our dividend obligation to Treasury in
March 2015 will be $851 million. We paid dividends of $19.6 billion in cash on the senior preferred stock during 2014, based
on our Net Worth Amounts at September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013. Through
December 31, 2014, we have paid aggregate cash dividends to Treasury of $91.0 billion, an amount that is $19.6 billion more
than our aggregate draws received under the Purchase Agreement. As a result of the net worth sweep dividend we pay to
Treasury, we cannot retain capital from the earnings generated by our business operations.
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