Freddie Mac 2014 Annual Report Download - page 72

67 Freddie Mac
We evaluate segment performance and allocate resources based on a Segment Earnings approach. The financial
performance of our Single-family Guarantee segment is measured based on its contribution to GAAP net income (loss). Our
Investments segment and Multifamily segment are measured based on each segment's contribution to GAAP comprehensive
income (loss), which consists of the sum of its contribution to: (a) GAAP net income (loss); and (b) GAAP total other
comprehensive income (loss), net of taxes. The sum of Segment Earnings for each segment and the All Other category equals
GAAP net income (loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other category
equals GAAP comprehensive income (loss).
The All Other category consists of material corporate level activities that are: (a) infrequent in nature; and (b) based on
decisions outside the control of the management of our reportable segments. By recording these types of activities to the All
Other category, we believe the financial results of our three reportable segments reflect the decisions and strategies that are
executed within the reportable segments and provide greater comparability across time periods. Segment Earnings for the All
Other category was $(13) million, $23.9 billion, and $788 million for 2014, 2013, and 2012, respectively. Segment Earnings for
the All Other category for 2013 reflects a benefit for federal income taxes that resulted from the release of our valuation
allowance against our net deferred tax assets. Segment Earnings for the All Other category for 2012 primarily reflects an
agreement in principle we reached with the IRS regarding litigation related to various uncertain tax positions. Based on the
favorable resolution of the matters in dispute, the previously unrecognized tax benefits were reduced to zero in the fourth
quarter of 2012. For more information regarding the litigation with the IRS, see “NOTE 17: LEGAL CONTINGENCIES —
IRS Litigation.”
In presenting Segment Earnings, we make significant reclassifications among certain financial statement line items to
reflect measures of management and guarantee income on guarantees and net interest income on investments that are in line
with how we manage our business. We also allocate certain revenues and expenses, including certain returns on assets and
funding costs, and all administrative expenses to our three reportable segments.
As a result of these reclassifications and allocations, Segment Earnings for our reportable segments differs significantly
from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP. Our definition of
Segment Earnings may differ from similar measures used by other companies. However, we believe that Segment Earnings
provides us with meaningful metrics to assess the financial performance of each segment and our company as a whole.
In the first quarter of 2014, we revised our inter-segment allocations between the Multifamily and the Investments
segments for the Multifamily segment's investment securities and held-for-sale loans. As a result of this change, the
Multifamily segment reflects the entire change in fair value of these assets in its financial results, and the Investments segment
transfers the change in fair value of the derivatives associated with the Multifamily segment's investments securities and held-
for-sale loans to the Multifamily segment. The purpose of this change is to better reflect the operations of the Multifamily
segment on a stand-alone basis. Prior period results have been revised to conform with the current period presentation.
See “BUSINESS — Our Business — Our Business Segments” for further information regarding our segments, including
the descriptions and activities of our segments, and “NOTE 13: SEGMENT REPORTING” for further information regarding
the reclassifications, reconciliations and allocations used to present Segment Earnings.
The table below provides UPB information about our various segment mortgage and credit risk portfolios at
December 31, 2014 and 2013. For a discussion of each segment’s portfolios, see “Segment Earnings — Results.”
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