Fannie Mae 2004 Annual Report Download - page 106

construction of the building, the probability of the lender foreclosing on the building, as well as an investor’s
ability to use the tax credits to offset taxable income. The projection of these cash flows and probabilities
thereof requires significant management judgment because of the inherent limitations that relate to the use of
favorable historical data for the projection of future events. Additionally, we reviewed similar assumptions and
applied cash flow models to determine both VIE status and primary beneficiary status for our other limited
partnership investments.
We are exempt from applying FIN 46R to certain investment trusts if the investment trusts meet the criteria of
a QSPE, and if we do not have the unilateral ability to cause the trust to liquidate or change the trust’s QSPE
status. The QSPE requirements significantly limit the activities in which a QSPE may engage and the types of
assets and liabilities it may hold. Management judgment is required to determine whether a trust’s activities
meet the QSPE requirements. To the extent any trust fails to meet these criteria, we would be required to
consolidate its assets and liabilities if, based on the provisions of FIN 46R, we are determined to be the
primary beneficiary of the entity.
The FASB currently is assessing further what activities a QSPE may perform. The outcome of these and future
assessments may affect our interpretation of this guidance, and, consequently, the entities we consolidate in
future periods.
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion of our consolidated results of operations is based on our results for the year ended
December 31, 2004 and restated results for the years ended December 31, 2003 and 2002. In conjunction with
the restatement, we revised the presentation of our consolidated statements of income. Table 12 presents a
condensed summary of our consolidated results of operations.
Table 12: Condensed Consolidated Results of Operations
2004 2003 2002 $ % $ %
(Restated) (Restated)
For the Year Ended December 31, 2004 vs. 2003 2003 vs. 2002
Variance
(Dollars in millions, except per share amounts)
Net interest income. . . . . . . . . . . . . . . . . . . . $ 18,081 $19,477 $ 18,426 $(1,396) (7)% $ 1,051 6%
Guaranty fee income . . . . . . . . . . . . . . . . . . . 3,604 3,281 2,516 323 10 765 30
Fee and other income . . . . . . . . . . . . . . . . . . 404 340 89 64 19 251 282
Investment losses, net . . . . . . . . . . . . . . . . . . (362) (1,231) (501) 869 71 (730) (146)
Derivatives fair value losses, net. . . . . . . . . . . (12,256) (6,289) (12,919) (5,967) (95) 6,630 51
Debt extinguishment losses, net . . . . . . . . . . . (152) (2,692) (814) 2,540 94 (1,878) (231)
Loss from partnership investments . . . . . . . . . (702) (637) (509) (65) (10) (128) (25)
Provision for credit losses . . . . . . . . . . . . . . . (352) (365) (284) 13 4 (81) (29)
Other non-interest expense. . . . . . . . . . . . . . . (2,266) (1,598) (1,250) (668) (42) (348) (28)
Income before federal income taxes,
extraordinary gains (losses), and cumulative
effect of change in accounting principle . . . . 5,999 10,286 4,754 (4,287) (42) 5,532 116
Provision for federal income taxes . . . . . . . . . (1,024) (2,434) (840) 1,410 58 (1,594) (190)
Extraordinary gains (losses), net of tax effect . . (8) 195 — (203) (104) 195 100
Cumulative effect of change in accounting
principle, net of tax effect . . . . . . . . . . . . . — 34 — (34) (100) 34 100
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,967 $ 8,081 $ 3,914 $(3,114) (39)% $ 4,167 106%
Diluted earnings per common share . . . . . . . . $ 4.94 $ 8.08 $ 3.81 $ (3.14) (39)% $ 4.27 112%
Net income and diluted earnings per share (“EPS”) totaled $5.0 billion and $4.94, respectively, in 2004,
compared with $8.1 billion and $8.08 in 2003, and $3.9 billion and $3.81 in 2002. We expect high levels of
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