Fannie Mae 2004 Annual Report Download - page 279

These restatement adjustments and errors in the prior cash flow presentation resulted in a net increase of
$38.7 billion and $30.8 billion in cash flows from operating activities, a net decrease of $36.9 billion and
$42.2 billion in cash flows from investing activities and a net increase of $206 million and $11.9 billion in
cash flows from financing activities for the years ended December 31, 2003 and 2002, respectively. The
primary causes of these changes were misclassifications of cash flows related to derivatives, trading securities
and HFS loans, and an overstatement of cash flows from the sale of mortgage loans. In connection with the
misapplication of hedge accounting, we incorrectly classified derivatives cash flows as investing and financing
activities instead of as operating activities. We determined that we misapplied SFAS No. 102, Statement of
Cash Flows—Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities
Acquired for Resale (an amendment to FASB Statement No. 95), which requires cash flows from trading
securities and HFS loans to be classified as operating cash flows. As previously discussed, we incorrectly
recorded sales of mortgage loans to MBS trusts that did not meet the definition of a QSPE under SFAS 140,
which resulted in a net overall increase in cash flows from investing activities.
Regulatory Capital Impact
The following table displays the impact of the restatement on regulatory capital as of December 31, 2003 and
2002.
2003 2002
As of December 31,
(Dollars in millions)
Core capital, as previously reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,405 $28,079
Total restatement adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,452) (7,648)
Core capital, as restated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,953 $20,431
Required minimum capital, as previously reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,520 $27,203
Total restatement adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 485
Required minimum capital, as restated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,816 $27,688
Surplus of required minimum capital, as previously reported . . . . . . . . . . . . . . . . . . . . . . $ 2,885 $ 877
Total restatement adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,748) (8,134)
Surplus (deficit) of required minimum capital, as restated . . . . . . . . . . . . . . . . . . . . . . . . $ (4,863) $ (7,257)
Required critical capital, as previously reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,113 $13,880
Total restatement adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 246
Required critical capital, as restated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,261 $14,126
Surplus of required critical capital, as previously reported . . . . . . . . . . . . . . . . . . . . . . . . $18,292 $14,199
Total restatement adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,601) (7,894)
Surplus of required critical capital, as restated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,691 $ 6,305
The restatement adjustments resulted in a net decrease in regulatory core capital of $7.5 billion and $7.6 billion
as of December 31, 2003 and 2002, respectively. Additionally, the restatement adjustments of $7.7 billion and
$8.1 billion as of December 31, 2003 and 2002, respectively, caused the previously reported surplus of
required minimum capital to become a deficit.
Although we had a deficit of required minimum capital and the restatement adjustments decreased required
critical capital by $7.6 billion and $7.9 billion as of December 31, 2003 and 2002, we maintained a surplus of
required critical capital.
These changes in our regulatory capital measures were primarily the result of errors relating to our accounting
for derivative instruments. As AOCI is not included in the calculation of required minimum or critical capital,
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)