Fannie Mae 2004 Annual Report Download - page 332

into investment funds available under the Retirement Savings Plan without losing the tax-deferred status of the
value of the ESOP.
Participants are immediately vested in all dividends paid on the shares of Fannie Mae common stock allocated
to their account. Unless employees elect to receive the dividend in cash, ESOP dividends are automatically
reinvested in Fannie Mae common stock within the ESOP. If the employee does elect to receive the dividend
in cash, the dividends are accrued upon declaration and are distributed in February for the four previous
quarters pursuant to the employee’s election. Shares held but not allocated to participants who forfeited their
shares prior to vesting are used to reduce our future contributions. ESOP shares are a component of our
weighted shares outstanding for purposes of our EPS calculations, except unallocated shares which are not
treated as outstanding until they are committed to be released for allocation to employee accounts. All cash
contributions are held in a trust managed by the plan trustee and are invested in Fannie Mae common stock.
The following table displays the ESOP activity for the years ended December 31, 2004 and 2003.
2004 2003
For the Year Ended
December 31,
(Restated)
Common shares allocated to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,582,653 1,530,161
Common shares committed to be released to employees . . . . . . . . . . . . . . . . . . . . . . . 140,692 104,886
Unallocated common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,482 1,862
15. Segment Reporting
Through the second quarter of 2004, we disclosed only two segments, Portfolio Investment and Credit
Guaranty. Previously, we aggregated the Single-Family Credit Guaranty and the HCD operating segments into
a single Credit Guaranty reportable business segment. SFAS No. 131 requires segmentation based on the
structure of the organization as evidenced by the review of operating results by the chief operating decision
maker. We have determined that these operating segments should not have been aggregated because our chief
operating decision maker did not review the operating results on a combined basis. These segments also did
not meet certain other criteria necessary for aggregation, such as a similar nature of products and services and
economic characteristics.
Additionally, management reviewed operating results on a basis (referred to as “Core”) that was not consistent
with GAAP. Core financial statements were prepared by replacing certain derivative expenses based upon
changes in fair value, with amortization expenses related to the initial cost of the derivatives. Our segment
allocation methodologies were also based upon Core-based financial statements. As a result of the impact of
restating the consolidated financial statements and the elimination of hedge accounting (see Note 1), Core-
based financial statements are no longer meaningful, as there are no longer any adjustments needed to account
for the effects of hedge accounting, and Core financials are no longer used by management to operate the
business. Therefore, our segment reporting is prepared and presented in accordance with GAAP and consistent
with the consolidated statements of income.
As such, prior period segment information has been restated for the years ended December 31, 2003 and 2002
and disaggregated into three segments. These three reportable segments are: Single-Family Credit Guaranty,
HCD and Capital Markets (formerly named the “Portfolio Investment” segment). We use these three segments
to generate revenue and manage business risk and each segment is based on the type of business activities it
performs. These activities are discussed below.
Single-Family Credit Guaranty. Our Single-Family Credit Guaranty segment works with our lender customers
to securitize single-family mortgage loans into Fannie Mae MBS and to facilitate the purchase of single-family
mortgage loans for our mortgage portfolio. Our Single-Family Credit Guaranty segment has responsibility for
managing our credit risk exposure relating to the single-family Fannie Mae MBS held by third parties (such as
lenders, depositories and global investors), as well as the single-family mortgage loans and single-family
Fannie Mae MBS held in our mortgage portfolio. Our Single-Family Credit Guaranty segment also has
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)