Fannie Mae 2004 Annual Report Download - page 46

addition, these strategies may not increase our share of the secondary mortgage market, our revenues or our
total returns.
The restatement of our consolidated financial statements and related events, including the lack of current
financial and operating information about the company, have had, and likely will continue to have, a
material adverse effect on our business and reputation.
We have become subject to several significant risks since our announcement in December 2004 that we would
restate our previously filed consolidated financial statements. This Annual Report on Form 10-K, which
contains information for the years ended December 31, 2004, 2003 and 2002, includes restated consolidated
financial statements for the years ended December 31, 2003 and 2002, and is our first periodic report covering
periods after June 30, 2004. Our need to restate our historical financial statements and the delay in producing
both restated and more current consolidated financial statements has resulted in several risks to our business,
as discussed in the following paragraphs.
Risks Relating to Lack of Current Information about our Business. Material information about our current
operating results and financial condition is unavailable because of the delay in filing our 2005 and 2006
annual and quarterly reports with the SEC. As a result, investors do not have access to full information about
the current state of our business. When this information becomes available to investors, it may result in an
adverse effect on the trading price of our common stock.
Risks Relating to Suspension and Delisting of Our Securities from the NYSE. The delay in filing our Annual
Report on Form 10-K for the year ended December 31, 2005 with the SEC could cause the New York Stock
Exchange, or NYSE, to commence suspension and delisting proceedings of our common stock. In addition, we
expect that we will not be able to file our Annual Report on Form 10-K for the year ended December 31, 2006
by its due date of March 1, 2007, which would be a separate violation of the NYSE’s listing rules. If the NYSE
were to delist our common stock it could result in a significant decline in the trading price, trading volume and
liquidity of our common stock and could have a similar effect on our preferred stock listed on the NYSE. We
also expect that the suspension and delisting of our common stock could lead to decreases in analyst coverage
and market-making activity relating to our common stock, as well as reduced information about trading prices
and volume.
Risks Associated with Pending Civil Litigation. We are subject to pending civil litigation that, if decided
against us, could require us to pay substantial judgments or settlement amounts or provide for other relief, as
discussed in “Item 3—Legal Proceedings.”
Reputational Risks and Other Risks Relating to Negative Publicity. We have been subject to continuing
negative publicity as a result of our accounting restatement and related problems, which we believe have
contributed to significant declines in the price of our common stock. Continuing negative publicity could
increase our cost of funds and adversely affect our customer relationships and the trading price of our stock.
Negative publicity associated with our accounting restatement and related problems also has resulted in
increased regulatory and legislative scrutiny of our business.
Decrease in Common Stock Dividends and Limitation on Our Ability to Increase Our Dividend Payments. In
January 2005, in an effort to accelerate our achievement of a 30% capital surplus over our minimum capital
requirement as required by OFHEO, we reduced our previous quarterly common stock dividend rate by 50%,
from $0.52 per share to $0.26 per share. Under our May 2006 consent order with OFHEO, we are required to
continue to operate under the capital restoration plan approved by OFHEO in February 2005. Our consent
order with OFHEO also requires us to provide OFHEO with prior notice of any planned dividend and a
description of the rationale for its payment. In addition, our Board of Directors is not permitted to increase the
dividend at any time if payment of the increased dividend would reduce our capital surplus to less than 30%
above our minimum capital requirement. On December 6, 2006, the Board of Directors increased the quarterly
common stock dividend to $0.40 per share.
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