Fannie Mae 2005 Annual Report Download - page 166

• We are not permitted to increase our net mortgage portfolio assets above the amount shown in our
minimum capital report to OFHEO as of December 31, 2005 ($727.75 billion), except in limited
circumstances at the discretion of OFHEO. We will be subject to this limitation on portfolio growth until
the Director of OFHEO has determined that expiration of the limitation is appropriate in light of
information regarding: our capital; market liquidity issues; housing goals; risk management improvements;
outside auditor’s opinion that our consolidated financial statements present fairly in all material respects
our financial condition; receipt of an unqualified opinion from an outside audit firm that our internal
controls are effective pursuant to section 404 of the Sarbanes-Oxley Act of 2002; or other relevant
information.
Pursuant to the capital restoration plan, we provide a quarterly capital plan update to OFHEO.
Common Stock
Shares of common stock outstanding, net of shares held in treasury, totaled approximately 972 million,
971 million and 969 million as of December 31, 2006, 2005 and 2004, respectively. During 2006, 2005 and
2004, we issued 1.6 million, 1.5 million and 5.8 million shares of common stock, respectively, from treasury
for our employee benefit plans. We have not issued any common stock during 2004, 2005, 2006 and 2007
other than in accordance with these plans. Our ability to issue common stock will be limited until we have
returned to timely financial reporting.
In January 2003, our Board of Directors approved a share repurchase program (the “General Repurchase
Authority”) authorizing us to repurchase up to 5% of our shares of common stock outstanding as of
December 31, 2002, as well as additional shares to offset stock issued, or expected to be issued, under our
employee benefit plans. Under this General Repurchase Authority, which does not have a specified expiration
date, we repurchased 7.2 million shares of common stock at a weighted average cost per share of $73.67 in
2004. We have not repurchased any shares from the open market pursuant to this General Repurchase
Authority since July 2004.
In November 2004, OFHEO agreed that our September 27, 2004 agreement with OFHEO did not impair our
ability to repurchase shares from employees under certain employee benefit plan transactions, including
reacquiring shares for: payment of withholding taxes on the vesting of restricted stock; payment of withholding
taxes due upon the exercise of employee stock options; and payment of the exercise price on stock options.
OFHEO also approved our request to repurchase shares from employees in limited circumstances relating to
financial hardship.
Since April 2005, we have prohibited all of our employees from engaging in purchases or sales of our
securities except in limited circumstances relating to financial hardship. In November 2005, our Board of
Directors authorized the creation of a stock repurchase program that permits us to repurchase up to
$100 million of our shares from our non-officer employees, who are employees below the level of vice
president. Under the program, we may repurchase shares weekly at fair market value only during the
30-trading day period following our quarterly filings on Form 12b-25 with the SEC. Officers and members of
our Board of Directors are not permitted to participate in the program. On March 22, 2006, OFHEO advised
us that it had no objection to our proceeding with the program on the terms described to OFHEO. We
implemented the program in May 2006. From May 31, 2006 to February 28, 2007, we have purchased an
aggregate of 47,440 shares of common stock from our employees under the program. The employee stock
repurchase program does not have a specified expiration date.
Non-Cumulative Preferred Stock
In December 2004, we sold two issues of non-cumulative preferred stock to institutional investors for
aggregate total proceeds of $5.0 billion, which included $2.5 billion in convertible preferred stock. These
preferred stock issuances represent the largest capital placement we have ever undertaken and were a key
component of our capital restoration plan. We did not redeem any preferred stock during 2006, 2005 or 2004.
We redeemed our Series J Preferred stock on February 28, 2007, and our Series K Preferred Stock on April 2,
2007. Our ability to issue preferred stock in the public market may be limited until we return to timely
financial reporting. We have not issued preferred stock since December 31, 2004.
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