Fannie Mae 2005 Annual Report Download - page 171

In cases where we are not the primary beneficiary of these investments, we account for our investments in
LIHTC partnerships by using the equity method of accounting or the effective yield method of accounting, as
appropriate. In each case, we record in the consolidated financial statements our share of the income and
losses of the partnerships, as well as our share of the tax credits and tax benefits of the partnerships. Our share
of the operating losses generated by our LIHTC partnerships is recorded in the consolidated statements of
income under “Loss from partnership investments.” The tax credits and benefits associated with any operating
losses incurred by these LIHTC partnerships are recorded in the consolidated statements of income within our
“Provision for federal income taxes.”
As of December 31, 2005, we had a recorded investment in these LIHTC partnerships of $7.7 billion. Our risk
exposure relating to these LIHTC partnerships is limited to the amount of our investment and the possible
recapture of the tax benefits we have received from the partnership. Neither creditors of, nor equity investors
in, these partnerships have any recourse to our general credit. To manage the risks associated with a
partnership, we track compliance with the LIHTC requirements, as well as the property condition and financial
performance of the underlying investment throughout the life of the investment. In addition, we evaluate the
strength of the partnership’s sponsor through periodic financial and operating assessments. Further, in some of
our LIHTC partnership investments, our exposure to loss is further mitigated by our having a guaranteed
economic return from an investment grade counterparty.
The table below provides information regarding our LIHTC partnership investments as of and for the year
ended December 31, 2005:
Table 39: LIHTC Partnership Investments
Consolidated Non-Consolidated
2005
(Dollars in millions)
As of December 31:
Obligation to fund LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . $833 $1,698
For the year ended December 31:
Tax credits from investments in LIHTC partnerships . . . . . . . . . . . . . . . . . $366 $ 467
Losses from investments in LIHTC partnerships . . . . . . . . . . . . . . . . . . . . 275 518
Tax benefits on credits and losses from investments in LIHTC
partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 649
Contributions to LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484 743
Distributions from LIHTC partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1
For more information on our off-balance sheet transactions, see “Notes to Consolidated Financial State-
ments—Note 17, Concentrations of Credit Risk.”
IMPACT OF FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 123R, Share-Based Payment and SAB No. 107
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (“SFAS 123R”), which revises
SFAS No. 123 and supersedes APB Opinion No. 25, and its related implementation guidance. SFAS 123R
eliminates the alternative of applying the intrinsic value measurement provisions of APB 25 to stock
compensation awards issued to employees. Rather, SFAS 123R requires measurement of the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the
award. With respect to options, SFAS 123R requires that they be measured at fair value using an option-
pricing model that takes into account the options’ unique characteristics and recognition of the cost as expense
over the period the employee provides services to earn the award, which is generally the vesting period. Also,
SFAS 123R requires that excess tax benefits be classified as a financing cash inflow in the consolidated
statements of cash flows.
This standard includes measurement requirements for employee stock options that are similar to those under
the fair-value-based method of SFAS 123; however, SFAS 123R requires initial and ongoing estimates of the
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