Fannie Mae 2008 Annual Report Download - page 315

obligations. In determining the discount rate as of each balance sheet date, we consider the current yields on
high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration
of our benefit obligations. Additionally, the net periodic benefit cost recognized in our consolidated financial
statements for our qualified pension plan is impacted by the long-term rate of return on plan assets. We base
our assumption of the long-term rate of return on the current investment portfolio mix, actual long-term
historical return information and the estimated future long-term investment returns for each class of assets. We
measure plan assets and obligations as of the date of our consolidated financial statements. Beginning
December 31, 2006, with the adoption of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(“SFAS 158”), we recognize the over-funded or under-funded status of our benefit plans as a prepaid benefit
cost (an asset) in “Other assets” or an accrued benefit cost (a liability) in “Other liabilities,” respectively, in
our consolidated balance sheets. Actuarial gains and losses and prior service costs and credits are recognized
when incurred as adjustments to the prepaid benefit cost or accrued benefit cost with a corresponding offset in
other comprehensive income (loss).
Earnings (Loss) per Share
Earnings (loss) per share (“EPS”) is presented for both basic EPS and diluted EPS. Basic EPS is computed by
dividing net income (loss) available to common stockholders by the weighted-average number of shares of
common stock outstanding during the year. In addition to common shares outstanding, the computation of
basic EPS includes instruments for which the holder has (or is deemed to have) the present rights as of the
end of the reporting period to share in current period earnings with common stockholders (i.e., participating
securities, common shares that are currently issuable for little or no cost to the holder). As a result of the
conservatorship, the weighted-average shares of common stock that would be issued upon the full exercise of
the warrant issued to Treasury were included in the denominator of our EPS computation. Diluted EPS is
computed by dividing net income (loss) available to common stockholders by the weighted-average number of
shares of common stock outstanding during the year, plus the dilutive effect of common stock equivalents such
as convertible securities, stock options and other performance awards. These common stock equivalents are
excluded from the calculation of diluted EPS when the effect of inclusion, assessed individually, would be
anti-dilutive.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) is the change in equity, net of tax, resulting from transactions that are
recorded directly to stockholders’ equity. These transactions include: unrealized gains and losses on AFS
securities and certain commitments whose underlying securities are classified as AFS; deferred hedging gains
and losses from cash flow hedges entered into prior to our adoption of SFAS 133; and unrealized gains and
losses on guaranty assets resulting from portfolio securitization transactions and buy-ups resulting from lender
swap transactions that occurred before our adoption of SFAS 155 in 2007.
Additionally, prior to 2007, we recognized the change in minimum pension liability in other comprehensive
income (loss). Beginning in 2007 with the adoption of SFAS 158, we discontinued the recognition of a
minimum pension liability and now record the change in prior service costs and credits and actuarial gains and
losses associated with pension and postretirement benefits in other comprehensive income (loss).
During 2008, we established a valuation allowance for our deferred tax asset for the portion of the future tax
benefit that more likely than not will not be utilized in the future. We did not establish a valuation allowance
for the deferred tax asset amount that is related to unrealized losses recorded through AOCI on our AFS
securities. We believe this deferred tax amount is recoverable because we have the intent and ability to hold
these securities until recovery of the unrealized loss amounts.
F-37
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)