Fannie Mae 2011 Annual Report Download - page 272

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
are the discount rate and the long-term rate of return on assets. In determining our net periodic benefit cost, we
apply a discount rate in the actuarial valuation of our pension and postretirement benefit 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. 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. We recognize actuarial gains
and losses and prior service costs and credits 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. We compute basic EPS 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 (loss) with common stockholders (i.e., participating securities
and common shares that are currently issuable for little or no cost to the holder). We include in the denominator
of our basic EPS computation the weighted-average shares of common stock that would be issued upon the full
exercise of the warrant issued to Treasury. 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. We exclude these common stock equivalents 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 we record
directly to stockholders’ deficit. 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; unrealized gains and losses on guaranty assets resulting from portfolio securitization transactions;
buy-ups resulting from lender swap transactions; and change in prior service costs and credits and actuarial gains
and losses associated with pension and postretirement benefits in other comprehensive income (loss).
As of December 31, 2011, 2010 and 2009, we recorded a valuation allowance for our deferred tax asset for the
portion of the future tax benefit that we more likely than not will not utilize in the future. We established no
valuation allowance for the deferred tax asset amount 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.
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