Freddie Mac 2004 Annual Report Download - page 161

sheets and its share of partnership income or loss is reported in the consolidated statements of income as Non-
interest expense Ì Housing tax credit partnerships. The company's obligations to make delayed equity
contributions that are unconditional and legally binding are recorded at their present value in Other liabilities
on the consolidated balance sheets. To the extent that the company's cost basis in qualiÑed low-income
housing tax credit partnerships is diÅerent than the book basis reÖected at the partnership level, the basis
diÅerence is amortized over the life of the tax credits and included in the company's share of earnings
(losses) from housing tax credit partnerships. Freddie Mac periodically reviews these investments for
impairment and adjusts them to fair value when a decline in market value below the recorded investment is
deemed to be ""other than temporary'' under GAAP. Impairment losses are included in the consolidated
statements of income as part of Non-interest expense Ì Housing tax credit partnerships.
Cash and Cash Equivalents and Statements of Cash Flows
Freddie Mac accounts for highly liquid investment securities with an original maturity of three months or
less and used for cash management purposes as cash equivalents. Cash collateral obtained from counterparties
to derivative contracts where Freddie Mac is in an unrealized gain position is recorded as Cash and cash
equivalents.
In the consolidated statements of cash Öows, cash Öows related to the acquisition and termination of
derivatives other than forward commitments are generally classiÑed in investing activities, without regard to
whether they are designated as a hedge of another item. Cash Öows from commitments accounted for as
derivatives under SFAS No. 133, ""Accounting for Derivative Instruments and Hedging Activities''
(""SFAS 133'') that result in the acquisition or sale of mortgage securities or mortgage loans are classiÑed in
either: (a) investing activities for available-for-sale securities or mortgage loans classiÑed as held-for-
investment or (b) operating activities for trading securities or mortgage loans classiÑed as held-for-sale. Cash
Öows related to mortgage loans classiÑed as held-for-sale are classiÑed in operating activities unless the loans
have been securitized and retained as available-for-sale PCs within the same reporting period, in which case
they are classiÑed as investing activities. The periodic cash Öows on certain derivatives, which are recorded in
the consolidated statements of income on an accrual basis either in Income (expense) related to derivatives or
in Derivative gains (losses), are reported in operating activities. Cash Öows related to guarantee fees, including
buy-up and buy-down payments (""Buy-Ups'' and ""Buy-Downs,'' respectively), are classiÑed as operating
activities, along with the cash Öows related to the collection and distribution of payments on the mortgage
loans underlying PCs. Buy-Ups and Buy-Downs are discussed further below in ""Guarantor Swap Transactions
Executed Prior to January 1, 2003.'' Cash Öows related to the repayment of the original issue discount on
short-term, zero-coupon debt are reported as operating activities.
Freddie Mac reclassiÑed certain amounts from those previously reported on the consolidated statements
of cash Öows for the years ended December 31, 2003 and 2002. SpeciÑcally, for the years ended December 31,
2003 and 2002, Net cash provided by operating activities decreased by $572 million and $983 million,
respectively, while Net cash used for investing activities decreased by $432 million and $86 million,
respectively, and Net cash (used for) provided by Ñnancing activities increased by $140 million and
$897 million, respectively. These adjustments are corrections primarily related to certain timing diÅerences on
cash paid for interest related to short-term Discount notes and certain accruals related to the acquisition of
loans underlying Freddie Mac mortgage-related securities. In addition, Freddie Mac revised previously
reported supplemental cash Öow disclosures related to Cash paid for Interest for the years ended Decem-
ber 31, 2003 and 2002. This adjustment was made to include cash paid related to original issue discounts on
short-term Discount notes in conformity with the current period presentation and resulted in increasing
previously reported amounts by $2,710 million and $4,596 million for the years ended December 31, 2003 and
2002, respectively.
Freddie Mac often retains Structured Securities created through resecuritizations of mortgage-related
securities held by the company. The new Structured Securities the company acquires in these transactions are
classiÑed as available-for-sale or trading based upon the predominant classiÑcation of the mortgage-related
security collateral the company contributed. There were $428 million and $322 million of non-cash net
transfers to the available-for-sale classiÑcation from the trading classiÑcation related to resecuritization
transactions in 2004 and 2003, respectively.
Freddie Mac
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