Freddie Mac 2004 Annual Report Download - page 85

Table 38 summarizes the components of Total stockholders' equity.
Table 38 Ì Total Stockholders' Equity
December 31,
2004 2003
(dollars in millions)
Preferred stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,609 $ 4,609
Common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152 152
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 873 814
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,728 28,837
AOCI related to:
Available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,339 6,349
Cash Öow hedge relationships(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (7,924) (7,837)
Minimum pension liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8) (10)
Total AOCI ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,593) (1,498)
Treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,353) (1,427)
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $31,416 $31,487
(1) Derivatives that meet speciÑc criteria are accounted for as cash Öow hedges under SFAS 133. Changes in the eÅective portion of the
fair value of these open derivatives contracts are recorded in AOCI. Net deferred gains and losses on closed cash Öow hedges (i.e.,
where the derivative is either terminated or redesignated) are also classiÑed in AOCI, until the related forecasted transaction is
determined to be probable of not occurring or it aÅects earnings.
Retained earnings increased $1.9 billion driven by net income reduced by preferred and common stock
dividends declared. AOCI declined by $2.1 billion. AOCI consists primarily of net deferred losses on cash Öow
hedge relationships, which totaled approximately ($7.9) billion and ($7.8) billion at December 31, 2004 and
2003, respectively, and net unrealized gains related to available-for-sale securities, which totaled approxi-
mately $4.3 billion and $6.3 billion as of December 31, 2004 and 2003, respectively.
The net deferred losses on cash Öow hedge relationships are composed of the period-end mark to fair
value (net of taxes) of existing derivative contracts in cash Öow hedge relationships and balances related to
closed cash Öow hedges. As described in ""CONSOLIDATED RESULTS OF OPERATIONS Ì Non-
Interest Income (Loss) Ì Derivative Gains (Losses),'' we discontinued applying hedge accounting treatment
for a signiÑcant amount of our pay-Ñxed and receive-Ñxed swaps during 2004. As a result, the December 31,
2004 balance in AOCI is primarily composed of deferred losses related to closed cash Öow hedge relationships
that will be amortized into Income (expense) related to derivatives, a component of Net interest income, over
time. Fluctuations in prevailing market interest rates will have no impact on the balance of AOCI relating to
closed cash Öow hedges. We estimate that approximately $1.6 billion (net of taxes) of the $7.9 billion of
hedging losses (of which $7.9 billion are related to closed cash Öow hedges and less than $0.1 billion are net
unrealized losses on open cash Öow hedges) in AOCI at December 31, 2004 will be reclassiÑed into earnings
during 2005.
Table 39 presents the scheduled amortization of the net deferred losses in AOCI at December 31, 2004,
related to closed cash Öow hedges, into income over future periods based on certain assumptions that may
diÅer from our expectations of future events or from actual future events. For purposes of this table, a number
of hypothetical assumptions were made. It is likely that actual amortization in any given future period will
diÅer from the scheduled amortization, perhaps materially, as we make decisions or changes in market
conditions occur that diÅer from these assumptions. For example, the scheduled amortization for cash Öow
hedges related to future debt issuances is based on the assumption that we will not repurchase debt and that no
other factors aÅecting debt issuance probabilities will change. In addition, for purchase and sale commitments
in cash Öow hedge relationships, the scheduled amortization assumes no changes in prepayment activities or
other factors aÅecting the timing of reclassiÑcations.
Freddie Mac
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