Freddie Mac 2008 Annual Report Download - page 204

resulting from investments by stockholders. We define comprehensive income as consisting of net income plus changes in
the unrealized gains and losses on available-for-sale securities, the effective portion of derivatives accounted for as cash flow
hedge relationships and changes in defined benefit plans.
Reportable Segments
We have three business segments for financial reporting purposes under SFAS No. 131, “Disclosures about Segments of
an Enterprise and Related Information,” or SFAS 131, for all periods presented on our consolidated financial statements.
Certain prior period amounts have been reclassified to conform to the current period financial statements. See “NOTE 16:
SEGMENT REPORTING” for additional information.
Recently Adopted Accounting Standards
Amendments to the Impairment Guidance of EITF Issue No. 99-20
At December 31, 2008, we adopted FSP No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue
No. 99-20,” or FSP EITF 99-20-1. FSP EITF 99-20-1 aligns the impairment guidance in EITF 99-20 with that in SFAS 115;
however, it does not change the interest income recognition method prescribed by EITF 99-20. The adoption of FSP
EITF 99-20-1 had an immaterial impact on our consolidated financial statements.
Fair Value Measurements
Effective January 1, 2008, we adopted SFAS 157 which defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. SFAS 157 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (also referred to as exit price). The adoption of SFAS 157 did not cause a cumulative effect adjustment to
our GAAP consolidated financial statements on January 1, 2008. SFAS 157 amended FIN 45 to provide for a practical
expedient in measuring the fair value at inception of a guarantee. Upon adoption of SFAS 157 on January 1, 2008, we began
measuring the fair value of our newly-issued guarantee obligations at their inception using the practical expedient provided
by FIN 45, as amended by SFAS 157. Using the practical expedient, the initial guarantee obligation is recorded at an amount
equal to the fair value of compensation received, inclusive of all rights related to the transaction, in exchange for our
guarantee. As a result, we no longer record estimates of deferred gains or immediate “day one” losses on most guarantees.
Measurement Date for Employers’ Defined Pension and Other Postretirement Plans
Effective January 1, 2008, we adopted the measurement date provisions 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),” or
SFAS 158. In accordance with the standard, we are required to measure our defined plan assets and obligations as of the date
of our consolidated balance sheet, which necessitated a change in our measurement date from September 30 to December 31.
The transition approach we elected for the change was the 15-month approach. Under this approach, we continued to use the
measurements determined in our 2007 consolidated financial statements to estimate the effects of the change. Our adoption
resulted in an immaterial impact on our consolidated financial statements.
The Fair Value Option for Financial Assets and Financial Liabilities
On January 1, 2008, we adopted SFAS 159 or the fair value option, which permits entities to choose to measure many
financial instruments and certain other items at fair value that are not required to be measured at fair value. The effect of the
first measurement to fair value is reported as a cumulative-effect adjustment to the opening balance of retained earnings
(accumulated deficit). We elected the fair value option for foreign-currency denominated debt and certain available-for-sale
mortgage-related securities, including investments in securities identified as within the scope of EITF 99-20.
Our election of the fair value option for the items discussed above was made in an effort to better reflect, in the
financial statements, the economic offsets that exist related to items that were not previously recognized as changes in fair
value through our consolidated statements of operations. As a result of the adoption, we recognized a $1.0 billion after-tax
increase to our beginning retained earnings (accumulated deficit) at January 1, 2008, representing the effect of changing our
measurement basis to fair value for the above items with the fair value option elected. During the third quarter of 2008, we
elected the fair value option for certain multifamily held-for-sale mortgage loans. For additional information on the election
of the fair value option and SFAS 159, see “NOTE 17: FAIR VALUE DISCLOSURES.”
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