Freddie Mac 2008 Annual Report Download - page 245

connection with Freddie Mac’s September 29, 2007 offering of non-cumulative, non-convertible, perpetual fixed-rate
preferred stock, and that such statements “grossly overstated Freddie Mac’s capitalization” and “failed to disclose Freddie
Mac’s exposure to mortgage-related losses, poor underwriting standards and risk management procedures.” The complaint
further alleges that Syron, Cook and Piszel made additional false statements following the offering. Freddie Mac is not
named as a defendant in this lawsuit.
On January 29, 2009, a plaintiff filed a putative class action lawsuit in the U.S. District Court for the Southern District
of New York styled Kreysar v. Syron, et al. The complaint alleges that former Freddie Mac officers Syron, Piszel, and Cook
and certain underwriters violated federal securities laws by making material false and misleading statements in connection
with an offering by Freddie Mac of $6 billion of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock
Series Z that commenced on November 29, 2007. The complaint further alleges that Syron, Piszel and Cook made additional
false statements following the offering. The complaint names as defendants Syron, Piszel, Cook, Goldman, Sachs & Co.,
JPMorgan Chase & Co., Banc of America Securities LLC, Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated, and UBS Securities LLC.
Freddie Mac is not named as a defendant in this lawsuit.
Lehman Bankruptcy. On September 15, 2008, Lehman Brothers Holdings Inc., or Lehman, filed a chapter 11
bankruptcy petition in the Bankruptcy Court for the Southern District of New York. Thereafter, many of Lehman’s
U.S. subsidiaries and affiliates also filed bankruptcy petitions (collectively, the “Lehman Entities”). Freddie Mac has
numerous relationships with the Lehman Entities which give rise to various claims that Freddie Mac is pursuing against
them.
NOTE 14: INCOME TAXES
We are exempt from state and local income taxes. Table 14.1 presents the components of our provision for income taxes
for 2008, 2007, and 2006.
Table 14.1 — Provision for Federal Income Taxes
2008 2007 2006
Year Ended December 31,
(in millions)
Current income tax expense (benefit) . . . . . . ............................................... $ 44 $1,060 $ 966
Deferred income tax expense (benefit) . . . . . ............................................... 5,506 (3,943) (1,011)
Total income tax expense (benefit)
(1)
.................................................... $5,550 $(2,883) $ (45)
(1) Does not reflect (a) the deferred tax effects of unrealized (gains) losses on available-for-sale securities, net (gains) losses related to the effective portion
of derivatives designated in cash flow hedge relationships, and certain changes in our defined benefit plans which are reported as part of AOCI,
(b) certain stock-based compensation tax effects reported as part of additional paid-in capital, and (c) the tax effect of cumulative effect of changein
accounting principles.
A reconciliation between our federal statutory income tax rate and our effective tax rate for 2008, 2007, and 2006 is
presented in Table 14.2.
Table 14.2 — Reconciliation of Statutory to Effective Tax Rate
Amount Percent Amount Percent Amount Percent
2008 2007 2006
Year Ended December 31,
(dollars in millions)
Statutory corporate tax rate ...................................... $(15,599) 35.0% $(2,092) 35.0% $ 799 35.0%
Tax-exempt interest ........................................... (266) 0.6 (255) 4.3 (255) (11.2)
Tax credits . . . . ............................................. (589) 1.3 (534) 8.9 (461) (20.2)
Unrecognized tax benefits and related interest/contingency reserves ........... (167) 0.4 32 (0.5) (135) (5.9)
Valuation allowance ........................................... 22,172 (49.8) — — — —
Other . . . . . . . . ............................................. (1) — (34) 0.5 7 0.3
Effective tax rate ............................................. $ 5,550 (12.5)% $(2,883) 48.2% $ (45) (2.0)%
In 2008, our effective tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of a
partial valuation allowance against our net deferred tax assets. In 2007 and 2006, our effective tax rate differs from the
federal statutory tax rate of 35% primarily due to the benefits of our investments in LIHTC partnerships and tax-exempt
housing-related securities. In 2006, we released $174 million of tax reserves primarily as a result of a U.S. Tax Court
decision and a separate settlement with the IRS.
The sources and tax effects of temporary differences that give rise to significant portions of deferred tax assets and
liabilities for the years ended December 31, 2008 and 2007 are presented in Table 14.3.
242 Freddie Mac