Freddie Mac 2008 Annual Report Download - page 258

Net Interest
Income
Management
and Guarantee
Income
LIHTC
Partnerships
Other
Non-Interest
Income (Loss)
Administrative
Expenses
Provision
for Credit
Losses
REO
Operations
Expense
Other
Non-Interest
Expense
LIHTC
Partnerships
Tax Credit
Income
Tax
(Expense)
Benefit
Net
Income (Loss)
Year Ended December 31, 2006
(in millions)
Investments . . ........ $3,736 $ — $ — $ 38 $ (495) $ — $ — $ (31) $ — $(1,137) $ 2,111
Single-family Guarantee . . . 556 2,541 — 159 (815) (313) (61) (84) — (694) 1,289
Multifamily . . ........ 479 61 (407) 28 (182) (4) 1 (17) 461 14 434
All Other ............ (3) — — 15 (149) — — (42) — 198 19
Total Segment Earnings
(loss), net of taxes . . . 4,768 2,602 (407) 240 (1,641) (317) (60) (174) 461 (1,619) 3,853
Reconciliation to GAAP net
income (loss):
Derivative- and foreign
currency denominated
debt-related
adjustments . . . .... (1,215) — — (1,156) — — — — — — (2,371)
Credit guarantee-related
adjustments
(3)
...... 2 (172) — 600 — 7 — (638) — — (201)
Investment sales, debt
retirements and fair
value-related
adjustments . . . .... 315 — — (84) — — — — — — 231
Fully taxable-equivalent
adjustments . . . .... (388) — — — — — — — — — (388)
Reclassifications
(1)(3)
. . . (70) (37) — 93 — 14 — — — — —
Tax-related adjustments . . — — — — — — — — — 1,203 1,203
Total reconciling items,
net of taxes . . .... (1,356) (209) — (547) — 21 — (638) — 1,203 (1,526)
Total per consolidated
statement of operations . . $ 3,412 $2,393 $(407) $ (307) $(1,641) $(296) $(60) $(812) $461 $ (416) $ 2,327
(1) Includes the reclassification of: (a) the accrual of periodic cash settlements of all derivatives not in qualifying hedge accounting relationships from other
non-interest income (loss) to net interest income within the Investments segment; (b) implied management and guarantee fees from net interest income
to other non-interest income (loss) within our Single-family Guarantee and Multifamily segments; (c) net buy-up and buy-down fees from management
and guarantee income to net interest income within the Investments segment; (d) interest income foregone on impaired loans from net interest income to
provision for credit losses within our Single-family Guarantee segment; and (e) certain hedged interest benefit (cost) amounts related to trust
management income from other non-interest income (loss) to net interest income within our Investments segment.
(2) 2008 includes a non-cash charge related to the establishment of a partial valuation allowance against our net deferred tax assets of approximately
$22 billion that is not included in Segment Earnings.
(3) Certain prior period amounts within net interest income and provision for credit losses previously reported as a component of credit guarantee-related
adjustments have been reclassified to reclassifications to conform to the current year presentation.
NOTE 17: FAIR VALUE DISCLOSURES
Fair Value Hierarchy
Effective January 1, 2008, we adopted SFAS 157, which establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. Fair value is 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. Observable inputs reflect
market data obtained from independent sources. Unobservable inputs reflect assumptions based on the best information
available under the circumstances. We use valuation techniques that maximize the use of observable inputs, where available,
and minimize the use of unobservable inputs.
The three levels of the fair value hierarchy under SFAS 157 are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets
or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets
and liabilities in markets that are not active; inputs other than quoted market prices that are observable for
the asset or liability; and inputs that are derived principally from or corroborated by observable market data
for substantially the full term of the assets; and
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are
significant to the fair values.
As required by SFAS 157, assets and liabilities are classified in their entirety within the fair value hierarchy based on
the lowest level input that is significant to the fair value measurement. Table 17.1 sets forth by level within the fair value
hierarchy assets and liabilities measured and reported at fair value on a recurring basis in our consolidated balance sheets at
December 31, 2008.
255 Freddie Mac