Freddie Mac 2009 Annual Report Download - page 67

to choose to measure certain eligible financial instruments at fair value that are not currently required to be measured at fair
value in order to mitigate volatility in reported earnings caused by measuring assets and liabilities differently. We initially
elected the fair value option for certain available-for-sale mortgage-related securities and our foreign-currency denominated
debt. Upon adoption of the fair value option, we recognized a $1.0 billion after-tax increase to our retained earnings
(accumulated deficit) at January 1, 2008. For more information, see “CRITICAL ACCOUNTING POLICIES AND
ESTIMATES.”
Segment Earnings
Our operations consist of three reportable segments, which are based on the type of business activities each performs —
Investments, Single-family Guarantee and Multifamily. Certain activities that are not part of a segment are included in the
All Other category. We manage and evaluate performance of the segments and All Other using a Segment Earnings
approach, subject to the conduct of our business under the direction of the Conservator. Segment Earnings differ significantly
from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP.
Table 6 presents Segment Earnings by segment and the All Other category and includes a reconciliation of Segment
Earnings to net income (loss) attributable to Freddie Mac prepared in accordance with GAAP.
Table 6 — Reconciliation of Segment Earnings to GAAP Net Income (Loss)
(1)
2009 2008 2007
Year Ended December 31,
(in millions)
Segment Earnings, net of taxes:
Investments ................................................................... $ (646) $ (1,400) $ 1,816
Single-family Guarantee . . . ....................................................... (17,831) (9,318) (256)
Multifamily ................................................................... 261 589 610
All Other .................................................................... (17) 134 (103)
Reconciliation to GAAP net income (loss) attributable to Freddie Mac:
Derivative- and debt-related adjustments ............................................... 4,247 (13,219) (5,667)
Credit guarantee-related adjustments . . ................................................ 2,416 (3,928) (3,268)
Investment sales, debt retirements and fair value-related adjustments ............................ 321 (10,462) 987
Fully taxable-equivalent adjustments . . ................................................ (387) (419) (388)
Total pre-tax adjustments . ....................................................... 6,597 (28,028) (8,336)
Tax-related adjustments
(2)
......................................................... (9,917) (12,096) 3,175
Total reconciling items, net of taxes ................................................ (3,320) (40,124) (5,161)
GAAP net loss attributable to Freddie Mac ............................................... $(21,553) $(50,119) $(3,094)
(1) In the third quarter of 2009, we reclassified our investments in CMBS and all related income and expenses from the Investments segment to the
Multifamily segment. Prior periods have been reclassified to conform to the current presentation.
(2) 2009 and 2008 include a non-cash charge related to the establishment of a partial valuation allowance against our deferred tax assets, net of
approximately $7.9 billion and $22 billion, respectively, that are not included in Segment Earnings.
Segment Earnings is calculated for the segments by adjusting GAAP net income (loss) attributable to Freddie Mac for
certain investment-related activities and credit guarantee-related activities. Segment Earnings includes certain reclassifications
among income and expense categories that have no impact on net income (loss) but provide us with a meaningful metric to
assess the performance of each segment and our company as a whole. Segment Earnings does not include the effect of the
establishment of the valuation allowance against our deferred tax assets, net. For more information on Segment Earnings,
including the adjustments made to GAAP net income (loss) attributable to Freddie Mac to calculate Segment Earnings and
the limitations of Segment Earnings as a measure of our financial performance, see “CONSOLIDATED RESULTS OF
OPERATIONS — Segment Earnings” and “NOTE 17: SEGMENT REPORTING” to our consolidated financial statements.
Consolidated Balance Sheets Analysis
During 2009, total assets decreased by $9.2 billion to $841.8 billion while total liabilities decreased by $44.2 billion to
$837.4 billion. Total equity (deficit) was $4.4 billion at December 31, 2009 compared to $(30.6) billion at December 31,
2008.
Our cash and cash equivalents increased by $19.4 billion during 2009 to $64.7 billion. We received $6.1 billion and
$30.8 billion in June 2009 and March 2009, respectively, pursuant to draw requests that FHFA submitted to Treasury on our
behalf to address the deficits in our net worth as of March 31, 2009 and December 31, 2008, respectively. Based upon our
positive net worth at both September 30, 2009 and June 30, 2009, we did not receive any additional funding from Treasury
during the last six months of 2009.
The unpaid principal balance of our investments in mortgage-related securities decreased 11.1%, or $76.8 billion, during
2009 to $616.5 billion. The decrease in our investments in mortgage-related securities is attributable to a relative lack of
favorable investment opportunities, as evidenced by tighter spreads on agency mortgage-related securities. We believe these
tighter spread levels were driven by the Federal Reserve’s and Treasury’s agency mortgage-related securities purchase
64 Freddie Mac