Freddie Mac 2011 Annual Report Download - page 102

mortgages and the impact of changes in fair value of CMBS and held-for-sale loans associated only with factors other
than changes in interest rates, such as liquidity and credit.
We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the
conduct of our business under the direction of the Conservator. The financial performance of our Single-family Guarantee
segment and Multifamily segment are measured based on each segment’s contribution to GAAP net income (loss). Our
Investments segment is measured on its contribution to GAAP total comprehensive income (loss), which consists of the
sum of its contribution to: (a) GAAP net income (loss); and (b) GAAP total other comprehensive income, net of taxes.
The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss) attributable to
Freddie Mac. Likewise, the sum of total comprehensive income (loss) for each segment and the All Other category equals
GAAP total comprehensive income (loss) attributable to Freddie Mac.
The All Other category consists of material corporate level expenses that are: (a) infrequent in nature; and (b) based
on management decisions outside the control of the management of our reportable segments. By recording these types of
activities to the All Other category, we believe the financial results of our three reportable segments reflect the decisions
and strategies that are executed within the reportable segments and provide greater comparability across time periods. The
All Other category also includes the deferred tax asset valuation allowance associated with previously recognized income
tax credits carried forward and, in 2009, the write-down of our LIHTC investments.
In presenting Segment Earnings, we make significant reclassifications to certain financial statement line items in
order to reflect a measure of net interest income on investments and a measure of management and guarantee income on
guarantees that is in line with how we manage our business. We present Segment Earnings by: (a) reclassifying certain
investment-related activities and credit guarantee-related activities between various line items on our GAAP consolidated
statements of income and comprehensive income; and (b) allocating certain revenues and expenses, including certain
returns on assets and funding costs, and all administrative expenses to our three reportable segments.
As a result of these reclassifications and allocations, Segment Earnings for our reportable segments differs
significantly from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP.
Our definition of Segment Earnings may differ from similar measures used by other companies. However, we believe that
Segment Earnings provides us with meaningful metrics to assess the financial performance of each segment and our
company as a whole.
Beginning January 1, 2010, we revised our method for presenting Segment Earnings to reflect changes in how
management measures and assesses the performance of each segment and the company as a whole. This change in
method, in conjunction with our implementation of the amendments to the accounting guidance relating to transfers of
financial assets and the consolidation of VIEs, resulted in significant changes to our presentation of Segment Earnings.
Segment Earnings for 2009 do not include changes to the guarantee asset, guarantee obligation, or other items that were
eliminated or changed as a result of our implementation of the aforementioned amendments to the accounting guidance,
as these amendments were applied prospectively consistent with our GAAP results. As a result, our Segment Earnings
results for 2011 and 2010 are not directly comparable with the results for 2009. See “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” for further information regarding the consolidation of certain of our
securitization trusts.
See “NOTE 14: SEGMENT REPORTING” for further information regarding our segments, including the descriptions
and activities of the segments and the reclassifications and allocations used to present Segment Earnings.
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