Freddie Mac 2011 Annual Report Download - page 186

Cash Flows
Our cash and cash equivalents decreased $8.6 billion to $28.4 billion during 2011 and decreased $27.7 billion to
$37.0 billion during 2010. Cash flows provided by operating activities during 2011 and 2010 were $10.3 billion and
$10.8 billion, respectively, primarily driven by cash proceeds from net interest income. Cash flows provided by investing
activities during 2011 and 2010 were $373.7 billion and $385.6 billion, respectively, primarily resulting from net proceeds
received as a result of repayments of single-family held-for-investment mortgage loans. Cash flows used for financing
activities during 2011 and 2010 were $392.6 billion and $424.1 billion, respectively, largely attributable to funds used to
repay debt securities of consolidated trusts held by third parties.
Our cash and cash equivalents increased approximately $19.4 billion during 2009 to $64.7 billion at December 31,
2009. Cash flows provided by operating activities during 2009 were $1.3 billion, which primarily related to cash proceeds
from net interest income, partially offset by net cash proceeds used to purchase held-for-sale mortgage loans. Cash flows
provided by investing activities during 2009 were $47.6 billion, primarily resulting from net proceeds related to sales and
maturities of our available-for-sale securities, partially offset by a net increase in trading securities. Cash flows used for
financing activities for 2009 were $29.5 billion, largely attributable to repayments of short-term debt, partially offset by
$36.9 billion received from Treasury under the Purchase Agreement.
Capital Resources
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our
management of capital. On October 9, 2008, FHFA announced that it was suspending capital classification of us during
conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but the existing
statutory and FHFA-directed regulatory capital requirements are not binding during conservatorship. We continue to
provide submissions to FHFA on minimum capital. See “NOTE 15: REGULATORY CAPITAL” for our minimum capital
requirement, core capital, and GAAP net worth results as of December 31, 2011 and 2010. In addition, notwithstanding
our failure to maintain required capital levels, FHFA directed us to continue to make interest and principal payments on
our subordinated debt. For more information, see “BUSINESS — Regulation and Supervision — Federal Housing Finance
Agency — Subordinated Debt.”
Under the Purchase Agreement, Treasury made a commitment to provide us with funding, under certain conditions,
to eliminate deficits in our net worth. The Purchase Agreement provides that, if FHFA determines as of quarter end that
our liabilities have exceeded our assets under GAAP, Treasury will contribute funds to us in an amount equal to the
difference between such liabilities and assets; a higher amount may be drawn if Treasury and Freddie Mac mutually agree
that the draw should be increased beyond the level by which liabilities exceed assets under GAAP. In each case, the
amount of the draw cannot exceed the maximum aggregate amount that may be funded under the Purchase Agreement.
We are focusing our risk and capital management, consistent with the objectives of conservatorship, on, among other
things, maintaining a positive balance of GAAP equity in order to reduce the likelihood that we will need to make
additional draws on the Purchase Agreement with Treasury. Our business objectives and strategies have in some cases
been altered since we were placed into conservatorship, and may continue to change. Certain changes to our business
objectives and strategies are designed to provide support for the mortgage market in a manner that serves public policy
and other non-financial objectives. In this regard, we are focused on serving our mission, helping families keep their
homes, and stabilizing the economy by playing a vital role in the Administration’s housing programs. However, these
changes to our business objectives and strategies may conflict with maintaining positive GAAP equity.
Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and
have been less than our obligations for a period of 60 days. Obtaining funding from Treasury pursuant to its commitment
under the Purchase Agreement enables us to avoid being placed into receivership by FHFA. At December 31, 2011, our
liabilities exceeded our assets under GAAP by $146 million. Accordingly, we must obtain funding from Treasury pursuant
to its commitment under the Purchase Agreement in order to avoid being placed into receivership by FHFA. FHFA, as
Conservator, will submit a draw request to Treasury under the Purchase Agreement in the amount of $146 million, which
we expect to receive by March 31, 2012. See “BUSINESS — Regulation and Supervision — Federal Housing Finance
Agency — Receivership” for additional information on mandatory receivership.
We expect to make further draws under the Purchase Agreement in future periods. Given the substantial senior
preferred stock dividend obligation to Treasury, which will increase with additional draws, senior preferred stock dividend
payments will increasingly drive our future draw requests. The size and timing of our future draws will be determined by
the dividend obligation and a variety of other factors that could adversely affect our net worth. For more information, see
181 Freddie Mac