Freddie Mac 2011 Annual Report Download - page 280

Segment Earnings
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 changes in accounting guidance relating to transfers of financial assets
and the consolidation of VIEs, resulted in significant changes to our presentation of Segment Earnings. Under the revised
method, 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. Beginning January 1, 2010, under the revised method, the
sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss) attributable to
Freddie Mac.
Segment Earnings for 2009 reflects the changes in our method of measuring and assessing the performance of our
reportable segments described above. However, Segment Earnings for 2009 does 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
amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs adopted on January 1,
2010, as this change was applied prospectively consistent with our GAAP results. Consequently, 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.
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. However, the accounting principles
we apply to present certain financial statement line items in Segment Earnings for our reportable segments, in particular
Segment Earnings net interest income and management and guarantee income, differ significantly from those applied in
preparing the comparable line items in our consolidated financial statements prepared in accordance with GAAP.
Accordingly, the results of such line items differ significantly from, and should not be used as a substitute for, the
comparable line items as determined in accordance with GAAP. For reconciliations of the Segment Earnings line items to
the comparable line items in our consolidated financial statements prepared in accordance with GAAP, see “Table 14.2 —
Segment Earnings and Reconciliation to GAAP Results.”
Many of the reclassifications, adjustments and allocations described below relate to the amendments to the
accounting guidance for transfers of financial assets and consolidation of VIEs. These amendments require us to
consolidate our single-family PC trusts and certain Other Guarantee Transactions, which makes it difficult to view the
results of the three operating segments from a GAAP perspective. For example, as a result of the amendments, the net
guarantee fee earned on mortgage loans held by our consolidated trusts is included in net interest income on our GAAP
consolidated statements of income and comprehensive income. Previously, we separately recorded the guarantee fee on
our GAAP consolidated statements of income and comprehensive income as a component of non-interest income.
Through the reclassifications described below, we move the net guarantee fees earned on mortgage loans into Segment
Earnings management and guarantee income.
Investment Activity-Related Reclassifications
In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined
under GAAP related to our investment activities, including those described below. Through these reclassifications, we
move certain items into or out of net interest income so that, on a Segment Earnings basis, net interest income reflects
how we measure the effective interest on securities held in our mortgage investments portfolio and our cash and other
investments portfolio.
We use derivatives extensively in our investment activity. The reclassifications described below allow us to reflect, in
Segment Earnings net interest income, the costs associated with this use of derivatives.
• The accrual of periodic cash settlements of all derivatives is reclassified in Segment Earnings from derivative gains
(losses) into net interest income to fully reflect the periodic cost associated with the protection provided by these
contracts.
• Up-front cash paid or received upon the purchase or writing of swaptions and other option contracts is reclassified
in Segment Earnings prospectively on a straight-line basis from derivative gains (losses) into net interest income
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