FEDERAL HOME LOAN MORTGAGE CORP | 2013 | FY |

NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)

Accumulated Other Comprehensive Income

The table below presents changes in AOCI after the effects of our 35% federal statutory tax rate related to available-for-sale securities, closed cash flow hedges, and our defined benefit plans.

Table 11.1 — Changes in AOCI by Component, Net of Tax



	Year Ended December 31, 2013
	AOCI Related to Available- For-Sale Securities⁽¹⁾			AOCI Related to Cash Flow Hedge Relationships⁽²⁾			AOCI Related to Defined Benefit Plans			Total
	(in millions)
Beginning balance	$	(1,444	)	$	(1,316	)	$	(178	)	$	(2,938	)
Other comprehensive income before reclassifications⁽³⁾	2,659			—			169			2,828
Amounts reclassified from accumulated other comprehensive income	(253		)	316			41			104
Changes in AOCI by component	2,406			316			210			2,932
Ending balance	$	962		$	(1,000	)	$	32		$	(6	)

	Year Ended December 31, 2012
	AOCI Related to Available- For-Sale Securities⁽¹⁾			AOCI Related to Cash Flow Hedge Relationships⁽²⁾			AOCI Related to Defined Benefit Plans			Total
	(in millions)
Beginning balance	$	(6,213	)	$	(1,730	)	$	(52	)	$	(7,995	)
Other comprehensive income before reclassifications⁽³⁾	3,458			—			(131		)	3,327
Amounts reclassified from accumulated other comprehensive income⁽⁴⁾	1,311			414			5			1,730
Changes in AOCI by component	4,769			414			(126		)	5,057
Ending balance	$	(1,444	)	$	(1,316	)	$	(178	)	$	(2,938	)


(1)	The amounts reclassified from AOCI represent the gain or loss recognized in earnings due to a sale of an available-for-sale security or the recognition of a net impairment recognized in earnings. See “NOTE 7: INVESTMENTS IN SECURITIES” for more information.

(2)

The amounts reclassified from AOCI represent the AOCI amount that was recognized in earnings as the originally hedged forecasted transactions affected earnings, unless it was deemed probable that the forecasted transaction would not occur. If it is probable that the forecasted transaction will not occur, then the deferred gain or loss associated with the hedge related to the forecasted transaction would be reclassified into earnings immediately. See “NOTE 9: DERIVATIVES” for more information about our derivatives.


(3)	For the years ended December 31, 2013 and 2012, net of tax expense of $1.4 billion and $1.9 billion, respectively, for AOCI related to available-for-sale securities.


(4)	For the year ended December 31, 2012, net of tax benefit of $706 million for AOCI related to available-for-sale securities and net of tax benefit of $198 million for AOCI related to cash flow hedge relationships.

Reclassifications from AOCI to Net Income

The table below presents reclassifications from AOCI to net income, including the affected line item in our consolidated statements of comprehensive income.

Table 11.2 — Reclassifications from AOCI to Net Income



Details about Accumulated Other Comprehensive Income Components	Three Months Ended December 31, 2013			Year Ended December 31, 2013			Affected Line Item in the Consolidated Statements of Comprehensive Income
	(in millions)
AOCI related to available-for-sale securities
	$	717		$	1,899		Other gains (losses) on investment securities recognized in earnings
	(1,297		)	(1,510		)	Net impairment of available-for-sale securities recognized in earnings
	(580		)	389			Total before tax
	203			(136		)	Tax (expense) or benefit
	(377		)	253			Net of tax
AOCI related to cash flow hedge relationships
	(1		)	(5		)	Interest expense — Other debt
	(94		)	(455		)	Expense related to derivatives
	(95		)	(460		)	Total before tax
	29			144			Tax (expense) or benefit
	(66		)	(316		)	Net of tax
AOCI related to defined benefit plans
	8			2			Salaries and employee benefits
	(43		)	(43		)	Tax (expense) or benefit
	(35		)	(41		)	Net of tax
Total reclassifications in the period	$	(478	)	$	(104	)	Net of tax

Future Reclassifications from AOCI to Net Income Related to Closed Cash Flow Hedges

As shown in “Table 11.1 — Changes in AOCI by Component, Net of Tax,” the total AOCI related to derivatives designated as cash flow hedges was a loss of $1.0 billion and $1.3 billion at December 31, 2013 and 2012, respectively, composed of deferred net losses on closed cash flow hedges. Closed cash flow hedges involve derivatives that have been terminated or are no longer designated as cash flow hedges. Fluctuations in prevailing market interest rates have no effect on the deferred portion of AOCI relating to losses on closed cash flow hedges.

The previously deferred amount related to closed cash flow hedges remains in our AOCI balance and will be recognized into earnings over the expected time period for which the forecasted transactions affect earnings. Over the next 12 months, we estimate that approximately $214 million, net of taxes, of the $1.0 billion of cash flow hedge losses in AOCI at December 31, 2013 will be reclassified into earnings. The maximum remaining length of time over which we have hedged the exposure related to the variability in future cash flows on forecasted transactions, primarily forecasted debt issuances, is 20 years. However, 74% and 89% of AOCI relating to closed cash flow hedges at December 31, 2013 will be reclassified to earnings over the next five and ten years, respectively.

Issuance of Senior Preferred Stock

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” we issued one million shares of senior preferred stock to Treasury on September 8, 2008. The senior preferred stock was issued to Treasury in partial consideration of Treasury’s commitment to provide funds to us under the Purchase Agreement.

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock. In addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and any quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation preference of the senior preferred stock. As described below, we may make payments to reduce the liquidation preference of the senior preferred stock in limited circumstances. As discussed in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Purchase Agreement,” the quarterly commitment fee has been suspended.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. Total dividends paid in cash during 2013, 2012, and 2011 at the direction of the Conservator were $47.6 billion, $7.2 billion, and $6.5 billion, respectively. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for a discussion of our net worth sweep dividend.

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock provides that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior preferred stock unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends added to the liquidation preference) have been declared and paid in cash; and (b) all amounts required to be paid with the net proceeds of any issuance of capital stock for cash (as described in the following paragraph) have been paid in cash. Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no general or special voting rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise required by law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required to amend the terms of the senior preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment set forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding shares of senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation preference and not previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date.

The table below provides a summary of our senior preferred stock outstanding at December 31, 2013.

Table 11.3 — Senior Preferred Stock



			Draw Date		Shares Authorized	Shares Outstanding	Total Par Value		Initial Liquidation Preference Price per Share		Total Liquidation Preference⁽¹⁾
Senior preferred stock:					(in millions, except initial liquidation preference price per share)
10	%		September 8, 2008	⁽²⁾	1.00	1.00	$	1.00	$	1,000	$	1,000
10	%	⁽³⁾	November 24, 2008		—	—	—		N/A		13,800
10	%	⁽³⁾	March 31, 2009		—	—	—		N/A		30,800
10	%	⁽³⁾	June 30, 2009		—	—	—		N/A		6,100
10	%	⁽³⁾	June 30, 2010		—	—	—		N/A		10,600
10	%	⁽³⁾	September 30, 2010		—	—	—		N/A		1,800
10	%	⁽³⁾	December 30, 2010		—	—	—		N/A		100
10	%	⁽³⁾	March 31, 2011		—	—	—		N/A		500
10	%	⁽³⁾	September 30, 2011		—	—	—		N/A		1,479
10	%	⁽³⁾	December 30, 2011		—	—	—		N/A		5,992
10	%	⁽³⁾	March 30, 2012		—	—	—		N/A		146
10	%	⁽³⁾	June 29, 2012		—	—	—		N/A		19
Total, senior preferred stock					1.00	1.00	$	1.00			$	72,336


(1)	Amounts stated at redemption value.


(2)	We did not receive any cash proceeds from Treasury as a result of issuing these shares.


(3)	Represents an increase in the liquidation preference of our senior preferred stock due to the receipt of funds from Treasury.

No cash was received from Treasury under the Purchase Agreement in 2013, because we had positive net worth at December 31, 2012, March 31, 2013, June 30, 2013, and September 30, 2013 and, consequently, FHFA did not request a draw on our behalf. At December 31, 2013, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from Treasury under the Purchase Agreement. Our quarterly senior preferred stock dividend is the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds the applicable Capital Reserve Amount, which was established at $3 billion for 2013 and declines to zero in 2018. Based on our Net Worth Amount at December 31, 2013, our dividend obligation to Treasury in March 2014 will be $10.4 billion. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Government Support for our Business” for additional information. The aggregate liquidation preference on the senior preferred stock owned by Treasury was $72.3 billion and $72.3 billion as of December 31, 2013 and 2012, respectively. See “NOTE 18: REGULATORY CAPITAL” for additional information.

Common Stock Warrant

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” on September 7, 2008, we, through FHFA, in its capacity as Conservator, issued a warrant to purchase common stock to Treasury. The warrant was issued to Treasury in partial consideration of Treasury’s commitment to provide funds to us under the terms set forth in the Purchase Agreement.

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in whole or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of the exercise price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is greater than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the value of the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.

We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the warrant at fair value, and we do not recognize subsequent changes in fair value while the warrant remains classified in equity. We recorded an aggregate fair value of $2.3 billion for the warrant as a component of additional paid-in-capital. We derived the fair value of the warrant using a modified Black-Scholes model. If the warrant is exercised, the stated value of the common stock issued will be reclassified to common stock in our consolidated balance sheets. The warrant was determined to be in-substance non-voting common stock, because the warrant’s exercise price of $0.00001 per share is considered non-substantive (compared to the market price of our common stock). As a result, the warrant is included in the computation of basic and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended December 31, 2013, 2012, and 2011, respectively, included shares of common stock that would be issuable upon full exercise of the warrant issued to Treasury.

Preferred Stock

The table below provides a summary of our preferred stock outstanding at December 31, 2013. We have the option to redeem our preferred stock on specified dates, at their redemption price plus dividends accrued through the redemption date. However, without the consent of Treasury, we are restricted from making payments to purchase or redeem preferred stock as well as paying any preferred dividends, other than dividends on the senior preferred stock. In addition, all 24 classes of preferred stock are perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional Freddie Mac stock or securities. Costs incurred in connection with the issuance of preferred stock are charged to additional paid-in capital.

Table 11.4 — Preferred Stock



	Issue Date	Shares Authorized	Shares Outstanding	Total Par Value		Redemption Price per Share		Total Outstanding Balance⁽¹⁾		Redeemable On or After⁽²⁾	OTCQB Symbol⁽³⁾
Preferred stock:		(in millions, except redemption price per share)
1996 Variable-rate⁽⁴⁾	April 26, 1996	5.00	5.00	$	5.00	$	50.00	$	250	June 30, 2001	FMCCI
5.81%	October 27, 1997	3.00	3.00	3.00		50.00		150		October 27, 1998	(5)
5%	March 23, 1998	8.00	8.00	8.00		50.00		400		March 31, 2003	FMCKK
1998 Variable-rate⁽⁶⁾	September 23 and 29, 1998	4.40	4.40	4.40		50.00		220		September 30, 2003	FMCCG
5.10%	September 23, 1998	8.00	8.00	8.00		50.00		400		September 30, 2003	FMCCH
5.30%	October 28, 1998	4.00	4.00	4.00		50.00		200		October 30, 2000	(5)
5.10%	March 19, 1999	3.00	3.00	3.00		50.00		150		March 31, 2004	(5)
5.79%	July 21, 1999	5.00	5.00	5.00		50.00		250		June 30, 2009	FMCCK
1999 Variable-rate⁽⁷⁾	November 5, 1999	5.75	5.75	5.75		50.00		287		December 31, 2004	FMCCL
2001 Variable-rate⁽⁸⁾	January 26, 2001	6.50	6.50	6.50		50.00		325		March 31, 2003	FMCCM
2001 Variable-rate⁽⁹⁾	March 23, 2001	4.60	4.60	4.60		50.00		230		March 31, 2003	FMCCN
5.81%	March 23, 2001	3.45	3.45	3.45		50.00		173		March 31, 2011	FMCCO
6%	May 30, 2001	3.45	3.45	3.45		50.00		173		June 30, 2006	FMCCP
2001 Variable-rate⁽¹⁰⁾	May 30, 2001	4.02	4.02	4.02		50.00		201		June 30, 2003	FMCCJ
5.70%	October 30, 2001	6.00	6.00	6.00		50.00		300		December 31, 2006	FMCKP
5.81%	January 29, 2002	6.00	6.00	6.00		50.00		300		March 31, 2007	(5)
2006 Variable-rate⁽¹¹⁾	July 17, 2006	15.00	15.00	15.00		50.00		750		June 30, 2011	FMCCS
6.42%	July 17, 2006	5.00	5.00	5.00		50.00		250		June 30, 2011	FMCCT
5.90%	October 16, 2006	20.00	20.00	20.00		25.00		500		September 30, 2011	FMCKO
5.57%	January 16, 2007	44.00	44.00	44.00		25.00		1,100		December 31, 2011	FMCKM
5.66%	April 16, 2007	20.00	20.00	20.00		25.00		500		March 31, 2012	FMCKN
6.02%	July 24, 2007	20.00	20.00	20.00		25.00		500		June 30, 2012	FMCKL
6.55%	September 28, 2007	20.00	20.00	20.00		25.00		500		September 30, 2017	FMCKI
2007 Fixed-to-floating rate⁽¹²⁾	December 4, 2007	240.00	240.00	240.00		25.00		6,000		December 31, 2012	FMCKJ
Total, preferred stock		464.17	464.17	$	464.17			$	14,109


(1)	Amounts stated at redemption value.


(2)	In accordance with the Purchase Agreement, until the senior preferred stock is repaid or redeemed in full, we may not, without the prior written consent of Treasury, redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant).


(3)	Preferred stock trades exclusively through the OTCQB Marketplace unless otherwise noted.


(4)	Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.


(5)	Issued through private placement.


(6)	Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.


(7)	Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%. Optional redemption on December 31, 2004 and on December 31 every five years thereafter.


(8)	Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter.


(9)	Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003 and on March 31 every year thereafter.


(10)	Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter.


(11)	Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.


(12)	Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% per annum. Optional redemption on December 31, 2012, and on December 31 every five years thereafter.

Stock-Based Compensation

Following the implementation of the conservatorship in September 2008, we suspended the operation of our ESPP, and are no longer making grants under our 2004 Employee Plan or our Directors’ Plan. We collectively refer to the 2004 Employee Plan and the 1995 Employee Plan as the Employee Plans. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations or other equity interests without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase Agreement remain in effect in accordance with their terms.

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2013 and 2012, except for issuances of treasury stock as reported on our consolidated statements of equity (deficit) relating to stock-based compensation granted prior to conservatorship. Common stock delivered under these stock-based compensation plans consists of treasury stock or shares acquired in market transactions on behalf of the participants. During 2013, restrictions lapsed on 7,976 restricted stock units. At December 31, 2013, 20,341 restricted stock units remained outstanding. There are no remaining restrictions on outstanding restricted stock units. In addition, there were 41,160 shares of restricted stock outstanding at both December 31, 2013 and 2012. During 2013, no stock options were exercised and 492,861 stock options were forfeited or expired. At December 31, 2013, 816,435 stock options were outstanding.

For purposes of the earnings-per-share calculation, antidilutive potential common shares excluded from the computation of dilutive potential common shares were 998,707, 1,606,097, and 3,383,185 at December 31, 2013, 2012, and 2011, respectively.

Dividends Declared

No common dividends were declared in 2013. During the three months ended March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013, we paid dividends of $5.8 billion, $7.0 billion, $4.4 billion, and $30.4 billion, respectively, in cash on the senior preferred stock at the direction of our Conservator. We did not declare or pay dividends on any other series of Freddie Mac preferred stock outstanding during 2013.

Delisting of Common Stock and Preferred Stock from NYSE

On July 8, 2010, we delisted our common and 20 previously listed classes of preferred stock from the NYSE pursuant to a directive by our Conservator.

Our common stock and the classes of preferred stock that were previously listed on the NYSE are traded exclusively in the OTCQB Marketplace. Shares of our common stock now trade under the ticker symbol FMCC. We expect that our common stock and the previously listed classes of preferred stock will continue to trade in the OTCQB Marketplace so long as market makers demonstrate an interest in trading the common and preferred stock.

FEDERAL HOME LOAN MORTGAGE CORP | 2013 | FY |

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