Financial reports.The firm engaged by the Board of Governors for the audits of the individual and combined financial statements of the Reserve Banks for 2004 was PricewaterhouseCoopers LLP LLP - Lower Layer Protocol (PwC). Fees for these services totaled $2 million. To ensure auditor independence, the Board of Governors requires that PwC be independent in all matters relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the audit. Specifically, PwC may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In 2004, the bank did not engage PwC for advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal . Management's Assertion To the Board of Directors of the Federal Reserve Bank of Atlanta The Federal Reserve Bank of Atlanta is responsible for the 6th District of the Federal Reserve, which covers Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee. The management of the Federal Reserve Bank of Atlanta ("FRB See Federal Reserve Board. Atlanta") is responsible for the preparation and fair presentation of the Statement of Financial Condition, Statement of Income, and Statement of Changes in Capital as of December 31, 2004 (the "Financial Statements"). The Financial Statements have been prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System and as set forth in the Financial Accounting Manual for Federal Reserve Banks ("Manual") and, as such, include amounts, some of which are based on judgments and estimates of management. To our knowledge, the Financial Statements are, in all material respects, fairly presented in conformity with the accounting principles, policies, and practices documented in the Manual and include all disclosures necessary for such fair presentation. The management of the FRB Atlanta is responsible for maintaining an effective process of internal controls over financial reporting, including the safeguarding of assets as they relate to the Financial Statements. Such internal controls are designed to provide reasonable assurance to management and to the Board of Directors regarding the preparation of reliable Financial Statements. This process of internal controls contains self-monitoring mechanisms, including, but not limited to, divisions of responsibility and a code of conduct. Once identified, any material deficiencies in the process of internal controls are reported to management, and appropriate corrective measures are implemented. Even an effective process of internal controls, no matter how well designed, has inherent limitations, including the possibility of human error, and therefore can provide only reasonable assurance with respect to the preparation of reliable financial statements. The management of the FRB Atlanta assessed its process of internal controls over financial reporting, including the safeguarding of assets reflected in the Financial Statements, based upon the criteria established in the Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
Committee of Sponsoring Organizations of the Treadway Commission (COSO), is a U.S. private-sector initiative, formed in 1985. (COSO COSO Committee of Sponsoring Organizations of the Treadway Commission COSO Church of Spiral Oak COSO Corporate South COSO Class of Service Override COSO Combat Oriented Supply Operations (USAF) ). Based on this assessment, we believe that the FRB Atlanta maintained an effective process of internal controls over financial reporting, including the safeguarding of assets as they relate to the Financial Statements. Federal Reserve Bank of Atlanta Jack Guynn Jack Guynn was the President and CEO of the Federal Reserve Bank of Atlanta from 1996 to 2006.[1] He has retired from that position[2] and been appointed to Oxford Industries, Inc.'s Board of Directors. President and Chief Executive Officer Patrick K. Barron First Vice President and Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. Christopher G. Brown Senior Vice President and Chief Financial Officer March 10, 2005 Atlanta, Georgia Report of Independent Accountants To the Board of Directors of the Federal Reserve Bank of Atlanta We have examined management's assertion, included in the accompanying Management Assertion, that the Federal Reserve Bank of Atlanta ("FRBA FRBA Federal Reserve Bank of Atlanta ") maintained effective internal control over financial reporting and the safeguarding of assets as they relate to the financial statements as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. FRBA's management is responsible for maintaining effective internal control over financial reporting and safeguarding of assets as they relate to the financial statements. Our responsibility is to express an opinion on management's assertion based on our examination. Our examination was conducted in accordance with attestation standards The introduction to this article provides insufficient context for those unfamiliar with the subject matter. Please help [ improve the introduction] to meet Wikipedia's layout standards. You can discuss the issue on the talk page. established by the American Institute of Certified See certification. Public Accountants and, accordingly, included obtaining an understanding of internal control over financial reporting, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of internal control over financial reporting to future periods are subject to the risk that the internal control may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate de·te·ri·o·rate v. 1. To grow worse in function or condition. 2. To weaken or disintegrate. . In our opinion, management's assertion that FRBA maintained effective internal control over financial reporting and over the safeguarding of assets as they relate to the financial statements as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This report is intended solely for the information and use of management and the Board of Directors and Audit Committee of FRBA and any organization with legally defined oversight responsibilities and is not intended to be and should not be used by anyone other than these specified parties. PricewaterhouseCoopers LLP March 16, 2005 Atlanta, Georgia Report of Independent Auditors To the Board of Governors of the Federal Reserve System and the Board of Directors of the Federal Reserve Bank of Atlanta We have audited the accompanying statements of condition of the Federal Reserve Bank of Atlanta (the "Bank") as of December 31, 2004 and 2003, and the related statements of income and changes in capital for the years then ended, which have been prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, . Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement mis·state tr.v. mis·stat·ed, mis·stat·ing, mis·states To state wrongly or falsely. mis·state  ment n. . An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System. These principles, policies, and practices, which were designed to meet the specialized accounting and reporting needs of the Federal Reserve System, are set forth in the Financial Accounting Manual for Federal Reserve Banks and constitute a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2004 and 2003, and results of its operations for the years then ended, on the basis of accounting described in Note 3. PricewaterhouseCoopers LLP March 16, 2005 Atlanta, Georgia
Statements of Condition
As of December As of December
(in millions) 31, 2004 31, 2003
Assets
Gold certificates $894 $863
Special drawing rights certificates 166 166
Coin 82 82
Items in process of collection 637 723
Loans to depository institutions 8 5
U.S. government securities, net 48,931 45,639
Investments denominated in foreign
currencies 1,181 1,127
Accrued interest receivable 343 341
Interdistrict settlement account 9,938 4,274
Bank premises and equipment, net 333 340
Other assets 42 43
Total assets $62,555 $53,603
Liabilities and Capital
Liabilities
Federal Reserve Notes outstanding,
net $56,768 $48,296
Securities sold under agreements to
repurchase 2,076 1,733
Deposits
Depository institutions 1,722 1,608
Other deposits 2 2
Deferred credit items 796 855
Interest on Federal Reserve notes due
U.S. Treasury 56 21
Accrued benefit costs 86 98
Other liabilities 17 12
Total liabilities $61,523 $52,625
Capital
Capital paid-in $516 $489
Surplus 516 489
Total capital $1,032 $978
Total liabilities and capital $62,555 $53,603
The accompanying notes are an integral part of these
financial statements.
Statements of Income
For the years ended
December December
(in millions) 31, 2004 31, 2003
Interest income
Interest on U.S. government securities $1,484 $1,530
Interest on investments denominated in foreign
currencies 15 15
Total interest income $1,499 $1,545
Interest expense
Interest expense on securities sold under
agreements to repurchase $20 $15
Net interest income $1,479 $1,530
Other operating income
Income from services $161 $166
Reimbursable services to government agencies 17 18
Foreign currency gains, net 68 155
Other income 3 3
Total other operating income $249 $342
Operating expenses
Salaries and other benefits $152 $166
Occupancy expense 21 20
Equipment expense 22 24
Assessments by Board of Governors 77 79
Other expenses 94 94
Total operating expenses $366 $383
Net income prior to distribution $1,362 $1,489
Distribution of net income
Dividends paid to member banks $30 $29
Transferred to surplus 27 14
Payments to U.S. Treasury as interest on
Federal Reserve notes 1,305 1,446
Total distribution $1,362 $1,489
The accompanying notes are an integral part of these
financial statements.
Statements of Changes in Capital
For the years ended
December 31, 2004,
(in millions) and December 31, 2003
Capital Total
Paid-In Surplus Capital
Balance at January 1, 2003
(9.5 million shares) $475 $475 $950
Transferred to surplus 14 14
Net change in capital stock issued
(0.3 million shares) 14 14
Balance at December 31, 2003
(9.8 million shares) $489 $489 $978
Transferred to surplus 27 27
Net change in capital stock issued
(0.5 million shares) 27 27
Balance at December 31, 2004
(10.3 million shares) $516 $516 $1,032
The accompanying notes are an integral part of these
financial statements.
Notes to Financial Statements 1. STRUCTURE The Federal Reserve Bank of Atlanta ("Bank") is part of the Federal Reserve System ("System") created by Congress under the Federal Reserve Act of 1913 ("Federal Reserve Act"), which established the central bank of the United States Bank of the United States, name for two national banks established by the U.S. Congress to serve as government fiscal agents and as depositories for federal funds; the first bank was in existence from 1791 to 1811 and the second from 1816 to 1836. . The System consists of the Board of Governors of the Federal Reserve System ("Board of Governors") and twelve Federal Reserve Banks ("Reserve Banks"). The Reserve Banks are chartered by the federal government and possess a unique set of governmental, corporate, and central bank characteristics. The Bank and its branches in Birmingham, Alabama Birmingham (pronounced [ˈbɝmɪŋˌhæm]) is the largest city in the U.S. state of Alabama and is the county seat of Jefferson County. ; Jacksonville, Florida “Jacksonville” redirects here. For other uses, see Jacksonville (disambiguation). Jacksonville is the largest city in the state of Florida and the county seat of Duval County. ; Nashville, Tennessee “Nashville” redirects here. For other uses, see Nashville (disambiguation). Nashville is the capital and the second most populous city of the U.S. state of Tennessee, after Memphis. ; New Orleans New Orleans (ôr`lēənz –lənz, ôrlēnz`), city (2006 pop. 187,525), coextensive with Orleans parish, SE La., between the Mississippi River and Lake Pontchartrain, 107 mi (172 km) by water from the river mouth; founded , Louisiana; and Miami, Florida “Miami” redirects here. For the Native American tribe, see Miami tribe. Miami is a major city in southeastern Florida, in the United States. It is the county seat of Miami-Dade County. Miami is a gamma world city with an estimated population of 404,048. , serve the Sixth Federal Reserve District Federal Reserve District (Reserve district or district) One of the twelve geographic regions served by a Federal Reserve Bank. , which includes Georgia, Florida, Alabama, and portions of Louisiana CODE, OF LOUISIANA. In 1822, Peter Derbigny, Edward Livingston, and Moreau Lislet, were selected by the legislature to revise and amend the civil code, and to add to it such laws still in force as were not included therein. , Tennessee, and Mississippi. Other major elements of the System are the Federal Open Market Committee ("FOMC See Federal Open Market Committee. FOMC See Federal Open Market Committee (FOMC). ") and the Federal Advisory Council. The FOMC is composed of members of the Board of Governors, the president of the Federal Reserve Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. ("FRBNY FRBNY Federal Reserve Bank of New York "), and, on a rotating ro·tate v. ro·tat·ed, ro·tat·ing, ro·tates v.intr. 1. To turn around on an axis or center. 2. basis, four other Reserve Bank presidents. Banks that are members of the System include all national banks and any state-chartered bank that applies and is approved for membership in the System. Board of Directors In accordance with the Federal Reserve Act, supervision and control of the Bank are exercised by a Board of Directors. The Federal Reserve Act specifies the composition of the Board of Directors for each of the Reserve Banks. Each board is composed of nine members serving three-year terms: three directors, including those designated as Chairman and Deputy Chairman, are appointed by the Board of Governors, and six directors are elected by member banks. Of the six elected by member banks, three represent the public and three represent member banks. Member banks are divided into three classes according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. size. Member banks in each class elect one director representing member banks and one representing the public. In any election of directors, each member bank receives one vote, regardless of the number of shares of Reserve Bank stock it holds. 2. OPERATIONS AND SERVICES The System performs a variety of services and operations. Functions include formulating and conducting monetary policy; participating actively in the payments mechanism, including large-dollar transfers of funds, automated clearinghouse ("ACH (Automated Clearing House) A system of the U.S. Federal Reserve Bank that provides electronic funds transfer (EFT) between banks. It is used for all kinds of fund transfer transactions, including direct deposit of paychecks and monthly debits for routine payments to ") operations, and check processing; distributing coin and currency; performing fiscal agency functions for the U.S. Treasury and certain federal agencies; serving as the federal government's bank; providing short-term loans to depository The place where a deposit is placed and kept, e.g., a bank, savings and loan institution, credit union, or trust company. A place where something is deposited or stored as for safekeeping or convenience, e.g., a safety deposit box. institutions; serving the consumer and the community by providing educational materials and information regarding consumer laws; supervising bank holding companies and state member banks; and administering other regulations of the Board of Governors. The Board of Governors' operating costs operating costs npl → gastos mpl operacionales are funded through assessments on the Reserve Banks. The FOMC establishes policy regarding open market operations Open Market Operations The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite. , oversees these operations, and issues authorizations and directives to the FRBNY for its execution of transactions. Authorized transaction types include direct purchase and sale of securities, the purchase of securities under agreements to resell re·sell tr.v. re·sold , re·sell·ing, re·sells 1. To sell again. 2. To sell (a product or service) to the public or to an end user, especially as an authorized dealer. , the sale of securities under agreements to repurchase, and the lending of U.S. government securities. The FRBNY is also authorized by the FOMC to hold balances of, and to execute spot and forward foreign exchange ("F/X F/X Effects ") and securities contracts in, nine foreign currencies and to invest such foreign currency holdings ensuring adequate liquidity is maintained. In addition, FRBNY is authorized to maintain reciprocal currency arrangements ("F/X swaps") with various central banks This is a list of central banks. Contents A B C D E F G H I J K L M N O P Q R S T U V W Y Z and "warehouse" foreign currencies for the U.S. Treasury and Exchange Stabilization Fund The Exchange Stabilization Fund (ESF) is a branch of the United States Treasury Department which manages a portfolio of domestic and foreign currencies for the purpose of foreign exchange intervention. ("ESF (1) (Extended SuperFrame) An enhanced T1 format that allows a line to be monitored during normal operation. It uses 24 frames grouped together (instead of the 12-frame D4 superframe) and provides room for CRC bits and other diagnostic commands. ") through the Reserve Banks. 3. SIGNIFICANT ACCOUNTING POLICIES Accounting principles for entities with the unique powers and responsibilities of the nation's central bank have not been formulated by the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). . The Board of Governors has developed specialized accounting principles and practices that it believes are appropriate for the significantly different nature and function of a central bank as compared with the private sector. These accounting principles and practices are documented in the Financial Accounting Manual for Federal Reserve Banks ("Financial Accounting Manual"), which is issued by the Board of Governors. All Reserve Banks are required to adopt and apply accounting policies and practices that are consistent with the Financial Accounting Manual. The financial statements have been prepared in accordance with the Financial Accounting Manual. Differences exist between the accounting principles and practices of the System and accounting principles generally accepted in the United States of America ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "). The primary difference is the presentation of all security holdings at amortized cost, rather than at the fair value presentation requirements of GAAP. In addition, the Bank has elected not to present a Statement of Cash Flows. The Statement of Cash Flows has not been included because the liquidity and cash position of the Bank are not of primary concern to the users of these financial statements. Other information regarding the Bank's activities is provided in, or may be derived from, the Statements of Condition, Income, and Changes in Capital. A Statement of Cash Flows, therefore, would not provide any additional useful information. There are no other significant differences between the policies outlined in the Financial Accounting Manual and GAAP. Each Reserve Bank provides services on behalf of the System for which costs are not shared. Major services provided on behalf of the System by the Bank, for which the costs were not redistributed re·dis·trib·ute tr.v. re·dis·trib·ut·ed, re·dis·trib·ut·ing, re·dis·trib·utes To distribute again in a different way; reallocate. Adj. 1. to the other Reserve Banks, include Federal Reserve Information Technology Projects, Retail Payments Office, Retail Check-Related Projects, Accounting-Related Projects, Customer Support Projects, National Information Center for Supervision and Regulation, Audit Services, and Special Check-Related Projects. The preparation of the financial statements in conformity with the Financial Accounting Manual requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts relating to the prior year have been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current-year presentation. Unique accounts and significant accounting policies are explained below. a. Gold Certificates The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize Monetize 1. To convert into money. 2. To convert from securities into currency that can be used to purchase goods and services. Notes: For example, you'll often hear Internet marketers talk about "monetizing website visitors. gold held by the U.S. Treasury. Payment for the gold certificates by the Reserve Banks is made by crediting equivalent amounts in dollars into the account established for the U.S. Treasury. These gold certificates held by the Reserve Banks are required to be backed by the gold of the U.S. Treasury. The U.S. Treasury may reacquire the gold certificates at any time and the Reserve Banks must deliver them to the U.S. Treasury. At such time, the U.S. Treasury's account is charged, and the Reserve Banks' gold certificate accounts are lowered. The value of gold for purposes of backing the gold certificates is set by law at $42 2/9 a fine troy ounce Noun 1. troy ounce - a unit of apothecary weight equal to 480 grains or one twelfth of a pound apothecaries' ounce, ounce troy unit - any of the unit of the troy system of weights . The Board of Governors allocates the gold certificates among Reserve Banks once a year based on average Federal Reserve notes outstanding in each District. b. Special Drawing Rights Certificates Special drawing rights ("SDRs") are issued by the International Monetary Fund ("Fund") to its members in proportion to each member's quota in the Fund at the time of issuance. SDRs serve as a supplement to international monetary reserves and may be transferred from one national monetary authority to another. Under the law providing for United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. participation in the SDR See software defined radio. system, the Secretary of the U.S. Treasury is authorized to issue SDR certificates, somewhat like gold certificates, to the Reserve Banks. At such time, equivalent amounts in dollars are credited to the account established for the U.S. Treasury, and the Reserve Banks' SDR certificate accounts are increased. The Reserve Banks are required to purchase SDR certificates, at the direction of the U.S. Treasury, for the purpose of financing SDR acquisitions or for financing exchange stabilization operations. At the time SDR transactions occur, the Board of Governors allocates SDR certificate transactions among Reserve Banks based upon Federal Reserve notes outstanding in each District at the end of the preceding year. There were no SDR transactions in 2004 or 2003. c. Loans to Depository Institutions The Depository Institutions Deregulation and Monetary Control Act Depository Institutions Deregulation and Monetary Control Act The 1980 federal legislation that ended the regulation of the banking industry. of 1980 provides that all depository institutions that maintain reservable transaction accounts or nonpersonal time deposits, as defined in Regulation D issued by the Board of Governors, have borrowing privileges at the discretion of the Reserve Bank. Borrowers execute certain lending agreements and deposit sufficient collateral before credit is extended. Loans are evaluated for collectibility, and currently all are considered collectible and fully collateralized. If loans were ever deemed to be uncollectible, an appropriate reserve would be established. Interest is accrued using the applicable discount rate established at least every fourteen days by the Board of Directors of the Reserve Bank, subject to review by the Board of Governors. d. U.S. Government and Federal Agency Securities and Investments Denominated in Foreign Currencies The FOMC has designated the FRBNY to execute open market transactions on its behalf and to hold the resulting securities in the portfolio known as the System Open Market Account ("SOMA"). In addition to authorizing and directing operations in the domestic securities market, the FOMC authorizes and directs the FRBNY to execute operations in foreign markets for major currencies in order to counter disorderly conditions in exchange markets or to meet other needs specified by the FOMC in carrying out the System's central bank responsibilities. Such authorizations are reviewed and approved annually by the FOMC. The FRBNY has sole authorization by the FOMC to lend U.S. government securities held in the SOMA to U.S. government securities dealers and to banks participating in U.S. government securities clearing arrangements on behalf of the System in order to facilitate the effective functioning of the domestic securities market. These securities-lending transactions are fully collateralized by other U.S. government securities. FOMC policy requires the FRBNY to take possession of collateral in excess of the market values of the securities loaned. The market values of the collateral and the securities loaned are monitored by the FRBNY on a daily basis, with additional collateral obtained as necessary. The securities lent are accounted for in the SOMA. F/X contracts are contractual agreements between two parties to exchange specified currencies, at a specified price, on a specified date. Spot foreign contracts normally settle two days after the trade date, whereas the settlement date on forward contracts is negotiated between the contracting parties but will extend beyond two days from the trade date. The FRBNY generally enters into spot contracts, with any forward contracts generally limited to the second leg of a swap/warehousing transaction. The FRBNY, on behalf of the Reserve Banks, maintains renewable, short-term F/X swap arrangements Swap arrangements Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign centeral banks as well as the Bank for International Settlements. Through a swap transactions, the Federal Reserve can, in effect, borrow foreign currency in order to purchase dollars with two authorized foreign central banks. The parties agree to exchange their currencies up to a pre-arranged maximum amount and for an agreed-upon period of time (up to twelve months), at an agreed-upon interest rate. These arrangements give the FOMC temporary access to foreign currencies it may need for intervention operations to support the dollar and give the partner foreign central bank temporary access to dollars it may need to support its own currency. Drawings under the F/X swap arrangements can be initiated by either the FRBNY or the partner foreign central bank and must be agreed to by the drawee A person or bank that is ordered by its depositor, a drawer, to withdraw money from an account to pay a designated sum to a person according to the terms of a check or a draft. Cross-references Commercial Paper. drawee n. . The F/X swaps are structured so that the party initiating the transaction (the drawer) bears the exchange rate risk upon maturity. The FRBNY will generally invest the foreign currency received under an F/X swap in interest-bearing instruments. Warehousing is an arrangement under which the FOMC agrees to exchange, at the request of the Treasury, U.S. dollars for foreign currencies held by the Treasury or ESF over a limited period of time. The purpose of the warehousing facility is to supplement the U.S. dollar resources of the Treasury and ESF for financing purchases of foreign currencies and related international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. . In connection with its foreign currency activities, the FRBNY, on behalf of the Reserve Banks, may enter into contracts that contain varying degrees of off-balance-sheet market risk because they represent contractual commitments involving future settlement and counterparty Counterparty The other participant, including intermediaries, in a swap or contract. credit risk. The FRBNY controls credit risk by obtaining credit approvals, establishing transaction limits, and performing daily monitoring procedures. While the application of current market prices to the securities currently held in the SOMA portfolio and investments denominated in foreign currencies may result in values substantially above or below their carrying values, these unrealized changes in value would have no direct effect on the quantity of reserves available to the banking system or on the prospects for future Reserve Bank earnings or capital. Both the domestic and foreign components of the SOMA portfolio from time to time involve transactions that may result in gains or losses when holdings are sold prior to maturity. Decisions regarding the securities and foreign currencies transactions, including their purchase and sale, are motivated by monetary policy objectives rather than profit. Accordingly, market values, earnings, and any gains or losses resulting from the sale of such currencies and securities are incidental Contingent upon or pertaining to something that is more important; that which is necessary, appertaining to, or depending upon another known as the principal. Under Workers' Compensation statutes, a risk is deemed incidental to employment when it is related to whatever a to the open market operations and do not motivate its activities or policy decisions. U.S. government securities and investments denominated in foreign currencies comprising the SOMA are recorded at cost, on a settlement-date basis, and adjusted for amortization of premiums or accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of discounts on a straight-line basis. Securities sold under agreements to repurchase are accounted for as secured borrowing transactions with the associated interest expense recognized over the life of the transaction. Such transactions are settled by FRBNY. Interest income is accrued on a straight-line basis. Income earned on securities lending Securities Lending When a brokerage lends securities owned by its clients to short sellers. Notes: This allows brokers to create additional revenue (commissions) on the short sale transaction. transactions is reported as a component of "Other income." Gains and losses resulting from sales of securities are determined by specific issues based on average cost. Foreign-currency-denominated assets are revalued daily at current foreign currency market exchange rates in order to report these assets in U.S. dollars. Realized and unrealized gains and losses on investments denominated in foreign currencies are reported as "Foreign currency gains, net." Activity related to U.S. government securities bought outright, securities sold under agreements to repurchase, securities loaned, investments denominated in foreign currency, excluding those held under an F/X swap arrangement, and deposit accounts of foreign central banks and governments above core balances are allocated to each Reserve Bank. U.S. government securities purchased under agreements to resell and unrealized gains and losses on the revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of foreign currency holdings under F/X swaps and warehousing arrangements are allocated to the FRBNY and not to other Reserve Banks. In 2003, additional interest income of $61 million, representing one day's interest on the SOMA portfolio, was accrued to reflect a change in interest accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. calculations, of which $4.1 million was allocated to the Bank. The effect of this change was not material; therefore, it was included in the 2003 interest income. e. Bank Premises, Equipment, and Software Bank premises and equipment are stated at cost less accumulated depreciation accumulated depreciation The total amount of depreciation that has been recorded for an asset since its date of acquisition. For example, a computer with a 5-year estimated life that was purchased for $2,000 would have accumulated depreciation of $800 [( . Depreciation is calculated on a straight-line basis over estimated useful lives of assets ranging from two to fifty years. Major alterations, renovations, and improvements are capitalized at cost as additions to the asset accounts and are amortized over the remaining useful life of the asset. Maintenance, repairs, and minor replacements are charged to operations in the year incurred. Costs incurred for software, either developed internally or acquired for internal use, during the application development stage are capitalized based on the cost of direct services and materials associated with designing, coding, installing, or testing software. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software applications, which range from two to five years. f. Interdistrict Settlement Account At the close of business each day, all Reserve Banks and branches assemble the payments due to or from other Reserve Banks and branches as a result of transactions involving accounts residing in other Districts that occurred during the day's operations. Such transactions may include funds settlement, check clearing and ACH operations, and allocations of shared expenses. The cumulative net amount due to or from other Reserve Banks is reported as the "Interdistrict settlement account." g. Federal Reserve Notes Federal Reserve notes are the circulating currency of the United States. These notes are issued through the various Federal Reserve agents (the Chairman of the Board of Directors of each Reserve Bank) to the Reserve Banks upon deposit with such agents of certain classes of collateral security COLLATERAL SECURITY, contracts. A separate obligation attached to another contract, to guaranty its performance. By this term is also meant the transfer of property or of other contracts to insure the performance of a principal engagement. , typically U.S. government securities. These notes are identified as issued to a specific Reserve Bank. The Federal Reserve Act provides that the collateral security tendered by the Reserve Bank to the Federal Reserve agent must be equal to the sum of the notes applied for by such Reserve Bank. Assets eligible to be pledged as collateral security include all Federal Reserve Bank assets. The collateral value is equal to the book value of the collateral tendered, with the exception of securities, whose collateral value is equal to the par value of the securities tendered. The par value of securities pledged for securities sold under agreements to repurchase is similarly deducted. The Board of Governors may, at any time, call upon a Reserve Bank for additional security to adequately collateralize collateralize To pledge an asset as security for a loan. A loan to a broker is collateralized by pledging securities. the Federal Reserve notes. To satisfy the obligation to provide sufficient collateral for outstanding Federal Reserve notes, the Reserve Banks have entered into an agreement that provides for certain assets of the Reserve Banks to be jointly pledged as collateral for the Federal Reserve notes of all Reserve Banks. In the event that this collateral is insufficient, the Federal Reserve Act provides that Federal Reserve notes become a first and paramount lien on all the assets of the Reserve Banks. Finally, as obligations of the United States, Federal Reserve notes are backed by the full faith and credit of the United States government. The "Federal Reserve notes outstanding, net" account represents the Bank's Federal Reserve notes outstanding reduced by its currency holdings of $17,376 million, and $18,415 million at December 31, 2004 and 2003, respectively. h. Capital Paid-In The Federal Reserve Act requires that each member bank subscribe to Verb 1. subscribe to - receive or obtain regularly; "We take the Times every day" subscribe, take buy, purchase - obtain by purchase; acquire by means of a financial transaction; "The family purchased a new car"; "The conglomerate acquired a new company"; the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. As a member bank's capital and surplus changes, its holdings of Reserve Bank stock must be adjusted. Member banks are state-chartered banks that apply and are approved for membership in the System and all national banks. Currently, only one-half of the subscription is paid-in and the remainder is subject to call. These shares are nonvoting with a par value of $100. They may not be transferred or hypothecated. By law, each member bank is entitled to receive an annual dividend of 6 percent on the paid-in capital Paid-in capital Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital stock and contributions of stockholders credited to accounts other than capital stock. stock. This cumulative dividend is paid semiannually. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it. The Financial Accounting Standards Board (FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ) has deferred the implementation date for SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" for the Bank. When applicable, the Bank will determine the impact and provide the appropriate disclosures. i. Surplus The Board of Governors requires Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31. This amount is intended to provide additional capital and reduce the possibility that the Reserve Banks would be required to call on member banks for additional capital. Pursuant to Section 16 of the Federal Reserve Act, Reserve Banks are required by the Board of Governors to transfer to the U.S. Treasury as interest on Federal Reserve notes excess earnings, after providing for the costs of operations, payment of dividends, and reservation of an amount necessary to equate e·quate v. e·quat·ed, e·quat·ing, e·quates v.tr. 1. To make equal or equivalent. 2. To reduce to a standard or an average; equalize. 3. surplus with capital paid-in. In the event of losses or an increase in capital paid-in, payments to the U.S. Treasury are suspended and earnings are retained until the surplus is equal to the capital paid-in. Weekly payments to the U.S. Treasury may vary significantly. In the event of a decrease in capital paid-in, the excess surplus, after equating capital paid-in and surplus at December 31, is distributed to the U.S. Treasury in the following year. This amount is reported as a component of "Payments to U.S. Treasury as interest on Federal Reserve notes." j. Income and Costs Related to Treasury Services Treasury services is a function of an investment bank which provides transaction, investment and information services for chief financial officers, treasurers. Treasury services concentrates and invests client money, and provides trade finance and logistics solutions as well as The Bank is required by the Federal Reserve Act to serve as fiscal agent and depository of the United States. By statute, the Department of the Treasury is permitted, but not required, to pay for these services. k. Taxes The Reserve Banks are exempt from federal, state, and local taxes, except for taxes on real property. The Bank's real property taxes were $3 million for each of the years ended December 31, 2004 and 2003, and are reported as a component of "Occupancy expense." l. Restructuring Charges In 2003, the System started the restructuring of several operations, primarily check, cash, and Treasury services. The restructuring included streamlining the management and support structures, reducing staff, decreasing the number of processing locations, and increasing processing capacity in the remaining locations. These restructuring activities continued in 2004. Footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 10 describes the restructuring and provides information about the Bank's costs and liabilities associated with employee separations and contract terminations. The costs associated with the write-down of certain Bank assets are discussed in footnote 6. Costs and liabilities associated with enhanced pension benefits for all Reserve Banks are recorded on the books of the FRBNY. 4. U.S. GOVERNMENT SECURITIES Securities bought outright are held in the SOMA at the FRBNY. An undivided interest undivided interest n. title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate. in SOMA activity and the related premiums, discounts, and income, with the exception of securities purchased under agreements to resell, is allocated to each Reserve Bank on a percentage basis derived from an annual settlement of interdistrict clearings that occurs in April of each year. The settlement equalizes Reserve Bank gold certificate holdings to Federal Reserve notes outstanding. The Bank's allocated share of SOMA balances was approximately 6.744 percent and 6.756 percent at December 31, 2004 and 2003, respectively. The Bank's allocated share of U.S. government securities, net held in the SOMA at December 31, was as follows (in millions):
2004 2003
Par value
U.S. government
Bills $17,734 $16,540
Notes 24,334 21,845
Bonds 6,340 6,652
Total par value 48,408 45,037
Unamortized premiums 634 662
Unaccreted discounts (111) (60)
Total allocated to Bank $48,931 $45,639
The total of the U.S. government securities, net held in the SOMA was $725,584 million and $675,569 million at December 31, 2004 and 2003, respectively. The maturity distribution of U.S. government securities bought outright and securities sold under agreements to repurchase that were allocated to the Bank at December 31, 2004, was as follows (in millions):
Securities Sold
U.S. Government under Agreements
Securities to Repurchase
Maturities of Securities Held (par value) (contract amount)
Within 15 days $2,067 $2,076
16 days to 90 days 12,028 --
91 days to 1 year 11,492 --
Over 1 year to 5 years 14,045 --
Over 5 years to 10 years 3,667 --
Over 10 years 5,109 --
Total $48,408 $2,076
At December 31, 2004 and 2003, U.S. government securities with par values of $6,609 million and $4,426 million, respectively, were loaned from the SOMA, of which $446 million and $299 million were allocated to the Bank. At December 31, 2004 and 2003, securities sold under agreements to repurchase with contract amounts of $30,783 million and $25,652 million, respectively, and par values of $30,808 million and $25,658 million, respectively, were outstanding. The Bank's allocated share at December 31, 2004 and 2003, was $2,076 million and $1,733 million, respectively, of the contract amount and $2,078 million and $1,733 million, respectively, of the par value. 5. INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits with foreign central banks and the Bank for International Settlements and invests in foreign government debt instruments. Foreign government debt instruments held include both securities bought outright and securities purchased under agreements to resell. These investments are guaranteed as to principal and interest by the foreign governments. Each Reserve Bank is allocated a share of foreign-currency-denominated assets, the related interest income, and realized and unrealized foreign currency gains and losses, with the exception of unrealized gains and losses on F/X swaps and warehousing transactions. This allocation is based on the ratio of each Reserve Bank's capital and surplus to aggregate capital and surplus at the preceding December 31. The Bank's allocated share of investments denominated in foreign currencies was approximately 5.528 percent and 5.671 percent at December 31, 2004 and 2003, respectively. The Bank's allocated share of investments denominated in foreign currencies, valued at current foreign currency market exchange rates at December 31, was as follows (in millions):
2004 2003
European Union Euro
Foreign currency deposits $335 $390
Securities purchased under agreements to resell 118 117
Government debt instruments 212 115
Japanese Yen
Foreign currency deposits 85 84
Government debt instruments 424 416
Accrued interest 7 5
Total $1,181 $1,127
Total System investments denominated in foreign currencies were $21,368 million and $19,868 million at December 31, 2004 and 2003, respectively. The maturity distribution of investments denominated in foreign currencies that were allocated to the Bank at December 31, 2004, was as follows (in millions): Maturities of Investments Denominated in Foreign Currencies European Euro Japanese Yen Total Within 1 year $496 $509 $1,005 Over 1 year to 5 years 166 -- 166 Over 5 years to 10 years 10 -- 10 Over 10 years -- -- -- Total $672 $509 $1,181 At December 31, 2004 and 2003, there were no material open foreign exchange contracts. At December 31, 2004 and 2003, the warehousing facility was $5,000 million, with no balance outstanding. 6. BANK PREMISES, EQUIPMENT, AND SOFTWARE A summary of bank premises and equipment at December 31 is as follows (in millions):
Maximum Useful
Life (in years) 2004 2003
Bank premises and equipment
Land N/A $41 $40
Buildings 50 245 241
Building machinery and equipment 20 37 36
Construction in progress N/A 1 2
Furniture and equipment 10 126 161
Subtotal $450 $480
Accumulated depreciation (117) (140)
Bank premises and equipment, net $333 $340
Depreciation expense for the years ended $18 $19
The Bank leases unused space to outside tenants. Those leases have terms ranging from one to ten years. Rental income from such leases was $582,000 and $647,000 for the years ended December 31, 2004 and 2003, respectively. Future minimum lease payments Rental payments over the lease term including the amount of any bargain purchase option, premium and any guaranteed residual value and excluding any rental relating to costs to be met by the lessor and any contingent rentals. under noncancelable agreements in existence at December 31, 2004, were (in thousands):
2005 $391
2006 214
2007 214
2008 145
2009 111
Thereafter 666
$1,741
The Bank has capitalized software assets, net of amortization, of $3 million for each of the years ended December 31, 2004 and 2003. Amortization expense was $3 million and $1 million for the years ended December 31, 2004 and 2003, respectively. Assets impaired as a result of the Bank's restructuring plan, as discussed in footnote 10, include software and equipment. Asset impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. losses of $287,000 and $91,000 for the periods ending December 31, 2004 and 2003, respectively, were determined using fair values based on quoted market values or other valuation techniques and are reported as a component of "Other expenses." 7. COMMITMENTS AND CONTINGENCIES At December 31, 2004, the Bank was obligated under noncancelable leases for premises and equipment with terms ranging from one to approximately five years. These leases provide for increased rental payments based upon increases in real estate taxes, operating costs, or selected price indices. Rental expense under operating leases for certain operating facilities, warehouses, and data processing data processing or information processing, operations (e.g., handling, merging, sorting, and computing) performed upon data in accordance with strictly defined procedures, such as recording and summarizing the financial transactions of a and office equipment (including taxes, insurance and maintenance when included in rent), net of sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. rentals, was $2 million for each of the years ended December 31, 2004 and 2003. Certain of the Bank's leases have options to renew. Future minimum rental payments under noncancelable operating leases, net of sublease rentals, with terms of one year or more, at December 31, 2004, were (in thousands):
Operating
2005 $566
2006 315
2007 315
2008 315
2009 293
Thereafter 0
$1,804
At December 31, 2004, the Bank, acting on behalf of the Reserve Banks, had contractual commitments extending through the year 2007 totaling $112 million. As of December 31, 2004, none of these commitments was recognized. Purchases of $28 million and $18 million were made against these commitments during 2004 and 2003, respectively. It is estimated that the Bank's allocated share of these commitments will be $66 million. These commitments represent air and ground transportation services for the Federal Reserve Check Transportation System, which serves all Reserve Banks. The payments for the next five years under these commitments are (in millions):
Commitment
2005 $28
2006 27
2007 11
2008 --
2009 --
Under the Insurance Agreement of the Federal Reserve Banks dated as of March 2, 1999, each of the Reserve Banks has agreed to bear, on a per incident basis, a pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. share of losses in excess of 1 percent of the capital paid-in of the claiming Reserve Bank, up to 50 percent of the total capital paid-in of all Reserve Banks. Losses are borne in the ratio that a Reserve Bank's capital paid-in bears to the total capital paid-in of all Reserve Banks at the beginning of the calendar year in which the loss is shared. No claims were outstanding under such agreement at December 31, 2004 or 2003. The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these actions, in management's opinion, based on discussions with counsel, the aforementioned litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and claims will be resolved without material adverse effect on the financial position or results of operations of the Bank. 8. RETIREMENT AND THRIFT PLANS Retirement Plans The Bank currently offers two defined benefit retirement plans to its employees, based on length of service and level of compensation. Substantially all of the Bank's employees participate in the Retirement Plan for Employees of the Federal Reserve System ("System Plan") and the Benefit Equalization In communications, techniques used to reduce distortion and compensate for signal loss (attenuation) over long distances. Retirement Plan ("BEP BEP Black Eyed Peas (band) BEP Brevet d’Études Professionnelles (French: vocational qualification) BEP Business Entry Point BEP Break-Even Point BEP Bit Error Probability BEP Bureau of Engraving & Printing "). In addition, certain Bank officers participate in the Supplemental Employee Retirement Plan ("SERP (1) (Search Engine Results Page) The page of results that a search engine returns. It includes links to pages that have been automatically discovered by crawlers, manually indexed by people or that are paid for by advertisers. See search engine. "). The System Plan is a multi-employer plan with contributions fully funded by participating employers. Participating employers are the Federal Reserve Banks, the Board of Governors of the Federal Reserve System, and the Office of Employee Benefits of the Federal Reserve Employee Benefits System. No separate accounting is maintained of assets contributed by the participating employers. The FRBNY acts as a sponsor of the Plan for the System and the costs associated with the Plan are not redistributed to the Bank. The Bank's projected benefit obligation and net pension costs for the BEP and the SERP at December 31, 2004 and 2003, and for the years then ended, are not material. Thrift Plan Thrift plan A defined contribution plan in which an employee contributes, usually on a before-tax basis, toward the ultimate benefits that will be provided. The employer usually agrees to match all or a portion of the employee's contributions. Employees of the Bank may also participate in the defined contribution Thrift Plan for Employees of the Federal Reserve System ("Thrift Plan"). The Bank's Thrift Plan contributions totaled $6 million for each of the years ended December 31, 2004 and 2003, and are reported as a component of "Salaries and other benefits." 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS Postretirement Benefits Other Than Pensions In addition to the Bank's retirement plans, employees who have met certain age and length-of-service requirements are eligible for both medical benefits and life insurance coverage during retirement. The Bank funds benefits payable under the medical and life insurance plans as due and, accordingly, has no plan assets. Net postretirement benefit costs are actuarially determined using a January 1 measurement date. Following is a reconciliation of beginning and ending balances of the benefit obligation (in millions):
2004 2003
Accumulated postretirement benefit obligation
at January 1 $91.7 $64.8
Service cost-benefits earned during the period 2.0 2.0
Interest cost of accumulated benefit obligation 5.0 4.7
Actuarial loss 1.3 22.2
Special termination loss -- 0.2
Contributions by plan participants 0.9 0.6
Benefits paid (3.8) (2.8)
Plan amendments (11.4) --
Accumulated postretirement benefit obligation
at December 31 $85.7 $91.7
At December 31, 2004 and 2003, the weighted average discount rate assumptions used in developing the benefit obligation were 5.75 percent and 6.25 percent, respectively. Following is a reconciliation of the beginning and ending balance of the plan assets, the unfunded postretirement benefit obligation, and the accrued postretirement benefit costs (in millions):
2004 2003
Fair value of plan assets at January 1 $-- $--
Actual return on plan assets -- --
Contributions by the employer 2.9 2.2
Contributions by plan participants 0.9 0.6
Benefits paid (3.8) (2.8)
Fair value of plan assets at December 31 $-- $--
Unfunded postretirement benefit obligation $85.7 $91.7
Unrecognized prior service cost 15.1 20.8
Unrecognized net actuarial loss (26.7) (26.3)
Accrued postretirement benefit costs $74.1 $86.2
Accrued postretirement benefit costs are reported as a component of "Accrued benefit costs." For measurement purposes, the assumed health care cost trend rates at December 31 are as follows:
2004 2003
Health care cost trend rate assumed for next year
(percent) 9.00 10.00
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate) (percent) 4.75 5.00
Year that the rate reaches the ultimate trend rate 2011 2011
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1 percentage point change in assumed health care cost trend rates would have the following effects for the year ended December 31, 2004 (in millions):
One Percentage One Percentage
Point Increase Point Decrease
Effect on aggregate of service and
interest cost components of net
periodic postretirement benefit
costs $1.4 $(1.0)
Effect on accumulated
postretirement benefit
obligation 11.8 (9.7)
The following is a summary of the components of net periodic postretirement benefit costs for the years ended December 31 (in millions):
2004 2003
Service cost-benefits earned during the period $2.1 $2.0
Interest cost of accumulated benefit obligation 5.0 4.7
Amortization of prior service cost (2.1) (2.0)
Recognized net actuarial loss 0.8 0.2
Total periodic expense $5.8 $4.9
Curtailment gain (15.0) --
Special termination loss -- 0.1
Net periodic postretirement benefit costs (9.2) $5.0
At December 31, 2004 and 2003, the weighted-average discount rate assumptions used to determine net periodic postretirement benefit costs were 6.25 percent and 6.75 percent, respectively. Net periodic postretirement benefit costs are reported as a component of "Salaries and other benefits." A plan amendment that modified the credited service period eligibility requirements created curtailment Curtailment The act of contracting or reducing operations of a company in the hope of bringing it financial or operational stability. This management technique is often used when a company has grown too fast and is unable to effectively manage its operations. gains. The recognition of special termination losses is primarily the result of enhanced retirement benefits provided to employees during the restructuring described in footnote 10. Because the special termination loss is less than $50,000, the amount is not displayed in the tables above. The Medicare Prescription Drug, Improvement, and Modernization Act The Medicare Prescription Drug, Improvement, and Modernization Act (Pub.L. 108-173, 117 Stat. 2066, also called Medicare Modernization Act or MMA) is a law of the United States which was enacted in 2003. of 2003 (the "Act") was enacted in December 2003. The Act established a prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, benefit under Medicare ("Medicare Part D") and a federal subsidy to sponsors of retiree health care benefit plans that provide benefits that are at least actuarially equivalent to Medicare Part D. Following the guidance of the Financial Accounting Standards Board, the Bank elected to defer recognition of the financial effects of the Act until further guidance was issued in May 2004. Benefits provided to certain participants are at least actuarially equivalent to Medicare Part D. The estimated effects of the subsidy, retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a to January 1, 2004, are reflected in actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin loss in the accumulated postretirement benefit obligation and net periodic postretirement benefit costs. Following is a summary of the effects of the expected subsidy:
2004
Decrease in the accumulated
postretirement benefit obligation $12.6
Decrease in the net periodic
postretirement benefit costs $1.8
Expected benefit payments
(in millions):
Without Subsidy With Subsidy
2005 $3 $3
2006 3 3
2007 4 3
2008 4 4
2009 4 4
2010-2014 25 23
Total $43 $40
Postemployment Benefits The Bank offers benefits to former or inactive employees. Postemployment benefit costs are actuarially determined using a December 31, 2004, measurement date and include the cost of medical and dental insurance Dental insurance is insurance designed to pay the costs associated with dental care. Dental insurance pays a portion of the bills from dentists, hospitals, and other providers of dental services. , survivor income, and disability benefits. For 2004, the Bank changed its practices for estimating postemployment costs and used a 5.25 percent discount rate and the same health care trend rates as were used for projecting postretirement costs. Costs for 2003, however, were projected using the same discount rate and health care trend rates as were used for projecting postretirement costs. The accrued postemployment benefit costs recognized by the Bank at December 31, 2004 and 2003, were $12 million and $11 million, respectively. This cost is included as a component of "Accrued benefit costs." Net periodic postemployment benefit costs included in 2004 and 2003 operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. were $3 million and $2 million, respectively. 10. BUSINESS RESTRUCTURING CHARGES In 2003, the Bank announced plans for restructuring to streamline operations and reduce costs, including consolidation of check operations and staff reductions in various functions of the Bank. In 2004, additional consolidation and restructuring initiatives were announced in the check operations. These actions resulted in the following business restructuring charges: Major categories of expense (in millions):
Total Accrued
Estimated Liability Total
Costs 12/31/03 Charges
Employee separation $13 $3 $7
Contract termination -- -- --
Other -- -- --
Total $13 $3 $7
Accrued
Total Liability
Paid 12/31/04
Employee separation $6 $4
Contract termination -- --
Other -- --
Total $6 $4
Employee separation costs are primarily severance costs related to identified staff reductions of approximately 345, including 160 staff reductions related to restructuring announced in 2003. These costs are reported as a component of "Salaries and other benefits." Restructuring costs associated with the write-downs of certain Bank assets, including software, buildings, leasehold improvements, furniture, and equipment are discussed in footnote 6. Costs associated with enhanced pension benefits for all Reserve Banks are recorded on the books of the FRBNY as discussed in footnote 8. Costs associated with enhanced postretirement benefits are disclosed in footnote 9. Future costs associated with the restructuring that are not estimable es·ti·ma·ble adj. 1. Possible to estimate: estimable assets; an estimable distance. 2. Deserving of esteem; admirable: an estimable young professor. and are not recognized as liabilities will be incurred in 2006. The Bank anticipates substantially completing its announced plans by March 2006. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion