Item 1: Business
General
BNP U.S. Funding L.L.C. (the "Company" or the "Registrant") is a Delaware limited liability company formed on October 14, 1997, for the purpose of acquiring and holding certain types of eligible securities that generate net income for distribution to the holders of its Series A Preferred Securities (as defined below) and its redeemable Common Securities (as defined below). The Company has no subsidiaries and is a wholly owned subsidiary of the New York Branch (the "Branch") of BNP PARIBAS (formerly, Banque Nationale de Paris), a societe anonyme or limited liability corporation organized under the laws of the Republic of France (the "Bank", "BNP PARIBAS" or "BNPP"). The Company was continued pursuant to the Amended and Restated Limited Liability Company Agreement of the Company (the "Company's Charter" or the "Charter") entered into on December 5, 1997, by the Branch.
The Company was initially capitalized on October 14, 1997, with the issuance to the Branch of one share of the Company's redeemable common securities, $10,000 par value (the "Common Securities"). On December 5, 1997 (inception), the Company commenced operations concurrent with the issuance of 50,000 noncumulative preferred securities, Series A, liquidation preference $10,000 per security (the "Series A Preferred Securities"), to qualified institutional buyers, and the issuance of an additional 53,010 Common Securities to the Branch. These issuances raised in the aggregate $1,030,115,873 of net capital (including $5,873 of additional paid-in capital). This entire amount was used to acquire a portfolio of debt securities (the "Initial Portfolio") at their fair values from the Branch. The Branch contributed additional paid-in capital of $7,500,000, $5,500,000 and $3,000,000, on December 3, 2003, June 3, 2003, and December 3, 2002, respectively.
The Company entered into a service agreement (the "Services Agreement") with the Branch on December 5, 1997, pursuant to which the Branch maintains the securities portfolio of the Company (the "Portfolio") and performs other administrative functions. All of the Company's officers and employees are officers or employees of the Branch or the Bank or their affiliates. The securities in the Portfolio are held by Citibank N.A., acting as trustee (the "Trustee") under the trust agreement between the Company and Citibank N.A. dated December 1, 1997 (the "Trust Agreement").
The accounting and financial reporting policies of the Company conform to U.S. generally accepted accounting principles and current industry practices. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts and disclosures and may vary from actual results.
General Description of the Portfolio
Types of Eligible Securities
Pursuant to its Charter and resolutions adopted by its Board of Directors, the Company may invest only in specified types of securities ("Eligible Securities"). Eligible Securities currently consist of (i) mortgage pass-through securities issued or guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") that represent fractional undivided interests in pools of the relevant mortgage loans ("Agency Securities"); (ii) REMIC securities that are issued or guaranteed by GNMA, FHLMC or FNMA and that represent beneficial ownership interests in trusts established by GNMA, FHLMC or FNMA, the assets of which consist directly or indirectly of Agency Securities or other, previously issued REMIC securities of this type ("REMIC Agency Securities"); (iii) REMIC securities that are issued by an unrelated private company and secured directly or indirectly by Agency Securities and rated AAA by Standard & Poor's as to creditworthiness, that represent beneficial ownership interests in a trust established by such private company, the assets of which consist directly or indirectly of Agency Securities, REMIC Agency Securities, or other previously issued REMIC securities of this type ("Agency Collateralized Securities"); (iv) unsecured, current pay, direct debt obligations of FNMA and FHLMC ("Agency Debentures"); (v) U.S. Treasury securities with a maturity of up to ten years ("Treasuries"); and (vi) specified short-term investments not subject to U.S. withholding tax ("Short-Term Instruments" and, collectively with the securities included in (i)-(v) above, the "Eligible Securities"). Categories (i) through (iii) above are referred to herein as "Mortgage-Backed Securities". REMIC Agency Securities include GNMA REMIC Securities, FHLMC REMIC Securities and FNMA REMIC Securities. The trusts set up in connection with REMIC Agency Securities and Agency Collateralized Securities may have elected to be treated as real estate mortgage investment conduits ("REMICs") for federal income tax purposes.
The types of Agency Securities in the Portfolio are (i) securities backed only by mortgages with adjustable rates that reset annually at a given rate plus a net margin ("Agency ARMs"); (ii) securities backed by mortgages with a fixed rate for a specified period of time, after which they reset annually at a given rate plus a net margin ("Agency Hybrid ARMs"); (iii) unsubordinated debentures which bear interest at a fixed rate and are not redeemable by the issuer prior to maturity ("Agency Debentures"); and (iv) securities backed by fixed rate loans on multifamily properties ("Agency DUSs"). Set forth below is a description, as of December 31, 2003, of the Portfolio. As of December 31, 2003, the Eligible Securities included in the Portfolio had an aggregate amortized cost of $1,002,108 and an estimated fair value of $1,119,769,704. The composition of the Portfolio, stated in terms of amortized cost, is presented in the following table:
Description of Types of Securities
Floating-Rate REMICs
Floating-Rate REMICs are backed by Agency Securities where a particular portion of the cash flows are directed to the Floating-Rate REMICs. FNMA, FHLMC, and GNMA all guarantee the full and timely payment of principal and interest on the pools of mortgages, which flow through to the REMICs. These REMICs are floating-rate securities whose interest rates reset monthly at the then-current rate of one-month LIBOR plus a margin. The interest ratio is subject to a lifetime cap and floor. The interest cap, floor, and margin all vary by security. The amortized cost of securities (in thousands):
(1) Morgan Stanley Mortgage Trust 41 was established as of December 1, 1991 by Morgan Stanley Capital I Inc.
Fixed-Rate REMICs
Fixed-Rate REMICs are backed by Agency Securities where a particular portion of the cash flows is directed to the Fixed-Rate REMICs. FNMA, GNMA and FHLMC all guarantee the full and timely payment of principal and interest on the pools of mortgages, which flow through to the Fixed-Rate REMICs. The amortized cost of securities (in thousands):
Agency ARMs
The Agency ARMs in the Adjustable Rate Mortgage ("ARM") pools consist of securities having the timely payment of principal and interest generally guaranteed by GNMA, FNMA and FHLMC. The securities consist of pools of adjustable rate mortgages, whose interest rates reset annually at a rate equal to the then-current rate of the One-Year Constant Maturity Treasury Index (as defined below) plus a net margin. The interest ratio for each ARM pool is subject to a periodic cap and a lifetime cap, which vary by agency and pool.
The One-Year Constant Maturity Treasury Index ("CMT") is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year as published by the Federal Reserve Board in Statistical Release H. 15(519) or any similar publication or, if not so published, as reported by any Federal Reserve Bank or by any U.S. Government department or agency. The Three-Year Constant Maturity Treasury Index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years as published in a similar manner as The One-Year Constant Maturity Treasury Index. The amortized cost of securities (in thousands):
(1)"FN"= FNMA; "G"= GNMA; and "FH"= FHLMC
Agency Hybrid ARMs
The Agency Hybrid ARMs consist of securities having the timely payment of principal and interest guaranteed by FNMA and FHLMC. The securities consist of mortgages that have a fixed interest rate for a specified period of time, after which the interest rate resets annually at a rate equal to the then-current rate of the One-Year Constant Maturity Treasury Index (as defined above) plus a security net margin, except that pools underlying the Fannie Mae 422268 have a coupon that resets every three years at a rate equal to the then-current rate of the Three-Year Constant Maturity Treasury Index (as defined above) plus a security net margin. The interest rate of each ARM pool is subject to a periodic cap and a lifetime cap which vary by pool. The amortized cost of securities (in thousands):
(1) "FN"= FNMA; and "FH"= FHLMC
Agency DUSs
Pursuant to a Board of Directors resolution of November 4, 1998, the Company may invest in Agency DUSs. A Delegated Underwriting and Servicing (DUS) pool is 100% guaranteed by FNMA and backed by loans on multifamily properties. These are fixed-rate loans ranging in size from $1 million to $70 million. FNMA guarantees timely payment of interest and principal, including any balloon payments. Consequently, there is no risk of a loss of principal. Loans include yield maintenance provisions that permit the borrower to prepay his mortgage but only with a penalty that is sufficient to compensate the investor for early prepayment. Any yield maintenance collected is passed through to the investor. The amortized cost of securities (in thousands):
Agency Debentures
Pursuant to a Board of Directors resolution of November 4, 1998, the Company may invest in Agency Debentures. The Agency Debentures consist of conventional debt securities issued periodically directly by either FNMA or FHLMC. Such Agency Debentures are not secured by any collateral and represent general unsecured obligations of FNMA or FHLMC. The Company is permitted to purchase only unsubordinated debentures which pay interest on a current basis. The Agency Debentures purchased by the Company bear interest at a fixed rate and are not redeemable by the issuer prior to maturity. The amortized cost of securities (in thousands):
December 31, 2003 ----------------- Security Current Weighted Average Maturity Description Coupon Life (Years) Date Amortized Cost ----------- ------ ------------ ---- -------------- FHLMC 3134A2DT2 5.75% 3.71 4-15-2008 $ 24,660 FNMA 31359MCY7 2.13 3.60 10-9-2007 129,400 FNMA 31359MDR1 1.75 4.05 3-26-2008 60,496 FNMA 31359MDU4 6.00 3.77 5-15-2008 46,379 FNMA 31359C5BO 6.44 3.20 8-14-2007 23,937 FNMA 31359C6C7 6.48 3.24 8-27-2007 7,497 FNMA 31359CU55 6.70 3.04 6-19-2007 12,185 FNMA 31359CYE2 6.68 2.84 3-5-2007 50,000 FNMA 31359MGH0 6.63 3.26 10-15-2007 52,629 FNMA 31359CYX0 6.80 2.86 3-14-2007 50,000 FNMA 31359C5Q7 6.55 3.21 8-20-2007 19,042 FNMA 31359MPZ0 3.25 3.56 11-15-2007 20,031 FHLMC 3134A4NW0 4.88 2.94 3-15-2007 9,974 -------- Tota Agency Debentures $506,230 ========
Item 2:
Item 2: Properties
The Company does not own or lease any property. It uses the facilities of the Branch located at 787 Seventh Avenue, New York, New York 10019.
Item 3:
Item 3: Legal Proceedings
None.
Item 4:
Item 4: Submission of Matters to a Vote of Securityholders
None.
Item 5:
Item 5: Market for Registrant's Common Equity and Related Securityholder Matters
Market Information
There is no established public trading market for the Company's Common Securities, all of which are held by the Branch. The Bank has agreed with the Company that, so long as any Series A Preferred Securities are outstanding, it will maintain direct or indirect ownership of 100% of the outstanding Common Securities.
Dividends Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company's Board of Directors, out of net gains from the disposition of securities in the Portfolio and net income not required to be applied to fund dividends with respect to the Series A Preferred Securities. During 2003 the Company did not declare or pay any dividends with respect to Common Securities.
Item 6:
Item 6: Selected Financial Data
The following table sets forth selected financial data for the years then ended (in thousands, except share and yield data):
Item 7:
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion pertains to the years ended December 31, 2003, and December 31, 2002 (the "2003 Period" and the "2002 Period").
General
The Company was formed on October 14, 1997, and commenced operations on December 5, 1997, by the sale to qualified institutional buyers of 50,000 Series A Preferred Securities and the sale to the Branch of 53,010 Common Securities. Together, such sales raised net capital of $1,030,115,873, which the Company used to purchase the Initial Portfolio from the Branch. The Branch has contributed $7,500,000, $5,500,000 and $3,000,000 of additional paid-in capital on December 3, 2003, June 3, 2003 and December 3, 2002, respectively.
All of the Company's officers and employees and all but one of the members of the Company's Board of Directors are officers and employees of the Branch or BNP Paribas or their affiliates.
The Company's sole business is to acquire, hold and manage debt instruments, largely consisting of mortgage obligations, in the Portfolio, which generate net income for distribution to securityholders. The Company's major source of income is interest generated by the securities in the Portfolio.
Results of Operations
For the 2003 Period and 2002 Period, the Company had revenues of $26,219,327 and $34,548,021, respectively. These amounts consisted of interest income on the investment securities, the unrealized gain/loss on hedged securities and derivatives used as hedging instruments, and interest on deposits.
For the 2003 Period and 2002 Period, interest on the securities in the Portfolio amounted to $48,647,380 and $48,742,745 respectively, representing an aggregate yield of 6.03% and 6.02%, respectively. Interest earned and average yield with respect to each category of security in the Portfolio was as follows (yield based on average amortized cost):
2003 2002 ------------------------- ------------------------- Floating-Rate REMICs..... $ 363,945 2.02% $ 965,385 2.73% Fixed-Rate REMICs........ $ 1,506,191 6.61% $ 3,462,521 6.18% Agency ARMs.............. $ 702,677 4.07% $ 1,989,080 5.87% Agency Hybrid ARMs....... $ 1,220,873 4.35% $ 2,568,276 5.04% Agency DUS............... $ 25,913,738 6.41% $ 18,321,849 6.24% Agency Debentures........ $ 18,939,956 5.98% $ 21,435,634 6.31%
The yield on Agency Debentures is based on U.S. dollar denominated securities which excludes the Japanese Yen denominated securities.
During the 2003 Period, the yields on the Agency DUSs, Agency Debentures and Fixed-Rate REMICs were approximately 1.34%, 3.40% and 4.19%, respectively, when taking into account the income from the derivative products used to hedge these securities. During the 2002 Period, the yields on the Agency DUSs, Agency Debentures and Fixed-Rate REMICS were approximately 1.84%, 3.93%, and 5.65%, respectively, when taking into account the income from the derivative products used to hedge these securities.
The average amortized cost of the Portfolio during the 2003 Period and the 2002 Period was $996,713,866 and $993,381,314 respectively. This reflects the following prepayments and reinvestments:
PREPAYMENTS 2003 2002 - ------------ ------------ ------------ Floating-Rate REMICs.................. $ 13,857,026 $ 26,744,870 Fixed-Rate REMICs..................... $ 36,011,701 $ 11,464,773 Agency ARMs........................... $ 13,080,189 $ 21,818,440 Agency Hybrid ARMs.................... $ 15,560,694 $ 33,963,351 Agency DUS............................ $ 17,763,221 $ 3,652,294 Agency Debentures..................... $ --- $ ---
REINVESTMENTS 2003 2002 - ------------- ------------ ------------ Floating-Rate REMICs.................. $ --- $ --- Fixed-Rate REMICs..................... $ --- $ 10,000,000 Agency ARMs........................... $ --- $ --- Agency Hybrid ARMs.................... $ --- $ --- Agency DUS............................ $ 92,159,666 $ 58,069,532 Agency Debentures..................... $ 20,038,400 $ 9,960,584
The Company also recorded interest income from short-term investments for the 2003 Period and 2002 Period of $309,122 and $615,341, respectively. These amounts are attributable to the interest earned on (i) interest payments on securities in the Portfolio, (ii) prepayments of principal pending their reinvestment and (iii) short-term investments classified as cash equivalents.
As of December 31, 2003 and 2002, as calculated by aggregate amortized cost, approximately 49.48% and 50.70%, respectively, of the Portfolio consisted of collateralized mortgage obligations (Floating-Rate REMICs and Fixed-Rate REMICs) and mortgage backed securities (Agency ARMs, Agency Hybrid ARMs and Agency DUSs), and approximately 50.52% and 49.30%, respectively, consisted of Agency Debentures. As of December 31, 2003 and 2002, floating rate securities accounted for approximately 4.56% and 8.99%, respectively, of the Portfolio's collateralized mortgage obligations and mortgage backed securities. In addition, a significant portion of the Agency Debentures and the Agency DUSs are hedged so that in all but one case, the fixed interest rates received on the bonds are converted into prevailing floating rates.
The aggregate market value of the securities in the Portfolio as of December 31, 2003 and 2002 was higher than the amortized cost by approximately 11.74% and 11.47%, respectively, due to a net decrease in interest rates from the time of their original purchase. For the hedged securities, changes in the fair market value of both the securities and the derivatives used as hedging instruments (cross currency and interest rate swaps) are reported in current earnings in the Statements of Income, pursuant to application of SFAS 133 (Note 2). Unrealized gains and losses on the non-hedged securities are reported as a component of Other Comprehensive Income.
Operating expenses for the 2003 Period and 2002 Period totaled $1,432,696 and $1,406,521, respectively. Operating expenses consisted largely of fees paid to the Branch under the Services Agreement, fees to Citibank as Trustee, consulting fees and audit fees. Expenses incurred under the Services Agreement for the 2003 Period and 2002 Period totaled $961,073 and $1,109,960, respectively.
The Company's net income for the 2003 Period and 2002 Period was $22,759,655 and $32,893,445, respectively. As of December 31, 2003, the Company has declared and paid dividends as follows:
Security Amount Date Paid - -------- ------ ---------
Series A Preferred $19,345,000 December 5, 2003 Series A Preferred $19,345,000 June 5, 2003 Series A Preferred $19,345,000 December 5, 2002 Series A Preferred $19,345,000 June 5, 2002
Investment Income
The interest income on the investment securities includes interest income on the remaining securities in the Initial Portfolio, which are considered to be collateral held by the Company and which are no longer recognized on the balance sheet pursuant to new guidance in Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS 125", which modified SFAS 125 in this respect, as explained in Note 3 to the financial statements. The receivable for the consideration paid to the Branch for the Initial Portfolio is recognized on the balance sheet and is an asset of similar size as the remaining securities in the Initial Portfolio. The balance sheet presentation results from compliance with SFAS 140 but does not reflect the economic substance of the transaction, as further explained in the section on the application of SFAS 125, as replaced by SFAS 140, below. For all economic intent and purposes, the securities in the Initial Portfolio are owned by the Company and managed as any other investment security, with related revenues belonging to the Company and recorded as such in the income statements.
Receivable Arising from Payment for Securities
Due to the potential consequences of a Shift Event (as defined in Item 1 Note 2 herein), the Company's purchase of the Initial Portfolio (as defined in Item 1 herein) from the Branch did not meet certain SFAS 125, as replaced by SFAS 140, sale accounting requirements. Accordingly, the Company recorded at December 5, 1997 a receivable for the consideration paid to the Branch for the Initial Portfolio treated as collateral. As a legal and economic matter, however, there is no such receivable since (a) neither the Bank nor the Branch has any obligation to repay any part of the purchase price for the Initial Portfolio or to repurchase or redeem any of the securities included therein, and (b) the Company has no obligation to return any of such securities to the Bank or the Branch (except in the limited circumstances and to the extent that the occurrence of a Shift Event under the Charter would require the transfer of any assets held by the Company at the time). As the securities in the Initial Portfolio are paid, the receivable will be deemed to be realized by an amount corresponding to the amount of the payments received. At December 31, 2003 and 2002, the receivable arising from payment for securities amounted to $30,662 ,719 and $85,660,254, respectively. The decrease in the amount of such receivable between the two dates reflects the prepayment of securities in the Initial Portfolio. The Company recognized the cash proceeds of such prepayments as a reduction in the receivable. Such decreases in the receivable did not affect the Company's results of operations or cash flow. Disclosures required under SFAS 125, as replaced by SFAS 140, are included in Note 3.
Liquidity and Capital Resources
The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all of the Company's financial commitments. The Company's sole liquidity needs are to acquire reinvestment securities as original securities repay or prepay and to pay dividends on the Series A Preferred Securities. The acquisition of reinvestment securities is funded with the proceeds of principal repayments or prepayments on original securities, and the payments of dividends on the Series A Preferred Securities are funded through interest income from the securities in the Portfolio. The low interest rate environment has adversely affected the Company's income. The Company has not declared dividends on the Common Securities since June 2001 in order to retain earnings available for the payment of dividends to the holders of the Series A Preferred Securities. Dividends to the Preferred Securityholders may be paid out of (i) net income, determined without regard to capital gains or losses, or (ii) amounts contributed by the Bank or the Branch to the Company's capital. In the continued low interest rate environment in 2003, the Branch contributed $13,000,000 of additional paid-in capital, which was used to facilitate the semi-annual payments of dividends to the holders of the Series A Preferred Securities.
Based on 2004 projected earnings, the Company may require an additional cash contribution from the Branch to ensure payment of preferred dividends. The Company cannot make any assurances that further decreases in interest rates or a sustained low interest rate environment will not have a further adverse effect on the Company's income.
BNP PARIBAS Group's total and Tier 1 risk-based capital ratios at December 31, 2003 were 12.9% and 9.4%, and at December 31, 2002 were 10.9% and 8.1%, which are well above the minimum standards required by French banking regulations, currently 8% for total risk-based capital and 4% for Tier 1 risk-based capital. A "Shift Event" would occur if BNP PARIBAS' risk-based capital fell below these minimum standards of 8% and 4%, respectively. See Note 2 of the attached financial statements for a detailed explanation of "Shift Events".
Critical Accounting Policies
Management believes its critical accounting policies relate to recognition and valuation of financial instruments, as further defined in Item 8, Note 2.
Accounting and Reporting Developments
In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150 ("SFAS No. 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". The statement requires that an issuer classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. Otherwise, it is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will have no impact on the Company's unaudited Balance Sheet or Statement of Income.
In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the unaudited statement of cash flows. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We do not anticipate SFAS 149 having a material impact on our unaudited Balance Sheet or Statement of Income.
SFAS 133 requires that an entity measure all derivatives at fair value and recognize those derivatives as either assets or liabilities on the balance sheet. The change in the derivative's fair value is generally to be recognized in current period earnings. However, if certain conditions are met, a derivative may be specifically designated as a hedge of an exposure to changes in fair value, variability of cash flows, or certain foreign currency exposures.
The Company has made an assessment of all its financial instruments and concluded that it holds freestanding derivative instruments but no embedded derivative instruments at December 31, 2003. As part of its asset management activities the Company uses foreign exchange and interest rate swaps to modify the interest rate and foreign exchange characteristics of existing assets. The interest rate swaps have a high correlation between the instrument and the asset being hedged, both at inception and throughout the hedge period.
All of the Company's outstanding hedging transactions are fair value hedges. For the years ended December 31, 2003 and 2002, the Company recognized gain of $534,474 and $1,225,111, respectively, in earnings related to the ineffective portion of fair value hedges. The fair value of these hedging instruments was $(94,253,884) and $(86,023,329) at December 31, 2003 and 2002, respectively, and has been recorded in "Other liabilities". It has been offset, except for the ineffective portion of the hedge, by the revaluation of the respective hedged investment securities. The fair value of the hedging instruments does not include accrued interest receivable and payable, which are shown separately on the balance sheet.
For a further discussion on derivative instruments and hedging activities, see Note 8 to the financial statements.
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company's principal market risk exposure is to changes in interest rates. This exposure arises from its investments in collateralized mortgage obligations, mortgage-backed securities, agency debentures, agency DUSs and certain derivative instruments used by the Company to modify interest rate exposure.
The outstanding principal amount and estimated fair value as of December 31, 2003, by each category of investment, is depicted in Item 8.
Item 8: Financial Statements and Supplementary Data
Report of Independent Accountants ---------------------------------
To the Board of Directors and Securityholders of BNP U.S. Funding L.L.C.
In our opinion, the accompanying balance sheets and the related statements of income, of comprehensive income, of changes in redeemable common securities, preferred securities and securityholders' equity and of cash flows present fairly, in all material respects, the financial position of BNP U.S. Funding L.L.C. (the "Company") at December 31, 2003, and December 31, 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As more fully described in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities, as amended, on January 1, 2001.
PricewaterhouseCoopers LLP New York, New York March 31, 2003
/s/ PricewaterhouseCoopers LLP
PART II
Item 8.
FINANCIAL STATEMENTS
BNP U.S. FUNDING L.L.C. BALANCE SHEETS (in thousands, except per share data)
The accompanying Notes to Financial Statements are an integral part of these statements.
BNP U.S. FUNDING L.L.C.
STATEMENTS OF INCOME (in thousands, except per share data)
The accompanying Notes to Financial Statements are an integral part of these statements.
BNP U.S. FUNDING L.L.C.
STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
The accompanying Notes to Financial Statements are an integral part of these statements.
BNP U.S. FUNDING L.L.C. STATEMENT OF CHANGES IN REDEEMBALE COMMON SECURITIES
The accompanying Notes to Financial Statements are an integral part of these statements.
BNP U.S. FUNDING L.L.C.
STATEMENTS OF CASH FLOWS (in thousands)
The accompanying Notes to Financial Statements are an integral part of these statements.
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
BNP U.S. Funding L.L.C. (the "Company" or the "Registrant") is a Delaware limited liability company formed on October 14, 1997, for the purpose of acquiring and holding certain types of eligible securities that generate net income for distribution to the holders of its Series A Preferred Securities (as defined below) and its redeemable Common Securities (as defined below). The Company has no subsidiaries and is a wholly owned subsidiary of the New York Branch (the "Branch") of BNP PARIBAS (formerly, Banque Nationale de Paris), a societe anonyme or limited liability corporation organized under the laws of the Republic of France (the "Bank", "BNP PARIBAS" or "BNPP"). The Company was continued pursuant to the Amended and Restated Limited Liability Company Agreement of the Company (the "Company's Charter" or the "Charter") entered into on December 5, 1997, by the Branch.
The Company was initially capitalized on October 14, 1997, with the issuance to the Branch of one share of the Company's redeemable common securities, $10,000 par value (the "Common Securities"). On December 5, 1997 (inception), the Company commenced operations concurrent with the issuance of 50,000 noncumulative preferred securities, Series A, liquidation preference $10,000 per security (the "Series A Preferred Securities"), to qualified institutional buyers, and the issuance of an additional 53,010 Common Securities to the Branch. These issuances raised in the aggregate $1,030,115,873 of net capital (including $5,873 of additional paid-in capital). This entire amount was used to acquire a portfolio of debt securities (the "Initial Portfolio") at their fair values from the Branch. The Branch contributed additional paid-in capital of $3,000,000, $5,500,000, and $7,500,000 on December 3, 2002, June 3, 2003, and December 3, 2003, respectively.
The Company entered into a services agreement (the "Services Agreement") with the Branch on December 5, 1997, pursuant to which the Branch maintains the securities portfolio of the Company (the "Portfolio") and performs other administrative functions. All of the Company's officers and employees are officers or employees of the Branch or the Bank or their affiliates. The securities in the Portfolio are held by Citibank N.A., acting as trustee (the "Trustee") under the trust agreement between the Company and Citibank N.A. dated December 1, 1997 (the "Trust Agreement").
The accounting and financial reporting policies of the Company conform to U.S. generally accepted accounting principles and current industry practices. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts and disclosures and may vary from actual results.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT SECURITIES
Investments in debt securities are classified as available-for-sale and are carried at fair value. The debt securities can be categorized as hedged or non-hedged securities. For the hedged securities, changes in the fair market value of both the securities and the derivatives used as hedging instruments (cross currency and interest rate swaps) are reported in current earnings in the Statements of Income, pursuant to application of SFAS 133, (see below, "Accounting for Derivatives and Hedging Activities"). Unrealized gains and losses on the non-hedged securities are reported as a component of "Other Comprehensive Income".
Interest on securities is included in interest income and is recognized using the interest method. Premiums and discounts are amortized in a manner that approximates the constant yield method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term deposits with original maturities of three months or less.
DIVIDENDS
Dividends on the Series A Preferred Securities, when, as and if declared by the Company's Board of Directors, are payable semi-annually in arrears on a non-cumulative basis on the fifth day of June and December of each year, commencing June 5, 1998, at a rate per annum of 7.738% of the liquidation preference through and including December 5, 2007. Thereafter, dividends, when, as and if declared by the Company's Board of Directors, will be payable quarterly in arrears on the third Wednesday of March, June, September, and December of each year and will be calculated on a weekly basis in each quarter at a rate per annum of the liquidation preference equal to 2.8% per annum above one-week LIBOR for the week concerned as determined on the related LIBOR Determination Date. Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company's Board of Directors out of the Company's net income not required to be applied to fund dividends with respect to the Series A Preferred Securities.
To date, the Company has declared and paid dividends as follows:
Security Amount Date Paid - ----------------------------- ------------ ----------------- Series A Preferred Securities $ 19,345,000 June 5, 1998 Common Securities $ 5,347,365 June 22, 1998 Series A Preferred Securities $ 19,345,000 December 5, 1998 Common Securities $ 8,787,127 December 15, 1998 Series A Preferred Securities $ 19,345,000 June 5, 1999 Common Securities $ 8,454,284 June 15, 1999 Series A Preferred Securities $ 19,345,000 December 5, 1999 Common Securities $ 10,352,672 December 15, 1999 Series A Preferred Securities $ 19,345,000 June 5, 2000 Common Securities $ 12,508,486 June 19, 2000 Series A Preferred Securities $ 19,345,000 December 5, 2000 Common Securities $ 14,792,297 December 19, 2000 Series A Preferred Securities $ 19,345,000 June 5, 2001 Common Securities $ 10,718,708 June 19, 2001 Series A Preferred Securities $ 19,345,000 December 5, 2001 Series A Preferred Securities $ 19,345,000 June 5, 2002 Series A Preferred Securities $ 19,345,000 December 5, 2002 Series A Preferred Securities $ 19,345,000 June 5, 2003 Series A Preferred Securities $ 19,345,000 December 05, 2003
If the Bank's financial condition were to deteriorate with the consequence that a Shift Event (as defined below) were to occur, substantially all of the Common Securities would be redeemed automatically without prior redemption of the Series A Preferred Securities and dividends payable on each Series A Preferred Security could be substantially reduced or completely eliminated. In addition, if the Bank's Tier 1 risk-based capital ratio were to decline below the minimum percentage required by French banking regulations (currently 4%), the Company would pay a special dividend consisting of all of the Company's net assets (other than assets having a total market value of approximately $40,000,000) to the Bank as holder of the Common Securities.
A "Shift Event" would be deemed to have occurred if (i) the Bank's total risk-based capital ratio or Tier 1 risk-based capital ratio were to decline below the minimum percentages required by French banking regulations, (ii) the Bank were to become subject to certain specified receivership proceedings or (iii) the French Banking Commission (Commission bancaire), in its sole discretion, were to notify the Bank and the Company that it has determined that the Bank's financial condition was deteriorating such that either of the foregoing clauses (i) or (ii) would apply in the near term. French banking regulations currently require French banks to maintain a minimum total risk-based capital ratio of at least 8.0% and a minimum Tier 1 risk-based capital ratio of at least 4.0%.
The Company may not pay dividends or make other distributions on the Common Securities or the Series A Preferred Securities if, after giving effect to the distributions, the Company's liabilities would exceed the fair value of its assets. Additionally, as long as any Series A Preferred Securities are outstanding, except during a Shift Period (i.e., following the occurrence of a Shift Event causing a shift in dividend preference and before the termination thereof), the amount of dividends on the Common Securities in any fiscal year may not exceed the amount by which the net income of the Company for such fiscal year exceeds the stated dividends on the Series A Preferred Securities scheduled to be paid during such fiscal year irrespective of whether dividends on the Series A Preferred Securities are in fact declared and paid. Additionally, other than during a Shift Period, no dividends may be declared, paid or set apart for payment on the Common Securities (a) with respect to any period of time included in any Dividend Period unless full dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Securities for the then-current Dividend Period and (b) the Company may not declare, pay or set apart funds for any dividends or other distributions with respect to any Common Securities unless and until (x) full dividends on the Series A Preferred Securities for the two most recent preceding Dividend Periods are declared and paid, or declared and a sum sufficient for payment has been paid over to the dividend disbursing agent for payment of such dividends and (y) the Company has declared a cash dividend on the Series A Preferred Securities at the annual dividend rate for the then-current Dividend Period, and sufficient funds have been paid over to the dividend disbursing agent for payment of such cash dividends for such then-current Dividend Period.
NET INCOME PER REDEEMABLE COMMON SECURITY
Net income per redeemable common security is calculated by dividing net income after preferred dividends by the weighted average number of Common Securities outstanding.
INCOME TAXES
The Company expects to be treated as a partnership for U.S. federal income tax purposes. As a partnership is not a taxable entity, the Company will not be subject to U.S. federal, state and local income tax on its income. Instead, each securityholder is required to take into account its allocable share of items of income, gain, loss and deduction of the partnership in computing its U.S. federal tax liability. Accordingly, the Company has made no provision for income taxes in the accompanying statements of income.
ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", requires that an entity measure all derivatives at fair value and recognize those derivatives as either assets or liabilities on the balance sheet. The change in the derivative's fair value is generally to be recognized in current period earnings. However, if certain conditions are met, a derivative may be specifically designated as a hedge of an exposure to changes in fair value, variability of cash flows, or certain foreign currency exposures.
The Company has made an assessment of all its financial instruments and concluded that it holds freestanding derivative instruments but no embedded derivative instruments at December 31, 2003. As part of its asset management activities the Company uses foreign exchange and interest rate swaps to modify the interest rate and foreign exchange characteristics of existing assets. The interest rate swaps have a high correlation between the instrument and the asset being hedged, both at inception and throughout the hedge period.
FOREIGN CURRENCY TRANSLATION
Assets denominated in foreign currencies are translated to U.S. dollars using applicable rates of exchange.
All of the Company's assets denominated in a foreign currency are included in its available-for-sale securities portfolio, and their foreign currency exchange risk is hedged by means of cross currency swaps. In accordance with the requirements of SFAS 133, the change in fair value, due to the change in the foreign currency exchange rate, of both the hedged securities and the hedging instruments is recorded in current period earnings.
Revenues and expenses are translated monthly at amounts which approximate weighted average exchange rates.
NOTE 3--RECEIVABLE ARISING FROM PAYMENT FOR SECURITIES
Pursuant to the application of SFAS 125, as replaced by Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" addresses the accounting for the transfer of financial assets. Under SFAS 140, transfers of financial assets that do not meet certain sale accounting requirements must be accounted for as a secured borrowing transaction with a pledge of collateral. Due to the potential consequences of a Shift Event (as described above), the Company's purchase of the Initial Portfolio from the Branch did not meet certain SFAS 125, as replaced by SFAS 140, sale accounting requirements. Therefore, the purchase of the Initial Portfolio has been accounted for as a secured borrowing transaction with a pledge of collateral. In accounting for this transaction as a secured borrowing transaction in accordance with SFAS 125, as replaced by SFAS 140, the Company has recorded a receivable in an amount equal to the remaining amount paid to the Branch to acquire the Initial Portfolio. In this case, however, having delivered the securities in the Initial Portfolio to the Company, neither the Branch nor BNPP has any further obligation to the Company to repay any part of the purchase price for the Initial Portfolio or otherwise to repurchase or redeem any securities in the Initial Portfolio.
The Company has not sold or repledged the collateral; the securities within the Initial Portfolio mature or prepay over time. As they do, the Company recognizes the cash proceeds as a reduction in the receivable arising from payment for securities. The collateral at December 31, 2003 and 2002 is reported in Note 4 below.
NOTE 4--INVESTMENT SECURITIES
The amortized cost and estimated fair value of available-for-sale securities were as follows based on management's prepayment assumptions (in thousands):
The breakdown of the Company's available-for-sale securities by category and weighted average life distribution (stated in terms of amortized cost) is summarized below based on management's prepayment assumptions (Actual maturities may differ from maturities shown below due to prepayments) (in thousands):
The breakdown of the Company's available-for-sale securities by category and yield, before the result of hedges, is summarized below:
NOTE 5--REDEEMABLE COMMON SECURITIES
General
The Company is authorized to issue up to 150,000 Common Securities; as of December 31, 2003 and 2002, the Company had outstanding 53,011 Common Securities, all of which were held by the Branch. The Bank has agreed with the Company in the Contingent Support Agreement that, so long as any Series A Preferred Securities are outstanding, it will maintain direct or indirect ownership of 100% of the outstanding Common Securities.
Dividends
Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company's Board of Directors out of the Company's net income not required to be applied to fund dividends with respect to the Series A Preferred Securities; provided that so long as any Series A Preferred Securities are outstanding, no dividends or other distributions (including redemptions and purchases) may be made with respect to the Common Securities unless full dividends on all Series A Preferred Securities have been paid for the current and the two immediately preceding Dividend Periods (except during a Shift Period if the Bank does not distribute dividends on its common stock).
Redemption Requirements
If the Bank's financial condition were to deteriorate with the consequence that a Shift Event were to occur, substantially all the Common Securities would be redeemed automatically without prior redemption of any Series A Preferred Securities.
Voting Rights
Subject to the rights, if any, of the holders of Series A Preferred Securities (in particular the right to remove and replace any Independent Director and to elect an additional director, in certain circumstances), all voting rights are vested in the Common Securities. The holders of Common Securities are entitled to one vote per security.
Rights Upon Liquidation
In the event of the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, after there shall have been paid or set aside for the holders of all Series A Preferred Securities the full preferential amounts to which such holders are entitled, the holders of Common Securities will be entitled to share equally and ratably in any assets remaining after the payment of all debts and liabilities. Upon a liquidation of the Company during a Shift Period, the Common Securities will have a preference over the Series A Preferred Securities to the extent, if any, that the liabilities of the Bank (including any debt instruments, such as titres participatifs and prets participatifs) have not been paid in full.
NOTE 6-- RELATED PARTY TRANSACTIONS
The Company entered into a Services Agreement with the Branch on December 5, 1997 pursuant to which the Branch manages the securities portfolio of the Company and performs other administrative functions. Expenses incurred under such Agreement were $961,073 and $1,109,960 for the years ended December 31, 2003 and 2002, respectively. Under a specific allocation methodology, the costs of personnel servicing the Company is based on actual man-hours devoted to the activities of the Company and remains at arms length.
The counterparty to all cross currency and interest rate swaps is BNP Paribas. The fair value of these swap transactions is disclosed in Note 7.
The Branch also serves as the dividend paying agent, registrar and transfer agent with respect to the Series A Preferred Securities. The fee is $4,000 per annum for these services.
All of the Company's officers and employees and all but one of the members of the Company's Board of Directors are officers and employees of the Branch or BNP Paribas or their affiliates.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of securities at December 31, 2003 and 2002 were obtained from independent market sources and are summarized in Note 4. The carrying values of securities, as shown in Note 4, approximates their fair value. The fair value of the receivable arising from payment for securities, pursuant to the application of SFAS 125, as replaced by SFAS 140, was $30,893,778 and $86,641,699 at December 31, 2003 and 2002, respectively.
The carrying value of cash and cash equivalents, accounts receivable, accrued interest receivable, accrued expenses, and accounts payable approximates fair value.
The fair value of the cross currency and interest rate swaps was $(94,597,757) and $(84,340,226) at December 31, 2003 and 2002, respectively, and are reflected in "Other assets" and "Other liabilities".
NOTE 8--DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to hedge the interest rate risk and foreign currency risk of fixed-income securities. As a result of interest rate or exchange rate fluctuations, hedged fixed-rate assets will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation is expected to substantially offset the Company's gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. The Company considers its use of derivatives to be a prudent method of managing interest rate and foreign currency rate sensitivity, as it prevents earnings from being exposed to undue risk posed by changes in interest and exchange rates in compliance with the Company's policies.
Derivative instruments that are used as part of the Company's interest rate risk management strategy include interest rate and cross currency swap contracts that have indices related to the pricing of specific balance sheet assets and liabilities. As a matter of policy, the Company does not use highly leveraged derivative instruments for interest rate risk management. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date.
By using derivative instruments, the Company exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company's credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes the Company, thus creating a repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, assumes no repayment risk. The Company minimizes the credit (or repayment) risk in derivative instruments by entering into transactions with BNP PARIBAS S.A. Consequently, the Company does not require that collateral be provided by the counterparty.
Market risk is the adverse effect that a change in interest rates, currency, or implied volatility rates might have on the value of a financial instrument. The Company does not expose itself to market risk by using derivatives but rather reduces market risk since it uses derivatives only for fair value hedges that effectively offset fluctuations in the fair value of the hedged items.
The Company formally documents all relationships between derivatives and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to (1) assets and liabilities on the balance sheet, (2) firm commitments or (3) forecasted transactions.
Fair Value Hedges
The Company mainly enters into interest rate swaps and cross currency interest rate swaps to convert fixed rate Agency Debentures, Agency DUSs and Fixed-Rate REMICs into variable rate securities.
The fair value of the hedging instruments was $(94,253,884) and $(86,023,329) at December 31, 2003 and 2002, respectively, and has been recorded in "Other liabilities". It has been offset, except for the ineffective portion of the hedge, by the revaluation of the respective hedged investment securities. The fair value of the hedging instruments does not include accrued interest receivable and payable, which are shown separately on the balance sheet. The Company recognized gains of $534,474 and $1,225,111, at December 31, 2003 and 2002, respectively, in earnings related to the ineffective portion of fair value hedges. The Company also recognized losses of $(2,026,976) and $(248,056) at December 31, 2003 and 2002, respectively, in earnings related to a cross currency swap that no longer qualified as a fair value hedging instrument.
Cash Flow Hedges
For the years ended December 31, 2003 and 2002, the Company did not enter into cash flow hedge transactions and it is not the intention of the Company to use interest rate swaps to convert floating rate financial instruments to fixed rate financial instruments as part of a cash flow hedge strategy.
At December 31, 2003 and 2002, the Company had outstanding interest rate and cross currency swap agreements with a notional principal amount of $739,305,189 and $664,908,744, respectively.
BNP U.S. FUNDING L.L.C.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
Item 9:
Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A:
Item 9A: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2003, the Company carried out an evaluation under the supervision and with the participation of the Company's management, including the President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the Company's evaluation, the President and Chief Financial Officer concluded that the disclosure controls and procedures are effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as when required. There have been no significant changes in the Company's internal control over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Annual Report on Form 10-K, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 10:
Item 10: Directors and Executive Officers of the Company
The following table sets forth information concerning the directors and executive officers of the Company. The directors serve 3-year terms (5 years in the case of the independent director), subject to earlier resignation or removal. The current term of Martine Billeaud and Sady Karet commenced on December 5, 2000. Donald J. Puglisi, the independent director, was reappointed by the Board of Directors and the Branch, as holder of the Common Securities of the Company, and his current term of office commenced as of December 5, 2002. On August 12, 2002, the Board of Directors of the Company elected John Powers to succeed George T. Deason as Secretary of the Company, Thomas Clyne as Chief Financial Officer and Diana Mitchell as Assistant Secretary. On November 29, 2002, Olivier Meisel replaced Jean-Pierre Beck as President and Director. On .......................,2003 Michel Eydoux replaced Georges Chodron de Courcel as Chairman and Director.
Name and Age Position and Offices Held ------------ ------------------------- Michel Eydoux (53) Chairman and Director Martine Billeaud (58) Director Olivier Meisel (40) President and Director John D. Powers (52) Secretary Donald J. Puglisi (58) Independent Director Sady Karet (49) Treasurer and Director Thomas Clyne (47) Chief Financial Officer Diana E. Mitchell (48) Assistant Secretary
The following is a summary of the experience of the executive officers and directors of the Company:
Michel Eydoux is currently Head of Treasury for Asset and Liability Management of BNP PARIBAS, and a member of the Executive Committee for Corporate and Investment Banking. Born in 1950, he graduated in 1973 from Ecole des Hautes Etudes Commerciales de Paris. He started his career with Banque Paribas, where he handled several assignments. In 1989, he was appointed Deputy General Manager for Paribas in Spain and in 1991,Head of ALM Treasury for Paribas. He has been appointed to his current assignment in 1999.
Martine Billeaud is in charge of the Bank's medium and long term funding activities related to Asset and Liability Management. She was previously responsible for domestic treasury business. Ms. Billeaud was born in Choisy-le-Roi, France in 1945.
Olivier Meisel is in charge of the ALM Treasury activities for BNP Paribas North America. He began his career as a derivative trader in the Paris and London offices of Banque Paribas before joining the ALM Treasury Metier in 1997. His previous position was as Head of ALM Treasury in Japan. Mr. Meisel was born in Suresnes, France in 1963.
John D. Powers became General Counsel for the corporate and investment banking businesses of BNP Paribas in North America after the merger of BNP and Paribas in 2000. Before assuming his duties as General Counsel, Mr. Powers was the lead counsel for Paribas' capital market businesses in North America from the time he joined Paribas in 1992. Prior to this time, Mr. Powers was Assistant General Counsel for Barclays Bank PLC, which he joined in 1983 after working as an associate at Cravath, Swaine & Moore starting in 1980.
Donald J. Puglisi, the Independent Director, is the MBNA America Business Professor and Professor of Finance at the University of Delaware where he has been on the faculty since 1971. In addition, he is the Managing Director of Puglisi and Associates, a company which provides investment management, accounting and other administrative services to a variety of different companies. Mr. Puglisi holds a Directorship or Trusteeship in the following companies that are registered under either the Exchange Act or the 1940 Act: AJL PEPS Trust, Automatic Common Exchange Security Trust II, DECS Trust, DECS Trust II, Dole Food Automatic Common Exchange Security Trust, Great Lakes Fund, Inc., Huron Investment Fund, Inc., Mandatory Common Exchange Trust, Nextel STRYPES Trust, Select Asset Fund, Series 1, Inc., Select Asset Fund, Series 2, Inc., Snyder STRYPES Trust, and WBK STRYPES Trust.
Sady Karet is Vice President in charge of Asset and Liability analysis of the Bank's US branches. He was previously posted in Hong Kong where he was in charge of Market Risks for North Asia (excluding Japan). Mr. Karet was born in Paris, France in 1954.
Thomas Clyne is a Managing Director in Finance responsible for U.S. Non-Banking subsidiaries. Mr. Clyne has been with BNP Paribas since 1998. He has worked in the investment banking and financial services industry for twenty-eight years. Prior to joining the Bank, he worked for Credit Lyonnais as Managing Director and Chief Financial Officer of Credit Lyonnias Securities (USA) Inc. Mr. Clyne was born in Brooklyn, New York in 1956.
Diana E. Mitchell is a Vice President and Assistant General Counsel for BNP Paribas in North America. In her current position, she assists the General Counsel for the corporate and investment banking businesses of BNP Paribas in North America on matters with broad relevance to the U.S. operations of BNP Paribas, focusing, in particular, on regulatory and compliance related issues. Ms. Mitchell joined the corporate banking legal department for Paribas in 1994. Prior to this time, Ms. Mitchell worked as an associate at Brown Raysman & Millstein starting in 1991 and Lord Day & Lord, Barrett Smith starting in 1989.
Item 11:
Item 11: Executive Compensation
The Independent Director Donald J. Puglisi, receives director's fees of $6,000 per year. All of the other members of the Company's Board of Directors and Officers are also Officers or employees of the Branch or the Bank and do not receive compensation from the Company or additional compensation from the Branch or the Bank for services rendered to the Company.
Item 12:
Item 12: Security Ownership of Certain Beneficial Owners and Management
None.
Item 13:
Item 13: Certain Relationships and Related Transactions
Reference is hereby made to Item 1. Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the Company's various relationships with the Branch, the sole holder of all its outstanding Common Securities.
Item 14:
Item 14: Principal Accountant Fees and Schedules
Set forth below are the services rendered and related fees billed by PricewaterhouseCoopers for 2002 and 2003;
2003 2002 -------- -------- Audit Fees $ 20,436 $ 16,500 - ---------- -------- -------- Financial Statement Audit 20,964 --- -------- -------- Regulatory Filings Review 41,400 16,500 -------- --------
Audit Related Fees - ----------------- Tax Services 88,000 48,545 -------- --------
$129,400 $ 65,045 ======== ========
Item 15:
Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K
EXHIBITS AND CURRENT REPORTS ON FORM 8-K
A) Exhibits:
11) Computation of net income per common security
12) (a) Computation of ratio of earnings to fixed charges (b) Computation of ratio of earnings to fixed charges and preferred security dividends
31.1) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2) Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
B) Reports on Form 8-K: NONE
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
BNP U.S. FUNDING L.L.C. ----------------------- Registrant
Date: March 14, 2004 By /s/ Oliver Meisel ----------------------- Olivier Meisel President and Director Date: March 14, 2004 By /s/ Thomas Clyne ---------------------- Thomas Clyne Chief Financial Officer and Director