U.S. Department of Agriculture

Rural Utilities Service

Informational Publication 400-2

Focusing on the

Future

Rural Telephone Bank

2000 Annual Report
Rural Telephone Bank 

May 2001

The Honorable Ann M. Veneman

Secretary of Agriculture

U.S. Department of Agriculture

Washington, DC 20250

Dear Secretary Veneman:

This report covers the activities of the Rural Telephone Bank for fiscal year 2000. It is respectfully submitted, on behalf of the

Bank’s Board of Directors, for transmittal to the Congress pursuant to section 405(i) of the Rural Electrification Act of 1936, as

amended.

Sincerely,

_______________________

Blaine D. Stockton

Acting Governor
Rural Telephone Bank 
2000 Annual Report

Contents

Message from the Governor.................................................................................. 1

Board of Directors ............................................................................................. 2

Fiscal Year 2000 Highlights.................................................................................. 3

Financial Statements.......................................................................................... 6

Notes to the Financial Statements......................................................................... 8

Management

Blaine D. Stockton............................................................................Acting Governor

Roberta D. Purcell.........................................................................Assistant Governor

Jonathan P. Claffey..................................Deputy Assistant Governor & Assistant Secretary

Kenneth Ackerman........................................................................Assistant Treasurer

Cheryl L. Gamboney..........................................................................Financial Analyst
Rural Telephone Bank 

2000 Annual Report

 1

Message from the Governor

Providing quality customer service has traditionally been a top priority and a strength for the Rural Telephone Bank

(Bank). As borrower needs evolve, we will continue to redefine our relationships with those we serve. The needs of our

borrowers are different today than in the past – and we are expanding our options to help meet those needs.

The telecommunications industry is becoming increasingly competitive. At the same time, changes in overall business

trends and technologies continue to place pressure on Bank-financed systems to offer a wider array of services and to operate

more efficiently. The Rural Utilities Service has been instituting significant policy and regulatory reforms to ensure that the Bank

is an engine of broadband development. The most expeditious way to bring the full range of telecommunications services to

rural areas is to make certain providers of advanced services, in addition to providers of local exchange services, are eligible for

Bank financing. As such, new regulations have been implemented that enable the financing of all advanced

telecommunications services, including mobile wireless service, to carriers serving unserved areas and underserved areas where

existing service, if available at all, is inadequate to meet the infrastructure needs of today’s evolving industry. Without this

investment, millions will suffer with unreliable service or service that will not support the features of modern telecommunications

technology. As we move forward in this dynamic, fast-paced environment, Bank financing will be used to aggressively target

unserved and underserved areas in an effort to bring as many people and communities on to the global network as possible.

The Bank enacted another exciting policy change during the year – a new stock conversion policy. Stockholders may

now convert a portion of their class B stock earned as patronage refunds to class C stock before full repayment of their

outstanding indebtedness. In the past, all Bank debt had to be fully repaid before a stockholder could make any conversions to

class C stock. This policy will help to lower a borrower’s overall cost of capital, since class C stock earns an annual cash

dividend. In fiscal year 2000, stockholders converted $21.7 million to class C stock. This new policy is a success thanks to the

leadership efforts of the Board of Directors.

Also in 2000, the Bank’s website was updated to provide information on the Bank and its lending policies, Board

members, Board meetings, industry issues, and other RUS programs that may be of interest to Bank borrowers. The website

allows borrowers and potential borrowers to contact Bank staff at any time during the day or week.

As we move forward and address many of the critical issues facing the rural telecommunications industry, the Bank will

continue to play a vital role in ensuring that access to reasonable sources of capital remains available to carriers continuing to

invest in our rural communities futures!

As always, we appreciate your support and commitment to rural America.

Sincerely,

Blaine D. Stockton

Acting Governor
Rural Telephone Bank 

2000 Annual Report

 2

Board of Directors as of September 30, 2000

Representing Cooperative-Type Stockholders

David Crothers

Executive Vice President and General Manager of the North Dakota Association of Telephone Cooperatives; member since 1998; serves on the

privatization committee; term expires in 2002.

John McAllister, Treasurer

President of West Carolina Rural Telephone Cooperative, Inc.; member since 1974; serves on the privatization committee; term expires

in 2002.

Larry E. Sevier

Chief Executive Officer of Rural Telephone Service Company, Inc.; member since 1994; serves on the privatization committee; term expires

in 2002.

Representing Commercial-Type Stockholders

John T. Dillard

President and General Manager of Monroe Telephone Company; member since 1998; serves on the privatization committee; term expires

in 2002.

S. Michael Jensen

Chief Executive Officer of Great Plains Communications, Inc.; member since 1992; serves on the privatization committee; term expires

in 2002.

Curtis S. Sampson, Secretary

Chairman and Chief Executive Officer of Hector Communications, Inc.; member since 1988; serves on the privatization committee; term expires

in 2002.

Representing the U.S. Department of Agriculture

*Jill Long Thompson, Chairwoman

Former Under Secretary for Rural Development, USDA; appointed to the Board in 1995.

*Michael V. Dunn

Former Under Secretary for Marketing and Regulatory Programs, USDA; appointed to the Board in 1995.

*Dr. I. Miley Gonzalez

Former Under Secretary for Research, Education, and Economics, USDA; appointed to the Board in 1998.

*Sharron Harris

Former Director of the Office of Small Disadvantaged Business Utilization, USDA; appointed to the Board in 1993.

*Carl S. Whillock

Former Special Assistant to the President for Agriculture and Trade; appointed to the Board in 1998.

Representing the Public

*Jimmie Lou Fisher, Vice Chair

State Treasurer for the state of Arkansas; appointed to the Board in 1995.

Robert Lee Stanton

Farmer and businessman from Missouri; appointed to the Board in 1995.

* A member until January, 2001.
Rural Telephone Bank 

2000 Annual Report

 3

Fiscal Year 2000 Highlights

Loan Funds Advanced

The Federal Credit Reform Act of 1990 restructured the methodology by which the Bank obtains and advances loan funds. Specifically, Credit Reform

“divided” the Bank’s loan program by accounting for loans made before fiscal year 1992 (liquidating account loans) differently from loans made during

and after fiscal year 1992 (financing account loans). The Bank advanced $41.8 million in funds to borrowers in fiscal year 2000; $10.4 million in

liquidating account loans and $31.4 million in financing account loans. Over the last five years, Bank advances have averaged $59.2 million annually.

0

10

20

30

40

50

$ millions Loan Funds Advanced

Financing 45 34 34 39.2 31.4

Liquidating 31 33 21 17.8 10.4

1996 1997 1998 1999 2000

Interest Rates for Loan Funds Advanced

In addition, Credit Reform results in two interest rates for loan funds advanced to borrowers after fiscal year 1991. The interest rate for variable

rate loans approved prior to fiscal year 1992 and advanced in fiscal year 2000 was 6.01 percent (liquidating), the rate for loans approved

during fiscal years 1992 through 2000 and advanced in fiscal year 2000, was 6.05 percent (financing).

Interest Rates for Loan Funds Advanced

5.0%

5.5%

6.0%

6.5%

7.0%

1996 1997 1998 1999 2000

Financing Liquidating

Cumulative Loans

New Bank loans during fiscal year 2000 totalled $175.0 million. Bank loans since inception, net of rescissions as of September 30, 2000,

totalled $2.8 billion to commercial company borrowers, $1.0 billion to cooperative borrowers, and $21.2 million to public body borrowers.

Distribution of Cumulative Loans

Cooperatives

26%

Public Bodies

1%

Commercial

73%
Rural Telephone Bank 

2000 Annual Report

 4

Repaid Principal and Interest

During fiscal year 2000, borrowers paid $86.6 million in principal and $81.4 million in interest. The interest figure includes $400.0 thousand in

prepayment premiums. As of fiscal year ending 2000, payments made to the Bank amounted to $1,596.2 million in principal and $2,301.4

million in interest.

Chart includes notes paid in full and interest paid includes prepayment premiums.

Interest Income and Patronage Capital Assignable

Restricted capital and patronage capital at the end of fiscal year 2000 totaled $95.0 million. During fiscal year 2000, interest and other

income was $139.0 million. Expenses amounted to $26.0 million, leaving an excess of revenues and other financing sources over total

expenses of $113.0 million. A return of $10.0 million paid to the U.S. Treasury and a cash dividend of $18.0 million paid to Class C

stockholders resulted in patronage capital assignable of $85.0 million.

$88 $92

$115.8 $116 $113

$0

$20

$40

$60

$80

$100

$120

$ millions

1996 1997 1998 1999 2000

Excess of Revenue and Other Sources Over Total Expenses

Dividends and Patronage Refunds

Ownership of the Bank, in addition to the U.S. Government, is shared by borrowers, former borrowers, and other related organizations authorized

to invest. The Bank operates on a cooperative basis and earnings, in excess of the annual return of two percent required on the Government’s

investment in Class A stock, are returned to the non-Government owners as patronage refunds. The Bank Board of Directors declared a cash

dividend of 5.65 percent on Class C stock at its August 4, 2000 meeting. This represented the 28th consecutive annual dividend by the Bank.

Until all Class A stock is retired, the dividend rate on Class C stock cannot be greater than the average interest rate payable on the Bank's

outstanding debt-that rate was 6.58 percent at the time the dividend was declared. A patronage refund was also declared for fiscal year 2000.

Non-Federal Investment of Others

$590.0 $631.0 $656.9 $681.5 $556.0

$276.9 $344.8 $210.0 $145.0 $182.0

$0

$500

$1,000

1996 1997 1998 1999 2000

$ millions

Cumulative Class B Stock Outstanding Cumulative Conversions to Class C Stock

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

1975 1980 1985 1990 1995 2000

Cumulative Total Payments of Principal and Interest

Principal Paid Interest Paid
Rural Telephone Bank 

2000 Annual Report

 5

Stock Sales

Bank borrowers purchased $2.0 million in Class B stock, bringing the cumulative total purchased to $133.0 million. Total Class B stock

outstanding, including patronage refunds and net of amounts converted to Class C stock, increased by $24.6 million during fiscal year 2000, to

$681.5 million. Cumulative Class C stock rose to $344.8 million, an increase of $67.9 million during fiscal year 2000.

Stockholder Equity

Class B

45%

Class A

32%

Class C

23%

Stock Redemption

No additional Class A stock was purchased by the Government during fiscal year 2000. The cumulative total of Class A stock purchases to date

is $592.1 million. In accordance with Board Resolution 2000-6, $25.1 million in Class A stock was redeemed on September 30, 2000;

leaving a net outstanding of $476.7 million. This was the fifth consecutive annual redemption of Class A stock.

Retirement of Class A Stock

$ millions

$574.1 $556.0 $528.2 $501.8 $476.7

$18.0 $18.1 $27.8 $26.4 $25.1

0%

25%

50%

75%

100%

1996 1997 1998 1999 2000

Balance Retired

Limitation on Financial Statements

The financial statements have been prepared to report the financial position and results of operations of the Bank, pursuant to the requirements

of the Chief Financial Officers Act of 1990 and 31 U.S.C. 3515(b). While the statements have been prepared from the books and records of

the Bank in accordance with the formats prescribed by the Office of Management and Budget, the statements are in addition to the financial

reports used to monitor and control budgetary resources which are prepared from the same books and records. The statements should be read

with the realization that they are for a component of the U.S. Government, a sovereign entity. One implication of this is that liabilities cannot be

liquidated without legislation that provides resources to do so.
Rural Telephone Bank 

2000 Annual Report

 6

Financial Statements

BALANCE SHEET

(in dollars)

As of September 30, 2000

ASSETS

 Assets for Use by Entity:

 Federal

 Fund Balance with Treasury (Note 2) $ 776,171,844

 Non-Federal

 Credit Program Receivables, Net (Note 3) 1,156,914,117

 Total Assets $ 1,933,085,961

LIABILITIES

 Liabilities Covered by Budgetary Resources:

 Federal

 Accounts Payable $ 5,642,000

 Debt (Note 4) 295,202,110

 Non-Federal

 Other Liabilities (Note 5) 18,129,342

 Total Liabilities 318,973,452

COMMITMENTS AND CONTINGENCIES (Note 6)

NET POSITION (Note 7)

 Unexpended Appropriations 19,812,242

 Federal

 Equity of the U.S. Government

 Capital Stock Class A 476,700,500

 Subsidy Re-estimates (4,054,000)

 Total Equity of the U.S. Government 472,646,500

 Non-Federal

 Investment of Others

 Capital Stock Class B 681,518,810

 Capital Stock Class C 344,837,000

 Restricted Capital 9,912,183

 Patronage Capital Earned 85,385,774

 Total Investment of Others 1,121,653,767

 Total Net Position 1,614,112,509

Total Liabilities and Net Position $ 1,933,085,961

STATEMENT OF BUDGETARY RESOURCES

(in dollars)

 As of September 30, 2000

Budgetary Resources: (Note 9)

 Budget Authority $ 154,537,267

 Unobligated balances - beginning of period 512,466,687

 Spending Authority from offsetting collections 225,804,066

 Adjustments (30,009,527)

 Total budgetary resources $ 862,798,493

Status of Budgetary Resources:

 Obligations incurred $ 220,162,197

 Unobligated balances-not available 642,636,296

 Total, status of budgetary resources $ 862,798,493

Outlays:

 Obligations incurred $ 220,162,197

 Less: actual spending authority from offsetting collections and actual adjustments (304,002,790)

 Obligated balance, net - beginning of period 979,877,054

 Less: obligated balance, net - end of period (1,038,758,567)

 Total outlays $ (142,722,106)

The accompanying Notes are an integral part of these statements.
Rural Telephone Bank 

2000 Annual Report

 7

STATEMENT OF NET COST

(in dollars)

 For the Year Ended September 30, 2000

Costs: Program Costs

Federal $ 27,714,197

Non-Federal

 Loans - Subsidy Expense (Note 3) (38,121)

 Other Program Costs 1,180,754

Total Program Production Costs 28,856,830

Less Earned Revenues (Note 8) (139,271,774)

Net Cost of Operations $ (110,414,944)

STATEMENT OF CHANGES IN NET POSITION

(in dollars)

 For the Year Ended September 30, 2000

Net Cost of Operations $ 110,414,944

Financing Sources (other than exchange revenues):

 Appropriations Used 4,324,944

 Transfers-out (32,492,865)

 Changes in:

 Capital Stock - Redemption of Class A Stock (25,089,500)

 Investment of Others 2,011,524

Net Change in Cumulative Results of Operations 59,169,047

Increase (Decrease) in Unexpended Appropriations 272,137 

Change in Net Position 59,441,184

Net Position-Beginning of Period 1,554,671,325

Net Position-End of Period $ 1,614,112,509 

STATEMENT OF FINANCING

(in dollars)

 For the Year Ended September 30, 2000

Resources Used to Finance Operations

 Budgetary

 Budgetary Resources Obligated for Items to Be Received or Provided to Others $ 220,162,197

 Less: Offsetting Collections, Recoveries of Prior-year Authority, and Changes in

 Unfilled Customer Orders (304,002,790)

 Net Budgetary Resources Used to Finance Operations (83,840,593)

Total Resources Used to Finance Operations (83,840,593)

Less: Resources Used to Fund Items Not Part of the Net Cost of Operations

 Increase or (Decrease) in Budgetary Resources Obligated to Order Goods or

 Services Not Yet Received or Benefits Not Yet Provided 135,319,125

 Budgetary Offsetting Collections Not Increasing Exchange Revenue or Decreasing

 Expense (92,788,017)

 Adjustments Made to Compute Net Budgetary Resources Not Affecting Net Cost of Operations (15,979,084)

 Resources Funding Expenses Recognized in Prior Periods 1,003,065

Total Resources Used to Fund Items Not Part of the Net Cost of Operations 27,555,089 

Resources Used to Finance the Net Cost of Operations (111,395,682)

Components of Net Cost of Operations Not Requiring or Generating Resources

 During the Reporting Period

 Expenses or Exchange Revenue Related to the Disposition of Assets or Liabilities,

 or Allocation of Their Cost over Time (3,073,262)

 Expenses Which Will Be Financed with Budgetary Resources Recognized in

 Future Periods 4,054,000 

Total Components of Net Cost of Operations Not Requiring or Generating Resources

 During the Reporting Period 980,738

NET COST OF OPERATIONS $ (110,414,944)

The accompanying Notes are an integral part of these statements
Rural Telephone Bank 

2000 Annual Report

 8

Notes to the Financial Statements

Note 1 Significant Accounting Policies

 

A. Reporting Entity

The Rural Telephone Bank (RTB), established in May 1971, provides a supplemental source of financing under the Rural Utilities Service's

telephone loan program. The Rural Utilities Service (RUS) is a credit agency within the U.S. Department of Agriculture (USDA) which assists

rural electric and telephone organizations in obtaining the financing required to provide electric and telephone service in rural areas. RTB lends

principally to rural telephone organizations.

RTB is a government corporation which functions as an agency of the U.S. Department of Agriculture, subject to the supervision and direction of

the Secretary of Agriculture. As provided by law, the Administrator of RUS serves as the Governor of RTB. In this capacity, the Governor may

exercise and perform all of RTB's functions, powers, and duties, except for matters specifically reserved for its Board of Directors. As discussed

below, upon retirement of the Class A stock held by the U.S. Government, the RTB would no longer operate as an integral agency of the

Government.

Adverse changes in the telephone industries could have a direct and material impact on the financial capacity of RTB borrowers to provide for

the repayment of loans.

B. Basis of Presentation

The accompanying financial statements have been prepared to report the financial position, net costs, and changes in net position of RTB,

together with budgetary resources and a reconciliation of budgetary obligations to net cost, as required by the Government Management Reform

Act of 1994 and in conformity with generally accepted accounting principles (GAAP). GAAP for federal financial reporting entities recognize the

Federal Accounting Standards Advisory Board (FASAB) as the standards-setting body designated to establish these principles for these entities.

The financial statements have also been prepared from the books and records of RTB in accordance with the form and content for entity

financial statements specified by the Office of Management and Budget (OMB) Bulletin 97-01, Form and Content of Agency Financial

Statements, as amended, except that credit subsidy reestimates are presented as a separate line item within total equity of the U.S.

Government. The financial statements also follow USDA accounting policy guidelines.

C. Basis of Accounting

RTB's transactions are recorded on the accrual basis of accounting and with respect to certain information regarding budgetary resources and

financing, a budgetary accounting basis. Under the accrual method, revenues are recognized when earned, and expenses are recognized when

a liability is incurred. Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds.

Any significant interfund and intrafund balances and transactions have been eliminated in the consolidation of the pre and post credit reform

lending programs.

D. Fund Balance with United States Treasury

RTB maintains all cash accounts with the United States Treasury. It is the policy of RTB not to maintain cash in commercial bank accounts,

except in the normal course of processing cash receipts through third-party commercial banking institutions. Fund Balance with Treasury

represents appropriated and revolving funds that are available to pay current liabilities and finance authorized loan commitments. RTB earns

interest on all cash balances maintained at the Treasury in accordance with the terms of the 1973 note executed by RTB and U.S. Treasury,

Section 505(c) of the Federal Credit Reform Act of 1990 and recent legislation (Public Law 106-78).

E. Credit Program Receivable, Net

Loans are accounted for as receivables after funds are disbursed. Loans receivable are carried at the principal amount outstanding, net of an

allowance for estimated uncollectible amounts for pre-fiscal year 1992 loans. For direct loans obligated on or after October 1, 1991, RTB

recognizes these assets at the present value of their estimated net cash inflows. The difference between the outstanding principal of the loans

and the present value of their net cash inflows is recognized as a subsidy cost allowance. All loans receivable are due from non-federal

borrowers and accrue interest daily based on the contractual interest rate.

RTB's allowance is estimated based on delinquency rates, current economic conditions, borrowers' credit histories, borrowers' outstanding

balances, and an analysis of each borrower's financial condition.
Rural Telephone Bank 

2000 Annual Report

 9

The projected cost of direct loan defaults (for loans obligated prior to October 1, 1991) will not necessarily reflect RTB's future appropriation

requests. To the extent that fund revenues are not sufficient to fund future costs, financing will have to be obtained from future appropriations,

or other congressionally approved sources.

F. Liabilities

Liabilities are recognized for amounts of probable future outflows or other sacrifices of resources as a result of past transactions or events. Since

RTB is a component of the United States Government, a sovereign entity, its liabilities cannot be liquidated without legislation that provides

resources to do so. Payments of all liabilities other than contracts can be abrogated by the sovereign entity.

Liabilities Covered by Budgetary Resources are those liabilities funded by available budgetary resources including: (1) new budget authority, (2)

spending authority from offsetting collections, (3) recoveries of unexpired budget authority, (4) unobligated balances of budgetary resources at

the beginning of the year, and (5) permanent indefinite appropriation or borrowing authority. All of RTB's liabilities are covered by budgetary

resources.

Accounts Payable

Accounts payable consists solely of subsidy payable, as a result of a downward reestimate, which is payable to the United States Treasury.

Debt - United States Treasury

As required under Credit Reform legislation, a note was executed by RTB with the United States Treasury which provides funds for direct loans

approved after September 30, 1991 (Post-1991). The interest rate charged to RTB is the average annual Treasury rate, as provided by the

Office of Management and Budget (OMB). For loans approved prior to October 1, 1991 (Pre-1992), Treasury funding is provided, when

needed, in accordance with the terms of a note executed by RTB and Treasury in July 1973. RTB has not borrowed against the note in several

years.

G. Stock Conversion

In accordance with its authorizing legislation and amendments, RTB will be converted to independent status at such time when 51 percent of

the Class A stock issued to the U.S. Government (and outstanding at any time since September 30, 1985) has been fully redeemed and retired.

When such conversion occurs, RTB will no longer be an agency of the USDA and the President will cease to appoint Board members. However,

after the conversion, Congress may still continue its oversight responsibilities for RTB's operations.

H. Operations

The Rural Electrification Act of 1936, as amended, and RTB's enabling legislation, authorize RTB to partially or jointly use the facilities and

services of employees of RUS, or of any other agency of the USDA, without cost. Under the Federal Credit Reform Act, $3 million of

appropriated funds provided to RTB to cover administrative costs were transferred to RUS. This amount represents the additional cost to RUS

for managing RTB. In this regard, RTB's operations are conducted by RUS administrative and program employees who have similar

responsibilities under RUS's rural telephone loan program. The prorated Pension, FECA, and Unfunded leave costs, of $176,050, $125,571,

and $7,703 respectively, which are associated with the RTB program, and included in the operating costs of RUS/RD, are not included in the

reported cost of the RTB operations.

I. Intra-Governmental Relationships and Transactions

In the course of its operations, RTB has relationships and financial transactions with other Federal agencies. The more prominent of these are

with RUS and the United States Treasury. RUS determines the annual cost allocations associated with the administration of RTB by RUS

employees and the Treasury receives the collections of proceeds from direct loans issued on behalf of RTB. At the Government-wide level, the

liabilities related to the debt payable to Treasury on RTB's financial statements and the corresponding assets on the Treasury's financial

statements should be eliminated.
Rural Telephone Bank 

2000 Annual Report

 10

Note 2 Fund Balance with Treasury

 

September 30, 2000

Assets for use by Entity:

Revolving Funds $ 756,359,602

Appropriated Funds 19,812,242

Fund Balance with Treasury $ 776,171,844

Note 3 Credit Program Receivables, Net

 

Accounting Policy - Present Value (PV) Disclosure:

Direct loan obligations made prior to FY 1992 are reported on a net realizable value (NRV) basis. Direct loan obligations made after FY 1991

are governed by the Federal Credit Reform Act. The Act provides that the present value of the subsidy costs (i.e., interest rate differentials,

interest subsidies, delinquencies and defaults, fee offsets and other cash flows) associated with direct loans be recognized as a cost in the year

the loan is made. The net present value (NPV) of loans receivable at any point in time is the amount of the gross loan receivable less the

present value of the subsidy at that time.

Loans Subject to Credit Reform:

Summary Schedule

Loans Receivable, Gross

Interest Receivable, Gross

Less: Related Allowance

Credit Program Receivables, Net

September 30, 2000

$ 1,169,837,146

 2,597,397

 (15,520,426)

$ 1,156,914,117

This summary schedule is calculated from the detail amounts shown in the following sections.

Direct Loans Obligated Prior to FY 1992: September 30, 2000

Loans Receivable, Gross $ 923,673,900

Interest Receivable, Gross 2,483,485

Less: Allowance for Credit Program Receivables (RV) (6,396,633)

Credit Program Receivables (NRV) $ 919,760,752

Direct Loans Obligated After FY 1991: September 30, 2000

Loans Receivable, Gross $ 246,163,246

Interest Receivable, Gross 113,912

Less: Allowance for Subsidy Cost (PV) (9,123,793)

Credit Program Receivables (NPV) $ 237,153,365

Subsidy Expense for Post-1991 Loans and Credit Receivables:

Current Year’s Direct Loans September 30, 2000

Interest Differential $ 313,586

Defaults 8,293

Total Current Year’s Direct Loan Subsidy Expense 321,879

Fiscal Year Direct Loan Reestimates (360,000)

Total Direct Loan Subsidy Expense $ (38,121)

The percentage rate used to segregate the four components of subsidy is based on the rate in effect during FY 2000. Appropriated funds,

totaling $3 million, provided to RTB to cover administrative costs were transferred to RUS.
Rural Telephone Bank 

2000 Annual Report

 11

Note 4 Debt

 

Federal Debt September 30, 2000

Interest Bearing: Debt to the Treasury

 Beginning Balance $ 307,831,271

 Net Borrowing (12,629,161)

 Ending Balance $ 295,202,110

Legislation limits outstanding borrowings from the U.S. Treasury to an amount which shall not exceed twenty times RTB's equity. As of

September 30, 2000, RTB's maximum borrowing authority approximated $32 billion. All Federal debt is covered by budgetary resources.

Note 5 Other Liabilities

 

Other liabilities include dividends declared and unpaid on Class C stock to non-federal recipients in the amount of approximately $18 million,

which are payable on December 15, 2000. This liability is covered by budgetary resources.

Note 6 Commitments and Contingencies

 

The RTB has in the course of its loan making activities, unliquidated loan obligations that, in the absence of contractual violations or

cancellations, will require disbursements. Unliquidated loan obligations at September 30, 2000 total approximately $1,020.7 million.

As of September 30, 2000, there were no obligations due to canceled appropriations for which there is a contractual commitment for payment.

Note 7 Net Position

 

Unexpended Appropriations September 30, 2000

Unobligated $ 5,066,621

Undelivered Orders 14,745,621

Total Unexpended Appropriations $ 19,812,242

RTB does not have any future financing sources.

Rural Telephone Bank (RTB) Capital Stock

A summary of the RTB capital stock structure follows: September 30, 2000

CAPITAL STOCK CLASS A ($1 par value)

 Shares authorized 600,000,000

 Shares issued and outstanding 476,700,500

 Cash dividends $ 10,035,800

CAPITAL STOCK CLASS B ($1 par value)

 Shares authorized Unlimited

 Shares issued and outstanding 681,518,810

 Stock dividends 90,515,784

CAPITAL STOCK CLASS C ($1,000 par value)

 Shares authorized Unlimited

 Par Value, shares issued and outstanding $ 344,837,000

 Cash dividends (paid or accrued) $ 18,021,249
Rural Telephone Bank 

2000 Annual Report

 12

Although USDA Rural Development owns all Class A stock on behalf of the United States Government, the cash dividends are paid to the U.S.

Treasury. On September 30, 2000, in accordance with Section 406 (c) of the Rural Electrification Act of 1936 (RE Act) as amended, the fifth

redemption of Class A stock occurred. In accordance with Bank Board resolution 2000-6, $25.1 million was redeemed and retired.

Class B stock, a voting class of stock, is issued only to borrowers of RTB, in proportion to actual loan advances. RTB requires borrowers to

purchase Class B stock in the amount of 5 percent of advanced loan amounts. RTB may not pay cash dividends on Class B stock. Rather,

holders of Class B stock are entitled to patronage refunds (paid in the form of Class B stock dividends) equal to the amount of patronage capital

in excess of $10 million. Patronage refunds are allocated based on the ratio of interest revenue to RTB from each holder to RTB's total interest

revenue from all Class B stockholders. Subscriptions receivable relating to unadvanced loans approximated $47 million at September 30,

2000, and are not reflected in the accompanying principal financial statements.

Class B stock is nontransferable, except in connection with a transfer of ownership approved by RTB, of all or part of a RTB loan. A borrower

may exchange Class B stock for Class C stock: 1) upon retiring all debt with RTB; or 2) effective November 9, 1999, prior to retiring all debt on

a proportionate basis equal to the percentage of each note repaid. As of September 30, 2000, B stock exchanges of $21.7 million under the

latter method have occurred. Class B stock can be redeemed only after all shares of Class A stock, a nonvoting class of stock owned by the

U.S. Government, have been redeemed and retired.

Class C stock, a voting class of stock, is issued only to RTB borrowers, or to corporations and public entities eligible to borrow from RTB under

Section 408 of the RE Act as amended, or by organizations controlled by such borrowers, corporations, and public entities. RTB may pay cash

dividends on Class C stock.

Restricted Capital

The Omnibus Budget Reconciliation Act of 1987 required the RTB to establish a contingency reserve for interest rate fluctuations. As a result,

the RTB Board of Directors amended the Bylaws of RTB regarding the allocation of patronage capital and established a reserve of $10 million.

Any amounts in the reserve for interest rate fluctuations, classified as restricted capital on the Balance Sheet, in excess of $10 million will be

allocated as Class B stock dividends to those borrowers holding Class B stock during the fiscal year the amounts were earned. At September

30, 2000, restricted capital was $9.9 million due to an increase in fiscal year 1999 Class C stock dividends payable after the end of fiscal year

1999 of $88 thousand.

Patronage Capital Earned

Patronage capital earned consists of all revenues of the RTB for any fiscal year in excess of the amount thereof necessary to:

- Pay expenses of the RTB, including without limitation, payments in lieu of property taxes.

- Pay interest on telephone debentures accruing during the fiscal year.

- Provide reasonable allowances for depreciation, obsolescence, and losses on loans and interest receivable.

- Pay to the holders of Class A stock an amount equal to 2% per annum of the capital furnished to the RTB for such stock.

- Pay to the holders of Class C stock dividends at the rate determined by the Board, provided the following criteria is met;

1. No dividends shall be declared on Class C stock until arrearages, if any, on payments to holders of the cumulative Class A stock

have been paid.

2. Until all Class A stock has been retired, the Board shall not declare any dividends on Class C stock at an annual rate in excess of

the then current average rate payable on the RTB's telephone debentures.

Unexpended Appropriations

Unexpended Appropriations include the undelivered orders and unobligated balances of the program accounts which receive Congressional

appropriations through the budgetary process.

As appropriated funds incur obligations, the obligated amount is recorded as an undelivered order. Undelivered orders are reduced by either an

expenditure or an obligation cancellation. Appropriated funds, which are not obligated, are treated as unobligated amounts. At the end of the

fiscal year, certain multi-year appropriations, which have unobligated balances, remain available for obligation in future periods. Unobligated

appropriations are returned to the U.S. Treasury when their period of availability expires.

Capital Stock Class A

Public Laws 92-12 and 97-98 authorized Congress, in fiscal years 1971 through 1991, to appropriate no more than $30 million per year for

the purchase of RTB Class A stock. Class A stock has a guaranteed annual dividend of 2 percent of the total funds received. The law provides

that Congress annually appropriate funds until such purchases approximate $600 million.
Rural Telephone Bank 

2000 Annual Report

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As of September 30, 2000, RTB Class A stock appropriations amounted to approximately $592.1 million, the total funding USDA Rural

Development will receive from Congress. Beginning in 1996, RTB was required to repurchase this stock; however, in accordance with Public

Law 106-78, Section 718, the maximum Class A stock that may be retired is 5 percent. According to enabling legislation and amendments,

the Bank will be converted to independent status when 51 percent of the Class A stock issued to the United States has been fully redeemed

and retired. On September 30, 2000, in accordance with Bank Board resolution 2000-6, the fifth redemption ($25.1 million) of Class A stock

occurred, leaving a balance of $476.7 million outstanding.

Cumulative Results of Operations

Cumulative Results of Operations are allocated to the various components of Net Position based on the requirements of the RE Act.

Specifically, current year results of operations are recorded as Patronage Capital Earned and redistributed to the Class B stock and Restricted

Capital accounts. Cash dividends are paid out of Cumulative Results of Operations.

Note 8 Earned Revenues (Budget Function Code 452) 

September 30, 2000

Federal:

Interest Revenue from Treasury $ 57,866,623

Total Federal 57,866,623

Non-Federal:

Interest and Penalties Revenue 81,405,151

Total Non-Federal 81,405,151

Total Earned Revenues $ 139,271,774

Credit Reform

The amount of subsidy expense on post-1991 direct loans equals the present value of estimated cash outflows over the life of the loan less the

present value of cash inflows, discounted at the interest rate of marketable Treasury securities with a similar maturity term. A major component

of subsidy expense is the interest subsidy cost/interest differential. This is defined as the excess of the amount of direct loans disbursed over

the present value of the interest and principal payments required by the loan contracts, discounted at the applicable Treasury rate. One of the

components of interest subsidy cost/interest differential is interest revenue. This interest revenue is earned from both federal and non-federal

sources. For a further discussion of present value, refer to Note 1E, and for all of the components of subsidy expense and their respective

dollar amounts by entity, refer to Note 3.

Exchange Transactions With Non-Federal Sources

Rural Telephone Bank loans have a statutory rate that is established on an annual basis depending on the Bank's cost of raising capital.

Exchange Transactions with Federal Sources

As discussed in Note 1A, the history of RTB is one of financial and technical assistance to rural America. RTB serves as a temporary source of

supervised credit until borrowers are able to qualify for private sector resources. Although a lender of last resort, RTB is able to recoup all of the

costs associated with its loan making. The main reason is the RTB establishes its cost of money on an annual basis in a manner which enables

it to recover all costs.

Note 9 Disclosures Related to the Statement of Budgetary Resources

 

(a) The net amount of budgetary resources obligated for undelivered orders as of September 30, 2000, is approximately $1,020.7 million.

(b) The amount of borrowing authority available as of September 30, 2000, is approximately $904.0 million.

(c) Requirements for repayments of borrowings: Borrowings are repaid on Form SF 1151, Nonexpenditure Transfers, as maturity dates become

due. For liquidating accounts, maturity dates are fifty years from the close of the fiscal year the funds were advanced by Treasury to the

Bank. For financing accounts, maturity is based on the period of time used in the subsidy calculation, not the contractual term of the

agency’s loans to borrowers. This period of time used in the subsidy calculation will normally be longer than the contractual term of the

agency’s loans to borrowers.
Rural Telephone Bank 

2000 Annual Report

 14

Terms of borrowings used: In general, borrowings are for periods of up to fifty years depending upon the cohort. Interest rates on borrowings in

the liquidating accounts were assigned on the basis of the Treasury rate in effect at the time of the borrowing. Interest rates on borrowings in

the financing accounts are assigned on the basis of the Treasury rate in effect at the end of the year of loan disbursements. Since individual

loans are typically disbursed over several years, several interest rates may be applicable to an individual loan. A single weighted average interest

rate, which is adjusted each year until all the disbursements for the cohort have been made, is maintained.

Prepayments can be made on Treasury borrowings in the liquidating and financing accounts without penalty.

Financing sources for repayments of borrowings: Included are reestimates and cash flows (i.e. borrower loan principal repayments),

appropriations received in liquidating accounts for “cash needs”, residual unobligated balances, where applicable, and other Treasury

borrowings.

- Adjustments during the fiscal year to budgetary resources available at the beginning of the year as follows:

Actual Recoveries of Prior Year Obligations $ 78,198,724

Redemption of Debt (51,673,540)

Other Authority Withdrawn (56,534,711)

Total Adjustments $ (30,009,527)

Actual recoveries of prior year obligations represent cancellations or downward adjustments of obligations incurred in prior fiscal years that did

not result in an outlay. For expired accounts, these recoveries are available for upward adjustments of valid obligations incurred during the

unexpired periods but not recorded.

Redemption of debt represents the amount of principal repayments paid to Treasury on outstanding borrowings. It does not include interest

payments, which are shown as an obligation and an outlay.

Other authority withdrawn represents the withdrawal of unobligated balances of indefinite budget authority realized in no-year or multiple year

accounts through downward adjustments of prior year obligations.

- Existence, purpose, and availability of permanent indefinite appropriations: Permanent indefinite appropriations are mainly applicable to

liquidating accounts which have the ability to apportion them and for reestimates related to upward adjustments of subsidy in the program

accounts. These appropriations become available pursuant to standing provisions of law without further action by Congress after transmittal

of the Budget for the year involved. They are treated as permanent the first year they become available, as well as succeeding years.

However, they are not stated as specific amounts but are determined by specific variable factors, such as “cash needs” for the liquidating

accounts and information about the actual performance of a cohort or estimated changes in future cash flows of the cohort in the program

accounts.

The period of availability for these appropriations are as follows: Annual authority is available for obligations only during a specific year and

expires at the end of that time. Multi-year authority is available for obligations for a specified period of time in excess of one fiscal year. Noyear authority remains available for obligation for an indefinite period of time, usually until the objectives for which the authority was made

available are achieved.

Annual and multi-year authority expire for the purpose of incurring new obligations. However, the authority is available for adjustments to

obligations and for disbursements that were incurred or made during the period prior to expiration, but not recorded. Unless specifically

authorized in law, the period that the expired authority is available for adjustments to obligations or for disbursements is five fiscal years

(beginning with the first expired year). At the end of the fifth expired year, the authority is "canceled”. Therefore, the authority is not available

for any purpose.

- Legal arrangements affecting the use of unobligated balances of budget authority: The availability/use of budgetary resources (i.e.,

unobligated balances) for obligation and expenditure are limited by purpose, amount, and time.

Purpose: Funds may be obligated and expended only for the purposes authorized in appropriations acts or other laws.

Amount: Obligations and expenditures may not exceed the amounts established in law. Amounts available are classified as either definite

(i.e., not to exceed a specified amount) or indefinite (i.e. amount is determined by specified variable factors).

Time: The period of time during which budgetary resources may incur new obligations is different from the period of time during which the

budgetary resources may be used to disburse funds.

The time limitations on the use of unobligated balances are the same as those previously discussed in the last two paragraphs of the permanent

indefinite appropriations footnote disclosure.

Any information about legal arrangements affecting the use of unobligated balances of budget authority will be specifically stated by programs

and fiscal year in the appropriation language or in the alternative provisions section at the end of the appropriations act.

Contributed capital received during the reporting period approximated $13 thousand.
Rural Telephone Bank 

2000 Annual Report

 15

Stockholder Meeting

The Stockholder Meeting will be held on August 17, 2001, at 9:00 a.m., at the

U.S. Department of Agriculture, Washington, D.C.

Stockholder Questions

Jonathan P. Claffey, Assistant Secretary

Rural Telephone Bank

1400 Independence Avenue, SW

Mail Stop 1590, Room 4056, South Building

Washington, DC 20250-1590

(202) 720-9556

More Information

For more information about the Bank, visit our Internet site:

www.usda.gov/rus/telecom/rtb/rtb.htm

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race,

color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not

all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of

program information (Braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600

(voice and TDD).

To file a complaint of discrimination, write to: USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building,

14th and Independence Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is

an equal opportunity provider and employer.