Bank of America 2005 Annual Report Download - page 48

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-
looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about
future events. In light of the risks, uncertainties and assumptions discussed under Item 1A. “Risk Factors” of this Annual
Report on Form 10-K and other factors discussed in this section, there are risks that our actual experience will differ
materially from the expectations and beliefs reflected in the forward-looking statements in this section and throughout this
report. For more information regarding what constitutes a forward-looking statement, please refer to Item 1A. “Risk
Factors.”
The Corporation, headquartered in Charlotte, North Carolina, operates in 29 states, the District of Columbia and 44
foreign countries. The Corporation provides a diversified range of banking and nonbanking financial services and
products domestically and internationally through four business segments: Global Consumer and Small Business
Banking,Global Business and Financial Services,Global Capital Markets and Investment Banking, and Global Wealth
and Investment Management.
At December 31, 2005, we had $1.3 trillion in assets and approximately 177,000 full-time equivalent employees.
Notes to Consolidated Financial Statements referred to in Management’s Discussion and Analysis of Results of
Operations and Financial Condition are incorporated by reference into Management’s Discussion and Analysis of Results
of Operations and Financial Condition. Certain prior period amounts have been reclassified to conform to current period
presentation.
Restatement
As discussed in Notes 1 and 23 of the Consolidated Financial Statements, we are restating our historical financial
statements for the years 2004 and 2003, for the quarters in 2005 and 2004, and other selected financial data for the
years 2002 and 2001 (see Tables 2 and 3 on pages 23 and 25 for the restatements of Five-Year Summary of Selected
Financial Data, and Supplemental Financial Data and Reconciliations to GAAP Financial Measures). These
restatements and resulting revisions relate to the accounting treatment for certain derivative transactions under the
Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging
Activities, as amended” (SFAS 133). The Corporation is presenting this restatement in its 2005 Annual Report on Form
10-K.
The Corporation uses interest rate contracts and foreign exchange contracts in its Asset and Liability Management
(ALM) process. Use of such derivatives enables us to minimize significant fluctuations in earnings caused by interest
rate and currency rate volatility. The Corporation had applied hedge accounting for certain derivative transactions that
we believe met the requirements of SFAS 133. The application of hedge accounting produced financial statement results
that were consistent with the economics of these transactions and our risk management activities. Hedge accounting
reduces volatility in earnings by counterbalancing the changes in the hedged item and the derivative. As a result of a
recent interpretation on the “shortcut” method for derivative instruments under SFAS 133, the Corporation undertook a
review of all hedge accounting transactions, which was completed in the first quarter of 2006. Based on the review, we
determined that certain hedges did not meet the requirements of SFAS 133. Since we could not apply hedge accounting
for those transactions, the derivative transactions have been marked to market through our Consolidated Statement of
Income with no related offset for hedge accounting. Accordingly, changes in interest rates and currency rates which
impact the fair value of derivative instruments have had a direct impact on our Net Income.
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