<Page>
EXHIBIT 99.02
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Citigroup Inc.:
We have audited the accompanying consolidated statement of financial
position of Citigroup Inc. and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citigroup
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in 2001
the Company changed its methods of accounting for derivative instruments and
hedging activities, accounting for interest income and impairment on purchased
and retained beneficial interests in securitized financial assets, and
accounting for goodwill and intangible assets resulting from business
combinations consummated after June 30, 2001. Also, as discussed in Note 1 to
the consolidated financial statements, in 1999 the Company changed its methods
of accounting for insurance-related assessments, accounting for insurance and
reinsurance contracts that do not transfer insurance risk, and accounting for
the costs of start-up activities.
/s/ KPMG LLP
New York, New York
January 17, 2002, except as to notes 1, 3, 4, 15 and 21,
which are as of November 20, 2002
1
<Page>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
REVENUES
Loan interest, including fees $ 39,588 $ 37,319 $ 32,950
Other interest and dividends 24,896 25,430 19,931
Insurance premiums 3,450 3,236 3,467
Commissions and fees 15,593 15,975 13,088
Principal transactions 5,544 5,981 5,160
Asset management and administration fees 5,389 5,338 4,164
Realized gains from sales of investments 237 760 429
Other revenue 4,463 5,992 4,118
--------------------------------------------
TOTAL REVENUES 99,160 100,031 83,307
Interest expense 31,793 36,459 28,498
--------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE 67,367 63,572 54,809
--------------------------------------------
BENEFITS, CLAIMS AND CREDIT LOSSES
Policyholder benefits and claims 3,520 3,127 2,753
Provision for credit losses 6,800 5,339 4,760
--------------------------------------------
TOTAL BENEFITS, CLAIMS AND CREDIT LOSSES 10,320 8,466 7,513
--------------------------------------------
OPERATING EXPENSES
Non-insurance compensation and benefits 19,449 18,633 16,169
Insurance underwriting, acquisition, and operating 1,115 1,277 1,325
Restructuring-and merger-related items 454 716 (53)
Other operating expenses 15,510 15,183 13,608
--------------------------------------------
TOTAL OPERATING EXPENSES 36,528 35,809 31,049
--------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 20,519 19,297 16,247
Provision for income taxes 7,203 7,027 6,027
Minority interest, net of income taxes 87 39 27
--------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 13,229 12,231 10,193
--------------------------------------------
DISCONTINUED OPERATIONS
Income from discontinued operations 1,378 1,786 1,680
Provision for income taxes 323 498 503
--------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS, NET 1,055 1,288 1,177
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, NET (158) - (127)
--------------------------------------------
NET INCOME $ 14,126 $ 13,519 $ 11,243
===============================================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ 2.61 $ 2.43 $ 2.02
Income from discontinued operations, net 0.21 0.26 0.24
Cumulative effect of accounting changes (0.03) - (0.03)
--------------------------------------------
NET INCOME $ 2.79 $ 2.69 $ 2.23
============================================
Weighted average common shares outstanding 5,031.7 4,977.0 4,979.2
===============================================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 2.55 $ 2.37 $ 1.96
Income from discontinued operations, net 0.20 0.25 0.23
Cumulative effect of accounting changes (0.03) - (0.02)
--------------------------------------------
NET INCOME $ 2.72 $ 2.62 $ 2.17
============================================
Adjusted weighted average common shares outstanding 5,147.0 5,122.2 5,127.8
===============================================================================================================================
</Table>
See Notes to the Consolidated Financial Statements.
2
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<Table>
<Caption>
DECEMBER 31,
-----------------------------
IN MILLIONS OF DOLLARS 2001(1) 2000(1)
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (including segregated cash and other deposits) $ 18,515 $ 14,621
Deposits at interest with banks 19,216 16,164
Federal funds sold and securities borrowed or purchased under agreements to resell 134,809 105,877
Brokerage receivables 35,155 25,696
Trading account assets (including $36,351 and $30,502 pledged to creditors at
December 31, 2001 and December 31, 2000, respectively) 144,904 132,513
Investments (including $15,475 and $3,354 pledged to creditors at
December 31, 2001 and December 31, 2000, respectively) 160,837 120,122
Loans, net of unearned income
Consumer 248,201 228,879
Corporate 143,732 138,143
-----------------------------
Loans, net of unearned income 391,933 367,022
Allowance for credit losses (10,088) (8,961)
-----------------------------
Total loans, net 381,845 358,061
Reinsurance recoverables 12,373 10,716
Separate and variable accounts 25,569 24,947
Other assets 118,227 93,493
-----------------------------
TOTAL ASSETS $ 1,051,450 $ 902,210
===============================================================================================================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 23,054 $ 21,694
Interest-bearing deposits in U.S. offices 110,388 58,913
Non-interest-bearing deposits in offices outside the U.S. 18,779 13,811
Interest-bearing deposits in offices outside the U.S. 222,304 206,168
-----------------------------
Total deposits 374,525 300,586
Federal funds purchased and securities loaned or sold under agreements to repurchase 153,511 110,625
Brokerage payables 32,891 15,882
Trading account liabilities 80,543 85,107
Contractholder funds and separate and variable accounts 48,932 44,884
Insurance policy and claims reserves 49,294 44,666
Investment banking and brokerage borrowings 16,480 18,743
Short-term borrowings 24,461 51,675
Long-term debt 121,631 111,778
Other liabilities 60,810 47,138
- -------------------------------------------------------------------------------------------------------------------------------
Citigroup or subsidiary obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated debt securities of -- Parent 4,850 2,300
-- Subsidiary 2,275 2,620
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 970,203 836,004
- -------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 1,525 1,745
Common stock ($.01 par value; authorized shares: 15 billion),
issued shares: 2001 - 5,477,416,254 SHARES and 2000 - 5,351,143,583 shares 55 54
Additional paid-in capital 23,196 16,504
Retained earnings 69,803 58,862
Treasury stock, at cost: 2001 - 328,727,790 SHARES and 2000 - 328,921,189 shares (11,099) (10,213)
Accumulated other changes in equity from nonowner sources (844) 123
Unearned compensation (1,389) (869)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 81,247 66,206
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,051,450 $ 902,210
===============================================================================================================================
</Table>
(1) In accordance with GAAP, prior period information has not been restated to
reflect TPC as a discontinued operation. See Note 3 to the Consolidated
Financial Statements.
See Notes to the Consolidated Financial Statements.
3
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
AMOUNTS SHARES
----------------------------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT SHARES IN THOUSANDS 2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE
Balance, beginning of year $ 1,745 $ 1,895 $ 2,274 6,233 6,831 8,327
Redemption or retirement of preferred stock (250) (150) (379) (500) (598) (1,496)
Other(1) 30 - - 117 - -
----------------------------------------------------------------------
Balance, end of year 1,525 1,745 1,895 5,850 6,233 6,831
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 16,558 15,361 14,210 5,351,144 5,350,977 5,338,223
Employee benefit plans 228 1,119 1,036 - - 381
Conversion of redeemable preferred stock to common stock - - 140 - - 12,489
Other(2) 6,465 78 (25) 126,272 167 (116)
----------------------------------------------------------------------
Balance, end of year 23,251 16,558 15,361 5,477,416 5,351,144 5,350,977
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 58,862 47,997 38,893
Net income 14,126 13,519 11,243
Common dividends (3,075) (2,535) (1,990)
Preferred dividends (110) (119) (149)
---------------------------------
Balance, end of year 69,803 58,862 47,997
- ---------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance, beginning of year (10,213) (7,662) (4,829) (328,922) (326,918) (288,935)
Issuance of shares pursuant to employee benefit plans 1,980 1,465 1,116 59,681 83,601 78,469
Treasury stock acquired (3,045) (4,066) (3,954) (64,184) (87,149) (116,697)
Other 179 50 5 4,697 1,544 245
----------------------------------------------------------------------
Balance, end of year (11,099) (10,213) (7,662) (328,728) (328,922) (326,918)
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance, beginning of year 123 1,155 984
Cumulative effect of accounting changes, after-tax(3) 118 - -
Net change in unrealized gains and losses
on investment securities, after-tax (222) (674) 214
Net change for cash flow hedges, after-tax 171 - -
Net change in foreign currency translation adjustment,
after-tax (1,034) (358) (43)
---------------------------------
Balance, end of year (844) 123 1,155
- ----------------------------------------------------------------------------------------------------------------------------------
UNEARNED COMPENSATION
Balance, beginning of year (869) (456) (497)
Net issuance of restricted stock (1,133) (1,055) (380)
Restricted stock amortization 613 642 421
---------------------------------
Balance, end of year (1,389) (869) (456)
- ---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY
AND COMMON SHARES OUTSTANDING 79,722 64,461 56,395 5,148,688 5,022,222 5,024,059
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 81,247 $ 66,206 $ 58,290
==================================================================================================================================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income $ 14,126 $ 13,519 $ 11,243
Other changes in equity from nonowner sources, after-tax (967) (1,032) 171
---------------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 13,159 $ 12,487 $ 11,414
==================================================================================================================================
</Table>
(1) Represents shares previously held by affiliates that have subsequently been
traded on the open market to third parties.
(2) In 2001, primarily includes $6.5 billion for the issuance of shares to
effect the Banamex acquisition.
(3) Refers to the adoption of SFAS 133 and the adoption of EITF 99-20 in 2001,
resulting in increases to equity from nonowner sources of $25 million and
$93 million, respectively.
See Notes to the Consolidated Financial Statements.
24
<Page>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
IN MILLIONS OF DOLLARS 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
NET INCOME $ 14,126 $ 13,519 $ 11,243
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX 1,055 1,288 1,177
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (158) - (127)
---------------------------------------------
INCOME FROM CONTINUING OPERATIONS 13,229 12,231 10,193
Adjustments to reconcile net income to net cash provided by
operating activities of continuing operations
Amortization of deferred policy acquisition costs and value of insurance
in force 400 378 353
Additions to deferred policy acquisition costs (853) (799) (695)
Depreciation and amortization 2,289 2,526 2,153
Deferred tax provision 1,003 1,370 386
Provision for credit losses 6,800 5,339 4,760
Change in trading account assets (11,843) (25,443) 9,928
Change in trading account liabilities (4,503) (5,284) (3,826)
Change in federal funds sold and securities borrowed or purchased under
agreements to resell (28,932) 6,778 (17,824)
Change in federal funds purchased and securities loaned or sold
under agreements to repurchase 39,943 17,554 12,044
Change in brokerage receivables net of brokerage payables 7,550 (1,033) (4,926)
Change in insurance policy and claims reserves 1,446 859 (56)
Net gains from sales of investments (237) (760) (429)
Venture capital activity 888 (1,044) (863)
Restructuring-related items and merger-related costs 454 716 (53)
Other, net (873) (10,510) 585
---------------------------------------------
TOTAL ADJUSTMENTS 13,532 (9,353) 1,537
---------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 26,761 2,878 11,730
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Change in deposits at interest with banks (3,052) (3,898) (573)
Change in loans (34,787) (82,985) (120,970)
Proceeds from sales of loans 26,470 32,580 94,677
Purchases of investments (436,461) (87,251) (80,541)
Proceeds from sales of investments 388,127 52,029 38,660
Proceeds from maturities of investments 28,601 32,906 33,616
Other investments, primarily short-term, net (400) (1,444) 2,750
Capital expenditures on premises and equipment (1,709) (2,167) (1,750)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and
repossessed assets 1,789 1,220 3,437
Business acquisitions (7,067) (8,545) (6,321)
---------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (38,489) (67,555) (37,015)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Dividends paid (3,185) (2,654) (2,139)
Issuance of common stock 875 958 758
Issuance of mandatorily redeemable securities of subsidiary trusts - - 600
Issuance of mandatorily redeemable securities of parent trusts 2,550 - -
Redemption of mandatorily redeemable securities of subsidiary trusts (345) - -
Redemption of preferred stock, net (220) (150) (388)
Treasury stock acquired (3,045) (4,066) (3,954)
Stock tendered for payment of withholding taxes (506) (593) (496)
Issuance of long-term debt 43,735 43,527 18,537
Payments and redemptions of long-term debt (35,299) (22,325) (18,435)
Change in deposits 39,398 39,013 32,160
Change in short-term borrowings and investment banking and brokerage borrowings (30,931) 8,680 (580)
Contractholder fund deposits 8,363 6,077 5,933
Contractholder fund withdrawals (5,486) (4,758) (5,028)
---------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS 15,904 63,709 26,968
---------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (323) (530) (98)
- -------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 41 141 (7)
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS 3,894 (1,357) 1,578
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 14,621 15,978 14,400
---------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 18,515 $ 14,621 $ 15,978
===============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION FOR CONTINUING OPERATIONS
Cash paid during the period for income taxes $ 2,085 $ 5,047 $ 3,968
Cash paid during the period for interest $ 32,711 $ 34,790 $ 27,337
NON-CASH INVESTING ACTIVITIES
Transfers to repossessed assets $ 445 $ 820 $ 862
Non-cash effects of accounting for the conversion of investments in Nikko
Securities Co., Ltd. - 702 -
===============================================================================================================================
</Table>
See Notes to the Consolidated Financial Statements.
5
<Page>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Citigroup and its subsidiaries (the Company). Twenty-to-fifty
percent-owned affiliates, other than investments of designated venture capital
subsidiaries, are accounted for under the equity method, and the pro rata share
of their income (loss) is included in other income. Income from investments in
less than twenty percent-owned companies is generally recognized when dividends
are received. Gains and losses on disposition of branches, subsidiaries,
affiliates, and other investments and charges for management's estimate of
impairment in their value that is other than temporary, such that recovery of
the carrying amount is deemed unlikely, are included in other income. On July 1,
2001 the Company adopted the provisions of Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," (SFAS 141) and certain provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets," SFAS 142 as required for goodwill and intangible
assets resulting from business combinations consummated after June 30, 2001.
Goodwill related to purchase acquisitions completed prior to June 30, 2001 is
amortized on a straight-line basis over its estimated useful life through the
end of the year, while goodwill related to purchase acquisitions completed after
June 30, 2001, principally Banamex and EAB (as described in Note 2 to the
Consolidated Financial Statements), is not amortized. On January 1, 2002,
Citigroup adopted the remaining provisions of SFAS 142 under which goodwill and
intangible assets deemed to have indefinite useful lives will no longer be
amortized, but will be subject to annual impairment tests. See Future
Application of Accounting Standards in Note 1 to the Consolidated Financial
Statements. Other intangible assets are amortized over their estimated useful
lives, subject to periodic review for impairment that is other than temporary.
Prior to the adoption of SFAS 141 and SFAS 142, if it was determined that
enterprise level goodwill was unlikely to be recovered, impairment was measured
on a discounted cash-flow basis. The Company recognizes a gain or loss in the
Consolidated Statement of Income when a subsidiary issues its own stock to a
third party at a price higher or lower than the Company's proportionate carrying
amount.
On August 20, 2002, Citigroup completed the distribution to its
stockholders of a majority portion of its remaining ownership interest in
Travelers Property Casualty Corp. (TPC) (an indirect wholly-owned subsidiary of
Citigroup on December 31, 2001). Following the distribution, Citigroup began
reporting TPC separately as discontinued operations in the Company's
Consolidated Statements of Income and Cash Flows for all periods presented. In
accordance with GAAP, the Consolidated Statement of Financial Position has not
been restated. See Note 3 to the Consolidated Financial Statements for
additional discussion of discontinued operations.
Certain amounts in prior years have been reclassified to conform to the
current year's presentation.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities denominated in
non-U.S. dollar currencies are translated into U.S. dollar equivalents using
year-end spot foreign exchange rates. Revenues and expenses are translated
monthly at amounts which approximate weighted average exchange rates, with
resulting gains and losses included in income. The effects of translating
operations with a functional currency other than the U.S. dollar are included in
stockholders' equity along with related hedge and tax effects. The effects of
translating operations with the U.S. dollar as the functional currency,
including those in highly inflationary environments, are included in other
income along with related hedge effects. Hedges of foreign currency exposures
include forward currency contracts and designated issues of non-U.S. dollar
debt.
USE OF ESTIMATES. The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH FLOWS. Cash equivalents are defined as those amounts included in cash
and due from banks. Cash flows from risk management activities are classified in
the same category as the related assets and liabilities.
INVESTMENTS. Investments include fixed maturity and equity securities.
Fixed maturities include bonds, notes and redeemable preferred stocks, as well
as certain loan-backed and structured securities subject to prepayment risk.
Equity securities include common and non-redeemable preferred stocks. Fixed
maturities classified as "held to maturity" represent securities that the
Company has both the ability and the intent to hold until maturity and are
carried at amortized cost. Fixed maturity securities classified as
"available-for-sale" and marketable equity securities are carried at fair
values, based primarily on quoted market prices or if quoted market prices are
not available, discounted expected cash flows using market rates commensurate
with the credit quality and maturity of the investment, with unrealized gains
and losses and related hedge effects reported in a separate component of
stockholders' equity, net of applicable income taxes. Declines in fair value
that are determined to be other than temporary are charged to earnings. Accrual
of income is suspended on fixed maturities that are in default, or on which it
is likely that future interest payments will not be made as scheduled. Fixed
maturities subject to prepayment risk are accounted for using the retrospective
method, where the principal amortization and effective yield are recalculated
each period based on actual historical and projected future cash flows. Realized
gains and losses on sales of investments are included in earnings on a specific
identified cost basis.
Citigroup's venture capital subsidiaries include subsidiaries registered as
Small Business Investment Companies and other subsidiaries that engage
exclusively in venture capital activities. Venture capital investments are
carried at fair value, with changes in fair value recognized in other income.
The fair values of publicly-traded securities held by these subsidiaries are
generally based upon quoted market prices. In certain situations, including
thinly-traded securities, large-block holdings, restricted shares or other
special situations, the quoted market price is adjusted to produce an estimate
of the attainable fair value for the securities. For securities held by these
subsidiaries that are not publicly traded, estimates of fair value are made
based upon review of the investee's financial results, condition, and prospects,
together with comparisons to similar companies for which quoted market prices
are available.
SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of
cash advanced or received. With respect to securities loaned, the Company
receives cash collateral in an amount in excess of the market value of
securities loaned. The Company monitors the market value of securities borrowed
and loaned on a daily basis with
6
<Page>
additional collateral obtained as necessary. Interest received or paid is
recorded in interest income or interest expense.
REPURCHASE AND RESALE AGREEMENTS are treated as collateralized financing
transactions and are carried at the amounts at which the securities will be
subsequently reacquired or resold, including accrued interest, as specified in
the respective agreements. The Company's policy is to take possession of
securities purchased under agreements to resell. The market value of securities
to be repurchased and resold is monitored, and additional collateral is obtained
where appropriate to protect against credit exposure.
TRADING ACCOUNT ASSETS AND LIABILITIES include securities, commodities and
derivatives and are recorded at either market value or, when market prices are
not readily available, fair value, which is determined under an alternative
approach, such as matrix or model pricing. Obligations to deliver securities
sold but not yet purchased are also valued at market and included in trading
account liabilities. The determination of market or fair value considers various
factors, including: closing exchange or over-the-counter market price
quotations; time value and volatility factors underlying options, warrants and
derivatives; price activity for equivalent or synthetic instruments;
counterparty credit quality; the potential impact on market prices or fair value
of liquidating the Company's positions in an orderly manner over a reasonable
period of time under current market conditions; and derivatives transaction
maintenance costs during that period. Interest expense on trading account
liabilities is reported as a reduction of interest revenues.
Commodities include physical quantities of commodities involving future
settlement or delivery, and related gains or losses are reported as principal
transactions.
Derivatives used for trading purposes include interest rate, currency,
equity, credit, and commodity swap agreements, options, caps and floors,
warrants, and financial and commodity futures and forward contracts. The fair
value of derivatives is determined based upon liquid market prices evidenced by
exchange traded prices, broker-dealer quotations or prices of other transactions
with similarly rated counterparties. The fair value includes an adjustment for
individual counterparty credit risk and other adjustments, as appropriate, to
reflect liquidity and ongoing servicing costs. The fair values (unrealized gains
and losses) associated with derivatives are reported net by counterparty,
provided a legally enforceable master netting agreement exists, and are netted
across products and against cash collateral when such provisions are stated in
the master netting agreement. Derivatives in a net receivable position, as well
as options owned and warrants held, are reported as trading account assets.
Similarly, derivatives in a net payable position, as well as options written and
warrants issued, are reported as trading account liabilities. Revenues generated
from derivative instruments used for trading purposes are reported as principal
transactions and include realized gains and losses as well as unrealized gains
and losses resulting from changes in the market or fair value of such
instruments.
COMMISSIONS, UNDERWRITING AND PRINCIPAL TRANSACTIONS revenues and related
expenses are recognized in income on a trade date basis.
CONSUMER LOANS includes loans managed by the Global Consumer business and
PRIVATE BANK. Consumer loans are generally written off not later than a
predetermined number of days past due primarily on a contractual basis, or
earlier in the event of bankruptcy. The number of days is set at an appropriate
level by loan product and by country. The policy for suspending accruals of
interest on consumer loans varies depending on the terms, security and loan loss
experience characteristics of each product, and in consideration of write-off
criteria in place.
CORPORATE LOANS represent loans managed by GCIB, Global Investment
Management's LIFE INSURANCE AND ANNUITIES business and Proprietary Investment
Activities. Corporate loans are identified as impaired and placed on a cash
(nonaccrual) basis when it is determined that the payment of interest or
principal is doubtful of collection, or when interest or principal is past due
for 90 days or more, except when the loan is well secured and in the process of
collection. Any interest accrued is reversed and charged against current
earnings, and interest is thereafter included in earnings only to the extent
actually received in cash. When there is doubt regarding the ultimate
collectibility of principal, all cash receipts are thereafter applied to reduce
the recorded investment in the loan. Impaired corporate loans are written down
to the extent that principal is judged to be uncollectible. Impaired
collateral-dependent loans where repayment is expected to be provided solely by
the underlying collateral and there are no other available and reliable sources
of repayment are written down to the lower of cost or collateral value.
Cash-basis loans are returned to an accrual status when all contractual
principal and interest amounts are reasonably assured of repayment and there is
a sustained period of repayment performance in accordance with the contractual
terms.
LEASE FINANCING TRANSACTIONS. Loans include the Company's share of
aggregate rentals on lease financing transactions and residual values net of
related unearned income. Lease financing transactions substantially represent
direct financing leases and also include leveraged leases. Unearned income is
amortized under a method which results in an approximate level rate of return
when related to the unrecovered lease investment. Gains and losses from sales of
residual values of leased equipment are included in other income.
SECURITIZATIONS primarily include sales of credit card receivables,
mortgages and home equity loans.
Revenue on securitized credit card receivables is recorded monthly as
earned over the term of each securitization transaction, which may range up to
12 years. The revolving nature of the receivables sold and the monthly
recognition of revenue result in a pattern of recognition that is similar to the
pattern that would be experienced if the receivables had not been sold.
Net revenue on securitized credit card receivables is collected over the
life of each sale transaction. The net revenue is based upon the sum of finance
charges and fees received from cardholders and interchange revenue earned on
cardholder transactions, less the sum of the yield paid to investors, credit
losses, transaction costs, and a contractual servicing fee, which is also
retained by certain Citigroup subsidiaries as servicers.
The Company retains a seller's interest in the credit card receivables
transferred to the trust, which is not in securitized form. Accordingly, the
seller's interest is carried on a historical cost basis and classified as
consumer loans. Retained interests in securitized mortgage loans are classified
as investments.
Servicing rights retained in the securitization of mortgage and home equity
loans are measured by allocating the carrying value of the loans between the
assets sold and the interest retained, based on the relative fair value at the
date of the securitization. The fair market values are determined using either
financial models, quoted market prices or sales of similar assets. Gain or loss
on the sale of mortgage loans is recognized at the time of the securitizations.
Mortgage servicing assets are amortized over the expected life of the loan and
are evaluated periodically for impairment.
LOANS HELD FOR SALE. Credit card and other receivables and mortgage loans
originated for sale are classified as loans held for sale, which are accounted
for at the lower of cost or market value in other assets with net credit losses
charged to other income.
7
<Page>
ALLOWANCE FOR CREDIT LOSSES represents management's estimate of probable
losses inherent in the portfolio. Attribution of the allowance is made for
analytical purposes only, and the entire allowance is available to absorb
probable credit losses inherent in the portfolio including unfunded commitments.
Additions to the allowance are made by means of the provision for credit losses.
Credit losses are deducted from the allowance, and subsequent recoveries are
added. Securities received in exchange for loan claims in debt restructurings
are initially recorded at fair value, with any gain or loss reflected as a
recovery or charge-off to the allowance, and are subsequently accounted for as
securities available-for-sale.
Larger-balance, non-homogenous exposures representing significant
individual credit exposures are evaluated based upon the borrower's overall
financial condition, resources, and payment record; the prospects for support
from any financially responsible guarantors; and, if appropriate, the realizable
value of any collateral. The allowance for credit losses attributed to these
loans is established via a process which begins with estimates of probable loss
inherent in the portfolio based upon various statistical analyses. These
analyses consider historical and projected default rates and loss severities;
internal risk ratings; geographic, industry, and other environmental factors;
and model imprecision. Management also considers overall portfolio indicators
including trends in internally risk-rated exposures, classified exposures,
cash-basis loans, and historical and forecasted write-offs; and a review of
industry, geographic, and portfolio concentrations, including current
developments within those segments. In addition, management considers the
current business strategy and credit process, including credit limit setting and
compliance, credit approvals, loan underwriting criteria, and loan workout
procedures. Within the allowance for credit losses, a valuation allowance is
maintained for larger-balance, non-homogenous loans that have been individually
determined to be impaired. This estimate considers all available evidence
including, as appropriate, the present value of the expected future cash flows
discounted at the loan's contractual effective rate, the secondary market value
of the loan and the fair value of collateral.
Each portfolio of smaller-balance, homogenous loans, including consumer
mortgage, installment, revolving credit and most other consumer loans, is
collectively evaluated for impairment. The allowance for credit losses
attributed to these loans is established via a process that begins with
estimates of probable losses inherent in the portfolio, based upon various
statistical analyses. These include migration analysis, in which historical
delinquency and credit loss experience is applied to the current aging of the
portfolio, together with analyses that reflect current trends and conditions.
Management also considers overall portfolio indicators including historical
credit losses, delinquent, non-performing and classified loans, and trends in
volumes and terms of loans; an evaluation of overall credit quality and the
credit process, including lending policies and procedures; consideration of
economic, geographical, product, and other environmental factors; and model
imprecision.
This evaluation includes an assessment of the ability of borrowers with
foreign currency obligations to obtain the foreign exchange necessary for
orderly debt servicing.
REPOSSESSED ASSETS. Upon repossession, loans are adjusted, if necessary, to
the estimated fair value of the underlying collateral and transferred to
Repossessed Assets, which is reported in other assets net of a valuation
allowance for selling costs and net declines in value as appropriate.
RISK MANAGEMENT ACTIVITIES - DERIVATIVES USED FOR NON-TRADING PURPOSES. The
Company manages its exposures to market rate movements outside of its trading
activities by modifying the asset and liability mix, either directly or through
the use of derivative financial products including interest rate swaps, futures,
forwards, and purchased option positions such as interest rate caps, floors, and
collars as well as foreign exchange contracts. These end-user derivatives are
carried at fair value in other assets or other liabilities.
To qualify as a hedge, the hedge relationship is designated and formally
documented at inception detailing the particular risk management objective and
strategy for the hedge which includes the item and risk that is being hedged,
the derivative that is being used, as well as how effectiveness is being
assessed. A derivative must be highly effective in accomplishing the objective
of offsetting either changes in fair value or cash flows for the risk being
hedged. The effectiveness of these hedging relationships is evaluated on a
retrospective and prospective basis using quantitative measures of correlation.
If a hedge relationship is found to be ineffective, it no longer qualifies as a
hedge and any excess gains or losses attributable to such ineffectiveness, as
well as subsequent changes in fair value, are recognized in other income.
The foregoing criteria are applied on a decentralized basis, consistent
with the level at which market risk is managed, but are subject to various
limits and controls. The underlying asset, liability, firm commitment or
forecasted transaction may be an individual item or a portfolio of similar
items.
For fair value hedges, in which derivatives hedge the fair value of assets,
liabilities or firm commitments, changes in the fair value of derivatives are
reflected in other income, together with changes in the fair value of the
related hedged item. The net amount, representing hedge ineffectiveness, is
reflected in current earnings. Citigroup's fair value hedges are primarily the
hedges of fixed-rate long-term debt, loans and available-for-sale securities.
For cash flow hedges, in which derivatives hedge the variability of cash
flows related to floating rate assets, liabilities or forecasted transactions,
the accounting treatment depends on the effectiveness of the hedge. To the
extent these derivatives are effective in offsetting the variability of the
hedged cash flows, changes in the derivatives' fair value will not be included
in current earnings but are reported as other changes in stockholders' equity
from nonowner sources. These changes in fair value will be included in earnings
of future periods when earnings are also affected by the variability of the
hedged cash flows. To the extent these derivatives are not effective, changes in
their fair values are immediately included in other income. Citigroup's cash
flow hedges primarily include hedges of floating rate credit card receivables
and loans, rollovers of commercial paper and foreign currency denominated
funding. Cash flow hedges also include hedges of certain forecasted transactions
up to a maximum tenor of 30 years, although a substantial majority of the
maturities is under five years.
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting treatment
will similarly depend on the effectiveness of the hedge. The effective portion
of the change in fair value of the derivative, including any forward premium or
discount, is reflected in other changes in stockholders' equity from nonowner
sources as part of the foreign currency translation adjustment.
Non-trading derivatives that are either hedging instruments that are
carried at fair value or do not qualify as hedges are also carried at fair value
with changes in value included either as an element of the yield or return on
the hedged item or in other income.
For those hedge relationships that are terminated, hedge designations that
are removed, or forecasted transactions that are no longer expected to occur,
the hedge accounting treatment described in the paragraphs above is no longer
applied. The end-user derivative is terminated or transferred to the trading
account. For fair value hedges,
8
<Page>
any changes to the hedged item remain as part of the basis of the asset or
liability and are ultimately reflected as an element of the yield. For cash flow
hedges, any changes in fair value of the end-user derivative remain in other
changes in stockholders' equity from nonowner sources and are included in
earnings of future periods when earnings are also affected by the variability of
the hedged cash flow. If the hedged relationship was discontinued or a
forecasted transaction is not expected to occur when scheduled, any changes in
fair value of the end-user derivative are immediately reflected in other income.
Prior to the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), on January 1, 2001 (see
Accounting Changes below), end-user derivatives designated in qualifying hedges
were accounted for consistent with the risk management strategy as follows.
Amounts payable and receivable on interest rate swaps and options were accrued
according to the contractual terms and included in the related revenue and
expense category as an element of the yield on the associated instrument
(including the amortization of option premiums). Amounts paid or received over
the life of futures contracts were deferred until the contract is closed;
accumulated deferred amounts on futures contracts and amounts paid or received
at settlement of forward contracts were accounted for as elements of the
carrying value of the associated instrument, affecting the resulting yield.
End-user contracts related to instruments carried at fair value were also
carried at fair value, with amounts payable and receivable accounted for as an
element of the yield on the associated instrument. When related to securities
available-for-sale, fair value adjustments were reported in stockholders'
equity, net of tax.
If an end-user derivative contract was terminated, any resulting gain or
loss was deferred and amortized over the original term of the agreement provided
that the effectiveness criteria had been met. If the underlying designated items
were no longer held, or if an anticipated transaction was no longer likely to
occur, any previously unrecognized gain or loss on the derivative contract was
recognized in earnings and the contract was accounted for at fair value with
subsequent changes recognized in earnings.
Foreign exchange contracts which qualified as hedges of foreign currency
exposures, including net capital investments outside the U.S., were revalued at
the spot rate with any forward premium or discount recognized over the life of
the contract in interest revenue or interest expense. Gains and losses on
foreign exchange contracts which qualified as a hedge of a firm commitment were
deferred and recognized as part of the measurement of the related transaction,
unless deferral of a loss would have led to recognizing losses on the
transaction in later periods.
INSURANCE PREMIUMS from long-duration contracts, principally life
insurance, are earned when due. Premiums from short-duration insurance contracts
are earned over the related contract period. Short-duration contracts include
primarily property and casualty, including estimated ultimate premiums on
retrospectively rated policies, and credit life and accident and health
policies.
VALUE OF INSURANCE IN FORCE, included in other assets, represents the
actuarially determined present value of anticipated profits to be realized from
life and accident and health business on insurance in force at the date of the
Company's acquisition of its insurance subsidiaries using the same assumptions
that were used for computing related liabilities where appropriate. The value of
insurance in force acquired prior to December 31, 1993 is amortized over the
premium paying periods in relation to anticipated premiums. The value of
insurance in force relating to the 1993 acquisition of The Travelers Corporation
was the actuarially determined present value of the projected future profits
discounted at interest rates ranging from 14% to 18% for the business acquired.
The value of insurance in force is amortized over the contract period using
current interest crediting rates to accrete interest and using amortization
methods based on the specified products. Traditional life insurance is amortized
over the period of anticipated premiums; universal life in relation to estimated
gross profits; and annuity contracts employing a level yield method. The value
of insurance in force is reviewed periodically for recoverability to determine
if any adjustment is required.
DEFERRED POLICY ACQUISITION COSTS, included in other assets, for the life
insurance business represent the costs of acquiring new business, principally
commissions, certain underwriting and agency expenses and the cost of issuing
policies. Deferred policy acquisition costs for the traditional life business
are amortized over the premium-paying periods of the related policies, in
proportion to the ratio of the annual premium revenue to the total anticipated
premium revenue. Deferred policy acquisition costs of other business lines are
generally amortized over the life of the insurance contract or at a constant
rate based upon the present value of estimated gross profits expected to be
realized. For certain property and casualty lines, acquisition costs (primarily
commissions and premium taxes) have been deferred to the extent recoverable from
future earned premiums and are amortized ratably over the terms of the related
policies. Deferred policy acquisition costs are reviewed to determine if they
are recoverable from future income, including investment income, and, if not
recoverable, are charged to expense. All other acquisition expenses are charged
to operations as incurred.
SEPARATE AND VARIABLE ACCOUNTS primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company. The
assets of these accounts are generally carried at market value. Amounts assessed
to the contractholders for management services are included in revenues.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.
INSURANCE POLICY AND CLAIMS RESERVES represent liabilities for future
insurance policy benefits. Insurance reserves for traditional life insurance,
annuities, and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest rate assumptions (ranging from
2.5% to 8.1%) applicable to these coverages, including adverse deviation. These
assumptions consider Company experience and industry standards and may be
revised if it is determined that future experience will differ substantially
from that previously assumed. Property-casualty reserves include (1) unearned
premiums representing the unexpired portion of policy premiums, and (2)
estimated provisions for both reported and unreported claims incurred and
related expenses. The reserves are adjusted regularly based on experience.
In determining insurance policy and claims reserves, the Company performs a
continuing review of its overall position, its reserving techniques and its
reinsurance. The reserves are also reviewed periodically by a qualified actuary
employed by the Company. Reserves for property-casualty insurance losses
represent the estimated ultimate cost of all incurred claims and claim
adjustment expenses. Since the reserves are based on estimates, the ultimate
liability may be more or less than such reserves. The effects of changes in such
estimated reserves are included in the results of operations in the period in
which the estimates are changed. Such changes may be material to the results of
operations and could occur in a future period.
9
<Page>
CONTRACTHOLDER FUNDS represent receipts from the issuance of universal
life, pension investment and certain individual annuity contracts. Such receipts
are considered deposits on investment contracts that do not have substantial
mortality or morbidity risk. Account balances are increased by deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Calculations of
contractholder account balances for investment contracts reflect lapse,
withdrawal and interest rate assumptions (ranging from 1.9% to 14.0%) based on
contract provisions, the Company's experience and industry standards.
Contractholder funds also include other funds that policyholders leave on
deposit with the Company.
EMPLOYEE BENEFITS EXPENSE includes prior and current service costs of
pension and other postretirement benefit plans, which are accrued on a current
basis, contributions and unrestricted awards under other employee plans, the
amortization of restricted stock awards, and costs of other employee benefits.
There are no charges to earnings upon the grant or exercise of fixed stock
options or the subscription for or purchase of stock under stock purchase
agreements. Compensation expense related to performance-based stock options
granted in prior periods was recorded over the periods to the vesting dates.
Upon issuance of previously unissued shares under employee plans, proceeds
received in excess of par value are credited to additional paid-in capital. Upon
issuance of treasury shares, the difference between the proceeds received and
the average cost of treasury shares is recorded in additional paid-in capital.
INCOME TAXES. Deferred taxes are recorded for the future tax consequences
of events that have been recognized in the financial statements or tax returns,
based upon enacted tax laws and rates. Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not. The
Company and its wholly owned domestic non-life insurance subsidiaries file a
consolidated Federal income tax return. The major life insurance subsidiaries
are included in their own consolidated Federal income tax return. Associates
filed separate consolidated Federal income tax returns prior to the merger.
EARNINGS PER COMMON SHARE is computed after recognition of preferred stock
dividend requirements. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period, excluding restricted stock. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised and has been computed after
giving consideration to the weighted average dilutive effect of the Company's
convertible securities, common stock warrants, stock options and the shares
issued under the Company's Capital Accumulation Plan and other restricted stock
plans.
ACCOUNTING CHANGES
ADOPTION OF EITF 99-20. During the second quarter of 2001, the Company
adopted Emerging Issues Task Force (EITF) Issue No. 99-20, "Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets" (EITF 99-20). EITF 99-20 provides new guidance
regarding income recognition and identification and determination of impairment
on certain asset-backed securities. The initial adoption resulted in a
cumulative adjustment of $116 million after-tax, recorded as a charge to
earnings, and an increase of $93 million included in other changes in
stockholders' equity from nonowner sources.
DERIVATIVES AND HEDGE ACCOUNTING. On January 1, 2001, Citigroup adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
These new rules changed the accounting treatment of derivative contracts
(including foreign exchange contracts) that are employed to manage risk outside
of Citigroup's trading activities, as well as certain derivative instruments
embedded in other contracts. SFAS 133 requires that all derivatives be recorded
on the balance sheet at their fair value. The treatment of changes in the fair
value of derivatives depends on the character of the transaction, including
whether it has been designated and qualifies as part of a hedging relationship.
The majority of Citigroup's derivatives are entered into for trading purposes
and were not impacted by the adoption of SFAS 133. The cumulative effect of
adopting SFAS 133 at January 1, 2001 was an after-tax charge of $42 million
included in net income and an increase of $25 million included in other changes
in stockholders' equity from nonowner sources.
BUSINESS COMBINATIONS. Effective July 1, 2001, the Company adopted the
provisions of SFAS No. 141, "Business Combinations," and certain provisions of
SFAS 142, "Goodwill and Other Intangible Assets" as required for goodwill and
intangible assets resulting from business combinations consummated after June
30, 2001. The new rules require that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method. The nonamortization
provisions of the new rules affecting goodwill and intangible assets deemed to
have indefinite lives are effective for all purchase business combinations
completed after June 30, 2001.
INSURANCE-RELATED ASSESSMENTS. During the first quarter of 1999, the
Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance
for determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through premium
tax offsets or policy surcharges. The initial adoption resulted in a cumulative
adjustment recorded as a charge to earnings of $135 million after-tax and
minority interest.
DEPOSIT ACCOUNTING. During the first quarter of 1999, the Company adopted
SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk." SOP 98-7 provides guidance on
how to account for insurance and reinsurance contracts that do not transfer
insurance risk and applies to all entities and all such contracts, except for
long-duration life and health insurance contracts. The method used to account
for such contracts is referred to as deposit accounting. The initial adoption
resulted in a cumulative adjustment recorded as a credit to earnings of $23
million after-tax and minority interest.
START-UP COSTS. During the first quarter of 1999, the Company adopted SOP
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs
of start-up activities and organization costs to be expensed as incurred. The
initial adoption resulted in a cumulative adjustment recorded as a charge to
earnings of $15 million after-tax.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, Citigroup adopted the remaining provisions of SFAS 142,
when the rules became effective for calendar year companies. Under the new
rules, effective January 1, 2002, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives.
Based on current levels of goodwill and an evaluation of the Company's
intangible assets, which determined that certain intangible assets should be
reclassified as goodwill and identified as other
10
<Page>
intangible assets that have indefinite lives, the nonamortization provisions of
the new standards will reduce other expense by approximately $610 million and
increase net income by approximately $480 million in 2002.
During 2002, the Company will perform the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002. It is not
expected that the adoption of the remaining provisions of SFAS 142 will have a
material effect on the financial statements as a result of these impairment
tests.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a replacement
of FASB Statement No. 125" (SFAS 140). In July 2001, FASB issued Technical
Bulletin No. 01-1, "Effective Date for Certain Financial Institutions of Certain
Provisions of Statement 140 Related to the Isolation of Transferred Assets."
Certain provisions of SFAS 140 require that the structure for transfers of
financial assets to certain securitization vehicles be modified to comply with
revised isolation guidance for institutions subject to receivership by the
Federal Deposit Insurance Corporation. These provisions are effective for
transfers taking place after December 31, 2001, with an additional transition
period ending no later than September 30, 2006 for transfers to certain master
trusts. It is not expected that these provisions will materially affect the
financial statements. SFAS 140 also provides revised guidance for an entity to
be considered a qualifying special purpose entity.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
On January 1, 2002, Citigroup adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), when the rule became
effective for calendar year companies. SFAS 144 establishes additional criteria
as compared to existing generally accepted accounting principles to determine
when a long-lived asset is held for sale. It also broadens the definition of
"discontinued operations," but does not allow for the accrual of future
operating losses, as was previously permitted. The provisions of the new
standard are generally to be applied prospectively.
2. BUSINESS DEVELOPMENTS
ACQUISITION OF BANAMEX
In August 2001, Citicorp completed its acquisition of Grupo Financiero
Banamex-Accival (Banamex), a leading Mexican financial institution, for
approximately $12.5 billion in cash and Citigroup stock. On September 24, 2001,
Citicorp became the holder of 100% of the issued and outstanding ordinary shares
of Banamex following a share redemption by Banamex. Banamex's and Citicorp's
banking operations in Mexico have been integrated and conduct business under the
"Banamex" brand name.
ACQUISITION OF EAB
On July 17, 2001, Citibank completed its acquisition of European American Bank
(EAB), a New York state-chartered bank, for $1.6 billion plus the assumption of
$350 million in EAB preferred stock.
ACQUISITION OF ASSOCIATES
On November 30, 2000, Citigroup Inc., completed its acquisition of Associates
First Capital Corporation (Associates). The acquisition was consummated through
a merger of a subsidiary of Citigroup with and into Associates (with Associates
as the surviving corporation) pursuant to which each share of Associates common
stock became a right to receive .7334 of a share of Citigroup Inc. common stock
(534.5 million shares). Subsequent to the acquisition, Associates was
contributed to and became a wholly-owned subsidiary of Citicorp and Citicorp
issued a full and unconditional guarantee of the outstanding long-term debt
securities and commercial paper of Associates. Associates' debt securities and
commercial paper will no longer be separately rated. The acquisition was
accounted for as a pooling of interests.
3. DISCONTINUED OPERATIONS (SUBSEQUENT EVENT)
Travelers Property Casualty Corp. (TPC) (an indirect wholly-owned subsidiary of
Citigroup on December 31, 2001) sold 231 million shares of its class A common
stock representing approximately 23.1% of its outstanding equity securities in
an initial public offering (IPO) on March 27, 2002. Citigroup recognized an
after-tax gain of $1.061 billion in the 2002 first quarter as a result of the
IPO. The after-tax gain was increased by $97 million in the 2002 third quarter
due to the receipt of a private letter ruling from the Internal Revenue Service
and the resolution of certain tax matters related to the IPO. In connection with
the IPO, Citigroup entered into an agreement with TPC that provides that, in any
fiscal year in which TPC records asbestos-related income statement charges in
excess of $150 million, net of any reinsurance, Citigroup will pay to TPC the
amount of any such excess up to a cumulative aggregate of $800 million, reduced
by the tax effect of the highest applicable federal income tax rate. A portion
of the gross IPO gain was deferred to offset any payments arising in connection
with this agreement. On October 16, 2002, notice was given that $159 million
will be payable in the 2002 fourth quarter, pursuant to this agreement.
On August 20, 2002, Citigroup completed the distribution to its
stockholders of a majority portion of its remaining ownership interest in TPC
(the distribution). This non-cash distribution was tax-free to Citigroup, its
stockholders and TPC. The distribution was treated as a dividend to stockholders
for accounting purposes that reduced Citigroup's Additional Paid-In Capital by
approximately $6.9 billion. Following the distribution, Citigroup remains a
holder of approximately 9.9% of TPC's outstanding equity securities which will
be carried at fair value in the Proprietary Investment Activities segment and
classified as available-for-sale within Investments on the Consolidated
Statement of Financial Position.
Following the August 20, 2002 distribution, the results of TPC are reported
in the Company's Consolidated Statements of Income and Cash Flows separately as
discontinued operations for all periods presented. In accordance with GAAP, the
Statement of Consolidated Financial Position has not been restated. TPC
represented the primary vehicle by which Citigroup engaged in the property and
casualty insurance business.
Summarized financial information for discontinued operations is as follows:
11
<Page>
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 12,690 $ 11,616 $ 10,913
---------------------------------------
Income from discontinued operations 1,378 1,786 1,680
Provision for income taxes 323 498 503
---------------------------------------
INCOME FROM DISCONTINUED OPERATIONS, NET $ 1,055 $ 1,288 $ 1,177
============================================================================================================
<Caption>
DECEMBER 31,
IN MILLIONS OF DOLLARS 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
Total assets $ 55,954 $ 55,058 $ 49,308
Total liabilities 45,268 45,844 42,868
---------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS $ 10,686 $ 9,214 $ 6,440
============================================================================================================
</Table>
The following is a summary of the assets and liabilities of discontinued
operations as of August 20, 2002, the date of the distribution:
<Table>
<Caption>
AUGUST 20,
IN MILLIONS OF DOLLARS 2002
- --------------------------------------------------------
Cash $ 252
Investments 33,984
Trading account assets 321
Loans 261
Reinsurance recoverables 10,940
Other assets 14,242
----------
TOTAL ASSETS $ 60,000
==========
Long-term debt $ 2,797
Insurance policy and claim reserves 36,216
Other liabilities 11,831
Mandatorily redeemable securities
of subsidiary trusts 900
----------
TOTAL LIABILITIES $ 51,744
========================================================
</Table>
4. BUSINESS SEGMENT INFORMATION
Citigroup is a diversified bank-holding company whose businesses provide a broad
range of financial services to consumer and corporate customers around the
world. The Company's activities are conducted through the Global Consumer,
Global Corporate and Investment Bank, Global Investment Management, and
Proprietary Investment Activities business segments. These segments reflect the
characteristics of its products and services and the clients to which those
products or services are delivered.
The Global Consumer segment includes a global, full-service consumer
franchise delivering a wide array of banking, lending, insurance and investment
services through a network of local branches, offices and electronic delivery
systems.
The businesses included in the Company's Global Corporate and Investment
Bank segment provide corporations, governments, institutions, and investors in
over 100 countries and territories with a broad range of financial products and
services, including investment advice, financial planning and retail brokerage
services, and banking and financial services.
The Global Investment Management segment offers a broad range of life
insurance, annuity and asset management products and services from global
investment centers around the world, including individual annuity, group
annuity, individual life insurance products, Corporate owned life insurance
(COLI) products, mutual funds, closed-end funds, managed accounts, unit
investment trusts, variable annuities, pension administration, and personalized
wealth management services distributed to institutional, high net worth, and
retail clients.
The Proprietary Investment Activities segment includes the Company's
venture capital activities, realized investment gains and losses from certain
insurance-related investments, results from certain proprietary investments and
the results of certain investments in countries that refinanced debt under the
1989 Brady Plan or plans of a similar nature. Corporate/Other includes net
corporate treasury results, corporate staff and other corporate expenses,
certain intersegment eliminations, and the remainder of Internet-related
development activities, and taxes not allocated to the other business segments.
The accounting policies of these reportable segments are the same as those
disclosed in Note 1 to the Consolidated Financial Statements.
12
<Page>
The following table presents certain information regarding the Company's
continuing operations by industry segments:
<Table>
<Caption>
REVENUES, NET PROVISION (BENEFIT)
OF INTEREST EXPENSE(1) FOR INCOME TAXES
IN MILLIONS OF DOLLARS, EXCEPT ---------------------------------------------------------
IDENTIFIABLE ASSETS IN BILLIONS 2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------------------
Global Consumer $ 32,365 $ 28,319 $ 25,477 $ 3,848 $ 3,090 $ 2,709
Global Corporate
and Investment Bank 26,746 26,242 22,060 2,823 2,907 2,603
Global Investment
Management 8,006 7,330 6,179 844 810 709
Proprietary Investment 584 2,263 971 153 791 313
Activities
Corporate/Other (334) (582) 122 (465) (571) (307)
----------------------------------------------------------
TOTAL $ 67,367 $ 63,572 $ 54,809 $ 7,203 $ 7,027 $ 6,027
==============================================================================================
<Caption>
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT IDENTIFIABLE
IN MILLIONS OF DOLLARS, EXCEPT OF ACCOUNTING CHANGES(2)(3)(4) ASSETS AT YEAR-END (5)
---------------------------------------------------------
IDENTIFIABLE ASSETS IN BILLIONS 2001 2000 1999 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Global Consumer $ 6,836 $ 5,410 $ 4,525 $ 329 $ 266 $ 229
Global Corporate
and Investment Bank
Global Investment 5,113 5,071 4,454 542 464 415
Management 1,596 1,460 1,243 103 95 83
Proprietary Investment 318 1,340 583 9 11 11
Activities
Corporate/Other (634) (1,050) (612) 12 11 9
---------------------------------------------------------
TOTAL $ 13,229 $ 12,231 $ 10,193 $ 995 $ 847 $ 747
=============================================================================================
</Table>
(1) Includes total revenues, net of interest expense in the United States of
$42.7 billion, $41.7 billion, and $36.6 billion in 2001, 2000, and 1999,
respectively. Includes total revenues, net of interest expense, in Mexico
of $2.1 billion, $603 million, and $531 million in 2001, 2000, and 1999,
respectively. There were no other individual foreign countries that were
material to total revenues, net of interest expense.
(2) For 2001, Global Consumer, Global Corporate and Investment Bank, Global
Investment Management, and Corporate/Other results reflect after-tax
restructuring-related charges (credits) of $127 million, $142 million, $16
million, and ($3) million, respectively. For 2000, Global Consumer, Global
Corporate and Investment Bank, Global Investment Management, and
Corporate/Other results reflect after-tax restructuring-related charges and
merger-related costs of $144 million, $105 million, $11 million, and $249
million, respectively. The 2000 results also reflect after-tax Housing
Finance unit charges in Corporate/Other. For 1999, Global Consumer, Global
Corporate and Investment Bank, Global Investment Management, and
Corporate/Other results reflect after-tax restructuring-related charges
(credits) of $78 million, ($121) million, ($2) million, and $20 million,
respectively.
(3) Includes provision for benefits, claims and credit losses in the Global
Consumer results of $6.1 billion, $5.1 billion, and $4.7 billion, in the
Global Corporate and Investment Bank results of $1.5 billion, $947 million,
and $542 million, in the Global Investment Management results of $2.8
billion, $2.4 billion, and $2.0 billion, and in the Corporate/ Other
results of ($8) million, $38 million, and $206 million for 2001, 2000, and
1999, respectively. Includes provision for credit losses in the Proprietary
Investment Activities results of $7 million in 2000.
(4) For 2001, the Company recognized after-tax charges of $42 million and $116
million for the cumulative effect of accounting changes related to the
implementation of SFAS 133 and EITF 99-20, respectively. For 1999, the
Company recognized after-tax charges (credits) of $135 million, ($23)
million, and $15 million for the cumulative effect of accounting changes
related to the implementation of SOP 97-3, SOP 98-7, and SOP 98-5,
respectively. See Note 1 to the Consolidated Financial Statements.
(5) Excludes identifiable assets related to discontinued operations totaling
$56 billion, $55 billion and $49 billion at December 31, 2001, 2000 and
1999, respectively. See Note 3 to the Consolidated Financial Statements.
5. INVESTMENTS
<Table>
<Caption>
IN MILLIONS OF DOLLARS AT YEAR- END 2001 2000
- ----------------------------------------------------------------
Fixed maturities, primarily
available-for-sale at fair value $ 139,344 $ 99,484
Equity securities, primarily at fair
value 7,577 6,652
Venture capital, at fair value 4,316 5,204
Short-term and other 9,600 8,782
---------------------
$ 160,837 $ 120,122
================================================================
</Table>
The amortized cost and fair value of investments in fixed maturities and equity
securities at December 31, were as follows:
<Table>
<Caption>
2001
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
IN MILLIONS OF DOLLARS AT YEAR- END COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY,
PRINCIPALLY MORTGAGE-BACKED SECURITIES(1) $ 26 $ - $ - $ 26
-------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $ 28,614 $ 438 $ 250 $ 28,802
U.S. Treasury and Federal agencies 6,136 62 85 6,113
State and municipal 16,712 441 152 17,001
Foreign government(2) 44,942 266 79 45,129
U.S. corporate 30,097 843 591 30,349
Other debt securities 11,516 554 146 11,924
- ------------------------------------------------------------------------------------------------
138,017 2,604 1,303 139,318
- ------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 138,043 $ 2,604 $ 1,303 $ 139,344
=================================================
EQUITY SECURITIES(3) $ 7,401 $ 400 $ 224 $ 7,577
================================================================================================
<Caption>
2000
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
IN MILLIONS OF DOLLARS AT YEAR- END Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY,
PRINCIPALLY MORTGAGE-BACKED SECURITIES(1) $ 28 $ - $ - $ 28
------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $ 16,196 $ 329 $ 211 $ 16,314
U.S. Treasury and Federal agencies 5,680 171 15 5,836
State and municipal 15,314 730 141 15,903
Foreign government(2) 25,934 148 154 25,928
U.S. corporate 25,143 589 547 25,185
Other debt securities 9,633 763 106 10,290
- -----------------------------------------------------------------------------------------------
97,900 2,730 1,174 99,456
- -----------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 97,928 $ 2,730 $ 1,174 $ 99,484
-------------------------------------------------
EQUITY SECURITIES(3) $ 6,757 $ 340 $ 445 $ 6,652
================================================================================================
</Table>
(1) Recorded at amortized cost.
(2) Increase primarily relates to the inclusion of Banamex portfolio of Mexican
government securities.
(3) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
13
<Page>
The accompanying table shows components of interest and dividends on
investments, realized gains and losses from sales of investments, and net gains
on investments held by venture capital subsidiaries:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- --------------------------------------------------------------------------------
Taxable interest $ 5,687 $ 6,743 $ 6,916
Interest exempt from U.S.
Federal income tax 827 762 688
Dividends 263 393 306
- --------------------------------------------------------------------------------
Gross realized investment gains(1) $ 2,070 $ 2,008 $ 1,273
Gross realized investment losses(1) 1,492 1,202 732
- --------------------------------------------------------------------------------
Net realized and unrealized venture capital $ 393 $ 1,850 $ 816
gains which included:
Gross unrealized gains 782 1,752 999
Gross unrealized losses 613 618 587
================================================================================
</Table>
(1) Includes net realized gains related to insurance subsidiaries' sale of OREO
and mortgage loans of $8 million, $74 million, and $215 million in 2001,
2000, and 1999, respectively.
The following table presents the amortized cost, fair value, and average
yield on amortized cost of fixed maturity securities by contractual maturity
dates as of December 31, 2001:
<Table>
<Caption>
AMORTIZED FAIR
IN MILLIONS OF DOLLARS COST VALUE YIELD
- -------------------------------------------------------------------------
U.S. TREASURY AND FEDERAL AGENCIES(1)
Due within 1 year $ 1,422 $ 1,426 2.81%
After 1 but within 5 years 2,038 2,086 4.42
After 5 but within 10 years 1,651 1,679 5.69
After 10 years(2) 24,255 24,266 6.36
------------------------------
TOTAL $ 29,366 $ 29,457 6.02%
=========================================================================
STATE AND MUNICIPAL
Due within 1 year $ 128 $ 130 5.47%
After 1 but within 5 years 995 1,035 5.43
After 5 but within 10 years 3,431 3,519 5.07
After 10 years(2) 12,158 12,317 5.44
------------------------------
TOTAL $ 16,712 $ 17,001 5.36%
=========================================================================
ALL OTHER(3)
Due within 1 year $ 18,628 $ 18,775 5.78%
After 1 but within 5 years 36,529 37,118 7.17
After 5 but within 10 years 17,669 17,847 7.33
After 10 years(2) 19,139 19,146 8.27
------------------------------
TOTAL $ 91,965 $ 92,886 7.15%
=========================================================================
</Table>
(1) Includes mortgage-backed securities of U.S. Federal agencies.
(2) Investments with no stated maturities are included as contractual
maturities of greater than 10 years. Actual maturities may differ due to
call or prepayment rights.
(3) Includes foreign government, U.S. corporate, mortgage-backed securities
issued by U.S. corporations, and other debt securities. Yields reflect the
impact of local interest rates prevailing in countries outside the U.S.
6. FEDERAL FUNDS, SECURITIES BORROWED, LOANED, AND SUBJECT TO REPURCHASE
AGREEMENTS
Federal funds sold and securities borrowed or purchased under agreements to
resell, at their respective carrying values, consisted of the following at
December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------
Federal funds sold and resale agreements $ 89,472 $ 69,087
Deposits paid for securities borrowed 45,337 36,790
---------------------
$ 134,809 $ 105,877
=================================================================
</Table>
Federal funds purchased and securities loaned or sold under agreements to
repurchase, at their respective carrying values, consisted of the following at
December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- --------------------------------------------------------------------------------
Federal funds purchased and repurchase agreements $ 137,649 $ 94,397
Deposits received for securities loaned 15,862 16,228
---------------------
$ 153,511 $ 110,625
================================================================================
</Table>
The resale and repurchase agreements represent collateralized financing
transactions used to generate net interest income and facilitate trading
activity. These instruments are collateralized principally by government and
government agency securities and generally have terms ranging from overnight to
up to a year. It is the Company's policy to take possession of the underlying
collateral, monitor its market value relative to the amounts due under the
agreements, and, when necessary, require prompt transfer of additional
collateral or reduction in the balance in order to maintain contractual margin
protection. In the event of counterparty default, the financing agreement
provides the Company with the right to liquidate the collateral held. Resale
agreements and repurchase agreements are reported net by counterparty, when
applicable, pursuant to FASB Interpretation 41, "Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agreements" (FIN 41). Excluding the
impact of FIN 41, resale agreements totaled $141.2 billion and $118.9 billion at
December 31, 2001 and 2000, respectively.
Deposits paid for securities borrowed (securities borrowed) and deposits
received for securities loaned (securities loaned) are recorded at the amount of
cash advanced or received and are collateralized principally by government and
government agency securities, corporate debt and equity securities. Securities
borrowed transactions require the Company to deposit cash with the lender. With
respect to securities loaned, the Company receives cash collateral in an amount
generally in excess of the market value of securities loaned. The Company
monitors the market value of securities borrowed and securities loaned daily,
and additional collateral is obtained as necessary. Securities borrowed and
securities loaned are reported net by counterparty, when applicable, pursuant to
FAS Interpretation 39, "Offsetting of Amounts Related to Certain Contracts" (FIN
39).
7. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES
The Company has receivables and payables for financial instruments purchased
from and sold to brokers and dealers and customers. The Company is exposed to
risk of loss from the inability of brokers and dealers or customers to pay for
purchases or to deliver the financial instrument sold, in which case the Company
would have to sell or purchase the financial instruments at prevailing market
prices. Credit risk is reduced to the extent that an exchange or clearing
organization acts as a counterparty to the transaction.
14
<Page>
The Company seeks to protect itself from the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with regulatory and internal guidelines. Margin levels are monitored daily, and
customers deposit additional collateral as required. Where customers cannot meet
collateral requirements, the Company will liquidate sufficient underlying
financial instruments to bring the customer into compliance with the required
margin level.
Exposure to credit risk is impacted by market volatility, which may impair
the ability of clients to satisfy their obligations to the Company. Credit
limits are established and closely monitored for customers and brokers and
dealers engaged in forward and futures and other transactions deemed to be
credit sensitive.
Brokerage receivables and brokerage payables, which arise in the normal
course of business, consisted of the following at December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------
Receivables from customers $ 19,660 $ 23,142
Receivables from brokers, dealers,
and clearing organizations 15,495 2,554
-------------------
TOTAL BROKERAGE RECEIVABLES $ 35,155 $ 25,696
=================================================================
Payables to customers $ 16,876 $ 13,564
Payables to brokers, dealers, and clearing
organizations 16,015 2,318
-------------------
TOTAL BROKERAGE PAYABLES $ 32,891 $ 15,882
=================================================================
</Table>
8. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, at market value, consisted of the
following at December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- ----------------------------------------------------------------------
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal agency securities $ 46,218 $ 30,939
State and municipal securities 4,517 2,439
Foreign government securities 12,450 13,308
Corporate and other debt securities 21,318 17,046
Derivatives(1) 29,762 35,177
Equity securities 15,619 17,174
Mortgage loans and collateralized mortgage
securities 6,869 6,024
Other 8,151 10,406
---------------------
$ 144,904 $ 132,513
======================================================================
TRADING ACCOUNT LIABILITIES
Securities sold, not yet purchased $ 51,815 $ 48,489
Derivatives(1) 28,728 36,618
---------------------
$ 80,543 $ 85,107
======================================================================
</Table>
(1) Net of master netting agreements.
9. TRADING RELATED REVENUE
Trading related revenue consists of principal transactions revenues and net
interest revenue associated with trading activities. Principal transactions
revenues consist of realized and unrealized gains and losses from trading
activities. The following table presents trading related revenue for the years
ended December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- ---------------------------------------------------------------
GLOBAL CORPORATE
Fixed income(1) $ 4,007 $ 2,531 $ 2,306
Equities(2) 882 1,720 1,273
Foreign exchange(3) 1,464 1,103 1,115
All other(4) 197 308 499
- ---------------------------------------------------------------
Total Global Corporate 6,550 5,662 5,193
GLOBAL CONSUMER AND OTHER 826 782 584
- ---------------------------------------------------------------
TOTAL TRADING RELATED REVENUE $ 7,376 $ 6,444 $ 5,777
===============================================================
</Table>
(1) Includes revenues from government securities and corporate debt, municipal
securities, preferred stock, mortgage securities, and other debt
instruments. Also includes spot and forward trading of currencies and
exchange-traded and over-the-counter (OTC) currency options, options on
fixed income securities, interest rate swaps, currency swaps, swap options,
caps and floors, financial futures, OTC options and forward contracts on
fixed income securities.
(2) Includes revenues from common and convertible preferred stock, convertible
corporate debt, equity-linked notes, and exchange-traded and OTC equity
options and warrants.
(3) Includes revenues from foreign exchange spot, forward, option and swap
contracts.
(4) Primarily includes revenues from the results of Phibro Inc. (Phibro), which
trades crude oil, refined oil products, natural gas, electricity, metals,
and other commodities. Also includes revenues related to arbitrage
strategies.
The following table reconciles principal transactions revenues on the
Consolidated Statement of Income to trading related revenue for the years ended
December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- ---------------------------------------------------------------
Principal transactions $ 5,544 $ 5,981 $ 5,160
Net interest revenue 1,832 463 617
- ---------------------------------------------------------------
TOTAL TRADING RELATED REVENUE $ 7,376 $ 6,444 $ 5,777
===============================================================
</Table>
15
<Page>
10. LOANS
<Table>
<Caption>
IN MILLIONS OF DOLLARS AT YEAR-END 2001 2000
- -------------------------------------------------------------------
CONSUMER
In U.S. offices
Mortgage and real estate(1)(2) $ 80,099 $ 73,166
Installment, revolving credit, and other 84,367 78,017
----------------------
164,466 151,183
----------------------
In offices outside the U.S.
Mortgage and real estate(1)(3) 28,688 24,988
Installment, revolving credit, and other 57,223 55,515
Lease financing 501 427
----------------------
86,412 80,930
----------------------
250,878 232,113
Unearned income (2,677) (3,234)
----------------------
CONSUMER LOANS, NET OF UNEARNED INCOME $ 248,201 $ 228,879
===================================================================
CORPORATE
In U.S. offices
Commercial and industrial(4) $ 32,431 $ 37,220
Lease financing 18,518 14,864
Mortgage and real estate(1) 2,784 3,490
----------------------
53,733 55,574
----------------------
In offices outside the U.S.
Commercial and industrial(4) 73,512 69,111
Mortgage and real estate(1) 1,874 1,720
Loans to financial institutions 10,163 9,559
Lease financing 3,678 3,689
Governments and official institutions 4,033 1,952
----------------------
93,260 86,031
----------------------
146,993 141,605
Unearned income (3,261) (3,462)
----------------------
CORPORATE LOANS, NET OF UNEARNED INCOME $ 143,732 $ 138,143
===================================================================
</Table>
(1) Loans secured primarily by real estate.
(2) Includes $4.9 billion in 2001 and $3.7 billion in 2000 of commercial real
estate loans related to community banking and private banking activities.
(3) Includes $2.5 billion in 2001 and $2.7 billion in 2000 of loans secured by
commercial real estate.
(4) Includes loans not otherwise separately categorized.
Impaired loans are those on which Citigroup believes it is not probable
that it will be able to collect all amounts due according to the contractual
terms of the loan, excluding smaller-balance homogeneous loans that are
evaluated collectively for impairment, and are carried on a cash basis.
Valuation allowances for these loans are estimated considering all available
evidence including, as appropriate, the present value of the expected future
cash flows discounted at the loan's contractual effective rate, the secondary
market value of the loan and the fair value of collateral. The following table
presents information about impaired loans.
<Table>
<Caption>
IN MILLIONS OF DOLLARS AT YEAR-END 2001 2000 1999
- --------------------------------------------------------------------------
Impaired corporate loans $ 3,572 $ 1,847 $ 1,551
Other impaired loans (1) 339 100 185
---------------------------
Total impaired loans(2) $ 3,911 $ 1,947 $ 1,736
============================================================================
Impaired loans with valuation allowances $ 3,500 $ 1,583 $ 1,381
Total valuation allowances(3) 915 480 411
============================================================================
During the year
Average balance of impaired loans $ 3,098 $ 1,858 $ 1,898
Interest income recognized on impaired loans 98 97 85
============================================================================
</Table>
(1) Primarily commercial real estate loans related to community and private
banking activities.
(2) At year-end 2001, approximately 17% of these loans were measured for
impairment using the fair value of the collateral, compared with
approximately 25% at year-end 2000.
(3) Included in the allowance for credit losses.
For the loan portfolios where the Company continues to manage loans after
they have been securitized, the following table presents the total loan amounts
managed, the portion of those portfolios securitized, and delinquencies (loans
which are 90 days or more past due) at December 31, 2001 and 2000, and credit
losses, net of recoveries, for the years ended December 31, 2001 and 2000:
<Table>
<Caption>
2001 2000
- ------------------------------------------------------------------------------
HOME Home
CREDIT EQUITY Credit Equity
CARD AND AUTO Card and Auto
MANAGED LOANS RECEIVABLES LOANS Receivables Loans
- ------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS
Principal amounts, at year- end:
Total managed $ 108.7 $ 27.4 $ 104.0 $ 33.0
Securitized amounts (67.0) (1.3) (57.0) (3.6)
- ------------------------------------------------------------------------------
ON-BALANCE SHEET(1) $ 41.7 $ 26.1 $ 47.0 $ 29.4
- ------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
- ------------------------------------------------------------------------------
Delinquencies, at year-end:
Total managed $ 2,141 $ 1,174 $ 1,503 $ 794
Securitized amounts (1,268) (14) (925) (87)
- ------------------------------------------------------------------------------
ON-BALANCE SHEET(1) $ 873 $ 1,160 $ 578 $ 707
- ------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
- ------------------------------------------------------------------------------
Credit losses, net
of recoveries,
for the year ended
December 31:
Total managed $ 5,605 $ 720 $ 3,986 $ 619
Securitized amounts (3,140) (111) (2,216) (12)
- ------------------------------------------------------------------------------
ON-BALANCE SHEET(1) $ 2,465 $ 609 $ 1,770 $ 607
==============================================================================
</Table>
(1) Includes loans held for sale.
16
<Page>
11. ALLOWANCE FOR CREDIT LOSSES
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- -------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF YEAR $ 8,961 $ 8,853 $ 8,596
Additions
Consumer provision for credit losses 5,328 4,345 4,169
Corporate provision for credit losses 1,472 994 591
--------------------------------
TOTAL PROVISION FOR CREDIT LOSSES 6,800 5,339 4,760
--------------------------------
Deductions
Consumer credit losses 6,245 5,352 4,862
Consumer credit recoveries (853) (929) (769)
--------------------------------
NET CONSUMER CREDIT LOSSES 5,392 4,423 4,093
--------------------------------
Corporate credit losses 2,043 906 746
Corporate credit recoveries(1) (407) (135) (156)
--------------------------------
NET CORPORATE CREDIT LOSSES 1,636 771 590
--------------------------------
Other -- net(2) 1,355 (37) 180
--------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT END OF YEAR $ 10,088 $ 8,961 $ 8,853
===============================================================================
</Table>
(1) Includes amounts received under credit default swaps purchased from third
parties.
(2) Includes the addition of credit loss reserves related to the acquisitions
of Banamex and EAB in 2001. Also includes the addition of allowance for
credit losses related to other acquisitions and the impact of foreign
currency translation effects.
12. SECURITIZATION ACTIVITY
Citigroup and its subsidiaries securitize primarily credit card
receivables, mortgages, home equity loans and auto loans.
After securitizations of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the trust. The Company also provides credit
enhancement to the trust using cash collateral accounts. As specified in certain
of the sale agreements, the net revenue collected each month is accumulated up
to a predetermined maximum amount, and is available over the remaining term of
that transaction to make payments of yield, fees, and transaction costs in the
event that net cash flows from the receivables are not sufficient. When the
predetermined amount is reached net revenue is passed directly to the Citigroup
subsidiary that sold the receivables.
The Company provides a wide range of mortgage and home equity products to a
diverse customer base. In connection with these loans, the servicing rights
entitle the Company to a future stream of cash flows based on the outstanding
principal balances of the loans and the contractual servicing fee. Failure to
service the loans in accordance with contractual requirements may lead to a
termination of the servicing rights and the loss of future servicing fees. In
non-recourse servicing, the principal credit risk to the servicer is the cost of
temporary advances of funds. In recourse servicing, the servicer agrees to share
credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a
private investor, insurer or guarantor. Losses on recourse servicing occur
primarily when foreclosure sale proceeds of the property underlying a defaulted
mortgage or home equity loan are less than the outstanding principal balance and
accrued interest of such mortgage loan and the cost of holding and disposing of
the underlying property.
The following table summarizes certain cash flows received from and paid to
securitization trusts during the year ended December 31:
<Table>
<Caption>
2001 2000
- ---------------------------------------------------------------------------------
MORT- Mort-
GAGES(1) gages(1)
CREDIT AND Credit and
IN BILLIONS OF DOLLARS CARDS AUTO Cards Auto
- ---------------------------------------------------------------------------------
Proceeds from new securitizations $ 22.7 $ 34.8 $ 9.1 $ 18.3
Proceeds from collections
reinvested in new receivables 131.4 0.4 127.2 0.2
Servicing fees received 1.2 0.3 1.0 0.3
Cash flows received on retained
interests and other net cash
flows 3.6 0.4 2.8 0.4
=================================================================================
</Table>
(1) Includes mortgages and home equity loans.
For the years ended December 31, 2001 and 2000, the Company recognized $271
million and $142 million, respectively, of gains on securitizations of
mortgages, home equity loans and auto loans.
Key assumptions used for mortgages during the year ended December 31, 2001
in measuring the fair value of retained interests at the date of sale or
securitization follow:
<Table>
Discount rate 5.0% to 15.0%
Constant prepayment rate 6.9% to 40.0%
Anticipated net credit losses .02% to 5.0%
</Table>
As required by SFAS 140, the effect of two negative changes in each of the
key assumptions used to determine the fair value of retained interests must be
disclosed. The negative effect of each change in each assumption must be
calculated independently, holding all other assumptions consistent. Because the
key assumptions may not in fact be independent, the net effect of simultaneous
adverse changes in the key assumptions may be less than the sum of the
individual effects shown below.
At December 31, 2001, for mortgages, auto loans and manufactured housing
loans, the key assumptions, presented by product groups, and the sensitivity of
the fair value of retained interests to two adverse changes in each of the key
assumptions were as follows:
<Table>
<Caption>
IN MILLIONS OF DOLLARS
- --------------------------------------------------------------------------
Carrying value of retained interests $ 3,222.1
- --------------------------------------------------------------------------
Discount rate 5.0% TO 15.0%; 15.0%; 13.0%
+10% $ (100.8)
+20% $ (195.4)
- --------------------------------------------------------------------------
Constant prepayment rate 2.0% TO 40.0%; 14.1% TO 19.3%;
10.5%
+10% $ (116.3)
+20% $ (220.7)
- --------------------------------------------------------------------------
Anticipated net credit losses .04% TO 5.0%; 6.7% TO 14.0%;
13.1%
+10% $ (60.6)
+20% $ (122.0)
==========================================================================
</Table>
17
<Page>
13. DEBT
INVESTMENT BANKING AND BROKERAGE BORROWINGS
Investment banking and brokerage borrowings and the corresponding weighted
average interest rates at December 31 are as follows:
<Table>
<Caption>
2001 2000
-------------------------------------------
WEIGHTED Weighted
AVERAGE Average
INTEREST Interest
IN MILLIONS OF DOLLARS BALANCE RATE Balance Rate
- --------------------------------------------------------------------
Commercial paper $ 13,858 1.9% $ 16,705 6.6%
Bank borrowings 565 2.5% 429 5.7%
Other 2,057 6.2% 1,609 6.0%
-------- --------
$ 16,480 $ 18,743
====================================================================
</Table>
Investment banking and brokerage borrowings are short-term in nature and
include commercial paper, bank borrowings and other borrowings used to finance
Salomon Smith Barney Holdings Inc.'s (Salomon Smith Barney's) operations,
including the securities settlement process. Outstanding bank borrowings include
both U.S. dollar and non-U.S. dollar denominated loans. The non-U.S. dollar
loans are denominated in multiple currencies including the Japanese yen, German
mark, and U.K. sterling. All commercial paper outstanding at December 31, 2001
and 2000 was U.S. dollar denominated. Also included in other are deposit
liabilities and other short-term obligations.
At December 31, 2001, Salomon Smith Barney had a $5.0 billion, 364-day
committed uncollateralized revolving line of credit with unaffiliated banks that
extends through May 21, 2002, with repayment on any borrowings due by May 21,
2004. Salomon Smith Barney may borrow under its revolving credit facilities at
various interest rate options (LIBOR or base rate) and compensates the banks for
the facility through facility fees. Under this facility, Salomon Smith Barney is
required to maintain a certain level of consolidated adjusted net worth (as
defined in the agreement). At December 31, 2001, this requirement was exceeded
by approximately $4.3 billion. At December 31, 2001, there were no borrowings
outstanding under this facility.
Salomon Smith Barney also has substantial borrowing arrangements consisting
of facilities that it has been advised are available, but where no contractual
lending obligation exists.
SHORT-TERM BORROWINGS
At December 31, short-term borrowings consisted of commercial paper and other
borrowings with weighted average interest rates as follows:
<Table>
<Caption>
2001 2000
-----------------------------------------
WEIGHTED Weighted
IN MILLIONS OF DOLLARS BALANCE AVERAGE Balance Average
- ----------------------------------------------------------------
COMMERCIAL PAPER
Citigroup $ 481 1.84% $ 496 6.61%
Citicorp and
Subsidiaries 12,215 1.99% 37,656 5.34%
-------- ---------
12,696 38,152
OTHER BORROWINGS 11,765 3.44% 13,523 8.76%
-------- ---------
$ 24,461 $ 51,675
================================================================
</Table>
Citigroup, Citicorp and certain other subsidiaries issue commercial paper
directly to investors. Citigroup and Citicorp, both of which are bank holding
companies, maintain combined liquidity reserves of cash, securities, and unused
bank lines of credit to support their combined outstanding commercial paper.
Borrowings under bank lines of credit may be at interest rates based on
LIBOR, CD rates, the prime rate or bids submitted by the banks. Each company
pays its banks commitment fees for its lines of credit.
Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with Section 23A
of the Federal Reserve Act.
Citigroup has unutilized bilateral committed revolving credit facilities in
the amount of $950 million that expire in 2002. Under these facilities the
Company is required to maintain a certain level of consolidated stockholders'
equity (as defined in the agreements). The Company exceeded this requirement by
approximately $56 billion at December 31, 2001.
Associates, a subsidiary of Citicorp, has a combination of unutilized
credit facilities of $6.8 billion as of December 31, 2001. These facilities,
which have maturities ranging from 2002 to 2005, are all guaranteed by Citicorp.
In connection with the facilities for Associates, Citicorp is required to
maintain a certain level of consolidated stockholder's equity (as defined in the
agreements). At December 31, 2001, this requirement was exceeded by
approximately $49 billion. Citicorp has also guaranteed various other debt
obligations of Associates and CitiFinancial Credit Company (CCC), an indirect
subsidiary of Citicorp.
LONG-TERM DEBT
<Table>
<Caption>
WEIGHTED
AVERAGE
IN MILLIONS OF DOLLARS COUPON MATURITIES 2001 2000
- -----------------------------------------------------------------
CITIGROUP INC.
Senior notes(1) 4.81% 2002-2030 $ 30,544 $ 13,947
Subordinated notes 7.25% 2010 4,250 4,250
CITICORP AND
SUBSIDIARIES
Senior notes 6.28% 2002-2037 52,965 65,313
Subordinated notes 6.97% 2002-2035 6,663 7,747
SALOMON SMITH
BARNEY HOLDINGS INC.
Senior notes(2)(3) 4.28% 2002-2029 26,813 19,652
TRAVELERS INSURANCE
GROUP HOLDINGS INC.
Senior notes 7.36% 2006-2026 380 850
TRAVELERS
PROPERTY CASUALTY
CORP.(4) 16 19
- -----------------------------------------------------------------
Senior notes 110,702 99,762
Subordinated notes 10,913 11,997
Other 16 19
---------------------
TOTAL $ 121,631 $ 111,778
=================================================================
</Table>
(1) Also includes $250 million of notes maturing in 2098.
(2) Also includes $1.45 billion of notes maturing between 2025 through 2097.
(3) Also includes subordinated debt of $124 million and $145 million at
December 31, 2001 and December 2000, respectively.
(4) Principally 12% GNMA/FNMA-collateralized obligations.
The Company issues both U.S. dollar and non-U.S. dollar denominated fixed
and variable rate debt. The Company utilizes derivative contracts, primarily
interest rate swaps, to effectively convert a portion of its fixed rate debt to
variable rate debt. The maturity structure of the derivatives generally
corresponds with the maturity structure of the debt being hedged. At December
31, 2001, the Company has outstanding interest rate swaps which convert $51.5
billion of its $101.6 billion of fixed rate debt to variable rate obligations.
At December 31, 2001, the
18
<Page>
Company's overall weighted average interest rate for long-term debt was 5.23% on
a contractual basis and 4.99% including the effects of derivative contracts. In
addition, the Company utilizes other derivative contracts to manage the foreign
exchange impact of certain debt issuances.
Aggregate annual maturities on long-term debt obligations (based on final
maturity dates) are as follows:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2002 2003 2004 2005 2006 Thereafter
- --------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $ 5,722 $ 4,500 $ 5,050 $ 4,874 $ 4,000 $ 10,648
Salomon Smith Barney Holdings Inc. 5,030 8,163 4,982 2,193 2,143 4,302
Citicorp and Subsidiaries 20,450 11,973 6,273 6,108 3,752 11,072
Travelers Insurance Group Holdings Inc. - - - - 150 230
Travelers Property Casualty Corp. - - - - - 16
------------------------------------------------------------------------------
$ 31,202 $ 24,636 $ 16,305 $ 13,175 $ 10,045 $ 26,268
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
14. INSURANCE POLICY AND CLAIMS RESERVES
At December 31, insurance policy and claims reserves consisted of the following:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- ----------------------------------------------------------------
Benefits and loss reserves:
Property-casualty(1) $ 29,792 $ 28,327
Life and annuity 10,987 9,966
Accident and health 1,271 1,074
Unearned premiums 6,681 4,836
Policy and contract claims 563 463
-------------------
$ 49,294 $ 44,666
================================================================
</Table>
(1) Included at December 31, 2001 and 2000 are $1.4 billion of reserves related
to workers' compensation that have been discounted using an interest rate
of 5%.
The following table is a reconciliation of beginning and ending
property-casualty reserve balances for claims and claim adjustment expenses for
the years ended December 31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- ----------------------------------------------------------------
CLAIMS AND CLAIM ADJUSTMENT
EXPENSE RESERVES AT BEGINNING
OF YEAR $ 28,327 $ 28,776 $ 29,139
Less reinsurance recoverables
on unpaid losses 8,405 8,409 7,987
----------------------------
Net balance at beginning of year 19,922 20,367 21,152
----------------------------
Provision for claims and claim
adjustment expenses for
claims arising in current
year 8,075 7,015 6,564
Estimated claims and claim
adjustment expenses for
claims arising in prior
years 2 (204) (281)
----------------------------
TOTAL INCREASES 8,077 6,811 6,283
Claims and claim adjustment
expense payments for claims
arising in:
Current year 3,202 2,975 2,757
Prior years 4,606 4,281 4,311
----------------------------
TOTAL PAYMENTS 7,808 7,256 7,068
----------------------------
Net balance at end of year 20,191 19,922 20,367
Plus reinsurance recoverables
on unpaid losses 9,601 8,405 8,409
----------------------------
CLAIMS AND CLAIM ADJUSTMENT
EXPENSE RESERVES AT END OF
YEAR $ 29,792 $ 28,327 $ 28,776
================================================================
</Table>
The increase in the claims and claim adjustment expense reserve in 2001
from 2000 was primarily due to the impact of the terrorist attack on September
11th, 2001. Partially offsetting the above were net payments of $427 million in
2001 for environmental and cumulative injury claims. The decrease in the claims
and claim adjustment expense reserves in 2000 from 1999 was primarily
attributable to net payments of $341 million, for environmental and cumulative
injury claims.
In 2001, estimated claims and claim adjustment expenses for claims arising
in prior years included net favorable loss development on Commercial Lines loss
sensitive policies in various lines; however, since the business to which it
relates is subject to premium adjustments, there is no impact on results of
operations. In addition, estimated claims and claim adjustment expenses for
claims arising in prior years also included approximately $109 million of net
unfavorable development, primarily related to certain Commercial Lines
coverages, predominately in general liability, commercial auto liability,
assumed reinsurance and specialty businesses, partially offset by favorable
development in commercial multi-peril and other claim adjustment expenses.
In 2000, estimated claims and claim adjustment expenses for claims arising
in prior years included approximately $76 million primarily relating to net
favorable development in certain Commercial Lines coverages, predominantly in
the commercial multi-peril line of business, and in certain Personal Lines
coverages, predominately personal umbrella coverages. In addition, in 2000
Commercial Lines experienced favorable loss development on loss sensitive
policies in various lines, however, since the business to which it relates is
subject to premium adjustments, there is no impact on results of operations.
In 1999, estimated claims and claim adjustment expenses for claims arising
in prior years included approximately $205 million primarily relating to net
favorable development in certain Personal Lines coverages, predominantly
automobile coverages, and in certain Commercial Lines coverages, predominantly
in the general liability and commercial multi-peril lines of business. In
addition, in 1999 Commercial Lines experienced favorable loss development on
loss sensitive policies in the workers' compensation line; however, since the
business to which it relates is subject to premium adjustments, there was no
impact on results of operations.
The property-casualty claims and claim adjustment expense reserves include
$1.216 billion and $1.364 billion for asbestos and environmental-related claims
net of reinsurance at December 31, 2001 and 2000, respectively.
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties, including without limitation, those which
are set forth below. Conventional actuarial techniques are not used to estimate
such reserves.
In establishing environmental reserves, the Company evaluates the exposure
presented by each insured and the anticipated cost of resolution, if any, for
each insured on a quarterly basis. In the course of this analysis, the Company
considers the probable liability, available
19
<Page>
coverage, relevant judicial interpretations and historical value of similar
exposures. In addition, the Company considers the many variables presented, such
as the nature of the alleged activities of the insured at each site; the
allegations of environmental harm at each site; the number of sites; the total
number of potentially responsible parties at each site; the nature of
environmental harm and the corresponding remedy at each site; the nature of
government enforcement activities at each site; the ownership and general use of
each site; the overall nature of the insurance relationship between the Company
and the insured, including the role of any umbrella or excess insurance the
Company has issued to the insured; the involvement of other insurers; the
potential for other available coverage, including the number of years of
coverage; the role, if any, of non-environmental claims or potential
non-environmental claims, in any resolution process; and the applicable law in
each jurisdiction.
In establishing the Company's asbestos reserves, the Company evaluates the
exposure presented by each insured. In the course of this evaluation, the
Company considers available insurance coverage including the role of any
umbrella or excess insurance issued by the Company to the insured; limits and
deductibles; an analysis of each insured's potential liability; the
jurisdictions involved; past and anticipated future claim activity; past
settlement values of similar claims; allocated claim adjustment expense;
potential role of other insurance; the role, if any, of non-asbestos claims or
potential non-asbestos claims in any resolution process; and applicable coverage
defenses or determinations, if any, including the determination as to whether or
not an asbestos claim is a product/completed operation claim subject to an
aggregate limit and the available coverage, if any, for that claim. Once the
gross ultimate exposure for indemnity and allocated claim adjustment expense is
determined for each insured by each policy year, the Company calculates a ceded
reinsurance projection based on any applicable facultative and treaty
reinsurance, as well as past ceded experience. Adjustments to the ceded
projections also occur due to actual ceded claim experience and reinsurance
collections.
Historically, the Company's experience has indicated that insureds with
potentially significant environmental and/or asbestos exposures often have other
cumulative injury other than asbestos (CIOTA) exposures or CIOTA claims pending
with the Company. Due to this experience and the fact that settlement agreements
with insureds may extinguish the Company's obligations for all claims, the
Company evaluates and considers the environmental and asbestos reserves in
conjunction with the CIOTA reserve.
The Company also compares its historical direct and net loss and expense
paid experience year-by-year, to assess any emerging trends, fluctuations or
characteristics suggested by the aggregate paid activity. The comparison
includes a review of the result derived from the division of the ending direct
and net reserves by last year's direct and net paid activity, also known as the
survival ratio.
The reserves carried for environmental and asbestos claims at December 31,
2001 are the Company's best estimate of ultimate claims and claim adjustment
expenses based upon known facts and current law. However, the uncertainties
surrounding the final resolution of these claims continue. These include,
without limitation, the risks inherent in major litigation, including more
aggressive asbestos litigation against insurers, including the Company, any
impact from the bankruptcy protection sought by various asbestos producers and
other asbestos defendants, a further increase or decrease in asbestos and
environmental claims which cannot now be anticipated, the role of any umbrella
or excess policies issued by the Company for such claims, whether or not an
asbestos claim is a product/completed operation claim subject to an aggregate
limit and the available coverage, if any, for that claim, the number and outcome
of direct actions against the Company and unanticipated developments pertaining
to the Company's ability to recover reinsurance for environmental and asbestos
claims. It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and
environmental claims. Such development will be affected by future court
decisions and interpretations, as well as changes in applicable legislation. In
addition, particularly during the last few months of 2001 and continuing into
2002, the asbestos-related trends described above have both accelerated and
become more visible. These trends include, but are not limited to, the filing of
additional claims, more aggressive litigation based on novel theories of
liability and litigation against new and previously peripheral defendants, and
developments in existing and pending bankruptcy proceedings.
Because of the uncertainties set forth above, additional liabilities may
arise for amounts in excess of the current related reserves. These additional
amounts, or a range of these additional amounts, cannot now be reasonably
estimated, and could result in a liability exceeding reserves by an amount that
could be material to the Company's operating results in a future period.
However, in the opinion of the Company's management, it is not likely that these
claims will have a material adverse effect on the Company's financial condition
or liquidity.
The Company has a geographic exposure to catastrophe losses in certain
areas of the United States. Catastrophes can be caused by various events
including hurricanes, windstorms, earthquakes, hail, severe winter weather,
explosions and fires, and the incidence and severity of catastrophes are
inherently unpredictable. The extent of losses from a catastrophe is a function
of both the total amount of insured exposure in the area affected by the event
and the severity of the event. Most catastrophes are restricted to small
geographic areas, however, hurricanes and earthquakes may produce significant
damage in large, heavily populated areas. The Company generally seeks to reduce
its exposure to catastrophes through individual risk selection and the purchase
of catastrophe reinsurance.
15. REINSURANCE
The Company's insurance operations participate in reinsurance in order to limit
losses, minimize exposure to large risks, provide additional capacity for future
growth and effect business-sharing arrangements. Life reinsurance is
accomplished through various plans of reinsurance, primarily coinsurance,
modified coinsurance and yearly renewable term. Property-casualty reinsurance is
placed on both a quota-share and excess of loss basis. The property-casualty
insurance subsidiaries also participate as a servicing carrier for, and a member
of, several pools and associations. Reinsurance ceded arrangements do not
discharge the insurance subsidiaries as the primary insurer, except for cases
involving a novation.
20
<Page>
Reinsurance amounts included in the Consolidated Statement of Income for
the years ended December 31 were as follows:
<Table>
<Caption>
GROSS NET
IN MILLIONS OF DOLLARS AMOUNT CEDED AMOUNT
- -----------------------------------------------------------------
2001
Premiums
Property-casualty insurance $ 12,373 $ (1,920) $ 10,453
Life insurance 3,124 (343) 2,781
Accident and health insurance 505 (279) 226
----------------------------
$ 16,002 $ (2,542) $ 13,460
============================
CLAIMS INCURRED $ 14,269 $ (3,623) $ 10,646
=================================================================
2000
Premiums
Property-casualty insurance $ 11,691 $ (1,795) $ 9,896
Life insurance 2,550 (332) 2,218
Accident and health insurance 530 (215) 315
----------------------------
$ 14,771 $ (2,342) $ 12,429
============================
CLAIMS INCURRED $ 10,779 $ (1,895) $ 8,884
=================================================================
1999
Premiums
Property-casualty insurance $ 10,960 $ (1,722) $ 9,238
Life insurance 2,190 (314) 1,876
Accident and health insurance 444 (54) 390
----------------------------
$ 13,594 $ (2,090) $ 11,504
============================
CLAIMS INCURRED $ 9,939 $ (1,913) $ 8,026
=================================================================
</Table>
Net premiums related to discontinued operations were $10.010 billion,
$9.193 billion, and $8.037 billion in 2001, 2000 and 1999, respectively.
Additionally, net claims incurred related to discontinued operations were $8.260
billion, $6.469 billion, and $6.057 billion in 2001, 2000 and 1999,
respectively. See Note 3 to the Consolidated Financial Statements for a
discussion of discontinued operations.
Reinsurance recoverables, net of valuation allowance, at December 31
include amounts recoverable on unpaid and paid losses and were as follows:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------
Life business $ 2,283 $ 2,028
Property-casualty business:
Pools and associations 2,082 2,592
Other reinsurance 8,008 6,096
------------------
TOTAL $ 12,373 $ 10,716
=================================================================
</Table>
16. RESTRUCTURING- AND MERGER-RELATED ITEMS
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- -----------------------------------------------------------------
Restructuring charges $ 448 $ 579 $ 166
Changes in estimates (53) (65) (401)
Accelerated depreciation 63 68 182
----------------------------
TOTAL RESTRUCTURING-RELATED ITEMS 458 582 (53)
Merger-related items - 177 -
----------------------------
TOTAL RESTRUCTURING
AND MERGER-RELATED ITEMS $ 458 $ 759 $ (53)
=================================================================
</Table>
During 2001, Citigroup recorded restructuring charges of $448 million. Of
the $448 million, $319 million related to the downsizing of certain functions in
the Global Corporate and Global Consumer businesses in order to align their cost
structures with current market conditions and $129 million related to the
acquisition of Banamex and the integration of its operations within the Global
Consumer business. These restructuring charges were expensed and are included in
"Restructuring- and merger-related items" in the Consolidated Statement of
Income. In addition, a restructuring reserve of $112 million was recorded in
connection with the acquisition of Banamex and recognized as a liability in the
purchase price allocation of Banamex. The total Banamex reserves of $241 million
include costs related to downsizings, the reconfiguration of branch operations
in Mexico, and the integration of operations and operating platforms. These
restructuring initiatives are expected to be implemented over the next year. The
reserves included $423 million related to employee severance, $72 million
related to exiting leasehold and other contractual obligations, and $65 million
of asset impairment charges.
The $423 million related to employee severance reflects the cost of
eliminating approximately 12,500 positions, including 4,200 in Citigroup's
Global Consumer business and 3,600 in Banamex related to the acquisition, and
1,300 in the Global Consumer business and 3,400 in the Global Corporate business
related to other restructuring initiatives. Approximately 3,200 of these
positions were in the United States.
The 2001 restructuring reserve utilization included $65 million of asset
impairment charges as well as $287 million of severance and other costs (of
which $203 million of employee severance and $16 million of leasehold and other
exit costs have been paid in cash and $68 is legally obligated), together with
translation effects. Through December 31, 2001 approximately 8,600 gross staff
positions have been eliminated under these programs.
During 2000, Citigroup recorded restructuring charges of $579 million,
primarily consisting of exit costs related to the acquisition of Associates. The
charges included $241 million related to employee severance, $154 million
related to exiting leasehold and other contractual obligations, and $184 million
of asset impairment charges.
Of the $579 million charge, $474 million related to the acquisition of
Associates included the reconfiguration of certain branch operations, the exit
from non-strategic businesses and from activities as mandated by Federal bank
regulations, and the consolidation and integration of corporate, middle and back
office functions. In the Global Consumer business, $51 million includes the
reconfiguration of certain branch operations outside the U.S. and the downsizing
and consolidation of certain back office functions in the U.S. Approximately
$440 million of the $579 million charge related to operations in the United
States.
The $241 million portion of the charge related to employee severance
reflects the costs of eliminating approximately 5,800 positions, including
approximately 4,600 in Associates and 700 in the Global Consumer business.
Approximately 5,000 of these positions related to the United States. In 2000, an
additional reserve of $23 million was recorded, $20 million of which related to
the elimination of 1,600 non-U.S. positions of an acquired entity.
As of December 31, 2001, the 2000 restructuring reserve utilization
included $184 million of asset impairment charges and $302 million of severance
and other exit costs (of which $145 million of employee severance and $107
million of leasehold and other exit costs have been paid in cash and $50 million
is legally obligated), together with translation effects. The remaining reserve
for 2000 restructuring initiatives of $87 million at December 31, 2001 is
expected to be substantially utilized by the end of the first quarter of 2002.
Through December 31, 2001, approximately 5,450 staff positions have been
eliminated under these programs.
During 2000, the Company also recorded $177 million of merger-related costs
which included legal, advisory, and SEC filing fees, as well as other costs of
administratively closing the acquisition of Associates.
In 1999, Citigroup recorded restructuring charges of $166 million,
including additional severance charges of $49 million as a result of the
continued implementation of 1998 restructuring initiatives, as well as $82
million of exit costs associated with new initiatives in the Global
21
<Page>
Consumer business primarily related to the reconfiguration of certain branch
operations outside the U.S., the downsizing of certain marketing operations, and
the exit of a non-strategic business. The 1999 restructuring reserve was fully
utilized at June 30, 2000.
The 1999 charge included $35 million of integration charges recorded by
Associates (the Avco charge) related to its January 6, 1999 acquisition of Avco
Financial Services, Inc. (Avco). In addition to the Avco charge, as part of the
purchase price allocation of the Avco acquisition, Associates recorded a $146
million reserve at the time of the acquisition. This reserve was established to
reflect the costs of exiting certain activities that would not be continued
after the acquisition. The costs primarily consisted of severance costs and
related expenses, lease termination costs and other contractual liabilities. The
Avco reserve was fully utilized at December 31, 1999.
The implementation of these restructuring initiatives also caused certain
related premises and equipment assets to become redundant. The remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges (in addition to normal scheduled depreciation on those assets) of $63
million, $68 million and $182 million were recognized in 2001, 2000 and 1999,
respectively.
The status of the 2001, 2000, and 1999 restructuring initiatives is
summarized in the following table:
RESTRUCTURING RESERVE ACTIVITY
<Table>
<Caption>
RESTRUCTURING INITIATIVES
----------------------------
IN MILLIONS OF DOLLARS 2001 2000 1999
- -----------------------------------------------------------------
Original charges $ 448 $ 579 $ 117
- -----------------------------------------------------------------
Acquisitions during:(1)
2001 112 - -
2000 - 23 -
1999 - - 146
- -----------------------------------------------------------------
112 23 146
- -----------------------------------------------------------------
Utilization during:(2)
2001 (352) (231) -
2000 - (255) (51)
1999 - - (212)
- -----------------------------------------------------------------
(352) (486) (263)
- -----------------------------------------------------------------
Changes in estimates during:
2001 (18) (29) -
2000 - - -
1999 - - -
- -----------------------------------------------------------------
(18) (29) -
- -----------------------------------------------------------------
RESERVE BALANCE AT
DECEMBER 31, 2001 $ 190 $ 87 $ -
=================================================================
</Table>
(1) Represents additions to restructuring liabilities arising from
acquisitions.
(2) Utilization amounts include translation effects on the restructuring
reserve.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. Changes in estimates
attributable to lower than anticipated costs of implementing certain projects
and a reduction in the scope of certain initiatives during 2001 resulted in the
reduction of the reserve for 2001 restructuring initiatives of $18 million, a
reduction of $29 million for 2000 restructuring initiatives and a reduction of
$6 million for 1998 and 1997 restructuring initiatives. During 2000 and 1999,
changes in estimates resulted in reductions in the reserve for 1998
restructuring initiatives of $65 million and $151 million, respectively. Changes
in estimates related to 1997 restructuring initiatives, which were fully
utilized as of December 31, 1999, were $250 million in 1999, and were primarily
related to the reassessment of space needed due to the Travelers and Citicorp
merger, which indicated the need for increased occupancy and the utilization of
space previously considered excessive.
17. INCOME TAXES
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000 1999
- -----------------------------------------------------------------
CURRENT
Federal $ 3,649 $ 3,295 $ 3,350
Foreign 2,481 2,301 2,198
State 382 392 384
----------------------------
6,512 5,988 5,932
----------------------------
DEFERRED
Federal 757 1,231 631
Foreign 98 197 (134)
State 159 109 101
----------------------------
1,014 1,537 598
----------------------------
PROVISION FOR INCOME TAX
BEFORE MINORITY INTEREST(1) 7,526 7,525 6,530
Provision (benefit) for income
taxes on cumulative effect of
accounting changes (93) - (84)
Income tax expense (benefit)
reported in stockholders' equity
related to:
Foreign currency translation (252) (108) (25)
Securities available-for-sale (71) (259) (28)
Employee stock plans (674) (1,400) (1,017)
Cash flow hedges 105 - -
Other - (24) (1)
----------------------------
INCOME TAXES BEFORE MINORITY
INTEREST $ 6,541 $ 5,734 $ 5,375
=================================================================
</Table>
(1) Includes the effect of securities transactions resulting in a provision of
$202 million in 2001, $282 million in 2000, and $189 million in 1999.
The reconciliation of the Federal statutory income tax rate to the
Company's effective income tax rate applicable to income (before minority
interest and cumulative effect of accounting changes) for the years ended
December 31 was as follows:
<Table>
<Caption>
2001 2000 1999
- ------------------------------------------------------------------
FEDERAL STATUTORY RATE 35.0% 35.0% 35.0%
Limited taxability of investment
income (1.3) (1.2) (1.4)
State income taxes, net of Federal
benefit 1.6 1.6 1.7
Other, net (0.9) 0.2 0.7
----------------------------
EFFECTIVE INCOME TAX RATE 34.4% 35.6% 36.0%
=================================================================
</Table>
22
<Page>
Deferred income taxes at December 31 related to the following:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- -----------------------------------------------------------------
DEFERRED TAX ASSETS
Credit loss deduction $ 4,197 $ 2,981
Differences in computing policy reserves 1,787 1,956
Unremitted foreign earnings - 2,031
Deferred compensation 1,413 1,234
Employee benefits 1,108 613
Interest-related items 379 363
Foreign and state loss carryforwards 290 293
Other deferred tax assets 1,427 1,513
------------------
Gross deferred tax assets 10,601 10,984
Valuation allowance 200 220
------------------
DEFERRED TAX ASSETS AFTER VALUATION
ALLOWANCE 10,401 10,764
------------------
DEFERRED TAX LIABILITIES
Unremitted foreign earnings (37) -
Investments (978) (1,534)
Deferred policy acquisition costs
and value of insurance in force (1,248) (1,102)
Leases (1,792) (1,524)
Intangibles (769) (354)
Other deferred tax liabilities (1,697) (1,995)
------------------
GROSS DEFERRED TAX LIABILITIES (6,521) (6,509)
------------------
NET DEFERRED TAX ASSET $ 3,880 $ 4,255
=================================================================
</Table>
Foreign pretax earnings approximated $8.1 billion in 2001, $6.9 billion in
2000, and $5.4 billion in 1999. As a U.S. corporation, Citigroup is subject to
U.S. taxation currently on all foreign pretax earnings earned by a foreign
branch. Pretax earnings of a foreign subsidiary or affiliate are subject to U.S.
taxation when effectively repatriated. In addition, certain of Citigroup's U.S.
income is subject to foreign income tax where the payor of such income is
domiciled outside the United States. The Company provides income taxes on the
undistributed earnings of non-U.S. subsidiaries except to the extent that such
earnings are indefinitely invested outside the United States. At December 31,
2001, $2.0 billion of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At the existing U.S. Federal income tax
rate, additional taxes of $565 million would have to be provided if such
earnings were remitted.
Income taxes are not provided for on the Company's life insurance
subsidiaries' "policyholders' surplus account" because under current U.S. tax
rules such taxes will become payable only to the extent such amounts are
distributed as a dividend or exceed limits prescribed by Federal law.
Distributions are not contemplated from this account, which aggregated $982
million (subject to a tax of $344 million) at December 31, 2001.
The 2001 net change in the valuation allowance related to deferred tax
assets was a decrease of $20 million primarily relating to state net operating
losses. The valuation allowance of $200 million at December 31, 2001 is
primarily related to specific state and local, and foreign tax carryforwards, or
tax law restrictions on benefit recognition in the U.S. Federal tax return and
in the above jurisdictions.
Management believes that the realization of the recognized net deferred tax
asset of $3.880 billion is more likely than not based on existing carryback
ability and expectations as to future taxable income. The Company has reported
pretax financial statement income of approximately $20 billion, on average, over
the last three years and has generated Federal taxable income exceeding $13
billion, on average, each year during this same period.
18. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS
The Company formed statutory business trusts under the laws of the state of
Delaware, which exist for the exclusive purposes of (i) issuing Trust Securities
representing undivided beneficial interests in the assets of the Trust; (ii)
investing the gross proceeds of the Trust securities in junior subordinated
deferrable interest debentures (subordinated debentures) of its parent; and
(iii) engaging in only those activities necessary or incidental thereto. Upon
approval from the Federal Reserve, Citigroup has the right to redeem these
securities. These subordinated debentures and the related income effects are
eliminated in the consolidated financial statements. Distributions on the
mandatorily redeemable securities of subsidiary trusts below have been
classified as interest expense in the Consolidated Statement of Income.
23
<Page>
The following tables summarize the financial structure of each of the Company's
subsidiary trusts at December 31, 2001:
<Table>
<Caption>
Junior Subordinated Debentures Owned by Trust
Common --------------------------------------------
TRUST SECURITIES Shares Redeemable
WITH DISTRIBUTIONS Issuance Securities Liquidation Coupon Issued by Issuer
GUARANTEED BY Date Issued Value Rate to Parent Amount Maturity Beginning
- ----------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
Citigroup:
Citigroup Capital I Oct. 1996 16,000,000 $ 400 8.000% 494,880 $ 412 Sept. 30, 2036 Oct. 7, 2001
Citigroup Capital II Dec. 1996 400,000 400 7.750% 12,372 412 Dec. 1, 2036 Dec. 1, 2006
Citigroup Capital III Dec. 1996 200,000 200 7.625% 6,186 206 Dec. 1, 2036 Not redeemable
Citigroup Capital IV Jan. 1998 8,000,000 200 6.850% 247,440 206 Jan. 22, 2038 Jan. 22, 2003
Citigroup Capital V Nov. 1998 20,000,000 500 7.000% 618,557 515 Nov. 15, 2028 Nov. 15, 2003
Citigroup Capital VI Mar. 1999 24,000,000 600 6.875% 742,269 619 Mar. 15, 2029 Mar. 15, 2004
Citigroup Capital VII July 2001 46,000,000 1,150 7.125% 1,422,681 1,186 July 31, 2031 July 31, 2006
Citigroup Capital VIII Sept. 2001 56,000,000 1,400 6.950% 1,731,959 1,443 Sept. 15, 2031 Sept. 17, 2006
- ----------------------------------------------------------------------------------------------------------------------------------
Total Parent Obligated $ 4,850
==================================================================================================================================
Subsidiaries:
Travelers P&C Capital I April 1996 32,000,000 $ 800 8.080% 989,720 $ 825 April 30, 2036 April 30, 2001
Travelers P&C Capital II May 1996 4,000,000 100 8.000% 123,720 103 May 15, 2036 May 15, 2001
Salomon Smith Barney
Holdings Inc.
Capital I Jan. 1998 16,000,000 400 7.200% 494,880 412 Jan 28, 2038 Jan. 28, 2003
Citicorp Capital I Dec. 1996 300,000 300 7.933% 9,000 309 Feb. 15, 2027 Feb. 15, 2007
Citicorp Capital II Jan. 1997 450,000 450 8.015% 13,500 464 Feb. 15, 2027 Feb. 15, 2007
Citicorp Capital III June 1998 9,000,000 225 7.100% 270,000 232 Aug. 15, 2028 Aug. 15, 2003
- ----------------------------------------------------------------------------------------------------------------------------------
Total Subsidiary
Obligated $ 2,275
==================================================================================================================================
</Table>
In each case, the coupon rate on the debentures is the same as that on the
trust securities. Distributions on the trust securities and interest on the
debentures are payable quarterly, except for Citigroup Capital II and III and
Citicorp Capital I and II, on which distributions are payable semiannually.
On January 7, 2002, Citigroup redeemed, for cash, all of the Trust
Preferred Securities of Citigroup Capital I at the redemption price of $25 per
Preferred Security plus any accrued and unpaid distributions thereon.
19. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
PERPETUAL PREFERRED STOCK
The following table sets forth the Company's perpetual preferred stock
outstanding at December 31:
<Table>
<Caption>
REDEEMABLE, IN CARRYING VALUE (IN MILLIONS OF
WHOLE DOLLARS)
OR IN PART ON OR REDEMPTION PRICE ------------------------------
RATE AFTER(1) PER SHARE(2) NUMBER OF SHARES 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Series F (6) 6.365% June 16, 2007 $ 250 1,600,000 $ 400 $ 397
Series G (6) 6.213% July 11, 2007 $ 250 800,000 200 181
Series H (3) 6.231% September 8, 2007 $ 250 800,000 200 200
Series K (4) 8.400% March 31, 2001 $ 500 500,000 - 250
Series M (3) 5.864% October 8, 2007 $ 250 800,000 200 195
Series Q (6) Adjustable May 31, 1999 $ 250 700,000 175 172
Series R (5) Adjustable August 31, 1999 $ 250 400,000 100 100
Series U (5) 7.750% May 15, 2000 $ 250 500,000 125 125
Series V (5) Fixed/Adjustable February 15, 2006 $ 500 250,000 125 125
--------------------------
$ 1,525 $ 1,745
=============================================================================================================================
</Table>
(1) Under various circumstances, the Company may redeem certain series of
preferred stock at times other than described above.
(2) Liquidation preference per share equals redemption price per share.
(3) Issued as depositary shares, each representing a one-fifth interest in a
share of the corresponding series of preferred stock.
(4) Issued as depositary shares, each representing a one-twentieth interest in
a share of the corresponding series of preferred stock.
(5) Issued as depositary shares, each representing a one-tenth interest in a
share of the corresponding series of preferred stock.
(6) Shares previously held by affiliates in 2001 have been subsequently traded
on the open market to third parties during the third quarter of 2001.
All dividends on the Company's perpetual preferred stock are payable
quarterly and are cumulative. Citigroup redeemed Series K Preferred Stock in
October 2001. In January 2002, Citigroup redeemed Series U Preferred Stock.
Dividends on Series Q and R Preferred Stock are payable at rates determined
quarterly by formulas based on interest rates of certain U.S. Treasury
obligations, subject to certain minimum and maximum rates as specified in the
certificates of designation. The weighted-average
24
<Page>
dividend rate on the Series Q and R Preferred Stock was 4.83% for 2001.
Dividends on the Series V Preferred Stock are payable at 5.86% through
February 15, 2006, and thereafter at rates determined quarterly by a formula
based on certain interest rate indices, subject to a minimum rate of 6% and a
maximum rate of 12%. The rate of dividends on the Series V Preferred Stock is
subject to adjustment based upon the applicable percentage of the dividends
received deduction.
REGULATORY CAPITAL
Citigroup and Citicorp are subject to risk-based capital and leverage
guidelines issued by the Board of Governors of the Federal Reserve System (FRB),
and their U.S. insured depository institution subsidiaries, including Citibank,
N.A., are subject to similar guidelines issued by their respective primary
regulators. These guidelines are used to evaluate capital adequacy and include
the required minimums shown in the following table.
To be "well capitalized" under Federal bank regulatory agency definitions,
a depository institution must have a Tier 1 ratio of at least 6%, a combined
Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%,
and not be subject to a directive, order, or written agreement to meet and
maintain specific capital levels. The regulatory agencies are required by law to
take specific prompt actions with respect to institutions that do not meet
minimum capital standards. As of December 31, 2001 and 2000, all of Citigroup's
U.S. insured subsidiary depository institutions were "well capitalized." At
December 31, 2001, regulatory capital as set forth in guidelines issued by the
U.S. Federal bank regulators is as follows:
<Table>
<Caption>
IN MILLIONS OF MINIMUM
DOLLARS REQUIREMENT CITIGROUP CITICORP CITIBANK, N.A.
- ---------------------------------------------------------------------------
Tier 1 capital $ 58,448 $ 42,188 $ 31,763
Total capital(1) 75,797 62,871 46,778
Tier 1 capital ratio 4.00% 8.42% 8.33% 9.23%
Total capital ratio(1) 8.00% 10.92% 12.41% 13.60%
Leverage ratio(2) 3.00% 5.64% 6.85% 7.16%
===========================================================================
</Table>
(1) Total capital includes Tier 1 and Tier 2.
(2) Tier 1 capital divided by adjusted average assets.
There are various legal limitations on the extent to which Citigroup's
banking subsidiaries may pay dividends to their parents. Citigroup's national
and state-chartered bank subsidiaries can declare dividends to their respective
parent companies in 2002, without regulatory approval, of approximately $9.1
billion adjusted by the effect of their net income (loss) for 2002 up to the
date of any such dividend declaration. In determining whether and to what extent
to pay dividends, each bank subsidiary must also consider the effect of dividend
payments on applicable risk-based capital and leverage ratio requirements as
well as policy statements of the Federal regulatory agencies that indicate that
banking organizations should generally pay dividends out of current operating
earnings. Consistent with these considerations, Citigroup estimates that its
bank subsidiaries can distribute dividends to Citigroup of approximately $8.9
billion of the available $9.1 billion, adjusted by the effect of their net
income (loss) up to the date of any such dividend declaration.
The property-casualty insurance subsidiaries' statutory capital and surplus
at December 31, 2001 and 2000 was $7.687 billion and $7.634 billion,
respectively. The life insurance subsidiaries' statutory capital and surplus at
December 31, 2001 and 2000 was $6.188 billion and $6.079 billion, respectively.
Statutory capital and surplus are subject to certain restrictions imposed by
state insurance departments as to the transfer of funds and payment of
dividends. The property-casualty insurance subsidiaries' statutory net income
for the years ended December 31, 2001, 2000 and 1999 was $1.091 billion, $1.445
billion and $1.500 billion, respectively. The life insurance subsidiaries'
statutory net income for the years ended December 31, 2001, 2000 and 1999 was
$471 million, $1.090 billion and $988 million, respectively. Statutory capital
and surplus and statutory net income are determined in accordance with statutory
accounting practices.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $586 million of statutory surplus
is available by the end of the year 2002 for such dividends without the prior
approval of the Connecticut Insurance Department.
TPC's insurance subsidiaries are subject to various regulatory restrictions
that limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. A maximum of $1.0
billion is available by the end of 2002 for such dividends without prior
approval of the Connecticut Insurance Department. However, the payment of a
significant portion of this amount is likely to be subject to such approval
depending upon the amount and timing of the payments.
Certain of the Company's U.S. and non-U.S. broker-dealer subsidiaries are
subject to various securities and commodities regulations and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. The principal regulated subsidiaries, their net
capital requirement or equivalent and excess over the minimum requirement as of
December 31, 2001 are as follows:
<Table>
<Caption>
EXCESS OVER
NET CAPITAL MINIMUM
SUBSIDIARY JURISDICTION OR EQUIVALENT REQUIREMENT
- ----------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
Salomon Smith Barney Inc. U.S. Securities and Exchange Commission Uniform Net Capital Rule
(Rule 15c3-1) $ 3,474 $ 3,014
Salomon Brothers International
Limited United Kingdom's Securities and Futures Authority 2,757 768
==================================================================================================================================
</Table>
25
<Page>
20. CHANGES IN EQUITY FROM NONOWNER SOURCES
Changes in each component of "Accumulated Other Changes in Equity from Nonowner
Sources" for the three-year period ended December 31, 2001 are as follows:
<Table>
<Caption>
NET UNREALIZED FOREIGN ACCUMULATED
GAINS ON CURRENCY OTHER CHANGES
INVESTMENT TRANSLATION IN EQUITY FROM
IN MILLIONS OF DOLLARS SECURITIES ADJUSTMENT CASH FLOW HEDGES NONOWNER SOURCES
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1999 $ 1,433 $ (449) $ - $ 984
Unrealized gains on investment securities, after-tax of $161 566 - - 566
Less: Reclassification adjustment for gains included in
net income, after-tax of ($189) (352) - - (352)
Foreign currency translation adjustment, after-tax of ($25) - (43) - (43)
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 214 (43) - 171
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 1,647 (492) - 1,155
Unrealized gains on investment securities, after-tax of $23 (150) - - (150)
Less: Reclassification adjustment for gains
included in net income, after-tax of ($282) (524) - - (524)
Foreign currency translation adjustment, after-tax of ($108) - (358) - (358)
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (674) (358) - (1,032)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 973 (850) - 123
Cumulative effect of accounting changes, after-tax of $70(1) 101 20 (3) 118
Unrealized gains on investment securities, after-tax of $71 154 - - 154
Less: Reclassification adjustment for gains
included in net income, after-tax of ($202) (376) - - (376)
Foreign currency translation adjustment, after-tax of ($263) - (1,034) - (1,034)
Cash flow hedges, after-tax of $106 - - 171 171
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (121) (1,014) 168 (967)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 852 $ (1,864) $ 168 $ (844)
===================================================================================================================================
</Table>
(1) Refers to the 2001 first quarter adoption of SFAS 133 and the 2001 second
quarter adoption of EITF 99-20.
46
<Page>
21. EARNINGS PER SHARE
The following is a reconciliation of the income and share data used in the
basic and diluted earnings per share computations for the years ended December
31:
<Table>
<Caption>
IN MILLIONS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS 2001 2000 1999
- -------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES $ 13,229 $ 12,231 $ 10,193
Discontinued operations 1,055 1,288 1,177
Cumulative effect of accounting
changes (158) - (127)
Preferred dividends (110) (116) (149)
--------------------------------------
INCOME AVAILABLE TO COMMON
STOCKHOLDERS FOR BASIC EPS 14,016 13,403 11,094
Effect of dilutive securities - - 10
--------------------------------------
INCOME AVAILABLE TO COMMON
STOCKHOLDERS FOR DILUTED EPS $ 14,016 $ 13,403 $ 11,104
===============================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING APPLICABLE TO BASIC
EPS 5,031.7 4,977.0 4,979.2
--------------------------------------
Effect of dilutive securities:
Options 81.6 110.9 103.3
Restricted stock 32.6 33.2 34.8
Convertible securities 1.1 1.1 10.5
--------------------------------------
ADJUSTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING APPLICABLE TO
DILUTED EPS 5,147.0 5,122.2 5,127.8
===============================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations
before cumulative effect
of accounting changes $ 2.61 $ 2.43 $ 2.02
Discontinued operations 0.21 0.26 0.24
Cumulative effect of accounting changes (0.03) - (0.03)
--------------------------------------
NET INCOME $ 2.79 $ 2.69 $ 2.23
===============================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations
before cumulative effect
of accounting changes $ 2.55 $ 2.37 $ 1.96
Discontinued operations 0.20 0.25 0.23
Cumulative effect of accounting
changes (0.03) - (0.02)
--------------------------------------
NET INCOME $ 2.72 $ 2.62 $ 2.17
===============================================================================
</Table>
During 2001, 2000 and 1999, weighted average options of 100.1 million
shares, 28.1 million shares and 42.7 million shares with weighted average
exercise prices of $52.76 per share, $58.32 per share, and $40.81 per share,
respectively, were excluded from the computation of diluted EPS because the
options' exercise price was greater than the average market price of the
Company's common stock.
22. INCENTIVE PLANS
The Company has adopted a number of equity compensation plans under which
it administers stock options, restricted/deferred stock and stock purchase
programs to attract, retain and motivate officers and employees, to compensate
them for their contributions to the growth and profits of the Company, and to
encourage employee stock ownership. At December 31, 2001, approximately 450
million shares were authorized for grant under Citigroup's stock incentive
plans.
STOCK OPTION PROGRAMS
The Company has a number of stock option programs that provide for the
granting of stock options to officers and employees. Options are granted at the
fair market value of Citigroup common stock at the time of grant for a period of
ten years. Generally, Citigroup options vest over a five-year period, including
options granted under Travelers predecessor plans and options granted since the
date of the merger. Generally, 50% of the options granted under Citicorp
predecessor plans prior to the merger are exercisable beginning on the third
anniversary and 50% beginning on the fourth anniversary of the date of grant.
Generally, options granted under Associates predecessor plans vest over a
three-year period. Certain options permit an employee exercising an option under
certain conditions to be granted new options (reload options) in an amount equal
to the number of common shares used to satisfy the exercise price and the
withholding taxes due upon exercise. The reload options are granted for the
remaining term of the related original option and vest after six months.
To further encourage employee stock ownership, the Company's eligible
employees participate in WealthBuilder, Citibuilder, or the new Citigroup
Ownership stock option programs. Commencing in 2001, new grants are made under
the Citigroup Ownership Program. Options granted under the WealthBuilder and the
Citigroup Ownership programs vest over a five-year period, whereas options
granted under the Citibuilder program vest after five years. These options do
not have a reload feature.
During 1998, a group of key Citicorp employees were granted 12,680,000
performance-based stock options at an equivalent Citigroup strike price of
$24.13. These performance-based options vested in 1999 when Citigroup's stock
price reached $40.00 per share. The cost of performance-based options was
measured as the difference between the exercise price and the market price
required for vesting. After-tax expense recognized on these performance-based
options was $68 million in 1999. All of the expense related to these grants has
been recognized.
Information with respect to stock option activity under Citigroup stock option
plans for the years ended December 31, 2001, 2000 and 1999 is as follows:
<Table>
<Caption>
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
OPTIONS PRICE Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, BEGINNING OF YEAR 372,547,412 $ 30.55 377,082,042 $ 23.69 419,060,809 $ 20.37
Granted-original 57,366,507 52.77 86,287,613 43.57 29,869,276 34.46
Granted-reload 13,655,748 49.99 57,637,033 49.50 39,352,789 37.61
Forfeited (21,544,911) 34.55 (20,672,028) 27.11 (18,106,937) 20.43
Exercised (57,602,949) 23.12 (127,787,248) 26.14 (93,093,895) 18.70
- ----------------------------------------------------------------------------------------------------------------------------
OUTSTANDING, END OF YEAR 364,421,807 $ 36.18 372,547,412 $ 30.55 377,082,042 $ 23.69
============================================================================================================================
EXERCISABLE AT YEAR-END 164,268,613 118,330,975 113,813,418
============================================================================================================================
</Table>
27
<Page>
The following table summarizes the information about stock options outstanding
under Citigroup stock option plans at December 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING REMAINING PRICE EXERCISABLE PRICE
- -----------------------------------------------------------------------------------------------------------------
$0.03 - $ 9.99 16,025,359 2.3 years $ 6.83 15,012,126 $ 6.72
$10.00 - $19.99 13,439,499 4.3 years 14.26 11,977,180 14.26
$20.00 - $29.99 123,660,877 6.0 years 23.60 65,974,043 23.42
$30.00 - $39.99 30,524,889 7.1 years 33.77 10,956,980 33.52
$40.00 - $49.99 91,055,480 7.7 years 45.49 27,506,605 46.58
$50.00 - $59.99 89,612,050 7.1 years 53.41 32,772,216 54.09
$60.00 - $60.93 103,653 7.3 years 60.93 69,463 60.93
- -----------------------------------------------------------------------------------------------------------------
364,421,807 6.6 years $ 36.18 164,268,613 $ 31.91
=================================================================================================================
</Table>
THE RESTRICTED STOCK PROGRAM
The Company, primarily through its Capital Accumulation Program (CAP),
issues shares of Citigroup common stock in the form of restricted stock to
participating officers and employees. The restricted stock generally vests after
a two- or three-year restricted period during which time the stock cannot be
sold or transferred by the participant and is subject to total or partial
forfeiture if the participant's employment is terminated. Certain CAP
participants may elect to receive part of their awards in restricted stock and
part in stock options. The figures in the two previous tables include options
granted under CAP. Unearned compensation expense associated with the restricted
stock grants represents the market value of Citigroup common stock at the date
of grant and is recognized as a charge to income ratably over the vesting
period. Information with respect to restricted stock awards is as follows:
<Table>
<Caption>
2001 2000 1999
- -----------------------------------------------------------------
Shares awarded 26,018,414 27,989,280 14,577,765
Weighted average fair
market value per share $ 43.80 $ 40.66 $ 28.52
After-tax compensation
cost charged to earnings
(IN MILLIONS OF DOLLARS) $ 397 $ 417 $ 269
=================================================================
</Table>
CITIGROUP 401(k)
Under the Citigroup 401(k) plan, eligible employees receive awards up to 3%
of their total compensation deferred into the Citigroup common stock fund. The
after-tax expense associated with this plan amounted to $32 million in 2001, $29
million in 2000 and $31 million in 1999.
STOCK PURCHASE PROGRAM
Stock Purchase Program offerings, which are administered under the
Citigroup 2000 Stock Purchase Plan and the Citicorp 1997 Stock Incentive Plan
allow eligible employees of Citigroup to enter into fixed subscription
agreements to purchase shares in the future at the market value on the date of
the agreements. Subject to certain limits, enrolled employees are permitted to
make one purchase prior to the expiration date. The purchase price of the shares
is paid with accumulated payroll deductions plus interest. Shares of Citigroup's
common stock to be delivered under the Stock Purchase Program may be sourced
from authorized and unissued or treasury shares. The original offering under the
Citigroup Stock Purchase Program was in August 2000. In 2001, three additional
offerings were made to new employees in March, July and November 2001.
A previous offering under the 1997 Stock Purchase Plan allowed eligible
employees of Citicorp to enter into fixed subscription agreements to purchase
shares at the market value on the date of the agreements. Such shares could be
purchased from time to time through the expiration date. Shares of Citigroup's
common stock delivered under the Stock Purchase Plan were sourced from treasury
shares.
Following is the share activity under the August 2000 and 1997 fixed-price
offerings for the purchase of shares at the equivalent Citigroup price of $52.92
and $22.65 per share, respectively. The fixed-price offerings for the purchase
of shares for the offerings made in March, July, and November 2001 were $44.98,
$50.21 and $45.52, respectively. The 1997 offering expired on June 30, 1999. All
current offerings will expire in September 2002.
<Table>
<Caption>
2001 2000 1999
- -----------------------------------------------------------------
OUTSTANDING SUBSCRIBED
SHARES AT BEGINNING OF
YEAR 24,081,663 - 15,090,212
Subscriptions entered 2,981,557 24,618,050 -
into Shares purchased 76,361 1,647 13,765,639
Canceled or terminated 5,725,549 534,740 1,324,573
- -----------------------------------------------------------------
OUTSTANDING SUBSCRIBED
SHARES AT END OF YEAR 21,261,310 24,081,663 -
=================================================================
</Table>
PRO FORMA IMPACT OF SFAS NO. 123
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock-based
compensation plans under which there is generally no charge to earnings for
employee stock option awards (other than performance-based options) and the
dilutive effect of outstanding options is reflected as additional share dilution
in the computation of earnings per share.
Alternatively, FASB rules would permit a method under which a compensation
cost for all stock awards would be calculated and recognized over the service
period (generally equal to the vesting period). This compensation cost would be
determined in a manner prescribed by FASB using option pricing models, intended
to estimate the fair value of the awards at the grant date. Earnings per share
dilution would be recognized as well.
Under both methods, an offsetting increase to stockholders' equity is
recorded equal to the amount of compensation expense charged.
28
<Page>
Had the Company applied SFAS No. 123 in accounting for the Company's stock
option plans, net income and net income per share would have been the pro forma
amounts indicated below:
<Table>
<Caption>
IN MILLIONS OF DOLLARS,
EXCEPT PER SHARE
AMOUNTS 2001 2000 1999
- -----------------------------------------------------------------
Compensation expense As reported $ - $ - $ 108
related to stock Pro forma 862 919 818
option plans
- -----------------------------------------------------------------
Net income As reported $ 14,126 $ 13,519 $ 11,243
Pro forma 13,566 12,931 $ 10,782
- -----------------------------------------------------------------
Basic earnings per share As reported $ 2.79 $ 2.69 $ 2.23
Pro forma 2.68 2.57 2.11
- -----------------------------------------------------------------
Diluted earnings per As reported $ 2.72 $ 2.62 $ 2.17
share Pro forma 2.61 2.50 2.05
=================================================================
</Table>
The pro forma adjustments relate to stock options granted from 1995 through
2001, for which a fair value on the date of grant was determined using a
Black-Scholes option pricing model. No effect has been given to options granted
prior to 1995. The fair values of stock-based awards are based on assumptions
that were determined at the grant date.
SFAS No. 123 requires that reload options be treated as separate grants
from the related original grants. Under the Company's reload program, upon
exercise of an option, employees tender previously owned shares to pay the
exercise price and surrender shares otherwise to be received for related tax
withholding, and receive a reload option covering the same number of shares
tendered for such purposes. Reload options vest at the end of a six-month
period. Reload options are intended to encourage employees to exercise options
at an earlier date and to retain the shares so acquired, in furtherance of the
Company's long-standing policy of encouraging increased employee stock
ownership. The result of this program is that employees generally will exercise
options as soon as they are able and, therefore, these options have shorter
expected lives. Shorter option lives result in lower valuations using a
Black-Scholes option model. However, such values are expensed more quickly due
to the shorter vesting period of reload options. In addition, since reload
options are treated as separate grants, the existence of the reload feature
results in a greater number of options being valued.
Shares received through option exercises under the reload program are
subject to restrictions on sale. Discounts (as measured by the estimated cost of
protection) have been applied to the fair value of options granted to reflect
these sale restrictions.
Additional valuation and related assumption information for Citigroup
option plans is presented below:
<Table>
<Caption>
FOR OPTIONS GRANTED DURING 2001 2000 1999
- -----------------------------------------------------------------
WEIGHTED AVERAGE FAIR VALUE
Option $ 11.69 $ 9.94 $ 10.65
WEIGHTED AVERAGE EXPECTED LIFE
Original grants 3 YEARS 3 years 3 years
Reload grants 1 YEAR 1 year 1 year
VALUATION ASSUMPTIONS
Expected volatility 38.76% 41.35% 46.1%
Risk-free interest rate 4.63% 6.17% 5.17%
Expected annual dividends per
share $ 0.92 $ 0.76 $ 0.47
Expected annual forfeitures 5% 5% 5%
=================================================================
</Table>
23. RETIREMENT BENEFITS
The Company has several non-contributory defined benefit pension plans
covering substantially all U.S. employees and has various defined benefit
pension termination indemnity plans covering employees outside the United
States. The U.S. defined benefit plan provides benefits under a cash balance
formula. Employees satisfying certain age and service requirements remain
covered by a prior final pay formula. The Company also offers postretirement
health care and life insurance benefits to certain eligible U.S. retired
employees, as well as to certain eligible employees outside the United States.
The following tables summarize the components of net benefit expense recognized
in the Consolidated Statement of Income and the funded status and amounts
recognized in the Consolidated Balance Sheet for the Company's U.S. plans and
significant plans outside the United States.
NET BENEFIT EXPENSE
<Table>
<Caption>
PENSION PLANS POSTRETIREMENT BENEFIT PLANS (1)
-----------------------------------------------------------------------------------------
U.S. PLANS PLANS OUTSIDE U.S. U.S. PLANS
-----------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2001 2000 1999 2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Benefits earned during the year $ 232 $ 238 $ 264 $ 116 $ 95 $ 89 $ 6 $ 12 $ 16
Interest cost on benefit obligation 544 527 494 190 102 98 73 73 68
Expected return on plan assets (795) (757) (688) (185) (106) (90) (20) (18) (16)
Amortization of unrecognized:
Net transition (asset) obligation - 1 (17) 9 5 4 - - -
Prior service cost (18) (9) (6) - - - (2) (5) (5)
Net actuarial loss (gain) 3 (29) 14 5 (1) 6 (3) (9) 2
Curtailment (gain) loss (5) - - 6 - - (39) (29) (29)
-----------------------------------------------------------------------------------------
NET (BENEFIT) EXPENSE $ (39) $ (29) $ 61 $ 141 $ 95 $ 107 $ 15 $ 24 $ 36
================================================================================================================================
</Table>
(1) For plans outside the U.S., net postretirement benefit expense totaled $42
million in 2001, $13 million in 2000, and $13 million in 1999.
29
<Page>
PREPAID BENEFIT COST (BENEFIT LIABILITY)
<Table>
<Caption>
PENSION PLANS POSTRETIREMENT BENEFIT PLANS(3)
-----------------------------------------------------------------------------------------
U.S. PLANS(1) PLANS OUTSIDE U.S.(2) U.S. PLANS
-----------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS AT YEAR-END 2001 2000 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 7,382 $ 6,630 $ 1,794 $ 1,632 $ 1,015 $ 946
Benefits earned during the year 232 238 116 95 6 12
Interest cost on benefit obligation 544 527 188 102 73 73
Plan amendments (166) 1 - (5) - (3)
Actuarial (gain) loss 221 327 104 109 28 95
Benefits paid (389) (351) (128) (68) (82) (77)
Acquisitions 10 24 559 59 - -
Expenses (16) (14) - - - -
Curtailment 5 - 1 (8) (22) (31)
Settlements - - 1 (8) - -
Foreign exchange impact - - (70) (114) - -
-----------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 7,823 $ 7,382 $ 2,565 $ 1,794 $ 1,018 $ 1,015
===================================================================================================================================
CHANGE IN PLAN ASSETS
Plan assets at fair value at
beginning of year $ 8,478 $ 8,638 $ 1,421 $ 1,421 $ 218 $ 217
Actual return on plan assets (238) 102 333 17 (6) 1
Company contributions 379 71 139 104 82 77
Employee contributions - - 8 4 - -
Acquisitions 10 32 388 47 - -
Settlements - - (5) (5) - -
Benefits paid (389) (351) (128) (68) (82) (77)
Expenses (16) (14) - - - -
Foreign exchange impact - - (57) (99) - -
-----------------------------------------------------------------------------------------
PLAN ASSETS AT FAIR VALUE AT END OF YEAR $ 8,224 $ 8,478 $ 2,099 $ 1,421 $ 212 $ 218
===================================================================================================================================
RECONCILIATION OF PREPAID (ACCRUED)
BENEFIT COST AND TOTAL AMOUNT RECOGNIZED
Funded status of the plan
Unrecognized: $ 401 $ 1,096 $ (466) $ (373) $ (806) $ (797)
Net transition obligation (asset) - - 24 26 - -
Prior service cost (245) (114) 10 8 (8) (26)
Net actuarial (gain) loss 655 (589) 289 148 (30) (88)
-----------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 811 $ 393 $ (143) $ (191) $ (844) $ (911)
===================================================================================================================================
AMOUNTS RECOGNIZED IN THE
STATEMENT OF FINANCIAL POSITION
CONSIST OF
Prepaid benefit cost $ 1,300 $ 848 $ 174 $ 131 $ - $ -
Accrued benefit liability (554) (513) (401) (365) (844) (911)
Intangible asset 65 58 84 43 - -
-----------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ 811 $ 393 $ (143) $ (191) $ (844) $ (911)
===================================================================================================================================
</Table>
(1) For unfunded U.S. plans, the aggregate benefit obligation was $547 million
and $537 million, and the aggregate accumulated benefit obligation was $512
million and $475 million at December 31, 2001 and 2000, respectively.
(2) For plans outside the U.S., the aggregate benefit obligation was $2.378
billion and $1.175 billion, and the fair value of plan assets was $1.877
billion and $700 million at December 31, 2001 and 2000, respectively, for
plans whose benefit obligation exceeds plan assets. The aggregate
accumulated benefit obligation was $670 million and $440 million, and the
fair value of plan assets was $324 million and $167 million at December 31,
2001 and 2000, respectively, for plans whose accumulated benefit obligation
exceeds plan assets.
(3) For plans outside the U.S., the accumulated postretirement benefit
obligation was $524 million and $88 million and the postretirement benefit
liability was $519 million and $44 million at December 31, 2001 and 2000,
respectively.
30
<Page>
The expected long-term rates of return on assets used in determining the
Company's pension and postretirement expense are shown below:
<Table>
<Caption>
2001 2000 1999
- ---------------------------------------------------------------------
RATE OF RETURN ON ASSETS
U.S. plans 9.5% 9.0% to 9.5% 9.0% to 9.5%
Plans outside the
U.S. (1) 3.0% TO 12.0% 2.5% to 12.0% 2.5% to 12.5%
=====================================================================
</Table>
(1) Excluding highly inflationary countries.
The principal assumptions used in determining pension and postretirement benefit
obligations for the Company's plans are shown in the following table.
<Table>
<Caption>
At year- end 2001 2000
- ----------------------------------------------------------------
DISCOUNT RATE
U.S. plans 7.25% 7.5%
Plans outside the U.S.(1) 2.5% TO 12.0% 2.5% to 12.0%
FUTURE COMPENSATION
INCREASE RATE
U.S. plans 4.0% TO 6.0% 4.0% to 6.5%
Plans outside the U.S.(1) 2.5% TO 12.0% 2.5% to 12.0%
HEALTH CARE COST INCREASE
RATE -- U.S. PLANS
Following year 7.0% TO 8.0% 7.0% to 8.5%
Decreasing to the year 2005 5.0% TO 5.5% 5.0%
================================================================
</Table>
(1) Excluding highly inflationary countries.
As an indicator of sensitivity, increasing the assumed health care cost
trend rate by 1% in each year would have increased the accumulated
postretirement benefit obligation as of December 31, 2001 by $38 million and the
aggregate of the benefits earned and interest components of 2001 net
postretirement benefit expense by $5 million. Decreasing the assumed health care
cost trend rate by 1% in each year would have decreased the accumulated
postretirement benefit obligation as of December 31, 2001 by $35 million and the
aggregate of the benefits earned and interest components of 2001 net
postretirement benefit expense by $4 million.
24. DERIVATIVES AND OTHER ACTIVITIES
The following table summarizes certain information related to the Company's
hedging activities for the year ended December 31, 2001:
<Table>
<Caption>
YEAR ENDED
IN MILLIONS OF DOLLARS DECEMBER 31, 2001
- -----------------------------------------------------------------
FAIR VALUE HEDGES:
Hedge ineffectiveness recognized in $ 168
earnings
Net gain excluded from assessment of
effectiveness 85
CASH FLOW HEDGES:
Hedge ineffectiveness recognized in
earnings 20
Amount excluded from assessment of
effectiveness -
NET INVESTMENT HEDGES:
Net gain included in foreign currency
translation adjustment within accumulated other
changes in equity from nonowner sources 432
=================================================================
</Table>
Additionally, $313 million of net gains is expected to be reclassified from
accumulated other changes in equity from nonowner sources within twelve months
from December 31, 2001.
The accumulated other changes in equity from nonowner sources from cash
flow hedges for 2001 can be summarized as follows (net of taxes):
<Table>
<Caption>
YEAR ENDED
IN MILLIONS OF DOLLARS DECEMBER 31, 2001
- -----------------------------------------------------------------
Beginning balance(1) $ (3)
Net gains from cash flow hedges 315
Net amounts reclassified to earnings (144)
-----------------
Ending balance $ 168
=================================================================
</Table>
(1) Results from the cumulative effect of accounting change for cash flow
hedges.
Citigroup enters into derivative and foreign exchange futures, forwards,
options and swaps, which enable customers to transfer, modify or reduce their
interest rate, foreign exchange and other market risks, and also trades these
products for its own account. In addition, Citigroup uses derivatives and other
instruments, primarily interest rate products, as an end-user in connection with
its risk management activities. Derivatives are used to manage interest rate
risk relating to specific groups of on-balance sheet assets and liabilities,
including investments, corporate and consumer loans, deposit liabilities,
long-term debt and other interest-sensitive assets and liabilities, as well as
credit card securitizations, redemptions and sales. In addition, foreign
exchange contracts are used to hedge non-U.S. dollar denominated debt, net
capital exposures and foreign exchange transactions.
Futures and forward contracts are commitments to buy or sell at a future
date a financial instrument, commodity or currency at a contracted price and may
be settled in cash or through delivery. Swap contracts are commitments to settle
in cash at a future date or dates which may range from a few days to a number of
years, based on differentials between specified financial indices, as applied to
a notional principal amount. Option contracts give the purchaser, for a fee, the
right, but not the obligation, to buy or sell within a limited time, a financial
instrument or currency at a contracted price that may also be settled in cash,
based on differentials between specified indices.
Citigroup also sells various financial instruments that have not been
purchased (short sales). In order to sell securities short, the securities are
borrowed or received as collateral in conjunction with short-term financing
agreements and, at a later date, must be delivered (i.e. replaced) with like or
substantially the same financial instruments or commodities to the parties from
which they were originally borrowed.
Derivatives and short sales may expose Citigroup to market risk or credit
risk in excess of the amounts recorded on the balance sheet. Market risk on a
derivative, short sale or foreign exchange product is the exposure created by
potential fluctuations in interest rates, foreign exchange rates and other
values, and is a function of the type of product, the volume of transactions,
the tenor and terms of the agreement, and the underlying volatility. Credit risk
is the exposure to loss in the event of nonperformance by the other party to the
transaction and if the value of collateral held, if any, was not adequate to
cover such losses. The recognition in earnings of unrealized gains on these
transactions is subject to management's assessment as to collectibility.
Liquidity risk is the potential exposure that arises when the size of the
derivative position may not be able to be rapidly adjusted in times of high
volatility and financial stress at a reasonable cost.
25. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic, industry or
geographic factors similarly affect groups of counterparties whose aggregate
credit exposure is material in relation to Citigroup's total credit exposure.
Although Citigroup's portfolio of financial
31
<Page>
instruments is broadly diversified along industry, product, and geographic
lines, material transactions are completed with other financial institutions,
particularly in the securities trading, derivative, and foreign exchange
businesses.
26. FAIR VALUE OF FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The table presents the carrying value and fair value of Citigroup's financial
instruments, as defined in accordance with applicable requirements. Accordingly,
as required, the disclosures exclude leases, affiliate investments, and pension
and benefit obligations. Contractholder funds amounts exclude certain insurance
contracts. Also as required, the disclosures exclude the effect of taxes, do not
reflect any premium or discount that could result from offering for sale at one
time the entire holdings of a particular instrument, the excess fair value
associated with deposits with no fixed maturity, as well as other expenses that
would be incurred in a market transaction. In addition, the table excludes the
values of nonfinancial assets and liabilities, as well as a wide range of
franchise, relationship, and intangible values, which are integral to a full
assessment of Citigroup's financial position and the value of its net assets.
The data represents management's best estimates based on a range of
methodologies and assumptions. The carrying value of short-term financial
instruments as well as receivables and payables arising in the ordinary course
of business, approximates fair value because of the relatively short period of
time between their origination and expected realization. Quoted market prices
are used for most investments, for loans where available, and for both trading
and end-user derivatives, as well as for liabilities, such as long-term debt,
with quoted prices. For performing loans where no quoted market prices are
available, contractual cash flows are discounted at quoted secondary market
rates or estimated market rates if available. Otherwise, sales of comparable
loan portfolios or current market origination rates for loans with similar terms
and risk characteristics are used. For loans with doubt as to collectibility,
expected cash flows are discounted using an appropriate rate considering the
time of collection and a premium for the uncertainty of the flows. The value of
collateral is also considered. For liabilities such as long-term debt without
quoted market prices, market borrowing rates of interest are used to discount
contractual cash flows.
Fair values of credit card securitizations reflect the various components
of these transactions but principally arise from fixed rates payable to
certificate holders. Under the applicable requirements, the estimated fair value
of deposits with no fixed maturity in the following table excludes the premium
values available in the market for such deposits, and the estimated value is
shown in the table as being equal to the carrying value.
<Table>
<Caption>
2001 2000
---------------------------------------
ESTIMATED Estimated
IN BILLIONS OF DOLLARS CARRYING FAIR Carrying Fair
AT YEAR-END VALUE VALUE Value Value
- -----------------------------------------------------------------
ASSETS AND RELATED
INSTRUMENTS
Investments $ 160.8 $ 160.8 $ 120.1 $ 120.1
Federal funds sold and
securities borrowed
or purchased under
agreements to resell 134.8 134.8 105.9 105.9
Trading account assets 144.9 144.9 132.5 132.5
Loans(1) 359.1 374.6 338.1 351.1
Other financial assets(2) 156.6 156.3 138.2 138.6
=================================================================
LIABILITIES AND
RELATED INSTRUMENTS
Deposits 374.5 374.2 300.6 300.7
Federal funds purchased
and securities loaned
or sold under
agreements to
repurchase 153.5 153.5 110.6 110.6
Trading account
liabilities 80.5 80.5 85.1 85.1
Contractholder funds
With defined maturities 9.5 10.0 6.7 6.7
Without defined 10.6 10.3 10.1 9.9
maturities
Long-term debt 121.6 124.3 111.8 112.3
Other financial
liabilities(3) 132.5 132.5 148.2 147.8
=================================================================
</Table>
(1) The carrying value of loans is net of the allowance for credit losses and
also excludes $22.7 billion and $20.0 billion of lease finance receivables
in 2001 and 2000, respectively.
(2) Includes cash and due from banks, deposits at interest with banks,
brokerage receivables, reinsurance recoverables and separate and variable
accounts for which the carrying value is a reasonable estimate of fair
value, and the carrying value and estimated fair value of financial
instruments included in other assets on the Consolidated Statement of
Financial Position.
(3) Includes brokerage payables, separate and variable accounts, investment
banking and brokerage borrowings, short-term borrowings, for which the
carrying value is a reasonable estimate of fair value, and the carrying
value and estimated fair value of financial instruments included in other
liabilities on the Consolidated Statement of Financial Position.
Fair values vary from period to period based on changes in a wide range of
factors, including interest rates, credit quality, and market perceptions of
value, and as existing assets and liabilities run off and new items are entered
into.
The estimated fair values of loans reflect changes in credit status since
the loans were made, changes in interest rates in the case of fixed-rate loans,
and premium values at origination of certain loans. The estimated fair values of
Citigroup's loans, in the aggregate, exceeded carrying values (reduced by the
allowance for credit losses) by $15.5 billion at year-end 2001 and $13.0 billion
in 2000. Within these totals, estimated fair values exceeded carrying values for
consumer loans net of the allowance by $10.9 billion, an increase of $1.5
billion from year-end 2000, and for corporate loans net of the allowance by $4.6
billion, which was an increase of $1.0 billion from year-end 2000. The increase
in estimated fair values in excess of carrying values of consumer loans and
corporate loans is primarily due to the lower interest rate environment in 2001.
The estimated fair value of credit card securitizations, which are included
with other financial assets in the table above, was $0.3 billion less than their
carrying value at December 31, 2001, which is $0.6 billion less than December
31, 2000, when the estimated fair value exceeded the carrying value by $0.3
billion. This decrease is due to the effects of a lower interest rate
environment on the fixed-rate investor certificates.
32
<Page>
For 2001, all end-user derivative contracts, which are included in other
assets and other liabilities in the previous table, are carried at fair value.
At December 31, 2000 the gross difference between the fair value and carrying
amount was $0.8 billion for contracts whose fair value exceeds carrying value,
and $0.5 billion for contracts whose carrying value exceeds fair value.
27. PLEDGED ASSETS, COLLATERAL AND COMMITMENTS
PLEDGED ASSETS
At December 31, 2001 and 2000 the approximate market values of securities sold
under agreements to repurchase and other assets pledged, excluding the impact of
FIN 39 and FIN 41 were as follows:
<Table>
<Caption>
IN MILLIONS OF DOLLARS 2001 2000
- ----------------------------------------------------------------
For securities sold under agreements to
repurchase $ 183,814 $ 161,909
As collateral for securities borrowed
of approximately equivalent value 44,340 41,149
As collateral on bank loans 154 225
To clearing organizations or segregated
under securities laws and regulations 12,834 10,427
For securities loaned 17,562 21,226
Other 43,054 41,520
--------------------
$ 301,758 $ 276,456
================================================================
</Table>
In addition, included in cash and due from banks at December 31, 2001 and
2000 is $5.3 billion and $2.7 billion, respectively, of cash segregated under
Federal and other brokerage regulations or deposited with clearing
organizations.
At December 31, 2001 the Company had $975 million of outstanding letters of
credit from banks to satisfy various collateral and margin requirements.
COLLATERAL At December 31, 2001 and 2000, the approximate market value of
collateral received by the Company that may be sold or repledged by the
Company, excluding amounts netted in accordance with FIN 39 and FIN 41, was
$245.0 billion and $236.6 billion, respectively. This collateral was received
in connection with resale agreements, securities borrowings and loans,
derivative transactions, and margined broker loans.
At December 31, 2001 and 2000, a substantial portion of the collateral
received by the Company had been sold or repledged in connection with repurchase
agreements, securities sold, not yet purchased, securities borrowings and loans,
pledges to clearing organizations, segregation requirements under securities
laws and regulations, derivative transactions, and bank loans.
In addition, at December 31, 2001 and 2000, the Company had pledged $47.5
billion and $47.5 billion, respectively, of collateral that may not be sold or
repledged by the secured parties.
LEASE COMMITMENTS
Rental expense (principally for offices and computer equipment) was $1.7
billion, $1.5 billion and $1.4 billion for the years ended December 31, 2001,
2000 and 1999, respectively.
Future minimum annual rentals under noncancelable leases, net of sublease
income, are as follows:
<Table>
<Caption>
IN MILLIONS OF DOLLARS AT YEAR- END
- --------------------------------------------------------------
2002 $ 1,079
2003 927
2004 761
2005 759
2006 488
Thereafter 2,654
--------
$ 6,668
==============================================================
</Table>
The Company and certain of Salomon Smith Barney's subsidiaries together
have an option to purchase the buildings presently leased for Salomon Smith
Barney's executive offices and New York City operations at the expiration of the
lease term.
LOAN COMMITMENTS
<Table>
<Caption>
IN MILLIONS OF DOLLARS AT YEAR-END 2001 2000
- ----------------------------------------------------------------
One-to-four family residential mortgages $ 5,470 $ 2,456
Revolving open-end loans secured by 1-4
family residential properties 7,107 6,164
Commercial real estate, construction
and land development 1,882 1,310
Credit card lines 387,396 347,383
Corporate and other consumer loan
commitments(1) 210,909 197,415
-------------------
TOTAL $ 612,764 $ 554,728
================================================================
</Table>
(1) Includes commercial commitments to make or purchase loans, to purchase
third-party receivables, and to provide note issuance or revolving
underwriting facilities.
The majority of unused commitments are contingent upon customers
maintaining specific credit standards. Corporate commitments generally have
floating interest rates and fixed expiration dates and may require payment of
fees. Such fees (net of certain direct costs) are deferred and, upon exercise of
the commitment, amortized over the life of the loan or, if exercise is deemed
remote, amortized over the commitment period. The table does not include
commercial letters of credit issued on behalf of customers and collateralized by
the underlying shipment of goods which totaled $5.7 billion and $6.8 billion at
December 31, 2001 and 2000.
33
<Page>
LOANS SOLD WITH CREDIT ENHANCEMENTS
<Table>
<Caption>
AMOUNTS
IN BILLIONS OF DOLLARS ----------------
AT YEAR-END 2001 2000 FORM OF CREDIT ENHANCEMENT
- ------------------------------------------------------------------------------------
2001: Recourse obligation of $3.5,
Residential mortgages and put option as described below.
and other loans sold 2000: Recourse obligation of $5.1,
with recourse(1) $ 7.7 $ 10.4 and put options as described below.
GNMA sales/servicing
agreements(2) 13.4 16.1 Secondary recourse obligation
Includes net revenue over
the life of the transaction.
Securitized credit Also includes other recourse
card receivables obligations of $1.0 in
66.8 57.0 2001 and 2000.
==============================================================================
</Table>
(1) Residential mortgages represent 57% of amounts in 2001 and 71% in 2000.
(2) Government National Mortgage Association sales/servicing agreements
covering securitized residential mortgages.
Citigroup and its subsidiaries are obligated under various credit
enhancements related to certain sales of loans or sales of participations in
pools of loans, as summarized above.
Net revenue on securitized credit card receivables is collected over the
life of each sale transaction. The net revenue is based upon the sum of finance
charges and fees received from cardholders and interchange revenue earned on
cardholder transactions, less the sum of the yield paid to investors, credit
losses, transaction costs, and a contractual servicing fee, which is also
retained by certain Citigroup subsidiaries as servicers. As specified in certain
of the sale agreements, the net revenue collected each month is accumulated up
to a predetermined maximum amount, and is available over the remaining term of
that transaction to make payments of yield, fees, and transaction costs in the
event that net cash flows from the receivables are not sufficient. When the
predetermined amount is reached, net revenue is passed directly to the Citigroup
subsidiary that sold the receivables. The amount contained in these accounts is
included in other assets and was $139 million at December 31, 2001 and $66
million at December 31, 2000. Net revenue from securitized credit card
receivables included in other revenue was $2.1 billion, $2.4 billion, and $2.1
billion for the years ended December 31, 2001, 2000, and 1999, respectively.
Various put options were written during 2000 and 1999 which require
Citigroup to purchase, upon request of the holders, securities issued in certain
securitization transactions in order to broaden the investor base and improve
execution in connection with the securitizations. The put option at year-end
2001 is exercisable in October of each year beginning in October 2000, with
respect to an aggregate of up to approximately $2 billion principal amount of
certificates backed by manufactured housing contract receivables, of which
approximately $133 million was exercised in 2000. If exercised, the Company will
be obligated to purchase the certificates or notes at par plus accrued interest.
Two option contracts from 2000 that were exercised in 2001 were the following: a
put option, exercisable at any time after June 15, 2000, with respect to an
aggregate of up to approximately $1 billion principal amount of notes secured by
home equity loan receivables only to the extent the securitization trust cannot
meet its obligation under a separate put option by the trust which is
exercisable at any time after March 15, 2000; and a put option, originally
exercisable at any time after September 15, 2000, the exercise of which had been
extended to April 12, 2001, with respect to an aggregate of up to approximately
$1.25 billion of notes secured by home equity loan receivables only to the
extent the notes are not purchased by the securitization trust pursuant to a
separate put option issued by the trust and exercisable at any time after June
15, 2000. The aggregate amortized amount of these options was approximately $1.4
billion at December 31, 2001 and $3.4 billion at December 31, 2000. The Company
has recorded liabilities totaling approximately $6 million at December 31, 2001
and $17 million at December 31, 2000 in connection with these options.
Subsequent to their initial issuance, such options are marked to market with the
fluctuation being reflected in the Consolidated Statement of Income.
FINANCIAL GUARANTEES
Financial guarantees are used in various transactions to enhance the credit
standing of Citigroup customers. They represent irrevocable assurances, subject
to the satisfaction of certain conditions, that Citigroup will make payment in
the event that the customer fails to fulfill its obligations to third parties.
Citicorp issues financial standby letters of credit which are obligations
to pay a third-party beneficiary when a customer fails to repay an outstanding
loan or debt instrument, such as assuring payments by a foreign reinsurer to a
U.S. insurer, to act as a substitute for an escrow account, to provide a payment
mechanism for a customer's third-party obligations, and to assure payment of
specified financial obligations of a customer. Fees are recognized ratably over
the term of the standby letter of credit. The following table summarizes
financial standby letters of credit issued by Citicorp. The table does not
include securities lending indemnifications issued to customers, which are fully
collateralized and totaled $19.9 billion at December 31, 2001 and $15.5 billion
at December 31, 2000, and performance standby letters of credit.
<Table>
<Caption>
2001 2000
---------------------------------------
TOTAL TOTAL
EXPIRE EXPIRE AMOUNT AMOUNT
WITHIN 1 AFTER 1 OUT- OUT-
IN BILLIONS OF DOLLARS AT YEAR-END YEAR YEAR STANDING STANDING
- ------------------------------------------------------------------------------
Insurance, surety $ 2.8 $ 6.7 $ 9.5 $ 8.0
Options, purchased
securities, and escrow 0.3 0.1 0.4 0.3
Clean letters of credit 3.3 1.0 4.3 4.5
Backstop state, county,
and municipal
securities - - - 0.1
Other debt related 7.4 2.7 10.1 10.2
--------------------------------------
TOTAL (1) $ 13.8 $ 10.5 $ 24.3 $ 23.1
=============================================================================
</Table>
(1) Total is net of cash collateral of $2.2 billion in 2001 and $2.0 billion in
2000. Collateral other than cash covered 30% of the total in 2001 and 24%
in 2000.
OTHER COMMITMENTS
Salomon Smith Barney and a principal broker-dealer subsidiary have each
provided a portion of a residual value guarantee in the amount of $77 million in
connection with the lease of the buildings occupied by Salomon Smith Barney's
executive offices and New York operations.
28. CONTINGENCIES
In the ordinary course of business, Citigroup and/or its subsidiaries are
defendants or co-defendants in various litigation matters, other than
environmental and asbestos property and casualty insurance claims as discussed
in Note 14 to the Consolidated Financial Statements. Although there can be no
assurances, the Company believes, based on information currently available, that
the ultimate resolution of these legal proceedings would not be likely to have a
material adverse effect on its results of operations, financial condition, or
liquidity.
34
<Page>
29. CITIGROUP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
IN MILLIONS OF DOLLARS 2001 2000 1999
- ------------------------------------------------------------------
REVENUES $ 54 $ 133 $ 80
------------------------------
Expenses:
Interest 651 346 389
Other 267 255 133
------------------------------
Total 918 601 522
------------------------------
PRE-TAX LOSS (864) (468) (442)
Income tax benefit 348 167 156
------------------------------
LOSS BEFORE EQUITY IN NET INCOME
OF SUBSIDIARIES (516) (301) (286)
Equity in net income of
subsidiaries 14,642 13,820 11,529
------------------------------
INCOME $ 14,126 $ 13,519 $ 11,243
==================================================================
</Table>
CONDENSED STATEMENT OF FINANCIAL POSITION
<Table>
<Caption>
DECEMBER 31,
---------------------
IN MILLIONS OF DOLLARS 2001 2000
- ------------------------------------------------------------------
ASSETS
Cash $ 27 $ 85
Investments 1,487 -
Investments in and advances to:
Bank and bank holding company subsidiaries 87,562 56,973
Other subsidiaries 33,060 30,431
Cost of acquired businesses in excess of
net assets 368 381
Other 383 508
---------------------
TOTAL $ 122,887 $ 88,378
==================================================================
LIABILITIES
Advances from and payables to subsidiaries $ 748 $ 270
Commercial paper 481 496
Junior subordinated debentures,
held by subsidiary trusts 4,850 2,367
Long-term debt 34,794 18,197
Other liabilities 541 616
Redeemable preferred stock, held by
subsidiary 226 226
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized
shares: 30 million), at aggregate
liquidation value 1,525 1,745
Common stock ($.01 par value; authorized
shares: 15 billion), Issued shares:
5,477,416,254 at December 31,
2001 and 5,351,143,583 at December 31,
2000. 55 54
Additional paid-in capital 23,196 16,504
Retained earnings 69,803 58,862
Treasury stock, at cost (2001 - 328,727,790
SHARES and 2000 - 328,921,189 shares) (11,099) (10,213)
Accumulated other changes in equity
from nonowner sources (844) 123
Unearned compensation (1,389) (869)
---------------------
STOCKHOLDERS' EQUITY 81,247 66,206
---------------------
TOTAL $ 122,887 $ 88,378
==================================================================
</Table>
CONDENSED STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
IN MILLIONS OF DOLLARS 2001 2000 1999
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 14,126 $ 13,519 $ 11,243
Adjustments to reconcile net income
to cash provided by operating
activities:
Equity in net income of subsidiaries (14,642) (13,820) (11,529)
Dividends received from:
Bank and bank holding company
subsidiaries 5,784 1,255 4,791
Other subsidiaries 2,325 1,535 2,285
Other, net (109) (240) 2,046
---------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,484 2,249 8,836
=============================================
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital contributions to
subsidiaries (6,250) (5,800) (321)
Change in investments (1,487) 1,763 (425)
Advances to subsidiaries, net (13,733) (6,523) (1,206)
---------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (21,470) (10,560) (1,952)
---------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from (repayment of)
advances from subsidiaries, net 2,961 (617) (1,197)
Dividends paid (3,185) (2,654) (2,139)
Issuance of common stock 875 958 758
Redemption of preferred stock (250) (150) (388)
Stock tendered for payment
of withholding taxes (506) (593) (496)
Treasury stock acquired (3,045) (4,066) (3,954)
Issuance of long-term debt 17,610 14,817 1,859
Issuance of junior subordinated
debentures 2,483 - 619
Payments and redemptions
of long-term debt (3,000) (650) (100)
Change in short-term borrowings (15) 496 (991)
---------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 13,928 7,541 (6,029)
---------------------------------------------
Change in cash (58) (770) 855
Cash at beginning of period 85 855 -
---------------------------------------------
Cash at end of period $ 27 $ 85 $ 855
=========================================================================================
Supplemental disclosure
of cash flow information
Cash paid during the period for
interest $ 1,739 $ 510 $ 400
Cash received during the period
for taxes $ 911 1,066 1,251
=========================================================================================
</Table>
35
<Page>
30. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
2001 2000
IN MILLIONS OF DOLLARS, EXCEPT PER ------------------------------------------- -----------------------------------------
SHARE AMOUNTS FOURTH THIRD SECOND FIRST Fourth Third Second First
- ---------------------------------------------------------------------------------- -----------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 17,867 $ 16,198 $ 16,232 $ 17,070 $ 15,827 $ 15,854 $ 15,416 $ 16,475
Operating expenses 9,207 8,766 8,821 9,734 9,468 8,993 8,630 8,718
Benefits, claims, and credit losses 3,255 2,400 2,248 2,417 2,370 1,929 2,072 2,095
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, MINORITY
INTEREST, AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 5,405 5,032 5,163 4,919 3,989 4,932 4,714 5,662
Income taxes 1,797 1,771 1,837 1,798 1,452 1,814 1,698 2,063
Minority interest, net of income
taxes 37 26 15 9 11 13 9 6
INCOME FROM CONTINUING OPERATIONS 3,571 3,235 3,311 3,112 2,526 3,105 3,007 3,593
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 304 (58) 341 468 314 379 332 263
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES(1) - - (116) (42) - - - -
- ---------------------------------------------------------------------------------- -----------------------------------------
NET INCOME $ 3,875 $ 3,177 $ 3,536 $ 3,538 $ 2,840 $ 3,484 $ 3,339 $ 3,856
================================================================================== =========================================
EARNINGS PER SHARE
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.69 $ 0.63 $ 0.66 $ 0.62 $ 0.50 $ 0.62 $ 0.60 $ 0.72
Net income $ 0.75 $ 0.62 $ 0.70 $ 0.70 $ 0.57 $ 0.69 $ 0.67 $ 0.77
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.68 $ 0.62 $ 0.64 $ 0.60 $ 0.49 $ 0.61 $ 0.58 $ 0.70
Net income $ 0.74 $ 0.61 $ 0.69 $ 0.69 $ 0.55 $ 0.67 $ 0.65 $ 0.75
================================================================================== =========================================
COMMON STOCK PRICE PER SHARE
High $ 51.190 $ 53.480 $ 53.550 $ 56.297 $ 57.125 $ 59.125 $ 50.156 $ 46.781
Low 41.750 36.360 42.700 40.600 44.500 45.422 42.000 35.813
Close 50.480 40.500 52.840 44.980 51.063 54.063 45.188 44.906
Dividends per share of common stock 0.160 0.160 0.140 0.140 0.140 0.140 0.120 0.120
===============================================================================================================================
</Table>
(1) Accounting changes include the first quarter 2001 adoption of SFAS 133 and
the second quarter 2001 adoption of EITF 99-20.
Due to averaging of shares, quarterly earnings per share may not add to the
totals for the full-year totals. The fourth quarter of 2001 includes charges of
$235 million (pretax) related to write-downs of Argentine credit exposures and
$235 million (pretax) in losses related to the foreign exchange revaluation of
the consumer loan portfolio. The 2001 fourth quarter also includes a $228
million (pretax) write-down of Enron-related credit exposure and trading
positions, and the impairment of Enron-related investments.
The third, second and first quarters of 2001 include $82 million after-tax
($129 million pretax), $129 million after-tax ($209 million pretax) and $66
million after-tax ($110 million pretax), respectively, of restructuring charges.
The fourth, third, and second quarters of 2000 include $381 million after-tax
($538 million pretax), $15 million after-tax ($24 million pretax), and $11
million after-tax ($17 million pretax), respectively, of restructuring charges,
and in the 2000 fourth and third quarters, include $119 million after-tax ($143
million pretax) and $22 million after-tax ($34 million pretax), respectively, of
merger-related costs. The fourth quarter of 2000 includes a $135 million
after-tax ($210 million pretax) transportation loss provision related to the
truck loan and leasing portfolio. The first quarter of 2000 includes a $71
million after-tax ($112 million pretax) charge related to discontinuation of
Associates Housing Finance loan originations. The fourth and second quarters of
2001 include credits for reductions of prior charges of $22 million after-tax
($35 million pretax) and $10 million after-tax ($18 million pretax),
respectively. The fourth and second quarters of 2000 include credits for
reductions of prior charges of $13 million after-tax ($22 million pretax) and
$28 million after-tax ($43 million pretax), respectively. The 2001 fourth,
third, second and first quarters also include $9 million after-tax ($14 million
pretax), $3 million after-tax ($5 million pretax), $14 million after-tax ($22
million pretax), and $14 million after-tax ($22 million pretax), respectively,
of restructuring-related accelerated depreciation. The 2000 fourth, third,
second, and first quarters also include $4 million after-tax ($7 million
pretax), $8 million after-tax ($12 million pretax), $19 million after-tax ($29
million pretax), and $12 million after-tax ($20 million pretax), respectively,
of restructuring-related accelerated depreciation.
36