Citigroup Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe Consolidated Financial Statements include the accounts of Citigroupand its subsidiaries. The Company consolidates subsidiaries in which itholds, directly or indirectly, more than 50% of the voting rights or whereit exercises control. Entities where the Company holds 20% to 50% of thevoting rights and/or has the ability to exercise significant influence, otherthan investments of designated venture capital subsidiaries, or investmentsaccounted for at fair value under the fair value option, are accounted forunder the equity method, and the pro rata share of their income (loss) isincluded in Other revenue. Income from investments in less than 20%-owned companies is recognized when dividends are received. As discussedbelow, Citigroup consolidates entities deemed to be variable interest entitieswhen Citigroup is determined to be the primary beneficiary. Gains andlosses on the disposition of branches, subsidiaries, affiliates, buildings, andother investments and charges for management’s estimate of impairment intheir value that is other than temporary, such that recovery of the carryingamount is deemed unlikely, are included in Other revenue.Throughout these Notes, “Citigroup”, “Citi” and “the Company” refer toCitigroup Inc. and its consolidated subsidiaries.Certain reclassifications have been made to the prior-period’s financialstatements and notes to conform to the current period’s presentation.Citibank, N.A.Citibank, N.A. is a commercial bank and wholly owned subsidiary ofCitigroup Inc. Citibank’s principal offerings include Consumer finance,mortgage lending, and retail banking products and services; investmentbanking, commercial banking, cash management, trade financeand e-commerce products and services; and private banking productsand services.The Company includes a balance sheet and statement of changes instockholder’s equity for Citibank, N.A. to provide information about thisentity to shareholders and international regulatory agencies. (See Note 30to the Consolidated Financial Statements for further discussion.)Variable Interest EntitiesAn entity is referred to as a variable interest entity (VIE) if it meets the criteriaoutlined in ASC 810, Consolidation (formerly FASB Interpretation No. 46(R),Consolidation of Variable Interest Entities (revised December 2003) (FIN46(R)) and SFAS No. 167, Amendments to FASB Interpretation No. 46(R)(SFAS 167), which are: (1) the entity has equity that is insufficient to permitthe entity to finance its activities without additional subordinated financialsupport from other parties, or (2) the entity has equity investors that cannotmake significant decisions about the entity’s operations or that do not absorbtheir proportionate share of the expected losses or receive the expected returnsof the entity.Prior to January 1, 2010, the Company consolidated a VIE if it had amajority of the expected losses or a majority of the expected residual returnsor both. As of January 1, 2010, when the Company adopted SFAS 167’samendments to the VIE consolidation guidance, the Company consolidates aVIE when it has both the power to direct the activities that most significantlyimpact the VIE’s economic success and a right to receive benefits or absorblosses of the entity that could be potentially significant to the VIE.Along with the VIEs that are consolidated in accordance with theseguidelines, the Company has variable interests in other VIEs that arenot consolidated because the Company is not the primary beneficiary.These include multi-seller finance companies, certain collateralized debtobligations (CDOs), many structured finance transactions, and variousinvestment funds.However, these VIEs as well as all other unconsolidated VIEs arecontinually monitored by the Company to determine if any events haveoccurred that could cause its primary beneficiary status to change. Theseevents include:• additional purchases or sales of variable interests by Citigroup or anunrelated third party, which cause Citigroup’s overall variable interestownership to change;• changes in contractual arrangements in a manner that reallocatesexpected losses and residual returns among the variable interest holders;• changes in the party that has power to direct activities of a VIE that mostsignificantly impact the entity’s economic performance; and• providing support to an entity that results in an implicit variable interest.All other entities not deemed to be VIEs with which the Company hasinvolvement are evaluated for consolidation under other subtopics of ASC810 (formerly Accounting Research Bulletin (ARB) No. 51, ConsolidatedFinancial Statements, SFAS No. 94, Consolidation of All Majority-OwnedSubsidiaries, and EITF Issue No. 04-5, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnershipor Similar Entity When the Limited Partners Have Certain Rights”).Foreign Currency TranslationAssets and liabilities of foreign operations are translated from their respectivefunctional currencies into U.S. dollars using period-end spot foreignexchangerates. Revenues and expenses of foreign operations are translatedmonthly from their respective functional currencies into U.S. dollars atamounts that approximate weighted average exchange rates. The effectsof those translation adjustments are reported in a separate component ofstockholders’ equity, along with related hedge and tax effects, until realizedupon sale or liquidation of the foreign operation.For transactions whose terms are denominated in a currency other thanthe functional currency, including transactions denominated in the localcurrencies of foreign operations with the U.S. dollar as their functionalcurrency, the effects of changes in exchange rates are primarily included inOther revenue, along with the related hedge effects. Instruments used tohedge foreign currency exposures include foreign currency forward, optionand swap contracts and designated issues of non-U.S. dollar debt. Foreignoperations in countries with highly inflationary economies designate the U.S.dollar as their functional currency, with the effects of changes in exchangerates primarily included in Other revenue.159