Citigroup (C)

When required, the second step of testing involves calculating the implied fair value of goodwill for each of the affected reporting units. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of the net assets and identifiable intangibles as if the reporting unit were being acquired. If the amount of the goodwill allocated to the reporting unit exceeds the implied fair value of the goodwill in the pro forma purchase price allocation, an impairment charge is recorded for the excess. An impairment charge recognized cannot exceed the amount of goodwill allocated to a reporting unit and cannot be reversed subsequently even if the fair value of the reporting unit recovers.

Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by the fair value of the individual reporting unit using widely accepted valuation techniques, such as the market approach (earnings multiples and/or transaction multiples) and/or discounted cash flow methods (DCF). In applying these methodologies the Company utilizes a number of factors, including actual operating results, future business plans, economic projections and market data. A combination of methodologies is used and weighted appropriately for reporting units with significant adverse changes in business climate. Management may engage an independent valuation specialist to assist in the Company’s valuation process.

Prior to 2008, the Company primarily employed the market approach for estimating fair value of the reporting units. As a result of significant adverse changes during 2008 in certain of the Company’s reporting units and the increase in financial sector volatility primarily in the U.S., the Company engaged the services of an independent valuation specialist to assist in the Company’s valuation of the following reporting units—Securities and Banking, North America Consumer Banking, Latin America Consumer Banking and N.A. Cards. The DCF method was incorporated to ensure reliability of results. The Company believes that the DCF method, using management projections for the selected reporting units and an appropriate risk-adjusted discount rate is most reflective of a market participant’s view of fair values given current market conditions. For the reporting units where both methods were utilized in 2008, the resulting fair values were relatively consistent and appropriate weighting was given to outputs from both methods.

The DCF method used at the time of each impairment test used discount rates that the Company believes adequately reflected the risk and uncertainty in the financial markets generally and specifically in the internally generated cash flow projections. The DCF method employs a capital asset pricing model in estimating the discount rate. The Company continues to value the remaining reporting units where it believes the risk of impairment to be low using primarily the market approach.

The Company prepares formal three-year Strategic Plans for its businesses and presents the plans to the Board of Directors. The Company used the 2008 Strategic Plan as a basis for its annual goodwill impairment test performed as of July 1, 2008. These projections incorporated certain external economic projections developed at the point in time the Strategic Plan was developed. The financial forecasts were updated for the interim impairment tests as of October 31, 2008 and December 31, 2008 (as discussed below) to reflect current economic conditions. For those interim impairment tests, the Company utilized revised economic projections incorporating the rapidly deteriorating market outlook.

As discussed above, management tests goodwill for impairment annually as of July 1. The Company is also required to test goodwill for impairment whenever events or circumstances make it more likely than not that impairment may have occurred, such as a significant adverse change in the business climate, a decision to sell or dispose of all or a significant portion of a reporting unit or a significant decline in the Company’s stock price. The results of the July 1, 2008 test validated that the fair values exceeded the carrying values for all reporting units. Based on negative macro-economic and Citigroup-specific events, Citigroup performed two goodwill impairment tests during the fourth quarter of 2008. The first test, performed as of October 31, 2008, validated that the fair value of all reporting units was in excess of the associated carrying values and, therefore, that there was no indication of goodwill impairment. In mid-January, management determined that another goodwill impairment test was needed using data as of December 31, 2008, due to the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November and through year end December 2008.

Based on the updated goodwill impairment test performed using data as of December 31, 2008, there was an indication of impairment principally due to the decline in fair value of the Company’s North America Consumer Banking, Latin America Consumer Banking and EMEA Consumer Banking reporting units. The primary cause for the decline in the fair values in the above reporting units was the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November through year end 2008. Accordingly, the second step of testing was performed for those reporting units. Based on the results of the second step, the Company recorded a $9.6 billion pretax ($8.7 billion after tax) goodwill impairment charge in the fourth quarter of 2008. This charge resulted in the write-off of the entire amount of goodwill allocated to those reporting units.

The testing for goodwill impairment is conducted at a reporting unit level. Since none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. The sum of the fair values of the reporting units significantly exceeds the overall market capitalization of the Company. However, the Company believes that it is not meaningful to reconcile the sum of the fair values of the Company’s reporting units to its market capitalization due to several factors. These factors, which do not directly impact the individual reporting unit fair values, include the increased possibility of further government intervention, unprecedented levels of volatility in stock price and short-selling. In addition, the market capitalization of Citigroup reflects the execution risk in a transaction involving Citigroup due to its size. However, the individual reporting unit’s

fair values are not subject to the same level of execution risk or a business model which is perceived to be complex.

While no impairment was noted in step one of our Securities and Banking reporting unit impairment test at October 31, 2008 and December 31, 2008, goodwill present in that reporting unit may be particularly sensitive to further deterioration in economic conditions. Under the market approach for valuing this reporting unit, the earnings multiples and transaction multiples were selected from multiples obtained using data from guideline companies and acquisitions. The selection of the actual multiple considers operating performance and financial condition such as return on equity and net income growth of Securities and Banking as compared to the guideline companies and acquisitions. For the valuation under the income approach, the Company utilized a discount rate which it believes reflects the risk and uncertainty related to the projected cash flows, and selected 2013 as the terminal year. In 2013, the value was derived assuming a return to historical levels of core-business profitability for the reporting unit, despite the significant losses experienced in 2008. This assumption is based on management’s view that this recovery will occur based upon various macro-economic factors such as the recent U.S. government stimulus actions, restoring marketplace confidence and improved risk-management practices on an industry-wide basis. Furthermore, Company-specific actions such as its recently announced realignment of its businesses to optimize its global businesses for future profitable growth, will also be a factor in returning the Company’s core Securities and Banking business to historical levels.

Small deterioration in the assumptions used in the valuations, in particular the discount rate and growth rate assumptions used in the net income projections, could significantly affect the Company’s impairment evaluation and, hence, results. If the future were to differ adversely from management’s best estimate of key economic assumptions and associated cash flows were to decrease by a small margin, the Company could potentially experience future material impairment charges with respect to the goodwill remaining in our Securities and Banking reporting unit. Any such charges by themselves would not negatively affect the Company’s Tier 1 and Total Regulatory Capital Ratios, Tangible Capital or the Company’s liquidity position.

The goodwill allocated to this reporting unit was approximately $9.8 billion as of December 31, 2008.

When required, the second step of testing involves calculating the implied fair value of goodwill for each of the affected reporting units. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of the net assets and identifiable intangibles as if the reporting unit were being acquired. If the amount of the goodwill allocated to the reporting unit exceeds the implied fair value of the goodwill in the pro forma purchase price allocation, an impairment charge is recorded for the excess. An impairment charge recognized cannot exceed the amount of goodwill allocated to a reporting unit and cannot be reversed subsequently even if the fair value of the reporting unit recovers.

Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by the fair value of the individual reporting unit using widely accepted valuation techniques, such as the market approach (earnings multiples and/or transaction multiples) and/or discounted cash flow methods (DCF). In applying these methodologies the Company utilizes a number of factors, including actual operating results, future business plans, economic projections and market data. A combination of methodologies is used and weighted appropriately for reporting units with significant adverse changes in business climate. Management may engage an independent valuation specialist to assist in the Company’s valuation process.

Prior to 2008, the Company primarily employed the market approach for estimating fair value of the reporting units. As a result of significant adverse changes during 2008 in certain of the Company’s reporting units and the increase in financial sector volatility primarily in the U.S., the Company engaged the services of an independent valuation specialist to assist in the Company’s valuation of the following reporting units—Securities and Banking, North America Consumer Banking, Latin America Consumer Banking and N.A. Cards. The DCF method was incorporated to ensure reliability of results. The Company believes that the DCF method, using management projections for the selected reporting units and an appropriate risk-adjusted discount rate is most reflective of a market participant’s view of fair values given current market conditions. For the reporting units where both methods were utilized in 2008, the resulting fair values were relatively consistent and appropriate weighting was given to outputs from both methods.

The DCF method used at the time of each impairment test used discount rates that the Company believes adequately reflected the risk and uncertainty in the financial markets generally and specifically in the internally generated cash flow projections. The DCF method employs a capital asset pricing model in estimating the discount rate. The Company continues to value the remaining reporting units where it believes the risk of impairment to be low using primarily the market approach.

The Company prepares formal three-year Strategic Plans for its businesses and presents the plans to the Board of Directors. The Company used the 2008 Strategic Plan as a basis for its annual goodwill impairment test performed as of July 1, 2008. These projections incorporated certain external economic projections developed at the point in time the Strategic Plan was developed. The financial forecasts were updated for the interim impairment tests as of October 31, 2008 and December 31, 2008 (as discussed below) to reflect current economic conditions. For those interim impairment tests, the Company utilized revised economic projections incorporating the rapidly deteriorating market outlook.

As discussed above, management tests goodwill for impairment annually as of July 1. The Company is also required to test goodwill for impairment whenever events or circumstances make it more likely than not that impairment may have occurred, such as a significant adverse change in the business climate, a decision to sell or dispose of all or a significant portion of a reporting unit or a significant decline in the Company’s stock price. The results of the July 1, 2008 test validated that the fair values exceeded the carrying values for all reporting units. Based on negative macro-economic and Citigroup-specific events, Citigroup performed two goodwill impairment tests during the fourth quarter of 2008. The first test, performed as of October 31, 2008, validated that the fair value of all reporting units was in excess of the associated carrying values and, therefore, that there was no indication of goodwill impairment. In mid-January, management determined that another goodwill impairment test was needed using data as of December 31, 2008, due to the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November and through year end December 2008.

Based on the updated goodwill impairment test performed using data as of December 31, 2008, there was an indication of impairment principally due to the decline in fair value of the Company’s North America Consumer Banking, Latin America Consumer Banking and EMEA Consumer Banking reporting units. The primary cause for the decline in the fair values in the above reporting units was the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November through year end 2008. Accordingly, the second step of testing was performed for those reporting units. Based on the results of the second step, the Company recorded a $9.6 billion pretax ($8.7 billion after tax) goodwill impairment charge in the fourth quarter of 2008. This charge resulted in the write-off of the entire amount of goodwill allocated to those reporting units.

The testing for goodwill impairment is conducted at a reporting unit level. Since none of the Company’s reporting units are publicly traded, individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. The sum of the fair values of the reporting units significantly exceeds the overall market capitalization of the Company. However, the Company believes that it is not meaningful to reconcile the sum of the fair values of the Company’s reporting units to its market capitalization due to several factors. These factors, which do not directly impact the individual reporting unit fair values, include the increased possibility of further government intervention, unprecedented levels of volatility in stock price and short-selling. In addition, the market capitalization of Citigroup reflects the execution risk in a transaction involving Citigroup due to its size. However, the individual reporting unit’s

fair values are not subject to the same level of execution risk or a business model which is perceived to be complex.

While no impairment was noted in step one of our Securities and Banking reporting unit impairment test at October 31, 2008 and December 31, 2008, goodwill present in that reporting unit may be particularly sensitive to further deterioration in economic conditions. Under the market approach for valuing this reporting unit, the earnings multiples and transaction multiples were selected from multiples obtained using data from guideline companies and acquisitions. The selection of the actual multiple considers operating performance and financial condition such as return on equity and net income growth of Securities and Banking as compared to the guideline companies and acquisitions. For the valuation under the income approach, the Company utilized a discount rate which it believes reflects the risk and uncertainty related to the projected cash flows, and selected 2013 as the terminal year. In 2013, the value was derived assuming a return to historical levels of core-business profitability for the reporting unit, despite the significant losses experienced in 2008. This assumption is based on management’s view that this recovery will occur based upon various macro-economic factors such as the recent U.S. government stimulus actions, restoring marketplace confidence and improved risk-management practices on an industry-wide basis. Furthermore, Company-specific actions such as its recently announced realignment of its businesses to optimize its global businesses for future profitable growth, will also be a factor in returning the Company’s core Securities and Banking business to historical levels.

Small deterioration in the assumptions used in the valuations, in particular the discount rate and growth rate assumptions used in the net income projections, could significantly affect the Company’s impairment evaluation and, hence, results. If the future were to differ adversely from management’s best estimate of key economic assumptions and associated cash flows were to decrease by a small margin, the Company could potentially experience future material impairment charges with respect to the goodwill remaining in our Securities and Banking reporting unit. Any such charges by themselves would not negatively affect the Company’s Tier 1 and Total Regulatory Capital Ratios, Tangible Capital or the Company’s liquidity position.

The goodwill allocated to this reporting unit was approximately $9.8 billion as of December 31, 2008.