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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 1-15286
CITIGROUP GLOBAL MARKETS HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2418067
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 816-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES [ ] NO [X]
THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF CITIGROUP INC. AS OF THE DATE
HEREOF, 1,000 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE,
WERE ISSUED AND OUTSTANDING.
REDUCED DISCLOSURE FORMAT
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a)
AND (b) OF FORM 10-Q AND THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT CONTEMPLATED THEREBY.
AVAILABLE ON THE WEB @ WWW.CITIGROUP.COM.
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2005
PAGE
-------
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 2005 and 2004 1
Condensed Consolidated Statements of Financial Condition -
March 31, 2005 (Unaudited) and December 31, 2004 2 - 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2005 and 2004 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
Part II. Other Information
Item 1. Legal Proceedings 18 - 19
Item 6. Exhibits 20
Signatures 21
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Dollars in millions
Three Months Ended March 31, 2005 2004
- ---------------------------- ------ ------
Revenues:
Commissions $1,138 $1,197
Asset management and administration fees 1,053 1,005
Investment banking 874 882
Principal transactions 854 310
Other 96 44
------ ------
Total non-interest revenues 4,015 3,438
------ ------
Interest and dividends 3,473 2,194
Interest expense 2,551 1,230
------ ------
Net interest and dividends 922 964
------ ------
Revenues, net of interest expense 4,937 4,402
------ ------
Non-interest expenses:
Compensation and benefits 2,547 2,355
Communications 266 141
Floor brokerage and other production 240 191
Professional services 174 128
Occupancy and equipment 144 137
Advertising and market development 87 76
Other operating and administrative expenses 147 81
------ ------
Total non-interest expenses 3,605 3,109
------ ------
Income before income taxes 1,332 1,293
Provision for income taxes 444 472
------ ------
Net income $ 888 $ 821
====== ======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
1
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
Dollars in millions 2005 2004
- ------------------- ------------------ ---------------
(Unaudited)
Assets:
Cash and cash equivalents $ 5,120 $ 6,113
Cash segregated and on deposit for Federal and other regulations
or deposited with clearing organizations 4,109 4,129
Collateralized short-term financing agreements:
Securities purchased under agreements to resell $122,752 $120,667
Deposits paid for securities borrowed 71,404 71,292
-------- --------
194,156 191,959
Financial instruments owned and contractual commitments:
(Approximately $89 billion and $100 billion were pledged to various
parties at March 31, 2005 and December 31, 2004, respectively)
Corporate debt securities 47,202 42,910
Equity securities 43,673 42,888
U.S. government and government agency securities 34,171 35,894
Contractual commitments 15,717 16,128
Mortgage loans and collateralized mortgage obligations 15,394 13,900
Non-U.S. government and government agency securities 13,416 13,675
Municipal securities 12,498 12,389
Money market instruments 3,092 3,671
Other financial instruments 542 616
-------- --------
185,705 182,071
Receivables:
Customers 27,219 24,493
Brokers, dealers and clearing organizations 13,627 14,529
Other 5,779 3,763
-------- --------
46,625 42,785
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $1,221 and
$1,210, respectively 1,744 1,523
Goodwill 1,911 1,922
Intangibles 853 854
Other assets 11,343 9,246
-------- --------
Total assets $451,566 $440,602
======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
Dollars in millions, except share data 2005 2004
- -------------------------------------- ------------------- ------------------
(Unaudited)
Liabilities and Stockholder's Equity:
Commercial paper and other short-term borrowings $ 30,605 $ 25,970
Collateralized short-term financing agreements:
Securities sold under agreements to repurchase $ 156,998 $151,434
Deposits received for securities loaned 30,367 25,632
--------- --------
187,365 177,066
Financial instruments sold, not yet purchased, and
contractual commitments:
Contractual commitments 22,337 24,358
Non-U.S. government and government agency securities 20,267 17,926
U.S. government and government agency securities 15,793 19,830
Corporate debt securities and other 12,330 13,358
Equity securities 10,452 9,225
--------- --------
81,179 84,697
Payables and accrued liabilities:
Customers 35,576 37,040
Brokers, dealers and clearing organizations 8,742 8,971
Other 30,092 30,394
--------- --------
74,410 76,405
Term debt 60,477 59,307
Stockholder's equity:
Common stock (par value $.01 per share 1,000 shares
authorized; 1,000 shares issued and outstanding) - -
Additional paid-in capital 8,460 8,443
Retained earnings 9,018 8,642
Accumulated changes in equity from nonowner sources 52 72
--------- --------
Total stockholder's equity 17,530 17,157
--------- --------
Total liabilities and stockholder's equity $ 451,566 $440,602
========= ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Dollars in millions
Three Months Ended March 31, 2005 2004
- ----------------------------------------------------------------------------- ---------- ----------
Cash flows from operating activities:
Net income $ 888 $ 821
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 74 84
Net change in:
Cash segregated and on deposit for Federal and other regulations or
deposited with clearing organizations 20 (1,024)
Securities borrowed or purchased under agreements to resell (2,197) (9,101)
Financial instruments owned and contractual commitments (3,634) 2,429
Receivables (3,840) (9,067)
Goodwill, intangibles and other assets, net (3,013) (998)
Securities loaned or sold under agreements to repurchase 10,299 (1,815)
Financial instruments sold, not yet purchased, and contractual commitments (3,518) 7,162
Payables and accrued liabilities (1,995) 1,954
---------- ----------
Net cash used in operating activities (6,916) (9,555)
---------- ----------
Cash flows from financing activities:
Net increase in commercial paper and other short-term borrowings 4,635 4,732
Proceeds from issuance of term debt 6,552 8,494
Term debt maturities and repurchases (4,459) (4,245)
Dividends paid (512) (426)
---------- ----------
Net cash provided by financing activities 6,216 8,555
---------- ----------
Cash flows from investing activities:
Property, equipment and leasehold improvements, net (293) (33)
---------- ----------
Net cash used in investing activities (293) (33)
---------- ----------
Net decrease in cash and cash equivalents (993) (1,033)
Cash and cash equivalents at January 1, 6,113 6,312
---------- ----------
Cash and cash equivalents at March 31, $ 5,120 $ 5,279
========== ==========
Cash payments for interest were $2.7 billion and $929 million for the three
months ended March 31, 2005 and 2004, respectively.
The Company paid cash for income taxes, net of refunds, of $110 million and $400
million during the three months ended March 31, 2005 and 2004, respectively.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements reflect the accounts
of Citigroup Global Markets Holdings Inc. ("CGMHI"), a New York corporation, and
its subsidiaries (collectively, the "Company"). The Company is a wholly owned
subsidiary of Citigroup Inc. ("Citigroup"). Material intercompany transactions
have been eliminated.
The unaudited condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which require the use of management's best judgment and estimates.
Estimates, including the fair value of financial instruments and contractual
commitments, the outcome of litigation, realization of deferred tax assets and
other matters that affect the reported amounts and disclosures of contingencies
in the unaudited condensed consolidated financial statements, may vary from
actual results. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation have been
reflected.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
CGMHI's Annual Report on Form 10-K for the year ended December 31, 2004.
Certain financial information that is normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, but that is not required for interim reporting
purposes, has been condensed or omitted.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment" ("SFAS 123-R"), which replaces the existing SFAS No. 123,
"Accounting for Stock-based Compensation" and supersedes Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25").
SFAS 123-R requires companies to measure and record compensation expense for
stock options and other share-based payment based on the instruments' fair
value. SFAS 123-R as issued is effective for interim and annual reporting
periods beginning after June 15, 2005. However, on April 14, 2005, the
Securities and Exchange Commission ("SEC") announced the adoption of a new rule
that amends the compliance date for SFAS 123-R. The SEC's new rule allows
companies to implement SFAS 123-R at the start of their fiscal year beginning
after June 15, 2005. Thus, the Company will adopt SFAS 123-R on January 1, 2006
by using the modified prospective approach, which requires recognizing expense
for options granted prior to the adoption date equal to the fair value of the
unvested amounts over their remaining vesting period. The portion of these
options' fair value attributable to vested awards prior to the adoption of SFAS
123-R is never recognized. For unvested stock-based awards granted before
January 1, 2003 ("APB 25 awards"), the Company will expense the fair value of
the awards as at the grant date over the remaining vesting period. The impact of
recognizing compensation expense for the unvested APB 25 awards will be
immaterial to the Company's 2006 consolidated results. The Company continues to
evaluate other aspects of adopting SFAS 123-R.
5
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. COMPREHENSIVE INCOME
Comprehensive income represents the sum of net income and other changes in
stockholder's equity from nonowner sources, which, for the Company, are
comprised of cumulative translation adjustments and unrealized gains and losses
on certain investments held by equity method investees, net of tax:
Dollars in millions
Three months ended March 31, 2005 2004
- ---------------------------- ------- -------
Net income $ 888 $ 821
Other changes in equity from
nonowner sources (20) (1)
------- -------
Total comprehensive income $ 868 $ 820
======= =======
NOTE 3. CAPITAL REQUIREMENTS
Certain U.S. and non-U.S. subsidiaries are subject to securities and commodities
regulations and capital adequacy requirements promulgated by the regulatory and
exchange authorities of the countries in which they operate. Capital
requirements related to CGMHI's principal regulated subsidiaries at March 31,
2005, are as follows:
NET
CAPITAL
(U.S.) OR
FINANCIAL EXCESS OVER
(DOLLARS IN MILLIONS) RESOURCES MINIMUM
SUBSIDIARY JURISDICTION (U.K.) REQUIREMENTS
- -------------------------------- --------------------------------------------- ---------- ------------
Citigroup Global Markets Inc. U.S. Securities and Exchange Commission
Uniform Net Capital Rule (Rule 15c3-1) $ 3,473 $ 2,896
Citigroup Global Markets Limited United Kingdom's Financial Services Authority $ 8,196 $ 2,931
In addition, in order to maintain its triple-A rating, Salomon Swapco Inc.
("Swapco"), an indirect wholly owned subsidiary of CGMHI, must maintain minimum
levels of capital in accordance with agreements with its rating agencies. At
March 31, 2005, Swapco was in compliance with all such agreements. Swapco's
capital requirements are dynamic, varying with the size and concentration of its
counterparty receivables.
NOTE 4. CONTRACTUAL COMMITMENTS
Contractual commitments used for trading purposes include derivative instruments
such as interest rate, equity, currency and commodity swap agreements, swap
options, caps and floors, options, warrants and financial commodity futures and
forward contracts. The fair values (unrealized gains and losses) associated with
contractual commitments are reported net by counterparty, in accordance with
FASB Interpretation No. 39, "Offsetting of Amounts Relating to Certain
Contracts," 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
6
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
netting agreement. Contractual commitments in a net receivable position, as well
as options owned and warrants held, are reported as assets in "Contractual
commitments." Similarly, contractual commitments in a net payable position, as
well as options written and warrants issued are reported as liabilities in
"Contractual commitments." Revenues generated from these contractual commitments
are reported primarily 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.
A summary of the Company's contractual commitments as of March 31, 2005 and
December 31, 2004 are as follows:
MARCH 31, 2005 DECEMBER 31, 2004
------------------- -------------------
Current Market or Current Market or
Fair Value Fair Value
------------------- -------------------
Dollars in billions Assets Liabilities Assets Liabilities
- ----------------------------------------------------------- ------ ----------- ------ -----------
Exchange-traded products:
Equity, fixed-income, foreign exchange and
commodity options $ 2.5 $ 2.6 $ 2.4 $ 2.9
OTC contractual commitments:
Swaps, swap options, caps, floors and forward rate
agreements 8.4 11.6 9.0 11.5
Options and warrants on equities and equity indices 1.5 5.4 2.0 7.9
Options and forward contracts on fixed income securities 2.6 1.8 1.5 .9
Foreign exchange contracts and options .4 .6 1.0 1.0
Commodity contracts .3 .3 .2 .2
------ ----------- ------ -----------
Total contractual commitments $ 15.7 $ 22.3 $ 16.1 $ 24.4
====== =========== ====== ===========
NOTE 5. SEGMENT INFORMATION
The following table summarizes the results of operations for the Company's three
operating segments, Investment Services, Private Client Services and Asset
Management.
Dollars in millions
Three months ended March 31, 2005 2004
- ---------------------------------- ---------- ---------
Revenues, net of interest expense:
Investment Services $ 2,994 $ 2,417
Private Client Services 1,639 1,687
Asset Management 304 298
---------- ---------
Total $ 4,937 $ 4,402
========== =========
Total non-interest expenses:
Investment Services $ 2,063 $ 1,607
Private Client Services 1,344 1,312
Asset Management 198 190
---------- ---------
Total $ 3,605 $ 3,109
========== =========
Net Income:
Investment Services $ 640 $ 526
Private Client Services 182 229
Asset Management 66 66
---------- ---------
Total $ 888 $ 821
========== =========
Total assets of the Investment Services, Private Client Services and Asset
Management segments were $432.9 billion, $16.9 billion and $1.8 billion,
respectively, at March 31, 2005 and $422.7 billion, $16.0 billion and $1.9
7
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
billion, respectively, at December 31, 2004. For further discussion of the
Company's operating segments, please refer to the Results of Operations section
of Management's Discussion and Analysis.
NOTE 6. LEGAL PROCEEDINGS
As described in the "Legal Proceedings" discussion on page 18, the Company is a
defendant in numerous lawsuits and other legal proceedings arising out of
alleged misconduct in connection with:
(i) underwritings for, and research coverage of, WorldCom;
(ii) underwritings for Enron and other transactions and activities
related to Enron and Dynegy;
(iii) transactions and activities related to research coverage of
companies other than WorldCom; and
(iv) transactions and activities related to securities sold in initial
public offerings.
During the 2004 second quarter, in connection with the settlement of the
WorldCom class action, the Company reevaluated and increased its reserves for
these matters. The Company recorded a charge of $6.5 billion ($4.1 billion
after-tax) relating to (i) the settlement of class action litigation brought on
behalf of purchasers of WorldCom securities, and (ii) an increase in litigation
reserves for the other matters described above. Subject to the terms of the
WorldCom class action settlement, and its eventual approval by the courts, the
Company will make a payment of $2.575 billion, or $1.59 billion after-tax, to
the WorldCom settlement class. As of March 31, 2005, the Company's litigation
reserve for these matters, net of the amount to be paid upon final approval of
the WorldCom class action settlement, was $4.7 billion on a pretax basis.
The Company believes that this reserve is adequate to meet all of its remaining
exposure for these matters. However, in view of the large number of these
matters, the uncertainties of the timing and outcome of this type of litigation,
the novel issues presented, and the significant amounts involved, it is possible
that the ultimate costs of these matters may exceed or be below the reserve. The
Company will continue to defend itself vigorously in these cases, and seek to
resolve them in the manner management believes is in the best interests of the
Company.
In addition, in the ordinary course of business, Citigroup and its subsidiaries
are defendants or co-defendants or parties in various litigation and regulatory
matters incidental to and typical of the businesses in which they are engaged.
In the opinion of the Company's management, the ultimate resolution of these
legal and regulatory proceedings would not be likely to have a material adverse
effect on the consolidated financial condition of the Company but, if involving
monetary liability, may be material to the Company's operating results for any
particular period.
NOTE 7. OBLIGATIONS UNDER GUARANTEES
The Company provides a variety of guarantees and indemnifications to customers
to enhance their credit standing and enable them to complete a wide variety of
business transactions. The Company believes the guarantees which are provided
relate to an asset, liability, or equity security of the guaranteed parties. In
the normal course of business, the Company provides standard representations and
warranties to counterparties in contracts in connection with numerous
transactions and also provides indemnifications that protect the counterparties
to contracts in the event that additional taxes are owed due either to a change
in the
8
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
tax law or an adverse interpretation of the tax law. Counterparties to these
transactions provide the Company with comparable indemnifications. While such
representations, warranties and tax indemnifications are essential components of
many contractual relationships, they do not represent the underlying business
purpose for the transactions. The indemnification clauses are often standard
contractual terms related to the Company's own performance under the terms of a
contract and are entered into in the normal course of business based on an
assessment that the risk of loss is remote. Often these clauses are intended to
ensure that terms of a contract are met at inception. No compensation is
received for these standard representations and warranties and it is not
possible to determine their fair value because they rarely, if ever, result in
payment. In many cases, there are no stated or notional amounts included in the
indemnification clauses and the contingencies potentially triggering the
obligation to indemnify have not occurred and are not expected to occur. There
are no amounts reflected on the accompanying unaudited condensed consolidated
statement of financial condition as of March 31, 2005 and December 31, 2004
related to these indemnifications.
In addition, the Company is a member of or shareholder in numerous value
transfer networks ("VTNs") (payment, clearing and settlement systems as well as
securities exchanges) around the world. As a condition of membership, many of
these VTNs require that members stand ready to backstop the net effect on the
VTNs of a member's default on its obligations. The Company's potential
obligation as a shareholder or member of VTN associations are excluded from the
scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," since the shareholders and members represent subordinated classes of
investors in the VTNs. Accordingly, there are no amounts reflected on the
accompanying unaudited condensed consolidated statement of financial condition
as of March 31, 2005 and December 31, 2004 for potential obligations that could
arise from the Company's involvement with VTN associations.
Derivative instruments which include guarantees are credit default swaps, total
return swaps, written foreign exchange options, written put options, written
equity warrants, and written caps and floors. At March 31, 2005, and December
31, 2004, the carrying amount of the liabilities related to these derivatives
was $2.6 billion and $2.2 billion, respectively.
The maximum potential loss represents the amounts that could be lost under the
guarantees if there were a total default by the guaranteed parties, without
consideration of possible recoveries under recourse provisions or from
collateral held or pledged. Such amounts bear no relationship to the anticipated
losses on these guarantees and greatly exceed anticipated losses. At March 31,
2005, the maximum potential loss at notional value related to credit default
swaps and total rate of return swaps amounted to $218.5 billion, of which $21.1
billion expires within one year and $197.4 billion expires after one year. At
December 31, 2004, the maximum potential loss at notional value related to
credit default swaps and total rate of return swaps amounted to $193.8 billion.
At March 31, 2005 and December 31, 2004, the maximum potential loss at fair
value related to derivative guarantees other than credit default swaps and total
rate of return swaps amounted to $1.5 billion and $1.8 billion, respectively.
Guarantees to joint ventures and other third parties primarily include
guarantees of their debt obligations. At March 31, 2005, the carrying amount and
the maximum potential loss related to these joint ventures and other third-party
guarantees were $196 million, of which $4 million expires within one year and
$192 million expires after one year. At December 31, 2004, the carrying amount
and the maximum potential loss related to these joint venture and other
third-party guarantees were $177 million. Securities and other marketable assets
held as
9
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
collateral to reimburse losses under other third-party guarantees amounted to
$72 million and $73 million at March 31, 2005 and December 31, 2004,
respectively.
Guarantees of collection of contractual cash flows protect investors in
securitization trusts from loss of principal and interest relating to
insufficient collections on the underlying receivables in the trust. At March
31, 2005 and December 31, 2004, the carrying amount and the maximum potential
loss related to guarantees of collection of contractual cash flows were $24
million.
NOTE 8. VARIABLE INTEREST ENTITIES
The following table represents the carrying amounts and classification of
consolidated assets that are collateral for VIE obligations, including VIEs that
were consolidated prior to the implementation of FIN 46 under existing guidance
and VIEs that the Company became involved with after July 1, 2003:
IN MILLIONS OF DOLLARS MARCH 31, 2005 DECEMBER 31, 2004
- ----------------------------------------- -------------- -----------------
Cash $ 52 $ 20
Financial Instruments Owned & Contractual
Commitments 4,657 3,632
Receivables - Other 433 407
Other Assets 1,331 1,437
-------------- -----------------
Total Assets of Consolidated VIEs $ 6,473 $ 5,496
============== =================
The consolidated VIEs included in the table above represent hundreds of separate
entities with which the Company is involved and includes approximately $510
million related to VIEs newly consolidated as a result of adopting FIN 46-R. As
of March 31, 2005 and December 31, 2004, approximately $2.3 billion and $1.8
billion, respectively, of the total assets of consolidated VIEs represent
structured transactions where the Company packages and securitizes assets
purchased in the financial markets or from clients in order to create new
security offerings and financing opportunities for its clients. As of March 31,
2005 and December 31, 2004, approximately $4.2 billion and $3.7 billion,
respectively, of the total assets of consolidated VIEs represents investment
vehicles that were established to provide a return to the investors in the
vehicles.
The Company may provide liquidity facilities to the VIEs, may be a party to
derivative contracts with VIEs, may provide loss enhancement in the form of
guarantees to the VIEs, and may also have an ownership interest or other
investment in certain VIEs. In general, the investors in the obligations of
consolidated VIEs have recourse only to the assets of those VIEs and do not have
recourse to the Company, except where the Company has provided a liquidity
facility to the VIE, a guarantee to the investors, or is the counterparty to a
derivative transaction involving the VIE.
In addition to the VIEs that are consolidated in accordance with FIN 46-R, the
Company has significant variable interests in certain other VIEs that are not
consolidated because the Company is not the primary beneficiary. These include
collateralized debt obligations ("CDOs"), structured finance transactions, and
various investment funds and are explained in the paragraphs which follow.
The Company packages and securitizes assets purchased in the financial markets
in order to create new security offerings, including arbitrage CDOs and
synthetic CDOs for institutional clients and retail customers, that match the
clients' investment needs and preferences. Typically these instruments diversify
investors' risk to a pool of assets as compared with investments in an
individual asset. The VIEs, which are issuers of CDO securities, are
10
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
generally organized as limited liability corporations. The Company typically
receives fees for structuring and/or distributing the securities sold to
investors. In some cases, the Company may repackage the investment with
higher-rated debt CDO securities or U. S. Treasury securities to provide a
greater or a very high degree of certainty, respectively, of the return of
invested principal. A third-party manager is typically retained by the VIE to
select collateral for inclusion in the pool and then actively manage it, or, in
other cases, only to manage work-out credits. At March 31, 2005 and December 31,
2004, such transactions involved VIEs with approximately $19.7 billion and $17.1
billion in assets, respectively.
The Company packages and securitizes assets purchased in the financial markets
or from clients in order to create new security offerings and financing
opportunities for institutional and private bank clients as well as retail
customers, including hedge funds, mutual funds, unit investment trusts, and
other investment funds that match the clients' investment needs and preferences.
These transactions include trust preferred entities, investment vehicles and
other structured transactions. At March 31, 2005 and December 31, 2004, such
transactions involved VIEs with approximately $85.1 billion and $76.7 billion in
assets, respectively.
As previously mentioned, the Company may provide liquidity facilities to the
VIEs, may be a party to derivative contracts with VIEs, may provide loss
enhancement in the form of guarantees to the VIEs and may also have an ownership
interest in certain VIEs. Although actual losses are not expected to be
material, the Company's maximum exposure to loss as a result of its involvement
with VIEs that are not consolidated was $37.5 billion and $26.8 billion at March
31, 2005 and December 31, 2004, respectively. For this purpose, maximum exposure
is considered to be the notional amounts of guarantees and liquidity facilities,
the notional amounts of credit default swaps and certain total return swaps, and
the amount invested where the Company has an ownership interest in the VIEs.
NOTE 9. RELATED PARTY BALANCES
The Company has related party balances with Citigroup and certain of its
subsidiaries and affiliates including cash accounts, collateralized financing
transactions, margin accounts, short-term borrowings, receivables and payables
from securities and underwriting transactions, derivative trading and charges
for operational support. The Company also has long-term borrowings from
Citigroup of $14.1 billion at March 31, 2005 of which $3 billion are
subordinated borrowings. Related party transactions are generally conducted at
prices equivalent to prices for transactions conducted at arm's length with
unrelated third parties. Amounts charged for operational support represent an
allocation of costs.
11
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 2.
RECENT EVENTS
REPOSITIONING CHARGES
The Company recorded $157 million ($97 million after-tax) in charges during the
three months ended March 31, 2005 (the "2005 Quarter") for repositioning costs.
The repositioning costs were predominately severance-related costs recorded in
the Investment Services ($80 million after-tax) and Private Client ($17 million
after-tax) segments. These repositioning actions are consistent with the
Company's objectives of controlling expenses while continuing to invest in
growth opportunities.
RESULTS OF OPERATIONS
For the 2005 Quarter, the Company recorded net income of $888 million compared
to net income of $821 million for the three months ended March 31, 2004 (the
"2004 Quarter"). Revenues, net of interest expense, were $4,937 million in the
2005 Quarter, up from $4,402 million in the 2004 Quarter. Commission revenues
decreased slightly in the 2005 Quarter to $1,138 million as a result of
decreases in listed and OTC commissions. Asset management and administration
fees increased to $1,053 million in the 2005 Quarter, primarily as a result of
positive market action and cumulative net flows, and higher asset-based revenue,
reflecting increased client asset levels, partially offset by lower transaction
volume and a decrease in U.S. retail money market funds. Investment banking
revenues of $874 million in the 2005 Quarter were essentially unchanged compared
to the 2004 Quarter. Principal transactions revenues increased to $854 million
in the 2005 Quarter primarily as the result of an increase in fixed income and
commodity trading, offset partially by a decline in global equity trading. Net
interest and dividend income decreased to $922 million in the 2005 Quarter,
primarily due to increases in the cost of funding from 2004 to 2005 as a result
of interest rate increases by the Federal Reserve Bank. Total non-interest
expenses increased to $3,605 million in the 2005 Quarter (which includes $157
million of repositioning costs) primarily as a result of increased compensation
and benefits expense. Also contributing to the increase were higher
communication and floor brokerage expenses.
Following is a discussion of the results of operations of the Company's three
operating segments, Investment Services, Private Client Services and Asset
Management.
INVESTMENT SERVICES
Dollars in millions
Three Months Ended March 31, 2005 2004
- --------------------------------- -------- --------
Revenues, net of interest expense $ 2,994 $ 2,417
-------- --------
Total non-interest expense 2,063 1,607
-------- --------
Income before income taxes 931 810
Provision for income taxes 291 284
-------- --------
Net income $ 640 $ 526
======== ========
The Company's Investment Services segment recorded net income of $640 million in
the 2005 Quarter compared to net income of $526 million in the 2004 Quarter.
Revenues, net of interest expense, increased 24% to $2.994 billion in the 2005
Quarter. Principal transactions revenues increased in the 2005 Quarter as a
result
12
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
of higher commodity and municipal trading. Investment banking revenues increased
slightly as a result of improved results in merger and acquisition fees, offset
partially by a decrease in equity and high-grade debt underwriting. Commission
revenue was essentially unchanged in the 2005 Quarter. Net interest and dividend
income decreased in the 2005 Quarter, primarily due to increases in the cost of
funding from 2004 to 2005 as a result of interest rate increases by the Federal
Reserve Bank.
Total non-interest expenses increased to $2.063 billion in the 2005 Quarter
(which includes $129 million of repositioning costs on a pre-tax basis) as a
result of increased employee compensation and benefits, floor brokerage and
other production-related expenses, and communication expense.
PRIVATE CLIENT SERVICES
Dollars in millions
Three Months Ended March 31, 2005 2004
- ---------------------------- ------- --------
Revenues, net of interest expense $ 1,639 $ 1,687
------- --------
Total non-interest expense 1,344 1,312
------- --------
Income before income taxes 295 375
Provision for income taxes 113 146
------- --------
Net income $ 182 $ 229
======= ========
Private Client Services net income of $182 million in the 2005 Quarter decreased
$47 million or 21% from the 2004 Quarter, primarily due to higher legal expense,
repositioning costs and lower transactional revenue, which were partially offset
by higher asset-based fee revenue.
Revenues, net of interest expense, of $1.639 billion in the 2005 Quarter
decreased $48 million or 3% from the prior-year period, primarily due to
decreases in transactional revenue reflecting lower customer trading volumes,
partially offset by increases in asset-based fee revenue reflecting higher
assets under fee-based management.
Total assets under fee-based management were $239.4 billion as of March 31,
2005, up $19.5 billion or 9% from the prior-year period. Total client assets,
including assets under fee-based management, of $969 billion in the 2005 Quarter
increased $44 billion or 5% compared to the 2004 Quarter, principally due to
market appreciation and positive net inflows. Net inflows were $13 billion in
the 2005 Quarter compared to $6 billion in the 2004 Quarter.
Operating expenses of $1.344 billion in the 2005 Quarter, increased $32 million
or 2% from the 2004 Quarter. The increases were mainly due to higher legal costs
and repositioning costs of $28 million on a pre-tax basis.
Assets under fee-based management were as follows:
Dollars in billions
At March 31, 2005 2004
- ------------------- ------- -------
Financial Consultant managed accounts $ 84.5 $ 75.9
Consulting Group and internally managed assets 154.9 144.0
------- -------
Total assets under fee-based management (1) $ 239.4 $ 219.9
------- -------
(1) Includes certain assets managed jointly with Citigroup Asset Management.
13
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ASSET MANAGEMENT
Dollars in millions
Three Months Ended March 31, 2005 2004
- ---------------------------- ------- -------
Revenues, net of interest expense $ 304 $ 298
------- -------
Total non-interest expense 198 190
------- -------
Income before income taxes 106 108
Provision for income taxes 40 42
------- -------
Net income $ 66 $ 66
======= =======
The Company's Asset Management segment revenues, net of interest expense,
increased to $304 million or 2% in the 2005 Quarter compared to $298 million in
the 2004 Quarter. The primary revenue for the Asset Management segment is asset
management and administration fees, which increased to $299 million in the 2005
Quarter compared to $292 million in the 2004 Quarter. The increase in revenues
in the 2005 Quarter is primarily due to higher equity markets and cumulative net
flows and is partially offset by the impact of a decrease in U.S. retail money
market funds.
Assets under management for the segment increased to $322.8 billion at March 31,
2005, compared to $309.0 billion at March 31, 2004. The increase is primarily
due to positive market action and the impact of positive net flows. (See the
table below for detail of assets under fee-based management).
Total non-interest expenses were $198 million in the 2005 Quarter compared to
$190 million the 2004 Quarter. The increase in the 2005 Quarter is due to higher
compensation expense, partially offset by lower legal costs.
Assets under fee-based management were as follows:
Dollars in billions
At March 31, 2005 2004
- ------------------- -------- --------
Money market funds $ 100.6 $ 94.6
Mutual funds 90.6 91.8
Managed accounts 126.6 117.1
Unit investment trusts held in client accounts 5.0 5.5
-------- --------
Total $ 322.8 $ 309.0
-------- --------
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets were $452 billion at March 31, 2005, an increase from
$441 billion at year-end 2004. Due to the nature of the Company's trading
activities, it is not uncommon for the Company's asset levels to fluctuate from
period to period.
The Company's condensed consolidated statement of financial condition is highly
liquid, with the vast majority of its assets consisting of marketable securities
and collateralized short-term financing agreements arising from
14
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
securities transactions. The highly liquid nature of these assets provides the
Company with flexibility in financing and managing its business. The Company
monitors and evaluates the adequacy of its capital and borrowing base on a daily
basis in order to allow for flexibility in its funding, to maintain liquidity,
and to ensure that its capital base supports the regulatory capital requirements
of its subsidiaries.
The Company funds its operations through the use of collateralized and
uncollateralized short-term borrowings, long-term borrowings, and its equity.
Collateralized short-term financing, including repurchase agreements, and
secured loans are the Company's principal funding source. Such borrowings are
reported net by counterparty, when applicable, pursuant to the provisions of
FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase
and Reverse Repurchase Agreements" ("FIN 41"). Excluding the impact of FIN 41,
short-term collateralized borrowings totaled $273.6 billion at March 31, 2005.
Uncollateralized short-term borrowings provide the Company with a source of
short-term liquidity and are also utilized as an alternative to secured
financing when they represent a less expensive funding source. Sources of
short-term uncollateralized borrowings include commercial paper, unsecured bank
borrowings, promissory notes and corporate loans. Short-term uncollateralized
borrowings totaled $29.9 billion at March 31, 2005.
The Company has 364-day committed uncollateralized revolving line of credit
facilities with unaffiliated banks totaling $3.08 billion. These facilities have
a two-year term-out provision with any borrowings maturing on various dates
through 2007. The Company also has three-year facilities totaling $1.54 billion
with unaffiliated banks with any borrowings maturing on various dates in 2007
and 2008. The Company may borrow under these revolving credit facilities at
various interest rate options (LIBOR, Fed Funds or base rate) and compensates
the banks for these facilities through facility fees. At March 31, 2005, there
were no outstanding borrowings under these facilities. The Company also has
committed long-term financing facilities with unaffiliated banks. At March 31,
2005, the Company had drawn down the full $1.65 billion then available under
these facilities. A bank can terminate these facilities by giving the Company
prior notice (generally one year). The Company compensates the banks for these
facilities through facility fees. Under all of these facilities, the Company is
required to maintain a certain level of consolidated adjusted net worth (as
defined in the agreements). At March 31, 2005, this requirement was exceeded by
approximately $7.2 billion. The Company also has substantial borrowing
arrangements consisting of facilities that the Company has been advised are
available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
the Company's short-term requirements.
The Company's borrowing relationships are with a broad range of banks, financial
institutions and other firms, including affiliates, from which it draws funds.
The volume of the Company's borrowings generally fluctuates in response to
changes in the level of the Company's financial instruments, commodities and
contractual commitments, customer balances, the amount of securities purchased
under agreements to resell and securities borrowed transactions. As the
Company's activities increase, borrowings generally increase to fund the
additional activities. Availability of financing to the Company can vary
depending upon market conditions, credit ratings and the overall availability of
credit to the securities industry. The Company seeks to expand and diversify its
funding mix as well as its creditor sources. Concentration levels for these
sources, particularly for short-term lenders, are closely monitored both in
terms of single investor limits and daily maturities.
The Company monitors liquidity by tracking asset levels, collateral and funding
availability to maintain flexibility to meet its financial commitments. As a
policy, the Company attempts to maintain sufficient capital and funding sources
in order to have the capacity to finance itself on a fully collateralized basis
in the event that the Company's access to uncollateralized financing is
temporarily impaired. The Company's liquidity management process includes a
contingency funding plan designed to ensure adequate liquidity even if access to
15
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
unsecured funding sources is severely restricted or unavailable. This plan is
reviewed periodically to keep the funding options current and in line with
market conditions. The management of this plan includes an analysis used to
determine the Company's ability to withstand varying levels of stress, including
ratings downgrades, which could impact its liquidation horizons and required
margins. The Company maintains a loan value of unencumbered securities in excess
of its outstanding short-term unsecured liabilities. The Company monitors its
leverage and capital ratios on a daily basis.
On February 11, 2005, in addition to announcing its plans to merge two
intermediate bank holding companies, Citigroup Holdings Company and Citicorp,
into Citigroup Inc., Citigroup also announced that it would consolidate its
capital markets funding activities in two legal entities: i) Citigroup Inc.,
which will continue to issue long-term debt, trust preferred securities,
preferred and common stock, and ii) Citigroup Funding Inc., a newly formed,
fully guaranteed, first-tier subsidiary of Citigroup, which will issue
commercial paper and medium-term notes. It is anticipated that this funding
consolidation will commence during the 2005 second quarter.
As part of the funding consolidation, it is expected that Citigroup will
unconditionally guarantee the Company's outstanding public indebtedness. Upon
issuance of the guarantee, the Company will no longer file periodic reports with
the Securities and Exchange Commission and will continue to be rated on the
basis of a guarantee of its financial obligations from Citigroup.
RISK MANAGEMENT
MARKET RISK
Measuring market risk using statistical risk management models has recently
become the main focus of risk management efforts by many companies whose
earnings are exposed to changes in the fair value of financial instruments.
Management believes that statistical models alone do not provide a reliable
method of monitoring and controlling risk. While Value at Risk ("VAR") models
are relatively sophisticated, they are of limited use for internal risk
management because they do not give any indication of the direction or magnitude
of individual risk exposures or which market scenarios represent the largest
risk exposures. These models are used by the Company only as a supplement to
other risk management tools.
The following table summarizes the Company's VAR at the 99% confidence level,
which includes substantially all of the Company's financial assets and
liabilities which are marked-to-market, as of March 31, 2005 and December 31,
2004, along with the 2005 daily average, high and low (based on daily VARs). The
VAR relating to accrual portfolios has been excluded from this analysis.
16
CITIGROUP GLOBAL MARKETS HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RISK EXPOSURES March 31, December 31,
(IN MILLIONS) 2005 2005 Average 2005 High 2005 Low 2004
- -------------------------- --------- ------------ --------- -------- ------------
Interest rate $ 69 $ 72 $ 100 $ 61 $ 73
Equity 29 32 39 26 21
Commodity 22 20 23 16 7
Foreign exchange 13 15 19 11 9
Covariance adjustment (54) (56) N/A N/A (34)
----- ---- ----- ---- ----
TOTAL - ALL MARKET RISK
FACTORS, INCLUDING GENERAL
AND SPECIFIC RISK $ 79 $ 83 $ 111 $ 72 $ 76
----- ---- ----- ---- ----
Specific risk component 9 9 N/A N/A 10
----- ---- ----- ---- ----
TOTAL - GENERAL MARKET
FACTORS ONLY $ 70 $ 74 N/A N/A $ 66
----- ---- ----- ---- ----
The specific risk component represents the level of issuer-specific risk
embedded in the VAR, arising from both debt and equity securities. The Company's
specific risk model conforms with the 4x multiplier treatment approved by the
Federal Reserve and is subject to extensive hypothetical back testing (performed
on an annual basis), including many portfolios with position concentrations.
The quantification of market risk using VAR analysis requires a number of key
assumptions. In calculating VAR at March 31, 2005, the Company simulates changes
in market factors by using historical volatilities and correlations and assuming
lognormal (or sometimes normal) distributions for changes in each market factor.
VAR is calculated at the 99% confidence level, assuming a static portfolio
subject to a one-day change in market factors. The historical volatilities and
correlations used in the simulation are calculated using a look back period of
three years. VAR reflects the risk profile of the Company at March 31, 2005 and
is not a predictor of future results.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the following: changes in
economic conditions, including the performance of global financial markets, and
risks associated with fluctuating currency values and interest rates;
competitive, regulatory or tax changes that affect the cost of or the demand for
the Company's products; the impact of the implementation of new accounting
rules; and the resolution of legal proceedings and environmental matters.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
Internal Control Over Financial Reporting. There have not been any changes in
the Company's internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following information supplements and amends our discussion set forth under
Part I, Item 3 "Legal Proceedings" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2004.
ENRON CORP.
In April 2005, Citigroup, along with other financial institution defendants,
reached an agreement-in-principle to settle four state-court actions brought by
various investment funds, which were not previously consolidated or coordinated
with the NEWBY action. The four cases are OCM OPPORTUNITIES FUND III, L.P., et
al. v. CITIGROUP INC., et al.; PACIFIC INVESTMENT MANAGEMENT CO. LLC, et al. v.
CITIGROUP INC., et al.; AUSA LIFE INSURANCE v. CITIGROUP INC., et al. and
PRINCIPAL GLOBAL INVESTORS v. CITIGROUP INC., et al. The amounts to be paid in
settlement of these actions are covered by existing litigation reserves.
DYNEGY INC.
The court had previously denied lead plaintiff's motion for leave to amend; no
appeal was yet timely while the remainder of the case remained pending. On April
15, 2005, as part of a global settlement involving all defendants, Citigroup
entered into a memorandum of understanding to settle this case. The amount to be
paid in settlement is covered by existing litigation reserves.
18
WORLDCOM, INC.
The District Court approved the settlement of the IN RE TARGETS SECURITIES
LITIGATION on April 22, 2005.
GLOBAL CROSSING
The plaintiffs and the Citigroup Related Defendants have entered into a
definitive settlement agreement in the IN RE GLOBAL CROSSING, LTD SECURITIES
LITIGATION; the settlement was preliminarily approved by the Court on March 8,
2005. The amount to be paid in settlement is covered by existing litigation
reserves.
RESEARCH
Two putative class actions against CGMI asserting common law claims on behalf of
CGMI customers in connection with published investment research have been
dismissed by United States District Courts, the dismissals of which were
affirmed by the United States Court of Appeals for the Third and Ninth Circuits,
respectively. Plaintiffs in the Ninth Circuit case have sought review by the
United States Supreme Court; their petition for a writ of certiorari, which CGMI
opposed, is pending before that court.
MUTUAL FUNDS
The Company entered into a settlement with the SEC with respect to revenue
sharing and sales of classes of funds.
INVESTIGATIONS OF EURO ZONE GOVERNMENT BONDS TRADE
The German prosecutors have declined to take any actions against the employees
in connection with this matter.
19
ITEM 6. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------------
3.01 Restated Certificate of Incorporation of Citigroup Global Markets Holdings
Inc. (the "Company"), effective April 7, 2003, incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K filed on April 7,
2003 (File No. 1-4346).
3.02 By-Laws of the Company, incorporated by reference to Exhibit 4(b) to the
Company's Registration Statement on Form S-3 (No. 333-106272).
12.01+ Computation of ratio of earnings to fixed charges.
31.01+ Certification of principal executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.02+ Certification of principal financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.01+ Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------------
+ Filed herewith.
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the SEC upon request.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIGROUP GLOBAL MARKETS HOLDINGS INC.
(Registrant)
Date: May 12, 2005 By: /s/ Robert Druskin
----------------------------
Robert Druskin
President and Chief Executive Officer
By: /s/ John C. Morris
---------------------------
John C. Morris
Chief Financial Officer
21