SFAS No. 146 Addresses the Research Proposal

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The transition with respect to SFAS No. 146 has been fluid for Citigroup. At best, the company may have delayed the impact of a business exit over the year end of 2002 in order to push the liability to the next fiscal year. Had this been the case, however, the 2003 Annual Report would have made mention of such an impact.

The adoption of SFAS No. 146 is common, and is consistent with Citigroup's commitment to sound accounting principles. The adoption of this statement is unlikely to have a significant impact on corporate strategy. Because the statement mainly affects timing, the most significant impact would have been around the adoption period. It is possible that future layoffs and severance will see an impact with respect to timing, such that the liability is incurred during a particular quarter. This typically would occur during a quarter where the company is already likely to miss its guidance.

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This is unlikely to have a significant impact on investors, however. Under the prior guidance, the announcement of the exit would be made during the quarter in which such an announcement would be favorable for the company's earnings. Under SFAS No. 146 the company would not be able to time their announcements in such a way. The liability would instead by incurred when it occurred, which represents an improvement in transparency. Moreover, the cost of the liability can be determined with better accuracy at that point in time. For the most part, however, SFAS No. 146 has had little impact on firms such as Citigroup, as these types of decisions are strategic in nature and the timing is guided more by operational considerations than quarterly earnings announcements.

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