Goldman Sachs 2000 Annual Report Download - page 71

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The firm’s investment banking activities are divided into two
categories:
• Financial Advisory. Financial Advisory includes advi-
sory assignments with respect to mergers and acqui-
sitions, divestitures, corporate defense activities,
restructurings and spin-offs; and
• Underwriting. Underwriting includes public offerings
and private placements of equity and debt securities.
Trading and Principal Investments. The firm’s Trading and
Principal Investments business facilitates transactions with
a diverse group of corporations, financial institutions, gov-
ernments and individuals and takes proprietary positions
through market making in and trading of fixed income and
equity products, currencies, commodities, and swaps and
other derivatives. In addition, the firm engages in floor-
based market making as a specialist on U.S. equities and
options exchanges. Trading and Principal Investments is
divided into three categories:
• FICC. The firm makes markets in and trades fixed income
products, currencies and commodities, structures and
enters into a wide variety of derivative transactions, and
engages in proprietary trading and arbitrage activities;
• Equities. The firm makes markets in, acts as a special-
ist for, and trades equities and equity-related products,
structures and enters into equity derivative transac-
tions, and engages in proprietary trading and equity
arbitrage; and
• Principal Investments. Principal Investments primarily
represents net revenues from the firm’s merchant bank-
ing investments.
Asset Management and Securities Services
The Asset Management and Securities Services segment
includes services related to the following:
• Asset Management. Asset Management generates man-
agement fees by providing investment advisory services
to a diverse client base of institutions and individuals;
• Securities Services. Securities Services includes prime
brokerage, financing services and securities lending,
and the firm’s matched book businesses, all of which
generate revenue primarily in the form of fees or inter-
est rate spreads; and
• Commissions. Commissions include clearing and
agency transactions for clients on major stock, options
and futures exchanges and revenues from the increased
share of the income and gains derived from the firm’s
merchant banking funds.
Basis of Presentation
In reporting segments, certain of the firm’s business lines
have been aggregated where they have similar economic
characteristics and are similar in each of the following
areas: (i) the nature of the services they provide, (ii) their
methods of distribution, (iii) the types of clients they serve
and (iv) the regulatory environments in which they operate.
The firm allocates revenues and expenses between the two
segments. Due to the integrated nature of the business
segments, estimates and judgments have been made in
allocating certain revenue and expense items. Transactions
between segments are based on specific criteria or approx-
imate third-party rates. Total operating expenses include
corporate items that have not been allocated to either bus-
iness segment. The allocation process is based on the
manner in which management views the business of the firm.
The segment information presented in the table below is
prepared according to the following methodologies:
• Revenues and expenses directly associated with each
segment are included in determining pre-tax earnings.
• Net revenues in the firm’s segments include allocations
of interest income and interest expense to specific
securities, commodities and other positions in relation
to the cash generated by, or funding requirements of,
the underlying positions. Net interest is included within
segment net revenues as it is consistent with the way
in which management assesses segment performance.
• Overhead expenses not directly allocable to specific
segments are allocated ratably based on direct segment
expenses.
• The nonrecurring expenses associated with the firm’s
acquisition awards and conversion to corporate form
and related transactions are not allocated to individual
segments as management excludes them in evaluating
segment performance.
69