Goldman Sachs 2001 Annual Report Download - page 56

page 54
GOLDMAN SACHS ANNUAL REPORT 2001
returns. Overrides are based on investment performance over the
life of each merchant banking fund, and future investment
underperformance may require amounts previously distributed
to the firm to be returned to the funds. Accordingly, overrides
are recognized in the consolidated statements of earnings only
when management determines that the probability of return
is remote. Overrides are included in “Asset management and
securities services” on the consolidated statements of earnings.
Property, Leasehold Improvements and Equipment
Depreciation and amortization generally are computed using
accelerated cost recovery methods for property and equipment
and for leasehold improvements where the term of the lease
is greater than the economic useful life of the asset. All other
leasehold improvements are amortized on a straight-line basis
over the term of the lease. Certain internal use software costs are
capitalized and amortized on a straight-line basis over
the expected useful life. Property, leasehold improvements
and equipment, net of depreciation and amortization are
included in “Other assets” on the consolidated statements
of financial condition.
Goodwill and Identifiable Intangible Assets
The cost of acquired companies in excess of the fair value of net
assets at acquisition date is recorded as goodwill, and through
November 2001 was amortized over periods of 15 to 20 years
on a straight-line basis. Subsequent to November 2001, good-
will will no longer be amortized but, instead, will be tested at
least annually for impairment, in accordance with SFAS No.
142, “Goodwill and Other Intangible Assets.” Identifiable intan-
gible assets consist primarily of specialist rights and customer
lists and are amortized over a weighted average life of approxi-
mately 21 years.
Investment Banking
Underwriting revenues and fees from mergers and acquisitions
and other corporate finance advisory assignments are recorded
when the underlying transaction is completed under the terms of
the engagement. Syndicate expenses related to securities offer-
ings in which the firm acts as an underwriter or agent are
deferred until the related revenue is recognized. Expense reim-
bursements related to advisory activities are recorded as a reduc-
tion of related non-compensation expenses.
Earnings Per Share
Earnings per share (EPS) is computed in accordance with
SFAS No. 128, “Earnings Per Share.” Basic EPS is calculated by
dividing net earnings by the weighted average number of com-
mon shares outstanding. Common shares outstanding includes
common stock and nonvoting common stock as well as
restricted stock units for which no future service is required as a
condition to the delivery of the underlying common stock.
Diluted EPS includes the determinants of basic EPS and, in addi-
tion, reflects the dilutive effect of the common stock deliverable
pursuant to stock options and to restricted stock units for which
future service is required as a condition to the delivery of the
underlying common stock.
Stock-Based Compensation
The firm has elected to account for stock-based employee
compensation plans in accordance with Accounting Principles
Board Opinion (APB) No. 25, “Accounting for Stock Issued to
Employees,” as permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation.” In accordance with APB No. 25,
compensation expense is not recognized for stock options that
have no intrinsic value on the date of grant. Compensation
expense is recognized immediately for restricted stock units for
which future service is not required as a condition to the deliv-
ery of the underlying shares of common stock. For restricted
stock units with future service requirements, compensation
expense is recognized over the relevant vesting period using
either accelerated or straight-line amortization methodologies,
as determined by the applicable vesting provisions.