Goldman Sachs 2001 Annual Report Download - page 68

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page 66
GOLDMAN SACHS ANNUAL REPORT 2001
The components of the net tax expense/(benefit) reflected on the consolidated statements of earnings are set forth below:
YEAR ENDED NOVEMBER
(IN MILLIONS) 2001 2000 1999
Current taxes
U.S. federal $ 781 $1,063 $ 16
State and local 64 285 67
Non-U.S. 489 957 588
Total current tax expense 1,334 2,305 671
Deferred taxes
U.S. federal (9) (299) (688)
State and local 95 49 (342)
Non-U.S. (34) (102) (357)
Total deferred tax expense/(benefit) 52 (352) (1,387)
Net tax expense/(benefit) $1,386 $1,953 $ (716)
Deferred income taxes reflect the net tax effects of temporary
differences between the financial reporting and tax bases of
assets and liabilities. These temporary differences result in tax-
able or deductible amounts in future years and are measured
using the tax rates and laws that will be in effect when such
differences are expected to reverse. In connection with the con-
version from a partnership to a corporation, the firm recognized
a deferred tax benefit related to the revaluation of net deferred
tax assets recorded as a partnership.
NOTE 12 INCOME TAXES
Prior to its conversion to corporate form, the firm operated as a
partnership and generally was not subject to U.S. federal and
state income taxes. The earnings of the firm, however, were sub-
ject to local unincorporated business taxes. In addition, certain
non-U.S. subsidiaries were subject to income taxes in their local
jurisdictions. The partners of the firm’s predecessor partnership
were taxed on their proportionate share of the partnership’s tax-
able income or loss. Effective with the conversion from a part-
nership to a corporation on May 7, 1999, the firm became
subject to U.S. federal, state and local corporate income taxes.
Pro Forma Effect of SFAS No. 123
If the firm were to recognize compensation expense under the fair value-based method of SFAS No. 123 with respect to options
granted, net earnings would have decreased resulting in pro forma net earnings and EPS as set forth below:
YEAR ENDED NOVEMBER
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2001 2000 1999
Net earnings, as reported $2,310 $3,067 $2,708
Pro forma net earnings 1,965 2,971 2,650
EPS, as reported
Basic $ 4.53 $ 6.33 $ 5.69
Diluted 4.26 6.00 5.57
Pro forma EPS
Basic $ 3.86 $ 6.13 $ 5.57
Diluted 3.63 5.81 5.45
In the preceding table, pro forma compensation expense associated with option grants is recognized over the relevant vesting period.