Goldman Sachs 2003 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2003 Goldman Sachs annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

Notes to Consolidated Financial Statements
98 GOLDMAN SACHS 2003 ANNUAL REPORT
note 15
BUSINESS SEGMENTS
In reporting to management, the firm’s operating results
are categorized into the following three segments:
Investment Banking, Trading and Principal Investments,
and Asset Management and Securities Services.
The firm made certain changes to its segment reporting
structure in 2003. These changes included reclassifying
the following from Asset Management and Securities
Services to Trading and Principal Investments:
•equity commissions and clearing and execution fees;
•merchant banking overrides; and
•the matched book businesses.
These reclassifications did not affect the firm’s historical
consolidated results of operations, financial condition or
cash flows. Certain reclassifications have been made to
previously reported amounts to conform to the current
presentation.
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 cost drivers of the firm taken as a whole— com-
pensation, headcount and levels of business activity—
are broadly similar in each of the firm’s business
segments. Compensation expenses within the firm’s
segments reflect, among other factors, the performance
of the individual business units as well as the overall
performance of the firm. Consequently, pre-tax mar-
gins in one segment of the firm’s business may be sig-
nificantly affected by the performance of the firm’s
other business segments.
The firm allocates revenues and expenses among the
three segments. Due to the integrated nature of the busi-
ness segments, estimates and judgments have been made
in allocating certain revenue and expense items.
Transactions between segments are based on specific cri-
teria or approximate third-party rates. Total operating
expenses include corporate items that have not been allo-
cated to individual business segments. 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 allo-
cations of interest income and interest expense to
specific securities, commodities and other positions
in relation to the cash generated by, or funding
requirements of, such 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 spe-
cific segments are allocated ratably based on direct
segment expenses.
•The nonrecurring expenses associated with the
firm’s acquisition awards and conversion to cor-
porate form and related transactions are not allo-
cated to individual segments as management
excludes them in evaluating segment performance.