Goldman Sachs 2003 Annual Report Download - page 46

Management’s Discussion and Analysis
44 GOLDMAN SACHS 2003 ANNUAL REPORT
Operating Results by Segment
The following table sets forth the net revenues, operating expenses and pre-tax earnings of our segments:
OPERATING RESULTS BY SEGMENT
YEAR ENDED NOVEMBER
(IN MILLIONS) 2003 2002 2001
Investment Banking Net revenues $ 2,711 $ 2,830 $ 3,836
Operating expenses 2,504 2,454 3,117
Pre-tax earnings $ 207 $ 376 $ 719
Trading and Principal Net revenues $10,443 $ 8,647 $ 9,570
Investments Operating expenses 6,938 6,505 7,310
Pre-tax earnings $ 3,505 $ 2,142 $ 2,260
Asset Management and Net revenues $ 2,858 $ 2,509 $ 2,405
Securities Services Operating expenses 1,890 1,562 1,325
Pre-tax earnings $ 968 $ 947 $ 1,080
Total Net revenues $16,012 $13,986 $15,811
Operating expenses(1) 11,567 10,733 12,115
Pre-tax earnings $ 4,445 $ 3,253 $ 3,696
(1) Includes the following expenses that have not been allocated to our segments: (i) the amortization of employee initial public offering awards of
$80 million, $212 million and $363 million for the years ended November 2003, November 2002 and November 2001, respectively, and (ii) provi-
sions for a number of litigation and regulatory proceedings of $155 million for the year ended November 2003.
We made certain changes to our segment reporting struc-
ture in 2003. These changes included:
•reclassifying equity commissions and clearing and
execution fees from the Commissions component
of the Asset Management and Securities Services
segment to the Equities component of the Trading
and Principal Investments segment;
•reclassifying merchant banking overrides from
the Commissions component of the Asset
Management and Securities Services segment to
the Principal Investments component of the
Trading and Principal Investments segment; and
•reclassifying the matched book businesses from
the Securities Services component of the Asset
Management and Securities Services segment to
the FICC component of the Trading and Principal
Investments segment.
Non-compensation-related expenses of $3.70 billion for
2002 decreased 6% compared with 2001. Excluding
amortization of goodwill and identifiable intangible assets,
these expenses decreased 3% compared with 2001, pri-
marily reflecting lower market development and commu-
nications and technology expenses due to the continued
impact of expense-reduction initiatives first implemented
in 2001, reduced employment levels and lower levels of
business activity. These reductions were partially offset
by higher occupancy expenses primarily related to new
leases and one-time costs related to the postponement of
construction plans for a smaller facility adjacent to our
office building in Jersey City, New Jersey. Amortization
of goodwill and identifiable intangible assets was lower
than in 2001, reflecting the adoption of the goodwill non-
amortization provisions of SFAS No. 142.
provision for taxes
The effective income tax rate for 2003 was 32.4%, down
from 35.0% for 2002. The lower effective income tax
rate reflected an increase in tax credits and a decrease in
state and local taxes. The effective income tax rate for
2002 was 35.0%, down from 37.5% in 2001. The
decline in the effective income tax rate for 2002 com-
pared with 2001 was primarily due to a change in our
geographic earnings mix combined with ongoing efforts
to convert major operating subsidiaries around the world
to corporate form and an increase in tax-exempt income
and tax credits.
Our effective income tax rate can vary from period to
period depending on, among other factors, the geo-
graphic and business mix of our earnings and the level of
our tax credits. These same and other factors, including
our history of pre-tax earnings, are taken into account in
assessing our ability to realize our net deferred tax assets.
See Note 13 to the consolidated financial statements for
further information regarding our provision for taxes.