Goldman Sachs 2013 Annual Report Download - page 202

Notes to Consolidated Financial Statements
Note 25.
Business Segments
The firm reports its activities in the following four business
segments: Investment Banking, Institutional Client Services,
Investing & Lending and Investment Management.
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 —
compensation, headcount and levels of business activity —
are broadly similar in each of the firm’s business segments.
Compensation and benefits expenses in the firm’s segments
reflect, among other factors, the overall performance of the
firm as well as the performance of individual businesses.
Consequently, pre-tax margins in one segment of the firm’s
business may be significantly affected by the performance
of the firm’s other business segments.
The firm allocates assets (including allocations of excess
liquidity and cash, secured client financing and other
assets), revenues and expenses among the four business
segments. Due to the integrated nature of these segments,
estimates and judgments are made in allocating certain
assets, revenues and expenses. The allocation process is
based on the manner in which management currently views
the performance of the segments. Transactions between
segments are based on specific criteria or approximate
third-party rates. Total operating expenses include
corporate items that have not been allocated to individual
business segments.
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, such
underlying positions. Net interest is included in 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.
Management believes that the following information
provides a reasonable representation of each segment’s
contribution to consolidated pre-tax earnings and
total assets.
200 Goldman Sachs 2013 Annual Report