Goldman Sachs 2013 Annual Report Download - page 48

Management’s Discussion and Analysis
2013 versus 2012. Operating expenses on the consolidated
statements of earnings were $22.47 billion for 2013, 2%
lower than 2012. Compensation and benefits expenses on
the consolidated statements of earnings were $12.61 billion
for 2013, 3% lower compared with $12.94 billion for
2012. The ratio of compensation and benefits to net
revenues for 2013 was 36.9% compared with 37.9% for
2012. Total staff increased 2% during 2013.
Non-compensation expenses on the consolidated
statements of earnings were $9.86 billion for 2013, 2%
lower than 2012. The decrease compared with 2012
included a decline in insurance reserves, reflecting the sale
of our Americas reinsurance business, and a decrease in
depreciation and amortization expenses, primarily
reflecting lower impairment charges and lower operating
expenses related to consolidated investments. These
decreases were partially offset by an increase in other
expenses, due to higher net provisions for litigation and
regulatory proceedings, and higher brokerage, clearing,
exchange and distribution fees. Net provisions for litigation
and regulatory proceedings for 2013 were $962 million
(primarily comprised of net provisions for mortgage-related
matters) compared with $448 million for 2012 (including a
settlement with the Board of Governors of the Federal
Reserve System (Federal Reserve Board) regarding the
independent foreclosure review). 2013 included a
charitable contribution of $155 million to Goldman Sachs
Gives, our donor-advised fund. Compensation was reduced
to fund this charitable contribution to Goldman Sachs
Gives. The firm asks its participating managing directors to
make recommendations regarding potential charitable
recipients for this contribution.
2012 versus 2011. Operating expenses on the consolidated
statements of earnings were $22.96 billion for 2012,
essentially unchanged compared with 2011. Compensation
and benefits expenses on the consolidated statements of
earnings were $12.94 billion for 2012, 6% higher
compared with $12.22 billion for 2011. The ratio of
compensation and benefits to net revenues for 2012 was
37.9%, compared with 42.4% for 2011. Total staff
decreased 3% during 2012.
Non-compensation expenses on the consolidated
statements of earnings were $10.01 billion for 2012, 4%
lower compared with 2011. The decrease compared with
2011 primarily reflected lower brokerage, clearing,
exchange and distribution fees, lower occupancy expenses
and a decrease in depreciation and amortization expenses,
principally due to lower impairment charges. In addition,
market development expenses and professional fees
declined compared with 2011, primarily reflecting the
impact of expense reduction initiatives. These decreases
were partially offset by higher other expenses and increased
insurance reserves related to our reinsurance business. The
increase in other expenses compared with 2011 primarily
reflected higher net provisions for litigation and regulatory
proceedings and higher charitable contributions. Net
provisions for litigation and regulatory proceedings were
$448 million during 2012 (including a settlement with the
Federal Reserve Board regarding the independent
foreclosure review) compared with $175 million for 2011.
Charitable contributions were $225 million during 2012,
including $159 million to Goldman Sachs Gives, our
donor-advised fund, and $10 million to The Goldman
Sachs Foundation, compared with $163 million during
2011, including $78 million to Goldman Sachs Gives and
$25 million to The Goldman Sachs Foundation.
Compensation was reduced to fund the charitable
contribution to Goldman Sachs Gives. The firm asks its
participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.
Provision for Taxes
The effective income tax rate for 2013 was 31.5%, down
from 33.3% for 2012. The decrease from 33.3% to 31.5%
was primarily due to a determination that certain non-U.S.
earnings will be permanently reinvested abroad.
The effective income tax rate for 2012 was 33.3%, up from
28.0% for 2011. The increase from 28.0% to 33.3% was
primarily due to the earnings mix and a decrease in the
impact of permanent benefits.
The rules related to the deferral of U.S. tax on certain non-
repatriated active financing income expired effective
December 31, 2013. This change is not expected to have a
material impact on our financial condition, results of
operations or cash flows for the year ending
December 2014.
46 Goldman Sachs 2013 Annual Report