Goldman Sachs 2002 Annual Report Download - page 39

Operating expenses increased 8%, primarily due to the
transfer of the Nasdaq fee-based business to Com-
missions, increased compensation and benefits expenses,
higher occupancy expenses, brokerage, clearing and
exchange fees, and depreciation expenses, partially offset
by the elimination of goodwill amortization. For a fur-
ther discussion of operating expenses, see “—Operating
Expenses” below. Pre-tax earnings in Asset Management
and Securities Services were $2.11 billion in 2002 com-
pared with $2.13 billion in 2001.
V E R S U S 2000
Net revenues in Asset Management and Securities Services
were $5.63 billion, an increase of 23% compared with
2000. All major components of the business contributed
to the net revenue growth in 2001. Asset Management net
revenues of $1.47 billion increased 10% compared with
2000, primarily reflecting an increase of 11% in average
assets under management. Net asset inflows of $67 bil-
lion, principally in money market assets, were partially
offset by declines in equity asset values due to market
depreciation. Securities Services net revenues of $1.13 bil-
lion increased 21% over 2000, primarily due to increased
spreads in our fixed income matched book and the con-
tribution from SLK, partially offset by lower net revenues
in securities lending and margin lending. Commissions
increased 31% compared with 2000 to $3.02 billion,
principally reflecting the contribution from SLK’s clearing
and execution business.
Operating expenses increased 16% , primarily due to
increased compensation and benefits expenses, higher
communications and technology expenses, higher amor-
tization of goodwill and identifiable intangible assets, and
increased brokerage, clearing and exchange fees and
occupancy and depreciation expenses. These increases
were principally due to the inclusion of SLK and the
growth in employment levels in 2000, partially offset by
lower discretionary compensation and the effect of
expense reduction initiatives implemented in 2001. Pre-
tax earnings in Asset Management and Securities Services
were $2.13 billion in 2001 compared with $1.58 billion
in 2000.
Managem ent’s D iscussion and A nalysis
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 37
Operating Expenses
The following table sets forth our operating expenses and number of employees:
OPERATING EXPENSES AND EMPLOYEES
YEAR ENDED NOVEMBER
($ IN MILLIONS) 2002 2001 2000
Compensation and benefits $ 6,744 $ 7,700 $ 7,773
Nonrecurring acquisition awards —— 290
Amortization of employee initial public offering and
acquisition awards 293 464 428
Non-compensation expenses 3,696 3,951 3,079
Total operating expenses $10,733 $12,115 $11,570
Employees at year end(1) 19,739 22,677 22,627
(1) Excludes employees of Goldman Sachs’ property management subsidiaries. Substantially all of the costs of these employees are reimbursed to
Goldman Sachs by the real estate investment funds to which these companies provide property management services.
During 2002, we continued to focus on cost containment
in light of the difficult business environment. We reduced
employment levels and maintained our focus on the
expense reduction initiatives first implemented in 2001.
These initiatives were largely focused on reducing
expenses in areas such as travel and entertainment, adver-
tising, consulting, telecommunications and occupancy-
related services. In addition, we canceled, deferred or
scaled back some of our non-critical capital reinvestment
plans in order to limit growth in our depreciation and
amortization expense. Given the highly discretionary
nature of the expenses impacted by our cost reduction
initiatives, the effect of these initiatives on future operat-
ing results will be largely dependent upon the prevailing
business environment.
V E R S U S 2001
Operating expenses were $10.73 billion for 2002, 11%
below 2001. Compensation and benefits expenses of
$6.74 billion decreased 12% compared with the prior
year, primarily due to lower discretionary compensation,
reduced employment levels, and lower consultants and
temporary staff expense. The ratio of compensation and
benefits to net revenues for 2002 was 48% compared
with 49% for 2001. Employment levels decreased 13%
from November 2001. Employee equity-based compen-
sation granted for 2002 included roughly equal amounts
of restricted stock units and stock options. See “—Recent
Accounting Developments” below as well as Note 2 and
Note 12 to the consolidated financial statements for