Goldman Sachs 2004 Annual Report Download - page 104

notes฀to฀consolidated฀financial฀statements
102฀฀฀GOLDMAN฀ S A C H S ฀ 2 0 0 4฀ANNU A L ฀ R E P O RT
102฀฀฀GOLDMAN฀ S A C H S ฀ 2004฀ A N N U A L ฀ REPORT
The firm permanently reinvests eligible earnings of certain for-
eign subsidiaries and, accordingly, does not accrue any U.S.
income taxes that would arise if such earnings were repatriated.
As of November 2004, this policy resulted in an unrecognized
net deferred tax liability of $135 million attributable to rein-
vested earnings of $1.65 billion.
Additionally, during 2004, the valuation allowance was
increased by $3 million, primarily due to an increase in certain
state and local tax credits. Acquired federal net operating loss
carryforwards of $88 million as of November 2004 and
$49 million as of November 2003 are subject to annual limita-
tions on utilization and will begin to expire in 2019. Acquired
state and local net operating loss carryforwards of $436 million
as of November 2004 are subject to annual limitations and will
begin to expire in 2005. Acquired alternative minimum tax
credit carryforwards of $32 million as of November 2004 are
subject to annual limitations on utilization, but can be carried
forward indefinitely.
A reconciliation of the U.S. federal statutory income tax rate to the firm’s effective income tax rate is set forth below:
฀ ฀ YEAR฀ENDED฀NOVEMBER
฀ ฀ 2004฀ 2003฀ 2002
U.S. federal statutory income tax rate 35.0% 35.0%฀ 35.0%
Increase related to state and local taxes,
net of U.S. income tax effects 1.4 2.1฀ 2.7
Tax credits (3.6) (3.1)฀ (2.0)
Foreign operations (1.2)฀ (1.2)฀(0.9)
Tax-exempt income, including dividends฀ (0.7) (1.0)฀ (1.3)
Other 0.9 0.6฀ 1.5
Effective income tax rate 31.8% 32.4%฀ 35.0%
Tax benefits of approximately $330 million in November 2004,
$103 million in November 2003 and $119 million in
November 2002, related to the delivery of restricted stock
units and the exercise of options, were credited directly to
“Additional paid-in capital” in the consolidated statements of
financial condition and changes in shareholders’ equity.
GS&Co. and GSEC are registered U.S. broker-dealers and
futures commission merchants subject to Rule 15c3-1 of the
Securities and Exchange Commission (SEC) and Rule 1.17 of
the Commodity Futures Trading Commission, which specify
uniform minimum net capital requirements, as defined, for their
registrants. They have elected to compute their net capital in
accordance with the “Alternative Net Capital Requirement” as
permitted by Rule 15c3-1. As of November 2004 and
November 2003, GS&Co. had regulatory net capital, as
defined, of $5.92 billion and $3.66 billion, respectively, which
exceeded the amounts required by $4.83 billion and
$2.82 billion, respectively. As of November 2004 and
November 2003, GSEC had regulatory net capital, as defined,
of $1.05 billion and $1.12 billion, respectively, which
exceeded the amounts required by $1.00 billion and
$1.08 billion, respectively.
(1)฀The฀firm฀renamed฀Spear,฀Leeds฀&฀Kellogg,฀L.P.,฀Goldman฀Sachs฀Execution฀&฀
฀ Clearing,฀L.P.,฀effective฀January฀14,฀2005.
NOTE฀14
Regulated Subsidiaries
The firm’s principal U.S. and international regulated subsidiaries
include Goldman, Sachs & Co. (GS&Co.) and Goldman Sachs
Execution & Clearing, L.P.(1) (GSEC) in New York, Goldman
Sachs International (GSI) in London and Goldman Sachs
(Japan) Ltd. (GSJL) in Tokyo.
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
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