Goldman Sachs 2009 Annual Report Download - page 49

A prolongedperiod of weakness in global equity markets
could adversely impact our businesses and impair the value of
our identi able intangible assets. In addition, certain events
could indicate a potential impairment of our identi able
intangible assets, including (i)changes in trading volumes or
market structure that could adversely affect our exchange-
based market-making businesses (see discussion below), (ii)an
adverse action or assessment by a regulator or (iii)adverse
actual experience on the contracts in our variable annuity and
life insurance business.
In October 2008, the SEC approved the NYSE’s proposal
to create a new market model and rede ne the role of NYSE
DMMs. In June 2009, the NYSE successfully completed
the rollout of new systems architecture that further
reduces order completion time, which enables the NYSE
to offer competitive execution speeds, while continuing
to incorporate the price discovery provided by DMMs.
Following solid performance during the  rst half of 2009,
in the latter half of 2009, our DMM business was adversely
impacted primarily by the lack of timely market data in
the internal order/execution system of the NYSE (which, at
times, results in DMMs making markets without real-time
price information) and to a lesser extent, by lower trading
volumes and lower volatility. In 2010, the NYSE is expected
to address this market data issue. There can be no assurance
that changes in these factors will result in suf cient cash
 ows to avoid impairment of our NYSE DMM rights in the
future. In accordance with the requirements of ASC360,
we will be closely monitoring the performance of our
DMM business to determine whether an impairment loss is
required in the future. As of December2009, the carrying
value of our NYSE DMM rights was $420million. To the
extent that there were to be an impairment in the future, it
would result in a signi cant writedown in the carrying value
of these DMM rights.
Use of Estimates
The use of generally accepted accounting principles requires
management to make certain estimates and assumptions.
In addition to the estimates we make in connection with
fair value measurements and the accounting for goodwill
and identi able intangible assets, the use of estimates and
assumptions is also important in determining provisions for
potential losses that may arise from litigation and regulatory
proceedings and tax audits.
We estimate and provide for potential losses that may arise
out of litigation and regulatory proceedings to the extent that
such losses are probable and can be reasonably estimated.
In accounting for income taxes, we estimate and provide for
potential liabilities that may arise out of tax audits to the
extent that uncertain tax positions fail to meet the recognition
standard under ASC 740. See Note2 to the consolidated
 nancial statements for further information regarding
accounting for income taxes.
Signi cant judgment is required in making these estimates
and our  nal liabilities may ultimately be materially different.
Our total estimated liability in respect of litigation and
regulatory proceedings is determined on a case-by-case
basis and represents an estimate of probable losses after
considering, among other factors, the progress of each case
or proceeding, our experience and the experience of others in
similar cases or proceedings, and the opinions and views of
legal counsel. Given the inherent dif culty of predicting the
outcome of our litigation and regulatory matters, particularly
in cases or proceedings in which substantial or indeterminate
damages or  nes are sought, we cannot estimate losses or
ranges of losses for cases or proceedings where there is only
a reasonable possibility that a loss may be incurred. See
“— Legal Proceedings” in PartI, Item 3 of our Annual Report
on Form10-K for information on our judicial, regulatory and
arbitration proceedings.
Results of Operations
The composition of our net revenues has varied over time
as  nancial markets and the scope of our operations have
changed. The composition of net revenues can also vary
over the shorter term due to  uctuations in U.S. and global
economic and market conditions. See “— Certain Risk Factors
That May Affect Our Businesses” above and “Risk Factors”
in PartI, Item 1A of our Annual Report on Form10-K for
a further discussion of the impact of economic and market
conditions on our results of operations.
Goldman Sachs 2009 Annual Report
47
Management’s Discussion and Analysis