Goldman Sachs 2009 Annual Report Download - page 54

$600million related to consolidated entities held for
investment purposes during 2009. The real estate impairment
charges, which were measured based on discounted cash
 ow analysis, are included in our Trading and Principal
Investments segment and re ected weakness in the commercial
real estate markets, particularly in Asia. These increases were
partially offset by the impact of lower brokerage, clearing,
exchange and distribution fees, principally re ecting lower
transaction volumes in Equities, and the impact of reduced
staff levels and expense reduction initiatives during 2009.
2008 versus 2007. Operating expenses of $19.89billion for
2008 decreased 30% compared with 2007. Compensation
and bene ts expenses (including salaries, discretionary
compensation, amortization of equity awards and other
items such as payroll taxes, severance costs and bene ts) of
$10.93billion decreased 46% compared with 2007, re ecting
lower levels of discretionary compensation due to lower net
revenues. For 2008, our ratio of compensation and bene ts
(excluding severance costs of approximately $275million in
the fourth quarter of 2008) to net revenues was 48.0%. Our
ratio of compensation and bene ts to net revenues was 43.9%
for 2007. Total staff decreased 3% during 2008. Total staff
including consolidated entities held for investment purposes
decreased 2% during 2008.
Non-compensation expenses of $8.95billion for 2008
increased 9% compared with 2007. The increase compared
with 2007 was principally attributable to higher depreciation
and amortization expenses, primarily re ecting the impact
of real estate impairment charges related to consolidated
entities held for investment purposes during 2008, and higher
brokerage, clearing, exchange and distribution fees, primarily
due to increased activity levels in Equities and FICC.
One Month Ended December 2008. Operating expenses were
$1.44billion for the month of December 2008. Compensation
and bene ts expenses (including salaries, amortization of equity
awards and other items such as payroll taxes, severance costs
and bene ts) were $744million. No discretionary compensation
was accrued for the month of December. Total staff decreased
3% compared with the end of  scal year 2008. Total staff
including consolidated entities held for investment purposes
decreased 3% compared with the end of  scal year 2008.
Non-compensation expenses of $697million for the month
of December 2008 were generally lower than average
monthly levels in 2008, primarily re ecting lower levels of
business activity. Total non-compensation expenses included
$68million of net provisions for a number of litigation and
regulatory proceedings.
PROVISION FOR TAXES
During 2009, the  rm incurred $6.44billion of corporate
taxes, resulting in an effective income tax rate of 32.5%. The
effective income tax rate for 2008 was approximately 1% and
the effective income tax rate for 2007 was 34.1%. The increase
in the effective income tax rate for 2009 compared with 2008
was primarily due to changes in the geographic earnings mix
and a decrease inpermanent bene ts as apercentage of higher
earnings. The effective tax rate for 2009 represents a return
to a geographic earnings mix that is more in line with our
historic earnings mix. The decrease in the effective income
tax rate for 2008 compared with 2007 was primarily due to
an increase inpermanent bene ts as apercentage of lower
earnings and changes in geographic earnings mix. During
2008, we incurred losses in various U.S. and non-U.S. entities
whose income/(losses) are subject to tax in the U.S. We also
had pro table operations in certain non-U.S. entities that are
taxed at their applicable local tax rates, which are generally
lower than the U.S. rate. The effective income tax rate for the
month of December 2008 was 38.0%.
Effective January 1, 2010, the rules related to the deferral of
U.S. tax on certain non-repatriated active  nancing income
expired. We are currently assessing the impact but do not
expect this change to be material to our  nancial condition,
results of operations or cash  ows for 2010.
Our effective income tax rate can vary fromperiod toperiod
depending on, among other factors, the geographic and
business mix of our earnings, the level of our pre-tax earnings,
the level of our tax credits and the effect of tax audits.
Certain of these and other factors, including our history of
pre-tax earnings, are taken into account in assessing our
ability to realize our net deferred tax assets. See Note16 to
the consolidated  nancial statements for further information
regarding our provision for taxes.
Goldman Sachs 2009 Annual Report
52
Management’s Discussion and Analysis