Goldman Sachs 2009 Annual Report Download - page 99

Goldman Sachs 2009 Annual Report
97
Notes to Consolidated Financial Statements
balances for mortality charges, policy administration fees
and surrender charges, and are recognized in “Trading and
principal investments” in the consolidated statements of
earnings in the period that services are provided.
Interest credited to variable annuity and life insurance and
reinsurance contract account balances and changes in reserves
are recognized in “Other expenses” in the consolidated
statements of earnings.
Premiums earned for underwriting property catastrophe
reinsurance are recognized in “Trading and principal
investments” in the consolidated statements of earnings
over the coverage period, net of premiums ceded for the cost
of reinsurance. Expenses for liabilities related to property
catastrophe reinsurance claims, including estimates of losses
that have been incurred but not reported, are recognized in
“Other expenses” in the consolidated statements of earnings.
Merchant Banking Overrides. The  rm is entitled to
receive merchant banking overrides (i.e.,an increased
share of a fund’s income and gains) when the return
on the funds’ investments exceeds certain threshold
returns. Overrides are based on investment performance
over the life of each merchant banking fund, and future
investment underperformance may require amounts of
override previously distributed to the  rm to be returned
to the funds. Accordingly, overrides are recognized in the
consolidated statements of earnings only when all material
contingencies have been resolved. Overrides are included
in “Trading and principal investments” in the consolidated
statements ofearnings.
Asset Management. Management fees are recognized over
the period that the related service is provided based upon
average net asset values. In certain circumstances, the  rm is
also entitled to receive incentive fees based on a percentage
of a fund’s return or when the return on assets under
management exceeds speci ed benchmark returns or other
performance targets. Incentive fees are generally based on
investment performance over a 12-month period and are
subject to adjustment prior to the end of the measurement
period. Accordingly, incentive fees are recognized in the
consolidated statements of earnings when the measurement
period ends. Asset management fees and incentive fees are
included in “Asset management and securities services” in the
consolidated statements of earnings.
Share-Based Compensation
The cost of employee services received in exchange for a share-
based award is generally measured based on the grant-date fair
value of the award in accordance with ASC 718. Share-based
awards that do not require future service (i.e.,vested awards,
including awards granted to retirement-eligible employees)
are expensed immediately. Share-based employee awards that
require future service are amortized over the relevant service
period. Expected forfeitures are included in determining
share-based employee compensation expense.
The  rm pays cash dividend equivalents on outstanding
restricted stock units (RSUs). Dividend equivalents paid on
RSUs are generally charged to retained earnings. Dividend
equivalents paid on RSUs expected to be forfeited are included
in compensation expense. In the  rst quarter of  scal 2009,
the  rm adopted amended accounting principles related to
income tax bene ts of dividends on share-based payment
awards (ASC 718). These amended principles require the tax
bene t related to dividend equivalents paid on RSUs to be
accounted for as an increase to additional paid-in capital.
Previously, the  rm accounted for this tax bene t as a
reduction to income tax expense. See “— Recent Accounting
Developments” below for further information on these
amended principles.
In certain cases, primarily related to the death of an employee
or con icted employment (as outlined in the applicable
award agreements), the  rm may cash settle share-based
compensation awards. For awards accounted for as equity
instruments, additional paid-in capitalis adjusted to the extent
of the difference between the current value of the award and
the grant-date value of the award.
Goodwill
Goodwill is the cost of acquired companies in excess ofthe
fair value of identi able net assets at acquisition date. Goodwill
is tested at least annually for impairment. An impairment
loss is recognized if the estimated fair value of an operating
segment, which is a component one level below the  rm’s three
business segments, is less than its estimated net book value.
Such loss is calculated as the difference between the estimated
fair value of goodwill and its carrying value.