PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in the common stock. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors" on pages 11-21.

The Goldman Sachs Group, Inc.

Goldman Sachs is a leading global investment banking and securities firm with three principal business lines:

  • Investment Banking;
  • Trading and Principal Investments; and
  • Asset Management and Securities Services.

Our goal is to be the advisor of choice for our clients and a leading participant in global financial markets. We provide services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments and high net worth individuals.

For our fiscal year ended November 27, 1998, our net revenues were $8.5 billion and our pre-tax earnings were $2.9 billion, and for our fiscal quarter ended February 26, 1999, our net revenues were $3.0 billion and our pre-tax earnings were $1.2 billion. As of February 26, 1999, our total assets were $230.6 billion and our partners' capital was $6.6 billion.

We have over time produced strong earnings growth and attractive returns on partners' capital through different economic and market conditions. Over the last 15 years, our pre-tax earnings have grown from $462 million in 1983 to $2.9 billion in 1998, representing a compound annual growth rate of 13%. Economic and market conditions can, however, significantly affect our performance. For example, in the second half of fiscal 1998, our performance was adversely affected by turbulence in global financial markets.

We have achieved this growth, which has been generated without the benefit of a large acquisition, by maintaining an intense commitment to our clients, focusing on our core businesses and key opportunities, and operating as an integrated franchise.

Because we believe that the needs of our clients are global and that international markets have high growth potential, we have built upon our strength in the United States to achieve leading positions in other parts of the world. Today, we have a strong global presence as evidenced by the geographic breadth of our transactions, leadership in our core products and the size of our international operations. As of February 26, 1999, we operated offices in 23 countries and 36% of our 13,000 employees were based outside the United States.

We are committed to a distinctive culture and set of core values. These values are reflected in our Business Principles, which emphasize placing our clients' interests first, integrity, commitment to excellence and innovation, and teamwork.

Goldman Sachs is managed by its principal owners. Simultaneously with the offerings, we will grant restricted stock units, stock options or interests in a defined contribution plan to substantially all of our employees. Following the offerings, our employees, including former partners, will own approximately 65% of Goldman Sachs. None of our employees are selling shares in the offerings.

Why We Are Going Public

We have decided to become a public company for three principal reasons:

  • to secure permanent capital to grow;
  • to share ownership broadly among our employees now and through future compensation; and
  • to permit us to use publicly traded securities to finance strategic acquisitions that we may elect to make in the future.

Summary Financial Data
($ in millions)

As of or for
Year Ended November

As of or for
Three Months
Ended February

1996

1997

1998

1998

1999

Net revenues:
   Investment Banking $ 2,113 $ 2,587 $ 3,368 $ 633 $ 902
   Trading and Principal Investments 2,693 2,926 2,379 1,182 1,357
   Asset Management and Securities Services 1,323
1,934 2,773 657 736
 




Total net revenues $ 6,129 $ 7,447 $ 8,520 $ 2,472 $ 2,995
 




Pre-tax earnings(1) $ 2,606 $ 3,014 $ 2,921 $ 1,022 $ 1,188
Total assets 152,046 178,401 217,380 230,624
Partners' capital 5,309 6,107 6,310 6,612
Pre-tax return on average partners' capital(1) 51% 53% 47%

Read the table above in conjunction with the footnotes to "Selected Consolidated Financial Data" as well as the following footnote:

(1) Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our pre-tax earnings and compensation and benefits expense have not reflected any payments for services rendered by our managing directors who were profit participating limited partners. Accordingly, our historical pre-tax earnings understate the expected operating costs to be incurred by us after the offerings. As a corporation, we will include payments for services rendered by our managing directors who were profit participating limited partners in compensation and benefits expense. For financial information that reflects pro forma compensation and benefits expense as if we had been a corporation, see "Pro Forma Consolidated Financial Information".


Strategy and Principal Business Lines

Our strategy is to grow our three core businesses — Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services — in markets throughout the world. Our leadership position in investment banking provides us with access to governments, financial institutions and corporate clients globally. Trading and principal investing has been an important part of our culture and earnings, and we remain committed to these businesses irrespective of their volatility. Managing wealth is one of the fastest growing segments of the financial services industry and we are positioning our asset management and securities services businesses to take advantage of that growth.

Investment Banking

Investment Banking represented 39% of fiscal 1998 net revenues and 35% of fiscal 1997 net revenues. We are a market leader in both the financial advisory and underwriting businesses, serving over 3,000 clients worldwide. For the period January 1, 1994 to December 31, 1998, we had the industry-leading market share of 25.3% in worldwide mergers and acquisitions advisory services, having advised on over $1.7 trillion of transactions. Over the same period, we also achieved number one market shares of 15.2% in underwriting worldwide initial public offerings and 14.4% in underwriting worldwide common stock issues. The source for this market share information is Securities Data Company.

Trading and Principal Investments

Trading and Principal Investments represented 28% of fiscal 1998 net revenues and 39% of fiscal 1997 net revenues. We make markets in equity and fixed income products, currencies and commodities; enter into swaps and other derivative transactions; engage in proprietary trading and arbitrage; and make principal investments. In trading, we focus on building lasting relationships with our most active clients while maintaining leadership positions in our key markets. We believe our research, market-making and proprietary activities enhance our understanding of markets and ability to serve our clients.

Asset Management and Securities Services

Asset Management and Securities Services represented 33% of fiscal 1998 net revenues and 26% of fiscal 1997 net revenues. We provide global investment management and advisory services; earn commissions on agency transactions; manage merchant banking funds; and provide prime brokerage, securities lending and financing services. Our asset management business has grown rapidly, with assets under supervision increasing from $92.7 billion as of November 25, 1994 to $369.7 billion as of February 26, 1999, representing a compound annual growth rate of 38%. As of February 26, 1999, we had $206.4 billion of assets under management. We manage merchant banking funds that had $15.5 billion of capital commitments as of the end of fiscal 1998.

Assets under supervision are comprised of assets under management and other client assets. Assets under management typically generate fees based on a percentage of their value. Other client assets are comprised of assets in brokerage accounts of primarily high net worth individuals, on which we earn commissions.

We pursue our strategy to grow our three core businesses through an emphasis on:

Expanding High Value-Added Businesses

To achieve strong growth and high returns, we seek to build leadership positions in high value-added services such as mergers and acquisitions, executing large and complex transactions for institutional investors and asset management.

Increasing the Stability of Our Earnings

While we plan to continue to grow each of our core businesses, our goal is to gradually increase the stability of our earnings by emphasizing growth in Investment Banking and Asset Management and Securities Services.

Pursuing International Opportunities

We believe that our global reach will allow us to take advantage of international growth opportunities. For example, we expect increased business activity as a result of the establishment of the European Economic and Monetary Union, the shift we anticipate toward privatization of pension systems and the changing demographics around the world.

Leveraging the Franchise

We believe our various businesses are generally stronger and more successful because they are part of the Goldman Sachs franchise. Our culture of teamwork fosters cooperation among our businesses, which allows us to provide our clients with a full range of products and services on a coordinated basis.

Competitive Strengths

Strong Client Relationships

We focus on building long-term client relationships. For example, in fiscal 1998, over 75% of our Investment Banking revenues represented business from existing clients.

Distinctive People and Culture

Our most important asset is our people. We seek to reinforce our employees' commitment to our culture and values through recruiting, training, a comprehensive review system and a compensation philosophy that rewards teamwork.

Global Reach

We have achieved leading positions in major international markets by capitalizing on our product knowledge and global research, as well as by building a local presence where appropriate. As a result, we are one of the few truly global investment banking and securities firms with the ability to execute large and complex cross-border transactions.

Industry and Economic Outlook

We believe that significant growth and profit opportunities exist in the financial services industry over the long term. These opportunities derive from long-term trends, including financial market deregulation, the globalization of the world economy, the increasing focus of companies on shareholder value, consolidations in various industries, growth in investable funds and accelerating technology and financial product innovation. We believe that over the last 15 years these trends, coupled with generally declining interest rates and favorable market conditions, have contributed to a substantially higher rate of growth in activity in the financial services industry than the growth in overall economic activity. While the future economic environment may not be as favorable as that experienced in the last 15 years and there may be periods of adverse economic and market conditions, we believe that these trends should continue to affect the financial services industry positively over the long term.

The following table sets forth selected key industry indicators:

Key Industry Indicators
($ in billions, except gross domestic product)
(volume in millions of shares)

As of or for
Year Ended December 31,

CAGR(6)
1983

1988

1993

1998

'83-'98

Worldwide gross domestic product (in trillions)(1) $ 10 $ 18 $ 24 $ 29(7)
8%(7)
Worldwide mergers and acquisitions(2) 96 527 460 2,522 24      
Worldwide equity issued(2) 50 51 172 269 12      
Worldwide debt issued(2) 146 631 1,546 2,932 22      
Worldwide equity market capitalization(3) 3,384 9,728 14,016 27,459 15      
NYSE average daily volume 85 162 265 674 15      
Worldwide pension assets(4) $1,900 $3,752 $ 6,560 $10,975 12      
U.S. mutual fund assets(5) 293 810 2,075 5,530 22      

(1) Source: The Economist Intelligence Unit, January 1999.

(2) Source: Securities Data Company.

(3) Source: International Finance Corporation.

(4) Source: InterSec Research Corp.

(5) Source: Investment Company Institute.

(6) Compound annual growth rate.

(7) Data as of December 31, 1997; compound annual growth rate 1983-1997.


Our Headquarters

Our headquarters are located at 85 Broad Street, New York, New York 10004, telephone (212) 902-1000.

The Offerings
Common stock:
   Offered by Goldman Sachs(1) 51,000,000 shares
   Offered by Sumitomo Bank Capital Markets, Inc 9,000,000 shares
   Offered by Kamehameha Activities Association(2) 9,000,000

shares
      Total 69,000,000

shares
   U.S. offering 55,200,000 shares
   International offering 9,200,000 shares
   Asia/Pacific offering 4,600,000

shares
      Total 69,000,000

shares
Shares outstanding as adjusted for the offerings(3):
   Shares issued in the incorporation transactions(4) 381,130,459
   Shares contributed to the defined contribution plan 12,555,866

   Shares outstanding prior to the offerings(5) 393,686,325
   Shares offered by Goldman Sachs 51,000,000

   Shares outstanding as adjusted for the offerings(6) 444,686,325


(1) Includes 9,000,000 shares of common stock purchased by the underwriters pursuant to the exercise, in full, of options to purchase additional shares granted by The Goldman Sachs Group, Inc. The information in this prospectus gives effect to this exercise.

(2) Kamehameha Activities Association is the owner of the shares to be offered. The Estate of Bernice Pauahi Bishop, an affiliate of Kamehameha Activities Association, is joining in and consenting to the sale.

(3) Excludes 30,025,946 shares of common stock underlying the restricted stock units awarded to employees based on a formula, 33,292,869 shares of common stock underlying the restricted stock units awarded to employees on a discretionary basis and 40,127,592 shares of common stock underlying the stock options awarded to employees on a discretionary basis.

(4) Includes 7,440,362 shares of nonvoting common stock issued to Sumitomo Bank Capital Markets, Inc. that are convertible into shares of common stock on a one-for-one basis.

(5) Shares outstanding, including the shares of common stock underlying the restricted stock units awarded to employees based on a formula, are 423,712,271 prior to the offerings.

(6) For the purpose of calculating basic earnings per share and book value per share, shares of common stock and nonvoting common stock outstanding include 30,025,946 shares of common stock underlying the restricted stock units awarded to employees based on a formula since future service is not required as a condition to the delivery of the underlying shares of common stock. The shares of common stock underlying these restricted stock units generally will be issuable and deliverable in equal installments on or about the first, second and third anniversaries of the consummation of the offerings, assuming the relevant conditions are satisfied.


Voting Rights
The holders of common stock will have one vote per share.
Dividend Policy
The holders of common stock, as well as the holders of nonvoting common stock, will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors. Our board of directors currently intends to declare quarterly dividends on all outstanding shares and expects that the first quarterly dividend will be $0.12 per share, and that it will be declared during the third quarter of fiscal 1999. For a discussion of the factors that affect the determination by our board of directors to declare dividends, as well as other matters concerning our dividend policy, see "Dividend Policy" and "Business — Regulation".
Use of Proceeds
We will receive net proceeds from our sales of common stock in the offerings of $2.6 billion. We will use the net proceeds to provide additional funds for our operations and for other general corporate purposes, although we have not yet determined a specific use. Pending specific application of the net proceeds, we expect to use them to purchase short-term marketable securities.
We will not receive any of the proceeds from sales of common stock by Sumitomo Bank Capital Markets, Inc. or Kamehameha Activities Association in the offerings.
Risk Factors
For a discussion of factors you should consider before buying shares of common stock, see "Risk Factors".
New York Stock Exchange Symbol GS

Summary Consolidated Financial Data

The summary historical consolidated income statement and balance sheet data set forth below have been derived from our consolidated financial statements and their notes. Our consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as of November 28, 1997 and November 27, 1998 and for the years ended November 29, 1996, November 28, 1997 and November 27, 1998. Our condensed consolidated financial statements have been reviewed by PricewaterhouseCoopers LLP as of February 26, 1999 and for the three months ended February 26, 1999. These financial statements are included elsewhere in this prospectus, together with the reports thereon of PricewaterhouseCoopers LLP.

The summary historical consolidated income statement and balance sheet data set forth below as of November 25, 1994, November 24, 1995 and November 29, 1996 and for the years ended November 25, 1994 and November 24, 1995 have been derived from our audited consolidated financial statements that are not included in this prospectus.

The summary historical consolidated income statement and balance sheet data set forth below as of and for the three months ended February 26, 1999 have been derived from our unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim results set forth below for the three months ended February 26, 1999 may not be indicative of results for the full year.

The pro forma data set forth below for the year ended November 27, 1998 and as of and for the three months ended February 26, 1999 have been derived from the pro forma data set forth in "Pro Forma Consolidated Financial Information" included elsewhere in this prospectus. The pro forma consolidated income statement information set forth in "Pro Forma Consolidated Financial Information" for the year ended November 27, 1998 has been examined by PricewaterhouseCoopers LLP. The pro forma consolidated financial information as of and for the three months ended February 26, 1999 has been reviewed by PricewaterhouseCoopers LLP.

In addition to the offerings of common stock, the pro forma adjustments reflect the transactions described under "Certain Relationships and Related Transactions", compensation and benefits related to services rendered by our managing directors who were profit participating limited partners, the provision for corporate income taxes and the other transactions described under "Pro Forma Consolidated Financial Information".

The summary consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Pro Forma Consolidated Financial Information" and the consolidated financial statements and their notes.

Summary Consolidated Financial Data

As of or for Year Ended November

As of or for
Three Months
Ended
February 1999

1994

1995

1996

1997

1998

  (unaudited)
(in millions, except per share amounts)
Income Statement Data:
   Net revenues $ 3,537 $ 4,483 $ 6,129 $ 7,447 $ 8,520 $ 2,995
   Pre-tax earnings(1) 508 1,368 2,606 3,014 2,921 1,188
Balance Sheet Data:
   Total assets(2) $95,296 $100,066 $152,046 $178,401 $217,380 $ 230,624
   Long-term borrowings 14,418 13,358 12,376 15,667 19,906 20,405
   Partners' capital 4,771 4,905 5,309 6,107 6,310 6,612
Pro Forma Data(3):
   Pro forma net earnings $ 1,256 $ 516
   Pro forma diluted earnings per share
      as adjusted for the offerings(4)
2.62 1.06
   Pro forma stockholders' equity as
      adjusted for the offerings
$ 7,627
   Pro forma book value per share as
      adjusted for the offerings
16.07
Selected Data and Ratios (unaudited):
   Pre-tax return on average
       partners' capital(1)
10% 28% 51% 53% 47%
   Ratio of compensation and benefits
       to net revenues(1)
51 45 40 42 45 43%
   Assets under supervision:
      Assets under management $43,671 $ 52,358 $ 94,599 $135,929 $194,821 $ 206,380
      Other client assets 49,061

57,716

76,892

102,033

142,018

163,315

   Total assets under supervision $92,732

$110,074

$171,491

$237,962

$336,839

$ 369,695


(1) Since we have historically operated in partnership form, payments to our profit participating limited partners have been accounted for as distributions of partners' capital rather than as compensation expense. As a result, our pre-tax earnings and compensation and benefits expense have not reflected any payments for services rendered by our managing directors who were profit participating limited partners. Accordingly, our historical pre-tax earnings understate the expected operating costs to be incurred by us after the offerings. As a corporation, we will include payments for services rendered by our managing directors who were profit participating limited partners in compensation and benefits expense. For financial information that reflects pro forma compensation and benefits expense as if we had been a corporation, see "Pro Forma Consolidated Financial Information".

(2) Total assets and liabilities were increased by $11.64 billion as of November 27, 1998 and $8.99 billion as of February 26, 1999 due to the adoption of the provisions of Statement of Financial Accounting Standards No. 125 that were deferred by Statement of Financial Accounting Standards No. 127. For a discussion of Statement of Financial Accounting Standards Nos. 125 and 127, see "Accounting Developments" in Note 2 to the audited consolidated financial statements.

(3) Reflects such adjustments as are necessary, in the opinion of management, for a fair presentation of the results of operations and stockholders' equity of Goldman Sachs on a pro forma basis. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments.

(4) Calculated based on weighted-average diluted shares outstanding after giving effect to the pro forma adjustments and as adjusted to reflect the issuance of 51,000,000 shares of common stock offered by Goldman Sachs at the initial public offering price set forth on the cover page of this prospectus. See "Pro Forma Consolidated Financial Information" for more detailed information concerning these adjustments and the calculation of pro forma earnings per share.
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