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.
Goldman Sachs is a leading global investment banking and securities firm with three principal business lines:
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.
We have decided to become a public company for three principal reasons:
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".
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.
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.
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:
(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 are located at 85 Broad Street, New York, New York
10004, telephone (212) 902-1000.
(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.
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.
(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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