SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 19, 2000
THE GOLDMAN SACHS GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware No. 001-14965 No. 13-4019460
(State or Other Jurisdiction of (Commission File (IRS Employer
Incorporation) Number) Identification No.)
85 Broad Street
New York, New York 10004
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 902-1000
N/A
________________________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
On September 19, 2000, The Goldman Sachs Group, Inc. reported net
earnings of $824 million, or $1.62 per diluted share, for its fiscal third
quarter ended August 25, 2000.
Business Segments
Global Capital Markets
Net revenues in Global Capital Markets, which includes Investment
Banking and Trading and Principal Investments, were $3.44 billion, 32% above the
third quarter of 1999 and 15% higher than the second quarter of 2000.
Investment Banking. Investment Banking generated net revenues of $1.32
billion, 15% higher than last year's third quarter and 17% lower than the record
second quarter of 2000. Revenue growth was strong in all major regions, compared
to the same 1999 period. The firm's investment banking transaction backlog as of
August 25, 2000 remained strong.
Financial Advisory net revenues increased 9% over the same 1999 period
as the firm capitalized on increased mergers and acquisitions activity in the
communications, media and entertainment and high technology sectors.
Net revenues in Underwriting increased 21% compared to the same 1999
period as the firm benefited from increased new issue activity in global equity
markets. Net revenue growth was largely driven by strong performances in the
communications, media and entertainment and high technology sectors.
Trading and Principal Investments. Net revenues in Trading and
Principal Investments were $2.12 billion for the quarter, 46% higher than the
third quarter of 1999 and 51% higher than the second quarter of 2000, which was
adversely affected by negative net revenues in Principal Investments.
Fixed Income, Currency and Commodities net revenues increased 32%
compared to the third quarter of 1999, primarily due to increased customer flow
in fixed income derivatives and improved performances in the Japanese and
European government bond businesses, partially offset by lower net revenues from
decreased customer activity in the firm's commodities and high-yield businesses.
Net revenues in Equities rose 67% over the same 1999 period, primarily
resulting from strength in equity derivatives and higher transaction volumes in
the firm's U.S. and European shares businesses.
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Principal Investments net revenues increased 46% over the same 1999
period. Net revenues of $480 million in the third quarter included significant
gains, balanced between realized and unrealized, on certain of the firm's
merchant banking investments in the high technology and telecommunications
sectors.
Asset Management and Securities Services
Asset Management and Securities Services net revenues were $1.09
billion, 35% above the same prior year period, and 6% lower than the prior
quarter.
Asset Management net revenues increased 48% over last year's third
quarter, primarily reflecting a 37% increase in average assets under management
as well as favorable changes in the composition of assets managed. Strong net
inflows and market appreciation led to the growth in assets under management
during the quarter.
Securities Services net revenues were 20% higher than the same 1999
period, primarily due to increased customer balances in securities lending and
margin lending, partially offset by reduced spreads in the fixed income matched
book.
Commissions increased 34% compared to the same period last year,
primarily due to higher transaction volumes in global equity markets. Revenues
from the increased share of income and gains from the firm's merchant banking
funds also contributed to the increase in Commissions.
Expenses
Operating expenses were $3.15 billion, up 36% from the same period in
1999, primarily reflecting increased compensation and benefits commensurate with
higher net revenue levels. The ratio of compensation and benefits to net
revenues was 50% for the third quarter of 2000. Non-compensation-related
expenses rose 56% compared to the same period in 1999, primarily due to costs
associated with global expansion, higher employment levels and increased
business activity. Technology expenditures also contributed to the increase in
non-compensation-related expenses. The firm's effective tax rate for the third
quarter was 40%.
Capital
As of August 25, 2000, total capital was $41.22 billion, consisting of
$12.69 billion in stockholders' equity and $28.53 billion in long-term debt.
Book value per share was $26.43, based on common shares outstanding, including
restricted stock units granted to employees with no future service requirements,
of 480,263,530 at period end. The firm repurchased 102,145 shares of its common
stock during the quarter.
Dividend
The Board of Directors of The Goldman Sachs Group, Inc. declared a
dividend of $0.12 per share to be paid on November 20, 2000, to common
shareholders of record on October 23, 2000.
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Spear, Leeds & Kellogg
On September 11, 2000, the firm announced an agreement to combine with
Spear, Leeds & Kellogg, L.P. (SLK), a leader in securities clearing and
execution, floor-based market making and off-floor market making. The
transaction is valued at $6.5 billion, comprised of $4.4 billion of Goldman
Sachs stock (34 million shares) and cash.
As part of this transaction, the firm is establishing a $900 million
retention pool in Goldman Sachs common stock for all SLK employees, which will
have varying vesting and delivery provisions. The transaction is expected to
close before year-end, and is subject to customary regulatory and other
approvals.
Cautionary Note Regarding Forward-Looking Statements
Statements in this Current Report on Form 8-K may constitute
"forward-looking statements". These statements are not historical facts but
instead represent only the firm's belief regarding future events, many of which,
by their nature, are inherently uncertain and outside of the firm's control. It
is possible that the firm's actual results and financial position may differ,
possibly materially, from the anticipated results and financial condition
indicated in these forward-looking statements. For a discussion of some of the
risks and factors that would affect the firm's future results, see our
prospectus, dated August 1, 2000 (as filed with the SEC on August 2), under the
caption "Risk Factors".
Forward-looking statements regarding the expected date of completion of
the transaction with SLK are subject to the risk that the closing conditions
will not be satisfied, including the risk that the necessary regulatory and
other approvals will not be obtained.
Statements about the firm's investment banking transaction backlog also
may constitute forward-looking statements. Such statements are subject to the
risk that the terms of these transactions may be modified or that they may not
be completed at all; therefore, the net revenues that we expect to earn from
these transactions may differ, possibly materially, from those currently
expected. Important factors that could result in a modification of the terms of
a transaction or a transaction not being completed include, in the case of
underwriting transactions, a decline in general economic conditions, volatility
in the securities markets generally or an adverse development with respect to
the issuer of the securities and, in the case of financial advisory
transactions, a decline in the securities markets, an adverse development with
respect to a party to the transaction or a failure to obtain a required
regulatory approval. Other important factors that could adversely affect our
investment banking transactions are contained in our prospectus, dated August 1,
2000, under the caption "Risk Factors".
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The Goldman Sachs Group, Inc. and Subsidiaries
Business Segment Net Revenues
(unaudited)
($ in millions)
Three Months Ended Change From Nine Months Ended Change From
------------------------------------- --------------------- ------------------------ -----------
August 25, May 26, August 27, May 26, August 27, August 25, August 27, August 27,
2000 2000 1999 2000 1999 2000 1999 1999
------------ ----------- ----------- ----------- -------- ----------- ----------- -----------
Global Capital Markets
Financial Advisory $ 673 $ 712 $ 616 (5) 9 % $ 1,968 $ 1,648 19 %
Underwriting 648 882 534 (27) 21 2,183 1,406 55
------------ ----------- ----------- ----------- -----------
Investment Banking $ 1,321 $ 1,594 $ 1,150 (17) 15 $ 4,151 $ 3,054 36
------------ ----------- ----------- ----------- -----------
FICC $ 872 $ 634 $ 661 38 32 $ 2,522 $ 2,448 3
Equities 763 1,086 458 (30) 67 2,707 1,531 77
Principal Investments 480 (321) 328 N.M. 46 373 543 (31)
------------ ----------- ----------- ----------- -----------
Trading and Principal
Investments $ 2,115 $ 1,399 $ 1,447 51 46 $ 5,602 $ 4,522 24
------------ ----------- ----------- ----------- -----------
Total Global Capital
Markets $ 3,436 $ 2,993 $ 2,597 15 32 $ 9,753 $ 7,576 29
------------ ----------- ----------- ----------- -----------
Asset Management and Securities Services
Asset Management $ 327 $ 354 $ 221 (8) 48 % $ 987 $ 637 55 %
Securities Services 234 252 195 (7) 20 724 576 26
Commissions 530 556 395 (5) 34 1,711 1,083 58
------------ ----------- ----------- ----------- -----------
Total Asset Management
and Securities Services $ 1,091 $ 1,162 $ 811 (6) 35 $ 3,422 $ 2,296 49
------------ ----------- ----------- ----------- -----------
Total net revenues $ 4,527 $ 4,155 $ 3,408 9 33 $ 13,175 $ 9,872 33
============ =========== =========== =========== ===========
* * *
Assets Under Supervision
(unaudited)
($ in millions)
As of Change From As of
------------------------------------- --------------------- ------------------------
August 31, May 31, August 31, May 31, August 31, Nov 30, Nov 30,
2000 2000 1999 2000 1999 1999 1998
------------ ----------- ----------- ----------- -------- ----------- -----------
Assets under management $307,851 $ 276,610 $220,522 11 40 % $258,045 $ 194,821
Other client assets 273,090 235,103 192,034 16 42 227,424 142,018
------------ ----------- ----------- ----------- -----------
Total assets under
supervision (1) $580,941 $ 511,713 $412,556 14 41 $485,469 $ 336,839
============ =========== =========== =========== ===========
(1) Substantially all assets under supervision are valued as of calendar month end.
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The Goldman Sachs Group, Inc. and Subsidiaries
Consolidated Statements of Earnings
(unaudited)
Three Months Ended Nine Months Ended
--------------------------------------------- ------------------------------
August 25, May 26, August 27, August 25, August 27,
2000 2000 1999 2000 1999
-------------- --------------- -------------- -------------- --------------
($ in millions, except per share amounts)
Revenues
Global capital markets
Investment banking $ 1,316 $ 1,585 $ 1,150 $ 4,131 $ 3,054
Trading and principal investments 2,112 1,335 1,423 5,543 4,540
Asset management and securities services 872 942 629 2,758 1,788
Interest income 4,551 4,334 3,238 12,579 9,269
-------------- --------------- -------------- -------------- --------------
Total revenues 8,851 8,196 6,440 25,011 18,651
Interest expense 4,324 4,041 3,032 11,836 8,779
-------------- --------------- -------------- -------------- --------------
Revenues, net of interest expense 4,527 4,155 3,408 13,175 9,872
Operating expenses
Compensation and benefits, excluding employee
initial public offering awards 2,263 2,077 1,704 6,587 4,932
Nonrecurring employee initial public offering awards - - - - 2,257
Amortization of employee initial public offering awards 102 101 115 314 154
Brokerage, clearing and exchange fees 136 154 108 419 328
Market development 126 111 92 343 247
Communications and technology 111 100 75 304 224
Depreciation and amortization 119 102 71 322 229
Occupancy 116 101 76 312 221
Professional services and other 181 151 85 464 297
Charitable contribution - - - - 200
-------------- --------------- -------------- -------------- --------------
Total operating expenses 3,154 2,897 2,326 9,065 9,089
Pre-tax earnings 1,373 1,258 1,082 4,110 783
Provision / (benefit) for taxes 549 503 444 1,644 (1,202)
-------------- --------------- -------------- -------------- --------------
Net earnings $ 824 $ 755 $ 638 $ 2,466 $ 1,985
============== =============== ============== ============== ==============
Earnings per share
Basic $ 1.71 $ 1.56 $ 1.34 $ 5.10 $ 4.18
Diluted 1.62 1.48 1.32 4.85 4.11
Average common shares outstanding
Basic 481,252,647 484,380,052 474,694,245 483,403,066 474,698,130
Diluted 508,894,645 510,262,727 483,892,677 508,181,472 483,146,111
Employees at period end (1) 18,666 16,512 14,454
(1) Excludes employees of Goldman Sachs' property management subsidiaries. Substantially all of the costs of these employees are
reimbursed to Goldman Sachs by the real estate investment funds to which these companies provide property management services.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE GOLDMAN SACHS GROUP, INC.
(Registrant)
Date: September 19, 2000 By: /s/ Gregory K. Palm
________________________________
Name: Gregory K. Palm
Title: General Counsel
