The Goldman Sachs Group, Inc. (GS) 8-K/A Report of Independent Accountants

Exhibit 99.3

The Goldman Sachs Group, Inc. and Subsidiaries

INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

	PAGE
Introduction		2
Pro Forma Combined Condensed Statement of Financial Condition as of August 25, 2000		3
Pro Forma Combined Condensed Statement of Earnings for the nine months ended August 25, 2000		4
Pro Forma Combined Condensed Statement of Earnings for the year ended November 26, 1999		5
Notes to Unaudited Pro Forma Combined Condensed Financial Statements		6

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The Goldman Sachs Group, Inc. and Subsidiaries
Unaudited Pro Forma Combined Condensed Financial Statements

INTRODUCTION

      On October 31, 2000, The Goldman Sachs Group, Inc. and its consolidated subsidiaries (“Goldman Sachs”) completed its combination with SLK LLC, a leader in securities clearing and execution, floor-based market making and off-floor market making. The combination was accounted for under the purchase method of accounting for business combinations.

      The unaudited pro forma combined condensed statement of financial condition as of August 25, 2000 was prepared as if the combination of Goldman Sachs and SLK LLC had occurred on that date. The unaudited pro forma combined condensed statements of earnings for the nine months ended August 25, 2000 and for the year ended November 26, 1999 were prepared as if the combination of Goldman Sachs and SLK LLC had occurred on November 28, 1998, the first day of Goldman Sachs’ 1999 fiscal year.

      The pro forma adjustments are described in Note 3 to these unaudited pro forma combined condensed financial statements. Intercompany transactions between Goldman Sachs and SLK LLC were not eliminated since the effect of those transactions was not material.

      The pro forma adjustments are based on currently available information and certain assumptions that management believes are reasonable. These unaudited pro forma combined condensed financial statements and the notes thereto should be read in conjunction with: (i) Goldman Sachs’ consolidated financial statements and the notes thereto, and Management’s Discussion and Analysis included in Goldman Sachs’ Annual Report on Form 10-K for the year ended November 26, 1999; (ii) SLK LLC and subsidiaries’ consolidated financial statements and the notes thereto as of and for the year ended September 30, 1999, which are included in this filing; (iii) Goldman Sachs’ condensed consolidated financial statements (unaudited) and the notes thereto, and Management’s Discussion and Analysis included in Goldman Sachs’ Quarterly Report on Form 10-Q for the nine months ended August 25, 2000; and (iv) SLK LLC and subsidiaries’ consolidated financial statements (unaudited) and the notes thereto as of and for the nine months ended June 30, 2000 and 1999, which are included in this filing.

      These unaudited pro forma combined condensed financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have been achieved had the Goldman Sachs and SLK LLC combination been consummated as of the dates indicated, or of the results that may be achieved in the future. In particular, the purchase accounting adjustments described in Note 3 are preliminary in nature and are subject to further analysis and review.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL CONDITION
(unaudited)
(in millions)

	Goldman Sachs
	Historical			SLK LLC Historical
	as of			as of		Pro Forma					Combined
	August 25, 2000			June 30, 2000		Adjustments					Pro Forma
Assets:
Cash and cash equivalents	$	3,036		$	27	$	(2,054	)	(a	)	$	1,009
Securities borrowed		87,631			9,349		—					96,980
Securities purchased under     agreements to resell		41,016			735		—					41,751
Financial instruments owned, at     fair value		92,502			5,663		—					98,165
Other		50,819			9,571		4,005		(a	)		64,550
							110		(b	)
							45		(a	)
	$	275,004		$	25,345	$	2,106				$	302,455
Liabilities and Equity:
Short-term borrowings, including     commercial paper	$	37,917		$	1,555	$	53		(a	)	$	39,525
Payables to customers and     counterparties		57,879			5,766		—					63,645
Securities sold under agreements to     repurchase		42,697			738		—					43,435
Financial instruments sold, but not     yet purchased, at fair value		74,078			3,033		—					77,111
Other		21,212			12,256		5		(a	)		33,473
Long-term borrowings		28,528			495		(35	)	(a	)		28,988
		262,311			23,843		23					286,177
Members’ equity		—			1,502		(1,502	)	(a	)		—
Common stock		5			—		—		(a	)		5
Restricted stock units		4,048			—		702		(b	)		4,750
Additional paid-in capital		7,728			—		3,475		(a	)		11,203
Retained earnings and other		2,593			—		(180	)	(b	)		2,413
Unearned compensation		(1,681	)		—		(412	)	(b	)		(2,093	)
		12,693			1,502		2,083					16,278
	$	275,004		$	25,345	$	2,106				$	302,455

The accompanying notes are an integral part of these pro forma combined condensed financial statements.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(unaudited)
(in millions, except per share amounts)

		Nine Months Ended
		Goldman Sachs		SLK LLC
		Historical		Historical		Pro Forma				Combined
		August 25, 2000		June 30, 2000		Adjustments				Pro Forma
Revenues:
	Total revenues	$	25,011	$	2,696	$	—			$	27,707
Interest expense			11,836		1,052		—				12,888
	Revenues, net of interest expense		13,175		1,644		—				14,819
Operating expenses:
Compensation and benefits			6,587		436		387		(c	)	7,410
Amortization of employee initial public offering      and acquisition awards			314		—		76		(b	)	390
Other operating expenses			2,164		309		150		(d	)	2,623
	Total operating expenses		9,065		745		613				10,423
Pre-tax earnings			4,110		899		(613	)			4,396
Provision for taxes			1,644		53		61		(e	)	1,758
Net earnings		$	2,466	$	846	$	(674	)		$	2,638
Earnings per share
Basic		$	5.10							$	5.06
Diluted			4.85								4.82
Average common shares outstanding
Basic			483.4								521.4	(f	)
Diluted			508.2								547.7	(f	)

The accompanying notes are an integral part of these pro forma combined condensed financial statements.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
(unaudited)
(in millions, except per share amounts)

		Year Ended								Year Ended
		Goldman									Goldman
		Sachs			IPO						Sachs		SLK LLC
		Historical			Pro Forma						Pro Forma		Historical
		November 26,			Adjustments						November 26,		September 30,
		1999			(g)						1999		1999
Revenues:
	Total revenues	$	25,363		$	—					$	25,363	$	2,177
Interest expense			12,018			7		(g1	)			12,025		863
	Revenues, net of interest expense		13,345			(7	)					13,338		1,314
Operating expenses:
Compensation and benefits			6,459			—						6,459		362
Nonrecurring employee initial public      offering awards			2,257			(2,257	)	(g2	)			—		—
Amortization of employee initial      public offering and acquisition      awards			268			192		(g3	)			460		—
Other operating expenses			2,369			(200	)	(g4	)			2,169		302
	Total operating expenses		11,353			(2,265	)					9,088		664
Pre-tax earnings			1,992			2,258						4,250		650
(Benefit)/provision for taxes			(716	)		2,416		(g5	)			1,700		49
Net earnings		$	2,708		$	(158	)				$	2,550	$	601
Earnings per share
Basic		$	5.69								$	5.36
Diluted			5.57									5.27
Average common shares outstanding
Basic			475.9			(0.5	)	(g6	)			475.4
Diluted			485.8			(1.9	)	(g7	)			483.9

[Additional columns below]

[Continued from above table]

		Pro Forma					Combined
		Adjustments					Pro Forma
Revenues:
	Total revenues	$	—				$	27,540
Interest expense			—					12,888
	Revenues, net of interest expense		—					14,652
Operating expenses:
Compensation and benefits			274		(c	)		7,095
Nonrecurring employee initial public     offering awards			—					—
Amortization of employee initial public     offering and acquisition awards			101		(b	)		561
Other operating expenses			200		(d	)		2,671
	Total operating expenses		575					10,327
Pre-tax earnings			(575	)				4,325
(Benefit)/provision for taxes			(19	)	(e	)		1,730
Net earnings		$	(556	)			$	2,595
Earnings per share
Basic							$	5.06
Diluted								4.97
Average common shares outstanding
Basic								513.1	(f	)
Diluted								522.5	(f	)

The accompanying notes are an integral part of these pro forma combined condensed financial statements.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

      The unaudited pro forma combined condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. As permitted by these rules, the financial statements are presented on a condensed basis. The purchase method of accounting has been used in the preparation of the accompanying unaudited pro forma combined condensed financial statements. Under this method of accounting, the purchase price is allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the effective date of the combination. The excess of consideration paid over the estimated fair value of net assets acquired is recorded as goodwill. Goodwill and identifiable intangible assets will be amortized as a charge to earnings over their expected life. The pro forma adjustments are based on estimates. The final allocation of the purchase price will be determined after appraisals and a comprehensive evaluation of the fair value of the SLK LLC assets acquired and liabilities assumed is completed. Goldman Sachs does not expect the change in amortization expense to be material.

NOTE 2. PURCHASE PRICE INFORMATION

      In exchange for the membership interests in SLK LLC and the subordinated debt of certain retired members, Goldman Sachs issued 35.3 million shares of its common stock valued at $3.5 billion, issued $149 million in debentures and paid $2.1 billion in cash. The common stock of Goldman Sachs that was issued as consideration in the combination was valued using the average market price per share immediately before and after October 16, 2000, the measurement date.

NOTE 3. PRO FORMA ADJUSTMENTS

(a) Purchase price and net assets of SLK LLC. Adjustment to reflect the combination of Goldman Sachs and SLK LLC and the goodwill and identifiable intangible assets acquired:

(in millions, except per share amounts)
Issuance of Goldman Sachs equity
Common stock, $0.01 par value, 35.3 shares issued	$	—
Additional paid-in capital		3,475
Increase in equity		3,475
Consideration paid in cash		2,054
Debentures issued		149
Combination costs		5
Total purchase price	$	5,683
SLK LLC members’ equity as of June 30, 2000	$	1,502
Retired members’ subordinated debt		184
Fair value adjustments to tangible assets and liabilities		(8	)
Goodwill and identifiable intangible assets acquired		4,005
Total purchase price	$	5,683

(b) Issuance of acquisition awards. Adjustment to the unaudited pro forma combined condensed statement of financial condition to reflect the establishment of a $702 million retention pool of restricted stock units for all SLK LLC employees, of which $290 million ($180 million after tax) was related to restricted stock units for which future service was not required as a condition to the delivery of the underlying shares of common stock. A deferred tax asset of $110 million was recorded in connection with these restricted stock units. The unaudited pro forma combined condensed statement of earnings does not give effect to the charge of $290 million because of its nonrecurring nature.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL STATEMENTS — (Continued)

	Adjustment to the unaudited pro forma combined condensed statements of earnings to reflect the amortization of that portion of the retention pool which consisted of restricted stock units awarded to SLK LLC employees for which future service is required as a condition to the delivery of the underlying shares of common stock. These restricted stock units will vest in installments in years three, four and five following the date of the consummation of the combination. The value of this portion of the retention pool is $412 million ($702 million less $290 million), approximately 25% of which will be amortized as a noncash charge to earnings in the first year. The remaining 75% of the value of this pool will be amortized over the next four years as follows: 25%, 25%, 18% and 7% in years two, three, four and five, respectively. Accordingly, the pro forma amortization expense was $76 million and $101 million for the nine months ended August 25, 2000 and the year ended November 26, 1999, respectively.
(c)	Compensation and benefits. Adjustment to reflect the compensation and benefits expense related to managing directors of Goldman Sachs who were members of SLK LLC. Since SLK LLC operated as a limited liability company, there is no meaningful historical measure of the compensation and benefits that would have been paid, in corporate form, to the managing directors who were members of SLK LLC for services rendered for the nine months ended August 25, 2000 and for fiscal 1999. Accordingly, management has estimated these amounts, which are substantially performance-based, by reference to Goldman Sachs’ historical ratios of compensation and benefits to net revenues in these periods. As a result, additional compensation and benefits expense related to the managing directors who were members of SLK LLC of $387 million for the nine months ended August 25, 2000 and $274 million for fiscal 1999 has been recorded on the pro forma combined condensed statements of earnings.
(d)	Amortization of goodwill and other intangible assets. Adjustment to reflect the amortization expense related to goodwill and other intangible assets. A preliminary estimate of the amortization of goodwill and other intangible assets was computed on a straight-line basis over a 20-year period. The final purchase price allocation may result in a different amortization period after certain intangible assets, such as the specialist book, customer lists and trademarks, are appraised. Goldman Sachs does not expect the change in amortization expense to be material.
(e)	Income taxes. Adjustment to reflect a pro forma provision for the SLK LLC share of corporate taxes at the statutory rate of 40%.
(f)	Average shares outstanding. Average shares outstanding are computed on a weighted-average basis, after giving effect to the pro forma adjustments. For the purpose of calculating basic earnings per share, shares outstanding include the shares of common stock issued in connection with the combination and the shares of common stock underlying the restricted stock units awarded to SLK LLC employees for which future service was not required as a condition to the delivery of the underlying shares of common stock.
	Pro forma diluted shares outstanding reflect the dilutive effect of the common stock deliverable pursuant to the restricted stock units awarded to SLK LLC employees for which future service is required as a condition to the delivery of the underlying shares of common stock. For purposes of calculating pro forma diluted average common shares outstanding related to these restricted stock units, the grant price of $99.81 per share has been used.

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THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL STATEMENTS — (Continued)

(g) IPO pro forma adjustments. The IPO pro forma adjustments were prepared as if Goldman Sachs’ conversion to corporate form and related transactions had taken place at the beginning of fiscal 1999.

(1)	Adjustment to reflect the additional interest expense on junior subordinated debentures issued to retired limited partners in exchange for their interests in The Goldman Sachs Group, L.P. and certain affiliates.
(2)	Adjustment to eliminate the nonrecurring effect of the expense related to restricted stock units, awarded to employees in connection with Goldman Sachs’ conversion to corporate form, for which future service was not required as a condition to the delivery of the underlying common stock, and the initial irrevocable contribution of shares of common stock to Goldman Sachs’ defined contribution plan.
(3)	Adjustment to reflect additional amortization for the full fiscal year related to certain restricted stock units awarded to employees in connection with our conversion to corporate form, which vest in equal installments in years three, four and five following the date of grant (May 7, 1999). These restricted stock units had a value of $1.76 billion at date of grant, approximately 26% of which was amortized as a noncash expense, after giving effect to forfeitures, in the twelve months following the date of grant. The remaining 74% of the value of these restricted stock units will be amortized over the next four years as follows: 26%, 26%, 15% and 7% in years two, three, four and five, respectively.
(4)	Adjustment to eliminate the expense related to the charitable contribution to The Goldman Sachs Foundation made at the time of the initial public offering.
(5)	Adjustment to reflect a pro forma provision for income taxes for Goldman Sachs in corporate form at the statutory tax rate of 40%.
(6)	Adjustment to reflect the effect of share activity, primarily related to the acquisition of The Hull Group in September 1999, which is averaged over the period beginning on May 4, 1999 (the day trading in our common stock commenced) for actual purposes, and over the entire year for pro forma purposes.
(7)	Adjustment to diluted average common shares outstanding to reflect the additional dilutive effect of the common stock deliverable pursuant to the restricted stock units and stock options, awarded to employees in connection with our conversion to corporate form, for which future service is required as a condition to the delivery of the underlying common stock. For purposes of calculating pro forma diluted average common shares outstanding, the initial public offering price of $53 per share was used from the beginning of 1999 until May 4, 1999. Thereafter, the actual daily closing prices were used.

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