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 24, 2002
THE GOLDMAN SACHS GROUP, INC.
Delaware | No. 001-14965 | No. 13-4019460 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer 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
Item 5. Other Events.
On September 24, 2002, The Goldman Sachs Group, Inc. reported net earnings of $522 million for its fiscal third quarter ended August 30, 2002. Earnings per diluted share were $1.00 compared to $0.87 for the third quarter of 2001 and $1.06 for the 2002 second quarter. Annualized return on average tangible shareholders’ equity(1) was 15.6% for the first nine months of 2002 and 15.1% for the third quarter.
Net Revenues
Investment Banking
Net revenues in Investment Banking were $652 million, compared to $1.10 billion for the third quarter of 2001 and $762 million for the second quarter of 2002.
Net revenues in Financial Advisory were $315 million, compared to $638 million for the third quarter of 2001, reflecting significantly reduced industry-wide activity in mergers and acquisitions. Net revenues in the firm’s Underwriting business were $337 million compared to $464 million for the same 2001 period, primarily due to lower net revenues from debt new issuance activity.
The reduction in Investment Banking net revenues compared to the same period last year was due to lower levels of activity across all sectors, particularly communications, media and entertainment and high technology. The firm’s backlog declined significantly during the quarter.
Trading and Principal Investments
Net revenues in Trading and Principal Investments were $1.49 billion for the third quarter, 21% higher than the third quarter of 2001 and 4% above the second quarter of 2002.
FICC net revenues of $1.31 billion increased 19% compared to the same 2001 period, primarily reflecting strong performances in the firm’s fixed income derivatives, mortgages, currencies and investment-grade credit businesses, partially offset by decreased net revenues in leveraged finance and commodities.
Net revenues in Equities were $281 million compared to $573 million for the third quarter of 2001, reflecting lower net revenues in the firm’s global shares businesses, which were affected by the continued weakness in the global equity markets and the transfer of the Nasdaq fee-based business to Commissions,(2) as well as lower net revenues in equity arbitrage.
(1) | Tangible shareholders’ equity excludes goodwill and other intangible assets. | ||
(2) | In January 2002, the firm began to implement a new fee-based pricing structure in its Nasdaq trading business. Previously the firm did not charge explicit fees in this business but rather earned market-making revenues based generally on the difference between bid and ask prices. As a result of this change, a substantial portion of the firm’s Nasdaq net revenues is now reported in Commissions. |
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Principal Investments recorded negative net revenues of $100 million, primarily due to declines in the fair value of certain investments in the high technology and telecommunications sectors, partially offset by real estate disposition gains.
Asset Management and Securities Services
Net revenues in Asset Management and Securities Services were $1.50 billion, 14% above the third quarter of 2001 and 9% lower than the second quarter of 2002.
Asset Management net revenues of $400 million increased 5% compared to last year’s third quarter, reflecting a 6% increase in average assets under management. Assets under management were $336 billion at the end of the quarter, 3% higher than a year ago. During the quarter, assets under management declined 4%, reflecting net asset outflows of $1.6 billion and market depreciation of $12.4 billion.
Securities Services net revenues were $266 million compared to $295 million for the same 2001 period, primarily due to lower net revenues in the firm’s margin lending business and fixed income matched book.
Commissions were $838 million compared to $649 million for the same period last year, primarily due to the transfer of the Nasdaq fee-based business into Commissions, as well as increased fees earned on higher transaction volumes in global equity markets.
Expenses
Operating expenses were $2.86 billion, 1% below last year’s third quarter and 3% below the second quarter of 2002.
Compensation and benefits of $1.82 billion increased 2% compared to the same period last year. The ratio of compensation and benefits to net revenues was 50% for the first nine months of 2002 compared to 49% for the first nine months of 2001. Employment levels decreased 2% during the quarter and 9% compared to the end of 2001.
Non-compensation-related expenses were $974 million for the quarter. Excluding amortization of goodwill and other intangible assets, these expenses increased 2% compared to the same period last year. The growth in non-compensation-related expenses reflects higher occupancy expenses, primarily due to one-time costs related to the postponement of construction plans for a smaller facility adjacent to the firm’s office building currently under construction in Jersey City, New Jersey, as well as increased brokerage, clearance and execution fees. These increases were partially offset by lower market development and communications and technology costs. Amortization of goodwill and other intangible assets was lower than in the third quarter of 2001 reflecting the adoption of the goodwill non-amortization provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
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The effective income tax rate for the first nine months of 2002 was 36.5%, down from 37.5% for both the first half of 2002 and fiscal year 2001.
Capital
As of August 30, 2002, total capital was $56.60 billion, consisting of $18.84 billion in shareholders’ equity and $37.76 billion in long-term debt. Book value per share was $38.18, based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 493.5 million at period end. The firm repurchased 5.5 million 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 25, 2002 to common shareholders of record on October 28, 2002.
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 condition 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 important factors that could affect the firm’s future results, see “Business – Certain Factors That May Affect Our Business” in the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2001.
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. For a discussion of other important factors that could adversely affect our investment banking transactions, see “Business – Certain Factors That May Affect Our Business” in the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2001.
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The Goldman Sachs Group, Inc. and Subsidiaries
Net Revenues
(unaudited)
($ in millions)
Three Months Ended | % Change From | Nine Months Ended | % Change From | |||||||||||||||||||||||||||||
August 30, | May 31, | August 31, | May 31, | August 31, | August 30, | August 31, | August 31, | |||||||||||||||||||||||||
2002 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2001 | |||||||||||||||||||||||||
Investment Banking | ||||||||||||||||||||||||||||||||
Financial Advisory | $ | 315 | $ | 428 | $ | 638 | (26 | )% | (51 | )% | $ | 1,200 | $ | 1,689 | (29 | )% | ||||||||||||||||
Underwriting | 337 | 334 | 464 | 1 | (27 | ) | 1,107 | 1,350 | (18 | ) | ||||||||||||||||||||||
Total Investment Banking | 652 | 762 | 1,102 | (14 | ) | (41 | ) | 2,307 | 3,039 | (24 | ) | |||||||||||||||||||||
Trading and Principal Investments | ||||||||||||||||||||||||||||||||
FICC | 1,312 | 1,143 | 1,107 | 15 | 19 | 3,677 | 3,180 | 16 | ||||||||||||||||||||||||
Equities | 281 | 418 | 573 | (33 | ) | (51 | ) | 804 | 2,488 | (68 | ) | |||||||||||||||||||||
Principal Investments | (100 | ) | (125 | ) | (445 | ) | N.M. | N.M. | (222 | ) | (580 | ) | N.M. | |||||||||||||||||||
Total Trading and Principal Investments | 1,493 | 1,436 | 1,235 | 4 | 21 | 4,259 | 5,088 | (16 | ) | |||||||||||||||||||||||
Asset Management and Securities Services | ||||||||||||||||||||||||||||||||
Asset Management | 400 | 443 | 380 | (10 | ) | 5 | 1,266 | 1,105 | 15 | |||||||||||||||||||||||
Securities Services | 266 | 262 | 295 | 2 | (10 | ) | 735 | 863 | (15 | ) | ||||||||||||||||||||||
Commissions | 838 | 948 | 649 | (12 | ) | 29 | 2,531 | 2,289 | 11 | |||||||||||||||||||||||
Total Asset Management and Securities Services | 1,504 | 1,653 | 1,324 | (9 | ) | 14 | 4,532 | 4,257 | 6 | |||||||||||||||||||||||
Total net revenues | $ | 3,649 | $ | 3,851 | $ | 3,661 | (5 | ) | — | $ | 11,098 | $ | 12,384 | (10 | ) | |||||||||||||||||
* * *
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, | ||||||||||||||||||||||
2002 | 2002 | 2001 | 2002 | 2001 | 2001 | 2000 | ||||||||||||||||||||||
Assets under management | $ | 335,859 | $ | 349,876 | $ | 324,909 | (4 | )% | 3 | % | $ | 350,718 | $ | 293,842 | ||||||||||||||
Other client assets | 119,115 | 135,998 | 153,293 | (12 | ) | (22 | ) | 152,192 | 197,876 | |||||||||||||||||||
Total assets under supervision(1) | $ | 454,974 | $ | 485,874 | $ | 478,202 | (6 | ) | (5 | ) | $ | 502,910 | $ | 491,718 | ||||||||||||||
(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 | % Change From | ||||||||||||||||||||
August 30, | May 31, | August 31, | May 31, | August 31, | |||||||||||||||||
2002 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
(in millions, except per share amounts and employees) | |||||||||||||||||||||
Revenues | |||||||||||||||||||||
Investment banking | $ | 593 | $ | 705 | $ | 1,080 | (16 | )% | (45 | )% | |||||||||||
Trading and principal investments | 1,107 | 1,074 | 1,267 | 3 | (13 | ) | |||||||||||||||
Asset management and securities services | 1,253 | 1,399 | 1,049 | (10 | ) | 19 | |||||||||||||||
Interest income | 2,919 | 3,056 | 3,964 | (4 | ) | (26 | ) | ||||||||||||||
Total revenues | 5,872 | 6,234 | 7,360 | (6 | ) | (20 | ) | ||||||||||||||
Interest expense | 2,223 | 2,383 | 3,699 | (7 | ) | (40 | ) | ||||||||||||||
Revenues, net of interest expense | 3,649 | 3,851 | 3,661 | (5 | ) | — | |||||||||||||||
Operating expenses | |||||||||||||||||||||
Compensation and benefits | 1,824 | 1,926 | 1,794 | (5 | ) | 2 | |||||||||||||||
Amortization of employee initial public offering and acquisition awards | 57 | 83 | 112 | (31 | ) | (49 | ) | ||||||||||||||
Brokerage, clearing and exchange fees | 236 | 221 | 218 | 7 | 8 | ||||||||||||||||
Market development | 75 | 86 | 90 | (13 | ) | (17 | ) | ||||||||||||||
Communications and technology | 125 | 134 | 145 | (7 | ) | (14 | ) | ||||||||||||||
Depreciation and amortization | 161 | 153 | 160 | 5 | 1 | ||||||||||||||||
Amortization of goodwill and other intangible assets | 31 | 32 | 66 | (3 | ) | (53 | ) | ||||||||||||||
Occupancy | 172 | 144 | 142 | 19 | 21 | ||||||||||||||||
Professional services and other | 174 | 171 | 167 | 2 | 4 | ||||||||||||||||
Total non-compensation expenses | 974 | 941 | 988 | 4 | (1 | ) | |||||||||||||||
Total operating expenses | 2,855 | 2,950 | 2,894 | (3 | ) | (1 | ) | ||||||||||||||
Pre-tax earnings | 794 | 901 | 767 | (12 | ) | 4 | |||||||||||||||
Provision for taxes | 272 | 338 | 299 | (20 | ) | (9 | ) | ||||||||||||||
Net earnings | $ | 522 | $ | 563 | $ | 468 | (7 | ) | 12 | ||||||||||||
Earnings per share | |||||||||||||||||||||
Basic | $ | 1.05 | $ | 1.13 | $ | 0.92 | (7 | ) | 14 | ||||||||||||
Diluted | 1.00 | 1.06 | 0.87 | (6 | ) | 15 | |||||||||||||||
Average common shares outstanding | |||||||||||||||||||||
Basic | 494.9 | 496.8 | 508.1 | — | (3 | ) | |||||||||||||||
Diluted | 520.4 | 531.0 | 539.7 | (2 | ) | (4 | ) | ||||||||||||||
Employees at period end(1) | 20,647 | 21,145 | 23,494 | (2 | ) | (12 | ) | ||||||||||||||
Ratio of compensation and benefits to revenues, net of interest expense | 50 | % | 50 | % | 49 | % |
(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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The Goldman Sachs Group, Inc. and Subsidiaries
Consolidated Statements of Earnings
(unaudited)
Nine Months Ended | % Change From | ||||||||||||
August 30, | August 31, | August 31, | |||||||||||
2002 | 2001 | 2001 | |||||||||||
(in millions, except per share amounts) | |||||||||||||
Revenues | |||||||||||||
Investment banking | $ | 2,123 | $ | 2,995 | (29 | )% | |||||||
Trading and principal investments | 3,384 | 5,128 | (34 | ) | |||||||||
Asset management and securities services | 3,810 | 3,462 | 10 | ||||||||||
Interest income | 8,489 | 13,435 | (37 | ) | |||||||||
Total revenues | 17,806 | 25,020 | (29 | ) | |||||||||
Interest expense | 6,708 | 12,636 | (47 | ) | |||||||||
Revenues, net of interest expense | 11,098 | 12,384 | (10 | ) | |||||||||
Operating expenses | |||||||||||||
Compensation and benefits | 5,549 | 6,068 | (9 | ) | |||||||||
Amortization of employee initial public offering and acquisition awards | 265 | 371 | (29 | ) | |||||||||
Brokerage, clearing and exchange fees | 653 | 619 | 5 | ||||||||||
Market development | 231 | 316 | (27 | ) | |||||||||
Communications and technology | 401 | 451 | (11 | ) | |||||||||
Depreciation and amortization | 451 | 439 | 3 | ||||||||||
Amortization of goodwill and other intangible assets | 94 | 192 | (51 | ) | |||||||||
Occupancy | 457 | 453 | 1 | ||||||||||
Professional services and other | 463 | 503 | (8 | ) | |||||||||
Total non-compensation expenses | 2,750 | 2,973 | (8 | ) | |||||||||
Total operating expenses | 8,564 | 9,412 | (9 | ) | |||||||||
Pre-tax earnings | 2,534 | 2,972 | (15 | ) | |||||||||
Provision for taxes | 925 | 1,159 | (20 | ) | |||||||||
Net earnings | $ | 1,609 | $ | 1,813 | (11 | ) | |||||||
Earnings per share | |||||||||||||
Basic | $ | 3.24 | $ | 3.54 | (8 | ) | |||||||
Diluted | 3.04 | 3.33 | (9 | ) | |||||||||
Average common shares outstanding | |||||||||||||
Basic | 497.2 | 512.3 | (3 | ) | |||||||||
Diluted | 528.5 | 544.6 | (3 | ) | |||||||||
Ratio of compensation and benefits to revenues, net of interest expense | 50 | % | 49 | % |
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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 24, 2002 | By: | /s/ Dan H. Jester | ||
Name: Dan H. Jester Title: Vice President and Deputy Chief Financial Officer |
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