Goldman Sachs 2000 Annual Report Download - page 30

an inability to access the repurchase and securities lending
markets, or an impairment of our ability to sell assets. Our
ability to sell assets may be impaired if other market partic-
ipants are seeking to sell similar assets at the same time. In
addition, a reduction in our credit ratings could adversely
affect our liquidity and our competitive position and could
increase our borrowing costs.
We are exposed to the risk that third parties that owe us
money, securities or other assets will not perform their
obligations. These parties may default on their obligations
to us due to bankruptcy, lack of liquidity, operational failure
or other reasons. The amount and duration of our credit
exposures have been increasing over the past several
years. In addition, we have also experienced, due to com-
petitive factors, pressure to extend credit against less liq-
uid collateral and price more aggressively the credit risks
we take. As a clearing member firm, we finance our customer
positions and we could be held responsible for the defaults
or misconduct of our customers. Although we regularly
review credit exposures to specific clients and counterpar-
ties and to specific industries, countries and regions that we
believe may present credit concerns, default risk may arise
from events or circumstances that are difficult to detect or
foresee. In addition, concerns about, or a default by, one
institution could lead to significant liquidity problems,
losses or defaults by other institutions, which in turn could
adversely affect Goldman Sachs.
Spear, Leeds & Kellogg
On October 31, 2000, we completed our combination with
SLK LLC (SLK), 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. In
exchange for the membership interests in SLK and subordi-
nated debt of certain retired members, we issued 35.3 mil-
lion shares of common stock valued at $3.5 billion, issued
$149 million in debentures and paid $2.1 billion in cash. The
purchase price has been preliminarily 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 considera-
tion paid over the estimated fair value of net assets
acquired has been recorded as goodwill. Goodwill and iden-
tifiable intangible assets of approximately $4.0 billion will
be amortized as a charge to earnings over a weighted aver-
age life of approximately 20 years. The final allocation of
the purchase price will be determined after appraisals and a
comprehensive evaluation of the fair value of the SLK
assets acquired and liabilities assumed are completed. We
do not expect the change in amortization expense to be
material.
As part of the combination with SLK, we established a $702
million retention pool of restricted stock units for all SLK
employees. A charge of $290 million ($180 million after
taxes) related to restricted stock units for which future ser-
vice was not required as a condition to the delivery of the
underlying shares of common stock was included in our
operating results in the fourth quarter of 2000. The
remaining restricted stock units, for which future service is
required, will be amortized over the five-year service
period following the date of the consummation of the combi-
nation as follows: 25%, 25%, 25%, 18% and 7% in years
one, two, three, four and five, respectively.
28 Goldman Sachs Annual Report 2000