Goldman Sachs 2000 Annual Report Download - page 54

Note 1/Description of Business
The Goldman Sachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries
(collectively, the firm), is a global investment banking and
securities firm that provides a wide range of financial ser-
vices worldwide to a substantial and diversified client base.
On May 7, 1999, the firm converted from a partnership to
a corporation and completed its initial public offering.
The firm’s activities are divided into two segments:
Global Capital Markets. This segment comprises Investment
Banking, which includes Financial Advisory and Underwriting,
and Trading and Principal Investments, which includes
Fixed Income, Currency and Commodities (FICC), Equities
and Principal Investments (Principal Investments primarily
represents net revenues from the firm’s merchant banking
investments); and
Asset Management and Securities Services. This segment
comprises Asset Management, Securities Services and
Commissions.
Note 2/Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of
Group Inc. and its U.S. and international subsidiaries includ-
ing Goldman, Sachs & Co. (GS&Co.), J. Aron & Company and
Spear, Leeds & Kellogg, L.P. in New York, Goldman Sachs
International (GSI) in London and Goldman Sachs (Japan) Ltd.
(GSJL) in Tokyo. Certain reclassifications have been made to
prior-year amounts to conform to the current-year presenta-
tion. All material intercompany transactions and balances have
been eliminated.
These consolidated financial statements have been pre-
pared in accordance with generally accepted accounting
principles that require management to make estimates and
assumptions regarding trading inventory valuations, the
outcome of pending litigation, and other matters that affect
the consolidated financial statements and related disclo-
sures. These estimates and assumptions are based on judg-
ment and available information and, consequently, actual
results could be materially different from these estimates.
Unless otherwise stated herein, all references to 2000,
1999 and 1998 refer to the firm’s fiscal year ended, or
the date, as the context requires, November 24, 2000,
November 26, 1999 and November 27, 1998, respectively.
Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight
deposits held in the ordinary course of business.
Repurchase Agreements and Collateralized
Financing Arrangements
Securities purchased under agreements to resell and secu-
rities sold under agreements to repurchase, principally U.S.
government, federal agency and investment-grade non-
U.S. sovereign obligations, represent short-term collater-
alized financing transactions and are carried at their
contractual amounts plus accrued interest. These amounts
are presented on a net-by-counterparty basis when the
applicable requirements of Financial Accounting Standards
Board Interpretation No. 41 are satisfied. The firm takes
possession of securities purchased under agreements to
resell, monitors the market value of these securities on a
daily basis and obtains additional collateral as appropriate.
Securities borrowed and loaned are recorded on the state-
ments of financial condition based on the amount of cash
collateral advanced or received. These transactions are
generally collateralized by either cash, securities or letters
of credit. The firm takes possession of securities borrowed,
monitors the market value of securities loaned and obtains
additional collateral as appropriate. Income or expense is
recognized as interest over the life of the transaction.
Financial Instruments
Gains and losses on financial instruments and commission
income and related expenses are recorded on a trade date
basis in the consolidated statements of earnings. The
consolidated statements of financial condition generally
reflect purchases and sales of financial instruments, includ-
ing agency transactions, on a trade date basis.
Substantially all financial instruments used in the firm’s
trading and nontrading activities are carried at fair value or
amounts that approximate fair value, and unrealized gains
and losses are recognized in earnings. Fair value is based
generally on listed market prices or broker or dealer price
quotations. To the extent that prices are not readily avail-
able, or if liquidating the firm’s position is reasonably
expected to affect market prices, fair value is based on
either internal valuation models or management’s estimate
of amounts that could be realized under current market
conditions, assuming an orderly liquidation over a reason-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
52 Goldman Sachs Annual Report 2000