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66 Goldman Sachs Annual Report 2000
The activity of these stock options during 2000 and 1999 is set forth below:
Weighted Weighted
Average Average
Exercise Remaining
Options Price Life (years)
Outstanding, November 1998 — $ —
Granted 40,863,172 52.91
Exercised ——
Forfeited (503,506) 53.00
Outstanding, November 1999 40,359,666 52.91 9.42
Granted(1) 19,685,230 82.89
Exercised (18,901) 48.13
Forfeited (2,590,237) 52.88
Outstanding, November 2000 57,435,758 63.19 8.96
Exercisable, November 2000 131,432 $48.13
(1) Includes stock options granted to employees, subsequent to November 2000, as part of year-end compensation for fiscal 2000.
The weighted average fair value of options granted during
2000 and 1999 was $28.13 per option and $16.13 per
option, respectively. Fair value was estimated as of the
grant date based on a binomial option pricing model using
the following weighted average assumptions:
Year Ended November
2000 1999
Risk-free interest rate 5.6% 6.1%
Expected volatility 35.0 30.0
Dividend yield 0.6 1.0
Expected life 7 years 7 years
Pro Forma Effect of SFAS No. 123
If the firm were to recognize compensation expense under
the fair value-based method of SFAS No. 123 with respect
to options granted, net earnings would have decreased
resulting in pro forma net earnings and EPS as set forth below:
Year Ended November
(in millions, except per share amounts) 2000 1999
Net earnings, as reported $3,067 $2,708
Pro forma net earnings 2,971 2,650
EPS, as reported
Basic $6.33 $ 5.69
Diluted 6.00 5.57
Pro forma EPS
Basic $6.13 $ 5.57
Diluted 5.81 5.45
In the preceding table, pro forma compensation expense
associated with option grants is recognized over the rele-
vant vesting period.
Note 12/Income Taxes
Prior to its conversion to corporate form, the firm operated
as a partnership and generally was not subject to U.S. fed-
eral and state income taxes. The earnings of the firm, how-
ever, were subject to local unincorporated business taxes.
In addition, certain non-U.S. subsidiaries were subject to
income taxes in their local jurisdictions. The partners of the
firm’s predecessor partnership were taxed on their propor-
tionate share of the partnership’s taxable income or loss.
Effective with the conversion from a partnership to a cor-
poration on May 7, 1999, the firm became subject to U.S.
federal, state and local corporate income taxes.