Goldman Sachs 2001 Annual Report Download - page 36

page 34
GOLDMAN SACHS ANNUAL REPORT 2001
If any of the variety of instruments and strategies we utilize to
hedge or otherwise manage our exposure to various types of risk
are not effective, we may incur losses. Our hedging strategies
and other risk management techniques may not be fully effective
in mitigating our risk exposure in all market environments or
against all types of risk.
Liquidity, i.e., ready access to funds, is essential to our businesses.
Our liquidity could be impaired by an inability to access the
long-term or short-term debt markets, an inability to access the
repurchase and securities lending markets, or an inability to sell
assets. This situation may arise due to circumstances that we
may be unable to control, such as a general market disruption,
perceptions about our creditworthiness or an operational prob-
lem that affects third parties or us. Further, our ability to sell
assets may be impaired if other market participants are seeking
to sell similar assets at the same time.
Our credit ratings are important to our liqudity. A reduction in our
credit ratings could adversely affect our liquidity and competitive
position, increase our borrowing costs or trigger our obligations
under certain bilateral provisions in some of our trading and col-
lateralized financing contracts. Under such provisions, counterpar-
ties could be permitted to terminate such contracts with Goldman
Sachs or require us to post additonal collateral. Termination of our
trading and collateralized financing contracts could cause us to
sustain losses and impair our liquidity by requiring us to make sig-
nificant cash payments.
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 bank-
ruptcy, lack of liquidity, operational failure or other reasons. The
amount and duration of our credit exposures have been increas-
ing over the past several years. In addition, we have also experi-
enced, due to competitive factors, pressure to extend credit
against less liquid collateral and price more aggressively the
credit risks we take. In particular, 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 counter-
parties 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.
Our ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses and
the communities in which they are located. This may include a
disruption involving electrical, communications, transportation
or other services used by Goldman Sachs or third parties with
which we conduct business.
GEOGRAPHIC DATA
For a summary of the net revenues, pre-tax earnings and identi-
fiable assets of Goldman Sachs by geographic region, see Note 14
to the consolidated financial statements.
CASH FLOWS
Our cash flows are primarily related to the operating and financ-
ing activities undertaken in connection with our trading and
market-making transactions.
Year Ended November 2001–Cash and cash equivalents
increased to $6.91 billion in 2001. Cash of $15.18 billion was
used for operating activities. Cash of $1.91 billion was used for
investing activities, primarily for leasehold improvements and
the purchase of telecommunications and technology-related
equipment. Cash of $20.12 billion was provided by financing
activities, reflecting increases in net repurchase agreements and
proceeds from the net issuances of long-term borrowings, par-
tially offset by a decrease in short-term borrowings and common
stock repurchases.
Year Ended November 2000–Cash and cash equivalents
increased to $3.87 billion in 2000. Operating activities provided
cash of $11.14 billion. Cash of $3.66 billion was used for invest-
ing activities, primarily for our combination with SLK and pur-
chases of technology-related equipment. Cash of $6.66 billion
was used for financing activities as decreases in short-term bor-
rowings and net repurchase agreements were partially offset by
proceeds from the net issuances of long-term borrowings.
Year Ended November 1999–Cash and cash equivalents
increased to $3.06 billion in 1999. Cash of $12.59 billion was
used for operating activities, primarily to fund higher net trad-
ing assets due to increased levels of business activity. Cash of
$654 million was used for investing activities, primarily for the
purchase of telecommunications and technology-related equip-
ment, leasehold improvements and the acquisition of The
Hull Group in September 1999. Financing activities provided
$13.46 billion of cash, reflecting an increase in long-term bor-
rowings and repurchase agreements, and proceeds from the
issuance of common stock.