Goldman Sachs 2001 Annual Report Download - page 38

page 36
GOLDMAN SACHS ANNUAL REPORT 2001
of the aggregate borrowings of the parent company. This policy
ensures that the subsidiaries’ obligations to the parent company
will generally mature in advance of the parent company’s third-
party long-term borrowings. In addition, many of our sub-
sidiaries and affiliates pledge collateral to cover their
intercompany borrowings. We generally fund our equity invest-
ments in subsidiaries with equity capital.
The Balance Sheet
Goldman Sachs maintains a highly liquid balance sheet that
fluctuates significantly between financial statement dates. The
following table sets forth our total assets, adjusted assets,
leverage ratios and book value per share:
AS OF NOVEMBER
($ IN BILLIONS, EXCEPT PER SHARE AMOUNTS) 2001 2000
Total assets $ 312 $ 284(5)
Adjusted assets(1) 240 217
Leverage ratio(2) 17.1x 17.2x
Adjusted leverage ratio(3) 13.2x 13.1x
Book value per share(4) $36.33 $32.18
(1) Adjusted assets represent total assets less securities purchased under agree-
ments to resell, certain securities borrowed transactions and the increase in total
assets related to certain provisions of Statement of Financial Accounting
Standards (SFAS) No. 140.
(2) Leverage ratio equals total assets divided by shareholders’ equity.
(3) Adjusted leverage ratio equals adjusted assets divided by shareholders’ equity.
(4) Book value per share is based on common shares outstanding, including
restricted stock units granted to employees with no future service requirements,
of 501.8 million as of November 2001 and 513.7 million as of November 2000.
(5) In accordance with SFAS No. 140, total assets as of November 2000 exclude col-
lateral of $5.35 billion previously recognized under SFAS No. 125.
As of November 2001 and 2000, we held approximately
$3.10 billion and $2.74 billion, respectively, in high-yield debt
and emerging market securities and $3.45 billion and $2.83 bil-
lion, respectively, in bank loans. These assets may be relatively
illiquid during times of market stress. We seek to diversify our
holdings of these assets by industry and by geographic location.
As of November 2001 and 2000, the aggregate carrying value of
our principal investments held directly or through our
merchant banking funds was approximately $2.85 billion and
$3.52 billion, respectively. These carrying values were comprised
of corporate principal investments with an aggregate carrying
value of approximately $1.85 billion and $2.51 billion, respec-
tively, and real estate investments with an aggregate carrying value
of approximately $1.00 billion and $1.01 billion, respectively.
Credit Ratings
Goldman Sachs relies upon the short-term and long-term debt
capital markets to fund a significant portion of its day-to-day
operations. The cost and availability of debt financing is influ-
enced by our credit ratings. Credit ratings are also important
to us when competing in certain markets and when seeking to
engage in longer-term transactions including over-the-counter
(OTC) derivatives. We believe our credit ratings are determined
primarily based on the credit rating agencies’ assessment of
the external operating environment, our liquidity, market and
credit risk management practices, the level and variability of our
earnings base, our franchise, reputation and management and
our capital base. An adverse change in any of these factors could
result in a reduction in our credit ratings which, in turn, could
increase our borrowing costs, limit our access to the capital
markets or require us to post additional collateral, or permit
counterparties to terminate transactions, pursuant to our obli-
gations under bilateral provisions in certain of our trading and
collateralized financing contracts. This could reduce our earn-
ings and adversely affect our liquidity.
The following table sets forth our credit ratings as of November
2001:
SHORT-TERM LONG-TERM
DEBT DEBT
Fitch F1+ AA-
Moody’s Investors Service P-1 A1
Standard & Poor’s(1) A-1+ A+
(1) On July 16, 2001 Standard & Poor’s affirmed Goldman Sachs’ credit ratings but
revised its outlook from “stable” to “negative.”
As of November 2001, additional collateral that would have
been callable in the event of a one level reduction in our long-
term credit ratings, pursuant to bilateral agreements with certain
counterparties, was not material.