Goldman Sachs 2003 Annual Report Download - page 88

Notes to Consolidated Financial Statements
86 GOLDMAN SACHS 2003 ANNUAL REPORT
with these commitments has been hedged through credit
loss protection provided by SMFG. The firm has also
hedged the credit risk of certain non-William Street com-
mitments using a variety of other financial instruments.
The firm provides letters of credit issued by various banks
to counterparties in lieu of securities or cash to satisfy
various collateral and margin deposit requirements.
Letters of credit outstanding were $12.60 billion and
$11.63 billion as of November 2003 and November
2002, respectively.
The firm acts as an investor in merchant banking trans-
actions, which includes making long-term investments in
equity and debt securities in privately negotiated transac-
tions, corporate acquisitions and real estate transactions.
In connection with these activities, the firm had commit-
ments to invest up to $1.38 billion and $1.46 billion in
corporate and real estate investment funds as of
November 2003 and November 2002, respectively.
The firm had construction-related commitments of
$87 million and $301 million as of November 2003 and
November 2002, respectively, and other purchase com-
mitments of $255 million and $23 million as of
November 2003 and November 2002, respectively.
The firm has obligations under long-term noncancelable
lease agreements, principally for office space, expiring on
various dates through 2029. Certain agreements are sub-
ject to periodic escalation provisions for increases in real
estate taxes and other charges. Future minimum rental
payments, net of minimum sublease rentals, and rent
charged to operating expense for the last three years are
set forth below:
(IN MILLIONS)
Minimum rental payments
2004 $ 422
2005 349
2006 339
2007 304
2008 288
2009-thereafter 2,220
Total $3,922
Net rent expense
2001 $ 299
2002 359
2003 360
Contingencies
The firm is involved in a number of judicial, regulatory
and arbitration proceedings concerning matters arising
in connection with the conduct of its businesses.
Management believes, based on currently available infor-
mation, that the results of such proceedings, in the aggre-
gate, will not have a material adverse effect on the firm’s
financial condition, but may be material to the firm’s
operating results for any particular period, depending, in
part, upon the operating results for such period.
Guarantees
The firm enters into various derivative contracts that
meet the definition of a guarantee under FIN No. 45.
Such derivative contracts include credit default swaps,
written equity and commodity put options, written cur-
rency contracts and interest rate caps, floors and swap-
tions. FIN No. 45 does not require disclosures about
derivative contracts if such contracts may be cash settled
and the firm has no basis to conclude it is probable that
the counterparties held, at inception, the underlying
instruments related to the derivative contracts. The firm
has concluded that these conditions have been met, for
certain large, internationally active commercial and
investment banks and end users. Accordingly, the firm
has not included such contracts in the table below.
The firm, in its capacity as an agency lender, occasionally
indemnifies securities lending customers against losses
incurred in the event that borrowers do not return secu-
rities and the collateral held is insufficient to cover the
market value of the securities borrowed. In relation to
certain asset sales and securitization transactions, the firm
guarantees the collection of contractual cash flows. In
connection with fund management activities, the firm
may issue loan guarantees to secure financing and to
obtain preferential investment terms. In addition, the
firm provides letters of credit and other guarantees, on a
limited basis, to enable clients to enhance their credit
standing and complete transactions.