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Notes to Consolidated Financial Statements
The weighted average fair value of options granted for 2007, 2006 and 2005 was $51.04, $49.96 and $32.91 per option,
respectively. Fair value was estimated as of the grant date based on a Black-Scholes option-pricing model principally using the
following weighted average assumptions:
Year Ended November
2007 2006 2005
Risk-free interest rate 4.0% 4.6% 4.5%
Expected volatility 35.0 27.5 30.0
Dividend yield 0.7 0.7 0.9
Expected life 7.5 years 7.5 years 7.5 years
The common stock underlying the options granted in 2007, 2006 and 2005 is subject to transfer restrictions for a period of
2 years, 1 year and 1 year, respectively, from the date the options become exercisable. The value of the common stock underlying
the options granted in 2007, 2006 and 2005 reflects a liquidity discount of 24.0%, 17.5% and 17.5%, respectively, as a result
of these transfer restrictions. The liquidity discount was based on the firm’s pre-determined written liquidity discount policies.
The 7.5 years expected life of the options reflects the estimated impact of these sales restrictions on the life of the awards.
The following table sets forth share-based compensation and the related tax benefit:
Year Ended November
(in millions) 2007 2006 2005
Share-based compensation $4,549 $3,669 $1,758
Excess tax benefit related to options exercised 469 542 268
Excess tax benefit related to share-based compensation
(1) 908 653 272
(1) Represents the tax benefit, recognized in additional paid-in capital, on stock options exercised and the delivery of common stock underlying restricted stock units.
As of November 2007, there was $2.75 billion of total unrecognized compensation cost related to nonvested share-based
compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.15 years.
$596 million and $362 million, respectively. Additionally, the
firm may invest alongside the third-party investors in certain funds.
The aggregate carrying value of the firm’s interests in these funds
was $12.90 billion and $3.94 billion as of November 2007 and
November 2006, respectively. In the ordinary course of business,
the firm may also engage in other activities with these funds,
including, among others, securities lending, trade execution,
trading, custody and acquisition and bridge financing. See Note 6
for the firm’s commitments related to these funds.
NOTE 13
Transactions with Affiliated Funds
The firm has formed numerous nonconsolidated investment
funds with third-party investors. The firm generally acts as the
investment manager for these funds and, as such, is entitled to
receive management fees and, in certain cases, advisory fees,
incentive fees or overrides from these funds. These fees
amounted to $3.62 billion, $3.37 billion and $2.08 billion for
the years ended November 2007, November 2006 and
November 2005, respectively. As of November 2007 and
November 2006, the fees receivable from these funds were
130 Goldman Sachs 2007 Annual Report