Goldman Sachs 2002 Annual Report Download - page 32

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30 G O L D M A N SA CH S 2002 A N N UA L REPO RT
Goldman Sachs is a leading global investment banking,
securities and investment management firm that pro-
vides a wide range of services worldwide to a sub-
stantial and diversified client base that includes
corporations, financial institutions, governments and
high-net-worth individuals.
Our activities are divided into three segments:
•invest ment banking – This segment comprises
Financial Advisory and Underwriting;
•t r ad ing and pr incipal invest ment s – This seg-
ment comprises Fixed Income, Currency and
Commodities (FICC), Equities and Principal
Investments (Principal Investments primarily repre-
sents net revenues from our merchant banking
investments); and
•asset management and secur it ies ser vices – This
segment comprises Asset Management, Securities
Services and Commissions.
Our Investment Banking and Trading and Principal
Investments activities were previously aggregated into
one reporting segment —Global Capital Markets.
All references to 2002, 2001 and 2000 refer to our fiscal
year ended, or the date, as the context requires,
November 29, 2002, November 30, 2001 and
November 24, 2000, respectively.
When we use the terms “Goldman Sachs,” “we,” “us”
and “our,” we mean The Goldman Sachs Group, Inc., a
Delaware corporation, and its consolidated subsidiaries.
In this discussion, we have included statements that may
constitute “forward-looking statements” within the
meaning of the safe harbor provisions of The Private
Securities Litigation Reform Act of 1995. These forward-
looking statements are not historical facts but instead
represent only our belief regarding future events, many of
which, by their nature, are inherently uncertain and
beyond our control. These statements relate to our future
plans and objectives, among other things. By identifying
these statements for you in this manner, we are alerting
you to the possibility that our actual results may differ,
possibly materially, from the results indicated in these
forward-looking statements. Important factors, among
others, that could cause our results to differ, possibly
materially, from those indicated in the forward-looking
statements are discussed below under “—Results of
Operations—Certain Factors That May Affect Our
Results of Operations.”
BUSINESS ENVIRONMENT
The sharp slowdown in the global economy in 2001
proved short lived, but the pace of recovery in 2002 was
modest. An acceleration in U.S. production in early 2002
as inventory liquidation slowed led to a strong increase
in global economic growth in the first quarter, but
momentum eased sharply the following quarter.
Continued weakness in capital spending, combined with
an erosion of corporate and investor confidence and
increased geopolitical risks, was accompanied by signifi-
cant declines in global equity prices and corporate activ-
ity. In addition, the U.S. Congress passed the
Sarbanes-Oxley Act of 2002, in response to concerns
regarding recent corporate scandals and several large
corporate bankruptcies. The provisions of Sarbanes-
Oxley, combined with rules and rule proposals (if
adopted) of the U.S. Securities and Exchange
Commission, New York Stock Exchange and Nasdaq,
necessitate significant changes to corporate governance
and public disclosure. In addition, investment banks
have been and continue to be the subject of increased
regulatory scrutiny regarding research and initial public
offering practices. This difficult economic and regulatory
environment, combined with a second consecutive year
of declines in investment banking activity, continued to
provide a challenging business climate for financial insti-
tutions. Reflecting this environment, during our fiscal
year, industry-wide completed mergers and acquisitions
declined 49% , industry-wide initial public offerings
declined 17% and industry-wide equity underwriting
volume declined 7% .(1) The fixed income markets, which
generally performed well for a second straight year, were
characterized by a steep yield curve, low interest rates
and significant volatility in credit spreads.
Managem ent’s Discussion and A nalysis
(1) Source: Thomson Financial Securities Data – December 1, 2001
through November 29, 2002 and November 25, 2000 through
November 30, 2001.