Goldman Sachs 2002 Annual Report Download - page 42

held responsible for the defaults or misconduct of our
customers. In addition, we have experienced, due to com-
petitive factors, pressure to extend credit and price more
aggressively the credit risks we take. In particular, corpo-
rate clients sometimes seek to require credit commitments
from us in connection with investment banking assign-
ments. Although we regularly review credit exposures to
specific clients and counterparties and to specific indus-
tries, countries and regions that we believe may present
credit concerns, default risk may arise from events or cir-
cumstances that are difficult to detect or foresee. In addi-
tion, 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 sup-
ports our businesses and the communities in which they
are located. This may include a disruption involving
electrical, communications, transportation or other ser-
vices used by Goldman Sachs or third parties with which
we conduct business.
Substantial legal liability or a significant regulatory
action against Goldman Sachs could have a material
adverse financial effect or cause significant reputational
harm to Goldman Sachs, which in turn could seriously
harm our business prospects. We face significant legal
risks in our businesses, and the volume of claims and
amount of damages claimed in litigation against finan-
cial intermediaries are increasing. Our experience has
been that legal claims by customers and clients increase
in a market downturn. In addition, employment related
claims typically increase in periods when we have
reduced the total number of employees.
For additional important factors that may affect our
results of operations, see “Business—Certain Factors
That May Affect Our Business” in our Form 10-K for
our fiscal year ended November 29, 2002.
GEOGRAPHIC DATA
For a summary of the net revenues, pre-tax earnings and
identifiable assets of Goldman Sachs by geographic region,
see Note 15 to the consolidated financial statements.
CASH FLOWS
Our cash flows are primarily related to the operating and
financing activities undertaken in connection with our
trading and market-making businesses. We have reclassi-
fied net cash flows from “Securities sold under agree-
ments to repurchase, net of agreements to resell” as
operating activities, because secured funding is an
integral aspect of our day-to-day operations. Previously,
these cash flows were reported as financing activities.
Y E A R E N D E D N O VE M B E R
Cash and cash equivalents decreased to $4.82 billion in
2002. Cash of $10.08 billion was used for operating
activities, primarily reflecting an increase in financial
instruments owned, partially offset by an increase in
financial instruments sold, but not yet purchased. Cash of
$1.10 billion was used for investing activities, primarily
for leasehold improvements and the purchase of telecom-
munications and technology-related equipment. Cash of
$9.09 billion was provided by financing activities, reflect-
ing proceeds from the issuances of long-term and net
short-term borrowings, partially offset by repayments of
long-term borrowings (including the current portion of
long-term borrowings) and common stock repurchases.
Y E A R E N D E D N O VE M B E R
Cash and cash equivalents increased to $6.91 billion in
2001. Cash of $2.87 billion was provided by 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 $2.08 billion was provided by
financing activities, reflecting proceeds from the issuances
of long-term and net short-term borrowings, partially
offset by repayments of long-term borrowings (including
the current portion of long-term borrowings) and com-
mon stock repurchases.
Y E A R E N D E D N O VE M B E R
Cash and cash equivalents increased to $3.87 billion in
2000. Operating activities provided cash of $1.61 billion.
Cash of $3.66 billion was used for investing activities,
primarily for our combination with SLK and purchases
of technology-related equipment. Cash of $2.86 billion
was provided by financing activities as proceeds from the
issuances of long-term borrowings were partially offset
by repayments of long-term borrowings (including the
current portion of long-term borrowings).
LIQUIDITY RISK MANAGEMENT
Liquidity is of critical importance to companies in the
financial services sector. Most failures of financial insti-
tutions have occurred in large part due to insufficient
liquidity. Accordingly, Goldman Sachs has in place a
comprehensive set of liquidity and funding policies that
are intended to maintain significant flexibility to address
both firm-specific and broader industry or market
liquidity events. Our principal objective is to be able to
fund Goldman Sachs and to enable our core businesses
Managem ent’s D iscussion and A nalysis
40 G O L D M A N SA CH S 2002 AN N UA L R EPO RT