Goldman Sachs 2002 Annual Report Download - page 74

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Fair Value of Financial Instruments
The following table sets forth the firm’s financial instruments owned, including those pledged as collateral, at fair value,
and financial instruments sold, but not yet purchased, at fair value:
AS OF NOVEMBER
2002 2001
(IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES
Commercial paper, certificates of deposit and
time deposits $ 1,092 $ — $ 1,351 $ —
U.S. government, federal agency and
sovereign obligations 36,053 22,272 31,173 18,606
Corporate debt 25,425 6,902 16,697 6,453
Equities and convertible debentures 23,624 14,398 20,075 12,201
State, municipal and provincial obligations 715 — 771 —
Derivative contracts 42,205 38,921 38,521 36,660
Physical commodities 661 980 297 797
Total $129,775 $83,473 $108,885 $74,717
N O T E 3
SPEAR, LEEDS & KELLOGG
On October 31, 2000, the firm completed its combina-
tion with SLK LLC (SLK), a leader in securities clearing
and execution, floor-based market making and off-floor
market making. The combination was accounted for
under the purchase method of accounting for business
combinations. In exchange for the membership interests
in SLK and subordinated debt of certain retired members,
the firm issued 35.3 million shares of common stock val-
ued at $3.5 billion, issued $149 million in debentures and
paid $2.1 billion in cash. The purchase price was allo-
cated to tangible and identifiable intangible assets
acquired and liabilities assumed based on their estimated
fair values as of the effective date of the combination. The
excess of consideration paid over the estimated fair value
of net assets acquired was $4.2 billion, of which $2.4 bil-
lion was recorded as goodwill and $1.8 billion was
recorded as identifiable intangible assets.
As part of the combination with SLK, the firm established
a $702 million retention pool of restricted stock units for
SLK employees. A charge of $290 million ($180 million
after taxes) related to restricted stock units for which
future service was not required as a condition to the
delivery of the underlying shares of common stock was
included in the firm’s operating results in 2000. The
remaining restricted stock units, for which future service
is required, are being amortized over the five-year service
period following the date of consummation.
N otes to Consolidated Financial Statem ents
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 71
The following table sets forth the unaudited pro forma combined operating results of the firm and SLK for the year
ended November 2000. These pro forma results were prepared as if the firm’s combination with SLK had taken place
at the beginning of fiscal 2000.
PRO FORMA OPERATING RESULTS (UNAUDITED)
YEAR ENDED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOVEMBER 2000
Revenues, net of interest expense $18,630
Net earnings 3,459
Basic EPS 6.66
Diluted EPS 6.32
N O T E 4
FINANCIAL INSTRUMENTS
Financial instruments, including both cash instruments
and derivatives, are used to manage market risk, facilitate
customer transactions, engage in proprietary transactions
and meet financing objectives. These instruments can be
either executed on an exchange or negotiated in the over-
the-counter (OTC) market.
Transactions involving financial instruments sold, but
not yet purchased, generally entail an obligation to pur-
chase a financial instrument at a future date. The firm
may incur a loss if the market value of the financial
instrument subsequently increases prior to the purchase
of the instrument.