Goldman Sachs 2004 Annual Report Download - page 34

management’s฀discussion฀and฀analysis
32฀฀฀G O L D M A N ฀ S A C H S ฀ 2 004฀ A N N U A L ฀ R E P O RT32฀฀฀G O L D M A N ฀ S A C H S ฀ 2 004฀ A N N U A L ฀ R E P O RT
(1)฀฀Return฀on฀average฀tangible฀shareholders’฀equity฀is฀computed฀by฀dividing฀net฀
earnings฀by฀average฀monthly฀tangible฀shareholders’฀equity.฀See฀“–฀Results฀of฀
Operations”฀included฀below฀for฀further฀information฀regarding฀our฀calculation฀
of฀return฀on฀average฀tangible฀shareholders’฀equity.
(2)฀฀Our฀investment฀banking฀backlog฀represents฀an฀estimate฀of฀our฀future฀net฀rev-
enues฀from฀ investment฀ banking฀ transactions฀where฀ we฀ believe฀ that฀ future฀
revenue฀realization฀is฀more฀likely฀than฀not.
Introduction
Goldman Sachs is a leading global investment banking, securi-
ties and investment management firm that provides a wide
range of services worldwide to a substantial and diversified
client base that includes corporations, financial institutions,
governments and high-net-worth individuals.
Our activities are divided into three segments:
•฀in v e s tment฀ ba nking฀– ฀We provide a broad range of
investment banking services to a diverse group of corpora-
tions, financial institutions, governments and individuals.
•฀tr a d i ng฀ and฀ prin c i pa l฀ investme n t s ฀–฀We facilitate
customer transactions with a diverse group of corporations,
financial institutions, governments and individuals and take
proprietary positions through market making in, and trading
of, fixed income and equity products, currencies, commodi-
ties and derivatives on such products. In addition, we engage
in floor-based and electronic market making as a specialist on
U.S. equities and options exchanges and we clear customer
transactions on major stock, options and futures exchanges
worldwide. In connection with our merchant banking and
other investment activities, we make principal investments
directly and through funds that we raise and manage.
•฀asset฀ man agemen t ฀ a n d฀ securit i e s ฀ se rvices฀–฀We
offer a broad array of investment strategies, advice and
planning across all major asset classes to a diverse group of
institutions and individuals worldwide, and provide prime
brokerage, financing services and securities lending services
to mutual funds, pension funds, hedge funds, foundations
and high-net-worth individuals worldwide.
Unless specifically stated otherwise, all references to 2004, 2003
and 2002 refer to our fiscal years ended, or the dates, as the
context requires, November 26, 2004, November 28, 2003 and
November 29, 2002, respectively.
When we use the terms “Goldman Sachs,” “we,” “us” and
“our,” we mean The Goldman Sachs Group, Inc. (Group Inc.),
a Delaware corporation, and its consolidated subsidiaries.
References herein to the Annual Report on Form 10-K are to
our Annual Report on Form 10-K for the fiscal year ended
November 26, 2004.
In this discussion, we have included statements that may consti-
tute “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 beliefs 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 materi-
ally, from the results indicated in these forward-looking state-
ments. 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
“— Certain Factors That May Affect Our Business” as well as
“Business — Certain Factors That May Affect Our Business” in
Part I, Item 1 of the Annual Report on Form 10-K.
Executive Overview
Our diluted earnings per share were $8.92 for 2004, a 52%
increase compared with 2003. Return on average tangible
shareholders’ equity was 25.2%(1) and return on average share-
holders’ equity was 19.8%. Our results in 2004 reflected strong
growth in Trading and Principal Investments, Asset Management
and Securities Services, and Investment Banking. The increase
in Trading and Principal Investments reflected significantly
higher net revenues in Fixed Income, Currency and Commodities
(FICC), as all major businesses and regions performed well in
a generally favorable environment. Net revenues in our
Principal Investments business also increased significantly, due
to an unrealized gain on our investment in the convertible pre-
ferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG),
as well as gains from other corporate principal investments. In
addition, Equities net revenues improved, primarily reflecting
higher customer-driven activity and favorable market condi-
tions early in 2004, but results remained below the peak levels
achieved in 2001 and 2000. Equities operated in a less favor-
able environment after our first fiscal quarter of 2004, as vola-
tility levels continued to decline and markets generally lacked
direction before moving higher in the last several weeks of our
fiscal year. Asset Management and Securities Services generated
strong net revenue growth, primarily reflecting higher average
assets under management, increased incentive fees and signifi-
cantly higher customer balances in Securities Services. In
Investment Banking, net revenues increased for the first time in
three years, highlighted by strong growth in our Financial
Advisory and Equity Underwriting businesses, primarily reflect-
ing an increase in industry-wide corporate activity. Our invest-
ment banking backlog at the end of 2004 was higher than at
the end of 2003.(2)
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
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