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management’s฀discussion฀and฀analysis
50฀฀฀G O L D M A N ฀ S A C H S ฀ 2004฀ ANNUAL฀REPO RT
50฀฀฀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
The following table sets forth where a discussion of these and other off-balance-sheet arrangements may be found in this
Annual Report:
TYPE฀OF฀OFF-BALANCE-SHEET฀ARRANGEMENT DISCLOSURE฀IN฀ANNUAL฀REPORT
Retained interests or contingent interests in assets
transferred by us to nonconsolidated entities
See Note 3 to the consolidated financial statements.
Other obligations, including contingent obligations,
arising out of variable interests we have in
nonconsolidated entities
See Note 3 to the consolidated financial statements.
Derivative contracts See “—Critical Accounting Policies” included above and
“—Risk Management” included below and Note 3 to the
consolidated financial statements.
Nonderivative guarantees See Note 6 to the consolidated financial statements.
Leases, letters of credit, and loans and other commitments See “—Capital and Funding” included below and Note 6 to
the consolidated financial statements.
In addition, see Note 2 to the consolidated financial statements for a discussion of our consolidation policies.
Capital and Funding
CAPITAL
The amount of capital we hold is principally determined by
subsidiary capital requirements, regulatory and rating agency
guidelines, and our overall risk profile, which is largely driven
by the size and composition of our trading and investment posi-
tions. Goldman Sachs’ total capital (shareholders’ equity and
long-term borrowings) increased 34% to $105.78 billion as of
November 2004 compared with $79.11 billion as of
November 2003. See “—Risk Management—Liquidity Risk—
Cash Flows” included below, for a discussion of how we
deployed capital raised as part of our financing activities.
The increase in total capital resulted primarily from an increase
in long-term borrowings to $80.70 billion as of November 2004
from $57.48 billion as of November 2003. The weighted aver-
age maturity of our long-term borrowings as of November 2004
was approximately 7 years. We swap a substantial portion of
our long-term borrowings into U.S. dollar obligations with
short-term floating interest rates in order to minimize our expo-
sure to interest rates and foreign exchange movements. See
Note 5 to the consolidated financial statements for further
information regarding our long-term borrowings.
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
BPX/S10829฀•฀Flow฀15฀•฀Proof฀11฀•฀2/4/05฀•฀0700
Off-Balance-Sheet Arrangements
We have various types of off-balance-sheet arrangements that we
enter into in the ordinary course of business. Our involvement in
these arrangements can take many different forms, including
purchasing or retaining residual and other interests in mortgage-
backed and asset-backed securitization vehicles; holding senior
and subordinated debt, limited and general partnership interests,
and preferred and common stock in other nonconsolidated
vehicles; entering into interest rate, foreign currency, equity,
commodity and credit derivatives; entering into operating leases;
and providing guarantees, indemnifications, loan commitments,
letters of credit, representations and warranties.
We enter into these arrangements for a variety of business pur-
poses, primarily related to the securitization of commercial and
residential mortgages and home equity loans, government and
corporate bonds, and other types of financial assets. Other rea-
sons for entering into these arrangements include underwriting
client securitization transactions; providing secondary market
liquidity; making investments in performing and nonperforming
debt, real estate and other assets; providing investors with
credit-linked and asset-repackaged notes; and receiving or pro-
viding letters of credit to satisfy margin requirements and to
facilitate the clearance and settlement process.
Variable interest entities (VIEs) and qualifying special-purpose
entities (QSPEs) are critical to the functioning of several signifi-
cant investor markets, including the mortgage-backed and
asset-backed securities markets, since they provide market
liquidity to financial assets by offering investors access to spe-
cific cash flows and risks created through the securitization
process. Our financial interests in, and derivative transactions
with, nonconsolidated entities are accounted for at fair value, in
the same manner as our other financial instruments, except in
cases where we exert significant influence over an entity and
apply the equity method of accounting.