Goldman Sachs 2004 Annual Report Download - page 53

Download and view the complete annual report

Please find page 53 of the 2004 Goldman Sachs annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 5 1
management’s฀discussion฀and฀analysis
management’s฀discussion฀and฀analysis
GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 5 1
Over the past several years, our ratio of long-term borrowings
to shareholders’ equity has been increasing. The growth in our
long-term borrowings has been driven primarily by (i) the need
to increase total capital in response to opportunities in our trad-
ing and investing businesses and (ii) in light of the favorable
debt financing environment, our ability to replace a portion of
our short-term borrowings with long-term borrowings and pre-
fund near-term refinancing requirements.
Shareholders’ equity increased by 16% to $25.08 billion as of
November 2004 from $21.63 billion as of November 2003.
During 2004, we repurchased 18.7 million shares of our common
stock. In addition, to satisfy minimum statutory employee tax
withholding requirements related to the delivery of shares under-
lying restricted stock units, we cancelled 9.1 million restricted
stock units at an average price of $95.20 per unit in 2004.
Our repurchase program is intended to substantially offset
increases in share count over time resulting from employee
equity-based compensation and to help maintain our sharehold-
ers’ equity at appropriate levels. The repurchase program has
been effected primarily through regular open-market purchases,
the sizes of which have been and will continue to be influenced
by, among other factors, prevailing prices and market condi-
tions. The average price paid per share for repurchased shares
was $96.29 and $76.83 for the years ended November 2004
and November 2003, respectively. As of November 2004, we
were authorized to repurchase up to 6.4 million additional
shares of stock pursuant to our repurchase program. On
January 25, 2005, the Board of Directors of Goldman Sachs
authorized the repurchase of an additional 40.0 million shares
of common stock. For additional information on our repurchase
program, see “Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities”
in Part II, Item 5 of the Annual Report on Form 10-K.
The following table sets forth information on our assets, share-
holders’ equity, leverage ratios and book value per share:
($฀IN฀MILLIONS,฀EXCEPT฀฀ AS฀OF฀NOVEMBER
PER฀SHARE฀AMOUNTS)฀ 2004฀ 2003
Total assets $531,379 $403,799
Adjusted assets(1) 347,082 273,941
Shareholders’ equity 25,079 21,632
Tangible shareholders’ equity(2) 20,208 16,650
Tangible equity capital(2) 22,958 16,650
Leverage ratio(3) 21.2x 18.7x
Adjusted leverage ratio(4) 15.1x 16.5x
Debt to equity ratio(5) 3.2x 2.7x
Book value per share(6) $฀฀฀฀50.77 $฀฀฀฀43.60
Tangible book value per share(7) 40.91 33.56
(1)฀฀Adjusted฀ assets฀ excludes฀ (i)฀ low-risk฀ collateralized฀ assets฀ generally฀ associ-
ated฀ with฀ our฀ matched฀ book฀ and฀ securities฀ lending฀ businesses฀ (which฀ we฀
calculate฀by฀adding฀our฀securities฀purchased฀under฀agreements฀to฀resell฀and฀
securities฀borrowed,฀and฀then฀subtracting฀our฀nonderivative฀short฀positions),฀
(ii)฀ cash฀ and฀ securities฀ we฀ segregate฀ in฀ compliance฀ with฀ regulations฀ and฀
(iii)฀goodwill฀and฀identifiable฀intangible฀assets.฀
The฀following฀table฀sets฀forth฀a฀reconciliation฀of฀total฀assets฀to฀adjusted฀assets:
฀ ฀ AS฀OF฀NOVEMBER
฀(IN฀MILLIONS)฀ 2004฀ 2003
฀ Total฀assets฀ $531,379฀ $403,799
Deduct:฀ Securities฀purchased฀under
฀ ฀ ฀ agreements฀to฀resell฀ (44,257)฀ (26,856)
฀ ฀ Securities฀borrowed฀ (155,086)฀ (129,118)
฀ Add:฀ Financial฀instruments฀sold,฀฀
฀ ฀฀ ฀ but฀not฀yet฀purchased,฀
฀ ฀฀ ฀ at฀fair฀value฀ 132,097฀฀ 102,699
฀ ฀ Less฀derivatives฀ (64,001)฀ (41,886)
฀ ฀ Subtotal฀ 68,096฀ 60,813
฀ Deduct:฀ Cash฀and฀securities฀฀
฀ ฀฀ ฀ segregated฀in฀compliance฀฀
฀ ฀฀ ฀ with฀U.S.฀federal฀and฀฀
฀ ฀฀ ฀ other฀regulations฀ (48,179)฀ (29,715)
฀ ฀ ฀ Goodwill฀and฀identifiable฀฀
฀ ฀ ฀ ฀ intangible฀assets฀ (4,871)฀ (4,982)
฀ Adjusted฀assets฀ $347,082฀ $273,941
(2)฀฀Tangible฀shareholders’฀equity฀equals฀total฀shareholders’฀equity฀less฀goodwill฀
and฀ identifiable฀ intangible฀ assets.฀ Tangible฀ equity฀ capital฀ includes฀ tangible฀
shareholders’฀ equity฀ and฀ junior฀ subordinated฀ debt฀ issued฀ to฀ a฀ trust.฀ We฀
consider฀ junior฀ subordinated฀ debt฀ issued฀ to฀ a฀ trust฀ to฀ be฀ a฀ component฀ of฀
our฀tangible฀equity฀capital฀base฀due฀to฀the฀inherent฀characteristics฀of฀these฀
securities,฀ including฀ the฀ long-term฀ nature฀ of฀ the฀ securities,฀ our฀ ability฀ to฀
defer฀coupon฀interest฀for฀up฀to฀ten฀consecutive฀semiannual฀periods฀and฀the฀
subordinated฀nature฀of฀the฀obligations฀in฀our฀capital฀structure.
The฀following฀table฀sets฀forth฀a฀reconciliation฀of฀shareholders’฀equity฀to฀tan-
gible฀shareholders’฀equity฀and฀tangible฀equity฀capital:
฀ ฀ AS฀OF฀NOVEMBER
฀ (IN฀MILLIONS)฀ 2004฀ 2003
฀ Shareholders’฀equity฀ $25,079 $21,632
฀ Deduct:฀฀Goodwill฀and฀identifiable฀฀
฀ ฀ ฀ intangible฀assets฀ ฀(4,871) (4,982)
฀ Tangible฀shareholders’฀equity฀ $20,208 $16,650
฀ Add:฀฀ Junior฀subordinated฀debt฀฀
฀ ฀ ฀ issued฀to฀a฀trust฀ 2,750 ฀฀฀—
฀ Tangible฀equity฀capital฀ $22,958 $16,650
(3)฀Leverage฀ratio฀equals฀total฀assets฀divided฀by฀shareholders’฀equity.
(4)฀฀Adjusted฀leverage฀ratio฀equals฀adjusted฀assets฀divided฀by฀tangible฀equity฀capi-
tal.฀We฀believe฀that฀the฀adjusted฀leverage฀ratio฀is฀a฀more฀meaningful฀measure฀
of฀ our฀ capital฀ adequacy฀ because฀ it฀ excludes฀ certain฀ low-risk฀ collateralized฀
assets฀that฀are฀ generally฀supported฀with฀ little฀or฀ no฀capital฀and฀ reflects฀the฀
tangible฀equity฀capital฀deployed฀in฀our฀businesses.฀
(5)฀฀Debt฀to฀equity฀ratio฀equals฀long-term฀borrowings฀divided฀by฀shareholders’฀equity.
(6)฀฀Book฀ value฀ per฀ share฀ is฀ based฀ on฀ common฀ shares฀ outstanding,฀ including฀
restricted฀stock฀ units฀granted฀ to฀ employees฀with฀ no฀future฀ service฀ require-
ments,฀ of฀ 494.0฀ million฀ as฀ of฀ November฀ 2004฀ and฀ 496.1฀ million฀ as฀ of฀
November฀2003.฀
(7)฀฀
Tangible฀book฀value฀per฀share฀is฀computed฀by฀dividing฀tangible฀shareholders’฀
equity฀ by฀ the฀ number฀ of฀ common฀ shares฀ outstanding,฀ including฀ restricted฀
stock฀units฀granted฀to฀employees฀with฀no฀future฀service฀requirements.
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
BPX/S10829฀•฀Flow฀15฀•฀Proof฀11฀•฀2/4/05฀•฀0700