Goldman Sachs 2007 Annual Report Download - page 63

Management’s Discussion and Analysis
residential mortgages, home equity and auto loans, government
and corporate bonds, and other types of financial assets. Other
reasons for entering into these arrangements include underwriting
client securitization transactions; providing secondary market
liquidity; making investments in performing and nonperforming
debt, equity, real estate and other assets; providing investors
with credit-linked and asset-repackaged notes; and receiving
or providing letters of credit to satisfy margin requirements
and to facilitate the clearance and settlement process.
We engage in transactions with variable interest entities (VIEs)
and qualifying special-purpose entities (QSPEs). Such vehicles
are critical to the functioning of several significant investor
markets, including the mortgage-backed and other asset-
backed securities markets, since they offer investors access to
specific cash flows and risks created through the securitization
process. Our financial interests in, and derivative transactions
with, such nonconsolidated entities are accounted for at fair
value, in the same manner as our other financial instruments,
except in cases where we apply the equity method of accounting.
While we are routinely involved with VIEs and QSPEs in
connection with our securitization activities, we did not have
off-balance-sheet commitments to purchase or finance
collateralized debt obligations held by structured investment
vehicles as of November 2007.
Geographic Data
For a summary of the net revenues and pre-tax earnings
of Goldman Sachs by geographic region, see Note 16 to the
consolidated financial statements.
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 other asset-backed securitization vehicles; holding
senior and subordinated debt, interests in limited and general
partnerships, and preferred and common stock in other
nonconsolidated vehicles; entering into interest rate, foreign
currency, equity, commodity and credit derivatives, including
total return swaps; entering into operating leases; and providing
guarantees, indemnifications, loan commitments, letters of
credit and representations and warranties.
We enter into these arrangements for a variety of business
purposes, including the securitization of commercial and
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 See Note 3 to the consolidated financial statements.
transferred by us to nonconsolidated entities
Leases, letters of credit, and loans and other commitments See “
— Contractual Obligations and Commitments” below
and Note 6 to the consolidated financial statements.
Guarantees See Note 6 to the consolidated financial statements.
Other obligations, including contingent obligations, arising out See Note 3 to the consolidated financial statements.
of variable interests we have in nonconsolidated entities
Derivative contracts See “
— Critical Accounting Policies” above and
“
— Risk Management” below and Notes 3 and 5
to the consolidated financial statements.
In addition, see Note 2 to the consolidated financial statements for a discussion of our consolidation policies.
61Goldman Sachs 2007 Annual Report