Goldman Sachs 2009 Annual Report Download - page 133

Goldman Sachs 2009 Annual Report
131
Notes to Consolidated Financial Statements
also indemni es some clients against potential losses incurred
in the event speci ed third-party service providers, including
sub-custodians and third-party brokers, improperly execute
transactions. In addition, the  rm is a member of payment,
clearing and settlement networks as well as securities
exchanges around the world that may require the  rm to meet
the obligations of such networks and exchanges in the event
of member defaults. In connection with its prime brokerage
and clearing businesses, the  rm agrees to clear and settle on
behalf of its clients the transactions entered into by them with
other brokerage  rms. The  rm’s obligations in respect of such
transactions are secured by the assets in the client’s account
as well as any proceeds received from the transactions cleared
and settled by the  rm on behalf of the client. In connection
with joint venture investments, the  rm may issue loan
guarantees under which it may be liable in the event of fraud,
misappropriation, environmental liabilities and certain other
matters involving the borrower. The  rm is unable to develop
an estimate of the maximum payout under these guarantees
and indemni cations. However, management believes that it
is unlikely the  rm will have to make any material payments
under these arrangements, and no liabilities related to these
guarantees and indemni cations have been recognized in
the consolidated statements of  nancial condition as of
December2009 and November2008.
The  rm provides representations and warranties to
counterparties in connection with a variety of commercial
transactions and occasionally indemni es them against
potential losses caused by the breach of those representations
and warranties. The  rm may also provide indemni cations
protecting against changes in or adverse application of certain
U.S. tax laws in connection with ordinary-course transactions
such as securities issuances, borrowings or derivatives. In
addition, the  rm may provide indemni cations to some
counterparties to protect them in the event additional taxes
are owed or payments are withheld, due either to a change
in or an adverse application of certain non-U.S. tax laws.
These indemni cations generally are standard contractual
terms and are entered into in the ordinary course of business.
Generally, there are no stated or notional amounts included
in these indemni cations, and the contingencies triggering the
obligation to indemnify are not expected to occur. The  rm is
unable to develop an estimate of the maximum payout under
these guarantees and indemni cations. However, management
believes that it is unlikely the  rm will have to make any
material payments under these arrangements, and no
liabilities related to these arrangements have been recognized
in the consolidated statements of  nancial condition as of
December2009 and November2008.
Group Inc. has guaranteed the payment obligations of
Goldman, Sachs & Co. (GS&Co.), GSBank USA and GSBank
Europe, subject to certain exceptions. In November2008,
the  rm contributed subsidiaries into GSBank USA, and
Group Inc. agreed to guarantee certain losses, including
credit-related losses, relating to assets held by the contributed
entities. In connection with this guarantee, Group Inc. also
agreed to pledge to GSBank USA certain collateral, including
interests in subsidiaries and other illiquid assets. In addition,
Group Inc. guarantees many of the obligations of its other
consolidated subsidiaries on a transaction-by-transaction
basis, as negotiated with counterparties. Group Inc. is unable
to develop an estimate of the maximum payout under its
subsidiary guarantees; however, because these guaranteed
obligations are also obligations of consolidated subsidiaries
included in the table above, Group Inc.’s liabilities as
guarantor are not separately disclosed.
NOTE 9
Shareholders’ Equity
Common and Preferred Equity
During 2009, common shares outstanding increased by
72.6million shares, which included 46.7million common shares
issued through a public offering at $123.00 per share for total
proceeds of $5.75billion during the second quarter of2009.
In June 2009, Group Inc. repurchased from the U.S.
Department of the Treasury (U.S. Treasury) the 10.0million
shares of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series H (Series H Preferred Stock), that were
issued to the U.S. Treasury pursuant to the U.S. Treasury’s
TARP Capital Purchase Program. The repurchase resulted in a
one-time preferred dividend of $426million, which is included
in the consolidated statement of earnings for the year ended
December2009. This one-time preferred dividend represented
the difference between the carrying value and the redemption
value of the Series H Preferred Stock. In connection with the
issuance of the Series H Preferred Stock in October 2008, the
 rm issued a 10-year warrant to the U.S. Treasury to purchase
up to 12.2million shares of common stock at an exercise price
of $122.90per share. The  rm repurchased this warrant in full
in July2009 for $1.1billion. This amount was recorded as a
reduction to additional paid-in capital. The  rm’s cumulative