DILUTION

As of February 26, 1999, the pro forma net tangible book value of Goldman Sachs was approximately $4.89 billion, or approximately $11.55 per share (which includes the shares of nonvoting common stock, the shares of common stock irrevocably contributed to the defined contribution plan and the shares of common stock underlying the restricted stock units awarded to employees based on a formula). "Pro forma net tangible book value" per share represents the amount of Goldman Sachs' total consolidated tangible assets minus total consolidated liabilities, divided by the 423,712,271 shares outstanding on a pro forma basis after giving effect to the Pro Forma Adjustments described under "Pro Forma Consolidated Financial Information". After giving effect to the sale by The Goldman Sachs Group, Inc. of 51,000,000 shares of common stock in the offerings at the initial public offering price of $53.00 per share and after deducting the underwriting discounts and estimated expenses payable by Goldman Sachs in the offerings, the pro forma net tangible book value of Goldman Sachs as of February 26, 1999 would have been approximately $7.46 billion, or approximately $15.72 per share. This represents an immediate increase in net tangible book value of $4.17 per share to existing shareholders and an immediate dilution in net tangible book value of $37.28 per share to new investors purchasing shares of common stock at the initial public offering price.

The following table illustrates this dilution on a per share basis:

Initial public offering price per share of common stock $53.00
   Pro forma net tangible book value per share before giving effect to the offerings(1) $11.55
   Increase in net tangible book value per share attributable to the sale of common stock in the offerings(2) 4.17

Pro forma net tangible book value per share after giving effect to the offerings(1) 15.72

Dilution in net tangible book value per share to new investors(3) $37.28


(1) Goldman Sachs' intangible assets as of February 26, 1999 were $166 million, comprised primarily of goodwill, equivalent to $0.39 per share, after giving effect to the Pro Forma Adjustments described under "Pro Forma Consolidated Financial Information", and $0.35 per share after giving effect to the offerings.

(2) After deducting the underwriting discounts and estimated expenses payable by Goldman Sachs in the offerings.

(3) Dilution is determined by subtracting pro forma net tangible book value per share after giving effect to the offerings from the initial public offering price per share paid by a new investor.


Shares outstanding excludes 40,127,592 shares of common stock deliverable pursuant to the options awarded to employees on a discretionary basis, 33,292,869 shares of common stock deliverable pursuant to the restricted stock units awarded to employees on a discretionary basis and shares of common stock that may be awarded in the future under the stock incentive plan. See "Management — The Employee Initial Public Offering Awards" for a description of these awards and the stock incentive plan.
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