Record Net Revenues of US$4.53 Billion
NEW YORK - The Goldman Sachs Group, Inc. (NYSE: GS) today reported net earnings of US$824 million, or US$1.62 per diluted share, for its fiscal third quarter ended August 25, 2000.
Earnings per diluted share were 24% above pro forma earnings per diluted share of US$1.31 for the same 1999 quarter, and 9% higher than US$1.48 for the second quarter of 2000. Pro forma earnings for 1999 assume that the firm’s incorporation and other related transactions had occurred at the beginning of 1999. Annualized return on average stockholders’ equity was 29% for the first nine months of 2000 and 27% for the third quarter.
Core earnings per diluted share were US$1.68 for the third quarter, 22% higher compared to US$1.38 in the same 1999 pro forma period. Core earnings per diluted share exclude the amortization of the employee initial public offering awards and include all of the related restricted stock units issued in connection with the initial public offering in common shares outstanding.
Business Highlights
In August, the firm successfully completed its US$4.6 billion secondary offering - the largest U.S. secondary offering.
“These results demonstrate the strength and scale of our global franchise,” said Henry M. Paulson, Jr., Chairman and Chief Executive Officer. “To ensure our position at the center of financial markets, we continue to build out our technology-driven trading platform. On September 11, we announced that Spear, Leeds & Kellogg would join Goldman Sachs. This combination extends our clearing, trading and market-making capabilities and significantly deepens our client base.”
(1)Thomson Financial Securities Data - January 1, 2000 through August 25, 2000
Business Segments
Global Capital Markets
Net revenues in Global Capital Markets, which includes Investment Banking and Trading and Principal Investments, were US$3.44 billion, 32% above the third quarter of 1999 and 15% higher than the second quarter of 2000.
Investment Banking
Investment Banking generated net revenues of US$1.32 billion, 15% higher than last year’s third quarter and 17% lower than the record second quarter of 2000. Revenue growth was strong in all major regions, compared to the same 1999 period. The firm’s investment banking transaction backlog as of August 25, 2000 remained strong.
Financial Advisory net revenues increased 9% over the same 1999 period as the firm capitalized on increased mergers and acquisitions activity in the communications, media and entertainment and high technology sectors.
Net revenues in Underwriting increased 21% compared to the same 1999 period as the firm benefited from increased new issue activity in global equity markets. Net revenue growth was largely driven by strong performances in the communications, media and entertainment and high technology sectors.
Trading and Principal Investments
Net revenues in Trading and Principal Investments were US$2.12 billion for the quarter, 46% higher than the third quarter of 1999 and 51% higher than the second quarter of 2000, which was adversely affected by negative net revenues in Principal Investments.
Fixed Income, Currency and Commodities net revenues increased 32% compared to the third quarter of 1999, primarily due to increased customer flow in fixed income derivatives and improved performances in the Japanese and European government bond businesses, partially offset by lower net revenues from decreased customer activity in the firm’s commodities and high-yield businesses.
Net revenues in Equities rose 67% over the same 1999 period, primarily resulting from strength in equity derivatives and higher transaction volumes in the firm’s U.S. and European shares businesses.
Principal Investments net revenues increased 46% over the same 1999 period. Net revenues of US$480 million in the third quarter included significant gains, balanced between realized and unrealized, on certain of the firm’s merchant banking investments
in the high technology and telecommunications sectors.
Asset Management and Securities Services
Asset Management and Securities Services net revenues were US$1.09 billion, 35% above the same prior year period, and 6% lower than the prior quarter.
Asset Management net revenues increased 48% over last year’s third quarter, primarily reflecting a 37% increase in average assets under management as well as favorable changesin the composition of assets managed. Strong net inflows and market appreciation led to the growth in assets under management during the quarter.
Securities Services net revenues were 20% higher than the same 1999 period, primarily due to increased customer balances in securities lending and margin lending, partially offset by reduced spreads in the fixed income matched book.
Commissions increased 34% compared to the same period last year, primarily due to higher transaction volumes in global equity markets. Revenues from the increased share of income and gains from the firm’s merchant banking funds also contributed to the
increase in Commissions.
Expenses
Operating expenses were US$3.15 billion, up 36% from the same period in 1999, primarily reflecting increased compensation and benefits commensurate with higher net revenue levels. The ratio of compensation and benefits to net revenues was 50% for the third quarter of 2000. Non-compensation-related expenses rose 56% compared to the same period in 1999, primarily due to costs associated with global expansion, higher employment levels and increased business activity. Technology expenditures also contributed to the increase in non-compensation-related expenses. The firm’s effective tax rate for the third quarter was 40%.
Capital
As of August 25, 2000, total capital was US$41.22 billion, consisting of US$12.69 billion in stockholders’ equity and US$28.53 billion in long-term debt. Book value per share was US$26.43, based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 480,263,530 at period end. The firm repurchased 102,145 shares of its common stock during the quarter.
Dividend
The Board of Directors of The Goldman Sachs Group, Inc. declared a dividend of US$0.12 per share to be paid on November 20, 2000, to common shareholders of record on October 23, 2000.
Spear, Leeds & Kellogg
On September 11, 2000, the firm announced an agreement to combine with Spear, Leeds & Kellogg, L.P. (SLK), a leader in securities clearing and execution, floor-based market making and off-floor market making. The transaction is valued at US$6.5 billion,
comprised of US$4.4 billion of Goldman Sachs stock (34 million shares) and cash. As part of this transaction, the firm is establishing a US$900 million retention pool in Goldman Sachs common stock for all SLK employees, which will have varying vesting and
delivery provisions. The transaction is expected to close before year-end, and is subject to customary regulatory and other approvals.
Goldman Sachs is a leading global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking statements”. These statements are not historical facts but instead represent only the firm’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial position may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and factors that would affect the firm’s future results, see our prospectus, dated August 1, 2000 (as filed with the SEC on August 2), under the caption “Risk Factors”.
Forward-looking statements regarding the expected date of completion of the transaction with SLK are subject to the risk that the closing conditions will not be satisfied, including the risk that the necessary regulatory and other approvals will not be obtained.
Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues that we expect to earn from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline in general economic conditions, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. Other important factors that could adversely affect our investment banking transactions are contained in our prospectus, dated August 1, 2000, under the caption “Risk Factors”.
Financial Data
Financial data are available in a spreadsheet [Microsoft® Excel®, 91KB].
Printable Version
You may also wish to view a printable version [PDF, 127KB] of the press release and financial data.
Contacts
Investor Contact:
John Andrews
Tel: 1-212-357-2674
Media Contact:
Kate Baum
Tel: 1-212-902-5400
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