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Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-75321
Prospectus Supplement E to Prospectus dated May 18, 1999
$15,000,000,000
THE GOLDMAN SACHS GROUP, INC.
[GOLDMAN SACHS LOGO] Medium-Term Notes, Series B
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You should read this prospectus supplement, which describes the fourth
quarter and full year earnings reported by Goldman Sachs, in conjunction with
the prospectus dated May 18, 1999 and Prospectus Supplement D dated October 7,
1999.
See "Risk Factors" beginning on page 11 of the prospectus dated May 18,
1999 to read about factors you should consider before investing in any notes.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Goldman Sachs may sell the notes directly or through one or more agents or
dealers, including the agent listed below. The agents are not required to sell
any particular amount of the notes.
Goldman Sachs may use this prospectus supplement in the initial sale of any
note. In addition, Goldman, Sachs & Co. or any other affiliate of Goldman Sachs
may use this prospectus supplement in a market-making transaction in any note
after its initial sale. UNLESS GOLDMAN SACHS OR ITS AGENT INFORMS THE PURCHASER
OTHERWISE IN THE CONFIRMATION OF SALE, THIS PROSPECTUS SUPPLEMENT IS BEING USED
IN A MARKET-MAKING TRANSACTION.
GOLDMAN, SACHS & CO.
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Prospectus Supplement dated December 21, 1999.
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RECENT DEVELOPMENTS
On December 21, 1999, The Goldman Sachs Group, Inc. reported net earnings
of $723 million for its fiscal fourth quarter ended November 26, 1999. Net
earnings for the full fiscal year ended November 26, 1999 were $2.7 billion. Net
earnings for the year were reduced by non-recurring items of $672 million
related to Goldman Sachs' conversion to corporate form in May.
BUSINESS LINE REVIEW
INVESTMENT BANKING
FOURTH QUARTER. Net revenues in Investment Banking were $1.3 billion, a
13% increase over the prior quarter and 59% above the same 1998 period. Goldman
Sachs' equity underwriting and advisory businesses, both in the United States
and internationally, performed strongly as buoyant global equity markets
continued to stimulate healthy deal flow in both new issues and mergers and
acquisitions. Net revenue growth compared to last year's fourth quarter was
particularly strong in the communications, media and entertainment, high
technology and energy and power sectors.
FULL YEAR. Investment Banking generated net revenues of $4.4 billion for
the full year, a 29% increase over 1998. Goldman Sachs' equity underwriting
business benefited from favorable global economic conditions, which led major
equity market indices higher and new issue activity to record levels. Goldman
Sachs maintained its leading position in the advisory business and benefited
from an increase in global merger and acquisition activity. Net revenue growth
was driven by strong performances in the United States and Europe, particularly
in the communications, media and entertainment, high technology, energy and
power, and healthcare sectors.
TRADING AND PRINCIPAL INVESTMENTS
FOURTH QUARTER. Net revenues in Trading and Principal Investments were
$1.3 billion for the quarter, substantially above last year's fourth quarter in
all major components of the business, but 14% lower than the third quarter of
1999, primarily due to reduced customer activity in commodities and lower
transaction flow in both foreign currency and fixed income markets. The increase
in FICC net revenues compared to the fourth quarter of 1998 was primarily due to
a recovery in the fixed income markets, which were negatively affected a year
ago by a dramatic widening of credit spreads and reduced liquidity. Net revenues
in equities increased over the prior year period primarily due to strength in
derivatives and arbitrage and improved performance in convertible securities.
Net revenues in principal investments increased over the prior year period due
to mark-to-market gains on certain of Goldman Sachs' merchant banking
investments, particularly in the telecommunications and high technology sectors.
FULL YEAR. Net revenues in Trading and Principal Investments were $5.8
billion compared to $2.4 billion in 1998, as substantially all components of the
business recovered from the global market turmoil of the second half of 1998.
Net revenues in FICC nearly doubled as growth in Goldman Sachs' credit-sensitive
businesses and commodities was partially offset by lower net revenues in
currencies. The significant net revenue growth in equities was primarily due to
strength in arbitrage and convertibles and increased customer flow in
derivatives and global shares. Net revenues from principal investments increased
dramatically due to mark-to-market gains on certain of Goldman Sachs' merchant
banking investments, particularly in the high technology and telecommunications
sectors.
ASSET MANAGEMENT AND SECURITIES SERVICES
FOURTH QUARTER. Net revenues in Asset Management and Securities Services
were $917 million, an increase of 13% over the third quarter and 21% above the
fourth quarter of 1998. Asset
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management revenues increased 47% over last year's fourth quarter, primarily
reflecting a 29% increase in average assets under management. Securities
services net revenues were 3% lower than the same 1998 period as net revenue
growth in Goldman Sachs' securities lending and margin lending businesses was
offset by reduced spreads in the fixed income matched book. Commissions rose by
21% compared to the prior year period due to higher worldwide transaction
volumes in equity securities.
FULL YEAR. Net revenues in Asset Management and Securities Services were
$3.2 billion, an increase of 16% compared to fiscal 1998. Asset management
revenues increased 36%, primarily reflecting a 32% increase in average assets
under management as well as favorable changes in the composition of assets
managed. Securities services net revenues were up 6%, due to increased customer
balances in Goldman Sachs' securities lending and margin lending businesses,
partially offset by reduced spreads in the fixed income matched book.
Commissions rose by 11% as fees earned on higher transaction volumes in equity
securities were partially offset by a reduction in Goldman Sachs' increased
share of gains from its merchant banking funds.
EXPENSE REVIEW
Operating expenses were $11.4 billion for the full fiscal year, including
non-recurring charges of $2.5 billion related to Goldman Sachs' conversion to
corporate form. The ratio of compensation and benefits to net revenues was 48.4%
for the full year, compared to 50% for the nine-month fiscal period ended August
27, 1999. Non-compensation-related expenses, excluding the charitable
contribution of $200 million made in connection with Goldman Sachs' conversion
to corporate form, rose 23% compared to 1998, due to higher employment levels,
global expansion and growth in business activity.
Goldman Sachs' effective tax rate for the corporate period from May 7, 1999
to the end of the fiscal year was 40%, excluding a non-recurring tax benefit of
$1.8 billion related to its conversion to corporate form.
CAPITAL
As of November 26, 1999, total capital was $31.1 billion, consisting of
$10.1 billion in stockholders' equity and $21.0 billion in long-term debt. Book
value per share was $20.94, based on common shares outstanding, including
restricted stock units granted to employees with no future service requirements,
of 484,566,184 at period end.
DIVIDEND
On December 20, 1999, the Board of Directors of The Goldman Sachs Group,
Inc. declared a dividend of $0.12 per share to be paid on February 24, 2000, to
voting and nonvoting common shareholders of record on January 24, 2000.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
BUSINESS LINE NET REVENUES
(unaudited)
($ in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED CHANGE FROM FISCAL YEAR ENDED CHANGE FROM
-------------------------------- --------------------- ------------------- -----------
NOV. 26, AUGUST 27, NOV. 27, AUGUST 27, NOV. 27, NOV. 26, NOV. 27, NOV. 27,
1999 1999 1998 1999 1998 1999 1998 1998
-------- ---------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Banking
Financial advisory........ $ 622 $ 616 $ 414 1% 50% $ 2,270 $1,774 28%
Underwriting.............. 683 534 407 28 68 2,089 1,594 31
------ ------ ----- ------- ------
Total Investment
Banking................. $1,305 $1,150 $ 821 13 59 $ 4,359 $3,368 29
------ ------ ----- ------- ------
Trading and Principal
Investments
FICC...................... $ 414 $ 661 $(671) (37)% N.M.% $ 2,862 $1,438 99%
Equities.................. 430 458 136 (6) 216 1,961 795 147
Principal investments..... 407 328 (128) 24 N.M. 950 146 N.M.
------ ------ ----- ------- ------
Total Trading and
Principal Investments... $1,251 $1,447 $(663) (14) N.M. $ 5,773 $2,379 143
------ ------ ----- ------- ------
Asset Management and
Securities Services
Asset management.......... $ 282 $ 221 $ 192 28% 47% $ 919 $ 675 36%
Securities services....... 196 195 202 1 (3) 772 730 6
Commissions............... 439 395 363 11 21 1,522 1,368 11
------ ------ ----- ------- ------
Total Asset Management and
Securities Services..... $ 917 $ 811 $ 757 13 21 $ 3,213 $2,773 16
------ ------ ----- ------- ------
Total net revenues........ $3,473 3,408 $ 915 2 280 $13,345 $8,520 57
====== ====== ===== ======= ======
</TABLE>
* * *
ASSETS UNDER SUPERVISION
(unaudited)
($ in millions)
<TABLE>
<CAPTION>
AS OF CHANGE FROM AS OF
-------------------------------- --------------------- --------
NOV. 26, AUGUST 27, NOV. 27, AUGUST 27, NOV. 27, NOV. 28,
1999 1999 1998 1999 1998 1997
-------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets under management............ $258,045 $220,522 $194,821 17% 32% $135,929
Other client assets................ 227,424 192,034 142,018 18 60 102,033
-------- -------- -------- --------
Total assets under supervision..... $485,469 $412,556 $336,839 18 44 $237,962
======== ======== ======== ========
</TABLE>
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
---------------------------------------- ---------------------------
NOVEMBER 26, AUGUST 27, NOVEMBER 27, NOVEMBER 26, NOVEMBER 27,
1999 1999 1998 1999 1998
------------ ---------- ------------ ------------ ------------
(in millions, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Investment banking.......... $1,305 $1,150 $ 821 $ 4,359 $ 3,368
Trading and principal
investments............... 1,218 1,423 (704) 5,758 2,015
Asset management and
securities services....... 736 629 554 2,524 2,085
Interest income............. 3,453 3,238 3,606 12,722 15,010
------ ------ ------ ------- -------
Total revenues..... 6,712 6,440 4,277 25,363 22,478
Interest expense,
principally on short-term
funding................... 3,239 3,032 3,362 12,018 13,958
------ ------ ------ ------- -------
Revenues, net of interest
expense................. 3,473 3,408 915 13,345 8,520
Operating expenses:
Compensation and benefits,
excluding employee initial
public offering awards.... 1,527 1,704 272 6,459 3,838
Non-recurring employee
initial public offering
awards.................... -- -- -- 2,257 --
Amortization of employee
initial public offering
awards.................... 114 115 -- 268 --
Brokerage, clearing and
exchange fees............. 118 108 123 446 424
Market development.......... 117 92 86 364 287
Communications and
technology................ 82 75 76 306 265
Depreciation and
amortization.............. 108 71 84 337 242
Occupancy................... 93 76 60 314 207
Professional services and
other..................... 105 85 107 402 336
Charitable contribution..... -- -- -- 200 --
------ ------ ------ ------- -------
Total operating
expenses......... 2,264 2,326 808 11,353 5,599
Pre-tax earnings............ 1,209 1,082 107 1,992 2,921
Provision/(benefit) for
taxes..................... 486 444 63 (716) 493
------ ------ ------ ------- -------
Net earnings................ $ 723 $ 638 $ 44 $ 2,708 $ 2,428
====== ====== ====== ======= =======
Earnings per share:
Basic....................... 1.51 $ 1.34 $ 5.69
Diluted..................... 1.48 1.32 5.57
Average common shares
outstanding:
Basic....................... 477,395,104 474,694,245 475,883,756
Diluted..................... 489,011,804 483,892,677 485,803,960
</TABLE>
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