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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-75213
PROSPECTUS SUPPLEMENT A
TO
PROSPECTUS DATED MAY 12, 1999
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THE GOLDMAN SACHS GROUP, INC.
6.65% NOTES DUE 2009
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You should read this prospectus supplement, which describes the second
quarter earnings reported by Goldman Sachs, in conjunction with the prospectus
dated May 12, 1999.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THE PROSPECTUS DATED MAY 12,
1999 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN THE 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 ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Goldman, Sachs & Co., a subsidiary of Goldman Sachs, will use this
prospectus supplement in connection with offers and sales of the notes in
market-making transactions.
GOLDMAN, SACHS & CO.
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Prospectus Supplement dated June 23, 1999.
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RECENT DEVELOPMENTS
On June 23, 1999, The Goldman Sachs Group, Inc. reported net earnings,
which were reduced by non-recurring items related to its conversion to corporate
form, of $340 million for its fiscal second quarter ended May 28, 1999.
BUSINESS LINE REVIEW
INVESTMENT BANKING
Investment Banking generated net revenues of $1 billion in the second
quarter, an 11% increase over the prior quarter and 5% above the same 1998
period. Demand for the Firm's advisory and new issues capabilities was strong,
reflecting extremely active markets for both. The Firm continued its first place
ranking in worldwide announced and completed mergers and acquisitions for the
calendar year through May 31.(1) The Firm also maintained its strong market
position in equity underwriting, ranking first in worldwide IPOs and second in
worldwide public common stock offerings over the same period.(1) Net revenue
growth was especially strong within the high technology, energy, healthcare, and
media and entertainment industry groups.
TRADING AND PRINCIPAL INVESTMENTS
Net revenues in the Trading and Principal Investments business were $1.7
billion, 27% higher than the prior 1999 quarter and 23% above the same quarter
of 1998. Net revenues in Equities rose 110% over the prior year period due to
favorable conditions in the global equity markets which resulted in higher
customer flows in the Firm's global shares and equity derivatives businesses.
Strong results in equity arbitrage also contributed to the increase in equities.
FICC recorded a modest decline in net revenues compared to a particularly strong
period in the prior year and a 4% increase compared to the prior quarter. FICC
continued to benefit from the recovery in the fixed income markets that began in
the latter part of 1998. Principal investments net revenues increased 13%
compared to the same 1998 period due to mark-to-market gains on certain of the
Firm's investments in its merchant banking funds.
ASSET MANAGEMENT AND SECURITIES SERVICES
Net revenues in Asset Management and Securities Services were $749 million
for the second quarter, an increase of 2% over the prior period and 17% above
1998's second quarter. In comparison to the end of the first quarter of 1999,
assets under supervision were up 4% and assets under management were unchanged.
Asset management revenues increased 48% over the prior year period, primarily
reflecting a 25% increase in assets under management to $207 billion. Securities
services net revenues were comparable to the prior year period but decreased
relative to the prior quarter principally because of declines in the Firm's
fixed income matched book. Commissions increased 13% over the same 1998 period
as generally strong and volatile equity markets resulted in higher transaction
volumes in listed equity securities.
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1 Securities Data Company -- January 1 to May 31, 1999.
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EXPENSE REVIEW
OPERATING EXPENSES
Operating expenses were $5.0 billion for the second quarter, an increase of
154% over the same period in 1998 primarily due to non-recurring items
recognized in connection with the Firm's initial public offering in early May.
These non-recurring expense items included $2.3 billion for employee
equity-based awards and $200 million for a contribution to the Goldman Sachs
Fund, a charitable foundation. Non-compensation-related expenses, excluding the
contribution to the Goldman Sachs Fund, rose 10% due to higher employment levels
and growth in business activity.
INCOME TAXES
The provision for taxes in the second quarter of 1999 reflected a net
benefit of $1.8 billion primarily due to non-recurring items recognized in
connection with the Firm's initial public offering. These non-recurring items
included a net benefit of $825 million related to the conversion of The Goldman
Sachs Group, L.P. to corporate form, a benefit of $880 million related to the
granting of employee equity-based awards and a benefit of $80 million related to
the contribution to the Goldman Sachs Fund. The Firm's effective tax rate for
the corporate period, excluding the impact of non-recurring items, was 41%.
As of May 28, 1999, total capital was $29.7 billion, consisting of $7.9
billion in stockholders' equity and $21.9 billion in long-term debt. Book value
per share was $16.55, based on common shares outstanding, including the
formula-based restricted stock units, of 474,712,271 at period end.
DIVIDEND
On June 23, 1999, the Board of Directors of The Goldman Sachs Group, Inc.
declared a dividend of $0.12 per share of common stock to be paid on August 27,
1999.
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BUSINESS LINE NET REVENUES
(UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
CHANGE
THREE MONTHS ENDED CHANGE FROM SIX MONTHS ENDED FROM
---------------------------- ------------------ ----------------- -------
MAY 28, FEB. 26, MAY 29, FEB. 26, MAY 29, MAY 28, MAY 29, MAY 29,
1999 1999 1998 1999 1998 1999 1998 1998
------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT BANKING
Financial advisory................ $ 510 $ 522 $ 436 (2)% 17% $1,032 $ 799 29%
Underwriting...................... 492 380 518 29 (5) 872 788 11
------ ------ ------ ------ ------
Total Investment Banking.......... $1,002 $ 902 $ 954 11 5 $1,904 $1,587 20
------ ------ ------ ------ ------
TRADING AND PRINCIPAL INVESTMENTS
FICC.............................. $ 911 $ 876 $ 934 4% (2)% $1,787 $1,675 7%
Equities.......................... 618 455 294 36 110 1,073 659 63
Principal investments............. 189 26 168 627 13 215 244 (12)
------ ------ ------ ------ ------
Total Trading and Principal
Investments..................... $1,718 $1,357 $1,396 27 23 $3,075 $2,578 19
------ ------ ------ ------ ------
ASSET MANAGEMENT AND SECURITIES
SERVICES
Asset management.................. $ 214 $ 202 $ 145 6% 48% $ 416 $ 284 46%
Securities services............... 174 207 174 (16) 0 381 344 11
Commissions....................... 361 327 320 10 13 688 668 3
------ ------ ------ ------ ------
Total Asset Management and
Securities Services............. $ 749 $ 736 $ 639 2 17 $1,485 $1,296 15
------ ------ ------ ------ ------
Total net revenues................ $3,469 $2,995 $2,989 16 16 $6,464 $5,461 18
====== ====== ====== ====== ======
</TABLE>
* * *
ASSETS UNDER SUPERVISION
(UNAUDITED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
AS OF CHANGE FROM AS OF
------------------------------ ------------------ -------------------
MAY 28, FEB. 26, MAY 29, FEB. 26, MAY 29, NOV. 27, NOV. 28,
1999 1999 1998 1999 1998 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C>
Assets under management........... $206,553 $206,380 $165,226 0% 25% $194,821 $135,929
Other client assets............... 176,369 163,315 125,419 8 41 142,018 102,033
-------- -------- -------- -------- --------
Total assets under supervision.... $382,922 $369,695 $290,645 4 32 $336,839 $237,962
======== ======== ======== ======== ========
</TABLE>
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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MAY 28, FEB. 26, MAY 29, MAY 28, MAY 29,
1999(1) 1999 1998 1999 1998
------- -------- ------- ------- -------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Investment banking........................ $ 1,002 $ 902 $ 954 $ 1,904 $ 1,587
Trading and principal investments......... 1,719 1,398 1,311 3,117 2,426
Asset management and securities services.. 616 543 469 1,159 981
Interest income........................... 3,018 3,013 3,829 6,031 7,472
------- ------ ------ ------- -------
Total revenues.................. 6,355 5,856 6,563 12,211 12,466
Interest expense, principally on
short-term
funding................................. 2,886 2,861 3,574 5,747 7,005
------- ------ ------ ------- -------
Revenues, net of interest expense....... 3,469 2,995 2,989 6,464 5,461
Operating expenses:
Compensation and benefits, excluding
employee initial public offering
awards.................................. 1,953 1,275 1,489 3,228 2,589
Non-recurring employee initial public
offering awards......................... 2,257 -- -- 2,257 --
Amortization of employee initial public
offering awards......................... 39 -- -- 39 --
Brokerage, clearing and exchange fees..... 109 111 101 220 194
Market development........................ 78 77 80 155 134
Communications and technology............. 71 78 63 149 121
Depreciation and amortization............. 61 97 62 158 104
Occupancy................................. 67 78 49 145 93
Professional services and other........... 121 91 108 212 167
Charitable contribution................... 200 -- -- 200 --
------- ------ ------ ------- -------
Total operating expenses........ 4,956 1,807 1,952 6,763 3,402
Pre-tax (loss)/earnings................... (1,487) 1,188 1,037 (299) 2,059
Provision for taxes....................... (1,827) 181 190 (1,646) 328
------- ------ ------ ------- -------
Net earnings.............................. $ 340 $1,007 $ 847 $ 1,347 $ 1,731
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</TABLE>
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(1) Includes approximately ten weeks as a partnership and three weeks as a
corporation.
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