SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the quarterly period ended May 28, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the transition period ______ to ______
Commission File Number: 000-25178
GS FINANCIAL PRODUCTS U.S., L.P.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 52-1919759
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
P.O. Box 896, Harbour Centre, North Church Street N/A
Grand Cayman, Cayman Islands, British West Indies
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (345) 945-1326
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
---- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ______ No_______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: ___N/A___.
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
FORM 10-Q
PART I: FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1: Financial Statements (Unaudited):
Condensed Statements of Income for the Three Fiscal Months
and Six Fiscal Months Ended May 28, 1999 and May 29, 1998 3
Condensed Statements of Financial Condition as of May 28, 1999
and November 27, 1998 4
Condensed Statement of Changes in Partners' Capital for the Six
Fiscal Months Ended May 28, 1999 5
Condensed Statements of Cash Flows for the Six Fiscal Months
Ended May 28, 1999 and May 29, 1998 6
Notes to the Condensed Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Liquidity and Capital Resources 21
Item 3: Quantitative and Qualitative Disclosures About Market Risk 29
PART II: OTHER INFORMATION
- --------------------------
Item 1: Legal Proceedings 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 31
Signature 32
- 2 -
<PAGE>
PART I: FINANCIAL INFORMATION
- -----------------------------
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
GS FINANCIAL PRODUCTS U.S., L.P.
CONDENSED STATEMENTS OF INCOME
(U.S. dollars in thousands)
(Unaudited)
---------
<TABLE>
<CAPTION>
FOR THE THREE FISCAL MONTHS ENDED FOR THE SIX FISCAL MONTHS ENDED
MAY 28, 1999 MAY 29, 1998 MAY 28, 1999 MAY 29, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Intermediation profit $ 92 $ 13 $ 76 $ 231
Interest 4,515 5,548 9,156 11,101
Equity in loss of affiliate 0 (10) 0 (12)
----- ----- ----- ------
Total revenues 4,607 5,551 9,232 11,320
Interest expense 2,657 3,280 5,398 6,592
----- ----- ----- ------
Revenues, net of interest expense 1,950 2,271 3,834 4,728
EXPENSES:
Operating 580 306 1,218 683
----- ----- ----- ------
Income before taxes 1,370 1,965 2,616 4,045
Income taxes 55 72 105 161
----- ----- ------ ------
Net Income $1,315 $1,893 $2,511 $ 3,884
===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements
- 3 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(U.S. dollars in thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $297,049 $293,636
Securities owned, at fair value 49,285 38,828
Derivative transactions, at fair value:
Affiliate 22,605 11,865
Non-affiliate 77,244 114,958
Investment in affiliate 814 804
Other assets 610 703
-------- --------
Total assets $447,607 $460,794
======== ========
LIABILITIES AND PARTNERS' CAPITAL:
Current portion of long-term borrowings $3,227 $2,573
Derivative transactions, at fair value:
Non-affiliate 60,907 89,078
Long-term borrowings 221,802 209,033
Other liabilities and accrued expenses 1,831 2,791
-------- --------
Total liabilities 287,767 303,475
Commitments and contingencies
Partners' capital:
Limited Partners 159,034 156,525
General Partner 806 794
-------- --------
Total partners' capital 159,840 157,319
-------- --------
Total liabilities and partners' capital $447,607 $460,794
======== ========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
- 4 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX FISCAL MONTHS ENDED MAY 28, 1999
(U.S. dollars in thousands)
(Unaudited)
---------
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER'S CAPITAL PARTNERS' CAPITAL PARTNERS' CAPITAL
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, November 27, 1998 $794 $156,525 $157,319
Net Income 12 2,499 2,511
Foreign currency translation adjustment 0 10 10
----- ------- -------
Balance, May 28, 1999 $806 $159,034 $159,840
===== ======= =======
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
- 5 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
---------
<TABLE>
<CAPTION>
FOR THE SIX FISCAL MONTHS ENDED
-------------------------------
MAY 28, 1999 MAY 29, 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $2,511 $3,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in loss of affiliate 0 12
Unrealized gain on securities owned (10,457) (17,309)
Increase in long-term borrowings due to
embedded derivative transactions, net 13,423 15,677
(Increases) decreases in operating assets:
Derivative transactions, at fair value:
Affiliate (10,740) 8,346
Non-affiliate 37,714 22,113
Other assets 93 (1,946)
(Decreases) increases in operating liabilities:
Derivative transactions, at fair value:
Non-affiliate (28,171) (24,333)
Other liabilities and accrued expenses (960) 3,690
------- -------
Net cash provided by operating activities 3,413 10,134
Net increase in cash and cash equivalents 3,413 10,134
Cash and cash equivalents, beginning of period 293,636 291,375
------- -------
Cash and cash equivalents, end of period $297,049 $301,509
======= =======
Supplemental disclosure of cash flow information:
Interest paid $3,104 $5,332
Income taxes paid 225 0
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
- 6 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
1. DESCRIPTION OF BUSINESS:
-----------------------
Since October 1997, The Goldman Sachs Group, L.P., which was succeeded by
The Goldman Sachs Group, Inc. ("Group") in May 1999, has undertaken a
review of the business and operations of GS Financial Products U.S., L.P.
(the "Company") and certain other affiliates of Group engaged in the
derivative products business in order to reassess the scope of their
activities, to evaluate the level and nature of staffing and to review the
procedures that are in place to handle the type and volume of businesses
that they may pursue. During this review, the Company and GS Financial
Products International, L.P. ("FPI") have not entered into any new
Derivative Transactions and have not issued any new debt securities. On
July 9, 1999, the Boards of Directors of GS Financial Products US Co., the
Company's corporate general partner, and of GS Financial Products Co., the
corporate general partner of FPI, agreed that the Company and FPI would not
enter into any new Derivative Transactions or issue any new debt
securities, and that both the Company and FPI would pursue attractive
opportunities to retire or transfer their obligations, with the eventual
goal of liquidating both companies. The Board of Directors of the Company's
corporate general partner has not approved a formal plan for liquidating
the Company. The lack of activity occasioned by the review has negatively
affected the Company's results of operations for the first half of fiscal
1999, and the continued lack of activity in the future is expected to have
a significant negative effect on the Company's results of operations in
future quarters, but is not expected to affect the ability of the Company
to meet its obligations. No assurance can be given as to what effect these
actions will have on the Company's credit ratings described below.
The historical business of the Company was to enter into, as principal or
guarantor, a variety of types of transactions involving financial
instruments such as interest rate swaps, interest rate options (e.g.,
interest rate caps, interest rate floors and options on interest rate
swaps), currency swaps and options, commodity swaps and options, index
swaps and forward contracts (collectively, "Derivative Transactions").
Generally, the Company entered into or guaranteed Derivative Transactions
in situations where two or more counterparties (typically including an
affiliate of the Company) wished to enter into one or more Derivative
Transactions between themselves but wanted the Company to substitute its
credit for that of one or more of the counterparties. In accordance with
market practice, the Company did this by entering into each of such
transactions directly as principal. Such Derivative Transactions also
included the use of futures contracts, or the purchase of the underlying
instruments subject to the transactions, such as foreign currency, physical
commodities and securities. Because it conducts its business exclusively on
a matched basis, the Company is subject to credit risk but not market risk
on Derivative Transactions (as described under "Derivative Transactions" --
see Note 4).
The Company's long-term debt and counterparty credit risk have been rated
AAA by Standard & Poor's Ratings Group ("S&P") and Fitch IBCA, Inc.
("Fitch"). There can be no assurance that S&P and Fitch will continue to
rate the Company's long-term debt and counterparty credit risk,
respectively, in their highest category.
- 7 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
2. SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
BASIS OF PRESENTATION
The unaudited condensed financial statements should be read in conjunction
with the audited financial statements of the Company as of November 27,
1998 and November 28, 1997, and for the fiscal years ended November 27,
1998, November 28, 1997 and November 29, 1996, included in the Company's
Annual Report on Form 10-K for the fiscal year ended November 27, 1998.
Results for the fiscal quarters presented are not necessarily indicative of
results for a full fiscal year. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation have been reflected.
The condensed statement of financial condition as of November 27, 1998 was
derived from audited financial statements but does not include all
disclosures required under generally accepted accounting principles.
These financial statements have been prepared in accordance with generally
accepted accounting principles that require management to make estimates
and assumptions that affect the unaudited condensed financial statements
and related disclosures. These estimates and assumptions are based on
judgement and available information and, consequently, actual results could
be materially different from these estimates.
The Company is organized as a Cayman Islands exempted limited partnership.
All the partnership interests in the Company are owned by subsidiaries of
Group.
The financial statements are reported in U.S. dollars, the functional
currency of the Company. Assets and liabilities denominated in currencies
other than the U.S. dollar are measured using exchange rates prevailing as
of the dates of the condensed statements of financial condition. Revenues
and expenses are measured at weighted average rates of exchange for the
periods. The Company's equity in gains or losses resulting from translating
the financial statements of affiliates in which it has invested, whose
functional currency is other than the U.S. dollar, is recorded as foreign
currency translation adjustments and included in partners' capital.
Certain transactions entered into by the Company are presented on a
net-by-counterparty basis, where management believes a right of setoff
exists under an enforceable master netting agreement.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments and include time
deposits at banks with original maturities of three months or less.
FINANCIAL INSTRUMENTS
The Company's Derivative Transactions and securities owned are recorded on
a trade date basis.
- 8 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
Securities owned are recorded at fair value. Derivative Transactions are
recorded at estimated fair value. As a result, due to the nature of the
Company's activities, a substantial portion of the intermediation profit
from credit enhancing new Derivative Transactions may be recognized upon
entering into such transactions. The Company did not recognize such
intermediation profit for the three fiscal months and the six fiscal months
ended May 28, 1999 and May 29, 1998 because it did not enter into any new
transactions due to the aforementioned review.
Intermediation profits were $76 thousand for the six fiscal months ended
May 28, 1999. The Company recognized a profit of $210 thousand from
amortization of performance guarantee fees. This was offset in part by a
loss of $135 thousand due to a decrease in the present value of the
Company's net investment in Derivative Transactions. The intermediation
profit for the six fiscal months ended May 29, 1998 was principally
attributable to the recognition of the residual performance guarantee fees
on transactions which were terminated prior to original maturity due to the
early termination of the underlying Derivative Transactions at the request
of the counterparties thereto.
Fair value for all securities owned is based on quoted market prices. Fair
value for all Derivative Transactions is estimated by using financial
models developed by affiliates, which incorporate market data for the
relevant instruments or for instruments with similar characteristics. The
nature, size, and timing of transactions and the liquidity of the markets
may not ultimately allow for the realization of these values.
Intermediation profit earned on performance guarantees is deferred and
amortized over the term of the guarantee (see Notes 4 & 5). Unamortized
guarantee fees are recognized as intermediation profit upon any early
termination of the underlying Derivative Transactions, as noted above.
PROVISION FOR TAXES
The Company, as a partnership, is not subject to U.S. federal income taxes.
The Company's income is subject to a 4% New York City unincorporated
business tax. The condensed statements of income for the fiscal quarters
ended May 28, 1999 and May 29, 1998 include a provision for unincorporated
business tax on income earned by the Company related to doing business in
New York City.
CREDIT EXPOSURE
The Company anticipates that its credit exposures may be highly
concentrated since financial instruments reported as assets may be with a
limited number of counterparties. In addition, this concentration may
increase as the Company begins to retire or transfer its obligations. At
May 28, 1999, the Company had no credit exposure net of collateral
exceeding 10% of its total assets to any single counterparty. At November
27, 1998, the Company had credit exposure exceeding 10% of its total assets
to Bank of America, NA and Commerzbank AG. The combined exposures to these
two banks represented 24% of
- 9 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
the Company total assets. Bank of America, NA and Commerzbank AG both were
rated AA- by at least one internationally recognized credit rating agency
at November 27, 1998.
ACCOUNTING DEVELOPMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for the reporting and presentation of
comprehensive income and its components in the financial statements. This
statement is effective for fiscal years beginning after December 15, 1997
and was adopted by the Company in the fiscal quarter ended February 26,
1999. The components of comprehensive income are set forth below:
<TABLE>
<CAPTION>
FOR THE SIX FISCAL MONTHS ENDED
-------------------------------
(U.S. dollars in thousands)
MAY 28, 1999 MAY 29, 1998
------------ ------------
<S> <C> <C>
Net income $2,511 $3,884
Other comprehensive income (loss):
Foreign currency translation adjustment 10 (19)
----- -----
Total comprehensive income $2,521 $3,865
===== =====
</TABLE>
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - An Amendment of FASB Statement No. 133", which deferred
for one year the effective date of the accounting and reporting
requirements of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
instrument depends on its intended use and the resulting designation. The
Company intends to adopt the provisions of SFAS No. 133 deferred by SFAS
No. 137 in fiscal 2001 and is currently assessing its effect.
3. SECURITIES OWNED:
----------------
As of May 28, 1999 and November 27, 1998, securities owned consisted of
shares of common stock of Oxford Health Plans, Inc. (fair value
approximately $3.0 million and $1.9 million, respectively) and shares of
common stock of Citigroup, Inc. (fair value approximately $46.3 million and
$36.9 million, respectively). The Company purchased these securities to
hedge certain of the Company's exposures incurred by its issuance of two
series of equity-linked Medium-Term Notes, one of which is mandatorily
exchangeable
- 10 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
at maturity into shares of common stock of Oxford Health Plans, Inc. and
the other of which is exchangeable, at the option of the holder, into
shares of Citigroup, Inc. common stock. (See Note 7).
4. DERIVATIVE TRANSACTIONS:
-----------------------
The fair values of Derivative Transactions entered into by the Company are
presented in the condensed statements of financial condition on a
net-by-counterparty basis, where management believes a right of setoff
exists under an enforceable master netting agreement. Derivative
Transactions are principally interest rate swaps, interest rate options,
index swaps, currency options, currency forwards and currency swaps which
are denominated in various currencies. The fair values of swap and forward
agreements in a gain position, as well as options purchased, are reported
in accordance with the Company's netting policy as assets under the caption
"Derivative transactions, at fair value". Similarly, the fair value of swap
and forward agreements in a loss position, as well as options written, are
reported as liabilities under the caption "Derivative transactions, at fair
value". Derivative Transactions reported in accordance with the Company's
netting policy as assets are principally obligations of major international
financial institutions which are rated A or better by at least one
internationally recognized rating agency.
Futures contracts are exchange-traded standardized contractual commitments
to buy or sell a specified quantity of a financial instrument, currency or
commodity at a specified price and future date. Forward contracts are
over-the-counter ("OTC") contracts between two parties who agree to
exchange a specified quantity of a financial instrument, currency or
commodity at a specified price and future date. Option contracts convey the
right to buy (call option) or sell (put option) a financial instrument,
currency or commodity at a pre-determined price. For written option
contracts, the writer receives a premium in exchange for bearing the risk
of unfavorable changes in the financial instrument, currency or commodity.
Swaps are OTC contracts between two parties who agree to exchange periodic
cash flow streams calculated on a pre-determined contractual (notional)
amount.
The Company historically entered into various Derivative Transactions
whereby the Company agreed to pay amounts that might increase in the event
of changes in the level of an underlying index. The Company entered into
such transactions with counterparties only if it was able to enter into
offsetting transactions that entitled the Company to receive amounts that
were equal to or in excess of the amounts it owed. As a result, so long as
none of its counterparties defaults, the Company believes that it bears no
market risk (i.e., its ability to satisfy its obligations will not be
affected by market conditions).
While the ultimate excess cash flows on these offsetting transactions will
be positive or zero, the reported revenues in any period (based on the
discounted value of these excess cash flows) will be impacted by changes in
interest rates or foreign exchange rates.
The Company's principal risk in respect of Derivative Transactions entered
into or guaranteed is the credit risk associated with potential failure by
counterparties to perform under the terms of their obligations to the
Company ("Credit Exposure"). Credit Exposure is measured by the loss the
Company would record in such a circumstance and equals, at any point in
time, the cost of replacing a Derivative Transaction in a gain position,
net of
- 11 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
collateral posted by the counterparty, and any Derivative Transactions
structured on a limited recourse basis. As of May 28, 1999 and November 27,
1998, the Company's aggregate Credit Exposure in respect of Derivative
Transactions was approximately $89 million and approximately $124 million,
respectively.
The Company limits its Credit Exposure by doing business principally with
highly rated counterparties. In certain circumstances, the Company may also
require a counterparty to post marketable securities, principally U.S.
Treasury bonds or notes and securities issued or backed by U.S.
governmental agencies, as collateral in order to reduce the amount of the
Company's credit exposure. The Company has obtained collateral of
approximately $2.7 million related to Derivative Transactions as of May 28,
1999.
A summary of the notional or contractual amounts (U.S. dollars in millions)
of the Company's Derivative Transactions by principal characteristic
follows. It should be noted that notional principal amount is not a measure
of market or credit risk.
<TABLE>
<CAPTION>
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
<S> <C> <C>
Non-affiliates
Interest rate swap agreements $1,991 $2,385
Currency options written 108 304
Currency options purchased 108 108
Interest rate options written 774 826
Interest rate options purchased 1,387 1,450
Currency and other swap agreements 0 162
Foreign currency forwards 19 66
Equity options purchased 46 37
Affiliates
Interest rate swap agreements $2,944 $3,413
Currency options written 108 108
Currency options purchased 108 304
Interest rate options written 1,387 1,450
Interest rate options purchased 774 826
Currency and other swap agreements 150 312
Foreign currency forwards 19 64
</TABLE>
The notional amount of Derivative Transactions with affiliates differs from
that with non-affiliates generally due to a different notional amount of
affiliate versus non-affiliate transactions guaranteed, as well as to
Derivative Transactions between the Company and affiliates which hedge the
Company's structured notes, interest rate or currency exposure on surplus
cash flow from its portfolio, or which are intended to mitigate total
credit risk.
As described in Note 2, Derivative Transactions are carried at estimated
fair value, with the resulting gains and losses recognized currently as
intermediation profit. The fair values of Derivative Transactions owned or
issued as of May 28, 1999 and November 27, 1998 and the average monthly
fair values of such instruments for the six fiscal months ended May 28,
- 12 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
1999 and the fiscal year ended November 27, 1998, computed in accordance
with the Company's netting policy, are as follows:
<TABLE>
<CAPTION>
Fair Value
----------
(U.S. dollars in millions)
AS OF MAY 28, 1999 AS OF NOVEMBER 27, 1998
------------------ -----------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Derivative Transactions
Non-affiliates $77.2 $60.9 $115.0 $89.1
Affiliates 22.6 0.0 11.9 0.0
</TABLE>
<TABLE>
<CAPTION>
Average Monthly Fair Value
--------------------------
(U.S. dollars in millions)
SIX FISCAL MONTHS ENDED FISCAL YEAR ENDED
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Derivative Transactions
Non-affiliates $99.8 $75.3 $148.2 $122.4
Affiliates 13.3 0.0 12.3 0.0
</TABLE>
5. RELATED PARTY TRANSACTIONS:
--------------------------
The Company historically entered into hedging and performance guarantee
transactions with affiliates. Substantially all of the Company's Derivative
Transactions involve some degree of hedging with affiliates.
In accordance with agreements with certain affiliates, technical and
administrative services may be provided to the Company for an amount
representing 105% of the cost incurred. In addition, the Company has
entered into a custodian and space sharing agreement with an affiliate for
which an agreed upon fee per annum is charged. The Company also obtains
brokerage and custodial services from affiliates at market rates. For the
six fiscal months ended May 28, 1999 and May 29, 1998, approximately $763
thousand and $133 thousand, respectively, were charged for such services.
The significant increase in services fees is primarily due to additional
expenses billed to the Company as a result of the aforementioned review by
Group.
- 13 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
6. INVESTMENT IN AFFILIATE:
-----------------------
The Company owns an approximate 2% general and limited partnership interest
in FPI. The Company accounts for its investment in FPI under the equity
method because of its non-managing general partner interest in FPI.
As discussed above, FPI will not engage in any new Derivative Transactions
and will not issue any new debt securities. As of May 28, 1999, its assets
consist principally of cash and cash equivalents, Japanese government debt
securities and Derivative Transactions. Under Cayman Islands law, as a
general partner, the Company would be liable for all of the liabilities of
FPI if the assets of FPI were inadequate to meet its obligations. The
Company, after analyzing the financial position, results of operations and
cash flows of FPI, believes that FPI will be able to meet its obligations
under its outstanding liabilities. Accordingly, the Company does not
believe that it is necessary to, and has not, established a reserve with
respect to FPI's obligations under its liabilities.
As of May 28, 1999, FPI's long-term debt securities were rated Aaa, AAA and
AAA by Moody's Investors Service, Inc. ("Moody's"), S&P and Fitch,
respectively.
FPI's functional currency is the Japanese yen, and the amounts presented
below were translated at the appropriate yen/dollar exchange rate.
Selected financial data for FPI
(U.S. dollars in millions):
MAY 28, 1999 NOVEMBER 27, 1998
------------- -----------------
Total assets $154 $170
Total liabilities 120 137
Partners' capital 34 33
7. LONG-TERM BORROWINGS:
--------------------
The Company has issued both principal protected and non-principal protected
Medium-Term Notes ("Notes"). The payments on the Notes are determined by
reference to the performance of a single equity security or an equity
index. The Company's obligations to the holders of the Notes fluctuate
based on the closing price of the applicable equity security or equity
index. Certain of the Notes are subject to redemption at the option of the
Company if certain conditions are met. The terms of a Note linked to a
single stock may either allow for or mandatorily require the holder to
exchange the Notes into an amount of the underlying security. The hedging
of equity-linked Notes has utilized substantially all of the proceeds from
the issuance of such Notes.
The Company has ascribed, where applicable, the proceeds from the Notes to
the underlying principal component and the embedded Derivative
Transactions. The amounts ascribed to the principal component will accrete,
under the effective interest rate method, to the stated principal amount
over time. The embedded Derivative Transactions are recorded at estimated
fair value.
- 14 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
The Company has purchased equity securities and has entered into various
Derivative Transactions with affiliates and has purchased exchange traded
options to eliminate its market risk on the Notes. (See Note 4 for a
discussion of Credit Exposure on Derivative Transactions.) The fixed
interest rates on Notes linked to an equity index have been effectively
converted to U.S. dollar-based floating interest rate costs by entering
into Derivative Transactions with affiliates. The gains and losses on these
Derivative Transactions hedging the principal component are deferred and
the periodic receipts and payments are recognized as adjustments to
interest expense and are accrued over the life of the Notes. For the six
fiscal months ended May 28, 1999, interest expense on Notes linked to a
single stock was approximately $2.0 million, which was primarily offset by
amounts recorded in interest income. As discussed in Note 2, securities
owned are recorded at fair value and the Derivative Transactions hedging
the embedded Derivative Transactions are recorded at estimated fair value,
respectively.
<TABLE>
<CAPTION>
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
<S> <C> <C>
Nikkei Indexed Notes due December 22, 2000(1) $49,508 $49,818
S&P Enhanced Stock Index Growth Notes due August 9, 2002(2) 126,498 116,399
7% Mandatorily Exchangeable Notes due July 23, 1999(3) 3,227 2,573
(Subject to Mandatory Exchange into Shares of Common Stock of
Oxford Health Plans, Inc.)
3% Citicorp Exchangeable Notes due August 28, 2002(4) 45,796 42,816
------- -------
Total long-term borrowings 225,029 211,606
Current portion of long-term borrowings(3) 3,227 2,573
-------- --------
Long-term borrowings, less current portion $221,802 $209,033
======== ========
<FN>
(1) The $40 million face amount of Nikkei Indexed Notes are principal protected
and have no stated coupon. The carrying value is inclusive of an embedded
written option to the note holders of $13.2 million as of May 28, 1999 and
$14.7 million as of November 27, 1998.
(2) The $73 million face amount of S&P Enhanced Stock Index Growth Notes (the
"S&P Notes") are principal protected and have no stated coupon. The
carrying value is inclusive of an embedded written option to the note
holders of $66.8 million as of May 28, 1999 and $58.6 million as of
November 27, 1998. On April 5, 1999, the closing value of the S&P 500
Composite Stock Index was 1321.12. As a result, pursuant to the terms of
the S&P Notes, the redemption amount payable at maturity will be $53.25 per
each $25 face amount of the S&P Notes, irrespective of further increases or
decreases in the closing value of the index.
(3) The 7% Mandatorily Exchangeable Notes due July 23, 1999 do not have a face
amount, but had an initial principal amount of $40.8 million which
represented 477,865 notes at the prevailing market price of Oxford Health
Plans, Inc. common stock on the date of issue. At May 28, 1999, there was
$13.5 million principal amount of these notes outstanding, and the carrying
value of the remaining notes of $3.2 million is included in current portion
of long-term borrowings in the May 28, 1999 statement of financial
condition. The principal repayment amount at maturity will be determined by
the closing price of the Oxford Health Plans, Inc. common stock at maturity
and, accordingly, the carrying value will fluctuate based upon the
prevailing market price of the common stock. The ability of the holders of
such notes to participate in the appreciation of the Oxford Health Plans,
Inc. common stock is limited and cannot exceed a closing price of $129.77
per note at maturity. The carrying value includes the embedded Derivative
Transactions of ($10.3) million and ($10.9) million as of May 28, 1999 and
November 27, 1998, respectively.
(4) The 3% Citicorp Exchangeable Notes are principal protected and are
exchangeable in $250,000 increments by the holders of such Notes at the
rate of 5,456.25 shares of Citigroup, Inc. common stock per increment. In
addition, the Notes are redeemable by the Company at various times after
September 14, 1999 at the face amount, plus accrued interest, if the note
holders have not exercised their exchange option. The carrying value
includes the embedded Derivative Transactions of $1.8 million and ($0.7)
million as of May 28, 1999 and November 27, 1998, respectively.
</FN>
</TABLE>
- 15 -
<PAGE>
GS FINANCIAL PRODUCTS U.S., L.P.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
----------
Including the impact of the Derivative Transactions, the weighted average
interest rate for the Notes was 6.19% as of May 28, 1999 and 5.99% as of
November 27, 1998.
On April 20, 1999, Citigroup announced a 3-for-2 stock split for all
shareholders of record as of May 3, 1999, which was paid on May 28, 1999.
8. LIABILITY OF GENERAL PARTNER:
----------------------------
The Company's sole general partner is GS Financial Products US Co. (the
"Corporate General Partner"). Under Cayman Islands law, the Corporate
General Partner, but not its shareholders, would be liable for all of the
obligations of the Company if the assets of the Company were inadequate to
meet its obligations. The sole business of the Corporate General Partner is
to manage the Company.
The assets of the Corporate General Partner consist principally of cash.
The Corporate General Partner had assets and equity of $2.1 million as of
May 28, 1999 and assets of $2.6 million and equity of approximately $2.4
million as of November 27, 1998.
- 16 -
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since October 1997, Group has undertaken a review of the business and operations
of the Company and certain other affiliates of Group engaged in the derivative
products business in order to reassess the scope of their activities, to
evaluate the level and nature of staffing and to review the procedures that are
in place to handle the type and volume of businesses that they may pursue.
During this review, the Company and FPI have not entered into any new Derivative
Transactions and have not issued any new debt securities. On July 9, 1999, the
Boards of Directors of the Corporate General Partner and of GS Financial
Products Co., the corporate general partner of FPI, agreed that the Company and
FPI would not enter into any new Derivative Transactions or issue any new debt
securities, and that both the Company and FPI would pursue attractive
opportunities to retire or transfer their obligations, with the eventual goal of
liquidating both companies. The Board of Directors of the Corporate General
Partner has not approved a formal plan for liquidating the Company. The lack of
activity occasioned by the review has negatively affected the Company's results
of operations for the first half of fiscal 1999, and the continued lack of
activity in the future is expected to have a significant negative effect on the
Company's results of operations in future quarters, but is not expected to
affect the ability of the Company to meet its obligations. No assurance can be
given as to what effect these actions may have on the Company's credit ratings.
Historically, the Company engaged in the business of entering into, as principal
or guarantor, a variety of types of Derivative Transactions, principally
interest rate swaps, interest rate options (e.g., interest rate caps, interest
rate floors and options on interest rate swaps), currency swaps and options,
index swaps, commodity swaps and options, and forward contracts. Generally, the
Company entered into or guaranteed Derivative Transactions in situations where
two or more counterparties (typically including an affiliate of the Company)
wished to enter into one or more Derivative Transactions between themselves, but
wanted the Company to substitute its credit for that of one or more of the
counterparties. In accordance with market practice, the Company did this by
entering into each of such transactions directly as principal. Such Derivative
Transactions also included the use of futures contracts, or the purchase of the
underlying instruments subject to the transactions, such as foreign currency,
physical commodities and securities. Derivative Transactions entered into or
guaranteed by the Company consist principally of interest rate swaps, interest
rate options, index swaps, currency options, currency forwards and currency
swaps denominated in a variety of currencies.
At May 28, 1999, the Company had entered into or guaranteed approximately $9.3
billion notional amount of interest rate swaps and options, $619 million
notional amount of currency options, forwards and swaps and $46 million notional
amount of equity options with a total of 28 counterparties.
In general, the Company refers to transactions where all of the payment
obligations or delivery obligations can be met from cash flow or delivery
obligations from one or more transactions in its portfolio as being "hedged". It
is important to note in this regard that,
- 17 -
<PAGE>
except with respect to certain interest rate swaps entered into to hedge the
interest rate risk on its outstanding debt, the Company hedges its cash flow on
a portfolio basis, not on a transaction by transaction basis. Accordingly, any
particular payment or delivery obligation under a transaction may not be offset
with a single corresponding transaction.
Substantially all of the Company's Derivative Transactions involve some degree
of hedging with affiliates. As of May 28, 1999, the Company has entered into or
guaranteed approximately $5.5 billion notional amount of Derivative Transactions
with affiliates principally to hedge exposures on third party transactions. In
general, the notional amount of Derivative Transactions with affiliates exceeds
that with non-affiliates due to a greater notional amount of affiliate versus
non-affiliate transactions guaranteed, as well as Derivative Transactions
between the Company and affiliates which hedge the Company's structured notes
and interest rate or currency exposure on surplus cash flow from its portfolio
or which are intended to mitigate total credit risk.
As of May 28, 1999, the Company had equity-linked Medium-Term Notes outstanding
with a carrying value of $225 million. As discussed above, the Company does not
intend to issue equity-linked Medium-Term Notes in the future.
RESULTS OF OPERATIONS
Due to the results of the aforementioned review by Group as discussed above in
"-- Overview", the Company does not intend to enter into any new Derivative
Transactions or issue any new debt securities. The lack of activity has
negatively affected the Company's results of operations for the first half of
fiscal 1999, and the continued lack of activity in the future is expected to
have a significant negative effect on the Company's results of operations in
future quarters.
Neither the Company nor its partners are subject to any income or profits tax,
capital gains tax, capital transfer tax, estate duty or inheritance tax under
the laws of the Cayman Islands. Further, the Company has obtained a Tax
Exemption Certificate from the Governor of the Cayman Islands, which is
effective for 50 years from March 3, 1992, and which provides that no law
thereafter enacted in the Cayman Islands imposing any tax on profits, income,
capital gains or appreciation may apply to the Company or any partner thereof.
The Company, as a partnership, is not subject to U.S. federal income taxes.
The Company's income is subject to a 4% New York City unincorporated business
tax. The condensed statements of income for the three fiscal months and the six
fiscal months ended May 28, 1999 and May 29, 1998 include a provision for
unincorporated business tax on income earned by the Company related to doing
business in New York City. Depending upon the manner in which the business of
the Company will be operated in other jurisdictions, there is a possibility that
one or more such jurisdictions would impose tax on the profits of the Company.
THREE FISCAL MONTHS ENDED MAY 28, 1999 VERSUS THREE FISCAL MONTHS
ENDED MAY 29, 1998
For the three fiscal months ended May 28, 1999, the Company reported revenues,
net of interest expense, of $2.0 million, consisting principally of net interest
income. This represented a decrease in reported revenues, net of interest
expense, of 14% compared to
- 18 -
<PAGE>
the fiscal quarter ended May 29, 1998. The decrease is primarily attributable to
a reduction in interest income earned on short-term time deposits due to lower
short-term interest rates over the relevant periods. The Company did not
recognize any intermediation profit on new Derivative Transactions due to the
aforementioned review by Group. The Company incurred interest expense of $2.7
million during the fiscal quarter ended May 28, 1999 relating to equity-linked
Medium-Term Notes.
For the three fiscal months ended May 29, 1998, the Company reported revenues,
net of interest expense, of $2.3 million, consisting principally of net interest
income. For the three fiscal months ended May 29, 1998, the Company did not
enter into or guarantee any new Derivative Transactions due to the
aforementioned review by Group. The Company incurred interest expense of $3.3
million during the three fiscal months ended May 29, 1998 relating to
equity-linked Medium-Term Notes.
Interest income for the three fiscal months ended May 28, 1999 was $4.5 million
or 19% less than the same fiscal period of the previous year, primarily due to a
decrease in amounts recorded as interest income on Derivative Transactions
relating to hedges of Medium-Term Notes issued by the Company that are linked to
a single stock. As a result of the aforementioned review by Group, the Company
did not earn any intermediation profit on new Derivative Transactions for the
three fiscal months ended May 28, 1999. Intermediation profit was $92 thousand
for the three fiscal months ended May 28, 1999 compared to intermediation profit
of $13 thousand in the same fiscal period of 1998. The Company recognized $117
thousand of intermediation profit from amortization of performance guarantee
fees, including $26 thousand related to residual performance guarantee fees on
the related Derivative Transactions which were terminated prior to original
maturity at the request of the counterparties. This was offset in part by a loss
of $25 thousand from a decrease in the present value of the Company's net
investment in Derivative Transactions. Interest expense of $2.7 million for the
three fiscal months ended May 28, 1999 decreased from the $3.3 million incurred
in the three fiscal months ended May 29, 1998 due to a decrease in long-term
debt outstanding. The effective weighted average interest rate for long-term
borrowings was 6.09% for the fiscal quarter ended May 28, 1999.
Operating expenses for the three fiscal months ended May 28, 1999 were $580
thousand, compared to $306 thousand in the fiscal quarter ended May 29, 1998.
The increase is due primarily to amounts billed to the Company from Goldman,
Sachs & Co. for technical and administrative services relating to the
aforementioned review by Group. Fees and expense reimbursement to Group
affiliates included within operating expenses were $410 thousand and $95
thousand for the three fiscal months ended May 28, 1999 and May 29, 1998,
respectively.
Net income of $1.3 million for the three fiscal months ended May 28, 1999
decreased by 31% or $578 thousand from the three fiscal months ended May 29,
1998 net income of $1.9 million. The decrease is primarily attributable to the
combination of a reduction in interest income earned on cash balances invested
in short-term time deposits, as short-term interest rates were generally lower,
and an increase in operating expenses, over the relevant periods. Total assets
as of May 28, 1999 were $448 million, consisting principally of cash and cash
equivalents, securities owned and Derivative Transactions, a decline of 3% from
total assets as of November 27, 1998.
- 19 -
<PAGE>
SIX FISCAL MONTHS ENDED MAY 28, 1999 VERSUS SIX FISCAL MONTHS
ENDED MAY 29, 1998
For the six fiscal months ended May 28, 1999, the Company reported revenues net
of interest expense of $3.8 million, consisting principally of net interest
income. This represented a decrease in reported revenues net of interest expense
of 19% compared to the six fiscal months ended May 29, 1998. During the period,
the Company did not recognize any intermediation profit on new Derivative
Transactions due to the review by Group described above. The intermediation
profit of $76 thousand for this period principally resulted from the recognition
of the residual performance guarantee fees offset in part by a decrease in the
present value of the Company's net investment in Derivative Transactions. The
Company incurred interest expense of $5.4 million during the six fiscal months
ended May 28, 1999.
For the six fiscal months ended May 29, 1998, the Company reported revenues net
of interest expense of $4.7 million, consisting principally of net interest
income of $4.5 million. During the period, the Company did not enter into or
guarantee any new Derivative Transactions due to the review by Group described
above. The other intermediation profit for this period principally resulted from
the recognition of the residual performance guarantee fees on transactions which
were terminated prior to original maturity due to the early termination of the
underlying Derivative Transactions at the request of the counterparties. The
Company incurred interest expense of $6.6 million during the six fiscal months
ended May 29, 1998.
Interest income of $9.2 million for the first six fiscal months ended May 28,
1999 decreased by $1.9 million, or 18%, over the six fiscal months ended May 29,
1998, primarily due to a decrease in amounts recorded as interest income on
Derivative Transactions relating to hedges of Medium-Term Notes issued by the
Company that are linked to a single stock. Intermediation profit decreased $155
thousand to $76 thousand for the six fiscal months ended May 28, 1999 compared
to intermediation profit of $231 thousand in the six fiscal months of 1998. in
the six fiscal months ended May 28, 1999, the Company recognized $211 thousand
of intermediation profit from amortization of performance guarantee fees,
including $32 thousand related to residual performance guarantee fees on
transactions which were terminated prior to original maturity due to the early
termination of the underlying Derivative Transactions at the request of the
counterparties. This was offset in part by a loss of $135 thousand from a
decrease in the present value of the Company's net investment in Derivative
Transactions. Interest expense of $5.4 million for the six fiscal months ended
May 28, 1999 decreased from the $6.6 million incurred in the same six fiscal
months period in 1998 due to a decrease in long-term debt outstanding. The
effective weighted average interest rate for long-term borrowings was 6.19% for
the six fiscal months ended May 28, 1999.
Operating expenses for the six fiscal months ended May 28, 1999 were $1.2
million, compared to $683 thousand in the six fiscal months ended May 29, 1998.
The increase is due primarily to amounts billed to the Company from Goldman,
Sachs & Co. for technical and administrative services relating to the
aforementioned review by Group. Fees and expense reimbursement to Group
affiliates within operating expenses were $763 thousand and $133 thousand for
each of the six fiscal month periods ended May 28, 1999 and May 29, 1998.
- 20 -
<PAGE>
Net income of $2.5 million for the six fiscal months ended May 28, 1999
decreased by 35% or $1.4 million from the six fiscal months ended May 29, 1998
net income of $3.9 million. This decrease is primarily attributable to the
combination of a reduction in interest income earned on cash balances invested
in short-term deposits, as short-term interest rates were generally lower, and
higher operating expenses, over the relevant period.
Net cash provided by operating activities during the six months ended May 28,
1999 was $3.4 million, which primarily reflected net income. In comparison, for
the six fiscal months ended May 29, 1998 net cash provided by operating
activities was $10.1 million, which primarily reflected receipts exceeding
payments on Derivative Transactions, including the receipt of certain payments
under Derivative Transactions with affiliates that were terminated prior to
their original maturity.
LIQUIDITY AND CAPITAL RESOURCES
The Company conducts its business in a manner designed to require that cash
payments to the Company from its portfolio, taking into account market
fluctuations and the possibility of default, will be sufficient to make when due
all required payments on all the Company's liabilities, including payments of
principal and interest on borrowings. The Company needs capital principally to
absorb potential losses due to counterparty defaults. If counterparties were to
default on their obligations to the Company, these losses could be substantial.
However, based on the credit quality of its counterparties (including
affiliates), the Company does not currently anticipate any default losses and
has not recorded any provisions for credit losses.
The Company believes that the best measure, at any point in time, of its credit
exposure to a particular counterparty is the cost it would incur to replace the
obligations of that counterparty if it defaulted, net of the fair value of any
high quality marketable securities posted as collateral by the counterparty. The
Company believes that under current market conditions it could enter into
replacement contracts for all of its contracts if the counterparties were to
default. However, there can be no assurance that the Company could enter into
such replacement contracts due to factors beyond the control of the Company,
such as the limited liquidity of many of the Company's assets and the potential
unavailability of suitable replacement contracts. Where several transactions
with one counterparty are subject to a master agreement which provides for
netting and which management believes is legally enforceable under relevant law,
the Company calculates the exposure resulting from those transactions on a net
basis, i.e., adding the positive and negative values; and where the transactions
are not subject to such a netting agreement, the Company calculates its exposure
on a gross basis, i.e., adding only positive values. This method is identical to
that used for calculating the amount of Derivative Transactions recorded on the
Company's condensed statement of financial condition. As a result, at any point
in time, the Company's aggregate credit exposure in respect of an asset equals
the cost of replacing such asset less the value of any collateral posted by the
counterparty and of any Derivative Transactions structured on a limited recourse
basis. The Company has applied Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Relating to Certain Contracts",
for financial reporting purposes for all periods presented.
In certain circumstances, the Company may reduce its credit exposure to a
counterparty by requiring that the counterparty deposit margin or collateral.
When accepting margin or collateral, the Company generally accepts high quality
marketable securities (e.g., U.S. Treasury bonds or notes and securities issued
or backed by U.S. governmental agencies).
- 21 -
<PAGE>
The Company calculates credit exposure net of collateral when it believes that
it has a perfected security interest in such collateral under an enforceable
agreement.
The composition, at May 28, 1999 and November 27, 1998, of the Company's credit
exposures is shown in the tables below according to the long-term debt ratings
of the obligors by S&P rating and by the industry and location of the obligors.
(Totals do not equal Derivative Transactions reported as assets principally
because credit exposures include cash and cash equivalents and guarantees and
exclude certain Derivative Transactions where the Company believes that it does
not have credit risk -- e.g., any collateralized portion of Derivative
Transactions reported as assets and any Derivative Transactions structured on a
limited recourse basis.) At May 28, 1999 and November 27, 1998, the Company's
counterparties consisted largely of banks located in Europe and North America,
as well as affiliates of Group. It is important to note that the Company's
credit exposures will fluctuate as a result of changes in the replacement cost
of existing transactions due to changes in, among other things, the level of
indices to which transactions are linked, supply and demand for particular
transactions and the time remaining until maturity of the transactions.
<TABLE>
<CAPTION>
Current Credit Exposure - By S&P Rating of Obligor:
--------------------------------------------------
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
S&P Rating: $ Percent $ Percent
- ---------- ------- ------- ------ -------
<S> <C> <C> <C> <C>
AAA $56.8 14.7% $104.5 25.0%
AA+ 65.0 16.8 78.4 18.8
AA 25.0 6.5 36.9 8.8
AA- 206.2 53.4 158.4 38.0
A+ 24.4 6.3 24.9 6.0
A 0.0 0.0 11.1 2.7
A- and below 9.0 2.3 3.0 0.7
------- ------ ------- ------
Total $ 386.4 100.0% $ 417.2 100.0%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Current Credit Exposure - By Country of Obligor's Headquarters:
--------------------------------------------------------------
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
$ Percent $ Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Country:
- -------
U.S. $194.1 50.2% $239.9 57.5%
Switzerland 25.1 6.5 41.2 9.9
France 30.1 7.8 30.1 7.2
Germany 40.0 10.3 62.6 15.0
Japan 1.5 0.4 3.0 0.7
Netherlands 44.1 11.4 38.5 9.2
Canada 50.6 13.1 0.0 0.0
Other 0.9 0.3 1.9 0.5
------- ----- ------ -----
Total $ 386.4 100.0% $417.2 100.0%
======= ===== ====== =====
</TABLE>
- 22 -
<PAGE>
<TABLE>
<CAPTION>
Current Credit Exposure - By Obligor Industry:
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
$ Percent $ Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Industry:
- --------
Banks $313.6 81.1% $311.1 74.6%
Financials 33.2 8.6 39.1 9.4
Industrials 7.5 2.0 10.6 2.5
Government Agencies 32.1 8.3 56.4 13.5
------- ----- ------ -----
Total $ 386.4 100.0% $417.2 100.0%
======= ===== ====== =====
</TABLE>
The Company has entered into transactions with FPI and Goldman Sachs Capital
Markets, L.P. ("GSCM") (obligations of GSCM being unconditionally guaranteed by
Group) in order to hedge transactions with third parties. (The notional amount
of Derivative Transactions with affiliates exceeds that with non-affiliates due
to a greater notional amount of affiliate versus non-affiliate transactions
guaranteed, as well as Derivative Transactions between the Company and
affiliates which hedge the Company's equity-linked Medium-Term Notes and
interest rate or currency exposure on surplus cash flow from its portfolio, or
which are intended to mitigate total credit risk.) At May 28, 1999, the Company
had $22.0 million and $0.6 million of credit exposure to GSCM and FPI,
respectively, as a result of these transactions. In addition, the Company had
$1.8 million of credit exposure to Goldman Sachs International as a result of
transactions guaranteed. In light of the level of credit exposure to Group and
its affiliates at May 28, 1999, the Company does not believe that financial
information with respect to Group is material to investors in the Company's
equity-linked Medium-Term Notes.
The Company anticipates that its credit exposures may be highly concentrated
since financial instruments reported as assets may be transacted with a limited
number of counterparties. In addition, this concentration may increase as the
Company begins to retire or transfer its obligations. At May 28, 1999, the
Company had no credit exposure net of collateral exceeding 10% of its total
assets to any single counterparty.
As of May 28, 1999, the Company was a party to Derivative Transactions with a
notional amount of $9.9 billion. Of these, $3.3 billion notional amount
represented Derivative Transactions which could not expose the Company to credit
risk (e.g., options written and Derivative Transactions structured on a limited
recourse basis). The composition of the remainder of the Company's Derivative
Transactions by maturity and counterparty S&P rating is illustrated below. It
should be noted that notional principal amount is not a measure of market or
credit risk.
- 23 -
<PAGE>
Notional Amount of Derivative Transactions with
Potential Credit Exposure - By Maturity:
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
$ Percent $ Percent
------ ------- ------ -------
1999 $1,151 17.4% $1,968 24.7%
2000-2002 1,185 17.9 1,535 19.3
2003-2005 1,873 28.3 1,913 24.1
2006-2008 1,554 23.5 1,624 20.4
2009-2021 854 12.9 915 11.5
------ ----- ------ -----
Total $6,617 100.0% $7,955 100.0%
====== ===== ====== =====
Notional Amount of Derivative Transactions With
Potential Credit Exposure - By Credit Quality of Obligor:
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
$ Percent $ Percent
------ ------- ------ -------
S&P Rating:
AAA $1,214 18.3% $1,437 18.1%
AA+ 433 6.5 433 5.4
AA 300 4.5 300 3.8
AA- 134 2.0 189 2.4
A+ 66 1.0 101 1.3
A 327 5.0 453 5.7
A- and below 149(a) 2.3 124(a) 1.6
Affiliates 3,994 60.4 4,918 61.7
------ ----- ------ -----
Total $6,617 100.0% $7,955 100.0%
====== ===== ====== =====
(a) Includes Derivative Transactions which were collateralized in part and
therefore reflects reduced credit exposure.
Notional Amount of Derivative Transactions With Potential
Credit Exposure - By Principal Underlying Index Type:
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
$ Percent $ Percent
------ ------- ------ -------
Interest rate $6,295 95.1% $7,059 88.7%
Currency 276 4.2 860 10.8
Other 46 0.7 36 0.5
------ ----- ------ -----
Total $6,617 100.0% $7,955 100.0%
====== ===== ====== =====
The notional amount of currencies, expressed in U.S. dollars at May 28, 1999, to
be exchanged under currency options and currency swaps outstanding at May 28,
1999 (see "Currency" in the table above) were U.S. dollars ($150 million),
Japanese yen (approximately $19 million), Euro (approximately $107 million).
- 24 -
<PAGE>
The fair values of Derivative Transactions as of May 28, 1999 and November 27,
1998 and the average monthly fair values of such instruments for the six fiscal
months ended May 28, 1999 and the fiscal year ended November 27, 1998, computed
in accordance with the Company's netting policy, are as follows:
<TABLE>
<CAPTION>
Fair Value
----------
(U.S. dollars in millions)
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Derivative Transactions
-----------------------
Non-affiliates $77.2 $60.9 $115.0 $89.1
Affiliates 22.6 0.0 11.9 0.0
</TABLE>
<TABLE>
<CAPTION>
Average Monthly Fair Value
--------------------------
(U.S. dollars in millions)
SIX FISCAL MONTHS ENDED FISCAL YEAR ENDED
MAY 28, 1999 NOVEMBER 27, 1998
------------ -----------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Derivative Transactions
-----------------------
<S> <C> <C> <C> <C>
Non-affiliates $99.8 $75.3 $148.2 $122.4
Affiliates 13.3 0.0 12.3 0.0
</TABLE>
The Company is also a general partner of FPI and, as such, would ultimately be
liable for all the obligations of FPI if it were insolvent. At May 28, 1999, FPI
had total liabilities of $120 million. The Company, after analyzing the
financial position, results of operations and cash flows of FPI, believes that
FPI will be able to meet its obligations under its outstanding liabilities.
Accordingly, the Company does not believe that it is necessary to, and has not,
established a reserve with respect to FPI's obligations under its liabilities.
As of May 28, 1999, FPI's long-term debt securities were rated Aaa, AAA and AAA
by Moody's, S&P and Fitch, respectively.
At May 28, 1999, the Company had $297 million of cash and cash equivalents
available to meet its payment obligations. The Company believes that this level
of cash and cash equivalents is sufficient to enable it to meet all of its
current payment obligations. The Company anticipates that it will make
distributions to partners in the future. However, the amount of such
distributions will be limited to ensure the Company's ability to meet its
obligations is not adversely affected.
The Company has issued and outstanding $40 million face amount of Nikkei 225
Indexed Notes due December 22, 2000, $73 million face amount of S&P Enhanced
Stock Index Growth Notes due August 9, 2002, approximately $13.5 million initial
principal amount of 7% Mandatorily Exchangeable Notes due July 23, 1999 (Subject
to Mandatory Exchange into Shares of Common Stock of Oxford Health Plans, Inc.)
("Oxford Notes"), and $48 million principal amount of 3% Citicorp Exchangeable
Notes due August 28, 2002 ("Citicorp Notes"). The single stock related Note
issuances (i.e., the Oxford Notes and Citicorp Notes)
- 25 -
<PAGE>
are an integral part of individually structured Derivative Transactions.
Payments on the above Notes are determined by reference to the performance of a
single equity security or an equity index. The terms of the Citicorp Notes
allow, and the terms of the Oxford Notes require, the holder to exchange the
Notes into an amount of the underlying security. The Company has purchased
equity securities and has entered into Derivative Transactions with affiliates
of Group and purchased exchange traded options to eliminate its market risk on
the Notes. The hedging of equity-linked Notes has utilized substantially all of
the proceeds from the issuance of such Notes. As discussed above under
"--Overview", the Company does not intend to issue new debt securities.
Furthermore, the Company intends to pursue attractive opportunities to retire or
transfer its obligations, with the eventual goal of liquidation.
As of May 28, 1999, securities owned consisted of shares of common stock of
Oxford Health Plans, Inc. (fair value approximately $3.0 million) and shares of
common stock of Citigroup, Inc. (fair value approximately $46.3 million).
At May 28, 1999, the Company had $160 million of partners' capital. The Company
believes that this level of partners' capital is sufficient for it to support
its operations and current portfolio of Derivative Transactions.
YEAR 2000 READINESS DISCLOSURE
As discussed under "Related Party Transactions" under Note 5 to the Company's
condensed financial statements, substantially all of the Company's operational
and administrative functions are provided by affiliates of Group. Group has
advised the Company as follows with respect to Year 2000 issues:
YEAR 2000
With the year 2000 approaching, many institutions around the world are reviewing
and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors (including those in non-information technology equipment and
systems) use only two digits to identify a year in the date field with the
assumption that the first two digits of the year are always "19". Consequently,
on January 1, 2000, computers that are not Year 2000 compliant may read the year
as 1900. Systems that calculate, compare or sort using the incorrect date may
malfunction.
Group, which for purposes of this discussion of Year 2000 includes its
affiliates, has determined that it will be required to modify or replace
portions of its information technology systems, both hardware and software, and
its non-information technology systems so that they will properly recognize and
utilize dates beyond December 31, 1999. Group currently believes that with
modifications to existing software, conversions to new software and replacement
of some hardware, the Year 2000 issue will be satisfactorily resolved in its own
systems worldwide. However, if such modifications and conversions are not made
or are not completed on a timely basis, the Year 2000 issue could have a
material adverse effect on the Company. Moreover, even if these changes are
successful, failure of third parties to which Group is financially or
operationally linked to address their own Year 2000 problems could also have a
material adverse effect on the Company.
- 26 -
<PAGE>
By the end of June 1999, Group had completed the remediation, testing and
implementation phases for all of its systems, except for the implementation of
three applications that are scheduled for July and early August 1999. In March
1999, Group completed the first cycle of its internal integration testing with
respect to critical U.S. securities and transaction flows. The remaining cycle,
which related primarily to non-U.S. products, was completed in June 1999. This
integration testing was intended to validate that Group's systems can
successfully perform critical business functions beginning in January 2000 and
was completed successfully with no material problems. By the end of June 1999,
Group had also completed testing and implementation of vendor-supplied
technology products that it considers mission-critical, although with respect to
products that run in multiple locations, implementation at some locations is
expected to continue through September 1999.
Group is also addressing Year 2000 issues that may exist outside its own
technology activities, including its facilities, external service providers and
other third parties with which it interfaces. Group has inventoried and ranked
its customers, business and trading partners, utilities, exchanges,
depositories, clearing and custodial banks and other third parties with which
Group has important financial and operational relationships. Group is continuing
to assess the Year 2000 preparedness of these parties.
By the end of June 1999, Group had participated in approximately 150 "external",
i.e., industry-wide or point-to-point, tests with exchanges, clearing houses and
other industry utilities, as well as the "Streetwide" test sponsored by the
Securities Industry Association for its U.S. members and completed in April
1999. Group successfully completed all of these tests with no material problems.
By the end of October 1999, Group expects to have participated in approximately
20 additional external tests, including major industry tests in those global
markets where Group conducts significant business.
Acknowledging that a Year 2000 failure, whether internal or external, could have
an adverse effect on its ability to conduct day-to-day business, Group is
employing a comprehensive and global approach to contingency planning. By the
end of June 1999, Group's contingency plans for its core business units were
substantially completed. Group expects that contingency plans for the rest of
its business, including the business of the Company, will be completed by the
end of September 1999.
Group has incurred, and expects to continue to incur, expenses allocable to
internal staff, as well as costs for outside consultants, to complete the
remediation and testing of internally developed systems and the replacement and
testing of third-party products and services, including non-technology products
and services, in order to achieve Year 2000 compliance and in connection with
contingency planning for the date change and related activities. Group currently
estimates that these costs will total approximately $170 million, a substantial
majority of which has been spent to date. These estimates include the cost of
technology personnel but do not include the cost of most non-technology
personnel involved in Group's Year 2000 effort. Group expects to incur the
remaining cost of its Year 2000 program during the remainder of 1999 and early
2000.
If third parties with whom the Company interacts have Year 2000 problems that
are not remedied, the Company could be adversely affected in various ways
including the following: (i) in the case of vendors, disruption of important
services upon which the Company depends, such as telecommunications and
electrical power; (ii) in the case of third-party data providers, receipt of
inaccurate or out-of-date information that would impair the Company's ability to
perform critical data functions, such as pricing the Company's
- 27 -
<PAGE>
securities or other assets; (iii) in the case of financial intermediaries, such
as exchanges and clearing agents, failed trade settlements, inability to trade
in certain markets and disruption of funding flows; (iv) in the case of banks
and other lenders, disruption of capital flows potentially resulting in
liquidity stress; and (v) in the case of counterparties and customers, financial
and accounting difficulties for those parties that expose the Company to
increased credit risk. Disruption or suspension of activity in the world's
financial markets is also possible.
The costs of the Year 2000 program and the date on which Group plans to complete
the Year 2000 modifications are based on current estimates, which reflect
numerous assumptions about future events, including the continued availability
of resources, the timing and effectiveness of third-party remediation plans and
other factors. The Company can give no assurance that these estimates will be
achieved, and actual results could differ materially from Group's plans.
Specific factors that might cause material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct relevant computer source codes and embedded chip
technology, the results of internal and external testing and the timeliness and
effectiveness of remediation efforts of third parties.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company has made in this Quarterly Report on Form 10-Q and anticipates that
it will make in future filings with the Securities and Exchange Commission, in
press releases and otherwise, written and oral forward-looking statements. Any
statement concerning the Company's expectations, beliefs, or intentions about
future conditions or events should be considered to be forward-looking and
should be understood to be subject to the factors discussed below, among others,
which may cause actual results for the Company to differ materially from those
anticipated by such forward-looking statements.
The Company's expectation that it will not be subject to market risk, that it
will receive an equal or greater payment or delivery with respect to any payment
or delivery obligation it incurs, and that it will have scheduled cash sources
that are available on or before the required payment of an obligation is
dependent upon the absence of counterparty default. While the Company has
procedures in place to monitor the credit quality of its counterparties, the
credit quality of a counterparty may be affected by economic, political and
other events beyond the Company's control. Defaults by counterparties with large
obligations to the Company could materially and adversely affect the Company's
results of operations, financial condition and cash flows.
Group indirectly controls the Company and all of its business activities. As
discussed above in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview", the Company does not intend to enter
into new Derivative Transactions, issue new debt securities, or otherwise engage
in any new business.
The Company has routinely entered into transactions with GSCM and other
affiliates of Group. The obligations of GSCM are guaranteed by Group and the
obligations of other Group affiliates are also guaranteed by Group. The Company
may, therefore, have a significant credit exposure to Group in the future. If
the Company has a material exposure to Group, a default by Group would have a
material and adverse effect on the Company.
- 28 -
<PAGE>
In certain circumstances the Company anticipates that it would attempt to enter
into Derivative Transactions to replace a defaulted transaction or to reduce the
risk of default. Failure to replace a defaulted Derivative Transaction or the
inability to enter into a Derivative Transaction to reduce the risk of default
could prevent the Company from eliminating the market or credit risk with
respect to one or more other Derivative Transactions. The Company's ability to
enter into replacement Derivative Transactions or other risk reducing Derivative
Transactions will be limited by the availability of appropriate counterparties
willing to enter into suitable Derivative Transactions. No assurance can be
given that the Company will be able to enter into replacement or risk reducing
Derivative Transactions.
The Company anticipates that it will continue to depend upon affiliates of Group
for the performance of essential management, operational, and administrative
functions. The failure of the relevant Group affiliate to perform those
functions could prevent the Company from conducting its business, including
making payments to its counterparties and ensuring compliance with its
operational guidelines. In this regard, Group has informed the Company of its
preparations for Year 2000. A failure by the relevant Group affiliates to be
Year 2000 compliant could materially adversely affect the business, results of
operations and financial condition of the Company. See "-- Year 2000 Readiness
Disclosure" for a discussion of the Company's reliance upon Group and its
affiliates with respect to the Year 2000 issue.
The Company limits the types of instruments that it enters into as principal or
guarantees in order to avoid becoming subject to regulation. The enactment of
new legislation or new interpretations of existing statutes and regulations may
cause the Company to become subject to regulation in one or more countries. If
the Company were to become subject to regulation, no assurance can be given that
the Company would be able to comply with the applicable regulatory requirements.
The Company believes that in the case of credit exposures calculated on a "net
basis" (i.e., adding the positive and negative values) or net of collateral that
it has an enforceable netting agreement or an enforceable security interest. No
assurance can be given, however, that a court under all circumstances would
enforce the netting agreement or recognize the validity of the security
interest.
The Company's long-term debt and counterparty credit risk have been rated in the
highest categories by S&P and Fitch (the "Rating Agencies"). The Company's
ratings may be changed or withdrawn at any time by either of the Rating
Agencies, based upon factors selected solely by the Rating Agencies. No
assurance can be given that the recent actions of the Board of Directors of the
Corporate General Partner of the Company as described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" will not adversely affect the Company's credit ratings.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations --Overview" under Item 2 for a description of the Company's portfolio
composition.
INTEREST-RATE RISK MANAGEMENT. Changes in interest rates will change the present
value of any cash flows which the Company is entitled to receive in the future.
As a result, the
- 29 -
<PAGE>
Company may experience fluctuations in reported revenues. The aggregate
hypothetical reduction in reported revenues from the Company's portfolio as of
May 28, 1999 that would have resulted from a hypothetical 100 basis point
increase in interest rates across the entire yield curve is estimated to be $473
thousand. Because the Company is unable to predict the movement of interest
rates, the Company is unable to predict whether its reported revenues would be
reduced as a result of such exposure.
As the Company's portfolio (on a net basis) is primarily exposed to movements in
U.S. dollar LIBOR rates, the portfolio was subjected to 100 basis point
movements (increases and decreases) in the U.S. dollar LIBOR curve. All of the
Company's financial and derivative instruments have been included in the
portfolio for the purpose of this analysis. There are no financial or derivative
instrument features contained within the portfolio that would disproportionately
affect revenues if an actual movement of greater or less than 100 basis points
were to occur.
The Company also has outstanding Medium-Term Notes ("Notes") with an aggregate
principal amount of $175 million, the principal payments on which are determined
by reference to the performance of a single equity security or an equity index
(see "-- Equity-Price Risk Management" below). The interest rate component on
the Notes has been hedged by entering into Derivative Transactions with
affiliates, thereby eliminating the interest-rate risk in respect of the Notes.
FOREIGN-EXCHANGE RISK MANAGEMENT. Although certain of the interest rate swaps in
the Company's current portfolio require payments in currencies other than U.S.
dollars, the Company has entered into Derivative Transactions with affiliates of
Group which entitle it to receive equal or greater amounts of the same
currencies. To the extent that the Company has or is entitled to receive amounts
of currencies other than the U.S. dollar, which amounts are not needed to
service the Company's obligations, the Company's reported revenues will be
affected by changes in the value (expressed in U.S. dollars) of such currencies.
As of May 28, 1999, the Company's sole foreign-exchange exposure is comprised of
its Japanese Yen equity investment in FPI. This exposure is not actively
managed. Based on the value of the Company's investment in FPI at May 28, 1999,
its reported revenues would be reduced by $733 thousand if the Company were to
realize no value from its investment. As the Company is unable to predict the
movement of foreign currencies, the Company is unable to predict whether its
reported revenues would be reduced as a result of such exposure.
The above analysis reflects fully the net foreign-exchange exposure of the
Company.
EQUITY-PRICE RISK MANAGEMENT. As of May 28, 1999, the Company has equity-linked
Notes outstanding with an aggregate principal amount of $175 million. The
Company has purchased equity securities, has entered into various Derivative
Transactions with affiliates and has purchased exchange traded options to
eliminate its market risk on the Notes. The Company's exposure to fluctuations
in the market price of the equity securities, exchange traded options and
Derivative Transactions with affiliates that it holds is offset by changes in
its liability for the face or principal amount of the equity-linked Notes. As a
result, fluctuations in the prices for such securities and options will not
result in a reduction of the Company's reported revenues. As discussed above in
"-- Interest-Rate Risk Management", the interest rate component on the Notes has
been hedged by entering into Derivative Transactions with affiliates, thereby
eliminating the remaining market risk in respect of the Notes.
- 30 -
<PAGE>
The above analysis reflects fully the net equity-price exposure of the Company.
COMMODITY-PRICE RISK MANAGEMENT. The Company had no positions sensitive to
commodity-price risk as of May 28, 1999.
PART II: OTHER INFORMATION
- --------------------------
ITEM 1: LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding.
ITEM 5: OTHER INFORMATION
On July 6, 1999, the Board of Directors of GS Financial Products US Co., the
Company's corporate general partner, accepted the resignation of Jonathan M.
Lopatin from the position of Director.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12.1 Statement re computation of ratios of earnings to fixed charges
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
- 31 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GS FINANCIAL PRODUCTS U.S., L.P.
acting by its general partner, GS Financial
Products US Co.
Date: July 12, 1999 By: /s/ C. DOUGLAS FUGE
-------------------------------------
C. Douglas Fuge
President, Principal Financial
Officer and Principal Accounting
Officer
For and on behalf of GS Financial
Products US Co., managing general
partner of GS Financial Products
U.S., L.P.
- 32 -
GS FINANCIAL PRODUCTS U.S., L.P.
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE THREE FISCAL MONTHS ENDED FOR THE SIX FISCAL MONTHS ENDED
--------------------------------- -------------------------------
(Unaudited) (U.S. dollars in thousands) May 28, 1999 May 29, 1998 May 28, 1999 May 29, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before income taxes $1,370 $1,965 $2,616 $4,045
Add: Fixed charges 2,673 3,338 5,430 6,703
-------------------------------------------------------------------
Earnings as adjusted $4,043 $5,303 $8,046 $10,748
Fixed charges:
Interest expense $2,657 $3,280 $5,398 $6,592
Debt amortization expense 16 58 32 111
Interest portion of rent expense 0 0 0 0
-------------------------------------------------------------------
Total fixed charges $2,673 $3,338 $5,430 $6,703
Ratio of earnings to fixed charges 1.5x 1.6x 1.5x 1.6x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings as
adjusted consist of net income plus income taxes and fixed charges. Fixed
charges consist of interest expense and amortization of debt issuance costs.
- 33 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the unaudited quarterly condensed statements
of GS Financial Products U.S., L.P. and is qualified in its
entirety by reference to such financial statements contained
in GS Financial Products U.S., L.P.'s Form 10-Q for the six
fiscal months ended May 28, 1999.
</LEGEND>
<CIK> 0000914720
<NAME> GS Financial Products U.S., L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-26-1999
<PERIOD-END> May-28-1999
<CASH> 297,049
<SECURITIES> 49,285
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 447,607
<CURRENT-LIABILITIES> 3,227
<BONDS> 221,802
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 447,607
<SALES> 0
<TOTAL-REVENUES> 9,232
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,398
<INCOME-PRETAX> 2,616
<INCOME-TAX> 105
<INCOME-CONTINUING> 2,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,511
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>
Notes
- -----
Balances relating to derivative transactions are not reflected in the above
figures.
</FN>
</TABLE>
