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Goldman Sachs Group 10-Q 2012
Form 10-Q
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                             to

  

Commission File Number: 001-14965

The Goldman Sachs Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-4019460

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 West Street, New York, N.Y.   10282
(Address of principal executive offices)   (Zip Code)

(212) 902-1000

(Registrant’s telephone number, including area code)

 

 

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.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer  x                     Accelerated filer  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)        Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS

As of October 26, 2012, there were 469,943,620 shares of the registrant’s common stock outstanding.

 


Table of Contents

THE GOLDMAN SACHS GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2012

 

INDEX

 

Form 10-Q Item Number    Page No.  
PART I  

FINANCIAL INFORMATION

     2   
Item 1  

Financial Statements (Unaudited)

     2   
   

Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2012 and September 30, 2011

     2   
   

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and September 30, 2011

     3   
   

Condensed Consolidated Statements of Financial Condition as of September 30, 2012 and December 31, 2011

     4   
   

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2012 and year ended December 31, 2011

     5   
   

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011

     6   
 

Notes to Condensed Consolidated Financial Statements

     7   
   

Note 1.       Description of Business

     7   
   

Note 2.       Basis of Presentation

     7   
   

Note 3.       Significant Accounting Policies

     8   
   

Note 4.      Financial  Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet Purchased, at Fair Value

     12   
   

Note 5.       Fair Value Measurements

     13   
   

Note 6.       Cash Instruments

     15   
   

Note 7.       Derivatives and Hedging Activities

     25   
   

Note 8.       Fair Value Option

     41   
   

Note 9.       Collateralized Agreements and Financings

     51   
   

Note 10.    Securitization Activities

     54   
   

Note 11.     Variable Interest Entities

     57   
   

Note 12.    Other Assets

     62   
   

Note 13.     Goodwill and Identifiable Intangible Assets

     63   
   

Note 14.    Deposits

     65   
   

Note 15.    Short-Term Borrowings

     66   
   

Note 16.    Long-Term Borrowings

     67   
   

Note 17.     Other Liabilities and Accrued Expenses

     71   
   

Note 18.     Commitments, Contingencies and Guarantees

     72   
   

Note 19.    Shareholders’ Equity

     78   
   

Note 20.     Regulation and Capital Adequacy

     81   
   

Note 21.    Earnings Per Common Share

     86   
   

Note 22.     Transactions with Affiliated Funds

     87   
   

Note 23.     Interest Income and Interest Expense

     88   
   

Note 24.    Income Taxes

     88   
   

Note 25.    Business Segments

     89   
   

Note 26.    Credit Concentrations

     93   
   

Note 27.    Legal Proceedings

     94   
   

Note 28.    Subsequent Event

     107   
   

Report of Independent Registered Public Accounting Firm

     108   
   

Statistical Disclosures

     109   
Item 2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     113   
Item 3  

Quantitative and Qualitative Disclosures About Market Risk

     183   
Item 4  

Controls and Procedures

     183   
PART II  

OTHER INFORMATION

     183   
Item 1  

Legal Proceedings

     183   
Item 2  

Unregistered Sales of Equity Securities and Use of Proceeds

     184   
Item 6  

Exhibits

     185   
SIGNATURES      186   

Exhibit 12.1 - Statement re: Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Stock  Dividends.

Exhibit 15.1 - Letter re: Unaudited Interim Financial Information.

Exhibit 31.1 - Rule 13a-14(a) Certifications.

Exhibit 32.1 - Section 1350 Certifications.

Exhibit 101 - Interactive data.

  

 

  Goldman Sachs September 2012 Form 10-Q   1


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Unaudited)

 

   

Three Months

Ended September

      

Nine Months

Ended September

in millions, except per share amounts   2012    2011         2012    2011 

Revenues

            

Investment banking

  $1,168    $    781         $  3,534    $  3,498

Investment management

  1,147    1,133         3,518    3,495

Commissions and fees

  748    1,056         2,407    2,969

Market making

  2,650    1,800         8,652    7,998

Other principal transactions

  1,802    (2,539)        3,909    675

Total non-interest revenues

  7,515    2,231         22,020    18,635

Interest income

  2,629    3,354         8,517    10,142

Interest expense

  1,793    1,998         5,610    6,015

Net interest income

  836    1,356         2,907    4,127

Net revenues, including net interest income

  8,351    3,587         24,927    22,762

Operating expenses

            

Compensation and benefits

  3,675    1,578         10,968    10,015

Brokerage, clearing, exchange and distribution fees

  547    668         1,658    1,903

Market development

  123    140         369    502

Communications and technology

  190    209         588    617

Depreciation and amortization

  396    389         1,238    1,351

Occupancy

  217    262         643    781

Professional fees

  205    253         652    749

Insurance reserves

  153    197         431    402

Other expenses

  547    621         1,486    1,520

Total non-compensation expenses

  2,378    2,739         7,065    7,825

Total operating expenses

  6,053    4,317         18,033    17,840

Pre-tax earnings/(loss)

  2,298    (730)        6,894    4,922

Provision/(benefit) for taxes

  786    (337)        2,311    1,493

Net earnings/(loss)

  1,512    (393)        4,583    3,429

Preferred stock dividends

  54    35         124    1,897

Net earnings/(loss) applicable to common shareholders

  $1,458    $   (428)        $  4,459    $  1,532

Earnings/(loss) per common share

            

Basic

  $  2.95    $  (0.84)        $    8.85    $    2.84

Diluted

  2.85    (0.84)        8.57    2.70

Dividends declared per common share

  $  0.46    $   0.35         $    1.27    $    1.05

Average common shares outstanding

            

Basic

  491.2    518.2         501.1    530.1

Diluted

  510.9    518.2         520.1    566.6

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2   Goldman Sachs September 2012 Form 10-Q  


Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

    Three Months
Ended September
       Nine Months
Ended September
in millions     2012       2011           2012       2011 

Net earnings/(loss)

    $1,512       $(393)          $4,583       $3,429 

Other comprehensive income/(loss), net of tax:

            

Currency translation adjustment, net of tax

    (11    (5)          (63    (40)

Pension and postretirement liability adjustments, net of tax

    6                13      

Net unrealized gains on available-for-sale securities, net of tax

    129       37           184      

Other comprehensive income/(loss)

    124       33           134       (28)

Comprehensive income/(loss)

    $1,636       $(360)          $4,717       $3,401 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  Goldman Sachs September 2012 Form 10-Q   3


Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(Unaudited)

 

   

As of

in millions, except share and per share amounts  

September 

2012 

  

December 

2011 

Assets

    

Cash and cash equivalents

  $  63,639     $  56,008 

Cash and securities segregated for regulatory and other purposes (includes $34,087 and $42,014 at fair value as of September 2012 and December 2011, respectively)

  53,597     64,264 

Collateralized agreements:

    

Securities purchased under agreements to resell and federal funds sold (includes $147,361 and $187,789 at fair value as of September 2012 and December 2011, respectively)

  147,361     187,789 

Securities borrowed (includes $47,986 and $47,621 at fair value as of September 2012 and December 2011, respectively)

  165,250     153,341 

Receivables from brokers, dealers and clearing organizations

  15,556     14,204 

Receivables from customers and counterparties (includes $6,920 and $9,682 at fair value as of September 2012 and December 2011, respectively)

  64,787     60,261 

Financial instruments owned, at fair value (includes $66,753 and $53,989 pledged as collateral as of September 2012 and December 2011, respectively)

  415,293     364,206 

Other assets

  23,724     23,152 

Total assets

  $949,207     $923,225 

Liabilities and shareholders’ equity

    

Deposits (includes $5,674 and $4,526 at fair value as of September 2012 and December 2011, respectively)

  $  61,526     $  46,109 

Collateralized financings:

    

Securities sold under agreements to repurchase, at fair value

  166,186     164,502 

Securities loaned (includes $243 and $107 at fair value as of September 2012 and December 2011, respectively)

  13,640     7,182 

Other secured financings (includes $25,179 and $30,019 at fair value as of September 2012 and December 2011, respectively)

  29,393     37,364 

Payables to brokers, dealers and clearing organizations

  6,635     3,667 

Payables to customers and counterparties

  198,816     194,625 

Financial instruments sold, but not yet purchased, at fair value

  144,179     145,013 

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $17,620 and $17,854 at fair value as of September 2012 and December 2011, respectively)

  47,271     49,038 

Unsecured long-term borrowings (includes $12,878 and $17,162 at fair value as of September 2012 and December 2011, respectively)

  167,878     173,545 

Other liabilities and accrued expenses (includes $9,975 and $9,486 at fair value as of September 2012 and December 2011, respectively)

  39,996     31,801 

Total liabilities

  875,520     852,846 

Commitments, contingencies and guarantees

    

Shareholders’ equity

    

Preferred stock, par value $0.01 per share; aggregate liquidation preference of $5,350 and $3,100 as of September 2012 and December 2011, respectively

  5,350     3,100 

Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 810,459,443 and 795,555,310 shares issued as of September 2012 and December 2011, respectively, and 471,430,795 and 485,467,565 shares outstanding as of September 2012 and December 2011, respectively

    

Restricted stock units and employee stock options

  4,109     5,681 

Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding

  —     — 

Additional paid-in capital

  47,298     45,553 

Retained earnings

  62,638     58,834 

Accumulated other comprehensive loss

  (382)    (516)

Stock held in treasury, at cost, par value $0.01 per share; 339,028,650 and 310,087,747 shares as of September 2012 and December 2011, respectively

  (45,334)    (42,281)

Total shareholders’ equity

  73,687     70,379 

Total liabilities and shareholders’ equity

  $949,207     $923,225 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4   Goldman Sachs September 2012 Form 10-Q  


Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

   

 Nine Months Ended

      

 Year Ended

in millions  

September 

2012 

      

December 

2011 

Preferred stock

      

Balance, beginning of year

  $   3,100         $   6,957 

Issued

  2,250         — 

Repurchased

  —         (3,857)

Balance, end of period

  5,350         3,100 

Common stock

      

Balance, beginning of year

        

Issued

  —         — 

Balance, end of period

        

Restricted stock units and employee stock options

      

Balance, beginning of year

  5,681         7,706 

Issuance and amortization of restricted stock units and employee stock options

  1,134         2,863 

Delivery of common stock underlying restricted stock units

  (2,624)        (4,791)

Forfeiture of restricted stock units and employee stock options

  (81)        (93)

Exercise of employee stock options

  (1)        (4)

Balance, end of period

  4,109         5,681 

Additional paid-in capital

      

Balance, beginning of year

  45,553         42,103 

Issuance of common stock

  —         103 

Delivery of common stock underlying share-based awards

  2,741         5,160 

Cancellation of restricted stock units in satisfaction of withholding tax requirements

  (947)        (1,911)

Excess net tax benefit/(provision) related to share-based awards

  (48)        138 

Cash settlement of share-based compensation

  (1)        (40)

Balance, end of period

  47,298         45,553 

Retained earnings

      

Balance, beginning of year

  58,834  &nbs