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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 19, 2011
THE GOLDMAN SACHS GROUP, INC.
(Exact name of registrant as specified in its charter)
         
Delaware   No. 001-14965   No. 13-4019460
         
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)
     
200 West Street
New York, New York
   
10282
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (212) 902-1000
N/A
 
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 


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Item 2.02 Results of Operations and Financial Condition.
Item 8.01 Other Events.
Item 9.01 Financial Statements and Exhibits.
Signature
EX-99.1: PRESS RELEASE


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Item 2.02 Results of Operations and Financial Condition.
On July 19, 2011, The Goldman Sachs Group, Inc. (Group Inc. and, together with its consolidated subsidiaries, the firm) reported its earnings for its second quarter ended June 30, 2011. A copy of Group Inc.’s press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Group Inc. under the Securities Act of 1933 or the Exchange Act.
Item 8.01 Other Events.
On July 19, 2011, Group Inc. reported net revenues of $7.28 billion and net earnings of $1.09 billion for the second quarter ended June 30, 2011. Diluted earnings per common share were $1.85 compared with $0.78 (1) for the second quarter of 2010 and $1.56 (2) for the first quarter of 2011. Annualized return on average common shareholders’ equity (ROE) (3) was 6.1% for the second quarter of 2011 and 8.0% for the first half of 2011. Excluding the preferred dividend of $1.64 billion related to the redemption of the firm’s Series G Preferred Stock in the first quarter of 2011, annualized ROE was 10.2% (4) for the first half of 2011.
Net Revenues
Investment Banking
Net revenues in Investment Banking were $1.45 billion, 54% higher than the second quarter of 2010 and 14% higher than the first quarter of 2011. Net revenues in Financial Advisory were $637 million, 35% higher than the second quarter of 2010, reflecting an increase in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $811 million, 73% higher than the second quarter of 2010. Net revenues in debt underwriting were significantly higher than the second quarter of 2010, primarily reflecting an increase in leveraged finance activity. Net revenues in equity underwriting were also significantly higher than the second quarter of 2010, reflecting an increase in industry-wide equity and equity-related offerings. The firm’s investment banking transaction backlog was unchanged compared with the end of the first quarter of 2011. (5)
Institutional Client Services
Net revenues in Institutional Client Services were $3.52 billion, 29% lower than the second quarter of 2010 and 47% lower than the first quarter of 2011.

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Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.60 billion, 53% lower than the second quarter of 2010, reflecting significantly lower results in mortgages, commodities and interest rate products. High levels of uncertainty and decreased levels of liquidity during the quarter contributed to difficult market-making conditions, particularly in mortgages and commodities, and prompted the firm to operate at generally lower levels of risk. In addition, net revenues in currencies decreased slightly and net revenues in credit products were essentially unchanged compared with the second quarter of 2010. During the quarter, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment reflecting broad market concerns and uncertainty, which led to slightly lower levels of activity. The effect of these macro concerns was more pronounced within the firm’s Asian and European franchises.
Net revenues in Equities were $1.92 billion, 19% higher than the second quarter of 2010, primarily reflecting higher net revenues in equities client execution. This increase reflected improved results in derivatives compared with a difficult second quarter of 2010. However, results in the second quarter of 2011 for equities client execution more broadly reflected a challenging environment generally characterized by lower levels of activity and low volatility levels. In addition, commissions and fees were lower compared with the second quarter of 2010, reflecting lower client activity. Securities services net revenues were higher compared with the second quarter of 2010, reflecting the impact of higher average customer balances.
Investing & Lending
Net revenues in Investing & Lending were $1.04 billion for the second quarter of 2011. Results for the second quarter of 2011 included a loss of $176 million from the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), net gains of $686 million from other investments in equities and net revenues of $200 million from debt securities and loans, primarily reflecting net interest income.
Investment Management
Net revenues in Investment Management were $1.27 billion, 12% higher than the second quarter of 2010 and essentially unchanged compared with the first quarter of 2011. The increase in net revenues compared with the second quarter of 2010 was primarily due to an increase in management and other fees, reflecting both favorable changes in the mix of assets under management and higher average assets under management, as well as higher incentive fees. During the quarter, assets under management increased $4 billion to $844 billion reflecting market appreciation and inflows in fixed income assets, partially offset by outflows in money market, alternative investment and equity assets.
Expenses
Operating expenses were $5.67 billion, 23% lower than the second quarter of 2010 (6) and 28% lower than the first quarter of 2011. The firm is in the process of implementing expense reduction initiatives.

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Compensation and Benefits
The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $3.20 billion for the second quarter of 2011, a 16% decline compared with the second quarter of 2010. The ratio of compensation and benefits to net revenues for the first half of 2011 was 44.0%.
Non-Compensation Expenses
Non-compensation expenses were $2.47 billion, 18% lower than the second quarter of 2010 and 6% lower than the first quarter of 2011. The decrease compared with the second quarter of 2010 was primarily attributable to the impact of net provisions for litigation and regulatory proceedings of $615 million during the second quarter of 2010 (including $550 million related to the SEC settlement). The second quarter of 2011 included net provisions for litigation and regulatory proceedings of $45 million.
Provision for Taxes
The effective income tax rate for the first half of 2011 was 32.4% (7), essentially unchanged from the first quarter of 2011.
Capital
As of June 30, 2011, total capital was $247.57 billion, consisting of $72.36 billion in total shareholders’ equity (common shareholders’ equity of $69.26 billion and preferred stock of $3.10 billion) and $175.21 billion in unsecured long-term borrowings. Book value per common share was $131.44 and tangible book value per common share (8) was $121.60, each increasing 1.6% compared with the end of the first quarter of 2011. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 526.9 million at period end.
During the quarter, the firm repurchased 10.8 million shares of its common stock at an average cost per share of $139.20, for a total cost of $1.50 billion. On July 18, 2011, the Board of Directors of Group Inc. authorized the repurchase of an additional 75.0 million shares of common stock pursuant to the firm’s existing share repurchase program. The remaining share authorization under the firm’s existing repurchase program, including the newly authorized amount, is 90.8 million shares. (9)
Under the regulatory capital guidelines currently applicable to bank holding companies (Basel 1), the firm’s Tier 1 capital ratio (10) was 14.7% and the firm’s Tier 1 common ratio (11) was 12.9% as of June 30, 2011, both essentially unchanged compared with the end of the first quarter of 2011.

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Other Balance Sheet and Liquidity Metrics
Total assets (12) were $937 billion as of June 30, 2011, essentially unchanged compared with $933 billion as of March 31, 2011.
 
Level 3 assets (12) were $47 billion as of June 30, 2011 (compared with $46 billion as of March 31, 2011) and represented 5.0% of total assets.
 
The firm’s global core excess liquidity (13) was $166 billion as of June 30, 2011 and averaged $164 billion for the second quarter of 2011, compared with an average of $168 billion for the first quarter of 2011.
Dividends
Group Inc. declared a dividend of $0.35 per common share to be paid on September 29, 2011 to common shareholders of record on September 1, 2011. The firm also declared dividends of $239.58, $387.50, $255.56 and $255.56 per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively (represented by depositary shares, each representing a 1/1,000th interest in a share of preferred stock), to be paid on August 10, 2011 to preferred shareholders of record on July 26, 2011.
 

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Cautionary Note Regarding Forward-Looking Statements
This Report on Form 8-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets, level 3 assets and global core excess liquidity consist of preliminary estimates. These estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its financial statements.
Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)
$ in millions
                                           
    Three Months Ended     % Change From    
    June 30,     March 31,     June 30,     March 31,     June 30,    
    2011     2011     2010     2011     2010    
Investment Banking
                                         
Financial Advisory
  $ 637     $ 357     $ 471       78 %   35 %
 
Equity underwriting
    378       426       225       (11 )     68    
Debt underwriting
    433       486       245       (11 )     77    
 
                               
Total Underwriting
    811       912       470       (11 )     73    
 
                                         
 
                               
Total Investment Banking
    1,448       1,269       941       14       54    
 
                               
 
                                         
Institutional Client Services
                                         
Fixed Income, Currency and Commodities Client Execution
    1,599       4,325       3,367       (63 )     (53 )  
 
                                         
Equities client execution
    623       979       312       (36 )     100    
Commissions and fees
    861       971       940       (11 )     (8 )  
Securities services
    432       372       362       16       19    
 
                               
Total Equities
    1,916       2,322       1,614       (17 )     19    
 
                                         
 
                               
Total Institutional Client Services
    3,515       6,647       4,981       (47 )     (29 )  
 
                               
 
Investing & Lending
                                         
ICBC
    (176 )     316       905       N.M.       N.M.    
Equity securities (excluding ICBC)
    686       1,054       (44 )     (35 )     N.M.    
Debt securities and loans
    200       1,024       422       (80 )     (53 )  
Other (14)
    334       311       503       7       (34 )  
 
                                         
 
                               
Total Investing & Lending
    1,044       2,705       1,786       (61 )     (42 )  
 
                               
 
                                         
Investment Management
                                         
Management and other fees
    1,080       1,048       966       3       12    
Incentive fees
    63       74       33       (15 )     91    
Transaction revenues
    131       151       134       (13 )     (2 )  
 
                                         
 
                               
Total Investment Management
    1,274       1,273       1,133             12    
 
                               
 
                                         
 
                               
Total net revenues
  $ 7,281     $ 11,894     $ 8,841       (39 )     (18 )  
 
                               
 
                                         
    Six Months Ended     % Change From                    
    June 30,     June 30,     June 30,                    
    2011     2010     2010                    
Investment Banking
                                         
Financial Advisory
  $ 994     $ 935       6 %                  
 
Equity underwriting
    804       597       35                    
Debt underwriting
    919       612       50                  
 
                                 
Total Underwriting
    1,723       1,209       43                    
 
                                       
 
                                 
Total Investment Banking
    2,717       2,144       27                  
 
                                 
 
                                       
Institutional Client Services
                                         
Fixed Income, Currency and Commodities Client Execution
    5,924       9,384       (37 )                
 
                                       
Equities client execution
    1,602       1,599                          
Commissions and fees
    1,832       1,784       3                  
Securities services
    804       721       12                    
 
                                 
Total Equities
    4,238       4,104       3                  
 
                                       
 
                                 
Total Institutional Client Services
    10,162       13,488       (25 )                  
 
                                 
 
                                       
Investing & Lending
                                       
ICBC
    140       683       (80 )                  
Equity securities (excluding ICBC)
    1,740       803       117                  
Debt securities and loans
    1,224       1,552       (21 )                  
Other (14)
    645       718       (10 )                
 
                                       
 
                                 
Total Investing & Lending
    3,749       3,756                          
 
                                 
 
                                       
Investment Management
                                       
Management and other fees
    2,128       1,898       12                    
Incentive fees
    137       59       132                  
Transaction revenues
    282       271       4                    
 
                                       
 
                                 
Total Investment Management
    2,547       2,228       14                  
 
                                 
 
                                       
 
                                 
Total net revenues
  $ 19,175     $ 21,616       (11 )                  
 
                                 

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts and total staff
                                           
    Three Months Ended     % Change From    
    June 30,     March 31,     June 30,     March 31,     June 30,    
    2011     2011     2010     2011     2010    
Revenues
                                         
Investment banking
  $ 1,448     $ 1,269     $ 941       14 %     54 %  
Investment management
    1,188       1,174       1,046       1       14    
Commissions and fees
    894       1,019       978       (12 )     (9 )  
Market making
    1,736       4,462       2,850       (61 )     (39 )  
Other principal transactions
    602       2,612       1,407       (77 )     (57 )  
 
                             
Total non-interest revenues
    5,868       10,536       7,222       (44 )     (19 )  
 
                                         
Interest income
    3,681       3,107       3,302       18       11    
Interest expense
    2,268       1,749       1,683       30       35    
 
                             
Net interest income
    1,413       1,358       1,619       4       (13 )  
 
                             
 
                                         
Net revenues, including net interest income
    7,281       11,894       8,841       (39 )     (18 )  
 
                             
 
                                         
Operating expenses
                                         
Compensation and benefits
    3,204       5,233       3,802       (39 )     (16 )  
 
                                         
U.K. bank payroll tax
                600             (100 )  
 
                                         
Brokerage, clearing, exchange and distribution fees
    615       620       622       (1 )     (1 )  
Market development
    183       179       116       2       58    
Communications and technology
    210       198       186       6       13    
Depreciation and amortization
    372       590       437       (37 )     (15 )  
Occupancy
    252       267       274       (6 )     (8 )  
Professional fees
    263       233       227       13       16    
Other expenses
    570       534       1,129       7       (50 )  
 
                             
Total non-compensation expenses
    2,465       2,621       2,991       (6 )     (18 )  
 
                                         
 
                             
Total operating expenses
    5,669       7,854       7,393       (28 )     (23 )  
 
                             
 
                                         
Pre-tax earnings
    1,612       4,040       1,448       (60 )     11    
Provision for taxes
    525       1,305       835       (60 )     (37 )  
 
                             
Net earnings
    1,087       2,735       613       (60 )     77    
 
                                         
Preferred stock dividends
    35       1,827       160       (98 )     (78 )  
 
                             
Net earnings applicable to common shareholders
  $ 1,052     $ 908     $ 453       16       132    
 
                             
 
                                         
Earnings per common share
                                         
Basic (15)
  $ 1.96     $ 1.66     $ 0.82       18 %     139 %  
Diluted
    1.85       1.56       0.78       19       137    
 
                                         
Average common shares outstanding
                                         
Basic
    531.9       540.6       539.8       (2 )     (1 )  
Diluted
    569.5       583.0       580.4       (2 )     (2 )  
 
                                         
Selected Data
                                         
Total staff at period end (16)
    35,500       35,400       34,100             4    
Total staff at period end including consolidated entities held for investment purposes (17)
    38,300       38,300       38,900             (2 )  

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts
                           
    Six Months Ended     % Change From    
    June 30,     June 30,     June 30,    
    2011     2010     2010    
Revenues
                         
Investment banking
  $ 2,717     $ 2,144       27 %  
Investment management
    2,362       2,054       15    
Commissions and fees
    1,913       1,858       3    
Market making
    6,198       9,235       (33 )  
Other principal transactions
    3,214       3,288       (2 )  
 
                 
Total non-interest revenues
    16,404       18,579       (12 )  
 
                         
Interest income
    6,788       6,303       8    
Interest expense
    4,017       3,266       23    
 
                 
Net interest income
    2,771       3,037       (9 )  
 
                 
 
                         
Net revenues, including net interest income
    19,175       21,616       (11 )  
 
                 
 
                         
Operating expenses
                         
Compensation and benefits
    8,437       9,295       (9 )  
 
                         
U.K. bank payroll tax
          600       (100 )  
 
                         
Brokerage, clearing, exchange and distribution fees
    1,235       1,184       4    
Market development
    362       226       60    
Communications and technology
    408       362       13    
Depreciation and amortization
    962       809       19    
Occupancy
    519       530       (2 )  
Professional fees
    496       409       21    
Other expenses
    1,104       1,594       (31 )  
 
                 
Total non-compensation expenses
    5,086       5,114       (1 )  
 
                         
 
                 
Total operating expenses
    13,523       15,009       (10 )  
 
                 
 
                         
Pre-tax earnings
    5,652       6,607       (14 )  
Provision for taxes
    1,830       2,538       (28 )  
 
                 
Net earnings
    3,822       4,069       (6 )  
 
                         
Preferred stock dividends
    1,862       320       N.M.    
 
                 
Net earnings applicable to common shareholders
  $ 1,960     $ 3,749       (48 )  
 
                 
 
                         
Earnings per common share
                         
Basic (15)
  $ 3.62     $ 6.87       (47 )%  
Diluted
    3.40       6.41       (47 )  
 
                         
Average common shares outstanding
                         
Basic
    536.2       542.9       (1 )  
Diluted
    576.4       585.2       (2 )  

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(UNAUDITED)
Average Daily VaR (18)
$ in millions
                                         
    Three Months Ended  
    June 30,     March 31,     June 30,  
    2011     2011     2010  
Risk Categories
                                           
Interest rates
  $ 76     $ 87     $ 87  
Equity prices
    35       49       61                      
Currency rates
    21       24       36  
Commodity prices
    39       37       32                      
Diversification effect (19)
    (70 )     (84 )     (80 )
 
                 
Total
  $ 101     $ 113     $ 136                      
 
                 
 
 
Assets Under Management (20)
$ in billions
 
    As of     % Change From  
    June 30,     March 31,     June 30,     March 31,     June 30,  
    2011     2011     2010     2011     2010  
Asset Class
                                         
Alternative investments
  $ 148     $ 151     $ 146       (2 )%     1 %  
Equity
    148       150       125       (1 )     18    
Fixed income
    352       338       326       4       8    
 
                             
Total non-money market assets
    648       639       597       1       9    
 
                                         
Money markets
    196       201       205       (2 )     (4 )  
 
                             
Total assets under management
  $ 844     $ 840     $ 802             5    
 
                             
                                         
 
    Three Months Ended  
    June 30,     March 31,     June 30,  
    2011     2011     2010  
Balance, beginning of period
  $ 840     $ 840     $ 840                      
 
                       
Net inflows / (outflows)
                       
Alternative investments
    (3 )           1                      
Equity
    (2 )           (9 )
Fixed income
    7       (5 )     (2 )                    
 
                 
Total non-money market net inflows / (outflows)
    2       (5 )     (10 )
 
                       
Money markets
    (5 )     (7 )     (14 )                    
 
                 
Total net inflows / (outflows)
    (3 )     (12 )     (24 )
 
                       
Net market appreciation / (depreciation)
    7       12       (14 )                    
 
 
                 
Balance, end of period
  $ 844     $ 840     $ 802  
 
                 

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Footnotes
 
(1)  
Excluding the impact of the $600 million U.K. bank payroll tax and the $550 million SEC settlement, diluted earnings per common share were $2.75 for the second quarter of 2010. Management believes that presenting the firm’s diluted earnings per common share excluding these items is meaningful as these were one-time events and excluding them increases the comparability of period-to-period results. Diluted earnings per common share excluding these items is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the calculation of net earnings applicable to common shareholders and diluted earnings per common share excluding the impact of these amounts:
         
    For the  
    Three Months Ended  
    June 30, 2010  
    (unaudited, in millions,  
    except per share  
    amounts)  
Net earnings applicable to common shareholders
  $ 453  
Impact of U.K. bank payroll tax
    600  
Pre-tax impact of SEC settlement
    550  
Tax impact of SEC settlement
    (6 )
 
     
Net earnings applicable to common shareholders, excluding the impact of U.K. bank payroll tax and SEC settlement
  $ 1,597  
Divided by: average diluted common shares outstanding
    580.4  
 
     
Diluted earnings per common share, excluding the impact of U.K. bank payroll tax and SEC settlement
  $ 2.75  
 
     
 
(2)  
Excluding the impact of the preferred dividend of $1.64 billion related to the redemption of the firm’s Series G Preferred Stock (calculated as the difference between the carrying value and the redemption value of the preferred stock), diluted earnings per common share were $4.38 for the first quarter of 2011. Management believes that presenting the firm’s diluted earnings per common share excluding this dividend is meaningful because it increases the comparability of period-to-period results. Diluted earnings per common share excluding this dividend is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the calculation of net earnings applicable to common shareholders and diluted earnings per common share excluding the impact of this dividend:
         
    For the  
    Three Months Ended  
    March 31, 2011  
    (unaudited, in millions,  
    except per share  
    amounts)  
Net earnings applicable to common shareholders
  $ 908  
Impact of the Series G Preferred Stock dividend
    1,643  
 
     
Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend
  $ 2,551  
Divided by: average diluted common shares outstanding
    583.0  
 
     
Diluted earnings per common share, excluding the impact of the Series G Preferred Stock dividend
  $ 4.38  
 
     
 
(3)  
Annualized ROE is computed by dividing annualized net earnings applicable to common shareholders by average monthly common shareholders’ equity. The impact of the $1.64 billion Series G Preferred Stock dividend in the first quarter of 2011 was not annualized in the calculation of annualized net earnings applicable to common shareholders as this amount has no impact on other quarters in the year. The table below presents the firm’s average common shareholders’ equity:
                 
    Average for the  
    Three Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2011  
    (unaudited, $ in millions)  
Total shareholders’ equity
  $ 72,474      $ 74,519   
Preferred stock
    (3,100 )     (4,753 )
 
           
Common shareholders’ equity
  $  69,374      $ 69,766   
 
           

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Footnotes (continued)
 
(4)  
Management believes that presenting the firm’s ROE excluding the impact of the $1.64 billion Series G Preferred Stock dividend in the first quarter of 2011 is meaningful because it increases the comparability of period-to-period results. ROE excluding this dividend is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The tables below present the calculation of net earnings applicable to common shareholders and average common shareholders’ equity excluding the impact of this dividend:
         
    For the  
    Six Months Ended  
    June 30, 2011  
    (unaudited, $ in millions)  
Net earnings applicable to common shareholders
  $ 1,960  
Impact of the Series G Preferred Stock dividend
    1,643  
 
     
Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend
  $ 3,603  
 
     
         
    Average for the  
    Six Months Ended  
    June 30, 2011  
    (unaudited, $ in millions)  
Total shareholders’ equity
  $ 74,519  
Preferred stock
    (4,753 )
 
     
Common shareholders’ equity
  69,766  
Impact of the Series G Preferred Stock dividend
    939  
 
     
Common shareholders’ equity, excluding the impact of the Series G Preferred Stock dividend
  $ 70,705  
 
     
 
(5)  
The firm’s investment banking transaction backlog represents an estimate of the firm’s future net revenues from investment banking transactions where management believes that future revenue realization is more likely than not.
 
(6)  
The second quarter of 2010 included $600 million in expenses related to the U.K. bank payroll tax.
 
(7)  
The effective income tax rate for the first half of 2011 was 32.4%, compared with 35.2% for 2010. Excluding the impact of the $465 million U.K. bank payroll tax for the full year and the $550 million SEC settlement, substantially all of which was non-deductible, the effective income tax rate for 2010 was 32.7%. Management believes that presenting the firm’s effective income tax rate for 2010 excluding the impact of these items is meaningful as excluding them increases the comparability of period-to-period results. Effective income tax rate excluding the impact of these items is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the calculation of the effective income tax rate excluding the impact of these amounts:
                         
    For the  
    Year Ended December 31, 2010  
    Pre-tax     Provision     Effective income  
    earnings     for taxes     tax rate  
    (unaudited, $ in millions)  
As reported
  $ 12,892     $ 4,538       35.2 %
Add back:
                       
Impact of the U.K. bank payroll tax
    465                
Impact of the SEC settlement
    550       6          
 
                   
As adjusted
  $ 13,907     $ 4,544       32.7 %
 
                   

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Footnotes (continued)
 
(8)  
Tangible common shareholders’ equity equals total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Tangible book value per common share is computed by dividing tangible common shareholders’ equity by the number of common shares outstanding, including restricted stock units granted to employees with no future service requirements. Management believes that tangible common shareholders’ equity and tangible book value per common share are meaningful because they are measures that the firm and investors use to assess capital adequacy. Tangible common shareholders’ equity and tangible book value per common share are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the reconciliation of total shareholders’ equity to tangible common shareholders’ equity:
         
    As of  
    June 30, 2011  
    (unaudited, $ in millions)  
Total shareholders’ equity
  $ 72,356  
Preferred stock
    (3,100 )
 
     
Common shareholders’ equity
    69,256  
Goodwill and identifiable intangible assets
    (5,187 )
 
     
Tangible common shareholders’ equity
  $ 64,069  
 
     
 
(9)  
As disclosed in “Note 19. Shareholders’ Equity” in Part I, Item 1 “Financial Statements” in the firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011, share repurchases require approval by the Board of Governors of the Federal Reserve System.
 
(10)  
The Tier 1 capital ratio equals Tier 1 capital divided by risk-weighted assets. The firm’s risk-weighted assets under Basel 1 were approximately $451 billion as of June 30, 2011. This ratio represents a preliminary estimate as of the date of this Report on Form 8-K and may be revised in the firm’s Quarterly Report on Form 10-Q for the period ended June 30, 2011. For a further discussion of the firm’s capital ratios, see “Equity Capital” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.
 
(11)  
The Tier 1 common ratio equals Tier 1 common capital divided by risk-weighted assets. As of June 30, 2011, Tier 1 common capital was $58.3 billion, consisting of Tier 1 capital of $66.4 billion less preferred stock of $3.1 billion and junior subordinated debt issued to trusts of $5.0 billion. Management believes that the Tier 1 common ratio is meaningful because it is one of the measures that the firm and investors use to assess capital adequacy. The Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. This ratio represents a preliminary estimate as of the date of this Report on Form 8-K and may be revised in the firm’s Quarterly Report on Form 10-Q for the period ended June 30, 2011. For a further discussion of the firm’s capital ratios, see “Equity Capital” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.
 
(12)  
This amount represents a preliminary estimate as of the date of this Report on Form 8-K and may be revised in the firm’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
 
(13)  
The firm’s global core excess represents a pool of excess liquidity consisting of unencumbered, highly liquid securities and cash. These amounts represent preliminary estimates as of the date of this Report on Form 8-K and may be revised in the firm’s Quarterly Report on Form 10-Q for the period ended June 30, 2011. For a further discussion of the firm’s global core excess liquidity pool, see “Liquidity Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.
 
(14)  
Primarily includes net revenues related to the firm’s consolidated entities held for investment purposes.
 
(15)  
Unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities in calculating earnings per common share. The impact of applying this methodology was a reduction to basic earnings per common share of $0.02 for each of the three months ended June 30, 2011, March 31, 2011 and June 30, 2010, and $0.04 for each of the six months ended June 30, 2011 and June 30, 2010, respectively.
 
(16)  
Includes employees, consultants and temporary staff.
 
(17)  
Compensation and benefits and non-compensation expenses related to consolidated entities held for investment purposes are included in their respective line items in the consolidated statements of earnings.
 
(18)  
VaR is the potential loss in value of the firm’s inventory positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of VaR, see “Market Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.
 
(19)  
Equals the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated.
 
(20)  
Assets under management include only client assets where the firm earns a fee for managing assets on a discretionary basis.

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Item 9.01 Financial Statements and Exhibits.
     (d) Exhibits.
     The following exhibit is being furnished as part of this Report on Form 8-K:
  99.1   Press release of Group Inc. dated July 19, 2011 containing financial information for its second quarter ended June 30, 2011.

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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 hereunto duly authorized.
          
  THE GOLDMAN SACHS GROUP, INC.
               (Registrant)
 
 
Date: July 19, 2011 By:   /s/ David A. Viniar    
    Name:   David A. Viniar  
    Title:   Chief Financial Officer   

15