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Salomon - Annual R 96 (Page 15)

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Salomon - Annual R 96
Salomon Swapco Inc
Summary of Accounting Policies
Prepaid expenses and other assets
Prepaid expenses and other assets include, primarily, the unamortized portion of sales commissions which Swapco,
up to September 30, 1994, paid to affiliated companies when trades were consummated. Swapco recognizes these
payments as expense over the life of the transactions involved.
Deferred revenue
Deferred revenue represents the unamortized portion of intermediation and guarantee fees which Swapco receives
from affiliated companies when trades are consummated but which it recognizes as income over the life of the
transactions involved. These payments are not refundable under any circumstance.
Income taxes payable
Swapco is included in the consolidated Federal income tax return of Salomon Inc. Swapco records income tax
expense based upon its share of the consolidated global tax provision of Salomon Inc. Income taxes payable are
remitted to SBHC on a quarterly basis as Salomon Inc's estimated tax payments become due. The payable balance
is not interest-bearing.
Revenues
Intermediation and guarantee fees charged to affiliates compensate Swapco for the credit enhancement that
Swapco offers Salomon's derivative-trading entities. Fees are calculated in accordance with intercompany
agreements and vary with the nature of the transaction and the creditworthiness of the counterparty.
Intermediation and guarantee fees are received at least quarterly and are recognized as income on a straight-line
basis over the life of the underlying trades.
Interest income represents interest earned on securities purchased under agreements to resell, on SBHC hedge
swaps on investment securities, and on cash collateral pledged to customers.
Management fees charged to affiliates compensate Swapco, in accordance with intercompany agreements, for costs
related to derivative product support functions performed for those entities by Swapco employees; they are
recognized as income during the period that services are performed and are received at least quarterly.
Expenses
Interest expense is incurred primarily on cash collateral balances that have been pledged by customers to Swapco.
Management fees and sales commissions charged by affiliates compensate those affiliates, in accordance with
intercompany agreements, for costs related to derivative product support functions performed for Swapco by those
entities. Management fees are paid by Swapco at least quarterly and are recognized as expense during the period
that services are performed. Sales commissions are recognized as expense on a straight-line basis over the life of
the underlying trades. In accordance with intercompany agreements renegotiated effective October 1, 1994, sales
commissions are no longer paid by Swapco.
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