Salomon Swapco Inc
Notes to Financial Statements
Note 4. Capital
By resolutions adopted by its board of directors, and in
accordance with agreements with rating agencies,
Swapco is required to maintain a level of capital, as
defined, which varies with the size and composition of
its derivatives portfolio. Minimum required capital is
recomputed every New York business day and is
compared with actual capital, as defined. Any excess of
minimum required capital over actual capital must be
eliminated within two New York business days or
Swapco will terminate its outstanding transactions at
mid-market values.
Capital, as defined for capital adequacy purposes, differs
from Stockholder's equity on the Statement of Financial
Condition in a number of respects. Most significantly,
Prepaid expenses and other assets and Deferred revenue,
which appear as assets and liabilities on the Statement of
Financial Condition, are not included in the evaluation of
capital adequacy. Those balances represent amounts
which have already been exchanged in cash and which
will not be recovered (in the case of Prepaid expenses)
or refunded (in the case of Deferred revenue) in the
event of a termination. They are, therefore, not relevant
to an assessment of capital adequacy.
In addition, permitted investments are presented on the
Statement of Financial Condition at their market values
but are subject to haircuts (which vary by security as
well as from one rating agency to another) in the
evaluation of capital adequacy.
At June 30, 1996, the most conservative (i.e., lowest)
computation of actual capital for capital adequacy
purposes was $267 million. The difference between that
measure and Stockholder's equity at the same date is
accounted for as follows (dollars in thousands):
22
Salomon Swapco Inc
Notes to Financial Statements
Note 4. Capital (continued)
Stockholder's equity
$186,885
Prepaid expenses and other assets
(19,332)
Deferred revenue
154,113
Haircuts on permitted investments
(51,330)
Other differences
(3,565)
Capital for capital adequacy purposes
$266,771
Note 5. Lease commitments
Swapco has a noncancelable sublease covering office
space at 7 World Trade Center in New York expiring in
2010 and a lease, renewable annually, for space at 8800
Hidden River Parkway in Tampa, Florida. Both leases
are with Salomon Inc. Presented below is a schedule of
minimum future rentals as of June 30, 1996 (dollars in
thousands).
Minimum
future rentals
Remainder of 1996
$ 142
1997
151
1998
151
1999
151
2000
151
Thereafter
1,474
23
