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Salomon - IR 96 3 Q (Page 13)

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Salomon - IR 96 3 Q
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 September 30, 1996, the most conservative (i.e.,
lowest) computation of actual capital for capital
adequacy purposes was $287 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
$186,642
Prepaid expenses and other assets
(18,200)
Deferred revenue
162,534
Haircuts on permitted investments
(39,045)
Other differences
(5,349)
Capital for capital adequacy purposes
$286,582
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 September 30, 1996
(dollars in thousands).
Minimum
future rentals
Remainder of 1996
$ 104
1997
349
1998
151
1999
151
2000
151
Thereafter
1,474
23

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