Salomon Swapco Inc
Summary of Accounting Policies
Deferred revenue
Deferred revenue represents the unamortized portion of
intermediation and guarantee fees that 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.
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Salomon Swapco Inc
Summary of Accounting Policies
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.
Compensation and employee-related expenses include
employee base salaries, bonuses and fringe benefits,
including the cost of medical insurance, life insurance,
retirement plans, payroll taxes and recruiting agency
fees. Compensation also includes the cost of Salomon
Inc shares allocated to individual employee accounts
pursuant to Swapco's participation in the Salomon Inc
Equity Partnership Plan.
Professional services include audit and legal fees as well
as ongoing rating agency surveillance fees.
Technology expense includes costs for computer services,
office automation, market data services and voice, data
and network communications.
Occupancy expense includes rent, maintenance, utilities,
occupancy taxes, property insurance and moving and
other occupancy-related expenses incurred in connection
with Swapco's office space at 7 World Trade Center in
New York and at 8800 Hidden River Parkway in Tampa,
Florida.
Other expenses include premiums for credit insurance,
custodial and bank charges as well as other
miscellaneous items.
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