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 and sales 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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