SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report:
October 11, 1994
Salomon Inc
(Exact name of registrant as specified in its charter)
Delaware 1-4346 22-1660266
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
Seven World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
(212) 783-7000
(Registrant's Telephone No.)
Item 5. Other Events
End-User Utilization of Derivatives
The vast majority of the Company's derivatives use involves
market making activities for customers and the
execution of proprietary trading strategies that include
derivatives. These derivatives are recorded at market or
fair
value in the Company's Consolidated Statement of Financial
Condition with changes in market or fair value
included currently in the Company's Statement of Income.
In addition to its derivatives trading activity, the Company
utilizes interest rate swaps and interest rate futures
contracts to effectively convert fixed-rate term debt and
preferred stock to variable-rate obligations. Further, the
Company utilizes currency swaps and forwards to effectively
convert non-U.S. dollar denominated term debt to
U.S. dollar denominated obligations and currency forwards to
hedge certain investments in subsidiaries with
functional currencies other than the U.S. dollar.
Interest rate swaps used to convert the Company's fixed-rate
obligations to variable rates are recorded "off-balance-
sheet", with net cash inflows or outflows recorded as
adjustments to interest expense or dividends, as
appropriate.
Adjustments to dividends are recorded on an aftertax basis.
Gains and losses on futures contracts are deferred and
amortized as an adjustment to interest expense over the
remaining term of the debt instruments being hedged.
The net deferral is included in Options and contractual
commitments in the Company's Consolidated Statement of
Financial Condition.
See Term Debt for a further discussion of interest rate swaps
and futures contracts.
Non-U.S. dollar denominated debt issued by Salomon Inc
(Parent Company) is translated to U.S. dollars at
exchange rates prevailing at the end of each reporting
period. For debt specifically identified as a hedge of an
investment in a subsidiary with a functional currency other
that the U.S. dollar, the translation impact is included
in Cumulative Translation Adjustments in Stockholders'
equity. Such debt represents the majority of Salomon Inc
(Parent Company) non-U.S. dollar denominated term debt. The
impact of translating remaining non-U.S. dollar
term debt to U.S. dollars is included in earnings. The
Company mitigates this exposure by entering into forward
currency purchase agreements. The impact of marking such
agreements to prevailing exchange rates is also
included in earnings. The Company also enters into forward currency
sales contracts to hedge investments in subsidiaries
with functional currencies other than the U.S. dollar.
The impact of marking such contracts to prevailing exchange
rates is included in Cumulative Translation Adjustments in
Stockholders' equity, as is the impact of translating the
investments being hedged.
Term Debt
Conversion of Non-U.S. Dollar Term Debt to U.S. Dollar
Denominated Obligations
At December 31, 1993, consolidated term debt (both fixed-
rate and variable-rate) denominated in currencies other
than the U.S. dollar totaled $2.1 billion. Of this amount,
$1.0 billion was issued by subsidiaries of the Company,
primarily Salomon Brothers AG ("SBAG") in Frankfurt and
Salomon Brothers Asia Limited ("SBAL") in Tokyo.
At December 31, 1993, SBAG had $779 million of term debt outstanding
and SBAL had $215 million of term debt
outstanding. With minimal exceptions, the debt was
denominated in the local currencies of these entities, German
marks for SBAG and Japanese yen for SBAL, which are also the
functional currencies of these entities. The debt
finances operating activities of these subsidiaries and,
consequently, is not converted to U.S. dollars.
Salomon Inc (Parent Company) term debt denominated in
currencies other than the U.S. dollar totaled $1.1 billion
at December 31, 1993. Of this amount, $75 million was
converted to U.S. dollar denominated obligations through
forward currency contracts and swaps. The maturity
structure of such debt at December 31, 1993 was as follows:
$2 million in 1995, $15 million in 1996 and $58 million in
1997. The majority of the remaining Salomon Inc
(Parent Company) non-U.S. dollar term debt not converted to
U.S. dollars, primarily yen denominated debt, was
designated as a hedge of the Company's investments in
certain subsidiaries with functional currencies other than
the
U.S. dollar, primarily SBAL.
Conversion of Fixed-Rate Term Debt to Variable-Rate
Obligations
At December 31, 1993, consolidated fixed-rate term debt
totaled $8.2 billion. The Company utilizes interest rate swap
agreements and interest rate futures contracts to
convert most of its fixed-rate term debt to variable-rate
obligations. Term debt with longer original maturities
is typically hedged with interest rate swap agreements
while term debt with shorter original maturities is typically
hedged with interest rate futures contracts.
For debt hedged with interest rate futures contracts, interest
expense is recorded at a
variable market rate of interest and the difference between
changes in the market value of the debt and the market
value of the futures contracts is recorded in income
currently. Under Statement of Financial Accounting Standards
No. 80 ("SFAS 80"), such difference is not recorded.
Although this approach is not in strict accordance
with SFAS 80,
the resulting difference is not material.
Results obtained under this approach approximate
the results that would be obtained if the
debt was hedged with interest rate swap agreements.
Commencing in the 1994 fourth quarter, the Company ceased
using interest rate futures contracts to hedge its fixed-rate
debt and now uses interest rate swap
agreements, regardless of maturity.
The following table summarizes the Company's fixed-rate
obligations at December 31, 1993, which were
effectively converted to variable-rate obligations through
interest rate swap agreements, under which the Company
receives a fixed rate of interest and pays a variable rate.
The maturity structure of the swap contracts is structured
to correspond with the maturity structure of the debt being
hedged.
<TABLE>
<CAPTION>
Fixed-rate
Total obligations Weighted avg. Weighted avg.
fixed-rate swapped to fixed-rate on variable-rate on
($ in millions) obligations variable swapped debt swapped debt
<S> <C> <C> <C> <C>
U.S. dollar debt:
Due in 1994 $1,196 $238 7.5% 3.9%
Due in 1995 1,426 591 7.7% 4.2%
Due in 1996 982 298 6.1% 4.2%
Due in 1997 447 144 5.7% 4.2%
Due in 1998 850 476 7.1% 4.2%
Due after 1998 1,886 1,676 7.3% 4.2%
____________________________________________________________________________
Total U.S. dollar debt $6,787 $3,423 7.2% 4.2%
- ----------------------------------------------------------------------------
Non-U.S. dollar debt:
Due in 1994 230 171 5.5% 2.5%
Due in 1995 148 106 5.1% 2.8%
Due in 1996 99 90 9.3% 4.7%
Due in 1997 184 76 5.7% 3.7%
Due in 1998 135 127 5.7% 3.1%
Due after 1998 639 474 7.9% 5.8%
- ----------------------------------------------------------------------------
Total non-U.S. dollar debt 1,435 1,044 6.9% 4.4%
- ----------------------------------------------------------------------------
Total fixed rate term debt $8,222 $4,467 7.1% 4.2%
============================================================================
</TABLE>
The U.S. dollar denominated fixed-rate
obligations swapped to variable in the
preceding table are Salomon Inc
(Parent Company) obligations. The variable
rates paid by the Company under the swap
agreements are typically
three to six month U.S. dollar LIBOR plus a
spread that averages 75 basis points. The
remaining Salomon Inc
(Parent Company) U.S. dollar denominated
fixed-rate term debt of $3.4 billion at
December 31, 1993 was
effectively converted to variable-rate debt
through the use of interest rate futures
contracts. The variable rate obtained under this approach
is approximately the same as that obtained using interest
rate swap agreements. The maturity structure of the futures
contracts corresponds with the maturity structure of the
debt being hedged.
The Company's non-U.S. dollar fixed-rate term
debt of $1.4 billion at December 31, 1993 was
issued across a
broad range of currencies (including German
marks, Japanese yen, U.K. sterling, Italian
lire, Swedish krone, and
European Currency Units) and, consequently, a
wide range of interest rates, from less than
5% for certain yen
denominated issues to more than 12% for
certain lire denominated issues. SBAG had
nearly $700 million of fixed-
rate mark denominated term debt outstanding
at December 31, 1993, with a weighted average
fixed interest rate of
8.5%. SBAG converted a substantial majority
of this debt to a variable rate, typically
one month mark LIBOR
which was 6.2% at December 31, 1993.
Similarly, Salomon Inc (Parent Company) and
SBAL converted
approximately $450 million of yen denominated
term debt, with a weighted average fixed rate
of 4.8%, to variable
rates determined by one or three month yen
LIBOR plus a spread. The weighted average
variable rate was 3.1% at
December 31, 1993.
The Company has no deferred gains or losses
as a result of the termination of interest
rate swap agreements.
Revenues by Business Unit
The following tables present revenue
information by business unit for the six
month periods ended June 30, 1994
and 1993, utilizing the revenue captions
included in the Company's Consolidated
Statement of Income in the June
30, 1994 Form 10-Q.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994
Principal Transactions Investment
(dollars in millions) & Net Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers Client-Driven
Businesses:
Global investment banking $0 $256 $0 $0 $256
U.S. secondary markets* 100 0 114 0 214
International secondary markets* (147) 0 52 0 (95)
Foreign exchange (56) 0 0 0 (56)
Private Investment Department and
asset management 11 0 8 12 31
-------- -------- ------- -------- --------
Total revenues from Client-Driven
Businesses (92) 256 174 12 350
Proprietary Trading Businesses 281 0 0 0 281
-------- -------- ------- -------- --------
Total Salomon Brothers revenues,
net of interest expense 189 256 174 12 631
Phibro Division 205 0 0 0 205
Phibro USA 40 0 0 3 43
Other 2 0 0 1 3
-------- -------- ------- -------- --------
Total Salomon Inc $436 $256 $174 $16 $882
======== ======== ======= ======== ========
<FN>
*For the six months ended June 30, 1994, aggregate revenues of $119 million for secondary markets businesses
included $89 million for fixed income businesses and $30 million for equities businesses.
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1993
Principal Transactions Investment
(dollars in millions) & Net Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers Client-Driven
Businesses:
Global investment banking $0 $327 $0 $0 $327
U.S. secondary markets* 561 0 104 0 665
International secondary markets* 422 0 35 0 457
Foreign exchange 84 0 0 0 84
Private Investment Department and
asset management 21 0 6 12 39
-------- -------- ------- -------- --------
Total revenues from Client-Driven
Businesses 1,088 327 145 12 1,572
Proprietary Trading Businesses 330 0 0 0 330
-------- -------- ------- -------- --------
Total Salomon Brothers revenues,
net of interest expense 1,418 327 145 12 1,902
Phibro Division 38 0 0 0 38
Phibro USA 7 0 0 1 8
Other 0 0 0 (20) (20)
-------- -------- ------- -------- --------
Total Salomon Inc $1,463 $327 $145 ($7) $1,928
======== ======== ======= ======== ========
<FN>
*For the six months ended June 30, 1993, aggregate revenues of $1,122 million for secondary markets businesses
included $855 million for fixed income businesses and $267 million for equities businesses.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
SALOMON INC
(Registrant)
Date: October 11, 1994 By: /s/ David C. Fisher
Controller
