UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
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COMMISSION FILE NUMBER 0-19564
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MUNICIPAL SECURITIES PURCHASE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3633082
(State or other jurisdiction incorporation (I.R.S. Employer Identification No.)
or organization)
201 High Ridge Road,
STAMFORD, CONNECTICUT 06927 (203) 357-4000
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, PAR VALUE $10.00 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES NO X
--- ---
AGGREGATE MARKET VALUE OF THE OUTSTANDING COMMON EQUITY HELD BY NONAFFILIATES OF
THE REGISTRANT AS OF THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLY
COMPLETED SECOND FISCAL QUARTER: NONE
AT FEBRUARY 28, 2005, 10 SHARES OF COMMON STOCK WITH A PAR VALUE OF $10.00 PER
SHARE WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT
MUNICIPAL SECURITIES PURCHASE, INC.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 1
Item 3. Legal Proceedings 1
Item 4. Submission of Matters to a Vote of Security Holders 1
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 2
Item 6. Selected Financial Data 2
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition 2
Item 8. Financial Statements and Supplementary Data 4
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
Item 9A. Controls and Procedures 14
Item 9B. Other Information 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
Item 14. Principal Accounting Fees and Services 15
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 15
Signatures 17
Unless the context otherwise requires, the "Company," "Municipal-SPI," "We,"
"Us," or "Our" shall mean Municipal Securities Purchase, Inc.
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements"- that is, statements related
to future, not past events. In this context, forward-looking statements often
address our expected future business and financial performance, and often
contain words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," or "will." Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties
arise from the behavior of financial markets, including fluctuations in interest
rates and from numerous other matters of national, regional and global scale,
including those of a political, economic, business, competitive or regulatory
nature. These uncertainties may cause our actual future results to be materially
different than those expressed in our forward-looking statements. We do not
undertake to update our forward-looking statements.
PART I
ITEM 1. BUSINESS
FGIC Securities Purchase, Inc. (FGIC-SPI) was incorporated in 1990
in the State of Delaware. In the fourth quarter of 2003, FGIC-SPI
changed its name to Municipal Securities Purchase, Inc.
(Municipal-SPI or the Company). As of December 31, 2004, all
outstanding capital stock of Municipal-SPI was owned by GE Funding
Services, Inc.(the Parent), a Delaware corporation and a wholly
owned subsidiary of GEI, Inc. which, in turn, is wholly owned by
General Electric Capital Corporation (GE Capital), a Delaware
corporation, the ultimate parent of which is General Electric
Company.
Our business consists of providing liquidity for certain floating
rate municipal securities through a "liquidity facility". These
floating rate municipal securities may be tendered by holders
thereof for purchase at par periodically and are typically
remarketed by registered broker-dealers upon such tender for
purchase. In the event that such securities cannot be remarketed,
we, pursuant to a standby bond purchase agreement with the issuer
of the securities, will be obligated to purchase these securities,
at par. In order to obtain funds to purchase the securities, we
have entered into standby loan agreements, with GE Capital, under
which GE Capital will irrevocably be obligated to lend funds as
needed for us to purchase the securities. While we hold any such
bonds, interest payments received from the municipalities will be
at a floating rate specified in the applicable document that is in
excess of the stated rate on the bonds. Purchased bonds may be
held by us until they are remarketed, sold or until maturity.
Since inception, we have not been required to perform under such
arrangements.
Since 2002, we have not been providing any new liquidity
facilities. Each of the liquidity facilities have had a term of
approximately five years (subject to renewal) or less if the bonds
are no longer outstanding.
ITEM 2. PROPERTIES
Municipal-SPI conducts its business at 201 High Ridge Road,
Stamford, CT.
ITEM 3. LEGAL PROCEEDINGS
Municipal-SPI is not involved in any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not required by this form.
- 1 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Municipal-SPI's common stock, its sole class of common equity, is
owned by GE Funding Services, Inc; and, therefore, there is no
trading market in such stock.
ITEM 6. SELECTED FINANCIAL DATA
Not required by this form.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
REVENUES
We provide liquidity facilities for certain floating rate
municipal securities whereby we will, under certain circumstances,
purchase such securities in the event they are tendered by the
holders thereof. We earn liquidity fees from the issuers of these
securities, municipal governments in the United States, for
providing the liquidity facilities.
During 2004 and 2003, we did not commit to any new liquidity
facilities.
The total capacity of our liquidity facility has amounted to $7
billion since inception. At December 31, 2004 and 2003, we had a
remaining capacity of $0.1 billion.
We earned liquidity fees of $6.4 million, $8.8 million and $9.5
million during the years ended December 31, 2004, 2003 and 2002,
respectively. The decrease in liquidity fees from 2003 to 2004 was
primarily due to the maturity of 11 contracts during 2003 and the
maturity of 6 contracts during 2004. The total outstanding par
amount of the liquidity facilities decreased by approximately $30
million during 2004 due to paydowns on the outstanding principal
of the liquidity facility for 10 contracts in addition to the
maturities noted above. The total liquidity facility in force as
of December 31, 2004 and 2003 was $3.6 billion and $3.8 billion,
respectively.
OPERATING EXPENSES
We incurred $0.4 million, $0.9 million and $0.9 million of total
operating expenses during the years ended December 31, 2004, 2003
and 2002, respectively. Included in total operating expenses were
commitment fees to GE Capital under the standby loan agreements,
which are based on the outstanding par in force on each of the
liquidity facilities at a rate of 0.625 basis points. Commitment
fees were $0.2 million, $0.3 million and $0.3 million for the
years ended December 31, 2004, 2003 and 2002. The decrease in
commitment fees from 2003 to 2004 corresponds with the respective
decrease in liquidity fees earned, which is also based upon the
par in force on each of the liquidity facilities outstanding.
Total operating expenses also included general and administrative
expenses, which are principally comprised of intercompany overhead
and expense allocation. General and administrative expenses were
$0.2 million, $0.6 million and $0.6 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The decrease in
general and administrative expenses from 2003 to 2004 reflects the
decline in the Company's activities, as the total outstanding par
amount of the liquidity facilities have decreased.
- 2 -
INCOME TAX EXPENSE
The statutory U.S. Federal tax rate during the years ended
December 31, 2004, 2003 and 2002 was 35%. Our effective tax rate
was 39.55% including the net effect of state taxes.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity is a measure of the ability to generate sufficient cash
to meet cash obligations as they come due. The largest use of
potential liquidity would be if we were required to purchase
securities under the liquidity facilities issued. Since inception,
we have not been required to purchase any securities. If we were
required to purchase such securities, we would draw on the standby
loan agreements with GE Capital. Since the standby loan agreements
with GE Capital are irrevocable during the period the liquidity
agreements are outstanding, we believe we have sufficient
liquidity in the event that we are required to fund any draw downs
under the liquidity facilities issued. See note 5 for a
description of our off-balance sheet risk relating to the maturity
distribution of the underlying par value supported by the
liquidity facilities.
Our other primary source of cash is from liquidity fee income,
which we lend to GE Capital. We believe that such income and
access to the intercompany receivable from GE Capital ($6.2
million at December 31, 2004) is sufficient to fund our general
and administration expenses.
Net cash provided by operating activities was $35 million for the
year ended December 31, 2004, as we collected a portion of the
intercompany receivable from GE Capital. We used the cash to pay a
$35 million dividend to the Parent, resulting in a $35 million
financing cash outflow during the year ended December 31, 2004.
There were no cash flows related to investing activities for the
year ended December 31, 2004.
CRITICAL ACCOUNTING ESTIMATES
Accounting estimates and assumptions discussed in this section are
those that we consider to be the most critical to an understanding
of our financial statements because they inherently involve
significant judgments and uncertainties. For all of these
estimates, we caution that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment.
Also see note 1, Summary of Significant Accounting Policies, which
discusses accounting policies that we have selected from
acceptable alternatives.
REVENUE RECOGNITION
We estimate that the risk of being required to purchase securities
under the standby agreements is distributed evenly over the life
of the liquidity facilities; therefore revenue recognition
policies have been adopted to recognize revenue evenly over the
life of the liquidity facilities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareowner
Municipal Securities Purchase, Inc.
We have audited the accompanying statements of financial position of Municipal
Securities Purchase, Inc. as of December 31, 2004 and 2003, and the related
statements of income, changes in shareowner's equity, and cash flows for each of
the years in the three-year period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Municipal Securities Purchase, Inc.
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Stamford, Connecticut
February 11, 2005
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Financial Position
December 31
2004 2003
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ASSETS
Liquidity fees receivable $ 1,081,133 $ 1,572,969
Receivable from GE Capital 6,180,288 39,284,435
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Total assets $ 7,261,421 $ 40,857,404
==================== ===================
LIABILITIES AND SHAREOWNER'S EQUITY
Deferred liquidity fee income $ 686,223 $ 701,593
Accounts payable and accrued expenses 29,000 69,148
Taxes payable 109,662 2,262,071
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Total liabilities 824,885 3,032,812
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Common stock, par value $10.00 per share (10 shares
authorized, issued, and outstanding) 100 100
Additional paid-in capital 822,145 822,145
Retained earnings 5,614,291 37,002,347
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Total shareowner's equity 6,436,536 37,824,592
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Total liabilities and shareowner's equity $ 7,261,421 $ 40,857,404
==================== ===================
The notes to consolidated financial statements on pages 9-14 are an integral
part of these financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Income
Years ended December 31
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2004 2003 2002
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Liquidity fee income $6,368,144 $8,761,963 $9,475,773
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Total revenues 6,368,144 8,761,963 9,475,773
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General and administrative expenses 164,672 648,491 604,181
GE Capital commitment fees 228,380 276,986 292,724
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Total operating expenses 393,052 925,477 896,905
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Income before provision for income taxes 5,975,092 7,836,486 8,578,868
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Income tax expense:
Federal 1,944,892 2,550,776 2,792,421
State and local 418,256 548,554 600,522
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Total income tax expense 2,363,148 3,099,330 3,392,943
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Net income $3,611,944 $4,737,156 $5,185,925
============= ============= ==============
The notes to consolidated financial statements on pages 9-14 are an integral
part of these financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Changes in Shareowner's Equity
Years ended December 31, 2004, 2003 and 2002
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
Balance, December 31, 2001 $ 100 $ 822,145 $ 27,079,266 $ 27,901,511
Net income - 5,185,925 5,185,925
-------------------- -------------------- ------------------- -------------------
Balance, December 31, 2002 100 32,265,191 33,087,436
Net income - 4,737,156 4,737,156
-------------------- -------------------- ------------------- -------------------
Balance, December 31, 2003 100 822,145 37,002,347 37,824,592
Dividends paid (35,000,000) (35,000,000)
Net income - 3,611,944 3,611,944
-------------------- -------------------- ------------------- -------------------
Balance, December 31, 2004 $ 100 $ 822,145 $ 5,614,291 $ 6,436,536
==================== ==================== =================== ===================
The notes to consolidated financial statements on pages 9-14 are an integral
part of these financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Cash Flows
Years ended December 31
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2004 2003 2002
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Operating activities:
Net income $ 3,611,944 $ 4,737,156 $ 5,185,925
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in taxes payable (2,152,409) 1,273,780 476,378
Change in receivable from GE Capital 33,104,147 (4,485,259) (5,702,397)
Change in due to affiliates - (135,773) (506,364)
Change in other assets - - 147,822
Change in commitment fees payable to GE Capital - (992,975) 292,724
Change in liquidity fees receivable 491,836 254,949 9,855
Change in deferred liquidity fee income (15,370) (224,609) 60,591
Change in accounts payable and accrued expenses (40,148) (427,269) 35,466
----------------- ----------------- -----------------
Cash from operating activities 35,000,000 - -
Financing activities:
Dividends paid (35,000,000) - -
----------------- ----------------- -----------------
Cash used for financing activities (35,000,000) - -
Net change in cash and cash equivalents - - -
Cash and cash equivalents at beginning of period - - -
----------------- ----------------- -----------------
Cash and cash equivalents at the end of period $ - $ - $ -
================= ================= =================
The notes to consolidated financial statements on pages 9-14 are an integral
part of these financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(1) BUSINESS DESCRIPTION
Municipal Securities Purchase, Inc. (Municipal-SPI or the Company) is a
wholly owned subsidiary of GE Funding Services, Inc. (the Parent), which
is a wholly owned subsidiary of GEI, Inc., and in turn, wholly owned by
General Electric Capital Corporation (GE Capital) the ultimate parent of
which is the General Electric Company (GE). In the fourth quarter of
2003, FGIC Securities Purchase, Inc. (FGIC-SPI) changed its name to
Municipal Securities Purchase, Inc. Municipal-SPI provides liquidity for
certain floating rate municipal securities whereby Municipal-SPI will,
under certain circumstances, purchase such securities in the event they
are tendered by the holders thereof as permitted under the terms of the
respective bond indentures. As of December 31, 2004, Municipal-SPI had
approximately $3.6 billion (par and interest) of potential obligations
under such arrangements. At December 31, 2004, the Company had remaining
capacity of $0.1 billion. Since 2003, Municipal-SPI has not been
providing any new liquidity facilities. Each of the liquidity facilities
have had a term of approximately five years (subject to renewal) or less
if the bonds are no longer outstanding. In order to obtain funds to
purchase the securities, in the event such purchases are necessary,
Municipal-SPI has entered into standby loan agreements with GE Capital
totaling $3.6 billion as of December 31, 2004, under which GE Capital is
irrevocably obligated to lend funds as needed for Municipal-SPI to
purchase the securities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
Our financial statements are prepared in conformity with U.S.
generally accepted accounting Principles (GAAP).
USE OF ESTIMATES
Preparing financial statements in conformity with generally
accepted accounting principles requires us to make estimates and
assumptions that affect reported amounts and related disclosures.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried at cost, which approximates
fair value. For purposes of the statement of cash flows, we
consider all highly liquid investments with original maturities of
three months or less, which are not with affiliated entities, to
be cash equivalents.
REVENUE RECOGNITION
We estimate that the risk of being required to purchase securities
under the standby agreements is distributed evenly over the life
of the liquidity facilities; therefore revenue recognition
policies have been adopted to recognize revenue evenly over the
life of the liquidity facilities.
EXPENSES
General and administrative expenses consist of direct expenses
incurred by GE Capital that are allocated on a specific
identification basis and employee related expenses that are
allocated based on the percentage of time such employees devote to
our activities. For the years ended December 31,
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
2004, 2003, and 2002 general and administrative expenses of $0.2
million, $0.6 million, and $0.6 million, respectively, were
allocated to Municipal-SPI. We believe that such allocation method
is reasonable, and that such expenses, as reported in the
statements of income, would not differ materially from the amount
of expenses on a stand-alone basis.
COMMITMENT FEES
Commitment fees are accrued as a percentage of the par value of
the outstanding liquidity facilities.
RESERVE FOR LOSSES
We establish a reserve for losses based upon our estimate of the
ultimate aggregate losses relative to our obligations under the
liquidity facility arrangements written.
At December 31, 2004, we do not anticipate any losses relative to
such arrangements.
OTHER COMPREHENSIVE INCOME
There are no elements of Other Comprehensive Income.
ACCOUNTING CHANGES
In November 2002, the Financial Accounting Standards Board (FASB)
issued Interpretation No. (FIN) 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The disclosure provisions of
FIN 45 were effective for the year ended 2002 while the
recognition and measurement provisions became effective for
guarantees issued or modified on or after January 1, 2003. The
standby security purchase agreements issued by us are subject to
FIN 45, however no new facilities were committed to during the
years ended 2004 and 2003. See note 5 for related disclosures.
(3) INCOME TAXES
Under an intercompany tax-sharing agreement, we are included in the
consolidated U.S. federal income tax return, which GE files. The
provision for current tax expense includes our effect on the consolidated
return. We provide for taxes as if we filed a separate tax return.
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
Our effective U.S. Federal tax rate differs from the corporate tax rate
on ordinary income of 35% in 2004, 2003, and 2002. The differences
between the statutory Federal tax rate and expense computed by applying
the statutory tax rate to earnings before income taxes are as follows:
YEAR ENDED DECEMBER 31
------------------------------------------------------
2004 2003 2002
---------------- ---------------- ------------------
Statutory tax provision $ 2,091,282 $2,742,770 $ 3,002,604
Benefit of deduction for state and
local income taxes (146,390) (191,994) (210,183)
---------------- ---------------- ------------------
Federal income taxes 1,944,892 2,550,776 2,792,421
State and local income taxes 418,256 548,554 600,522
---------------- ---------------- ------------------
Income tax expense $ 2,363,148 $3,099,330 $ 3,392,943
================ ================ ==================
(4) RELATED PARTY TRANSACTIONS
We are not providing any new liquidity facilities. As part of the standby
loan agreements with GE Capital (see note 6), we have paid commitment
fees for the years ended December 31, 2004, 2003, and 2002 of $0.2
million, $0.3 million, and $0.3 million, respectively.
At December 31, 2004 and 2003, the amounts classified as receivable from
GE Capital relate to intercompany balances held by GE Capital. We have
access to these funds on an as needed basis. All amounts receivable from
GE Capital are non-interest bearing.
See note 2 for description of expenses allocated by GE Capital.
(5) Off-Balance-Sheet Risk
We provide liquidity for certain floating rate municipal securities
whereby in the event that such securities cannot be remarketed, we,
pursuant to a standby purchase agreement with the issuer of the
securities, will be obligated to purchase these securities, at par.
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
The geographical distribution of the underlying par value supported by
the liquidity facilities outstanding at December 31, 2004, was as follows
(dollars in millions):
New York $ 842
Michigan 740
California 649
Massachusetts 442
District of Columbia 272
Hawaii 250
Florida 117
Pennsylvania 92
New Hampshire 38
North Carolina 30
Louisiana 27
Alabama 21
-------------
Total $ 3,520
=============
Of the $842 million of par value related to State of New York, $702
million relates to New York City. The next largest single exposure is to
the Massachusetts Water Resource Authority with $442 million in
outstanding par.
The maturity distribution of the underlying par value supported by the
liquidity facilities outstanding at December 31, 2004, is as follows
(dollars in millions):
Less than one year $ 538
One to two years 1,930
Two to three years 995
Three to four years 57
Four to five years -
Over five years -
------------
Total $ 3,520
============
Each of the liquidity facilities have had a term of approximately five
years (subject to renewal) or less if the bonds are no longer
outstanding.
We are exposed to credit risk that the issuer defaults on the underlying
municipal security at a time that we are holding securities purchased
pursuant to a liquidity facility and the financial guarantor fails to
perform on its insurance contract. It is our policy to evaluate the
likelihood of any credit loss at each reporting period and to establish
reserves for credit losses when deemed appropriate. At December 31, 2004
and 2003 no such reserves were required.
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
We are exposed to market risk in the event that we are required to
purchase municipal securities at their par amount at a time when such par
value is in excess of the securities' fair value. It is our policy to
evaluate the likelihood of us being called upon to purchase securities
under our liquidity arrangements at amounts greater than the fair value
of the securities at each reporting period and to establish valuation
reserves when deemed appropriate. No such valuation reserves were
required at December 31, 2004 and 2003.
(6) STANDBY LOAN AGREEMENTS
We secured the right to obtain funds for the purchase of tendered bonds
by entering into standby loan agreements with GE Capital who will lend
funds to us in amounts not exceeding the purchase price of the tendered
bonds. The total standby loan agreement amount at December 31, 2004,
equals the total outstanding facility amount of $3.6 billion.
In consideration of the commitment of GE Capital to make loans to us, we
agree to pay GE Capital a fee equal to 0.625 basis points on the
outstanding facility. The fee is payable on dates mutually agreed by us
and GE Capital.
In event of a failed remarketing, we would borrow amounts from GE Capital
under the provisions of the standby loan agreements. The standby loan
agreements require the payment of interest by us to GE Capital based on a
floating index plus a spread, which would not exceed the rate that we are
entitled to receive from the issuer of the bonds.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 2004, the estimated fair value of the liquidity
facilities was approximately $11 million. The estimated fair value of the
standby loan agreements with GE Capital was approximately $0.4 million.
The fair value was calculated based upon current expected cash inflows
and outflows, assuming current outstanding facilities at current fee
rates, discounted at the risk free rate of 3.63%. We believe the fair
value approximates cost for all other assets and liabilities. Although we
have made every effort to represent accurate estimated fair values in
this section, there is no assurance that such estimates could actually
have been realized at December 31, 2004.
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MUNICIPAL SECURITIES PURCHASE, INC.
Notes to Financial Statements
December 31, 2004, 2003 and 2002
(8) QUARTERLY DATA (UNAUDITED)
Selected quarterly financial data was as follows:
2004
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4th 3rd 2nd 1st Total
-------------- -------------- ------------- ------------- --------------
Total revenues $ 1,562,296 $ 1,610,649 $1,616,357 $1,578,842 $ 6,368,144
Total expenses 41,877 117,156 117,223 116,796 393,052
-------------- -------------- ------------- ------------- --------------
Income before provision for
income taxes 1,520,419 1,493,493 1,499,134 1,462,046 5,975,092
Income tax expense 601,326 590,675 592,908 578,239 2,363,148
-------------- -------------- ------------- ------------- --------------
Net income $ 919,093 $ 902,818 $ 906,226 $ 883,807 $ 3,611,944
============== ============== ============= ============= ==============
2003
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4th 3rd 2nd 1st Total
-------------- -------------- ------------- ------------- --------------
Total revenues $ 1,831,129 $ 2,306,018 $2,362,602 $2,262,214 $ 8,761,963
Total expenses 82,197 315,486 273,708 254,086 925,477
-------------- -------------- ------------- ------------- --------------
Income before provision for
income taxes 1,748,932 1,990,532 2,088,894 2,008,128 7,836,486
Income tax expense 691,702 787,255 826,158 794,215 3,099,330
-------------- -------------- ------------- ------------- --------------
Net income $ 1,057,230 $ 1,203,277 $1,262,736 $1,213,913 $ 4,737,156
============== ============== ============= ============= ==============
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
ITEM 9A. CONTROLS AND PROCEDURES
Under the direction of our Chairman of the Board (serving as the
principal executive officer) and Vice President and Treasurer
(serving as the chief financial officer), we evaluated our
disclosure controls and procedures and internal control over
financial reporting and concluded that (i) our disclosure controls
and procedures were effective as of December 31, 2004 and (ii) no
change in internal control over financial reporting occurred
during the quarter ended December 31, 2004, that has materially
affected, or is reasonably likely to materially affect, such
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not required by this form.
ITEM 11. EXECUTIVE COMPENSATION
Not required by this form.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not required by this form.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not required by this form.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed for professional services by KPMG in
2004 and 2003 were:
(In thousands)
TYPE OF FEES 2004 2003
------------- ------------
Audit Fees $ 55 $ 80
------------- ------------
Total $ 55 $ 80
============= ============
In the above table, in accordance with the SEC's definitions and rules, "audit
fees" are fees we paid KPMG for professional services for the audit of our
annual financial statements included in Form 10-K and review of financial
statements included in Form 10-Q's and for services that are normally provided
by the accountant in connection with statutory and regulatory filing or
engagements.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
Included in Part II of this report:
Report of Independent Registered Public Accounting Firm
Statements of Financial Position as of December 31, 2004
and 2003 Statements of Income for the years ended
December 31, 2004, 2003, and 2002
Statements of Changes in Shareowner's Equity for the
years ended December 31, 2004, 2003, and 2002 Statements
of Cash Flows for the years ended December 31, 2004,
2003, and 2002 Notes to Financial Statements
All Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions
or are inapplicable and, therefore, have been omitted.
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(b) Exhibit Index
1.1 - Certificate of Incorporation of Municipal-SPI (Incorporated by
reference to Exhibit 1.1 of Municipal-SPI's December 31, 1991
Form 10-K)
1.2 - Certificate of Amendment of Certificate of Incorporation of
Municipal-SPI (Incorporated by reference to Exhibit 1.4 of
Municipal-SPI's Current Report on Form 8-K filed on November 14,
2003).
1.3 - By-Laws of Municipal-SPI (Incorporated by reference to Exhibit 1.2
of Municipal-SPI's December 31, 1991 Form 10-K)
23 (ii) - Consent of Independent Registered Public Accounting Firm
31 (a) - Certifications of Principle Executive Officer Pursuant to Rule
13a-14(a) under the Exchange Act
31 (b) - Certifications of Principle Financial and Accounting Officer
Pursuant to Rule 13a-14(a) under the Exchange Act
32 - Certifications Pursuant to 18 U.S.C. Section 1350
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Municipal Securities Purchase, Inc.
(Registrant)
March 1, 2005 /s/ Brian Wenzel
- ------------- ----------------
Date Brian Wenzel
Chairman
(Principal Executive Officer)
March 1, 2005 /s/ Kathleen Gan
- ------------- ----------------
Date Kathleen Gan
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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Exhibit 23 (ii)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareowner
Municipal Securities Purchase, Inc.
We consent to incorporation by reference in the registration statement (No.
333-71950) on Form S-3 of Municipal Securities Purchase, Inc. of our report
dated February 11, 2005 relating to the statements of financial position of
Municipal Securities Purchase, Inc. as of December 31, 2004 and 2003, and the
related statements of income, changes in shareowner's equity, and cash flows for
each of the years in the three-year period ended December 31, 2004, which report
appears in the December 31, 2004 annual report on Form 10-K of Municipal
Securities Purchase, Inc.
/s/ KPMG LLP
Stamford, Connecticut
March 1, 2005
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Exhibit 31 (a)
CERTIFICATIONS
21
I, Brian Wenzel, certify that:
(1) I have reviewed this annual report on Form 10-K of Municipal Securities
Purchase, Inc.;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designated such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report and change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
March 1, 2005
/s/ Brian Wenzel
- ----------------
Chairman
(Principal Executive Officer)
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Exhibit 31 (b)
CERTIFICATIONS
I, Kathleen Gan, certify that:
(1) I have reviewed this annual report on Form 10-K of Municipal Securities
Purchase, Inc.;
(2) Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designated such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) Disclosed in this report and change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
March 1, 2005
/s/ Kathleen Gan
- ----------------
Vice President and Treasurer
(Principal Financial and Accounting Officer)
- 20 -
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Municipal Securities Purchase, Inc. (the
"registrant") on Form 10-K for the period ended December 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "report"), we,
Brian Wenzel and Kathleen Gan, Chairman, and Vice President and Treasurer,
respectively, of the registrant, certify pursuant to 18 U.S.C. Section 1350,
that to our knowledge:
(1) The report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the
registrant.
March 1, 2005
/s/ Brian Wenzel
- ----------------
Brian Wenzel
Chairman
(Principal Executive Officer)
/s/ Kathleen Gan
- ----------------
Kathleen Gan
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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