UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2005
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
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(State or other jurisdiction incorporation or (I.R.S. Employer Identification
organization) No.)
201 HIGH RIDGE ROAD, STAMFORD,
CONNECTICUT 06927
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(Address of principal executive offices) (Zip Code)
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE) (203) 357-4000
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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 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 .
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X .
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At May 6, 2005, 10 shares of common stock with a par value of $10 per share were
outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND (G)
OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE
FORMAT.
MUNICIPAL SECURITIES PURCHASE, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Financial Position 1
Statements of Income 2
Statements of Changes in Shareowner's Equity 3
Statements of Cash Flows 4
Notes to Unaudited Interim Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 6
Item 4. Controls and Procedures 7
PART II. OTHER INFORMATION
Item 6. Exhibits 8
Signatures 9
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.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Financial Position
MARCH 31, DECEMBER 31,
2005 2004
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Assets (unaudited)
Liquidity fees receivable $ 921,827 $ 1,081,133
Due from GE Capital 1,138,851 6,180,288
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Total assets $ 2,060,678 $ 7,261,421
================= ===================
LIABILITIES AND SHAREOWNER'S EQUITY
Deferred liquidity fee income $ 582,213 $ 686,223
Accounts payable and accrued expenses 47,974 29,000
Taxes payable 109,662 109,662
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Total liabilities 739,849 824,885
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Common stock, par value $10 per share (10 shares
authorized, issued and outstanding) 100 100
Additional paid-in capital 822,145 822,145
Retained earnings 498,584 5,614,291
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Total shareowner's equity 1,320,829 6,436,536
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Total liabilities and shareowner's equity $ 2,060,678 $ 7,261,421
================= ===================
See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Income
(Unaudited)
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THREE-MONTHS ENDED
MARCH 31
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2005 2004
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Liquidity fee income $1,567,150 $1,578,842
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Total revenues 1,567,150 1,578,842
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General and administrative expenses 44,138 60,000
GE Capital commitment fees 53,703 56,796
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Total operating expenses 97,841 116,796
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Income before provision for income taxes 1,469,309 1,462,046
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Income tax expense:
Federal 481,473 475,896
State and local 103,543 102,343
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Total income tax expense 585,016 578,239
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Net income $ 884,293 $ 883,807
=============== ================
See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Changes in Shareowner's Equity
Three-months ended March 31, 2005
ADDITIONAL
COMMON PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
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
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Balance, December 31, 2004 $ 100 $ 822,145 $ 5,614,291 $ 6,436,536
Dividends paid (unaudited) - - (6,000,000) (6,000,000)
Net income (unaudited) - - 884,293 884,293
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Balance, March 31, 2005 (unaudited) $ 100 $ 822,145 $ 498,584 $ 1,320,829
============ =============== ================== ==================
See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statements of Cash Flows
(Unaudited)
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THREE-MONTH ENDED
MARCH 31
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2005 2004
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Operating activities:
Net income $ 884,293 $ 883,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in due from GE Capital 5,041,437 34,201,991
Change in liquidity fees receivable 159,306 (112,665)
Change in deferred liquidity fee income (104,010) (7,704)
Change in accounts payable and accrued expenses 18,974 34,571
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Cash from operating activities 6,000,000 35,000,000
Financing activities:
Dividends paid (6,000,000) (35,000,000)
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Cash used for financing activities (6,000,000) (35,000,000)
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of period - -
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Cash and cash equivalents at the end of period $ - $ -
================= =================
See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(1) BUSINESS DESCRIPTION
Municipal Securities Purchase, Inc. (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 General Electric Company (GE). In the fourth quarter of
2003, FGIC Securities Purchase, Inc. (FGIC-SPI) changed its name to
Municipal Securities Purchase, Inc. The Company provides liquidity for
certain floating rate municipal securities whereby the Company 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 March 31, 2005, the Company had
approximately $3.2 billion (par amount and interest) of potential
obligations under such arrangements. 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,
the Company has entered into standby loan agreements with GE Capital
totaling $3.2 billion as of March 31, 2005, under which GE Capital is
irrevocably obligated to lend funds as needed for the Company to
purchase the securities.
BASIS OF CONSOLIDATION
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates.
The unaudited interim financial statements of the Company contained in
this report reflect all normal recurring adjustments necessary, in the
opinion of management, for a fair statement of the results of
operations, financial position and cash flows. The results reported in
these quarterly financial statements should not be regarded as
necessarily indicative of results that may be expected for the entire
year. We label our quarterly information using a calendar convention,
that is, first quarter is labeled as ending March 31, second quarter as
ending on June 30, and third quarter as ending on September 30. It is
our longstanding practice to establish interim quarterly closing dates
using a fiscal calendar, which requires our business to close their
books on a Saturday. The effects of this practice are modest and only
exist within a reporting year.
These unaudited interim financial statements should be read in
conjunction with the financial statements and related notes included in
the 2004 Form 10-K.
(2) 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
return.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
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 U.S., for providing the liquidity facilities.
During 2004 and the three-months ended March 31, 2005, we did not
commit to any new liquidity facilities.
The total capacity of our liquidity facility has amounted to $7.0
billion since inception. At March 31, 2005, we had remaining capacity
of $0.1 billion.
We earned liquidity fees of $1.6 million and $1.6 million during the
three-months ended March 31, 2005 and 2004, respectively. The total
liquidity facility in force as of March 31, 2005 and December 31, 2004
was $3.2 billion and $3.6 billion, respectively.
OPERATING EXPENSES
We incurred $97,841 and $116,796 of total operating expenses during the
three-months ended March 31, 2005 and 2004, respectively. Included in
total operating expenses were commitment fees owed 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 $53,703 and $56,796 for the three-months
ended March 31, 2005 and 2004, respectively. The decrease in commitment
fees from 2004 to 2005 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 includes general and administrative expenses, which are
principally comprised of intercompany overhead expense allocation.
General and administrative expenses were $44,138 and $60,000 for the
three-months ended March 31, 2005 and 2004, respectively. The decrease
in general and administrative expenses from 2004 to 2005 reflects the
decline in the Company's activities, as the total outstanding par
amount of the liquidity facilities have decreased.
INCOME TAX EXPENSE
The statutory U.S. Federal tax rate during the three-months ended March
31, 2005 and 2004 was 35%. Our effective tax rate was 40% 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 all 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.
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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 ($1.1 million at March 31,
2005) is sufficient to fund our general and administrative expenses.
Net cash provided by operating activities was $6.0 million for the
three-months ended March 31, 2005 as we collected a portion of the
intercompany receivable from GE Capital. We used the cash to pay a $6.0
million dividend to the Parent, resulting in a $6 million financing
cash outflow during the three-months ended March 31, 2005. There were
no cash flows related to investing activities for the three-months
ended March 31, 2005.
ITEM 4. 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 March 31, 2005, and (ii) no change in internal control
over financial reporting occurred during the quarter ended March 31,
2005, that has materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS
a) Exhibits
Exhibit 31(a) - Certification Pursuant to Rule 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 31(b) - Certification Pursuant to Rule 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350.
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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 thereunto duly authorized.
Municipal Securities Purchase, Inc.
(Registrant)
May 6, 2005 /s/ Brian Wenzel
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Date Brian Wenzel
Chairman
(Principal Executive Officer)
May 6, 2005 /s/ Kathleen Gan
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Date Kathleen Gan
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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EXHIBIT 31(A)
CERTIFICATION PURSUANT TO
RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Brian Wenzel, certify that:
(1) I have reviewed this quarterly report on Form 10-Q 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 any 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.
May 6, 2005
/s/ Brian Wenzel
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Brian Wenzel
Chairman
(Principal Executive Officer)
EXHIBIT 31(B)
CERTIFICATION PURSUANT TO
RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Kathleen Gan, certify that:
(1) I have reviewed this quarterly report on Form 10-Q 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 any 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.
May 6, 2005
/s/ Kathleen Gan
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Kathleen Gan
Vice President and Treasurer
(Principal Financial and Accounting Officer)
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Municipal Securities Purchase, Inc.
(the "registrant") on Form 10-Q for the period ended March 31, 2005, 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; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the registrant.
May 6, 2005
/s/ Brian Wenzel
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Brian Wenzel
Chairman
(Principal Executive Officer)
/s/ Kathleen Gan
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Kathleen Gan
Vice President and Treasurer
(Principal Financial and Accounting Officer)