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 June 30, 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 $10.00 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 .
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X .
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At July 28, 2005, 10 shares of voting common stock, which constitutes all of the
outstanding common equity, with a par value of $10.00 per share were
outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b)
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
Statement of Financial Position 1
Statement of Income 2
Statement of Changes in Shareowner's Equity 3
Statement 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MUNICIPAL SECURITIES PURCHASE, INC.
Statement of Financial Position
JUNE 30, DECEMBER 31,
2005 2004
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ASSETS (unaudited)
Liquidity fees receivable $ 907,593 $ 1,081,133
Due from GE Capital 1,949,330 6,180,288
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Total assets $ 2,856,923 $ 7,261,421
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LIABILITIES AND SHAREOWNER'S EQUITY
Deferred liquidity fee income $ 576,890 $ 686,223
Accounts payable and accrued expenses 47,974 29,000
Taxes payable 109,662 109,662
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Total liabilities 734,526 824,885
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Common stock, par value $10.00 per share. Authorized,
issued, and outstanding 10 shares 100 100
Additional paid-in capital 822,145 822,145
Retained earnings 1,300,152 5,614,291
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Total shareowner's equity 2,122,397 6,436,536
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Total liabilities and shareowner's equity $ 2,856,923 $ 7,261,421
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See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statement of Income
(Unaudited)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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2005 2004 2005 2004
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Liquidity fee income $ 1,373,641 $ 1,616,357 $ 2,940,791 $ 3,195,199
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Total revenues 1,373,641 1,616,357 2,940,791 3,195,199
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General and administrative expenses 6,498 60,000 50,636 120,000
GE Capital commitment fees 47,600 57,223 101,304 114,019
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Total operating expenses 54,098 117,223 151,940 234,019
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Income before provision for
income taxes 1,319,543 1,499,134 2,788,852 2,961,180
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Income tax expense:
Federal: 426,298 487,968 907,771 963,865
State and local 91,677 104,940 195,220 207,283
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Total income tax expense 517,975 592,908 1,102,991 1,171,148
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Net income $ 801,568 $ 906,226 $ 1,685,861 $ 1,790,032
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See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statement of Changes in Shareowner's Equity
Six-months ended June 30, 2005
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK 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) 1,685,861 1,685,861
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Balance, June 30, 2005 (unaudited) $ 100 $ 822,145 $ 1,300,152 $ 2,122,397
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See accompanying notes to unaudited interim financial statements.
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MUNICIPAL SECURITIES PURCHASE, INC.
Statement of Cash Flows
(Unaudited)
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SIX-MONTHS ENDED
JUNE 30
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2005 2004
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Operating activities:
Net income $ 1,685,861 $ 1,790,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in due from GE Capital 4,230,958 33,303,081
Change in liquidity fees receivable 173,540 (82,271)
Change in deferred liquidity fee income (109,333) (10,844)
Change in accounts payable and accrued expenses 18,974 2
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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 $ -- $ --
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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 as permitted under the
terms of the respective bond indentures. As of June 30, 2005, the
Company had approximately $3.1 billion (par amount and interest) of
potential obligations under such arrangements. When issued, each of
the liquidity facilities had a term not exceeding five years
(subject to renewal). 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
$3.1 billion as of June 30, 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
We are included in GE's consolidated U.S. federal income tax return
under an intercompany tax-sharing agreement. 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. 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 six-months ended June 30, 2005, we did not
commit to any new liquidity facilities.
We earned liquidity fees of $2.9 million and $3.2 million during the
six-months ended June 30, 2005 and 2004, respectively and $1.4
million and $1.6 million during the three-months ended June 30, 2005
and 2004, respectively. The total liquidity facility in force as of
June 30, 2005 and December 31, 2004 was $3.1 billion and $3.6
billion, respectively.
OPERATING EXPENSES
We incurred $151,940 and $234,019 of total operating expenses during
the six-months ended June 30, 2005 and 2004, respectively, and
$54,098 and $117,223 of total operating expenses during the
three-months ended June 30, 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 $101,304 and
$114,019 for the six-months ended June 30, 2005 and 2004,
respectively, and $47,600 and $57,223 for the three-months ended
June 30, 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 $50,636 and
$120,000 for the six-months ended June 30, 2005 and 2004,
respectively, and $6,498 and $60,000 for the three-months ended June
30, 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 has decreased.
INCOME TAX EXPENSE
The statutory U.S. Federal tax rate during the three-months ended
June 30, 2005 and 2004 was 35%. Our effective tax rate was 39.25%
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
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outstanding, we believe we have sufficient liquidity in the event
that we are required to fund any draw downs under the liquidity
facilities issued.
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 ($1.9 million at June 30,
2005) is sufficient to fund our general and administrative expenses.
Net cash provided by operating activities was $6.0 million for the
six-months ended June 30, 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 $6.0 million
financing cash outflow during the six-months ended June 30, 2005.
There were no cash flows related to investing activities for the
six-months ended June 30, 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 June 30, 2005, and (ii) no
change in internal control over financial reporting occurred during
the quarter ended June 30, 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
Exhibit 31(a) - Certification Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Amended.
Exhibit 31(b) - Certification Pursuant to Rules 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 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)
July 29, 2005 /s/ LeAnn Rogers
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Date LeAnn Rogers
Chairman
(Principal Executive Officer)
July 29, 2005 /s/ Kathleen Gan
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Date Kathleen Gan
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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