MUNICIPAL SECURITIES RULEMAKING BOARD, INC.
FINANCIAL STATEMENTS
September 30, 1997 and 1996
AND
REPORT OF INDEPENDENT ACCOUNTANTS THEREON
Report of Independent Accountants
To the Members of the
Municipal Securities Rulemaking Board, Inc.
We have audited the accompanying statements of financial position of the Municipal Securities Rulemaking Board, Inc. (the Board) as of September 30, 1997 and 1996, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Board's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 the Municipal Securities Rulemaking Board, Inc. as of September 30, 1997 and 1996, and the changes in its net assets and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Washington, D.C.
November 26, 1997
MUNICIPAL SECURITIES RULEMAKING BOARD, INC.
STATEMENTS OF FINANCIAL POSITION
September 30, 1997 and 1996
ASSETS |
||||
1997 |
1996 |
|||
| Cash and cash equivalents | $ |
807,341 |
$ |
483191.00 |
| Accounts receivable | 919,659 |
830849.00 |
||
| Accrued interest receivable | 27,833 |
48155.00 |
||
| Other assets | 270,003 |
58518.00 |
||
| Investments | 5,204,045 |
6210165.00 |
||
| Fixed assets, net | 1,465,923 |
841183.00 |
||
| Total assets | $ |
8,694,804 |
$ |
8472061.00 |
LIABILITIES AND NET ASSETS |
||||
| Accounts payable | $ |
394,753 |
$ |
141673.00 |
| Accrued salaries payable | 91,719 |
105173.00 |
||
| Deferred revenue | 17,221 |
19696.00 |
||
| Deferred rent credit | 362,934 |
340817.00 |
||
| Total liabilities | 866,627 |
607359.00 |
||
| Unrestricted net assets | 7,828,177 |
7864702.00 |
||
| Total liabilities and net assets | $ |
8,694,804 |
$ |
8472061.00 |
The accompanying notes are an integral part
of these financial statements.
2
MUNICIPAL SECURITIES RULEMAKING BOARD, INC.
STATEMENTS OF ACTIVITIES
for the years ended September 30, 1997 and 1996
________
1997 |
1996 |
|||
| REVENUE: | ||||
| Underwriting assessment fees | $ |
5,979,334 |
$ | 4850173.00 |
| Annual fees | 527,500 |
546100.00 |
||
| Initial fees | 18,700 |
20600.00 |
||
| MSIL fees | 431,204 |
359606.00 |
||
| Transaction fees | 1,734,666 |
1019164.00 |
||
| Investment income | 330,674 |
303933.00 |
||
| Board manuals and other | 114,944 |
107238.00 |
||
| Total revenue | 9,137,022 |
7206814.00 |
||
| EXPENSES: | ||||
| Administration and operations | 1,731,429 |
1529149.00 |
||
| Board and committee | 622,490 |
568606.00 |
||
| Professional qualifications | 393,726 |
375642.00 |
||
| Arbitration | 236,826 |
244685.00 |
||
| MSIL | 4,075,566 |
2029983.00 |
||
| Education and communications | 338,146 |
386659.00 |
||
| Rulemaking and policy development | 1,775,364 |
1615058.00 |
||
| Total expenses | 9,173,547 |
6749782.00 |
||
| Change in net assets | (36,525) |
457032.00 |
||
| Unrestricted net assets, beginning of year | 7,864,702 |
7407670.00 |
||
| Unrestricted net assets, end of year | $ |
7,828,177 |
$ | 7864702.00 |
The accompanying notes are an integral part
of these financial statements.
3
MUNICIPAL SECURITIES RULEMAKING BOARD, INC.
STATEMENTS OF CASH FLOWS
for the years ended September 30, 1997 and 1996
_______
1997 |
1996 |
|||
| Cash flows from operating activities: | ||||
| Change in net assets | $ |
(36,525) |
$ | 457032.00 |
Adjustments to reconcile change in net assets to net cash provided by operating activities: |
||||
| Depreciation and amortization | 481,901 |
519713.00 |
||
| Amortization of investment discount | 6,122 |
9300.00 |
||
| Increase in accounts receivable | (89,135) |
(358,268) |
||
| Decrease in accrued interest receivable | 20,322 |
8658.00 |
||
| (Increase) decrease in other assets | (211,161) |
31277.00 |
||
| Increase (decrease) in accounts payable | 253,080 |
(125,097) |
||
| (Decrease) increase in accrued salaries payable | (13,454) |
17,612 |
||
| Decrease in deferred revenue | (2,475) |
(19,697) |
||
| Increase in deferred rent credit | 22,116 |
916.00 |
||
| Total adjustments | 467,316 |
84414.00 |
||
| Net cash provided by operating activities | 430,791 |
541446.00 |
||
| Cash flows from investing activities: | ||||
| Purchases of fixed assets | (1,106,641) |
(186,012) |
||
| Purchases of investments | (4,200,000) |
(5,200,000 |
||
| Maturities of investments | 5,200,000 |
5000000.00 |
||
| Net cash used in investing activities | (106,641) |
(386,012) |
||
| Net increase in cash and cash equivalents | 324,150 |
155434.00 |
||
| Cash and cash equivalents, beginning of year | 483,191 |
327757.00 |
||
| Cash and cash equivalents, end of year | $ |
807,341 |
$ | 483191.00 |
The accompanying notes are an integral part
of these financial statements.
4
1. Organization and nature of activities
The Municipal Securities Rulemaking Board, Inc. (the Board) was established in 1975 pursuant to authority granted by the Securities Exchange Act of 1934, as amended by the Securities Acts Amendments of 1975, as an independent, self-regulatory organization charged with rulemaking responsibility for the municipal securities industry. Effective May 17, 1989, the Board became incorporated as a nonprofit, nonstock corporation in the Commonwealth of Virginia.
2. Summary of significant accounting policies
Cash and cash equivalents
Cash and cash equivalents include cash on hand, time and demand deposits, and money market funds with original maturities of three months or less. Portions of these funds consist of amounts that are maintained in excess of federally insured amounts, and, as a result, subject the Board to a degree of credit risk. The Board's policy is to limit credit risk by depositing its funds with high quality financial institutions.
Investments
Investments in securities are stated at fair value. Investments consist entirely of U.S. Treasury notes, maturing on various dates through December 1999. Investment income on the U.S. Treasury notes for the years ended September 30, 1997 and 1996, was $330,674 and $303,933, respectively.
Fixed assets
Furniture and fixtures and office equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease period or the estimated useful life of the improvement. When assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss arising from such disposition is included in the statement of activities.
Underwriting assessment fees
On March 10, 1992, the Board filed with the Securities and Exchange Commission (the SEC) an amendment to Rule A-13 on assessments relating to the underwriting of municipal securities offerings. The amendment relates to the Board's method of assessment, the scope of offerings which are assessed and assessment rates.
The underwriting assessment fee is equal to a percentage of the face amount of all municipal securities which are purchased from an issuer as part of a new issue. The fee charged ranges from .001% to .003% of the par value of the offerings.
Revenue from underwriting assessment fees is recognized when the underwriter files the offering statement with the Board.
Annual fees
Each municipal securities broker and municipal securities dealer is required to pay an annual fee of $200 with respect to each fiscal year of the Board in which the municipal securities broker or municipal securities dealer conducts business.
Initial fees
The initial fee is a one-time fee of $100, which is to be paid by every municipal securities broker or municipal securities dealer registered with the Securities and Exchange Commission.
Revenue from initial fees is recognized when received by the Board.
MSIL fees
The Municipal Securities Information Library (MSIL) collects, stores, and provides access to information necessary for the municipal securities market. MSIL operates three computer-based information systems - an electronic document system for the collection, storage and dissemination of official statements and advance refunding documents (the OS/ARD system), a broadcast system for collection and dissemination of material events notices from municipal securities issuers (the CDI system), the collection, processing, and dissemination of all inter-dealer transactions for purposes of price transparency and surveillance (the TRS system). Information in these systems are sold to subscribers, primarily commercial information vendors, on a subscription basis with billing quarterly in arrears. In addition, MSIL maintains files for public access of all Forms G-37-G-38 and other documents. Copying fees are levied at time of use for the reproduction of any documents.
Transaction fees
On May 10, 1996, the SEC approved an amendment to Board Rule A-13 to implement a new transaction fee on each inter-dealer sales transaction in municipal securities. The fee, one-half cent per $1,000 par value of bonds, is levied on the sellers on inter-dealer transactions.
The transaction fee will help pay for the Board's transaction reporting program, which is designed to provide the public and federal regulators with pricing and other information on bond trades.
Dealers are billed monthly for sales transactions that settled during the previous month. Revenue is recognized when billings are made.
Management estimates and uncertainties
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. Lease agreements
On October 1, 1992, the Board entered into a lease agreement for office space in Alexandria, VA, for a term of sixty months. This lease was amended in October, 1994 for additional space. In March 1997, the Board approved an extension of the original lease for an additional 60 months commencing on October 2, 1997. The lease requires a monthly rental payment of $27,619 for the period October 2, 1997, to September 30, 1998. subsequent to September 30, 1998, the annual rent increases by 3% throughout the term of the lease.
In August, 1993, the Board entered into a lease agreement for office space in Washington, D.C. The lease term is for 120 months, commencing on March, 1994, with one five year renewal option. The lease agreement also includes a rent abatement period of fifteen months commencing on the second month of the lease term. As a result, the total rental payment was $21,579 for May 1994, and is $22,119 a month commencing September 1995 for the remainder of the lease term, subject to an annual escalation of two and one-half percent (2.5%). For financial reporting purposes, the Board is recognizing rental expense evenly during the 10-year lease term at $22,518. In August 1997, the Board exercised its option to expand its D.C. office premises. The amendment to the original lease agreement requires a monthly rental payment of $13,581. The Board was given an abatement for the first ten months after the commencement date of August 1, 1997. For financial reporting purposes, the Board is recognizing rental expense evenly during the remainder of the lease term at $13,966 for the additional space.
Future minimum rental cash commitments are as follows:
Year ending September 30, |
Minimum rentals |
|
1998 |
$ | 822,174 |
1999 |
907727.00 |
|
2000 |
853905.00 |
|
2001 |
828,513 |
|
Thereafter |
1,622,122 |
|
| $ | 5,034,441 |
Total lease expense for office space and equipment for the years ended September 30, 1997 and 1996, was $913,234 and $830,311, respectively.
4. Retirement plans
The Board has a defined contribution retirement plan which covers all employees. The Board makes contributions to an insurance company based on a percentage of the salaries of covered employees and their lengths of service. Retirement plan costs are funded as they accrue. Employees may also make voluntary contributions. Cost of the plan was approximately $145,833 and $163,557 for the years ended September 30, 1997 and 1996, respectively.
5. Income taxes
Under section 501(c)(6) of the Internal Revenue Code and applicable income tax regulations of the District of Columbia, the Board is exempt from taxes on income other than unrelated business income. No provision for income taxes has been made as of September 30, 1997 and 1996, since the Board believes that any unrelated business income is not significant.
6. Fixed assets
Fixed assets consist of the following as of September 30, 1997 and 1996:
1997 |
1996 |
|||
| Leasehold improvements | $ | 718,574 |
$ | 480122.00 |
| Office equipment | 2,472,802 |
1589717.00 |
||
| Furniture and fixtures | 954,656 |
880133.00 |
||
| Total fixed assets | 4,146,032 |
2949972.00 |
||
| Accumulated depreciation and amortization | (2,680,109) |
(2,108,789) |
||
| $ | 1,465,923 |
$ | 841,183 |
|
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