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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 30(a) OF THE
INVESTMENT COMPANY ACT OF 1940
AND SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 30(a) OF THE INVESTMENT
COMPANY ACT OF 1940 AND SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
For quarter ended Commission file number 2-23772
--------------- -------
IDS Certificate Company
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-6009975
- -------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IDS Tower 10, Minneapolis, Minnesota 55440
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 671-3131
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of August 12, 1994
150,000 Common shares
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Registrant is a wholly owned subsidiary of IDS Financial
Corporation (IDS), which is a wholly owned subsidiary of American
Express Company, and Registrant meets the conditions set forth in
General Instruction H(1) (a) and (b) of Form 10-Q and is therefore
filing this form with the abbreviated narrative disclosure.
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FORM 10-Q
IDS CERTIFICATE COMPANY
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
The information furnished reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for these interim periods.
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
ASSETS June 30, December 31,
------ 1994 1993
(Unaudited)
------------- -------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $162,613 $54,059
Investments in unaffiliated issuers (note 1) 2,578,071 2,781,213
Receivables 43,727 50,500
Investments in and advances to affiliates 5,286 4,812
Other 29,941 41,153
---------- ----------
Total qualified assets 2,819,638 2,931,737
Other assets:
Deferred federal income taxes 1,332 -
Other 19,583 19,668
---------- ----------
Total assets $2,840,553 $2,951,405
========== ==========
</TABLE>
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $2,674,026 $2,777,451
Accounts payable and accrued liabilities 17,565 12,651
Deferred federal income taxes - 165
---------- ----------
Total liabilities 2,691,591 2,790,267
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 140,344 147,144
Retained earnings 14,047 12,494
Unrealized holding gains and losses on
investment securities - net (note 1) (6,929) -
---------- ----------
Total stockholder's equity 148,962 161,138
---------- ----------
Total liabilities and
stockholder's equity $2,840,553 $2,951,405
========== ==========
See accompanying note to financial statements./TABLE
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Six Months Ended
--------------------------- ---------------------------
June 30, 1994 June 30, 1993 June 30, 1994 June 30, 1993
------------- ------------- ------------- -------------
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $50,883 $60,263 $103,856 $123,720
Investment expenses 14,886 15,978 30,105 34,232
-------- -------- -------- --------
Net investment income before provision
for certificate reserves and income tax benefit 35,997 44,285 73,751 89,488
Net provision for certificate reserves 24,785 32,402 49,976 67,317
-------- -------- -------- --------
Net investment income before income tax benefit 11,212 11,883 23,775 22,171
Income tax benefit 587 1,209 839 3,534
-------- -------- -------- --------
Net investment income 11,799 13,092 24,614 25,705
-------- -------- -------- --------
Realized gain (loss) on investments - net 1,137 2,117 (7,902) (10,220)
Income tax expense (benefit) 398 720 (2,766) (3,475)
-------- -------- -------- --------
Net realized gain (loss) on investments 739 1,397 (5,136) (6,745)
-------- -------- -------- --------
Net income (loss) - wholly owned subsidiary 35 (1) 75 (12)
-------- -------- -------- --------
Net income $12,573 $14,488 $19,553 $18,948
======== ======== ======== ========
See accompanying note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Six Months Ended
---------------------------
June 30, 1994 June 30, 1993
------------- -------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $19,553 $18,948
Adjustments to reconcile net income to net
cash provided by operating activities:
Net (income) loss of wholly owned subsidiary (75) 12
Certificate reserves 49,976 67,317
Interest income added to certificate loans (1,111) (1,283)
Amortization of premium/discount - net 11,357 15,549
Deferred federal income taxes 2,234 11,632
Deferred distribution fees 110 908
Net loss on investments 7,902 10,220
Decrease in dividends and interest receivable 798 4,681
Decrease in other assets - 968
Increase in other liabilities 4,162 20,975
-------- --------
Net cash provided by operating activities 94,906 149,927
-------- --------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Hold-to-maturity securities 154,558 368,577
Available-for-sale securities 86,052 -
Other investments 22,872 10,266
Sale of investments:
Hold-to-maturity securities - 92,991
Available-for-sale securities 262,341 -
Other investments - 286
Certificate loan payments 4,051 4,866
Purchase of investments:
Hold-to-maturity securities - (305,793)
Available-for-sale securities (337,882) -
Other investments (5,211) (52,656)
Certificate loan fundings (3,992) (5,218)
Investment in subsidiary (450) -
-------- --------
Net cash provided by investing activities $182,339 $113,319
-------- --------
See accompanying note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Six Months Ended
---------------------------
June 30, 1994 June 30, 1993
------------- -------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $690,955 $565,726
Proceeds from securities loaned to brokers - 3,090
Proceeds from reverse repurchase agreements - 4,000
Certificate maturities and cash surrenders (834,846) (864,343)
Payments to brokers upon return of securities loaned - (4,733)
Payments under reverse repurchase agreements - (4,000)
Dividends paid (24,800) (24,000)
-------- --------
Net cash used by financing activities (168,691) (324,260)
-------- --------
Net Increase (Decrease) In Cash and Cash Equivalents 108,554 (61,014)
Cash and Cash Equivalents Beginning of Period 54,059 71,359
-------- --------
Cash and Cash Equivalents End of Period $162,613 $10,345
======== ========
Supplemental Disclosures:
Cash received for income taxes $8,900 $41,950
Certificate maturities and surrenders through loan
reductions 6,500 7,593
See accompanying note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in THOUSANDS)
- ----------------------------------------
1. In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
which Registrant adopted as of January 1, 1994. The balance of
Stockholder's Equity at June 30, 1994, was decreased by $6,929 to
reflect the net unrealized holding losses, net of deferred income
taxes, on securities classified as available for sale previously
carried at amortized cost or the lower of cost or market. Under
the new rules, debt securities that Registrant has both the
positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that Registrant does not have the
positive intent to hold to maturity, as well as all marketable
equity securities, are classified as available for sale and carried
at fair value. Unrealized holding gains and losses on securities
classified as available for sale are carried as a separate
component of Stockholder's Equity.<PAGE>
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Continued) (Unaudited)
($ in THOUSANDS)
- ----------------------------------------------------
The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
Jun. 30, 1994 Dec. 31, 1993
------------- -------------
<S> <C> <C>
Investment securities at amortized cost............... $1,398,118 $2,431,919
Investment securities at fair value................... 854,157 -
First mortgage loans on real estate................... 263,814 281,865
Certificate loans - secured by certificate reserves... 61,982 67,429
---------- ----------
Total $2,578,071 $2,781,213
========== ==========
</TABLE>
The following is a summary of securities held to maturity and
securities available for sale at June 30, 1994:
<TABLE>
<CAPTION>
Securities Held to Maturity
----------------------------------------------------
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and agencies obligations................... $419 $426 $7 $-
Mortgage-backed securities................................. 95,239 98,368 3,138 9
State and municipal obligations............................ 161,367 171,140 9,777 4
Corporate debt securities.................................. 434,101 446,012 13,349 1,438
Foreign government bonds and obligations................... 46,897 49,514 2,617 -
Stated maturity preferred stock............................ 660,095 673,408 18,503 5,190
---------- ---------- ---------- ----------
Total $1,398,118 $1,438,868 $47,391 $6,641
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
----------------------------------------------------
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities................................. $557,889 $550,784 $3,948 $11,053
Corporate debt securities.................................. 230,651 227,738 851 3,764
Foreign government bonds and obligations................... 10,719 10,511 832 1,040
Stated maturity preferred stock............................ 63,138 63,135 280 283
Common stock............................................... 2,420 1,989 - 431
---------- ---------- ---------- ----------
Total $864,817 $854,157 $5,911 $16,571
========== ========== ========== ==========
</TABLE>
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Continued) (Unaudited)
($ in THOUSANDS)
- ----------------------------------------------------
At June 30, 1994, there were no securities classified as trading
securities.
During the six months ended June 30, 1994, debt securities
classified as available for sale and marketable equity securities
were sold with proceeds of $256,366 and gross realized gains on
such sales of $449 and gross realized losses on such sales of
$9,985. The average cost method was used in determining the
realized gains and losses.
There were no securities sold or transferred from held to maturity
during the six months ended June 30, 1994.
During the six months ended June 30, 1994, net unrealized holding
gains on available-for-sale securities included in Stockholder's
Equity decreased by $11,233.
Purchases, sales and maturities of securities classified as held to
maturity and available for sale for the six months ended June 30,
1994, were as follows:
<TABLE>
<CAPTION>
Held to Available
Maturity for Sale
---------- ----------
<S> <C> <C>
Purchases................................................. $0 $338,149
Sales..................................................... $0 $265,902
Maturities................................................ $153,753 $83,940
</TABLE>
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MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first six months of 1994, total assets and certificate
reserves decreased $111 million and $103 million, respectively.
The decreases resulted primarily from certificate maturities and
surrenders exceeding certificate sales.
Sales of single payment certificates totaled $250 million and $351
million during the first and second quarters of 1994, respectively,
compared to $258 million and $232 million during the comparable
periods in 1993, respectively. Certificate maturities and
surrenders totaled $384 million and $457 million during the first
and second quarters of 1994, respectively, compared to $445 million
and $427 million during the comparable periods in 1993,
respectively. The excess of certificate maturities and surrenders
over certificate sales during the first and second quarters of 1994
and 1993, resulted primarily from lower accrual rates declared by
Registrant during the periods, reflecting lower interest rates
available in the marketplace.
Investment income decreased 16 percent during the first six months
of 1994 from the prior year's period reflecting a lower balance of
invested assets.
The 12 percent decrease in investment expenses resulted primarily
from lower amortization of premiums paid for interest rate caps due
to accelerated amortization of certain interest rate caps in the
first quarter of 1993. Lower distribution and investment advisory
and services fees contributed also, to the decrease in investment
expenses.
Net provision for certificate reserves decreased 25 percent during
the first six months of 1994 from the prior year's period
reflecting a lower average balance of certificate reserves and
lower accrual rates.
The decrease in income tax benefit resulted primarily from lower
tax-advantaged income during the current period compared to the
prior year's period.
During the first six months of 1994, Registrant sold $266 million
of available-for-sale investment securities. Gross gains of $.4
million and gross losses of $10 million were realized on those
sales.
Certificate reserve financing activities used net cash of $144
million during the first six months of 1994 compared to $299
million during the prior year's period. Cash flows from operating
activities and scheduled maturities of investments were more than
adequate to fund the net outflow of cash related to certificate
obligations.
Cash dividends amounting to $24.8 million were paid during the
first six months of 1994.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT IDS CERTIFICATE COMPANY
BY
NAME AND TITLE Stuart A. Sedlacek, President,
principal executive officer and
Director
DATE August 12, 1994
BY
NAME AND TITLE Jay Hatlestad, Controller,
principal accounting officer
DATE August 12, 1994
