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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 September 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
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IDS Certificate Company
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-6009975
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IDS Tower 10, Minneapolis, Minnesota 55440
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(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 November 11, 1994
150,000 Common shares<PAGE>
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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 September 30, December 31,
------ 1994 1993
(Unaudited)
-------------- --------------
<S> <C> <C>
Qualified Assets: ($ Thousands)
Cash and cash equivalents $93,298 $54,059
Investments in unaffiliated issuers (note 1) 2,674,610 2,781,213
Receivables 75,695 50,500
Investments in and advances to affiliates 5,353 4,812
Other 28,922 41,153
----------- -----------
Total qualified assets 2,877,878 2,931,737
Other assets:
Deferred federal income taxes 3,933 -
Other 23,349 19,668
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Total assets $2,905,160 $2,951,405
=========== ===========
</TABLE>
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $2,749,994 $2,777,451
Accounts payable and accrued liabilities 11,795 12,651
Deferred federal income taxes - 165
----------- -----------
Total liabilities 2,761,789 2,790,267
----------- -----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 140,344 147,144
Retained earnings 12,788 12,494
Unrealized holding gains and losses on
investment securities - net (note 1) (11,261) -
----------- -----------
Total stockholder's equity 143,371 161,138
----------- -----------
Total liabilities and
stockholder's equity $2,905,160 $2,951,405
=========== ===========
See accompanying note to financial statements.</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS
(Unaudited)
-----------------------
For the Three Months Ended
For the Nine Months Ended
-----------------------------
- -----------------------------
Sept. 30, 1994 Sept. 30, 1993
Sept. 30, 1994 Sept. 30, 1993
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- -------------- --------------
($
Thousands)
<S> <C> <C>
<C> <C>
Investment income $50,904 $58,033
$154,760 $181,753
Investment expenses 14,664 15,778
44,769 50,010
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- --------- ---------
Net investment income before provision
for certificate reserves and income tax benefit (expense) 36,240 42,255
109,991 131,743
Net provision for certificate reserves 26,832 29,454
76,808 96,771
--------- ---------
- --------- ---------
Net investment income before income tax benefit (expense) 9,408 12,801
33,183 34,972
Income tax benefit (expense) 978 (307)
1,817 3,227
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- --------- ---------
Net investment income 10,386 12,494
35,000 38,199
--------- ---------
- --------- ---------
Realized gain (loss) on investments - net 1,017 18
(6,885) (10,202)
Income tax expense (benefit) 356 (1,112)
(2,410) (4,587)
--------- ---------
- --------- ---------
Net realized gain (loss) on investments 661 1,130
(4,475) (5,615)
--------- ---------
- --------- ---------
Net income (loss) - wholly owned subsidiary 94 (8)
169 (20)
--------- ---------
- --------- ---------
Net income $11,141 $13,616
$30,694 $32,564
========= =========
========= =========
See accompanying note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
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For the Nine Months Ended
-----------------------------
Sept. 30, 1994 Sept. 30, 1993
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($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $30,694 $32,564
Adjustments to reconcile net income to net
cash provided by operating activities:
Net (income) loss of wholly owned subsidiary (169) 20
Certificate reserves 76,808 96,771
Interest income added to certificate loans (1,636) (1,899)
Amortization of premium/discount - net 17,358 22,281
Deferred federal income taxes 1,966 11,344
Deferred distribution fees (3,646) 1,024
Net loss on investments 6,885 10,202
(Increase) decrease in dividends and interest receivable (2,405) 6,336
Decrease in other assets - 968
(Decrease) increase in other liabilities (1,503) 5,559
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Net cash provided by operating activities 124,352 185,170
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Cash Flows from Investing Activities:
Maturity and redemption of investments:
Hold-to-maturity securities 230,313 496,187
Available-for-sale securities 144,806 -
Other investments 31,567 15,818
Sale of investments:
Hold-to-maturity securities 3,164 326,826
Available-for-sale securities 240,529 -
Other investments - 5,279
Certificate loan payments 5,772 7,002
Purchase of investments:
Hold-to-maturity securities - (373,730)
Available-for-sale securities (595,396) -
Other investments (7,354) (76,416)
Certificate loan fundings (6,099) (7,612)
Investment in subsidiary (450) -
--------- ---------
Net cash provided by investing activities $46,852 $393,354
--------- ---------
See accompanying note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Nine Months Ended
-----------------------------
Sept. 30, 1994 Sept. 30, 1993
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($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $1,120,584 $855,699
Proceeds from securities loaned to brokers - 6,150
Proceeds from reverse repurchase agreements - 72,800
Certificate maturities and cash surrenders (1,215,349) (1,308,991)
Payments to brokers upon return of securities loaned - (7,792)
Payments under reverse repurchase agreements - (72,800)
Dividends paid (37,200) (37,000)
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Net cash used by financing activities (131,965) (491,934)
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Net Increase In Cash and Cash Equivalents 39,239 86,590
Cash and Cash Equivalents Beginning of Period 54,059 71,359
--------- ---------
Cash and Cash Equivalents End of Period $93,298 $157,949
========= =========
Supplemental Disclosures:
Cash received for income taxes $2,229 $25,973
Certificate maturities and surrenders through loan
reductions 9,237 10,782
See accompanying note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ 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 September 30, 1994 was decreased by $11,261
to reflect the net unrealized holding losses, net of deferred
income taxes, on securities classified as available for sale
previously carried at amortized cost or the lower of cost or
market. Under the new rules, debt securities that Registrant has
both the positive intent and ability to hold to maturity are
carried at amortized cost. Debt securities that Registrant does
not have the positive intent to hold to maturity, as well as all
marketable equity securities, are classified as available for sale
and carried at fair value. Unrealized holding gains and losses on
securities classified as available for sale are carried as a
separate component of Stockholder's Equity.
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Continued) (Unaudited)
($ in THOUSANDS)
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The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
-------------- --------------
<S> <C> <C>
Investment securities at amortized cost............... $1,319,136 $2,431,919
Investment securities at fair value................... 1,038,398 -
First mortgage loans on real estate................... 256,921 281,865
Certificate loans - secured by certificate reserves... 60,155 67,429
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Total $2,674,610 $2,781,213
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</TABLE>
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first nine months of 1994, total assets and certificate
reserves decreased $46 million and $27 million, respectively. The
decreases resulted primarily from certificate maturities and
surrenders exceeding certificate sales. The decrease in total
assets also reflects $17 million of unrealized depreciation on
investment securities classified as available for sale.
Sales of single payment certificates totaled $351 million and $396
million during the second and third quarters of 1994, respectively,
compared to $232 million and $250 million during the comparable
periods in 1993, respectively.
Certificate maturities and surrenders totaled $457 million and $383
million during the second and third quarters of 1994, respectively,
compared to $427 million and $448 million during the comparable
periods in 1993, respectively.
For the first nine months of 1994 and 1993, single payment
certificate sales totaled $997 million and $740 million,
respectively. Certificate maturities and surrenders for the first
nine months of 1994 and 1993 totaled $1,225 million and $1,320
million, respectively. The excess of certificate maturities and
surrenders over certificate sales resulted primarily from lower
interest rates declared by Registrant during the periods,
reflecting lower interest rates available in the marketplace.
Investment income decreased 14 percent during the first nine months
of 1994 from the prior year's period reflecting a lower average
balance of invested assets.
The 10 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.
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Lower distribution and investment advisory and services fees also
contributed to the decrease in investment expenses.
Net provision for certificate reserves decreased 20 percent during
the first nine 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 nine months of 1994, Registrant sold a
hold-to-maturity security with an amortized cost and fair value of
$3.2 million. The security was sold because of deterioration in
the issuer's creditworthiness. During the period, Registrant also
sold debt securities classified as available for sale and
marketable equity securities realizing gross gains of $.4 million
and gross losses of $10 million.
Certificate reserve financing activities used net cash of $95
million during the first nine months of 1994, compared to $453
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 $37.2 million were paid during the
first nine months of 1994.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None
(b) A report on Form 8-K, dated September 7, 1994, was filed by
Registrant on September 7, 1994. No financial statements were
filed. As required by a Securities and Exchange Commission order,
Registrant reported all purchases through underwriting syndicates
in which an affiliated broker participated. The purchases were for
the period January 1, 1994 to June 30, 1994.
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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 November 11, 1994
BY
NAME AND TITLE Jay Hatlestad, Controller,
principal accounting officer
DATE November 11, 1994
