<PAGE>
PAGE 1
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 March 31, 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 May 13, 1994
150,000 Common shares
Registrant is a wholly owned subsidiary of IDS Financial<PAGE>
PAGE 2
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.<PAGE>
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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 March 31, December 31,
------ 1994 1993
(Unaudited)
------------- -------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $89,824 $54,059
Investments in unaffiliated issuers (note 1) 2,664,453 2,781,213
Receivables 298,413 50,500
Investments in and advances to affiliates 4,927 4,812
Other 32,334 41,153
---------- ----------
Total qualified assets 3,089,951 2,931,737
Other assets:
Other 26,358 19,668
---------- ----------
Total assets $3,116,309 $2,951,405
========== ==========
</TABLE>
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $2,698,197 $2,777,451
Accounts payable and accrued liabilities 254,400 12,651
Deferred federal income taxes 5,468 165
---------- ----------
Total liabilities 2,958,065 2,790,267
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 144,744 147,144
Retained earnings 9,474 12,494
Unrealized holding gains and losses on
investment securities - net (note 1) 2,526 -
---------- ----------
Total stockholder's equity 158,244 161,138
---------- ----------
Total liabilities and
stockholder's equity $3,116,309 $2,951,405
========== ==========
See accompanying note to financial statements./TABLE
<PAGE>
PAGE 4
<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended
---------------------------
Mar. 31, 1994 Mar. 31, 1993
------------- -------------
($ Thousands)
<S> <C> <C>
Investment income $52,973 $63,457
Investment expenses 15,219 18,254
-------- --------
Net investment income before provision for
certificate reserves and income tax benefit 37,754 45,203
Net provision for certificate reserves 25,191 34,915
-------- --------
Net investment income before income tax benefit 12,563 10,288
Income tax benefit 252 2,325
-------- --------
Net investment income 12,815 12,613
-------- --------
Realized loss on investments - net (9,039) (12,337)
Income tax benefit 3,164 4,195
-------- --------
Net realized loss on investments (5,875) (8,142)
-------- --------
Net income (loss) - wholly owned subsidiary 40 (11)
-------- --------
Net income $6,980 $4,460
======== ========
See accompanying note to financial statements.
</TABLE>
<PAGE>
PAGE 5
<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Three Months Ended
---------------------------
Mar. 31, 1994 Mar. 31, 1993
------------- -------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $6,980 $4,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Net (income) loss of wholly owned subsidiary (40) 11
Certificate reserves 25,191 34,915
Interest income added to certificate loans (567) (663)
Amortization of premium/discount - net 5,624 8,988
Deferred federal income taxes 3,943 14,491
Deferred distribution fees 682 45
Net loss on investments 9,039 12,337
(Increase) decrease in dividends and interest receivable (33) 2,345
Increase in other assets (7,381) (19,821)
Decrease in other liabilities (6,091) (1,296)
-------- --------
Net cash provided by operating activities 37,347 55,812
-------- --------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Hold-to-maturity securities 83,962 -
Available-for-sale securities 47,134 -
Other investments 12,097 169,865
Sale of investments:
Hold-to-maturity securities - -
Available-for-sale securities 19,138 -
Other investments - 43,856
Certificate loan payments 2,093 2,522
Purchase of investments:
Hold-to-maturity securities - -
Available-for-sale securities (51,483) -
Other investments (2,723) (131,834)
Certificate loan fundings (1,745) (2,336)
Investment in subsidiary (100) -
-------- --------
Net cash provided by investing activities $108,373 $82,073
-------- --------
See accompanying note to financial statements.
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------------------
For the Three Months Ended
---------------------------
Mar. 31, 1994 Mar. 31, 1993
------------- -------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $282,636 $291,825
Proceeds from securities loaned to brokers - 3,090
Certificate maturities and cash surrenders (380,191) (441,027)
Payments to brokers upon return of securities loaned - (4,733)
Dividends paid (12,400) (11,000)
-------- --------
Net cash used by financing activities (109,955) (161,845)
-------- --------
Net Increase (Decrease) In Cash and Cash Equivalents 35,765 (23,960)
Cash and Cash Equivalents Beginning of Period 54,059 71,359
-------- --------
Cash and Cash Equivalents End of Period $89,824 $47,399
======== ========
Supplemental Disclosures:
Cash received for income taxes $5,862 $1,189
Certificate maturities and surrenders through loan
reductions 3,365 4,238
See accompanying note to financial statements.
</TABLE>
<PAGE>
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ 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 March 31, 1994, was increased by $2,526 to
reflect the net unrealized holding gains 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.
The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
Mar. 31, 1994 Dec. 31, 1993
------------- -------------
<S> <C> <C>
Investment securities at amortized cost..................... $1,468,816 $2,431,919
Investment securities at fair value......................... 858,259 -
First mortgage loans on real estate......................... 273,095 281,865
Certificate loans - secured by certificate reserves......... 64,283 67,429
---------- ----------
Total $2,664,453 $2,781,213
========== ==========
</TABLE>
The following is a summary of securities held to maturity and securities
available for sale at March 31, 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................... $420 $433 $13 $0
Mortgage-backed securities................................. 124,108 128,771 4,663 0
State and municipal obligations............................ 162,569 174,165 11,602 6
Corporate debt securities.................................. 435,132 456,416 21,977 693
Foreign government bonds and obligations................... 46,953 49,516 2,563 0
Stated maturity preferred stock............................ 699,634 724,560 26,847 1,921
---------- ---------- ---------- ----------
Total $1,468,816 $1,533,861 $67,665 $2,620
========== ========== ========== ==========
</TABLE>
<PAGE>
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in thousands)
- ----------------------------------------------
<TABLE>
<CAPTION>
Fair
Cost Value
---------- ----------
<S> <C> <C>
Due within 1 year.......................................... $85,713 $87,856
Due after 1 year through 5 years........................... 641,397 673,739
Due after 5 years through 10 years......................... 449,953 469,484
Due after 10 years......................................... 167,645 174,011
---------- ----------
1,344,708 1,405,090
Mortgage-backed securities................................. 124,108 128,771
---------- ----------
Total $1,468,816 $1,533,861
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
----------------------------------------------------
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities................................. $585,809 $587,543 $5,480 $3,746
Corporate debt securities.................................. 192,581 194,980 2,592 193
Foreign government bonds and obligations................... 10,701 10,542 811 970
Stated maturity preferred stock............................ 63,063 62,837 176 402
Common stock............................................... 2,218 2,357 139 0
---------- ---------- ---------- ----------
Total $854,372 $858,259 $9,198 $5,311
========== ========== ========== ==========
</TABLE>
<PAGE>
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IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Continued) (Unaudited)
($ in thousands)
- ----------------------------------------------------
<TABLE>
<CAPTION>
Fair
Cost Value
---------- ----------
<S> <C> <C>
Due within 1 year.......................................... $32,809 $32,774
Due after 1 year through 5 years........................... 127,914 129,713
Due after 5 years through 10 years......................... 75,632 75,151
Due after 10 years......................................... 29,990 30,721
---------- ----------
266,345 268,359
Common stock............................................... 2,218 2,357
Mortgage-backed securities................................. 585,809 587,543
---------- ----------
Total $854,372 $858,259
========== ==========
</TABLE>
At March 31, 1994, there were no securities classified as trading
securities.
During quarter ended March 31, 1994, debt securities classified as
available for sale and a marketable equity security were sold with
proceeds of $257,086 and gross realized gains on such sales of $353
and gross unrealized losses on such sales of $9,976. The average
cost method was used in determining the realized gain or loss.
There were no securities sold or transferred from held to maturity
during the quarter ended March 31, 1994.
During the quarter ended March 31, 1994, net unrealized holding
gains on available-for-sale securities included in Stockholder's
Equity decreased by $1,778.
Purchases, sales and maturities of securities classified as held to
maturity and available for sale for the three months ended March
31, 1994, were as follows:
<TABLE><CAPTION>
Held to Available
Maturity for Sale
------------ ------------
<S> <C> <C>
Purchases.................................................. $0 $302,598
Sales...................................................... $0 $266,709
Maturities................................................. $83,424 $41,503
</TABLE>
<PAGE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first three months of 1994, total assets increased $165
million and certificate reserves decreased $79 million. The
increases in total assets and in accounts payable and accrued
liabilities reflect the purchases of $247 million of investment
securities that will settle in early April. The decrease in
certificate reserves resulted primarily from certificate maturities
and surrenders exceeding certificate sales.
Sales of single payment certificates totaled $250 million during
the first three months of 1994 compared to sales of $258 million
during the prior year's period. Certificate maturities and
surrenders totaled $384 million compared to $445 million during the
prior year's period. The excess of certificate maturities and
surrenders over certificate sales during the first three months 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 three
months of 1994 from the prior year's period reflecting a lower
average balance of invested assets.
The 16 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 27 percent during
the first three 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 in the current period compared to the prior
year's period.
During the first quarter ended March 31, 1994, Registrant sold $267
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 $98
million during the first three months of 1994 compared to net cash
used of $149 million during the prior year's period. The variance
resulted primarily from lower certificate maturities and surrenders
during the first three months of 1994. 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.
A cash dividend of $12.4 million was paid during the first quarter
of 1994.<PAGE>
PAGE 11
IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None
(b) A report on Form 8-K, dated February 11, 1994, was filed by
Registrant on February 11, 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 July 1, 1993 to December 31, 1993.
<PAGE>
PAGE 12
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 /s/ Stuart Sedlacek
NAME AND TITLE Stuart A. Sedlacek, President,
principal executive officer and
Director
DATE May 13, 1994
BY /s/ John Knight
NAME AND TITLE John Knight, Controller,
principal
accounting officer
DATE May 13, 1994
