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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, 1995
----------------------------------------
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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For quarter ended Commission file number 2-23772
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IDS Certificate Company
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(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 August 10, 1995
150,000 Common shares
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Registrant is a wholly owned subsidiary of American Express
Financial Corporation (Parent), 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. Certain amounts from the prior
year have been reclassified to conform to the current year
presentation.
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
ASSETS June 30, December 31,
------ 1995 1994
(Unaudited)
------------ -------------
<S> <C> <C>
Qualified Assets: ($ Thousands)
Cash and cash equivalents $313,197 $140,128
Investments in unaffiliated issuers (note 1) 3,479,754 2,784,638
Receivables 49,001 49,530
Investments in and advances to affiliates 5,503 5,399
Other 36,877 25,094
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Total qualified assets 3,884,332 3,004,789
Other assets:
Deferred federal income taxes - 8,372
Other 31,540 27,696
---------- ----------
Total assets $3,915,872 $3,040,857
========== ==========
</TABLE>
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<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $3,451,794 $2,887,405
Accounts payable and accrued liabilities 238,565 11,600
Deferred federal income taxes 7,345 -
---------- ----------
Total liabilities 3,697,704 2,899,005
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 168,844 140,344
Retained earnings 38,663 23,166
Unrealized holding gains (losses) on
investment securities - net 9,161 (23,158)
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Total stockholder's equity 218,168 141,852
---------- ----------
Total liabilities and
stockholder's equity $3,915,872 $3,040,857
========== ==========
See note to financial statements.</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Six Months Ended
--------------------------- ---------------------------
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
($ Thousands)
<S> <S> <S> <S> <S>
Investment income $61,637 $50,883 $118,681 $103,856
Investment expenses 15,266 14,886 30,837 30,105
-------- -------- -------- --------
Net investment income before provision
for certificate reserves and income tax benefit 46,371 35,997 87,844 73,751
Net provision for certificate reserves 40,714 24,785 76,314 49,976
-------- -------- -------- --------
Net investment income before income tax benefit 5,657 11,212 11,530 23,775
Income tax benefit 1,855 587 3,699 839
-------- -------- -------- --------
Net investment income 7,512 11,799 15,229 24,614
-------- -------- -------- --------
Realized gain (loss) on investments - net 2 1,137 164 (7,902)
Income tax benefit (expense) - (398) (57) 2,766
-------- -------- -------- --------
Net realized gain (loss) on investments 2 739 107 (5,136)
-------- -------- -------- --------
Net income - wholly owned subsidiary 91 35 161 75
-------- -------- -------- --------
Net income $7,605 $12,573 $15,497 $19,553
======== ======== ======== ========
See note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Six Months Ended
----------------------------
June 30, 1995 June 30, 1994
------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $15,497 $19,553
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (161) (75)
Certificate reserves 76,314 49,976
Interest income added to certificate loans (1,001) (1,111)
Amortization of premium/discount - net 10,649 11,357
Deferred federal income taxes (1,686) 2,234
Deferred distribution fees (2,594) 110
Net (gain) loss on investments (164) 7,902
(Increase) decrease in dividends and interest receivable (6,679) 798
Increase in other assets (1,371) -
(Decrease) increase in other liabilities (1,533) 4,162
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Net cash provided by operating activities 87,271 94,906
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Cash Flows from Investing Activities:
Maturity and redemption of investments:
Hold-to-maturity securities 86,653 154,558
Available-for-sale securities 77,699 86,052
Other investments 22,637 22,872
Sale of investments:
Hold-to-maturity securities 8,714 -
Available-for-sale securities 37,268 262,341
Other investments - -
Certificate loan payments 3,005 4,051
Purchase of investments:
Hold-to-maturity securities (115,931) -
Available-for-sale securities (630,405) (337,882)
Other investments (12,924) (5,211)
Certificate loan fundings (4,038) (3,992)
Investment in subsidiary - (450)
---------- ----------
Net cash (used in) provided by investing activities ($527,322) $182,339
---------- ----------
See note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Six Months Ended
----------------------------
June 30, 1995 June 30, 1994
------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $1,083,025 $441,805
Unapplied reserve payments by certificate holders 110,262 -
Capital contribution from Parent 28,500 -
Certificate maturities and cash surrenders (608,667) (585,696)
Dividends paid - (24,800)
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Net cash provided by (used in) financing activities 613,120 (168,691)
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Net Increase In Cash and Cash Equivalents 173,069 108,554
Cash and Cash Equivalents Beginning of Period 140,128 54,059
---------- ----------
Cash and Cash Equivalents End of Period $313,197 $162,613
========== ==========
Supplemental Disclosures:
Cash received for income taxes $619 $8,900
Certificate maturities and surrenders through loan
reductions $5,526 $6,500
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
June 30, 1995 Dec. 31, 1994
----------------------------
<S> <C> <C>
Investment securities at amortized cost............... $1,266,330 $1,245,793
Investment securities at fair value................... 1,911,164 1,226,674
First mortgage loans on real estate................... 247,549 253,968
Certificate loans - secured by certificate reserves... 54,711 58,203
----------- -----------
Total $3,479,754 $2,784,638
=========== ===========
</TABLE>
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MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first six months of 1995, total assets and certificate
reserves increased $875 million and $564 million, respectively.
The increase in total assets resulted primarily from the increases
in certificate reserves and accounts payable and accrued
liabilities. The increase in accounts payable and accrued
liabilities reflected the purchases of $113 million of investment
securities during the second quarter of 1995, that will settle in
early July. Contributing also, to the increase in accounts payable
and accrued liabilities, was the receipt of $110 million of
certificate payments during the last business day of June which
will be applied to certificate reserves during the first business
day of July. Interest will accrue on these payments beginning one
day from date of receipt. The increase in certificate reserves
resulted primarily from certificate sales exceeding certificate
maturities and surrenders.
Sales of face-amount certificates totaled $412 million and $604
million during the first and second quarters of 1995, respectively,
compared to $155 million and $215 million during the comparable
periods in 1994, respectively. Certificate maturities and
surrenders totaled $320 million and $294 million during the first
and second quarters of 1995, respectively, compared to $280 million
and $312 million during the comparable periods in 1994,
respectively. The excess of certificate sales over certificate
maturities and surrenders during the first and second quarters of
1995, resulted primarily from higher accrual rates declared by
Registrant during the periods, reflecting higher interest rates
available in in the marketplace.
Certificate sales during the second quarter of 1995 benefited also
from a special introductory promotion of Registrant's 11-month term
Flexible Savings certificate. The special promotion was offered
from May 10, 1995 to July 3, 1995. Sales of this product totaled
$382 million through June 30, 1995.
Investment income increased 15% during the first six months of 1995
from the the prior year's period reflecting a higher average
balance of invested assets and higher investment yields.
The 2.5% increase in investment expenses resulted primarily from
higher distribution, and investment advisory and services fees of
$3.0 million and $.7 million, respectively. These increases were
partially offset by lower amortization of the cost of options and
interest rate caps of $.8 million and $2.1 million, respectively.
The lower amortization of interest rate caps reflects $1.9 million
of accelerated amortization and $4.3 million of interest earned
under the cap agreements.
Net provision for certificate reserves increased 53% during the
first six months of 1995 from the prior year's period reflecting a
higher average balance of certificate reserves and higher accrual
rates.
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The $2.9 million increase in income tax benefit on net investment
income before income tax benefit resulted primarily from a greater
portion of net investment before income tax benefit being
attributable to tax-advantaged income.
During the first six months of 1995, Registrant sold
hold-to-maturity securities with an amortized cost and fair value
of $8.7 million. The sales were due to deterioration in the
issuers' creditworthiness.
Certificate reserve financing activities provided net cash of $474
million during the first six months of 1995 compared to net cash
used of $144 million during the prior year's period. The
improvement resulted primarily from higher certificate sales.
During the first six months of 1995, Registrant received capital
contributions from Parent aggregating $28.5 million. The
contributions were necessary to manage Registrant's regulatory
capital requirements.
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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) Exhibits
(1) Second Amendment to Selling Agent Agreement between American
Express Financial Advisors Inc. and American Express Bank
International dated as of May 2, 1995, is filed electronically
herewith.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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 and
Director (Principal Executive Officer)*
DATE August 10, 1995
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (duly authorized officer and
Chief Accounting Officer)
DATE August 10, 1995
*Signed pursuant to Officers' Power of Attorney dated May 17, 1994,
filed as Exhibit 25(a) in Post-Effective Amendment No. 13 to
Registration Statement No. 2-95577, and incorporated herein by
reference.
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EXHIBIT INDEX
Exhibit 1. Second Amendment to Selling Agent Agreement between
American Express Financial Advisors Inc. and
American Express Bank International dated as of May
2, 1995.
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Second Amendment to Selling Agent Agreement
WHEREAS, American Express Financial Advisors Inc., formerly known
as IDS Financial Services Inc. (the "Company"), and American
Express Bank International ("AEBI") entered into a Selling Agent
Agreement made as of June 1, 1990, and amended as of December 12,
1994 (the "Amended Agreement"), with regard to marketing of certain
registered face-amount certificates offered by IDS Certificate
Company (the "Issuer"), and
WHEREAS, the parties thereto wish to amend the Amended Agreement to
modify a rate tier and facilitate creation of an additional rate
tier for the IDS Investors Certificate.
NOW THEREFORE the parties thereto agree as follows:
Schedule A to the Amended Agreement is amended and restated to read
in the form attached hereto as Schedule A.
This Second Amendment may be executed in any number of
counterparts, each executed counterpart constituting and original
but all together only one agreement to amend the Amended Agreement.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
as of the 2nd day of May, 1995.
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By: /s/ Stuart Sedlacek
Vice President
Attest: /s/ Colleen Curran
Secretary
AMERICAN EXPRESS BANK INTERNATIONAL
By: /s/ Sergio Masvidal
President
Attest: /s/ Labeeb M. Abboud
Assistant Secretary
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1. Pursuant to Section I (1) of the Selling Agent Agreement dated
as of June 1, 1990, as amended as of December 12, 1994, AEBI
may offer the IDS Investors Certificate ("Certificate"), which
Certificate guarantees interest in advance for a term of 1, 2,
3, 6, 12, 24 or 36 months, at the client's option, bering
Libor-based interest rates.
2. AEBI shall be compensated for sales of the Certificate as
follows:
(i) For Certificates sold on or after June 1, 1990:
(a) For Certificates sold in an amount equal to $1
million or more, a fee equal to .50% per annum of
the amount outstanding for each Certificate;
provided, however, that for each Certificate with an
amount outstanding of $5 million or more, when the
aggregate reserve balance for that Certificate, and
any other Certificate with identical registered
ownership and an amount outstanding of $5 million or
more, is at least $20 million, of which at least $5
million is invested for a term of 12 months or
longer, the fee shall be equal to .30% per annum of
the amount outstanding;
(b) For Certificates sold in an amount from $500,000 to
$999,999, a fee equal to .65% per annum of the
amount outstanding for each Certificate;
(c) For Certificates sold in an amount from $250,000 to
$499,999, a fee equal to .80% per annum of the
amount outstanding for each Certificate;
(d) For Certificates sold in an amount from $100,000 to
$249,999, a fee equal to 1.25% per annum of the
amount outstanding for each Certificate.
(ii) For Certificates sold prior to June 1, 1990, AEBI
shall be paid a fee of .60% per annum of the amount
outstanding for each such Certificate sold. The fee
of .60% per annum shall continue to apply to such
Certificates through January 31, 1991. From and
after February 1, 1991, AEBI shall be paid
compensation in accordance with (i) above for all
Certificates, regardless when such Certificates were
sold.
3. The amount outstanding shall be calculated as of the end of
each term of Certificate quarter, as the case may be. The
calculations shall take into account any additions to or
withdrawals from a Certificate. Compensation shall be
calculated on a 360-day year (30-day month) basis. AEBI shall
be paid after the end of each term for the 1, 2, and 3 month
term Certificates and after the end of each Certificate
quarter for the 6, 12, 24 and 36 month term Certificate. The
compensation payable to AEBI for certificate terms and
quarters ending during and given calendar month shall be
aggregated and paid to AEBI in a lump sum promptly after each
calendar month end.
