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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, 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
--------------- -------
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 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 September 30, December 31,
------ 1995 1994
(Unaudited)
-------------- --------------
<S> <C> <C>
Qualified Assets: ($ Thousands)
Cash and cash equivalents $95,472 $140,128
Investments in unaffiliated issuers (note 1) 3,711,808 2,784,638
Receivables 53,971 49,530
Investments in and advances to affiliates 5,606 5,399
Other 36,641 25,094
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Total qualified assets 3,903,498 3,004,789
Other assets:
Deferred federal income taxes - 8,372
Other 29,586 27,696
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Total assets $3,933,084 $3,040,857
========== ==========
</TABLE>
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<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $3,673,621 $2,887,405
Accounts payable and accrued liabilities 26,220 11,600
Deferred federal income taxes 7,997 -
---------- ----------
Total liabilities 3,707,838 2,899,005
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Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 168,844 140,344
Retained earnings 44,649 23,166
Unrealized holding gains (losses) on
investment securities - net 10,253 (23,158)
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Total stockholder's equity 225,246 141,852
---------- ----------
Total liabilities and
stockholder's equity $3,933,084 $3,040,857
========== ==========
See note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $69,355 $50,904 $188,036 $154,760
Investment expenses 16,298 14,664 47,135 44,769
------- ------- -------- --------
Net investment income before provision
for certificate reserves and income tax benefit 53,057 36,240 140,901 109,991
Net provision for certificate reserves 49,925 26,832 126,239 76,808
------- ------- -------- --------
Net investment income before income tax benefit 3,132 9,408 14,662 33,183
Income tax benefit 2,787 978 6,486 1,817
------- ------- -------- --------
Net investment income 5,919 10,386 21,148 35,000
------- ------- -------- --------
Realized gain (loss) on investments - net (101) 1,017 63 (6,885)
Income tax benefit (expense) 35 (356) (22) 2,410
------- ------- -------- --------
Net realized gain (loss) on investments (66) 661 41 (4,475)
------- ------- -------- --------
Net income - wholly owned subsidiary 133 94 294 169
------- ------- -------- --------
Net income $5,986 $11,141 $21,483 $30,694
======= ======= ======== ========
See note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Nine Months Ended
------------------------------
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $21,483 $30,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (294) (169)
Certificate reserves 126,239 76,808
Interest income added to certificate loans (1,458) (1,636)
Amortization of premium/discount - net 15,112 17,358
Deferred federal income taxes (1,622) 1,966
Deferred distribution fees (1,903) (3,646)
Net (gain) loss on investments (63) 6,885
(Increase) decrease in dividends and interest receivable (8,975) (2,405)
Increase in other assets (48) -
Decrease in other liabilities (1,895) (1,503)
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Net cash provided by operating activities 146,576 124,352
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Cash Flows from Investing Activities:
Maturity and redemption of investments:
Hold-to-maturity securities 136,958 230,313
Available-for-sale securities 172,615 144,806
Other investments 32,865 31,567
Sale of investments:
Hold-to-maturity securities 20,267 3,164
Available-for-sale securities 42,692 240,529
Other investments - -
Certificate loan payments 4,642 5,772
Purchase of investments:
Hold-to-maturity securities (133,193) -
Available-for-sale securities (1,119,336) (595,396)
Other investments (15,118) (7,354)
Certificate loan fundings (6,145) (6,099)
Investment in subsidiary - (450)
---------- ----------
Net cash (used in) provided by investing activities ($863,753) $46,852
---------- ----------
See note to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Nine Months Ended
----------------------------
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $1,468,411 $788,878
Capital contribution from Parent 28,500 -
Certificate maturities and cash surrenders (824,390) (883,643)
Dividends paid - (37,200)
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Net cash provided by (used in) financing activities 672,521 (131,965)
---------- ----------
Net (Decrease) Increase In Cash and Cash Equivalents (44,656) 39,239
Cash and Cash Equivalents Beginning of Period 140,128 54,059
---------- ----------
Cash and Cash Equivalents End of Period $95,472 $93,298
========== ==========
Supplemental Disclosures:
Cash received for income taxes $4,832 $2,229
Certificate maturities and surrenders through loan
reductions $7,966 $9,237
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
-------------- --------------
<S> <C> <C>
Investment securities at amortized cost............... $1,219,688 $1,245,793
Investment securities at fair value................... 2,196,593 1,226,674
First mortgage loans on real estate................... 242,329 253,968
Certificate loans - secured by certificate reserves... 53,198 58,203
----------- -----------
Total $3,711,808 $2,784,638
=========== ===========
</TABLE>
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MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
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During the first nine months of 1995, total assets and certificate
reserves increased $892 million and $786 million, respectively.
The increases resulted primarily from certificate sales exceeding
certificate maturities and surrenders. The increase in total
assets also reflects an increase of $51 million in unrealized
appreciation on investment securities classified as available for
sale.
Sales of face-amount certificates totaled $604 million and $363
million during the second and third quarters of 1995, respectively,
compared to $215 million and $324 million during the comparable
periods in 1994, respectively. Certificate maturities and
surrenders totaled $294 million and $218 million during the second
and third quarters of 1995, respectively, compared to $312 million
and $301 million during the comparable periods in 1994,
respectively. The excess of certificate sales over certificate
maturities and surrenders during the second and third quarters of
1995, resulted primarily from higher accrual rates declared by
Registrant during the periods, reflecting higher interest rates
available in the marketplace.
Certificate sales during the second and third quarters 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,
and applied only to sales of new certificate accounts during the
promotion period. The interest rate for sales of certificates
during the promotion period was 7.00%. Sales of this product
totaled $382 million and $180 million during the second and
third quarters in 1995, respectively.
For the first nine months of 1995 and 1994, face-amount certificate
sales totaled $1,379 million and $695 million, respectively.
Certificate maturities and surrenders for the first nine months of
1995 and 1994 totaled $832 million and $893 million, respectively.
Investment income increased 22% during the first nine months of
1995 from the prior year's period reflecting a higher average
balance of invested assets.
The 5.3% increase in investment expenses resulted primarily from
higher distribution, and investment advisory and services fees of
$5.2 million and $1.8 million, respectively. These increases were
partially offset by lower amortization of the cost of options and
interest rate caps of $1.4 million and $3.2 million, respectively.
The $3.2 million lower amortization of interest rate caps reflects
the net of $2.2 million of accelerated amortization and $5.4
million higher interest earned under the cap agreements.
Net provision for certificate reserves increased 65% during the
first nine months of 1995 from the prior year's period reflecting a
higher average balance of certificate reserves and higher accrual
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The $4.7 million increase in income tax benefit on net investment
income before income tax benefit resulted primarily from a greater
portion of net investment income before income tax benefit being
attributable to tax-advantaged income.
During the first nine months of 1995, Registrant sold
hold-to-maturity securities with an amortized cost and fair value
of $20.7 million and $20.3 million, respectively. The sales were
due to deterioration in the issuers' creditworthiness.
Certificate reserve financing activities provided net cash of $644
million during the first nine months of 1995 compared to net cash
used of $95 million during the prior year's period. The
improvement resulted primarily from higher certificate sales.
During the first nine 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) None
(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 November 10, 1995
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (duly authorized officer and
Chief Accounting Officer)
DATE November 10, 1995
