<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 June 30, 1996
------------------------------
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 13, 1996
150,000 Common shares
<PAGE>
PAGE 2
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 reduced disclosure format.
<PAGE>
PAGE 3
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,
------ 1996 1995
(Unaudited)
------------- -------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $117,847 $56,873
Investments in unaffiliated issuers (note 1) 3,171,092 3,695,937
Receivables 48,175 92,504
Investments in and advances to affiliates 5,749 5,655
Other 27,668 32,778
---------- ----------
Total qualified assets 3,370,531 3,883,747
Other assets 26,996 28,384
---------- ----------
Total assets $3,397,527 $3,912,131
========== ==========
</TABLE>
<PAGE>
PAGE 4
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $3,162,886 $3,628,574
Accounts payable and accrued liabilities 25,741 15,961
Deferred federal income taxes 1,109 17,289
---------- ----------
Total liabilities 3,189,736 3,661,824
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 168,844 168,844
Retained earnings 38,493 50,540
Unrealized holding gains (losses) on
investment securities - net (1,046) 29,423
---------- ----------
Total stockholder's equity 207,791 250,307
---------- ----------
Total liabilities and
stockholder's equity $3,397,527 $3,912,131
========== ==========
See note to financial statements.
</TABLE>
<PAGE>
PAGE 5
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Six Months Ended
--------------------------- ---------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $63,440 $61,637 $130,822 $118,681
Investment expenses 15,522 15,266 32,157 30,837
-------- -------- -------- --------
Net investment income before provision
for certificate reserves and income tax benefit 47,918 46,371 98,665 87,844
Net provision for certificate reserves 43,880 40,714 93,192 76,314
-------- -------- -------- --------
Net investment income before income tax benefit 4,038 5,657 5,473 11,530
Income tax benefit 1,652 1,855 4,311 3,699
-------- -------- -------- --------
Net investment income 5,690 7,512 9,784 15,229
-------- -------- -------- --------
Realized gain (loss) on investments - net 114 2 (3,059) 164
Income tax benefit (expense) (41) - 1,070 (57)
-------- -------- -------- --------
Net realized gain (loss) on investments 73 2 (1,989) 107
-------- -------- -------- --------
Net income - wholly owned subsidiary 91 91 158 161
-------- -------- -------- --------
Net income $5,854 $7,605 $7,953 $15,497
======== ======== ======== ========
See note to financial statements.
</TABLE>
<PAGE>
PAGE 6
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Six Months Ended
----------------------------
June 30, 1996 June 30, 1995
------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $7,953 $15,497
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (158) (161)
Certificate reserves 93,192 76,314
Interest income added to certificate loans (823) (1,001)
Amortization of premium/discount - net 7,184 10,649
Deferred federal income taxes 227 (1,686)
Deferred distribution fees 1,295 (2,594)
Net (gain) loss on investments 3,059 (164)
(Increase) decrease in dividends and interest receivable 6,328 (6,679)
Increase in other assets - (1,371)
Decrease in other liabilities (563) (1,533)
---------- ----------
Net cash provided by operating activities 117,694 87,271
---------- ----------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 115,364 86,653
Available-for-sale securities 288,348 77,699
Other investments 21,810 22,637
Sale of investments:
Held-to-maturity securities 314 8,714
Available-for-sale securities 347,730 37,268
Certificate loan payments 3,444 3,005
Purchase of investments:
Held-to-maturity securities (12,650) (115,931)
Available-for-sale securities (230,291) (630,405)
Other investments (5,984) (12,924)
Certificate loan fundings (2,463) (4,038)
---------- ----------
Net cash provided by (used in) investing activities $525,622 ($527,322)
---------- ----------
See note to financial statements.
</TABLE>
<PAGE>
PAGE 7
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Six Months Ended
----------------------------
June 30, 1996 June 30, 1995
------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $560,796 $1,207,229
Unapplied reserve payments by certificate holders - 110,262
Capital contribution from Parent - 28,500
Certificate maturities and cash surrenders (1,123,138) (732,871)
Dividends paid (20,000) -
---------- ----------
Net cash (used in) provided by financing activities (582,342) 613,120
---------- ----------
Net Increase In Cash and Cash Equivalents 60,974 173,069
Cash and Cash Equivalents Beginning of Period 56,873 140,128
---------- ----------
Cash and Cash Equivalents End of Period $117,847 $313,197
========== ==========
Supplemental Disclosures:
Cash received for income taxes $7,661 $619
Certificate maturities and surrenders through loan
reductions $4,745 $5,526
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
June 30, 1996 Dec. 31, 1995
----------------------------
<S> <C> <C>
Held-to-maturity securities........................... $900,258 $1,002,905
Available-for-sale securities......................... 2,004,022 2,408,491
First mortgage loans on real estate................... 220,569 233,394
Certificate loans - secured by certificate reserves... 46,243 51,147
----------- -----------
Total $3,171,092 $3,695,937
=========== ===========
</TABLE>
<PAGE>
PAGE 8
IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first six months of 1996, total assets and certificate
reserves decreased $515 million and $466 million, respectively.
The decrease in total assets and certificate reserves resulted
primarily from certificate maturities and surrenders exceeding
certificate sales. A decrease in unrealized appreciation on
available-for-sale securities of $47 million contributed also to
the decrease in total assets. During the same period, receivable
for securities sold decreased $38 million and payable for
securities purchased increased $14 million.
Sales of face-amount certificates totaled $224 million and $293
million during the first and second quarters of 1996, respectively,
compared to $472 million and $669 million during the comparable
periods in 1995, respectively. The lower certificate sales during
the first and second quarters of 1996 resulted primarily from lower
accrual rates declared by Registrant during those periods.
Certificate maturities and surrenders totaled $289 million and $839
million during the first and second quarters of 1996, respectively,
compared to $380 million and $358 million during the comparable
periods in 1995, respectively. The higher certificate maturities
and surrenders during the second quarter of 1996 resulted primarily
from surrenders of Registrant's 11-month Flexible Savings
certificate due to lower accrual rates declared by Registrant on
the certificates at term renewal.
Investment income increased 11% during the first six months of 1996
from the the prior year's period reflecting a higher average
balance of invested assets partially offset by lower investment
yields.
Investment expenses increased 4.3% during the first six months of
1996 from the the prior year's period. The increase resulted
primarily from higher investment advisory and services fees of $1.5
million reflecting a higher average asset base on which the fee is
calculated. This increase was partially offset by lower
amortization of interest rate caps of $.7 million.
Net provision for certificate reserves increased 23% during the
first six months of 1996 from the prior year's period reflecting a
higher average balance of certificate reserves and higher accrual
rates primarily related to the 11-month Flexible Savings
certificate.
The $.6 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 1996, Registrant sold a
held-to-maturity security with an amortized cost and fair value of
$.3 million. The sale was due to significant deterioration in the
issuers' creditworthiness. During the same period, securities
classified as available for sale were sold with an amortized cost<PAGE>
PAGE 9
and fair value of $315 million and $310 million, respectively. The
securities were sold to cover the cash outflows from surrenders of
the 11-month Flexible Savings certificate.
Certificate reserve financing activities used net cash of $562
million during the first six months of 1996 compared to net cash
provided of $474 million during the prior year's period. The
change resulted primarily from surrenders of the 11-month Flexible
Savings certificate during the second quarter of 1996 and lower
certificate sales during the first six months of 1996.
During the first six months of 1996, Registrant paid cash dividends
to its Parent aggregating $20 million.
<PAGE>
PAGE 10
IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are incorporated herein by reference:
3. (a) Certificate of Incorporation, dated December 31,
1977, filed electronically as Exhibit 3(a) to
Post-Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein by
reference.
(b) Certificate of Amendment, dated February 9, 1984,
filed electronically as Exhibit 3(b) to
Post-Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein by
reference.
(c) By-Laws, dated December 31, 1977, filed
electronically as Exhibit 3(c) to Post-Effective
Amendment No. 2 to Registration Statement No.
2-95577, is incorporated herein by reference.
24. (a) Officers' Power of Attorney, dated May 17, 1994,
filed electronically as Exhibit 25(a) to
Post-Effective Amendment No. 13 to Registration
Statement No. 2-95577, is incorporated herein by
reference.
(b) Directors' Power of Attorney, dated February 29,
1996, filed electronically as Exhibit 25(b) to
Post-Effective Amendment No. 17 to Registration
Statement No. 2-95577, is incorporated herein by
reference.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
<PAGE>
PAGE 11
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 13, 1996
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (duly authorized officer and
Chief Accounting Officer)
DATE August 13, 1996
