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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 March 31, 1996
----------------------------------------------
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
- -------------------------------------------------------------------
(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 May 14, 1996
150,000 Common shares
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Registrant is a wholly owned subsidiary of American Express
Financial Corporation, 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.
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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 March 31, December 31,
------ 1996 1995
(Unaudited)
-------------- --------------
<S> <C> <C>
Qualified Assets: ($ Thousands)
Cash and cash equivalents $228,419 $56,873
Investments in unaffiliated issuers (note 1) 3,423,818 3,695,937
Receivables 158,145 92,504
Investments in and advances to affiliates 5,691 5,655
Other 29,194 32,778
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Total qualified assets 3,845,267 3,883,747
Other assets 31,763 28,384
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Total assets $3,877,030 $3,912,131
========== ==========
</TABLE>
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<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $3,639,365 $3,628,574
Accounts payable and accrued liabilities 11,266 15,961
Deferred federal income taxes 5,774 17,289
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Total liabilities 3,656,405 3,661,824
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Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 168,844 168,844
Retained earnings 42,639 50,540
Unrealized holding gains and losses on
investment securities - net 7,642 29,423
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Total stockholder's equity 220,625 250,307
---------- ----------
Total liabilities and
stockholder's equity $3,877,030 $3,912,131
========== ==========
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended
-----------------------------
March 31, 1996 March 31, 1995
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($ Thousands)
<S> <C> <C>
Investment income $67,382 $57,044
Investment expenses 16,635 15,571
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Net investment income before provision
for certificate reserves and income tax benefit 50,747 41,473
Net provision for certificate reserves 49,312 35,600
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Net investment income before income tax benefit 1,435 5,873
Income tax benefit 2,659 1,844
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Net investment income 4,094 7,717
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Realized gain (loss) on investments - net (3,173) 162
Income tax benefit (expense) 1,111 (57)
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Net realized gain (loss) on investments (2,062) 105
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Net income - wholly owned subsidiary 67 70
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Net income $2,099 $7,892
======= =======
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
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For the Three Months Ended
-----------------------------
March 31, 1996 March 31, 1995
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $2,099 $7,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (67) (70)
Certificate reserves 49,312 35,600
Interest income added to certificate loans (432) (484)
Amortization of premium/discount - net 3,733 6,681
Deferred federal income taxes 213 (1,637)
Deferred distribution fees 766 (2,792)
Net (gain) loss on investments 3,173 (162)
(Increase) decrease in dividends and interest receivable 6,328 (4,026)
(Increase) decrease in other assets (4,230) 117
Decrease in other liabilities (2,278) (2,639)
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Net cash provided by operating activities 58,617 38,480
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Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 75,455 41,728
Available-for-sale securities 157,253 44,613
Other investments 6,661 9,314
Sale of investments:
Held-to-maturity securities 314 8,000
Available-for-sale securities 132,965 -
Certificate loan payments 1,829 1,487
Purchase of investments:
Held-to-maturity securities (8,845) (16,968)
Available-for-sale securities (199,644) (255,778)
Other investments (2,208) (10,746)
Certificate loan fundings (1,182) (1,922)
-------- --------
Net cash provided by (used in) investing activities $162,598 ($180,272)
-------- --------
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
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For the Three Months Ended
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Mar. 31, 1996 Mar. 31, 1995
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($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $246,068 $512,635
Capital contribution from Parent - 7,500
Certificate maturities and cash surrenders (285,737) (376,941)
Dividend paid (10,000) -
-------- --------
Net cash (used in) provided by financing activities (49,669) 143,194
-------- --------
Net Increase In Cash and Cash Equivalents 171,546 1,402
Cash and Cash Equivalents Beginning of Period 56,873 140,128
-------- --------
Cash and Cash Equivalents End of Period $228,419 $141,530
======== ========
Supplemental Disclosures:
Cash received for income taxes $335 $284
Certificate maturities and surrenders through loan
reductions $2,928 $2,961
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
March 31, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Held-to-maturity securities........................... $936,532 $1,002,905
Available-for-sale securities......................... 2,208,705 2,408,491
First mortgage loans on real estate................... 230,577 233,394
Certificate loans - secured by certificate reserves... 48,004 51,147
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Total $3,423,818 $3,695,937
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</TABLE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first three months of 1996, total assets decreased $35
million due primarily to a decrease of $34 million in net
unrealized appreciation on investment securities classified as
available for sale. The $66 million increase in receivables
reflects sales of securities classified as available for sale
during the first quarter of 1996, that will settle in April.
Certificate reserves increased $11 million during the first quarter
of 1996.
Sales of face-amount certificates totaled $224 million during the
first quarter of 1996 compared to $472 during the prior year's
period. The lower certificate sales resulted primarily from lower
accrual rates declared by Registrant during the first quarter of
1996, reflecting lower interest available in the marketplace.
Certificate maturities and surrenders totaled $289 million during
the first quarter of 1996 compared to $380 million during the
comparable period in 1995.
Investment income increased 19% during the first three months of
1996 from the the prior year's period reflecting a higher average
balance of invested assets partially offset by lower investment
yields.
The 7% increase in investment expenses resulted primarily from
higher distribution and investment advisory and services fee of $.9
million and $1.0 million, respectively. The increase in
distribution fees reflects quarterly fees paid on Registrant's
11-month Flexible Savings certificate sold during the second
quarter of 1995. The increase in investment advisory and services
fee reflects a higher asset base on which the fee is calculated.
These increases were partially offset by lower amortization of
interest rate caps of $.7 million.
Net provision for certificate reserves increased 39% during the
first three 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 $.8 million increase in income tax benefit on net investment
income resulted primarily from a greater portion of net investment
income being attributable to tax-advantaged income.
During the first three 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
issuer's creditworthiness. During the same period, securities
classified as available for sale were sold with an amortized cost
and fair value of $210 million and $205 million, respectively. The
securities were sold to strengthen Registrant's cash position in <PAGE>
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anticipation of cash outflows from surrenders of the 11-month
Flexible Savings certificate during the second quarter of 1996.
The anticipated surrenders reflect lower interest rates to be
declared by Registrant at the certificates' term renewal.
Certificate reserve financing activities used net cash of $40
million during the first three months of 1996 compared to net cash
provided of $136 million during the prior year's period. The
change resulted primarily from lower certificate sales.
During the first quarter of 1996, Registrant paid a cash dividend
to its Parent of $10 million.
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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:
1. (a) Copy of Distribution Agreement dated March 29, 1996
between Registrant and American Express Service
Corporation filed electronically as Exhibit 1(b) to
Post-Effective Amendment No. 17 to Registration
Statement No. 2-95577, is 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.
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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 May 14, 1996
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (Principal Accounting Officer)
DATE May 14, 1996
