<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 September 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 November 12, 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 September 30, December 31,
------ 1996 1995
(Unaudited)
----------------------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $59,778 $56,873
Investments in unaffiliated issuers 3,284,731 3,695,937
Receivables 42,072 92,504
Investments in and advances to affiliates 5,807 5,655
Other 27,567 32,778
----------- -----------
Total qualified assets 3,419,955 3,883,747
Other assets 26,288 28,384
----------- -----------
Total assets $3,446,243 $3,912,131
=========== ===========
See note to financial statements.
</TABLE>
<PAGE>
PAGE 4
<TABLE><CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Certificate reserves $3,197,880 $3,628,574
Accounts payable and accrued liabilities 44,182 15,961
Deferred federal income taxes 3,182 17,289
----------- ----------
Total liabilities 3,245,244 3,661,824
----------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 168,844 168,844
Retained earnings 27,219 50,540
Unrealized holding gains on
investment securities - net 3,436 29,423
----------- -----------
Total stockholder's equity 200,999 250,307
----------- -----------
Total liabilities and
stockholder's equity $3,446,243 $3,912,131
=========== ==========
See note to financial statements.
</TABLE>
<PAGE>
PAGE 5
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
-------------- -------------- -------------- --------------
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $60,191 $69,355 $191,013 $188,036
Investment expenses 15,289 16,298 47,446 47,135
--------- --------- --------- ---------
Net investment income before provision
for certificate reserves and income tax benefit 44,902 53,057 143,567 140,901
Net provision for certificate reserves 39,192 49,925 132,384 126,239
--------- --------- --------- ---------
Net investment income before income tax benefit 5,710 3,132 11,183 14,662
Income tax benefit 1,097 2,787 5,408 6,486
--------- --------- --------- ---------
Net investment income 6,807 5,919 16,591 21,148
--------- --------- --------- ---------
Realized gain (loss) on investments - net 2,813 (101) (246) 63
Income tax benefit (expense) (984) 35 86 (22)
--------- --------- --------- ---------
Net realized gain (loss) on investments 1,829 (66) (160) 41
--------- --------- --------- ---------
Net income - wholly owned subsidiary 90 133 248 294
--------- --------- --------- ---------
Net income $8,726 $5,986 $16,679 $21,483
========= ========= ========= =========
See note to financial statements.
</TABLE>
<PAGE>
PAGE 6
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Nine Months Ended
-----------------------------
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $16,679 $21,483
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (248) (294)
Certificate reserves 132,384 126,239
Interest income added to certificate loans (1,238) (1,458)
Amortization of premium/discount - net 10,696 15,112
Deferred federal income taxes (114) (1,622)
Deferred distribution fees 2,000 (1,903)
Net (gain) loss on investments 246 (63)
(Increase) decrease in dividends and interest receivable 8,031 (8,975)
Increase in other assets - (48)
Increase (decrease) in other liabilities 1,181 (1,895)
---------- ----------
Net cash provided by operating activities 169,617 146,576
---------- ----------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 128,479 136,958
Available-for-sale securities 388,277 172,615
Other investments 32,291 32,865
Sale of investments:
Held-to-maturity securities 24,984 20,267
Available-for-sale securities 352,130 42,692
Certificate loan payments 4,662 4,642
Purchase of investments:
Held-to-maturity securities (44,141) (133,193)
Available-for-sale securities (429,294) (1,119,336)
Other investments (9,296) (15,118)
Certificate loan fundings (4,056) (6,145)
---------- ----------
Net cash provided by (used in) investing activities $444,036 ($863,753)
---------- ----------
See note to financial statements.
</TABLE>
<PAGE>
PAGE 7
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
---------------------------------------
For the Nine Months Ended
-----------------------------
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Reserve payments by certificate holders $826,829 $1,638,250
Capital contribution from Parent - 28,500
Certificate maturities and cash surrenders (1,397,577) (994,229)
Dividends paid (40,000) -
---------- ----------
Net cash (used in) provided by financing activities (610,748) 672,521
---------- ----------
Net Increase (Decrease) In Cash and Cash Equivalents 2,905 (44,656)
Cash and Cash Equivalents Beginning of Period 56,873 140,128
---------- ----------
Cash and Cash Equivalents End of Period $59,778 $95,472
========== ==========
Supplemental Disclosures:
Cash received for income taxes $8,122 $4,832
Certificate maturities and surrenders through loan
reductions $6,571 $7,966
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
Sept. 30, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Held-to-maturity securities........................... $896,527 $1,002,905
Available-for-sale securities......................... 2,128,000 2,408,491
First mortgage loans on real estate................... 214,997 233,394
Certificate loans - secured by certificate reserves... 45,207 51,147
----------- -----------
Total $3,284,731 $3,695,937
=========== ===========
</TABLE>
<PAGE>
PAGE 8
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first nine months of 1996, total assets and certificate
reserves decreased $466 million and $431 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 $40 million contributed also to
the decrease in total assets. During the same period, receivable
for securities sold decreased $42 million and payable for
securities purchased increased $32 million.
Sales of face-amount certificates totaled $293 million and $243
million during the second and third quarters of 1996, respectively,
compared to $669 million and $408 million during the comparable
periods in 1995, respectively. The lower certificate sales during
the second and third quarters of 1996 resulted primarily from lower
accrual rates declared by Registrant during those periods.
Certificate maturities and surrenders totaled $839 million and $276
million during the second and third quarters of 1996, respectively,
compared to $358 million and $264 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.
For the first nine months of 1996 and 1995, face-amount certificate
sales totaled $760 million and $1,549 million, respectively.
Certificate maturities and surrenders for the first nine months of
1996 and 1995 totaled $1,404 million $1,002 million, respectively.
Investment income increased 1.6% during the first nine months of
1996 from the prior year's period reflecting a higher average
balance of invested assets partially offset by lower investment
yields.
Investment expenses increased slightly during the first nine months
of 1996 from the prior year's period. The increase resulted
primarily from higher investment advisory and services fees of $1.0
million reflecting a higher average asset base on which the fee is
calculated. This increase was partially offset by lower
distribution fees of $.5 million.
Net provision for certificate reserves increased 4.9% during the
first nine months of 1996 from the prior year's period reflecting a
higher average balance of certificate reserves.
During the first nine months of 1996, Registrant sold
held-to-maturity securities with an amortized cost and fair value
of $2.3 million and $1.8 million, respectively. The sales were due
to significant deterioration in the issuers' creditworthiness.
In addition, a held-to-maturity security with an amortized cost of
$20 million was tendered for $23.2 million. By not accepting the <PAGE>
PAGE 9
tender offer, Management believes it would have left Registrant
vulnerable to issuer's credit deterioration and it is reasonably
probable, impairment of investment and/or dividends would occur.
During the same period, securities classified as available for sale
were sold with an amortized cost 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 $571
million during the first nine months of 1996 compared to net cash
provided of $644 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 nine months of 1996.
During the first nine months of 1996, Registrant paid cash
dividends to its Parent aggregating $40 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 November 12, 1996
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (duly authorized officer and
Chief Accounting Officer)
DATE November 12, 1996
