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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-23772
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 October 31, 1997
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.
IDS CERTIFICATE COMPANY
BALANCE SHEET
ASSETS September 30, December 31,
1997 1996
(Unaudited)
($ Thousands)
Qualified Assets:
Cash and cash equivalents $75,218 $111,331
Investments in unaffiliated issuers (note 1) 3,571,326 3,339,095
Receivables 46,187 44,667
Investments in and advances to affiliates 6,646 6,444
Other 64,293 36,164
Total qualified assets 3,763,670 3,537,701
Other assets 24,787 25,533
Total assets $3,788,457 $3,563,234
See note to financial statements
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IDS CERTIFICATE COMPANY
BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
September 30, December 31,
1997 1996
(Unaudited)
($ Thousands)
Liabilities:
Certificate reserves $3,484,630 $3,283,191
Accounts payable and accrued liabilities 60,825 77,396
Deferred federal income taxes 12,897 8,097
Total liabilities 3,558,352 3,368,684
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 56,303 34,767
Unrealized holding gains on
investment securities - net 28,458 14,439
Total stockholder's equity 230,105 194,550
Total liabilities and
stockholder's equity $3,788,457 $3,563,234
See note to financial statements.
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
For the Three Months Ended For the Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $65,660 $60,191 $190,130 $191,013
Investment expenses 17,824 15,289 50,146 47,446
Net investment income before provision
for certificate reserves and income tax benefit 47,836 44,902 139,984 143,567
Net provision for certificate reserves 41,368 39,192 121,280 132,384
Net investment income before income tax benefit 6,468 5,710 18,704 11,183
Income tax benefit 601 1,097 2,323 5,408
Net investment income 7,069 6,807 21,027 16,591
Realized gain (loss) on investments - net 470 2,813 472 (246)
Income tax benefit (expense) (164) (984) (165) 86
Net realized gain (loss) on investments 306 1,829 307 (160)
Net income - wholly owned subsidiary 53 90 202 248
Net income $7,428 $8,726 $21,536 $16,679
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
For the Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $21,536 $16,679
Adjustments to reconcile net income to net cash provided by operating
activities:
Net income of wholly owned subsidiary (202) (248)
Provision for certificate reserves 121,280 132,384
Interest income added to certificate loans (1,063) (1,238)
Amortization of premium/discount - net 11,093 10,696
Net (gain) loss on investments (472) 246
Decrease in dividends and interest receivable 2,826 8,031
Decrease in deferred distribution fees 2,490 2,000
(Decrease) increase in deferred federal income taxes (2,749) (114)
Increase in other assets (1,747) -
Decrease in other liabilities (360) 1,181
Net cash provided by operating activities 152,632 169,617
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 62,265 128,479
Available-for-sale securities 306,066 388,277
Other investments 55,705 32,291
Sale of investments:
Held-to-maturity securities 29,391 24,984
Available-for-sale securities 156,841 352,130
Certificate loan payments 3,670 4,662
Purchase of investments:
Held-to-maturity securities (4,565) (44,141)
Available-for-sale securities (828,812) (429,294)
Other investments (45,801) (9,296)
Certificate loan fundings (3,884) (4,056)
Net cash (used in) provided by investing activities ($269,124) $444,036
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
For the Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Payments from certificate owners $1,053,364 $826,829
Proceeds from reverse repurchase agreements 374,000 -
Certificate maturities and cash surrenders (991,985) (1,397,577)
Payments under reverse repurchase agreements (355,000) -
Dividends paid - (40,000)
Net cash provided by (used in) financing activities 80,379 (610,748)
Net (Decrease) Increase In Cash and Cash Equivalents (36,113) 2,905
Cash and Cash Equivalents Beginning of Period 111,331 56,873
Cash and Cash Equivalents End of Period $75,218 $59,778
Supplemental Disclosures:
Cash received (paid) for income taxes ($4,030) $8,122
Certificate maturities and surrenders through loan
reductions $5,565 $6,571
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Held-to-maturity securities $776,989 $863,921
Available-for-sale securities 2,537,851 2,212,968
First mortgage loans on real estate 217,265 218,697
Certificate loans - secured by certificate reserves 39,221 43,509
Total $3,571,326 $3,339,095
</TABLE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
During the first nine months of 1997, total assets and certificate reserves
increased $225 million and $201 million, respectively. The increase in
certificate reserves resulted primarily from the provision for certificate
reserves, and certificate payments exceeding certificate maturities and
surrenders.
Sales of face-amount certificates totaled $327 million and $387 million during
the second and third quarters of 1997, respectively, compared to $293 million
and $243 million during the comparable periods in 1996, respectively. The higher
certificate sales resulted primarily from sales of the Preferred Investors
certificate which were first offered for sale early in the last quarter of 1996
and sales of the Special Deposits certificate which were first offered for sale
late in the third quarter of 1996 to private banking clients of American Express
Bank Ltd. in Hong Kong. Certificate sales during the third quarter of 1997
benefited also from a special introductory promotion of Registrant's 7- and
13-month term Flexible Savings certificate. The special promotion is being
offered from September 10, 1997 to November 25, 1997, and applies only to sales
of new certificate accounts during the promotion period. Interest rates for
sales of certificates during the promotion period will be determined on a weekly
basis at one percentage point above the Bank Rate Monitor Top 25 Market Average
of comparable length certificates of deposit. Sales of the 7- and 13-month term
certificates during the third quarter of 1997 totaled $63 million.
Certificate maturities and surrenders totaled $344 million and $350 million
during the second and third quarters of 1997, respectively, compared to $839
million and $276 million during the comparable periods in 1996, respectively.
The high volume of certificate maturities and surrenders during the second
quarter of 1996 resulted primarily from surrenders of Registrant's promotional
11-month Flexible Savings certificate at term renewal.
For the first nine months of 1997 and 1996, face-amount certificate sales
totaled $982 million and $760 million, respectively. Certificate maturities and
surrenders for the first nine months of 1997 and 1996 totaled $998 million and
$1,404 million, respectively.
Investment income decreased slightly during the first nine months of 1997 from
the prior year's period primarily reflecting lower investment yields partially
offset by a higher average balance of invested assets.
Investment expenses increased 5.7% during the first nine months of 1997 from the
the prior year's period. The increase resulted primarily from $3.3 million
higher amortization of premiums paid for index options and $1.7 million of
interest expense on reverse repurchase and interest rate swap agreements entered
into in 1997. These higher expenses were partially offset by $2.3 million lower
amortization of interest rate cap/corridors.
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Net provision for certificate reserves decreased 8.4% during the first nine
months of 1997 from the prior year's period reflecting lower accrual rates
primarily related to surrenders of the promotional 11-month Flexible Savings
certificate during the second quarter of 1996.
The $3.1 million decrease in income tax benefit on net investment income
resulted primarily from a lesser portion of net investment income before income
tax benefit being attributable to tax-advantaged income.
During the first nine months of 1997, Registrant sold held-to-maturity
securities with an amortized cost and fair value of $28.7 million and $29.4
million, respectively. The sales were due to significant deterioration in the
issuers' creditworthiness. During the same period in 1997, available-for-sale
securities were sold with an amortized cost and fair value of $161.5 million and
$161.2 million, respectively.
Net certificate reserve financing activities provided cash of $61 million during
the first nine months of 1997 compared to cash used of $571 million during the
prior year's period. The change resulted from higher certificate payments
received of $227 million and lower maturities and surrenders of $405 million
during the first nine months of 1997 compared to the prior year's period.
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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:
3. (a) Certificate of Incorporation, dated December 31, 1977, filed
electronically as Exhibit 3(a) to Post-Effective Amendment No. 10
to Registration Statement No. 2-89507, is incorporated herein by
reference.
(b) Certificate of Amendment, dated April 2, 1984, filed
electronically as Exhibit 3(b) to Post-Effective Amendment No. 10
to Registration Statement No. 2-89507, is incorporated herein by
reference.
(c) By-Laws, dated December 31, 1977, filed electronically as Exhibit
3(c) to Post-Effective Amendment No. 10 to Registration Statement
No. 2-89507, is incorporated herein by reference.
10. (a) The Distribution Agreement dated November 18, 1988, between
Registrant and IDS Financial Services Inc., filed electronically as
Exhibit 1(a) to the Registration Statement for the American Express
International Investment Certificate (now called the IDS Investors
Certificate), is incorporated herein by reference.
(b) The Distribution Agreement dated March 29, 1996, between
Registrant and American Express Service Corporation, filed
electronically as Exhibit 1(b) to Post-Effective Amendment
No. 38 to Registration Statement No. 2-55252 for the D-1
Investment Certificate, is incorporated herein by reference.
(c) Selling Agent Agreement dated June 1, 1990, between American
Express Bank International and IDS Financial Services Inc.,
for the IDS Investors and IDS Stock Market Certificates, filed
electronically as Exhibit 1(c) to the Post-Effective Amendment
No. 5 to Registration Statement No. 33-26844 for the IDS Investors
Certificate, is incorporated herein by reference.
(d) Marketing Agreement dated October 10, 1991, between Registrant
and American Express Bank Ltd., filed electronically as Exhibit
1(d) to the Post-Effective Amendment No. 31 to Registration
Statement No. 2-55252 for the Series D-1 Investment Certificate,
is incorporated herein by reference.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION (Continued)
(e) Letter Amendment dated January 9, 1997, to the Marketing Agreement
dated October 10, 1991, between Registrant and American Express
Bank Ltd., filed electronically as Exhibit 10(j) to Post-Effective
Amendment No. 40 to Registration Statement No. 2-55252, is
incorporated herein by reference.
(f) Amendment to the Selling Agent Agreement dated December 12, 1994,
between IDS Financial Services Inc. and American Express Bank
International, filed electronically as Exhibit 16(d) to Post-
Effective Amendment No. 13 to Registration Statement No. 2-95577,
is incorporated herein by reference.
(g) Selling Agent Agreement dated December 12, 1994, between IDS
Financial Services Inc. and Coutts & Co. (USA) International, filed
electronically as Exhibit 16(e) to Post-Effective Amendment
No. 13 to Registration Statement No. 2-95577, is incorporated
herein by reference.
(h) Consulting Agreement dated December 12, 1994, between IDS Financial
Services Inc. and American Express Bank International, filed
electronically as Exhibit 16(f) to Post-Effective Amendment
No. 13 to Registration Statement No. 2-95577, is incorporated
herein by reference.
(i) Second amendment to Selling Agent Agreement between American
Express Financial Advisors Inc. and American Express Bank
International dated May 2, 1995, filed electronically as as Exhibit
(1) to Registrant's June 30, 1995, Quarterly Report on Form 10-Q,
is incorporated herein by reference.
(j) The Investment Advisory and Services Agreement between Registrant
and IDS/American Express Inc. dated January 12, 1984, filed
electronically as Exhibit 10(a) to Registration Statement No.
2-89507, is incorporated herein by reference.
(k) Depository and Custodial Agreement dated September 30, 1985,
between IDS Certificate Company and IDS Trust Company, filed
electronically as Exhibit 10(b) to Registrant's Post-Effective
Amendment No. 3 to Registration Statement No. 2-89507, is
incorporated herein by reference.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION (Continued)
(l) Foreign Deposit Agreement dated November 21, 1990, between
IDS Certificate Company and IDS Bank and Trust, filed
electronically as Exhibit 10(h) to Post-Effective Amendment
No. 5 to Registration Statement No. 33-26844, is incorporated
herein by reference.
(m) Form of Letter Amendment dated April 7, 1997, to the Selling
Agent Agreement dated June 1, 1990, between American Express
Financial Advisors Inc. and American Express Bank International,
filed electronically as Exhibit 10(j) to Post-Effective Amendment
No. 14 to Registration Statement No. 33-26844, 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. 37
to Registration Statement No. 2-55252, is incorporated herein by
reference.
(b) Directors' Power of Attorney, dated February 29, 1996, filed
electronically as Exhibit 24(b) to Post-Effective Amendment No. 39
to Registration Statement No. 2-55252, 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 November 12, 1997
BY
NAME AND TITLE Jay Hatlestad, Vice President and
Controller (Principal Accounting Officer)
DATE November 12, 1997
