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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 June 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
- -------------------------------------------------------------------
(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 August 13, 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.
<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
ASSETS June 30, December 31,
------ 1997 1996
(Unaudited)
-------------- --------------
($ Thousands)
<S> <C> <C>
Qualified Assets:
Cash and cash equivalents $110,756 $111,331
Investments in unaffiliated issuers (note 1) 3,519,233 3,339,095
Receivables 43,369 44,667
Investments in and advances to affiliates 6,593 6,444
Other 65,158 36,164
---------- ----------
Total qualified assets 3,745,109 3,537,701
Other assets 24,097 25,533
---------- ----------
Total assets $3,769,206 $3,563,234
========== ==========
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY June 30, December 31,
------------------------------------ 1997 1996
(Unaudited)
-------------- --------------
($ Thousands)
<S> <C> <C>
Liabilities:
Certificate reserves $3,378,564 $3,283,191
Accounts payable and accrued liabilities 176,376 77,396
Deferred federal income taxes 5,427 8,097
---------- ----------
Total liabilities 3,560,367 3,368,684
---------- ----------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 48,875 34,767
Unrealized holding gains on
investment securities - net 14,620 14,439
---------- ----------
Total stockholder's equity 208,839 194,550
---------- ----------
Total liabilities and
stockholder's equity $3,769,206 $3,563,234
========== ==========
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
-----------------------
For the Three Months Ended For the Six Months Ended
----------------------------- -----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------- -------------- -------------- --------------
($ Thousands)
<S> <C> <C> <C> <C>
Investment income $62,934 $63,440 $124,470 $130,822
Investment expenses 16,503 15,522 32,322 32,157
------- ------- ------- -------
Net investment income before provision
for certificate reserves and income tax benefit 46,431 47,918 92,148 98,665
Net provision for certificate reserves 39,962 43,880 79,912 93,192
------- ------- ------- -------
Net investment income before income tax benefit 6,469 4,038 12,236 5,473
Income tax benefit 571 1,652 1,722 4,311
------- ------- ------- -------
Net investment income 7,040 5,690 13,958 9,784
------- ------- ------- -------
Realized gain (loss) on investments - net (83) 114 2 (3,059)
Income tax benefit (expense) 29 (41) (1) 1,070
------- ------- ------- -------
Net realized gain (loss) on investments (54) 73 1 (1,989)
------- ------- ------- -------
Net income - wholly owned subsidiary 84 91 149 158
------- ------- ------- -------
Net income $7,070 $5,854 $14,108 $7,953
======= ======= ======= =======
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------
For the Six Months Ended
-----------------------------
June 30, 1997 June 30, 1996
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $14,108 $7,953
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (149) (158)
Provision for certificate reserves 79,912 93,192
Interest income added to certificate loans (724) (823)
Amortization of premium/discount - net 7,165 7,184
Net (gain) loss on investments (2) 3,059
Decrease in dividends and interest receivable 644 6,328
Decrease in deferred distribution fees 1,432 1,295
(Decrease) increase in deferred federal income taxes (2,670) 227
Decrease in other liabilities (582) (563)
-------- --------
Net cash provided by operating activities 99,134 117,694
-------- --------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 35,826 115,364
Available-for-sale securities 188,817 288,348
Other investments 35,534 21,810
Sale of investments:
Held-to-maturity securities 29,391 314
Available-for-sale securities 150,097 347,730
Certificate loan payments 2,503 3,444
Purchase of investments:
Held-to-maturity securities (4,565) (12,650)
Available-for-sale securities (626,659) (230,291)
Other investments (28,176) (5,984)
Certificate loan fundings (2,720) (2,463)
-------- --------
Net cash (used in) provided by investing activities ($219,952) $525,622
-------- --------
See note to financial statements.
</TABLE>
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<TABLE><CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
------------------------------------------
For the Six Months Ended
-----------------------------
June 30, 1997 June 30, 1996
-------------- --------------
($ Thousands)
<S> <C> <C>
Cash Flows from Financing Activities:
Payments from certificate owners $644,307 $560,796
Proceeds from reverse repurchase agreements 269,500 -
Certificate maturities and cash surrenders (644,064) (1,123,138)
Payments under reverse repurchase agreements (149,500) -
Dividend paid - (20,000)
-------- --------
Net cash provided by (used in) financing activities 120,243 (582,342)
-------- --------
Net (Decrease) Increase In Cash and Cash Equivalents (575) 60,974
Cash and Cash Equivalents Beginning of Period 111,331 56,873
-------- --------
Cash and Cash Equivalents End of Period $110,756 $117,847
======== ========
Supplemental Disclosures:
Cash received for income taxes $2,328 $7,661
Certificate maturities and surrenders through loan
reductions $4,068 $4,745
See note to financial statements.
</TABLE>
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
- ----------------------------------------
1. The following is a summary of investments in unaffiliated issuers:
<TABLE><CAPTION>
June 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Held-to-maturity securities........................... $803,573 $863,921
Available-for-sale securities......................... 2,458,940 2,212,968
First mortgage loans on real estate................... 216,338 218,697
Certificate loans - secured by certificate reserves... 40,382 43,509
----------- -----------
Total $3,519,233 $3,339,095
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</TABLE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
--------------------------------------
During the first six months of 1997, total assets increased $206
million due primarily to proceeds from reverse repurchase
agreements of $120 million. Accounts payable and accrued
liabilities increased $99 million due primarily to borrowings under
the reverse repurchase agreement and net of a decrease in payable
for securities purchased of $42 million. Certificate reserves
increased $95 million during the first six months of 1997 due
primarily to the provision for certificate reserves.
Sales of face-amount certificates totaled $268 million and $327
million during the first and second quarters of 1997, respectively,
compared to $224 million and $293 million during the comparable
periods in 1996, respectively. The higher certificate sales
resulted primarily from sales of Preferred Investors certificate
which were first offered for sale early in the last quarter of
1996. Certificate maturities and surrenders totaled $304 million
and $344 million during the first and second quarters of 1997,
respectively, compared to $289 million and $839 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.
Investment income decreased 4.9% during the first six months of
1997 from the prior year's period primarily reflecting a lower
average balance of invested assets.
Investment expenses increased slightly during the first six months
of 1997 from the prior year's period reflecting the net of $2.3
million higher amortization of options and $2.0 million lower
amortization of interest rate caps/corridors.
Net provision for certificate reserves decreased 14% during the
first six months of 1997 from the prior year's period reflecting a
lower average balance of certificate reserves, and lower accrual
rates primarily related to surrenders of the promotional 11-month
Flexible Savings certificate during the second quarter of 1996.
The $2.6 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 six 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 $150 million and $149
million, respectively.
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Net certificate reserve financing activities provided cash of $.2
million during the first six months of 1997 compared to cash used
of $562 million during the prior year's period. The change
resulted primarily from lower certificate maturities and surrenders
during the first six 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
---------------------------
(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 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
---------------------------
(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 August 13, 1997
BY
NAME AND TITLE Jay Hatlestad, Vice President
and Controller (Principal
Accounting Officer)
DATE August 13, 1997
