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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 March 31, 1998
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 April 30, 1998
150,000 Common shares
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.
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<CAPTION>
IDS CERTIFICATE COMPANY
BALANCE SHEET
ASSETS March 31, December 31,
1998 1997
(Unaudited)
($ Thousands)
<S> <C> <C>
Qualified Assets:
Investments in unaffiliated issuers (note 1) $3,986,149 $3,919,198
Receivables 45,306 50,452
Investments in and advances to affiliates 3,818 6,772
Other 88,652 56,127
Total qualified assets 4,123,925 4,032,549
Other assets 19,557 21,099
Total assets $4,143,482 $4,053,648
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Certificate reserves $3,705,345 $3,724,978
Accounts payable and accrued liabilities 181,195 73,985
Deferred federal income taxes 11,553 15,175
Total liabilities 3,898,093 3,814,138
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 69,371 62,373
Accumulated other comprehensive income-net
of tax (note 2) 30,674 31,793
Total stockholder's equity 245,389 239,510
Total liabilities and
stockholder's equity $4,143,482 $4,053,648
See notes to financial statements.
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IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
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<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
($ Thousands)
<S> <C> <C>
Investment income $70,133 $61,536
Investment expenses 19,486 15,819
Net investment income before provision
for certificate reserves and income tax benefit 50,647 45,717
Net provision for certificate reserves 44,638 39,950
Net investment income before income tax benefit 6,009 5,767
Income tax benefit 653 1,151
Net investment income 6,662 6,918
Realized gain on investments - net 446 85
Income tax expense (156) (30)
Net realized gain on investments 290 55
Net income - wholly owned subsidiary 46 65
Net income $6,998 $7,038
See notes to financial statements.
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IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
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<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
($ Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income $6,998 $7,038
Adjustments to reconcile net income to net cash provided by operating
activities:
Net income of wholly owned subsidiary (46) (65)
Net provision for certificate reserves 44,638 39,950
Interest income added to certificate loans (298) (350)
Amortization of premiums/discounts - net 4,868 3,483
Provision for deferred federal income taxes (3,019) (618)
Net realized gain on investments before income taxes (446) (85)
Decrease in dividends and interest receivable 3,511 3,509
Decrease in deferred distribution fees 1,542 771
Increase in other assets - (496)
Increase in other liabilities 10,722 1,765
Net cash provided by operating activities 68,470 54,902
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 42,231 8,098
Available-for-sale securities 124,500 104,618
Other investments 27,430 10,268
Sale of investments:
Held-to-maturity securities - 7,009
Available-for-sale securities 13,328 98,521
Certificate loan payments 941 1,372
Purchase of investments:
Held-to-maturity securities (1,034) (4,565)
Available-for-sale securities (268,708) (402,014)
Other investments (19,461) (14,954)
Certificate loan fundings (712) (1,324)
Net cash used in investing activities ($81,485) ($192,971)
See notes to financial statements.
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IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
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<CAPTION>
For the Three Months Ended
March 31, 1998 March 31, 1997
($ Thousands)
Cash Flows from Financing Activities:
<S> <C> <C>
Payments from certificate owners $280,427 $291,816
Proceeds from reverse repurchase agreements 195,000 120,000
Dividend from wholly-owned subsidiary 3,000 -
Certificate maturities and cash surrenders (363,912) (301,872)
Payments under reverse repurchase agreements (101,500) -
Net cash provided by financing activities 13,015 109,944
Net Decrease In Cash and Cash Equivalents - (28,125)
Cash and Cash Equivalents Beginning of Period - 111,331
Cash and Cash Equivalents End of Period $ - $83,206
Supplemental Disclosures:
Cash received (paid) for income taxes $505 ($1,747)
Certificate maturities and surrenders through loan
reductions $1,180 $2,066
See notes to financial statements.
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IDS CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
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<CAPTION>
1. The following is a summary of investments in unaffiliated issuers:
<S> <C> <C>
March 31, December 31,
1998 1997
Held-to-maturity securities $716,688 $758,143
Available-for-sale securities 3,026,464 2,911,524
First mortgage loans on real estate 207,010 212,433
Certificate loans - secured by certificate reserves 35,987 37,098
Total $3,986,149 $3,919,198
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2. Comprehensive income
Effective January 1, 1998, Registrant adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires the reporting and display of comprehensive income and its components.
Comprehensive income is defined as the aggregate change in stockholder's equity
excluding changes in ownership interests. For Registrant, it is net income and
the unrealized gains or losses on available-for-sale securities net of taxes.
Prior year amounts have been reclassified to conform to the requirements of the
new Statement. The components of comprehensive income, net of related tax, for
the three month periods ended March 31, 1998 and 1997 were:
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<CAPTION>
<S> <C> <C>
1998 1997
Net income $6,998 $7,038
Unrealized losses on available-for-sale securities-net (1,119) (17,567)
Total comprehensive income $5,879 ($10,529)
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
As of March 31, 1998, total assets increased $90 million and certificate
reserves decreased $20 million from December 31, 1997. The increase in total
assets resulted primarily from net proceeds received from reverse repurchase
agreements of $94 million. The decrease in certificate reserves resulted
primarily from certificate maturities and surrenders exceeding certificate
sales.
Sales of face-amount certificates totaled $257 million during the first quarter
of 1998 compared to $268 million during the prior year's period. Certificate
maturities and surrenders totaled $365 million during the first quarter of 1998
compared to $304 million during the prior year's period.
Investment income increased 14% during the first three months of 1998 from the
prior year's period primarily reflecting a higher average balance of invested
assets.
Investment expenses increased 23% during the first three months of 1998 from the
the prior year's period. The increase resulted primarily from $1.2 million
higher amortization of premiums paid for index options and $2.5 million of
interest expense on reverse repurchase and interest rate swap agreements entered
into after the first quarter in 1997.
Net provision for certificate reserves increased 12% during the first three
months of 1998 from the prior year's period reflecting a higher average balance
of certificate reserves.
The $.5 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.
Net certificate reserve financing activities used cash of $83 million during the
first three months of 1998 compared to cash used of $10 million during the prior
year's period. The change resulted from lower certificate payments received of
$11 million and higher maturities and surrenders of $62 million during the first
three months of 1998 compared to the prior year's period.
Effective January 1, 1998, Registrant adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires the reporting and display of comprehensive income and its components.
Comprehensive income is defined as the aggregate change in stockholder's equity
excluding changes in ownership interests. For Registrant, it is net income and
the unrealized gains or losses on available-for-sale securities net of taxes.
Prior year amounts have been reclassified to conform to the requirements of the
new Statement.
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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.
(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.
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IDS CERTIFICATE COMPANY
PART II. OTHER INFORMATION (Continued)
(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.
(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.
(c) Officer's Power of Attorney, dated February 17, 1998, filed
electronically as Exhibit 24(c) to Post-Effective Amendment No. 42
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 /s/ Stuart A. Sedlacek*
NAME AND TITLE Stuart A. Sedlacek, President and
Director (Principal Executive Officer)
DATE May 13, 1998
BY
NAME AND TITLE Jay C. Hatlestad, Vice President and
Controller (Principal Accounting Officer)
DATE May 13, 1998
*Signed pursuant to 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, incorporated herein by reference.
____________________________________
Jay C. Hatlestad
