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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 June 30, 2000
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
American Express Certificate Company
(formerly 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 July 31, 2000
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
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
BALANCE SHEET
ASSETS June 30, Dec. 31,
2000 1999
(Unaudited)
-------------------- --------------------
<S> <C> <C>
($ Thousands)
Qualified Assets:
Cash and cash equivalents $165,262 $47,086
Investments in unaffiliated issuers (note 2) 3,565,734 3,492,337
Receivables 42,917 42,537
Investments in and advances to affiliates 422 422
Other 90,530 123,845
-------------------- --------------------
Total qualified assets 3,864,865 3,706,227
-------------------- --------------------
Other assets:
Deferred federal income taxes 48,884 42,590
Other 10,614 12,251
-------------------- --------------------
Total other assets 59,498 54,841
-------------------- --------------------
Total assets $3,924,363 $3,761,068
==================== ====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Certificate reserves $3,667,206 $3,536,659
Accounts payable and accrued liabilities 119,928 82,707
-------------------- --------------------
Total liabilities 3,787,134 3,619,366
-------------------- --------------------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 65,059 62,099
Accumulated other comprehensive loss (73,174) (65,741)
-------------------- --------------------
Total stockholder's equity 137,229 141,702
-------------------- --------------------
Total liabilities and
stockholder's equity $3,924,363 $3,761,068
==================== ====================
</TABLE>
See notes to financial statements.
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PAGE 3
<TABLE>
<CAPTION>
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
STATEMENT OF OPERATIONS (Unaudited)
For the Three Months Ended For the Six Months Ended
------------------------------------ -------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
($ Thousands)
Investment income $65,216 $62,964 $129,122 $125,159
Investment expenses 21,271 18,455 42,308 37,852
------------- ----------- ------------- -------------
Net investment income before provision for
certificate reserves and income tax (expense) 43,945 44,509 86,814 87,307
Net provision for certificate reserves 36,910 34,095 72,427 68,232
------------- ----------- ------------- -------------
Net investment income before income tax (expense) 7,035 10,414 14,387 19,075
Income tax (expense) (380) (1,410) (743) (2,156)
------------- ----------- ------------- -------------
Net investment income 6,655 9,004 13,644 16,919
------------- ----------- ------------- -------------
Realized (loss) gain on investments - net (2,220) 1,378 (8,744) 1,508
Income tax benefit (expense) 776 (491) 3,060 (528)
------------- ----------- ------------- -------------
Net realized (loss) gain on investments (1,444) 887 (5,684) 980
------------- ----------- ------------- -------------
Net income $5,211 $9,891 $7,960 $17,899
============= =========== ============= =============
</TABLE>
See notes to financial statements.
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PAGE 4
<TABLE>
<CAPTION>
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------------- -----------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
($ Thousands)
Net income $5,211 $9,891 $7,960 $17,899
------------ ------------ --------- -----------
Other comprehensive income (loss)
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during period 2,221 (37,520) (13,534) (53,646)
Income tax (expense) benefit (777) 13,132 4,737 18,776
------------ ------------ --------- -----------
Net unrealized holding gains (losses) arising during period 1,444 (24,388) (8,797) (34,870)
Reclassification adjustment for (gains) losses included in
net income (741) (1,183) 2,099 (1,185)
Income tax expense (benefit) 259 413 (735) 414
------------ ------------ --------- -----------
Net reclassification adjustment for (gains) losses included
in net income (482) (770) 1,364 (771)
------------ ------------ --------- -----------
Net other comprehensive income (loss) 962 (25,158) (7,433) (35,641)
------------ ------------ --------- -----------
Total comprehensive income (loss) $6,173 ($15,267) $527 ($17,742)
============ ============ ========= ===========
</TABLE>
See notes to financial statements.
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PAGE 5
<TABLE>
<CAPTION>
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
STATEMENT OF CASH FLOWS (Unaudited)
For the Six Months Ended
----------------------------------------
June 30, 2000 June 30, 1999
-------------------- ----------------
<S> <C> <C>
($ Thousands)
Cash Flows from Operating Activities:
Net Income $7,960 $17,899
Adjustments to reconcile net income to net cash provided by operating
activities:
Net provision for certificate reserves 72,427 68,232
Interest income added to certificate loans (487) (521)
Amortization of premiums/discounts - net 19,008 14,496
Provision for deferred federal income taxes (2,292) 281
Net realized loss (gain) on investments before income taxes 8,744 (1,508)
(Increase) decrease in dividends and interest receivable (195) 3,460
Decrease in deferred distribution fees 1,638 1,982
Decrease in other assets - 1,083
Decrease in other liabilities (4,211) (23,585)
---------------- ----------------
Net cash provided by operating activities 102,592 81,819
---------------- ----------------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 48,745 107,591
Available-for-sale securities 212,013 253,104
Other investments 39,054 32,851
Sale of investments:
Available-for-sale securities 52,320 37,031
Certificate loan payments 1,735 2,270
Purchase of investments:
Held-to-maturity securities (161) (1,856)
Available-for-sale securities (338,521) (311,580)
Other investments (24,207) (76,737)
Certificate loan fundings (1,427) (2,012)
---------------- ----------------
Net cash (used in) provided by investing activities ($10,449) $40,662
---------------- ----------------
</TABLE>
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<TABLE>
<CAPTION>
AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
For the Six Months Ended
-----------------------------------------
June 30, 2000 June 30, 1999
----------------- -----------------
<S> <C> <C>
($ Thousands)
Cash Flows from Financing Activities:
Payments from certificate owners $971,543 $706,376
Proceeds from reverse repurchase agreements - 98,500
Certificate maturities and cash surrenders (915,510) (649,212)
Payments under reverse repurchase agreements (25,000) (239,500)
Dividends paid (5,000) (25,000)
-------------------- --------------------
Net cash provided by (used in) financing activities 26,033 (108,836)
-------------------- --------------------
Net Increase In Cash and Cash Equivalents 118,176 13,645
Cash and Cash Equivalents Beginning of Period 47,086 -
-------------------- --------------------
Cash and Cash Equivalents End of Period $165,262 $13,645
==================== ====================
Supplemental Disclosures:
Cash paid for income taxes $3,546 $10,518
Certificate maturities and surrenders through loan
reductions $2,088 $2,113
</TABLE>
See notes to financial statements.
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AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
1. The name of the company changed on April 26, 2000, from IDS Certificate
Company to American Express Certificate Company.
The information furnished reflects all adjustments (none of which were other
than of a normal recurring nature) which are, in the opinion of management,
necessary to a fair statement of the results for these interim periods
presented. Certain amounts from the prior year have been reclassified to conform
to the current year presentation.
2. The following is a summary of investments in unaffiliated issuers:
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Held-to-maturity securities $416,289 $464,648
Available-for-sale securities 2,756,730 2,620,747
First mortgage loans on real estate 365,729 378,047
Certificate loans - secured by certificate reserves 26,986 28,895
----------------- -----------------
Total $3,565,734 $3,492,337
================= =================
</TABLE>
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AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Results of operations:
As of June 30, 2000, total assets and certificate reserves increased $163
million and $131 million respectively, from December 31, 1999. The increase in
total assets resulted primarily from certificate payments exceeding certificate
maturities and surrenders by $56 million and purchases of investment securities
of $82 million late in the second quarter of 2000 that will settle in July 2000.
The increase in certificate reserves resulted primarily from interest accruals
of $72 million and the excess of certificate payments over certificate
maturities and surrenders.
Sales of face-amount certificates totaled $432 million and $435 million during
the first and second quarters of 2000, respectively, compared to $279 million
and $387 million during the comparable periods in 1999, respectively.
Certificate maturities and surrenders totaled $427 million and $491 million
during the first and second quarters of 2000, respectively, compared to $333
million and $318 million during the comparable periods in 1999, respectively.
Investment income increased 3.2% during the first six months of 2000 from the
prior year's period primarily reflecting higher investment yields.
Investment expenses increased 12% during the first six months of 2000 from the
prior year's period. The increase reflects higher amortization of premiums paid
for index options of $5.6 million and higher distribution fees of $.5 million.
These increases were partially offset by lower interest expense on reverse
repurchase and interest rate swap agreements of $.5 million and $1.1 million,
respectively.
Net provision for certificate reserves increased 6.2% during the first six
months of 2000 from the prior year's period reflecting a higher average balance
of certificate reserves and higher accrual rates.
During the first six months of 2000, Registrant realized net losses on
investments of $8.7 million compared to net realized gains of $1.5 million
during the prior year's period. Due to credit concerns, Registrant sold, during
the first six months of 2000, available- for-sale securities with a carrying
value of $55 million and realized a net loss of $2.2 million from the sales. In
addition, during the same period of 2000, a write-down of $6.5 million was
recorded on Registrant's below-investment-grade securities and the reserve for
possible losses on first mortgage loans was increased by $0.4 million. The
losses on investments were partially offset by gains realized on investment
security calls of $.4 million.
At June 30, 2000, approximately 8.6% of Registrant's invested assets were below-
investment-grade bonds, compared to 9.4% at December 31, 1999. In recent months,
the industry-wide default rate on below-investment-grade bonds has increased
significantly and this trend is expected to continue over the next several
months and possibly beyond.* Additional writedowns of Registrant's
below-investment-grade securities throughout the remainder of 2000 are likely
but the amount of any such writedowns cannot be estimated at this time.*
Registrant's management believes that there will be no adverse impact on the
certificate owners of any such losses.*
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Net certificate reserve financing activities provided cash of $56 million during
the first six months of 2000 compared to cash provided of $57 million during the
prior year's period.
*Statements in this discussion of Registrant's results of operations marked with
an asterisk are forward-looking statements which are subject to risks and
uncertainties. Important factors that could cause results to differ materially
from these forward-looking statements include, among other things, changes in
the industry-wide and Registrant's default rate on below-investment-grade bonds
over the next several months and beyond, changes in economic conditions, such as
a recession or a substantial increase in prevailing interest rates, or other
factors that could cause a slowdown in the economy, and changes in government
regulation that affects the ability of issuers to repay their debt.
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AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(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 AMERICAN EXPRESS CERTIFICATE COMPANY
(formerly IDS Certificate Company)
BY /s/ Paula R. Meyer
NAME AND TITLE Paula R. Meyer, President and
Director (Principal Executive Officer)
DATE August 11, 2000
BY /s/ Philip C. Wentzel
NAME AND TITLE Philip C. Wentzel, Vice President and
Controller (Principal Accounting Officer)
DATE August 11, 2000
