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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, 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
_________________________________________________________
(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 April 30, 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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.
IDS CERTIFICATE COMPANY
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
(Unaudited)
------------------ ------------------
<S> <C> <C>
($ Thousands)
Qualified Assets:
Cash and cash equivalents $81,054 $47,086
Investments in unaffiliated issuers (note 1) 3,516,098 3,492,337
Receivables 41,908 42,537
Investments in and advances to affiliates 422 422
Other 127,674 123,845
------------------ ------------------
Total qualified assets 3,767,156 3,706,227
------------------ ------------------
Other assets:
Deferred federal income taxes 50,085 42,590
Other 11,393 12,251
------------------ ------------------
Total other assets 61,478 54,841
------------------ ------------------
Total assets $3,828,634 $3,761,068
================== ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Certificate reserves $3,607,248 $3,536,659
Accounts payable and accrued liabilities 90,330 82,707
------------------ ------------------
Total liabilities 3,697,578 3,619,366
------------------ ------------------
Stockholder's equity:
Common stock 1,500 1,500
Additional paid-in-capital 143,844 143,844
Retained earnings 59,848 62,099
Accumulated other comprehensive loss (74,136) (65,741)
------------------ ------------------
Total stockholder's equity 131,056 141,702
------------------ ------------------
Total liabilities and
stockholder's equity $3,828,634 $3,761,068
================== ==================
</TABLE>
See note to financial statements.
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<TABLE>
<CAPTION>
IDS CERTIFICATE COMPANY
STATEMENT OF OPERATIONS (Unaudited)
For the Three Months Ended
----------------------------------------
Mar. 31, 2000 Mar. 31, 1999
------------------ ------------------
($ Thousands)
<S> <C> <C>
Investment income $63,906 $62,195
Investment expenses 21,037 19,397
------------------ ------------------
Net investment income before provision for
certificate reserves and income tax (expense) 42,869 42,798
Net provision for certificate reserves 35,517 34,137
------------------ ------------------
Net investment income before income tax (expense) 7,352 8,661
Income tax (expense) (363) (746)
------------------ ------------------
Net investment income 6,989 7,915
------------------ ------------------
Realized (loss) gain on investments - net (6,524) 130
Income tax benefit (expense) 2,284 (37)
------------------ ------------------
Net realized (loss) gain on investments (4,240) 93
------------------ ------------------
Net income $2,749 $8,008
================== ==================
See note to financial statements.
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IDS CERTIFICATE COMPANY
STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the Three Months Ended
----------------------------------------
Mar. 31, 2000 Mar. 31, 1999
------------------ ------------------
($ Thousands)
Net income $2,749 $8,008
------------------ ------------------
Other comprehensive loss
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during period (15,755) (16,126)
Income tax (benefit) (5,514) (5,644)
------------------ ------------------
Net unrealized holding losses arising during period (10,241) (10,482)
Reclassification adjustment for losses (gains) included in
net income 2,840 (2)
Income tax (benefit) expense (994) 1
------------------ ------------------
Net reclassification adjustment for losses (gains) included
in net income 1,846 (1)
------------------ ------------------
Net other comprehensive loss (8,395) (10,483)
------------------ ------------------
Total comprehensive loss ($5,646) ($2,475)
================== ==================
See note to financial statements.
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IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Unaudited)
For the Three Months Ended
----------------------------------------
Mar. 31, 2000 Mar. 31, 1999
------------------ ------------------
($ Thousands)
Cash Flows from Operating Activities:
Net Income $2,749 $8,008
Adjustments to reconcile net income to net
cash provided by operating activities:
Net provision for certificate reserves 35,517 34,137
Interest income added to certificate loans (239) (255)
Amortization of premiums/discounts - net 9,165 7,023
Provision for deferred federal income taxes (2,975) 682
Net realized loss (gain) on investments before income taxes 6,524 (130)
Decrease in dividends and interest receivable 804 6,543
Decrease in deferred distribution fees 858 1,080
Decrease in other assets - 1,082
Decrease in other liabilities (3,198) (16,048)
------------------ ------------------
Net cash provided by operating activities 49,205 42,122
------------------ ------------------
Cash Flows from Investing Activities:
Maturity and redemption of investments:
Held-to-maturity securities 10,946 94,312
Available-for-sale securities 82,830 164,180
Other investments 21,338 13,975
Sale of investments:
Available-for-sale securities 28,028 -
Certificate loan payments 865 1,142
Purchase of investments:
Held-to-maturity securities (161) (1,856)
Available-for-sale securities (136,440) (24,958)
Other investments (12,076) (51,311)
Certificate loan fundings (816) (888)
------------------ ------------------
Net cash (used in) provided by investing activities ($5,486) $194,596
------------------ ------------------
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IDS CERTIFICATE COMPANY
STATEMENT OF CASH FLOWS (Continued) (Unaudited)
For the Three Months Ended
----------------------------------------
Mar. 31, 2000 Mar. 31, 1999
------------------ ------------------
($ Thousands)
Cash Flows from Financing Activities:
Payments from certificate owners $446,262 $299,264
Proceeds from reverse repurchase agreements - 98,500
Certificate maturities and cash surrenders (426,013) (332,164)
Payments under reverse repurchase agreements (25,000) (239,500)
Dividend paid (5,000) (13,000)
------------------ ------------------
Net cash used in financing activities (9,751) (186,900)
------------------ ------------------
Net Increase In Cash and Cash Equivalents 33,968 49,818
Cash and Cash Equivalents Beginning of Period 47,086 -
------------------ ------------------
Cash and Cash Equivalents End of Period $81,054 $49,818
================== ==================
Supplemental Disclosures:
Cash paid for income taxes $4,136 $7,623
Certificate maturities and surrenders through loan
reductions $1,066 $925
See note to financial statements.
IDS CERTIFICATE COMPANY
NOTE TO FINANCIAL STATEMENTS (Unaudited)
($ in Thousands)
1. The following is a summary of investments in unaffiliated issuers:
Mar. 31, Dec. 31,
2000 1999
------------------ ------------------
Held-to-maturity securities $453,813 $464,648
Available-for-sale securities 2,665,266 2,620,747
First mortgage loans on real estate 369,000 378,047
Certificate loans - secured by certificate reserves 28,019 28,895
------------------ ------------------
Total $3,516,098 $3,492,337
================== ==================
</TABLE>
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IDS CERTIFICATE COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Results of operations:
As of March 31, 2000, total assets and certificate reserves increased $68
million and $71 million respectively, from December 31, 1999. The increase in
total assets resulted primarily from certificate payments exceeding certificate
maturities and surrenders by $20 million and purchases of investment securities
of $39 million during the first quarter of 2000 that will settle in April 2000.
The increase in certificate reserves resulted primarily from interest accruals
of $51 million and the excess of certificate payments over certificate
maturities and surrenders.
Sales of face-amount certificates totaled $432 million during the first quarter
of 2000 compared to $279 million during the prior year's period. Certificate
maturities and surrenders totaled $427 million during the first quarter of 2000
compared to $333 million during the prior year's period.
Investment income increased 2.8% during the first three months of 2000 from the
prior year's period primarily reflecting higher investment yields.
Investment expenses increased 8.5% during the first three months of 2000 from
the prior year's period. The increase reflects higher amortization of premiums
paid for index options of $2.6 million and higher distribution fees of $.7
million. These increases were partially offset by lower interest expense on
reverse repurchase and interest rate swap agreements of $.5 million and $1.2
million, respectively.
Net provision for certificate reserves increased 4.0% during the first three
months of 2000 from the prior year's period reflecting a higher average balance
of certificate reserves.
During the first three months of 2000, Registrant realized net losses on
investments of $6.5 million compared to net realized gains of $0.1 million
during the prior year's period. Due to credit concerns, Registrant sold, during
the first three months of 2000, available- for-sale securities with a carrying
value of $31 million and realized a net loss of $2.8 million from the sales. In
addition, during the same period of 2000, a write-down of $3.2 million was
recorded on Registrant's below-investment-grade securities and the reserve for
possible losses on first mortgage loans was increased by $0.5 million.
At March 31, 2000, approximately 9.1% 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 investment security losses
throughout the remainder of 2000 are likely but the amount of any such losses is
dependent on a number of factors and 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 $20 million during
the first three months of 2000 compared to cash used of $33 million during the
prior year's period. The change resulted from the net of higher certificate
payments received of $147 million and higher maturities and surrenders of $94
million during the first three months of 2000 compared to 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 ability of issuers of investment securities held by Registrant to meet their
debt obligations.
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AMERICAN EXPRESS 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
NAME AND TITLE Paula R. Meyer, President and
Director (Principal Executive Officer)
DATE May 12, 2000
BY
NAME AND TITLE Philip C. Wentzel, Vice President and
Controller (Principal Accounting Officer)
DATE May 12, 2000
Note: On January 28, 2000, Registrant's Board of Directors approved the name
change of IDS Certificate Company to American Express Certificate Company
effective April 26, 2000.
