-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITpShgBInMIMyReAsV4qCZtHHULjdwOHXCqrJBUFDlsoMzZOrcbSrsJCTyepMkF5 oSu74XDUqsARqEauT9RO/g== 0000820027-02-000545.txt : 20020814 0000820027-02-000545.hdr.sgml : 20020814 20020814174657 ACCESSION NUMBER: 0000820027-02-000545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CERTIFICATE CO CENTRAL INDEX KEY: 0000052428 IRS NUMBER: 416009975 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 811-00002 FILM NUMBER: 02737323 BUSINESS ADDRESS: STREET 1: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6123723131 MAIL ADDRESS: STREET 1: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS SYNDICATE OF AMERICA INC DATE OF NAME CHANGE: 19860303 FORMER COMPANY: FORMER CONFORMED NAME: IDS CERTIFICATE CO /MN/ DATE OF NAME CHANGE: 19920703 10-Q 1 certs.txt AMERICAN EXPRESS CERTIFICATE COMPANY 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, 2002 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.) 200 AXP Financial Center, Minneapolis, Minnesota 55474 - ------------------------------------------------- -------- (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, 2002 150,000 Common shares American Express Certificate Company ("the Company") is a wholly owned subsidiary of American Express Financial Corporation (Parent), which is a wholly owned subsidiary of American Express Company, and the Company 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. FORM 10-Q AMERICAN EXPRESS CERTIFICATE COMPANY PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 for a fair statement of the results for these interim periods presented. Certain prior year's amounts have been reclassified to conform to the current year's presentation.
AMERICAN EXPRESS CERTIFICATE COMPANY BALANCE SHEET ASSETS June 30, Dec 31, 2002 2001 (unaudited) (in thousands) Qualified Assets: Cash and cash equivalents $ 310,170 $ 72,817 Investments in unaffiliated issuers (note 1) 4,518,110 4,439,142 Receivables 59,304 59,798 Other 14,727 48,815 ------ ------ Total qualified assets 4,902,311 4,620,572 --------- --------- Other assets Due from Parent for federal income taxes 36,977 - Other 6,688 7,781 ----- ----- Total other assets 43,665 7,781 ------ ----- Total assets $4,945,976 $4,628,353 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Certificate reserves $4,255,735 $4,159,926 Accounts payable and accrued liabilities 381,910 205,422 ------- ------- Total liabilities 4,637,645 4,365,348 --------- --------- Stockholder's equity: Common stock 1,500 1,500 Additional paid-in-capital 383,844 383,844 Retained earnings (120,794) (145,455) Accumulated other comprehensive income 43,781 23,116 ------ ------ Total stockholder's equity 308,331 263,005 ------- ------- Total liabilities and stockholder's equity $4,945,976 $4,628,353 ========== ==========
See notes to financial statements.
AMERICAN EXPRESS CERTIFICATE COMPANY STATEMENT OF OPERATIONS For the Three Months Ended For the Six Months Ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 (unaudited) (in thousands) Investment income $66,383 $ 56,123 $133,717 $125,086 Investment expenses 33,573 20,669 57,404 45,175 ------ ------ ------ ------ Net investment income before provision for certificate reserves and income tax (expense) benefit 32,810 35,454 76,313 79,911 Provision for certificate reserves 12,990 44,747 39,906 86,550 ------ ------ ------ ------ Net investment income (loss) before income tax (expense) benefit 19,820 (9,293) 36,407 (6,639) Income tax (expense) benefit (6,330) 4,494 (11,383) 5,260 ------ ----- ------- ----- Net investment income (loss) 13,490 (4,799) 25,024 (1,379) ------ ------ ------ ------ Realized loss on investments - net (1) (81,343) (558) (91,870) Income tax benefit - 28,470 195 32,155 ------ ------ --- ------ Net realized loss on investments (1) (52,873) (363) (59,715) ------ ------ --- ------ Net income (loss) before cumulative effect of accounting change 13,489 (57,672) 24,661 (61,094) ------ ------- ------ ------- Cumulative effect of accounting change (net of income tax benefit of $214) - - - (397) ------ ------ --- ------ Net income (loss) $13,489 $(57,672) $ 24,661 $(61,491) ======= ======== ======== ========
See notes to financial statements.
AMERICAN EXPRESS CERTIFICATE COMPANY STATEMENT OF COMPREHENSIVE INCOME For the Three Months Ended For the Six Months Ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 (unaudited) (in thousands) Net income (loss) $ 13,489 $(57,672) $24,661 $(61,491) -------- -------- ------- -------- Other comprehensive income Cumulative effect of accounting change, net of tax - - - (2,188) Unrealized gains on available-for-sale securities: Unrealized holding gains arising during period 58,340 23,802 27,189 69,980 Income tax expense (20,419) (8,331) (9,516) (24,493) ------- ------ ------ ------- Net unrealized holding gains arising during period 37,921 15,471 17,673 45,487 Reclassification adjustment for (gains) losses included in net income (loss) (368) 15,954 (398) 24,583 Income tax expense (benefit) 128 (5,584) 139 (8,604) --- ------ --- ------ Net reclassification adjustment for (gains) losses included in net income (loss) (240) 10,370 (259) 15,979 ---- ------ ---- ------ Net unrealized gains on available-for-sale securities 37,681 25,841 17,414 61,466 ------ ------ ------ ------ Unrealized losses on interest rate swaps: Unrealized losses arising during the period (1,264) (387) (1,326) (3,687) Income tax benefit 442 135 464 1,290 --- --- --- ----- Net unrealized holding losses arising during period (822) (252) (862) (2,397) Reclassification adjustment for losses included in net income 2,756 - 6,327 - Income tax benefit (964) - (2,215) - ---- ---- ------ ------ Net reclassification adjustment for losses included in net income 1,792 - 4,112 - ------ ---- ------ ------ Net unrealized gains (losses) on interest rate swaps 970 (252) 3,250 (2,397) Net other comprehensive income 38,651 25,589 20,664 56,881 ------ ------ ------ ------ Total comprehensive income (loss) $ 52,140 $(32,083) $45,325 $ (4,610) ======== ======== ======= ========
See notes to financial statements.
AMERICAN EXPRESS CERTIFICATE COMPANY STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2002 June 30, 2001 (unaudited) (in thousands) Cash Flows from Operating Activities: Net income (loss) $ 24,661 $ (61,491) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change, net of tax - 397 Net provision for certificate reserves 39,906 86,550 Interest income added to certificate loans (369) (430) Amortization of premiums/discounts - net (1,771) 383 Provision for deferred federal income taxes 6,648 (20,201) Corporate bond interest adjustment - 12,266 Losses on index options 29,485 19,075 Net realized loss on investments before income taxes 558 91,870 (Increase) decrease in dividends and interest receivable (172) 1,816 (Increase) decrease in other assets (35,885) 8,261 (Decrease) increase in other liabilities (3,129) 5,727 ------ ----- Net cash provided by operating activities 59,932 144,223 ------ ------- Cash Flows from Investing Activities: Maturity and redemption of investments: Available-for-sale securities 505,680 232,151 Other investments 27,600 20,608 Sale of investments: Available-for-sale securities 434,035 658,181 Certificate loan payments 1,565 1,652 Purchase of investments: Available-for-sale securities (818,107) (1,204,194) Other investments (34,913) (22,922) Certificate loan fundings (912) (1,399) ---- ------ Net cash provided by (used in) investing activities $ 114,948 $ (315,923) --------- -----------
AMERICAN EXPRESS CERTIFICATE COMPANY STATEMENT OF CASH FLOWS (Continued) For the Six Months Ended June 30, 2002 June 30, 2001 (unaudited) (in thousands) Cash Flows from Financing Activities: Payments from certificate owners $ 951,423 $ 953,723 Proceeds from reverse repurchase agreements - 500 Capital contribution from Parent - 10,000 Certificate maturities and cash surrenders (888,950) (797,708) Payments under reverse repurchase agreements - (500) ------ ------- Net cash provided by financing activities 62,473 166,015 ------ ------- Net Increase (Decrease) In Cash and Cash Equivalents 237,353 (5,685) Cash and Cash Equivalents Beginning of Period 72,817 58,711 ------ ------ Cash and Cash Equivalents End of Period $ 310,170 $ 53,026 ========= ========= Supplemental Disclosures: Cash (paid) received for income taxes $ (43,212) $ 34,797 Certificate maturities and surrenders through loan reductions $ 1,610 $ 2,350
See notes to financial statements. AMERICAN EXPRESS CERTIFICATE COMPANY NOTES TO FINANCIAL STATEMENTS (unaudited) (in thousands) 1. The following is a summary of investments in unaffiliated issuers: June 30, Dec. 31, 2002 2001 Available-for-sale securities $4,054,790 $4,073,901 First mortgage loans on real estate and other loans 443,406 343,434 Certificate loans - secured by certificate reserves 19,914 21,807 ------ ------ Total $4,518,110 $4,439,142 ========== ========== 2. Accounting developments Effective January 1, 2001, AECC adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133), which establishes the accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative are recorded in earnings or directly to equity, depending on the instrument's designated use. Those derivative instruments that are designated and qualify as hedging instruments are further classified as either a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation, based upon the exposure being hedged. The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative after-tax reduction of $397 and $2,188 to earnings and other comprehensive income (OCI), respectively. AMERICAN EXPRESS CERTIFICATE COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS Results of operations: As of June 30, 2002, total assets increased $318 million and certificate reserves increased $96 million, from December 31, 2001. The increase in total assets resulted from investment security purchases exceeding sales and maturities by $57 million, an increase in net unrealized appreciation on available-for-sale securities of $27 million, a net increase in cash of $237 million to fund normal operating obligations, and an increase in tax related assets of $37 million, partially offset by a decrease in the value of index call options. The increase in certificate reserves resulted from interest accruals of $40 million and from certificate payments exceeding certificate maturities and surrenders. Sales of face-amount certificates totaled $364 million and $547 million during the first and second quarter of 2002, respectively, compared to $432 million and $497 million during the prior year's periods. Certificate maturities and surrenders totaled $394 million and $495 million during the first and second quarter of 2002, respectively compared to $407 million and $393 million during the prior year's periods. Investment income increased $8.6 million or 6.9% during the first six months of 2002 from the prior year's period due primarily to a $12.3 million adjustment to interest income on investments in certain structured securities in 2001. Otherwise investment income decreased from prior year due to lower investment yields, primarily reflecting the Company's decision in 2001 to lower the Company's risk profile, and from lower interest rates. Investment expenses increased 27.1% during the first six months of 2002 from the prior year's period. The increase primarily reflects higher index call option expenses. Net provision for certificate reserves decreased 53.9% from the prior years' period reflecting declining interest rates, partially offset by a higher average balance of certificate reserves. During the first six months of 2002, the Company experienced net losses on investments of $.6 million compared to net losses of $91.9 million during the prior year's period. The write-downs of the investments in the first six months of 2001 were associated with management's decision to reduce the Company's holdings of high-yield investments and rebalance the fixed maturity investment portfolio towards higher quality, less volatile holdings. At June 30, 2002, approximately 1.2% of the Company's invested assets were below-investment-grade bonds, compared to 1.7% at December 31, 2001. Net certificate reserve financing activities resulted in cash provided of $62 million during the first six months of 2002 compared to cash provided of $156 million during the prior year's period. The change primarily resulted from the net of higher certificate maturities and surrenders of $92 million and lower certificate payments received of $2 million during the first six months of 2002 compared to the prior year's period. Forward-Looking Statements Certain statements in the management's discussion and analysis of consolidated financial condition and results of operations section of this Form 10-Q contain forward-looking statements which are subject to risks and uncertainties that could cause results to differ materially from such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. Important factors that could cause actual results to differ materially from the Company's forward-looking statements include, among other things, fluctuations in the equity and interest rate environment and changes in the ability of issuers of investment securities held by the Company to meet their debt obligations, which could result in further losses in the Company's investment portfolio. AMERICAN EXPRESS CERTIFICATE COMPANY PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) No reports on Form 8-K have been filed during the quarter for which this report is filed. Item 7. Exhibits 99.1 and 99.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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 BY /s/ Paula R. Meyer ------------------- NAME AND TITLE Paula R. Meyer, President and Director (Principal Executive Officer) DATE August 14, 2002 BY /s/ Philip C. Wentzel --------------------- NAME AND TITLE Philip C. Wentzel, Vice President and Controller (Principal Accounting Officer) DATE August 14, 2002 EX-99.1 CERTIFY 3 ex99-1.txt CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of American Express Certificate Company (the "Company") for the quarterly period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Paula Meyer, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Paula Meyer -------------------------- Name: Paula Meyer Title: Chief Executive Officer Date: August 14, 2002 EX-99.2 CERTIFY 4 ex99-2.txt CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of American Express Certificate Company (the "Company") for the quarterly period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Philip Wentzel, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Philip Wentzel ------------------------- Name: Philip Wentzel Title: Chief Financial Officer Date: August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----