Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2011

 

OR

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                              to                             

 

Commission File No. 1-32525

 

AMERIPRISE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3180631

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1099 Ameriprise Financial Center, Minneapolis, Minnesota

 

55474

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (612) 671-3131

 

Former name, former address and former fiscal year, if changed since last report:  Not Applicable

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at October 21, 2011

Common Stock (par value $.01 per share)

 

226,255,030 shares

 

 

 



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

FORM 10-Q

 

INDEX

 

 

 

 

 

 

 

Part I.

Financial Information:

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Statements of Operations – Three months and nine months ended September 30, 2011 and 2010

3

 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2011 and December 31, 2010

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Nine months ended September 30, 2011 and 2010

5

 

 

 

 

 

 

Consolidated Statements of Equity – Nine months ended September 30, 2011 and 2010

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

90

 

 

 

 

 

Item 4.

Controls and Procedures

90

 

 

 

 

Part II.

Other Information:

 

 

 

 

 

Item 1.

Legal Proceedings

91

 

 

 

 

 

Item 1A.

Risk Factors

91

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

91

 

 

 

 

 

Item 6.

Exhibits

91

 

 

 

 

 

Signatures

92

 

 

 

 

Exhibit Index

E-1

 

2



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

1,127

 

$

996

 

$

3,436

 

$

2,638

 

Distribution fees

 

389

 

349

 

1,202

 

1,062

 

Net investment income

 

445

 

525

 

1,458

 

1,769

 

Premiums

 

311

 

303

 

915

 

884

 

Other revenues

 

195

 

176

 

635

 

657

 

Total revenues

 

2,467

 

2,349

 

7,646

 

7,010

 

Banking and deposit interest expense

 

12

 

15

 

36

 

56

 

Total net revenues

 

2,455

 

2,334

 

7,610

 

6,954

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

624

 

519

 

1,886

 

1,483

 

Interest credited to fixed accounts

 

213

 

227

 

632

 

686

 

Benefits, claims, losses and settlement expenses

 

257

 

636

 

1,045

 

1,285

 

Amortization of deferred acquisition costs

 

318

 

(246

)

572

 

43

 

Interest and debt expense

 

71

 

74

 

221

 

212

 

General and administrative expense

 

725

 

678

 

2,221

 

1,979

 

Total expenses

 

2,208

 

1,888

 

6,577

 

5,688

 

Income from continuing operations before income tax provision

 

247

 

446

 

1,033

 

1,266

 

Income tax provision

 

81

 

132

 

288

 

262

 

Income from continuing operations

 

166

 

314

 

745

 

1,004

 

Income (loss) from discontinued operations, net of tax

 

2

 

(2

)

(73

)

2

 

Net income

 

168

 

312

 

672

 

1,006

 

Less: Net income (loss) attributable to noncontrolling interests

 

(105

)

(32

)

(151

)

189

 

Net income attributable to Ameriprise Financial

 

$

273

 

$

344

 

$

823

 

$

817

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Ameriprise Financial, Inc. common shareholders

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.14

 

$

1.36

 

$

3.66

 

$

3.14

 

Income (loss) from discontinued operations

 

0.01

 

(0.01

)

(0.30

)

0.01

 

Net income

 

$

1.15

 

$

1.35

 

$

3.36

 

$

3.15

 

Diluted

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.12

 

$

1.33

 

$

3.58

 

$

3.09

 

Income (loss) from discontinued operations

 

0.01

 

(0.01

)

(0.29

)

0.01

 

Net income

 

$

1.13

 

$

1.32

 

$

3.29

 

$

3.10

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.23

 

$

0.18

 

$

0.64

 

$

0.53

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income before impairment losses on securities

 

$

450

 

$

527

 

$

1,481

 

$

1,802

 

Total other-than-temporary impairment losses on securities

 

(13

)

(2

)

(56

)

(34

)

Portion of loss recognized in other comprehensive income

 

8

 

 

33

 

1

 

Net impairment losses recognized in net investment income

 

(5

)

(2

)

(23

)

(33

)

Net investment income

 

$

445

 

$

525

 

$

1,458

 

$

1,769

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

2,664

 

$

2,838

 

Investments

 

38,590

 

37,053

 

Separate account assets

 

63,237

 

68,330

 

Receivables

 

5,313

 

4,849

 

Deferred acquisition costs

 

4,324

 

4,619

 

Restricted and segregated cash

 

1,378

 

1,516

 

Other assets

 

7,898

 

4,965

 

Assets held for sale

 

165

 

173

 

Total assets before consolidated investment entities

 

123,569

 

124,343

 

 

 

 

 

 

 

Consolidated Investment Entities:

 

 

 

 

 

Cash

 

429

 

472

 

Investments, at fair value

 

5,160

 

5,444

 

Receivables (includes $24 and $33, respectively, at fair value)

 

51

 

60

 

Other assets, at fair value

 

1,171

 

895

 

Total assets of consolidated investment entities

 

6,811

 

6,871

 

Total assets

 

$

130,380

 

$

131,214

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Future policy benefits and claims

 

$

31,644

 

$

30,208

 

Separate account liabilities

 

63,237

 

68,330

 

Customer deposits

 

9,624

 

8,779

 

Short-term borrowings

 

504

 

397

 

Long-term debt

 

2,404

 

2,317

 

Accounts payable and accrued expenses

 

1,005

 

1,112

 

Other liabilities

 

5,199

 

2,983

 

Liabilities held for sale

 

60

 

79

 

Total liabilities before consolidated investment entities

 

113,677

 

114,205

 

 

 

 

 

 

 

Consolidated Investment Entities:

 

 

 

 

 

Debt (includes $5,035 and $5,171, respectively, at fair value)

 

5,529

 

5,535

 

Accounts payable and accrued expenses

 

25

 

22

 

Other liabilities (includes $146 and $154, respectively, at fair value)

 

162

 

167

 

Total liabilities of consolidated investment entities

 

5,716

 

5,724

 

Total liabilities

 

119,393

 

119,929

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Ameriprise Financial, Inc.:

 

 

 

 

 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 303,236,585 and 301,366,044, respectively)

 

3

 

3

 

Additional paid-in capital

 

6,182

 

6,029

 

Retained earnings

 

6,842

 

6,190

 

Appropriated retained earnings of consolidated investment entities

 

380

 

558

 

Treasury shares, at cost (76,051,809 and 54,668,152 shares, respectively)

 

(3,772

)

(2,620

)

Accumulated other comprehensive income, net of tax

 

636

 

565

 

Total Ameriprise Financial, Inc. shareholders’ equity

 

10,271

 

10,725

 

Noncontrolling interests

 

716

 

560

 

Total equity

 

10,987

 

11,285

 

Total liabilities and equity

 

$

130,380

 

$

131,214

 

 

See Notes to Consolidated Financial Statements.

 

4


 


Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

672

 

$

1,006

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation, amortization and accretion, net

 

61

 

79

 

Deferred income tax expense

 

120

 

573

 

Share-based compensation

 

101

 

111

 

Net realized investment gains

 

(21

)

(43

)

Other-than-temporary impairments and provision for loan losses

 

29

 

42

 

Net loss (income) attributable to noncontrolling interests

 

151

 

(189

)

Changes in operating assets and liabilities before consolidated investment entities:

 

 

 

 

 

Restricted and segregated cash

 

98

 

(155

)

Change in deferred acquisition costs, net

 

205

 

(332

)

Trading securities and equity method investments, net

 

21

 

(10

)

Future policy benefits and claims, net

 

(98

)

(89

)

Receivables

 

(139

)

(226

)

Brokerage deposits

 

78

 

27

 

Accounts payable and accrued expenses

 

(111

)

106

 

Derivatives collateral, net

 

449

 

627

 

Other, net

 

33

 

71

 

Changes in operating assets and liabilities of consolidated investment entities, net

 

(198

)

225

 

Net cash provided by operating activities

 

1,451

 

1,823

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Available-for-Sale securities:

 

 

 

 

 

Proceeds from sales

 

656

 

1,265

 

Maturities, sinking fund payments and calls

 

4,107

 

4,783

 

Purchases

 

(5,469

)

(5,822

)

Proceeds from sales, maturities and repayments of commercial mortgage loans

 

185

 

154

 

Funding of commercial mortgage loans

 

(130

)

(132

)

Proceeds from sales of other investments

 

135

 

135

 

Purchase of other investments

 

(257

)

(48

)

Purchase of investments by consolidated investment entities

 

(2,542

)

(1,491

)

Proceeds from sales, maturities and repayments of investments by consolidated investment entities

 

2,696

 

1,386

 

Purchase of land, buildings, equipment and software

 

(149

)

(88

)

Acquisitions

 

 

(866

)

Change in consumer banking loans and credit card receivables, net

 

(288

)

(283

)

Other, net

 

(3

)

(15

)

Net cash used in investing activities

 

(1,059

)

(1,022

)

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

Cash Flows from Financing Activities

 

 

 

 

 

Investment certificates and banking time deposits:

 

 

 

 

 

Proceeds from additions

 

$

681

 

$

783

 

Maturities, withdrawals and cash surrenders

 

(1,013

)

(1,496

)

Change in other banking deposits

 

1,092

 

622

 

Policyholder and contractholder account values:

 

 

 

 

 

Consideration received

 

978

 

1,248

 

Net transfers to separate accounts

 

(3

)

(1,283

)

Surrenders and other benefits

 

(1,010

)

(992

)

Deferred premium options, net

 

(177

)

(111

)

Issuance of debt, net of issuance costs

 

 

744

 

Repayments of debt

 

(8

)

 

Change in short-term borrowings, net

 

107

 

869

 

Dividends paid to shareholders

 

(158

)

(138

)

Repurchase of common shares

 

(1,233

)

(389

)

Exercise of stock options

 

50

 

53

 

Excess tax benefits from share-based compensation

 

89

 

5

 

Borrowings by consolidated investment entities

 

163

 

156

 

Repayments of debt by consolidated investment entities

 

(222

)

(180

)

Noncontrolling interests investments in subsidiaries

 

148

 

68

 

Distributions to noncontrolling interests

 

(42

)

(166

)

Other, net

 

(1

)

(1

)

Net cash used in financing activities

 

(559

)

(208

)

Effect of exchange rate changes on cash

 

(1

)

(5

)

Net increase (decrease) in cash and cash equivalents (1)

 

(168

)

588

 

Cash and cash equivalents at beginning of period (1)

 

2,861

 

3,097

 

Cash and cash equivalents at end of period (1)

 

$

2,693

 

$

3,685

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Interest paid before consolidated investment entities

 

$

142

 

$

157

 

Income taxes paid, net

 

355

 

56

 

Non-cash investing activity:

 

 

 

 

 

Affordable housing partnership commitments not yet remitted

 

124

 

93

 

 


(1) Cash and cash equivalents includes cash held for sale. See Note 16 for additional information.

 

See Notes to Consolidated Financial Statements.

 

6



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in millions, except share data)

 

 

 

Ameriprise Financial, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings of

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Consolidated

 

 

 

Other Com-

 

Non-

 

 

 

 

 

Outstanding

 

Common

 

Paid-In

 

Retained

 

Investment

 

Treasury

 

prehensive

 

controlling

 

 

 

 

 

Shares

 

Shares

 

Capital

 

Earnings

 

Entities

 

Shares

 

Income

 

Interests

 

Total

 

Balances at January 1, 2010

 

255,095,491

 

$

3

 

$

5,748

 

$

5,276

 

$

 

$

(2,023

)

$

265

 

$

603

 

$

9,872

 

Change in accounting principle

 

 

 

 

 

473

 

 

 

 

473

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

817

 

 

 

 

189

 

1,006

 

Net income reclassified to appropriated retained earnings

 

 

 

 

 

117

 

 

 

(117

)

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

 

 

 

628

 

 

628

 

Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities

 

 

 

 

 

 

 

17

 

 

17

 

Change in net unrealized derivatives gains

 

 

 

 

 

 

 

1

 

 

1

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

(14

)

(23

)

(37

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,615

 

Dividends paid to shareholders

 

 

 

 

(138

)

 

 

 

 

(138

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 

68

 

68

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(166

)

(166

)

Repurchase of common shares

 

(9,971,122

)

 

 

 

 

(389

)

 

 

(389

)

Share-based compensation plans

 

3,556,371

 

 

169

 

 

 

 

 

 

169

 

Balances at September 30, 2010

 

248,680,740

 

$

3

 

$

5,917

 

$

5,955

 

$

590

 

$

(2,412

)

$

897

 

$

554

 

$

11,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2011

 

246,697,892

 

$

3

 

$

6,029

 

$

6,190

 

$

558

 

$

(2,620

)

$

565

 

$

560

 

$

11,285

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

823

 

 

 

 

(151

)

672

 

Net loss reclassified to appropriated retained earnings

 

 

 

 

 

(178

)

 

 

178

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

 

 

 

100

 

 

100

 

Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities

 

 

 

 

 

 

 

(5

)

 

(5

)

Change in net unrealized derivatives gains

 

 

 

 

 

 

 

(22

)

 

(22

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(2

)

(6

)

(8

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

737

 

Dividends paid to shareholders

 

 

 

 

(158

)

 

 

 

 

(158

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 

148

 

148

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(42

)

(42

)

Repurchase of common shares

 

(23,050,091

)

 

 

 

 

(1,233

)

 

 

(1,233

)

Share-based compensation plans

 

3,536,975

 

 

153

 

(13

)

 

81

 

 

29

 

250

 

Balances at September 30, 2011

 

227,184,776

 

$

3

 

$

6,182

 

$

6,842

 

$

380

 

$

(3,772

)

$

636

 

$

716

 

$

10,987

 

 

See Notes to Consolidated Financial Statements.

 

7



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.  Basis of Presentation

 

Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through its subsidiary, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”).

 

The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). The income or loss generated by consolidated entities which will not be realized by the Company’s shareholders is attributed to noncontrolling interests in the Consolidated Statements of Operations. Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company excluding noncontrolling interests is defined as “Ameriprise Financial.” All material intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information related to VIEs.

 

During the third quarter of 2011, the Company signed a definitive agreement to sell Securities America Financial Corporation and its subsidiaries (“Securities America”) to Ladenburg Thalmann Financial Services, Inc. for $150 million in cash and potential future payments if Securities America reaches certain financial criteria. The sale closed on November 4, 2011. The results of Securities America have been presented as discontinued operations for all periods presented and the related assets and liabilities have been classified as held for sale. See Note 16 for additional information on discontinued operations.

 

The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. Except for the adjustments described below, all adjustments made were of a normal recurring nature.

 

In the third quarter of 2011, the Company made an adjustment for additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities, which resulted in a $39 million pretax benefit, net of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) amortization ($25 million after-tax). Management has determined that the effect of this adjustment is immaterial to all current and prior periods presented. In the third quarter of 2010, the Company made adjustments for revisions to the valuations of reserves, DAC and DSIC related to insurance and living benefit guarantees which resulted in a $32 million pretax charge ($21 million after-tax). In the second quarter of 2010, the Company made an adjustment for revisions to certain calculations in its valuation of DAC and DSIC which resulted in a $33 million pretax benefit ($21 million after-tax).

 

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made to conform to the current presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2011.

 

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued.

 

2.  Recent Accounting Pronouncements

 

Adoption of New Accounting Standards

 

Receivables

 

In April 2011, the Financial Accounting Standards Board (“FASB”) updated the accounting standards for troubled debt restructurings. The new standard includes indicators that a lender should consider in determining whether a borrower is experiencing financial difficulties and provides clarification for determining whether the lender has granted a concession to the borrower. The standard sets the effective dates for troubled debt restructuring disclosures required by recent guidance on credit quality disclosures. The standard is effective for interim and annual periods beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. For purposes of measuring impairments of receivables that are considered impaired as a result of applying the new guidance, the standard should be applied prospectively for the interim or annual period beginning on or after June 15, 2011. The Company

 

8



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

adopted the standard in the third quarter of 2011. The adoption did not have any effect on the Company’s consolidated results of operations and financial condition. See Note 5 for the required disclosures.

 

Fair Value

 

In January 2010, the FASB updated the accounting standards related to disclosures on fair value measurements. The standard expands the current disclosure requirements to include additional detail about significant transfers between Levels 1 and 2 within the fair value hierarchy and presents activity in the rollforward of Level 3 activity on a gross basis. The standard also clarifies existing disclosure requirements related to the level of disaggregation to be used for assets and liabilities as well as disclosures on the inputs and valuation techniques used to measure fair value. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the Level 3 rollforward, which are effective for interim and annual periods beginning after December 15, 2010. The Company adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which the Company adopted in the first quarter of 2011. The adoption did not have any effect on the Company’s consolidated results of operations and financial condition. See Note 3 and Note 10 for the required disclosures.

 

Consolidation of Variable Interest Entities

 

In June 2009, the FASB updated the accounting standards related to the consolidation of VIEs. The standard amends the guidance on the determination of the primary beneficiary of a VIE from a quantitative model to a qualitative model and requires additional disclosures about an enterprise’s involvement in VIEs. Under the new qualitative model, the primary beneficiary must have both the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive gains that could be potentially significant to the VIE. In February 2010, the FASB amended this guidance to defer application of the consolidation requirements for certain investment funds. The standards are effective for interim and annual reporting periods beginning after November 15, 2009. The Company adopted the standards effective January 1, 2010 and as a result consolidated certain collateralized debt obligations (“CDOs”). At adoption, the Company recorded a $5.5 billion increase to assets and a $5.1 billion increase to liabilities. The difference between the fair value of the assets and liabilities of the CDOs was recorded as a cumulative effect increase of $473 million to appropriated retained earnings of consolidated investment entities. Such amounts are recorded as appropriated retained earnings as the CDO note holders, not Ameriprise Financial, ultimately will receive the benefits or absorb the losses associated with the assets and liabilities of the CDOs. Subsequent to the adoption, the net change in fair value of the assets and liabilities of the CDOs will be recorded as net income attributable to noncontrolling interests and as an adjustment to appropriated retained earnings of consolidated investment entities. See Note 3 for additional information related to the application of the amended VIE consolidation model and the required disclosures.

 

Future Adoption of New Accounting Standards

 

Comprehensive Income

 

In June 2011, the FASB updated the accounting standards related to the presentation of comprehensive income. The standard requires entities to present all nonowner changes in stockholders’ equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not affect how earnings per share is calculated or presented. The standard is effective for interim and annual periods beginning after December 15, 2011. The standard is to be applied retrospectively. The adoption of the standard will not impact the Company’s consolidated results of operations and financial condition.

 

Fair Value

 

In May 2011, the FASB updated the accounting standards related to fair value measurement and disclosure requirements. The standard requires entities, for assets and liabilities measured at fair value in the statement of financial position which are Level 3 fair value measurements, to disclose quantitative information about unobservable inputs and assumptions used in the measurements, a description of the valuation processes in place, and a qualitative discussion about the sensitivity of the measurements to changes in unobservable inputs and interrelationships between those inputs if a change in those inputs would result in a significantly different fair value measurement. In addition, the standard requires disclosure of fair value by level within the fair value hierarchy for each class of assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed. The standard is effective for interim and annual periods beginning

 

9



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

on or after December 15, 2011. The adoption of the standard is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

 

Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements

 

In April 2011, the FASB updated the accounting standards related to accounting for repurchase agreements and other similar agreements. The standard modifies the criteria for determining when these transactions would be accounted for as secured borrowings as opposed to sales. The standard is effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. The adoption of the standard is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

 

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

 

In October 2010, the FASB updated the accounting standards for DAC. Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts would be capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ salaries and benefits directly related to time spent performing specified acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and sales force contract selling) for a contract that has actually been acquired, (iii) other costs related to the specified acquisition activities that would not have been incurred had the acquisition contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other costs are to be expensed as incurred. The Company will retrospectively adopt the standard on January 1, 2012 and expects the cumulative effect of the adoption to reduce retained earnings by a range of $1.3 billion to $1.4 billion after-tax at January 1, 2012. Management expects the adoption will have a marginal impact to net income in 2012.

 

3.  Consolidated Investment Entities

 

The Company provides asset management services to various CDOs and other investment products (collectively, “investment entities”), which are sponsored by the Company for the investment of client assets in the normal course of business. Certain of these investment entities are considered to be VIEs while others are considered to be voting rights entities (“VREs”). The Company consolidates certain of these investment entities.

 

The CDOs managed by the Company are considered VIEs. These CDOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CDO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CDOs are non-recourse to the Company. The CDO’s debt holders have recourse only to the assets of the CDO. The assets of the CDOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CDO’s collateral pool. The Company generally earns management fees from the CDOs based on the par value of outstanding debt and, in certain instances, may also receive performance-based fees. In the normal course of business, the Company has invested in certain CDOs, generally an insignificant portion of the unrated, junior subordinated debt.

 

For certain of the CDOs, the Company has determined that consolidation is required as it has power over the CDOs and holds a variable interest in the CDOs for which the Company has the potential to receive significant benefits or the potential obligation to absorb significant losses. For other CDOs managed by the Company, the Company has determined that consolidation is not required as the Company does not hold a variable interest in the CDOs.

 

The Company provides investment advice and related services to private, pooled investment vehicles organized as limited partnerships, limited liability companies or foreign (non-U.S.) entities. Certain of these pooled investment vehicles are considered VIEs while others are VREs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The Company provides seed money occasionally to certain of these funds. For certain of the pooled investment vehicles, the Company has determined that consolidation is required as the Company stands to absorb a majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns. For other VIE pooled investment vehicles, the Company has determined that consolidation is not required because the Company is not expected to absorb the majority of the expected losses or receive the majority of the expected residual returns. For the pooled investment vehicles which are VREs, the Company consolidates the structure when it has a controlling financial interest.

 

The Company also provides investment advisory, distribution and other services to the Columbia and Threadneedle mutual fund families. The Company has determined that consolidation is not required for these mutual funds.

 

10



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

In addition, the Company may invest in structured investments including VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities, and residential mortgage backed securities. The Company includes these investments in Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to its relative size, position in the capital structure of these entities, and the Company’s lack of power over the structures. The Company’s maximum exposure to loss as a result of its investment in structured investments that it does not consolidate is limited to its carrying value. The Company has no obligation to provide further financial or other support to these structured investments nor has the Company provided any support to these structured investments. See Note 4 for additional information about these structured investments.

 

The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:

 

 

 

September 30, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

347

 

$

7

 

$

354

 

Common stocks

 

33

 

83

 

9

 

125

 

Other structured investments

 

 

59

 

 

59

 

Syndicated loans

 

 

4,187

 

435

 

4,622

 

Total investments

 

33

 

4,676

 

451

 

5,160

 

Receivables

 

 

24

 

 

24

 

Other assets

 

 

8

 

1,163

 

1,171

 

Total assets at fair value

 

$

33

 

$

4,708

 

$

1,614

 

$

6,355

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

 

$

 

$

5,035

 

$

5,035

 

Other liabilities

 

 

146

 

 

146

 

Total liabilities at fair value

 

$

 

$

146

 

$

5,035

 

$

5,181

 

 

 

 

December 31, 2010

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

418

 

$

6

 

$

424

 

Common stocks

 

26

 

53

 

11

 

90

 

Other structured investments

 

 

39

 

22

 

61

 

Syndicated loans

 

 

4,867

 

 

4,867

 

Trading securities

 

 

2

 

 

2

 

Total investments

 

26

 

5,379

 

39

 

5,444

 

Receivables

 

 

33

 

 

33

 

Other assets

 

 

8

 

887

 

895

 

Total assets at fair value

 

$

26

 

$

5,420

 

$

926

 

$

6,372

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

 

$

 

$

5,171

 

$

5,171

 

Other liabilities

 

 

154

 

 

154

 

Total liabilities at fair value

 

$

 

$

154

 

$

5,171

 

$

5,325

 

 

11



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:

 

 

 

Corporate

 

 

 

Other

 

 

 

 

 

 

 

 

 

Debt

 

Common

 

Structured

 

Syndicated

 

Other

 

 

 

 

 

Securities

 

Stocks

 

Investments

 

Loans

 

Assets

 

Debt

 

 

 

(in millions)

 

Balance, July 1, 2011

 

$

6

 

$

23

 

$

3

 

$

246

 

$

1,097

 

$

(5,234

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

(1

)(1)

 

(27

)(1)

 

157

(1)

Other comprehensive income

 

 

 

 

 

(32

)

 

Purchases

 

2

 

 

 

90

 

101

 

 

Sales

 

 

 

 

(2

)

(3

)

 

Issues

 

 

 

 

 

 

 

Settlements

 

(1

)

 

 

(57

)

 

42

 

Transfers into Level 3

 

 

5

 

 

250

 

 

 

Transfers out of Level 3

 

 

(18

)

(3

)

(65

)

 

 

Balance, September 30, 2011

 

$

7

 

$

9

 

$

 

$

435

 

$

1,163

 

$

(5,035

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2011

 

$

 

$

(1

)(1)

$

 

$

(26

)(1)

$

5

(2)

$

156

(1)

 


(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Included in other revenues in the Consolidated Statements of Operations.

 

 

 

Corporate

 

 

 

Other

 

 

 

 

 

 

 

Debt

 

Common

 

Structured

 

Other

 

 

 

 

 

Securities

 

Stocks

 

Investments

 

Assets

 

Debt

 

 

 

(in millions)

 

Balance, July 1, 2010

 

$

6

 

$

4

 

$

10

 

$

682

 

$

(5,048

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

2

(1)

(1

)(1)

(3

)(2)

(51

)(1)

Other comprehensive income

 

 

 

 

35

 

 

Purchases, sales, issues and settlements, net

 

 

3

 

4

 

164

 

2

 

Balance, September 30, 2010

 

$

6

 

$

9

 

$

13

 

$

878

 

$

(5,097

)

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2010

 

$

 

$

2

(1)

$

(1

)(1)

$

(7

)(2)

$

(51

)(1)

 


(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Included in other revenues in the Consolidated Statements of Operations.

 

12



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

 

 

Corporate

 

 

 

Other

 

 

 

 

 

 

 

 

 

Debt

 

Common

 

Structured

 

Syndicated

 

Other

 

 

 

 

 

Securities

 

Stocks

 

Investments

 

Loans

 

Assets

 

Debt

 

 

 

(in millions)

 

Balance, January 1, 2011

 

$

6

 

$

11

 

$

22

 

$

 

$

887

 

$

(5,171

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

4

(1)

(1

)(1)

(23

)(1)

5

(2)

(59

)(1)

Other comprehensive income

 

 

 

 

 

(7

)

 

Purchases

 

2

 

 

3

 

183

 

296

 

 

Sales

 

(1

)

 

 

(8

)

(18

)

 

Issues

 

 

 

 

 

 

(27

)

Settlements

 

(1

)

 

 

(113

)

1

 

222

 

Transfers into Level 3

 

1

 

19

 

 

507

 

7

 

 

Transfers out of Level 3

 

 

(25

)

(24

)

(111

)

(8

)

 

Balance, September 30, 2011

 

$

7

 

$

9

 

$

 

$

435

 

$

1,163

 

$

(5,035

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2011

 

$

 

$

1

(1)

$

 

$

(22

)(1)

$

17

(2)

$

(55

)(1)

 


(1)

Included in net investment income in the Consolidated Statements of Operations.

(2)

Included in other revenues in the Consolidated Statements of Operations.

 

 

 

Corporate

 

 

 

Other

 

 

 

 

 

 

 

Debt

 

Common

 

Structured

 

Other

 

 

 

 

 

Securities

 

Stocks

 

Investments

 

Assets

 

Debt

 

 

 

(in millions)

 

Balance, January 1, 2010

 

$

 

$

 

$

 

$

831

 

$

 

Cumulative effect of accounting change

 

15

 

 

5

 

 

(4,962

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

(1

)(1)

2

(1)

 

68

(2)

(157

)(1)

Other comprehensive income

 

 

 

 

(29

)

 

Purchases, sales, issues and settlements, net

 

(8

)

7

 

8

 

8

 

22

 

Balance, September 30, 2010

 

$

6

 

$

9

 

$

13

 

$

878

 

$

(5,097

)

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2010

 

$

 

$

2

(1)

$

 

$

35

(3)

$

(157

)(1)

 


(1)

Included in net investment income in the Consolidated Statements of Operations.

(2)

Represents a $69 million gain included in other revenues and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

(3)

Represents a $36 million gain included in other revenues and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

 

 

Securities transferred from Level 2 to Level 3 represent securities with fair values that are now based on a single broker quote. Securities transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a nationally-recognized pricing service with observable inputs.

 

The Company has elected the fair value option for the financial assets and liabilities of the consolidated CDOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CDOs.

 

For receivables, certain other assets and other liabilities of the consolidated CDOs, the carrying value approximates fair value as the nature of these assets and liabilities has historically been short term and the receivables have been collectible. The fair value of these assets and liabilities is classified as Level 2. Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CDOs. The fair value of syndicated loans obtained from nationally-recognized pricing services is classified as Level 2. The fair value of syndicated loans obtained from a single broker quote is classified as Level 3. Other assets consist primarily of properties held in consolidated pooled investment vehicles managed by Threadneedle. The fair value of these

 

13



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

properties is determined using discounted cash flows and market comparables. Inputs into the valuation of these properties include: rental cash flows, current occupancy, historical vacancy rates, tenant history and assumptions regarding how quickly the property can be occupied and at what rental rates. Given the significance of the unobservable inputs to these measurements, these assets are classified as Level 3. The fair value of the CDO’s debt is valued using a discounted cash flow methodology. Inputs used to determine the expected cash flows include assumptions about default and recovery rates of the CDO’s underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the CDO debt is classified as Level 3. See Note 10 for a description of the Company’s determination of the fair value of investments.

 

The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Syndicated loans

 

 

 

 

 

Unpaid principal balance

 

$

4,984

 

$

5,107

 

Excess estimated unpaid principal over fair value

 

(362

)

(240

)

Fair value

 

$

4,622

 

$

4,867

 

 

 

 

 

 

 

Fair value of loans more than 90 days past due

 

$

23

 

$

71

 

Fair value of loans in non-accrual status

 

23

 

71

 

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in non-accrual status or both

 

20

 

62

 

Debt

 

 

 

 

 

Unpaid principal balance

 

$

5,698

 

$

5,893

 

Excess estimated unpaid principal over fair value

 

(663

)

(722

)

Fair value

 

$

5,035

 

$

5,171

 

 

Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.

 

Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(120) million and $(32) million for the three months ended September 30, 2011 and 2010, respectively. Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(186) million and $96 million for the nine months ended September 30, 2011 and 2010, respectively. The majority of the syndicated loans and debt have floating rates; as such, changes in their fair values are primarily attributable to changes in credit spreads.

 

Debt of the consolidated investment entities and the stated interest rates were as follows:

 

 

 

Carrying Value

 

Weighted Average Interest Rate

 

 

 

September 30, 
2011

 

December 31, 
2010

 

September 30,
2011

 

December 31, 
2010

 

 

 

(in millions)

 

 

 

 

 

Debt of consolidated CDOs due 2012-2021

 

$

5,035

 

$

5,171

 

0.8

%

1.0

%

Floating rate revolving credit borrowings due 2014

 

406

 

329

 

5.4

 

5.6

 

Floating rate revolving credit borrowings due 2015

 

88

 

35

 

4.4

 

5.2

 

Total

 

$

5,529

 

$

5,535

 

 

 

 

 

 

The debt of the consolidated CDOs has both fixed and floating interest rates, which range from 0% to 13.3%. The interest rates on the debt of consolidated investment entities are weighted average rates based on the outstanding principal and contractual interest rates. The carrying value of the debt of the consolidated CDOs represents the fair value of the aggregate debt as of September 30, 2011 and December 31, 2010. The carrying value of the floating rate revolving credit borrowings represents the outstanding principal amount of debt of certain consolidated pooled investment vehicles managed by Threadneedle. The fair value of this debt was $494 million and $364 million as of September 30, 2011 and December 31, 2010, respectively.

 

14



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

4.  Investments

 

The following is a summary of Ameriprise Financial investments:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Available-for-Sale securities, at fair value

 

$

34,012

 

$

32,619

 

Commercial mortgage loans, net

 

2,520

 

2,577

 

Trading securities

 

567

 

565

 

Policy loans

 

741

 

733

 

Other investments

 

750

 

559

 

Total

 

$

38,590

 

$

37,053

 

 

Available-for-Sale securities distributed by type were as follows:

 

 

 

September 30, 2011

 

Description of Securities

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

Noncredit
OTTI 
(1)

 

 

 

(in millions)

 

Corporate debt securities

 

$

15,750

 

$

1,674

 

$

(81

)

$

17,343

 

$

 

Residential mortgage backed securities

 

7,436

 

311

 

(314

)

7,433

 

(125

)

Commercial mortgage backed securities

 

4,625

 

264

 

(4

)

4,885

 

 

Asset backed securities

 

2,004

 

72

 

(42

)

2,034

 

(16

)

State and municipal obligations

 

1,985

 

161

 

(63

)

2,083

 

 

U.S. government and agencies obligations

 

63

 

10

 

 

73

 

 

Foreign government bonds and obligations

 

111

 

17

 

(1

)

127

 

 

Common stocks

 

6

 

3

 

(1

)

8

 

 

Other debt obligations

 

26

 

 

 

26

 

 

Total

 

$

32,006

 

$

2,512

 

$

(506

)

$

34,012

 

$

(141

)

 

 

 

December 31, 2010

 

Description of Securities

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

Noncredit
OTTI 
(1)

 

 

 

(in millions)

 

Corporate debt securities

 

$

15,433

 

$

1,231

 

$

(58

)

$

16,606

 

$

 

Residential mortgage backed securities

 

7,213

 

368

 

(323

)

7,258

 

(117

)

Commercial mortgage backed securities

 

4,583

 

293

 

(8

)

4,868

 

 

Asset backed securities

 

1,982

 

78

 

(40

)

2,020

 

(16

)

State and municipal obligations

 

1,666

 

21

 

(105

)

1,582

 

 

U.S. government and agencies obligations

 

135

 

8

 

 

143

 

 

Foreign government bonds and obligations

 

91

 

17

 

 

108

 

 

Common stocks

 

6

 

4

 

 

10

 

 

Other debt obligations

 

24

 

 

 

24

 

 

Total

 

$

31,133

 

$

2,020

 

$

(534

)

$

32,619

 

$

(133

)

 


(1)

Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.

 

15



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

At both September 30, 2011 and December 31, 2010, fixed maturity securities comprised approximately 88% of Ameriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or, if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. At both September 30, 2011 and December 31, 2010, the Company’s internal analysts rated $1.2 billion of securities, using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:

 

 

 

September 30, 2011

 

December 31, 2010

 

Ratings

 

Amortized
Cost

 

Fair Value

 

Percent of
Total Fair
Value

 

Amortized
Cost

 

Fair Value

 

Percent of
Total Fair
Value

 

 

 

(in millions, except percentages)

 

AAA

 

$

12,047

 

$

12,646

 

37

%

$

12,142

 

$

12,809

 

39

%

AA

 

1,802

 

1,948

 

6

 

1,843

 

1,899

 

6

 

A

 

4,959

 

5,373

 

16

 

4,449

 

4,670

 

14

 

BBB

 

11,223

 

12,407

 

36

 

10,536

 

11,408

 

35

 

Below investment grade

 

1,969

 

1,630

 

5

 

2,157

 

1,823

 

6

 

Total fixed maturities

 

$

32,000

 

$

34,004

 

100

%

$

31,127

 

$

32,609

 

100

%

 

At September 30, 2011 and December 31, 2010, approximately 35% and 29%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.

 

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:

 

 

 

September 30, 2011

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Description of Securities

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

 

 

(in millions, except number of securities)

 

Corporate debt securities

 

149

 

$

1,701

 

$

(64

)

7

 

$

95

 

$

(17

)

156

 

$

1,796

 

$

(81

)

Residential mortgage backed securities

 

102

 

1,204

 

(31

)

134

 

701

 

(283

)

236

 

1,905

 

(314

)

Commercial mortgage backed securities

 

35

 

474

 

(4

)

3

 

31

 

 

38

 

505

 

(4

)

Asset backed securities

 

38

 

396

 

(11

)

30

 

146

 

(31

)

68

 

542

 

(42

)

State and municipal obligations

 

28

 

59

 

(2

)

57

 

241

 

(61

)

85

 

300

 

(63

)

Foreign government bonds and obligations

 

4

 

21

 

(1

)

 

 

 

4

 

21

 

(1

)

Common stocks

 

7

 

2

 

(1

)

 

 

 

7

 

2

 

(1

)

Total

 

363

 

$

3,857

 

$

(114

)

231

 

$

1,214

 

$

(392

)

594

 

$

5,071

 

$

(506

)

 

 

 

December 31, 2010

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Number of

 

Fair

 

Unrealized

 

Description of Securities

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

 

 

(in millions, except number of securities)

 

Corporate debt securities

 

115

 

$

1,859

 

$

(46

)

13

 

$

157

 

$

(12

)

128

 

$

2,016

 

$

(58

)

Residential mortgage backed securities

 

108

 

782

 

(12

)

133

 

712

 

(311

)

241

 

1,494

 

(323

)

Commercial mortgage backed securities

 

30

 

498

 

(7

)

1

 

23

 

(1

)

31

 

521

 

(8

)

Asset backed securities

 

29

 

354

 

(8

)

25

 

123

 

(32

)

54

 

477

 

(40

)

State and municipal obligations

 

206

 

696

 

(31

)

60

 

232

 

(74

)

266

 

928

 

(105

)

Total

 

488

 

$

4,189

 

$

(104

)

232

 

$

1,247

 

$

(430

)

720

 

$

5,436

 

$

(534

)

 

16



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

As part of Ameriprise Financial’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to movement in credit spreads.

 

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Beginning balance

 

$

299

 

$

291

 

$

297

 

$

263

 

Credit losses for which an other-than-temporary impairment was not previously recognized

 

1

 

 

14

 

15

 

Credit losses for which an other-than-temporary impairment was previously recognized

 

4

 

2

 

9

 

15

 

Reductions for securities sold during the period (realized)

 

 

 

(16

)

 

Ending balance

 

$

304

 

$

293

 

$

304

 

$

293

 

 

The change in net unrealized securities gains (losses) in other comprehensive income includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, DSIC, benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

 

The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income:

 

 

 

Net

 

 

 

Accumulated Other

 

 

 

Unrealized

 

 

 

Comprehensive Income

 

 

 

Securities

 

Deferred

 

Related to Net Unrealized

 

 

 

Gains (Losses)

 

Income Tax

 

Securities Gains (Losses)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Balance at January 1, 2010

 

$

474

 

$

(164

)

$

310

 

Net unrealized securities gains arising during the period (2)

 

1,596

 

(559

)

1,037

 

Reclassification of gains included in net income

 

(10

)

3

 

(7

)

Impact of DAC, DSIC, benefit reserves and reinsurance recoverables

 

(591

)

206

 

(385

)

Balance at September 30, 2010

 

$

1,469

 

$

(514

)

$

955

(1)

 

 

 

 

 

 

 

 

Balance at January 1, 2011

 

$

946

 

$

(331

)

$

615

 

Net unrealized securities gains arising during the period (2)

 

518

 

(178

)

340

 

Reclassification of losses included in net income

 

2

 

(1

)

1

 

Impact of DAC, DSIC, benefit reserves and reinsurance recoverables

 

(378

)

132

 

(246

)

Balance at September 30, 2011

 

$

1,088

 

$

(378

)

$

710

(1)

 


(1)    Includes $(71) million and $(66) million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at September 30, 2011 and September 30, 2010, respectively.

(2)    Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period.

 

17



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

(in millions)

 

Gross realized gains

 

$

 

$

7

 

$

39

 

$

47

 

Gross realized losses

 

 

(3

)

(18

)

(4

)

Other-than-temporary impairments

 

(5

)

(2

)

(23

)

(33

)

 

Other-than-temporary impairments for the three months and nine months ended September 30, 2011and 2010 primarily related to credit losses on non-agency residential mortgage backed securities.

 

Available-for-Sale securities by contractual maturity at September 30, 2011 were as follows: 

 

 

 

Amortized Cost

 

Fair Value

 

 

 

(in millions)

 

Due within one year

 

$

1,040

 

$

1,056

 

Due after one year through five years

 

5,856

 

6,121

 

Due after five years through 10 years

 

6,376

 

7,067

 

Due after 10 years

 

4,663

 

5,408

 

 

 

17,935

 

19,652

 

Residential mortgage backed securities

 

7,436

 

7,433

 

Commercial mortgage backed securities

 

4,625

 

4,885

 

Asset backed securities

 

2,004

 

2,034

 

Common stocks

 

6

 

8

 

Total

 

$

32,006

 

$

34,012

 

 

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common and preferred stocks, were not included in the maturities distribution.

 

Trading Securities

 

Net recognized gains and (losses) related to trading securities held at September 30, 2011 and 2010 were $(10) million and $12 million, respectively, for the three months then ended and $(7) million and $23 million, respectively, for the nine months then ended.

 

5.  Financing Receivables

 

The Company’s financing receivables include commercial mortgage loans, syndicated loans, consumer bank loans, policy loans and margin loans. The Company does not hold any loans acquired with deteriorated credit quality. Commercial mortgage loans, syndicated loans and policy loans are reflected in investments. Consumer bank loans and margin loans are reflected in receivables. Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.

 

18



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Allowance for Loan Losses

 

The following tables present a rollforward of the allowance for loan losses for the nine months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:

 

 

 

September 30, 2011

 

 

 

Commercial

 

 

 

Consumer

 

 

 

 

 

Mortgage

 

Syndicated

 

Bank

 

 

 

 

 

Loans

 

Loans

 

Loans

 

Total

 

 

 

(in millions)

 

Beginning balance

 

$

38

 

$

10

 

$

16

 

$

64

 

Charge-offs

 

(2

)

 

(8

)

(10

)

Provisions

 

(1

)

(1

)

8

 

6

 

Ending balance

 

$

35

 

$

9

 

$

16

 

$

60

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

10

 

$

1

 

$

2

 

$

13

 

Collectively evaluated for impairment

 

25

 

8

 

14

 

47

 

 

 

 

September 30, 2010

 

 

 

Commercial

 

 

 

Consumer

 

 

 

 

 

Mortgage

 

Syndicated

 

Bank

 

 

 

 

 

Loans

 

Loans

 

Loans

 

Total

 

 

 

(in millions)

 

Beginning balance

 

$

32

 

$

26

 

$

13

 

$

71

 

Charge-offs

 

(1

)

(2

)

(8

)

(11

)

Provisions

 

8

 

(10

)

11

 

9

 

Ending balance

 

$

39

 

$

14

 

$

16

 

$

69

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

7

 

$

1

 

$

2

 

$

10

 

Collectively evaluated for impairment

 

32

 

13

 

14

 

59

 

 

The recorded investment in financing receivables by impairment method and type of loan was as follows:

 

 

 

September 30, 2011

 

 

 

Commercial

 

 

 

Consumer

 

 

 

 

 

Mortgage

 

Syndicated

 

Bank

 

 

 

 

 

Loans

 

Loans

 

Loans

 

Total

 

 

 

(in millions)

 

Individually evaluated for impairment

 

$

77

 

$

5

 

$

11

 

$

93

 

Collectively evaluated for impairment

 

2,478

 

370

 

1,310

 

4,158

 

Total

 

$

2,555

 

$

375

 

$

1,321

 

$

4,251

 

 

 

 

December 31, 2010

 

 

 

Commercial

 

 

 

Consumer

 

 

 

 

 

Mortgage

 

Syndicated

 

Bank

 

 

 

 

 

Loans

 

Loans

 

Loans

 

Total

 

 

 

(in millions)

 

Individually evaluated for impairment

 

$

75

 

$

8

 

$

12

 

$

95

 

Collectively evaluated for impairment

 

2,540

 

303

 

1,054

 

3,897

 

Total

 

$

2,615

 

$

311

 

$

1,066

 

$

3,992

 

 

As of September 30, 2011 and December 31, 2010, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $18 million and $24 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance.

 

19



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Purchases and sales of loans were as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Purchases

 

 

 

 

 

 

 

 

 

Consumer bank loans

 

$

85

 

$

68

 

$

306

 

$

217

 

Syndicated loans

 

82

 

16

 

185

 

22

 

Total loans purchased

 

$

167

 

$

84

 

$

491

 

$

239

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

Consumer bank loans

 

$

51

 

$

110

 

$

191

 

$

295

 

Syndicated loans

 

 

17

 

2

 

39

 

Total loans sold

 

$

51

 

$

127

 

$

193

 

$

334

 

 

Credit Quality Information

 

Nonperforming loans, which are generally loans 90 days or more past due, were $9 million and $15 million as of September 30, 2011 and December 31, 2010, respectively. All other loans were considered to be performing.

 

Commercial Mortgage Loans

 

The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 3% of total commercial mortgage loans as of both September 30, 2011 and December 31, 2010. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

 

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:

 

 

 

Loans

 

Percentage

 

 

 

September 30,
2011

 

December 31,
2010

 

September 30,
2011

 

December 31,
2010

 

 

 

(in millions)

 

 

 

 

 

East North Central

 

$

251

 

$

242

 

10

%

9

%

East South Central

 

65

 

66

 

2

 

3

 

Middle Atlantic

 

220

 

215

 

9

 

8

 

Mountain

 

279

 

301

 

11

 

11

 

New England

 

144

 

156

 

6

 

6

 

Pacific

 

573

 

541

 

22

 

21

 

South Atlantic

 

610

 

625

 

24

 

24

 

West North Central

 

250

 

271

 

10

 

10

 

West South Central

 

163

 

198

 

6

 

8

 

 

 

2,555

 

2,615

 

100

%

100

%

Less: allowance for loan losses

 

35

 

38

 

 

 

 

 

Total

 

$

2,520

 

$

2,577

 

 

 

 

 

 

20



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Concentrations of credit risk of commercial mortgage loans by property type were as follows:

 

 

 

Loans

 

Percentage

 

 

 

September 30,
2011

 

December 31,
2010

 

September 30,
2011

 

December 31,
2010

 

 

 

(in millions)

 

 

 

 

 

Apartments

 

$

378

 

$

351

 

15

%

13

%

Hotel

 

52

 

57

 

2

 

2

 

Industrial

 

471

 

475

 

18

 

18

 

Mixed Use

 

40

 

43

 

2

 

2

 

Office

 

698

 

747

 

27

 

29

 

Retail

 

808

 

843

 

32

 

32

 

Other

 

108

 

99

 

4

 

4

 

 

 

2,555

 

2,615

 

100

%

100

%

Less: allowance for loan losses

 

35

 

38

 

 

 

 

 

Total

 

$

2,520

 

$

2,577

 

 

 

 

 

 

Syndicated Loans

 

The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at September 30, 2011 and December 31, 2010 were $2 million and $3 million, respectively.

 

Consumer Bank Loans

 

The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration in determining the allowance for loan losses for residential mortgage loans, credit cards and other consumer bank loans. At a minimum, management updates FICO scores and LTV ratios semiannually.

 

As of September 30, 2011 and December 31, 2010, approximately 5% and 7%, respectively, of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At September 30, 2011 and December 31, 2010, approximately 2% and 3%, respectively, of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for the consumer bank loans is in California representing 37% and 33% of the portfolio as of September 30, 2011 and December 31, 2010, respectively. No other state represents more than 10% of the total consumer bank loan portfolio.

 

Troubled Debt Restructurings

 

A loan is classified as a restructured loan when the Company makes certain concessionary modifications to contractual terms for borrowers experiencing financial difficulty. When the interest rate, minimum payments, and/or due dates have been modified in an attempt to make the loan more affordable to the borrower, the modification is considered a troubled debt restructuring. Generally, performance prior to the restructuring or significant events that coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result in the loan being returned to accrual status at the time of the restructure or after a performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. There are no commitments to lend additional funds to borrowers whose loans have been restructured. The Company restructured 22 loans with a recorded investment of $6 million and 87 loans with a recorded investment of $37 million for the three months and nine months ended September 30, 2011, respectively. The recorded investment in restructured loans primarily consists of commercial mortgage loans. The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for both the three months and nine months ended September 30, 2011.

 

21



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

6.  Deferred Acquisition Costs and Deferred Sales Inducement Costs

 

In the third quarter of 2011, management reviewed and updated the Company’s assumptions used to calculate DAC and DSIC.

 

The balances of and changes in DAC were as follows:

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Balance at January 1

 

$

4,619

 

$

4,334

 

Capitalization of acquisition costs

 

367

 

375

 

Amortization, excluding the impact of valuation assumptions review

 

(521

)

(366

)

Amortization impact of valuation assumptions review

 

(51

)

323

 

Impact of change in net unrealized securities gains

 

(90

)

(229

)

Balance at September 30

 

$

4,324

 

$

4,437

 

 

The balances of and changes in DSIC, which is included in other assets, were as follows:

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Balance at January 1

 

$

545

 

$

524

 

Capitalization of sales inducement costs

 

7

 

32

 

Amortization, excluding the impact of valuation assumptions review

 

(69

)

(43

)

Amortization impact of valuation assumptions review

 

(11

)

52

 

Impact of change in net unrealized securities gains

 

(9

)

(34

)

Balance at September 30

 

$

463

 

$

531

 

 

7.  Future Policy Benefits and Claims and Separate Account Liabilities

 

Future policy benefits and claims consisted of the following:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Fixed annuities

 

$

16,473

 

$

16,520

 

Equity indexed annuity (“EIA”) accumulated host values

 

61

 

100

 

EIA embedded derivatives

 

1

 

3

 

Variable annuity fixed sub-accounts

 

4,803

 

4,868

 

Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)

 

1,350

 

337

 

Variable annuity guaranteed minimum accumulation benefits (“GMAB”)

 

276

 

104

 

Other variable annuity guarantees

 

17

 

13

 

Total annuities

 

22,981

 

21,945

 

Variable universal life (“VUL”)/ universal life (“UL”) insurance

 

2,631

 

2,588

 

VUL/UL insurance additional liabilities

 

203

 

143

 

Other life, disability income and long term care insurance

 

5,278

 

5,004

 

Auto, home and other insurance

 

418

 

394

 

Policy claims and other policyholders’ funds

 

133

 

134

 

Total

 

$

31,644

 

$

30,208

 

 

Separate account liabilities consisted of the following:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Variable annuity variable sub-accounts

 

$

54,207

 

$

57,862

 

VUL insurance variable sub-accounts

 

5,252

 

5,887

 

Other insurance variable sub-accounts

 

39

 

46

 

Threadneedle investment liabilities

 

3,739

 

4,535

 

Total

 

$

63,237

 

$

68,330

 

 

22



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

8.  Variable Annuity and Insurance Guarantees

 

The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.

 

Certain UL contracts offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

 

The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:

 

 

 

September 30, 2011

 

December 31, 2010

 

Variable Annuity 
Guarantees by 
Benefit Type
(1)

 

Total
Contract
Value

 

Contract
Value in
Separate
Accounts

 

Net
Amount
at Risk
(2)

 

Weighted
Average
Attained
Age

 

Total
Contract
Value

 

Contract
Value in
Separate
Accounts

 

Net
Amount 
at Risk
(2)

 

Weighted
Average
Attained
Age

 

 

 

(in millions, except age)

 

GMDB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return of premium

 

$

37,267

 

$

35,574

 

$

971

 

62

 

$

37,714

 

$

36,028

 

$

173

 

62

 

Five/six-year reset

 

11,421

 

8,920

 

614

 

63

 

13,689

 

11,153

 

312

 

62

 

One-year ratchet

 

6,951

 

6,490

 

842

 

64

 

7,741

 

7,242

 

287

 

63

 

Five-year ratchet

 

1,392

 

1,338

 

56

 

60

 

1,466

 

1,414

 

8

 

60

 

Other

 

697

 

670

 

124

 

68

 

680

 

649

 

61

 

67

 

Total — GMDB

 

$

57,728

 

$

52,992

 

$

2,607

 

62

 

$

61,290

 

$

56,486

 

$

841

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GGU death benefit

 

$

882

 

$

829

 

$

76

 

63

 

$

970

 

$

912

 

$

79

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMIB

 

$

456

 

$

424

 

$

133

 

65

 

$

597

 

$

561

 

$

76

 

64

 

GMWB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

$

3,743

 

$

3,722

 

$

447

 

65

 

$

4,341

 

$

4,317

 

$

106

 

64

 

GMWB for life

 

21,678

 

21,572

 

1,791

 

64

 

20,374

 

20,259

 

129

 

63

 

Total — GMWB

 

$

25,421

 

$

25,294

 

$

2,238

 

64

 

$

24,715

 

$

24,576

 

$

235

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMAB

 

$

3,308

 

$

3,302

 

$

161

 

56

 

$

3,540

 

$

3,523

 

$

22

 

56

 

 


(1)        Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.

(2)        Represents the current guaranteed benefit amount in excess of the current contract value. GMIB, GMWB and GMAB benefits are subject to waiting periods and payment periods specified in the contract.

 

Changes in additional liabilities for variable annuity and insurance guarantees were as follows:

 

 

 

GMDB & GGU

 

GMIB

 

GMWB

 

GMAB

 

UL

 

 

 

(in millions)

 

Balance at January 1, 2010

 

$

6

 

$

6

 

$

204

 

$

100

 

$

15

 

Incurred claims

 

16

 

3

 

736

 

131

 

43

 

Paid claims

 

(15

)

(1

)

 

 

(4

)

Balance at September 30, 2010

 

$

7

 

$

8

 

$

940

 

$

231

 

$

54

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2011

 

$

5

 

$

8

 

$

337

 

$

104

 

$

68

 

Incurred claims

 

10

 

2

 

1,013

 

172

 

38

 

Paid claims

 

(7

)

(1

)

 

 

(9

)

Balance at September 30, 2011

 

$

8

 

$

9

 

$

1,350

 

$

276

 

$

97

 

 

The liabilities for guaranteed benefits are supported by general account assets.

 

23



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Mutual funds:

 

 

 

 

 

Equity

 

$

28,939

 

$

32,310

 

Bond

 

22,372

 

22,319

 

Other

 

1,901

 

2,208

 

Total mutual funds

 

$

53,212

 

$

56,837

 

 

9.  Debt

 

The balances and the stated interest rates of outstanding debt of Ameriprise Financial were as follows:

 

 

 

Outstanding Balance

 

Stated Interest Rate

 

 

 

September 30,
2011

 

December 31,
2010

 

September 30,
2011

 

December 31,
2010

 

 

 

(in millions)

 

 

 

 

 

Senior notes due 2015

 

$

755

(1)

$

728

(1)

5.7

%

5.7

%

Senior notes due 2019

 

340

(1)

312

(1)

7.3

 

7.3

 

Senior notes due 2020

 

803

(1)

763

(1)

5.3

 

5.3

 

Senior notes due 2039

 

200

 

200

 

7.8

 

7.8

 

Junior subordinated notes due 2066

 

306

 

308

 

7.5

 

7.5

 

Municipal bond inverse floater certificates due 2021

 

 

6

 

 

0.3

 

Total long-term debt

 

2,404

 

2,317

 

 

 

 

 

Short-term borrowings

 

504

 

397

 

0.2

 

0.3

 

Total

 

$

2,908

 

$

2,714

 

 

 

 

 

 


(1)        Amounts include adjustments for fair value hedges on the Company’s long-term debt and any unamortized discounts. See Note 10 for information on the Company’s fair value hedges.

 

Long-term debt

 

During the third quarter of 2011, the Company retired $2 million of its junior subordinated notes due 2066.

 

During the first quarter of 2011, the Company extinguished $6 million of its municipal bond inverse floater certificates funded through the call of a $10 million portfolio of municipal bonds.

 

On September 9, 2011, the Company amended its credit agreement to extend the expiration date of its unsecured revolving credit facility from September 29, 2011 to November 30, 2011.

 

Short-term borrowings

 

The Company enters into repurchase agreements in exchange for cash, which it accounts for as secured borrowings. The Company has pledged Available-for-Sale securities consisting of agency residential mortgage backed securities and commercial mortgage backed securities to collateralize its obligation under the repurchase agreements. The fair value of the securities pledged is recorded in investments and was $515 million and $412 million at September 30, 2011 and December 31, 2010, respectively. The stated interest rate of the short-term borrowings is a weighted average annualized interest rate on repurchase agreements held as of the balance sheet date.

 

24



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

10.  Fair Values of Assets and Liabilities

 

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

 

Valuation Hierarchy

 

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

 

Level 1                                   Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

 

Level 2                                   Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

Level 3                                   Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Determination of Fair Value

 

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

 

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

 

Assets

 

Cash Equivalents

 

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value (“NAV”) and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

 

Investments (Trading Securities and Available-for-Sale Securities)

 

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and seed money in funds traded in active markets. Level 2 securities primarily include agency mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, U.S. and foreign government and agency securities, and seed money and other investments in certain hedge funds. The fair value of these Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services. Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. Level 3 securities primarily include non-agency residential mortgage backed securities, asset backed securities and corporate bonds. The fair value of these Level 3 securities is typically based on a single broker quote, except for the valuation of non-agency residential mortgage backed securities. The Company uses prices from nationally-recognized pricing services to determine the fair value of non-agency residential mortgage backed securities; however, the Company classifies these securities as Level 3 because it believes the market for these securities is inactive and their valuation includes significant unobservable inputs.

 

25



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Separate Account Assets

 

The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.

 

Other Assets

 

Derivatives that are measured using quoted prices in active markets, such as foreign exchange forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options.

 

Assets Held for Sale

 

Assets held for sale consist of cash equivalents of Securities America.

 

Liabilities

 

Future Policy Benefits and Claims

 

The Company values the embedded derivative liability attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions (such as, market implied equity volatility and the LIBOR swap curve) and incorporate significant unobservable inputs related to contractholder behavior assumptions (such as withdrawals and lapse rates) and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value of these embedded derivatives also reflects a current estimate of the Company’s nonperformance risk specific to these liabilities. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivative liability attributable to these provisions is recorded in future policy benefits and claims. The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its equity indexed annuities. The inputs to these calculations are primarily market observable and include interest rates, volatilities, and equity index levels. As a result, these measurements are classified as Level 2.

 

Customer Deposits

 

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.

 

Other Liabilities

 

Derivatives that are measured using quoted prices in active markets, such as foreign exchange forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options.

 

Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Level 1 securities include U.S. Treasuries and securities traded in active markets. The remaining securities sold but not yet purchased are measured using amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization and are classified as Level 2.

 

26



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:

 

 

 

September 30, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

3

 

$

2,217

 

$

 

$

2,220

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

16,024

 

1,319

 

17,343

 

Residential mortgage backed securities

 

 

3,608

 

3,825

 

7,433

 

Commercial mortgage backed securities

 

 

4,833

 

52

 

4,885

 

Asset backed securities

 

 

1,539

 

495

 

2,034

 

State and municipal obligations

 

 

2,083

 

 

2,083

 

U.S. government and agencies obligations

 

22

 

51

 

 

73

 

Foreign government bonds and obligations

 

 

127

 

 

127

 

Common stocks

 

1

 

2

 

5

 

8

 

Other debt obligations

 

 

26

 

 

26

 

Total Available-for-Sale securities

 

23

 

28,293

 

5,696

 

34,012

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seed money

 

184

 

33

 

12

 

229

 

Investments segregated for regulatory purposes

 

 

16

 

 

16

 

Fixed income and other

 

 

320

 

 

320

 

Total trading securities

 

184

 

369

 

12

 

565

 

Separate account assets

 

 

63,237

 

 

63,237

 

Other assets:

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts

 

 

1,783

 

 

1,783

 

Equity derivative contracts

 

279

 

985

 

 

1,264

 

Credit derivative contracts

 

 

3

 

 

3

 

Foreign currency derivative contracts

 

 

7

 

 

7

 

Other

 

 

1

 

 

1

 

Total other assets

 

279

 

2,779

 

 

3,058

 

Assets held for sale

 

15

 

 

 

15

 

Total assets at fair value

 

$

504

 

$

96,895

 

$

5,708

 

$

103,107

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Future policy benefits and claims:

 

 

 

 

 

 

 

 

 

EIA embedded derivatives

 

$

 

$

1

 

$

 

$

1

 

GMWB and GMAB embedded derivatives

 

 

 

1,600

 

1,600

 

Total future policy benefits and claims

 

 

1

 

1,600

 

1,601

 

Customer deposits

 

 

4

 

 

4

 

Other liabilities:

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts

 

 

1,073

 

 

1,073

 

Equity derivative contracts

 

232

 

605

 

 

837

 

Foreign currency derivative contracts

 

1

 

5

 

 

6

 

Other

 

 

5

 

 

5

 

Total other liabilities

 

233

 

1,688

 

 

1,921

 

Total liabilities at fair value

 

$

233

 

$

1,693

 

$

1,600

 

$

3,526

 

 

27



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

 

 

December 31, 2010

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

42

 

$

2,481

 

$

 

$

2,523

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

15,281

 

1,325

 

16,606

 

Residential mortgage backed securities

 

 

3,011

 

4,247

 

7,258

 

Commercial mortgage backed securities

 

 

4,817

 

51

 

4,868

 

Asset backed securities

 

 

1,544

 

476

 

2,020

 

State and municipal obligations

 

 

1,582

 

 

1,582

 

U.S. government and agencies obligations

 

64

 

79

 

 

143

 

Foreign government bonds and obligations

 

 

108

 

 

108

 

Common stocks

 

2

 

3

 

5

 

10

 

Other debt obligations

 

 

24

 

 

24

 

Total Available-for-Sale securities

 

66

 

26,449

 

6,104

 

32,619

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seed money

 

133

 

71

 

19

 

223

 

Investments segregated for regulatory purposes

 

2

 

14

 

 

16

 

Fixed income and other

 

 

323

 

 

323

 

Total trading securities

 

135

 

408

 

19

 

562

 

Separate account assets

 

 

68,330

 

 

68,330

 

Other assets:

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts

 

 

438

 

 

438

 

Equity derivative contracts

 

32

 

420

 

 

452

 

Credit derivative contracts

 

 

4

 

 

4

 

Foreign currency derivative contracts

 

1

 

 

 

1

 

Other

 

 

2

 

 

2

 

Total other assets

 

33

 

864

 

 

897

 

Assets held for sale

 

 

15

 

 

15

 

Total assets at fair value

 

$

276

 

$

98,547

 

$

6,123

 

$

104,946

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Future policy benefits and claims:

 

 

 

 

 

 

 

 

 

EIA embedded derivatives

 

$

 

$

3

 

$

 

$

3

 

GMWB and GMAB embedded derivatives

 

 

 

421

 

421

 

Total future policy benefits and claims

 

 

3

 

421

 

424

 

Customer deposits

 

 

14

 

 

14

 

Other liabilities:

 

 

 

 

 

 

 

 

 

Interest rate derivative contracts

 

 

379

 

 

379

 

Equity derivative contracts

 

18

 

722

 

 

740

 

Credit derivative contracts

 

 

1

 

 

1

 

Foreign currency derivative contracts

 

1

 

 

 

1

 

Other

 

 

2

 

 

2

 

Total other liabilities

 

19

 

1,104

 

 

1,123

 

Total liabilities at fair value

 

$

19

 

$

1,121

 

$

421

 

$

1,561

 

 

28



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future Policy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits

 

 

 

Available-for-Sale Securities

 

 

 

and Claims:

 

 

 

 

 

Residential

 

Commercial

 

 

 

 

 

 

 

 

 

GMWB

 

 

 

Corporate

 

Mortgage

 

Mortgage

 

Asset

 

 

 

 

 

 

 

and GMAB

 

 

 

Debt

 

Backed

 

Backed

 

Backed

 

Common

 

 

 

Trading

 

Embedded

 

 

 

Securities

 

Securities

 

Securities

 

Securities

 

Stocks

 

Total

 

Securities

 

Derivatives

 

 

 

(in millions)

 

 

 

 

 

Balance, July 1, 2011

 

$

1,274

 

$

4,097

 

$

64

 

$

498

 

$

5

 

$

5,938

 

$

12

 

$

(316

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

52

 

 

4

 

 

56

(1)

 

(1,236

)(2)

Other comprehensive income

 

 

(107

)

(1

)

(15

)

 

(123

)

 

 

Purchases

 

71

 

57

 

15

 

43

 

 

186

 

 

 

Sales

 

 

 

 

 

 

 

 

 

Issues

 

 

 

 

 

 

 

 

(39

)

Settlements

 

(33

)

(274

)

(1

)

(27

)

 

(335

)

 

(9

)

Transfers into Level 3

 

7

 

 

 

14

 

 

21

 

 

 

Transfers out of Level 3

 

 

 

(25

)

(22

)

 

(47

)

 

 

Balance, September 30, 2011

 

$

1,319

 

$

3,825

 

$

52

 

$

495

 

$

5

 

$

5,696

 

$

12

 

$

(1,600

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2011 included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

$

 

$

52

 

$

 

$

4

 

$

 

$

56

 

$

 

$

 

Benefits, claims, losses and settlement expenses

 

 

 

 

 

 

 

 

(1,241

)

 


(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future Policy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits

 

 

 

Available-for-Sale Securities

 

 

 

 

 

and Claims:

 

 

 

 

 

Residential

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

 

 

Corporate

 

Mortgage

 

Mortgage

 

Asset

 

 

 

 

 

 

 

 

 

and GMAB

 

 

 

Debt

 

Backed

 

Backed

 

Backed

 

Common

 

 

 

Trading

 

Other

 

Embedded

 

 

 

Securities

 

Securities

 

Securities

 

Securities

 

Stocks

 

Total

 

Securities

 

Assets

 

Derivatives

 

 

 

(in millions)

 

 

 

 

 

 

 

Balance, July 1, 2010

 

$

1,243

 

$

4,173

 

$

144

 

$

442

 

$

4

 

$

6,006

 

$

18

 

$

1

 

$

(1,083

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

20

 

 

2

 

 

22

(1)

1

(1)

 

(44

)(2)

Other comprehensive income

 

15

 

114

 

 

6

 

1

 

136

 

(1

)

 

 

Purchases, sales, issues and settlements, net

 

30

 

155

 

 

(12

)

 

173

 

2

 

(1

)

(26

)

Transfers into Level 3

 

25

 

 

 

 

 

25

 

 

 

 

Transfers out of Level 3

 

 

(21

)

(144

)

(13

)

 

(178

)

 

 

 

Balance, September 30, 2010

 

$

1,313

 

$

4,441

 

$

 

$

425

 

$

5

 

$

6,184

 

$

20

 

$

 

$

(1,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2010 included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

$

 

$

19

 

$

 

$

2

 

$

 

$

21

 

$

 

$

 

$

 

Benefits, claims, losses and settlement expenses

 

 

 

 

 

 

 

 

 

(49

)

 


(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 

29



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future Policy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits

 

 

 

Available-for-Sale Securities

 

 

 

and Claims:

 

 

 

 

 

Residential

 

Commercial

 

 

 

 

 

 

 

 

 

GMWB

 

 

 

Corporate

 

Mortgage

 

Mortgage

 

Asset

 

 

 

 

 

 

 

and GMAB

 

 

 

Debt

 

Backed

 

Backed

 

Backed

 

Common

 

 

 

Trading

 

Embedded

 

 

 

Securities

 

Securities

 

Securities

 

Securities

 

Stocks

 

Total

 

Securities

 

Derivatives

 

 

 

(in millions)

 

 

 

 

 

Balance, January 1, 2011

 

$

1,325

 

$

4,247

 

$

51

 

$

476

 

$

5

 

$

6,104

 

$

19

 

$

(421

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

7

 

58

 

 

8

 

 

73

(1)

1

(1)

(1,061

)(2)

Other comprehensive income

 

11

 

(106

)

 

(13

)

 

(108

)

 

 

Purchases

 

145

 

556

 

104

 

123

 

 

928

 

2

 

 

Sales

 

 

(3

)

 

 

 

(3

)

(10

)

 

Issues

 

 

 

 

 

 

 

 

(107

)

Settlements

 

(166

)

(871

)

(2

)

(88

)

 

(1,127

)

 

(11

)

Transfers into Level 3

 

9

 

 

1

 

18

 

 

28

 

 

 

Transfers out of Level 3

 

(12

)

(56

)

(102

)

(29

)

 

(199

)

 

 

Balance, September 30, 2011

 

$

1,319

 

$

3,825

 

$

52

 

$

495

 

$

5

 

$

5,696

 

$

12

 

$

(1,600

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2011 included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

$

 

$

69

 

$

 

$

8

 

$

 

$

77

 

$

 

$

 

Benefits, claims, losses and settlement expenses

 

 

 

 

 

 

 

 

(1,074

)

 


(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future Policy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits

 

 

 

Available-for-Sale Securities

 

 

 

 

 

and Claims:

 

 

 

 

 

Residential

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

 

 

Corporate

 

Mortgage

 

Mortgage

 

Asset

 

 

 

Other

 

 

 

 

 

 

 

and GMAB

 

 

 

Debt

 

Backed

 

Backed

 

Backed

 

Common

 

Structured

 

 

 

Trading

 

Other

 

Embedded

 

 

 

Securities

 

Securities

 

Securities

 

Securities

 

Stocks

 

Investments

 

Total

 

Securities

 

Assets

 

Derivatives

 

 

 

(in millions)

 

Balance, January 1, 2010

 

$

1,252

 

$

3,982

 

$

72

 

$

455

 

$

4

 

$

58

 

$

5,823

 

$

16

 

$

 

$

(299

)

Total gains (losses) included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1

 

35

 

1

 

10

 

 

 

47

(1)

3

(1)

1

(1)

(760

)(2)

Other comprehensive income

 

58

 

310

 

10

 

34

 

1

 

 

413

 

(2

)

 

 

Purchases, sales, issues and settlements, net

 

(23

)

135

 

61

 

(38

)

 

(58

)(3)

77

 

3

 

(1

)

(94

)

Transfers into Level 3

 

25

 

 

 

 

 

 

25

 

 

 

 

Transfers out of Level 3

 

 

(21

)

(144

)

(36

)

 

 

(201

)

 

 

 

Balance, September 30, 2010

 

$

1,313

 

$

4,441

 

$

 

$

425

 

$

5

 

$

 

$

6,184

 

$

20

 

$

 

$

(1,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2010 included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

$

 

$

33

 

$

 

$

10

 

$

 

$

 

$

43

 

$

 

$

 

$

 

Benefits, claims, losses and settlement expenses

 

 

 

 

 

 

 

 

 

 

(769

)

 


(1)    Included in net investment income in the Consolidated Statements of Operations.

(2)    Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

(3)    Represents the elimination of Ameriprise Financial’s investment in CDOs, which were consolidated due to the adoption of a new accounting standard.

 

See Note 3 for additional information related to the consolidation of CDOs.

 

30



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Securities transferred from Level 2 to Level 3 represent securities with fair values that are now based on a single broker quote. Securities transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a nationally-recognized pricing service with observable inputs.

 

The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred.

 

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

 

The following table provides the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities Ameriprise Financial measured at fair value on a recurring basis.

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

 

 

(in millions)

 

Financial Assets

 

 

 

 

 

 

 

 

 

Commercial mortgage loans, net

 

$

2,520

 

$

2,708

 

$

2,577

 

$

2,671

 

Policy loans

 

741

 

709

 

733

 

808

 

Receivables

 

2,350

 

2,054

 

1,852

 

1,566

 

Restricted and segregated cash

 

1,378

 

1,378

 

1,516

 

1,516

 

Assets held for sale

 

19

 

18

 

18

 

18

 

Other investments and assets

 

398

 

390

 

331

 

338

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

Future policy benefits and claims

 

$

15,091

 

$

15,806

 

$

15,328

 

$

15,768

 

Investment certificate reserves

 

2,813

 

2,791

 

3,127

 

3,129

 

Banking and brokerage customer deposits

 

6,807

 

6,807

 

5,638

 

5,642

 

Separate account liabilities

 

4,061

 

4,061

 

4,930

 

4,930

 

Debt and other liabilities

 

3,238

 

3,489

 

2,710

 

2,907

 

 

Investments

 

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan.

 

The fair value of policy loans is determined using discounted cash flows.

 

Receivables

 

The fair value of consumer bank loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, severity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions.

 

Loans held for sale are measured at the lower of cost or market and fair value is based on what secondary markets are currently offering for loans with similar characteristics.

 

Brokerage margin loans are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans.

 

31



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Restricted and Segregated Cash

 

Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.

 

Amounts segregated under federal and other regulations may also reflect resale agreements and are measured at the cost at which the securities will be sold. This measurement is a reasonable estimate of fair value because of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.

 

Assets Held for Sale

 

Assets held for sale reflect notes receivable of Securities America. See Note 1 and Note 16 for additional information on the Company’s presentation of discontinued operations.

 

Other Investments and Assets

 

Other investments and assets primarily consist of syndicated loans. The fair value of syndicated loans is obtained from a nationally-recognized pricing service.

 

Future Policy Benefits and Claims

 

The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a provision for adverse deviation from estimated early policy surrender behavior, and the Company’s nonperformance risk specific to these liabilities. The fair value of other liabilities including non-life contingent fixed annuities in payout status, equity indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner.

 

Customer Deposits

 

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and the Company’s nonperformance risk specific to these liabilities.

 

Banking and brokerage customer deposits are liabilities with no defined maturities and fair value is the amount payable on demand at the reporting date.

 

Separate Account Liabilities

 

Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. Carrying value is a reasonable estimate of the fair value as it represents the exit value as evidenced by withdrawal transactions between contractholders and the Company. A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.

 

Debt and Other Liabilities

 

The fair value of long-term debt is based on quoted prices in active markets, when available. If quoted prices are not available fair values are obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques such as present value of cash flows.

 

The fair value of short-term borrowings is obtained from a nationally-recognized pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk.

 

The fair value of future funding commitments to affordable housing partnerships is determined by discounting cash flows.

 

32



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

11.  Derivatives and Hedging Activities

 

Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.

 

The Company uses derivatives as economic hedges and accounting hedges. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives:

 

 

 

 

 

Asset

 

 

 

Liability

 

 

 

Balance Sheet

 

September 30,

 

December 31,

 

Balance Sheet

 

September 30,

 

December 31,

 

 

 

Location

 

2011

 

2010

 

Location

 

2011

 

2010

 

 

 

 

 

(in millions)

 

 

 

(in millions)

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based distribution fees

 

Other assets

 

$

 

$

10

 

Other liabilities

 

$

 

$

 

Fair value hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate debt

 

Other assets

 

160

 

61

 

Other liabilities

 

 

 

Total qualifying hedges

 

 

 

160

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB and GMAB

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets

 

1,623

 

366

 

Other liabilities

 

1,073

 

379

 

Equity contracts

 

Other assets

 

1,245

 

354

 

Other liabilities

 

819

 

665

 

Credit contracts

 

Other assets

 

3

 

4

 

Other liabilities

 

 

1

 

Foreign currency contracts

 

Other assets

 

7

 

 

Other liabilities

 

5

 

 

Embedded derivatives (1)

 

N/A

 

 

 

Future policy benefits and claims

 

1,600

 

421

 

Total GMWB and GMAB

 

 

 

2,878

 

724

 

 

 

3,497

 

1,466

 

Other derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

Other assets

 

 

1

 

Other liabilities

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

EIA

 

Other assets

 

 

1

 

Other liabilities

 

 

 

EIA embedded derivatives

 

N/A

 

 

 

Future policy benefits and claims

 

1

 

3

 

Stock market certificates

 

Other assets

 

18

 

89

 

Other liabilities

 

15

 

75

 

Stock market certificates embedded derivatives

 

N/A

 

 

 

Customer deposits

 

4

 

14

 

Ameriprise Financial Franchise

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisor Deferred Equity Plan

 

Other assets

 

 

8

 

Other liabilities

 

3

 

 

Seed money

 

Other assets

 

1

 

 

Other liabilities

 

 

 

Foreign exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency

 

Other assets

 

 

1

 

Other liabilities

 

1

 

1

 

Total other

 

 

 

19

 

100

 

 

 

24

 

93

 

Total non-designated hedges

 

 

 

2,897

 

824

 

 

 

3,521

 

1,559

 

Total derivatives

 

 

 

$

3,057

 

$

895

 

 

 

$

3,521

 

$

1,559

 

 


N/A  Not applicable.

(1) The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets.

 

See Note 10 for additional information regarding the Company’s fair value measurement of derivative instruments.

 

33



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Derivatives Not Designated as Hedges

 

The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations:

 

 

 

 

 

Amount of Gain (Loss) on

 

 

 

 

 

Derivatives Recognized in Income

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Derivatives not designated as

 

Location of Gain (Loss) on

 

September 30,

 

September 30,

 

hedging instruments

 

Derivatives Recognized in Income

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

(in millions)

 

GMWB and GMAB

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Benefits, claims, losses and settlement expenses

 

$

582

 

$

141

 

$

644

 

$

352

 

Equity contracts

 

Benefits, claims, losses and settlement expenses

 

843

 

(354

)

593

 

220

 

Credit contracts

 

Benefits, claims, losses and settlement expenses

 

(3

)

(18

)

(10

)

(48

)

Foreign currency contracts

 

Benefits, claims, losses and settlement expenses

 

8

 

 

2

 

 

Embedded derivatives(1)

 

Benefits, claims, losses and settlement expenses

 

(1,284

)

(70

)

(1,179

)

(854

)

Total GMWB and GMAB

 

 

 

146

 

(301

)

50

 

(330

)

Other derivatives:

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

Interest rate lock commitments

 

Other revenues

 

 

 

(1

)

 

Equity

 

 

 

 

 

 

 

 

 

 

 

GMDB

 

Benefits, claims, losses and settlement expenses

 

 

(5

)

 

 

EIA

 

Interest credited to fixed accounts

 

(1

)

1

 

(1

)

1

 

EIA embedded derivatives

 

Interest credited to fixed accounts

 

 

1

 

1

 

7

 

Stock market certificates

 

Banking and deposit interest expense

 

(4

)

6

 

(1

)

4

 

Stock market certificates embedded derivatives

 

Banking and deposit interest expense

 

4

 

(6

)

2

 

(4

)

Seed money

 

Net investment income

 

12

 

(3

)

9

 

 

Ameriprise Financial Franchise Advisor Deferred Equity Plan

 

Distribution expenses

 

(11

)

 

(11

)

 

Foreign exchange

 

 

 

 

 

 

 

 

 

 

 

Seed money

 

General and administrative expense

 

 

(1

)

 

 

Foreign currency

 

Net investment income

 

(2

)

1

 

(1

)

1

 

Total other

 

 

 

(2

)

(6

)

(3

)

9

 

Total derivatives

 

 

 

$

144

 

$

(307

)

$

47

 

$

(321

)

 


(1) The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets.

 

The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and foreign currency exchange rate risk related to various products and transactions of the Company.

 

The majority of the Company’s annuity contracts contain GMDB provisions, which may result in a death benefit payable that exceeds the contract accumulation value when market values of customers’ accounts decline. Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The Company economically hedges the exposure related to non-life contingent GMWB and GMAB provisions primarily using various futures, options, interest rate swaptions, interest rate swaps, variance swaps and credit default swaps. At September 30, 2011 and December 31, 2010, the gross notional amount of derivative contracts for the Company’s GMWB and GMAB provisions was $84.0 billion and $55.5 billion, respectively. The Company had previously entered into a limited number of derivative contracts to economically hedge equity exposure related to GMDB provisions on variable annuity contracts written in 2009. As of both September 30, 2011 and December 31, 2010, the Company did not have any outstanding hedges on its GMDB provisions.

 

34



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The deferred premium associated with some of the above options is paid or received semi-annually over the life of the option contract. The following is a summary of the payments the Company is scheduled to make and receive for these options:

 

 

 

Premiums Payable

 

Premiums Receivable

 

 

 

(in millions)

 

2011(1)

 

$

88

 

$

11

 

2012

 

322

 

39

 

2013

 

299

 

25

 

2014

 

273

 

22

 

2015

 

245

 

21

 

2016-2026

 

970

 

38

 

 


(1) 2011 amounts represent the amounts payable and receivable for the period from October 1, 2011 to December 31, 2011.

 

Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options prior to the full premium being paid or received.

 

Equity indexed annuities and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to equity indexed annuities and stock market certificate products will positively or negatively impact earnings over the life of these products. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts. The gross notional amount of these derivative contracts was $1.3 billion and $1.5 billion at September 30, 2011 and December 31, 2010, respectively.

 

The Company enters into forward contracts, futures and total return swaps to manage its exposure to price risk arising from seed money investments in proprietary investment products. The gross notional amount of these contracts was $126 million and $174 million at September 30, 2011 and December 31, 2010, respectively.

 

The Company enters into foreign currency forward contracts to economically hedge its exposure to certain receivables and obligations denominated in non-functional currencies. The gross notional amount of these contracts was $24 million and $21 million at September 30, 2011 and December 31, 2010, respectively.

 

In the first quarter of 2010, the Company entered into a total return swap to economically hedge its exposure to equity price risk of Ameriprise Financial, Inc. common stock granted as part of its Ameriprise Financial Franchise Advisor Deferred Equity Plan. In the fourth quarter of 2010, the Company extended the contract through 2011. As part of the contract, the Company expects to cash settle the difference between the value of a fixed number of shares at the contract date (which may be increased from time to time) and the value of those shares over an unwind period ending on December 31, 2011. The gross notional value of this contract was $24 million and $35 million at September 30, 2011 and December 31, 2010, respectively.

 

Embedded Derivatives

 

Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In addition, the equity component of the equity indexed annuity and stock market certificate product obligations are also considered embedded derivatives. These embedded derivatives are bifurcated from their host contracts and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As discussed above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.

 

35



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Cash Flow Hedges

 

The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest rate exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and (iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales. The Company previously designated and accounted for as cash flow hedges interest rate swaps to hedge certain asset-based distribution fees.

 

During the second quarter of 2011, the Company reclassified from accumulated other comprehensive income into earnings a $27 million gain on an interest rate hedge put in place in anticipation of issuing debt between December 2010 and September 2011. The gain was reclassified due to the forecasted transaction not occurring according to the original hedge strategy. For the three months and nine months ended September 30, 2011, amounts recognized in earnings related to cash flow hedges due to ineffectiveness were not material. The estimated net amount of existing pretax losses on September 30, 2011 that the Company expects to reclassify to earnings within the next twelve months is $1 million, which consists of $5 million of pretax gains to be recorded as a reduction to interest and debt expense and $6 million of pretax losses to be recorded in net investment income. The following tables present the impact of the effective portion of the Company’s cash flow hedges on the Consolidated Statements of Operations and the Consolidated Statements of Equity:

 

 

 

Amount of Gain (Loss) Recognized in

 

 

 

Other Comprehensive Income on Derivatives

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Derivatives designated as hedging instruments

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Interest on debt

 

$

 

$

 

$

 

$

(10

)

Asset-based distribution fees

 

 

10

 

1

 

19

 

Total

 

$

 

$

10

 

$

1

 

$

9

 

 

 

 

Amount of Gain (Loss) Reclassified from Accumulated

 

 

 

Other Comprehensive Income into Income

 

Location of Gain (Loss) Reclassified from Accumulated

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Other Comprehensive Income into Income

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Other revenues

 

$

 

$

 

$

27

 

$

 

Interest and debt expense

 

1

 

3

 

3

 

7

 

Distribution fees

 

 

6

 

9

 

6

 

Net investment income

 

(1

)

(2

)

(4

)

(5

)

Total

 

$

 

$

7

 

$

35

 

$

8

 

 

Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 24 years and relates to forecasted debt interest payments.

 

Fair Value Hedges

 

During the first quarter of 2010, the Company entered into and designated as fair value hedges three interest rate swaps to convert senior notes due 2015, 2019 and 2020 from fixed rate debt to floating rate debt. The swaps have identical terms as the underlying debt being hedged so no ineffectiveness is expected to be realized. The Company recognizes gains and losses on the derivatives and the related hedged items within interest and debt expense. The following table presents the amounts recognized in income related to fair value hedges:

 

 

 

 

 

Amount of Gain Recognized in Income on Derivatives

 

Derivatives designated

 

Location of Gain

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

as hedging instruments

 

Recorded into Income

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

(in millions)

 

(in millions)

 

Fixed rate debt

 

Interest and debt expense

 

$

11

 

$

10

 

$

31

 

$

27

 

 

36



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

Credit Risk

 

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. As of September 30, 2011 and December 31, 2010, the Company held $507 million and $98 million, respectively, in cash and cash equivalents and recorded a corresponding liability in other liabilities for collateral the Company is obligated to return to counterparties. As of September 30, 2011 and December 31, 2010, the Company had accepted additional collateral consisting of various securities with a fair value of $501 million and $23 million, respectively, which are not reflected on the Consolidated Balance Sheets. As of September 30, 2011 and December 31, 2010, the Company’s maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $140 million and $45 million, respectively.

 

Certain of the Company’s derivative instruments contain provisions that adjust the level of collateral the Company is required to post based on the Company’s debt rating (or based on the financial strength of the Company’s life insurance subsidiaries for contracts in which those subsidiaries are the counterparty). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company’s debt does not maintain a specific credit rating (generally an investment grade rating) or the Company’s life insurance subsidiary does not maintain a specific financial strength rating. If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. At September 30, 2011 and December 31, 2010, the aggregate fair value of all derivative instruments in a net liability position containing such credit risk features was $120 million and $412 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2011 and December 31, 2010 was $120 million and $406 million, respectively. If the credit risk features of derivative contracts that were in a net liability position at September 30, 2011 and December 31, 2010 were triggered, the additional fair value of assets needed to settle these derivative liabilities would have been nil and $6 million, respectively.

 

12.  Income Taxes

 

The Company’s effective tax rate on income from continuing operations was 32.5% and 29.7% for the three months ended September 30, 2011 and 2010, respectively. The Company’s effective tax rate on income from continuing operations was 27.8% and 20.7% for the nine months ended September 30, 2011 and 2010, respectively.

 

The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of September 30, 2011 and December 31, 2010.

 

Included in the Company’s deferred income tax assets are tax benefits related to capital loss carryforwards of $30 million which will expire beginning December 31, 2015 and tax credits of $103 million which will expire beginning December 31, 2027. As a result of the Company’s ability to file a consolidated U.S. federal income tax return including the Company’s life insurance subsidiaries starting in 2010, as well as the expected level of taxable income, management believes the Company’s capital loss carryforwards and tax credit carryforwards will be utilized before they expire.

 

As of September 30, 2011 and December 31, 2010, the Company had $168 million and $75 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $44 million and $54 million, net of federal tax benefits, of unrecognized tax benefits as of September 30, 2011 and December 31, 2010, respectively, would affect the effective tax rate.

 

37



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized nil and $65 million of interest and penalties for the three months and nine months ended September 30, 2011, respectively. The Company recognized a net reduction of nil and $20 million of interest and penalties for the three months and nine months ended September 30, 2010, respectively. At September 30, 2011 and December 31, 2010, the Company had a payable of $36 million and a receivable of $29 million, respectively, related to accrued interest and penalties.

 

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $130 million to $140 million in the next 12 months.

 

The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”) completed its field examination of the Company’s U.S. income tax returns for 2005 through 2007 during the third and fourth quarters of 2010. The IRS had previously completed its field examination of the 1997 through 2004 tax returns in recent years as part of the overall examination of the American Express Company consolidated returns. However, for federal income tax purposes these years continue to remain open as a consequence of certain unagreed issues. In the fourth quarter of 2010, the IRS commenced an examination of the Company’s U.S income tax returns for 2008 and 2009. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1999 through 2009.

 

On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that the Company receives.

 

13.  Guarantees and Contingencies

 

Guarantees

 

Owing to conditions then-prevailing in the credit markets and the isolated defaults of unaffiliated structured investment vehicles held in the portfolios of money market funds advised by its Columbia Management Investment Advisers, LLC subsidiary (the “2a-7 Funds”), the Company closely monitored the net asset value of the 2a-7 Funds during 2008 and through the date of this report and, as circumstances warranted from time to time, injected capital into one or more of the 2a-7 Funds. The Company has not provided a formal capital support agreement or net asset value guarantee to any of the 2a-7 Funds.

 

Contingencies

 

The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions, heightened and sustained volatility in the financial markets and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally.

 

As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination or claims by, the SEC, the Financial Industry Regulatory Authority (“FINRA”), the Federal Reserve Bank, the Office of Comptroller of the Currency, state insurance and securities regulators, state attorneys general and various other domestic or foreign governmental and quasi-governmental authorities on behalf of themselves or clients concerning the Company’s business activities and practices, and the practices of the Company’s financial advisors. During recent periods, the Company has received information requests, exams or inquiries regarding certain matters, including: sales of, or disclosures pertaining to, mutual funds, annuities, equity and fixed income securities, low priced securities, insurance

 

38



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

products, brokerage services, financial advice offerings; trading practices within the Company’s asset management business; supervision of the Company’s financial advisors; information security; and abandoned property and escheatment practices, and claims handling for certain insurance products. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including Ameriprise Financial. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.

 

These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, the Company is unable to predict the ultimate resolution or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief, in addition to further claims, examinations or adverse publicity that could have a material adverse effect on the Company’s consolidated financial condition or results of operations.

 

Certain legal and regulatory proceedings are described below.

 

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona, and was later transferred to the United States District Court for the District of Minnesota. The plaintiffs alleged that they were investors in several of the Company’s mutual funds and they purported to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940 (the ‘40 Act). The plaintiffs alleged that fees allegedly paid to the defendants by the funds for investment advisory and administrative services were excessive. Plaintiffs seek an order declaring that defendants have violated the ‘40 Act and awarding unspecified damages including excessive fees allegedly paid plus interest and other costs. On July 6, 2007, the district court granted the Company’s motion for summary judgment, dismissing all claims with prejudice. Plaintiffs appealed the district court’s decision, and on April 8, 2009, the U.S. Court of Appeals for the Eighth Circuit reversed the district court’s decision, and remanded the case for further proceedings. The Company filed with the United States Supreme Court a Petition for Writ of Certiorari to review the judgment of the Court of Appeals in this case in light of the Supreme Court’s anticipated review of a similar excessive fee case captioned Jones v. Harris Associates. On March 30, 2010, the Supreme Court issued its ruling in Jones v. Harris Associates, and on April 5, 2010, the Supreme Court vacated the Eighth Circuit’s decision in this case and remanded it to the Eighth Circuit for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. Without any further briefing or argument, on June 4, 2010, the Eighth Circuit remanded the case to the district court for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. The district court ordered briefing and heard oral argument on September 22, 2010 on the impact of the Jones v. Harris Associates decision. On December 8, 2010, the district court re-entered its July 2007 order granting summary judgment in favor of the Company. Plaintiffs filed a notice of appeal with the Eighth Circuit on January 10, 2011. The briefing on the appeal is complete and the 8th Circuit has set oral argument for November 17, 2011.

 

In July 2009, two issuers of private placement interests (Medical Capital Holdings, Inc./Medical Capital Corporation and affiliated corporations and Provident Shale Royalties, LLC and affiliated corporations) sold by the Company’s subsidiary Securities America, Inc. (“SAI”) were the subject of SEC actions (brought against those entities and individuals associated with them), which resulted in the filing of several putative class action lawsuits naming both SAI and Ameriprise Financial, as well as related arbitrations and regulatory inquiries. As previously reported, on April 15, 2011, SAI and its holding company, Securities America Financial Corporation entered into settlement agreements which, in exchange for release of pending arbitration and litigation claims (including certain class action claims pending against the Company and the claims brought by the Liquidating Trustee), provided for the payment of a total of $150 million. The Court issued an order finally approving the class action settlement on August 4, 2011, and since there was no appeal filed, all payments due under the settlements have been fully paid.

 

In November 2010, the Company’s J.& W. Seligman & Co. Incorporated subsidiary (“Seligman”) received a governmental inquiry regarding an industry insider trading investigation, as previously stated by the Company in general media reporting. The Company continues to cooperate fully with that inquiry. Neither the Company nor Seligman has been accused of any wrongdoing, and the government has confirmed that neither the Company nor any of its affiliated entities is a target of its investigation into potential insider trading.

 

39



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

In October 2011, a putative class action lawsuit entitled Roger Krueger, et al. vs. Ameriprise Financial, et al. was filed in the United States District Court for the District of Minnesota against the Company, certain of its present or former employees and directors, as well as certain fiduciary committees on behalf of participants and beneficiaries of the Ameriprise Financial 401(k) Plan. The alleged class period is from October 1, 2005, to the present. The action alleges that Ameriprise breached fiduciary duties under ERISA by selecting and retaining primarily proprietary mutual funds with poor performance histories, higher expenses relative to other investment options, and improper fees paid to Ameriprise Financial, Inc. or its subsidiaries. The action also alleges that the Company breached fiduciary duties under ERISA because it used its affiliate Ameriprise Trust Company as the Plan trustee and record-keeper and improperly reaped profits from the sale of the record-keeping business to Wachovia Bank, N.A. Plaintiffs allege over $20 million in damages. The Company plans to vigorously defend itself in this action.

 

14.  Earnings per Share Attributable to Ameriprise Financial, Inc. Common Shareholders

 

The computations of basic and diluted earnings per share attributable to Ameriprise Financial, Inc. common shareholders are as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

166

 

$

314

 

$

745

 

$

1,004

 

Less: Net income (loss) attributable to noncontrolling interests

 

(105

)

(32

)

(151

)

189

 

Income from continuing operations attributable to Ameriprise Financial

 

271

 

346

 

896

 

815

 

Income (loss) from discontinued operations, net of tax

 

2

 

(2

)

(73

)

2

 

Net income attributable to Ameriprise Financial

 

$

273

 

$

344

 

$

823

 

$

817

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic: Weighted-average common shares outstanding

 

238.0

 

255.3

 

245.0

 

259.0

 

Effect of potentially dilutive nonqualified stock options and other share-based awards

 

4.0

 

4.6

 

5.2

 

4.4

 

Diluted: Weighted-average common shares outstanding

 

242.0

 

259.9

 

250.2

 

263.4

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Ameriprise Financial, Inc. common shareholders:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.14

 

$

1.36

 

$

3.66

 

$

3.14

 

Income (loss) from discontinued operations

 

0.01

 

(0.01

)

(0.30

)

0.01

 

Net income

 

$

1.15

 

$

1.35

 

$

3.36

 

$

3.15

 

Diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.12

 

$

1.33

 

$

3.58

 

$

3.09

 

Income (loss) from discontinued operations

 

0.01

 

(0.01

)

(0.29

)

0.01

 

Net income

 

$

1.13

 

$

1.32

 

$

3.29

 

$

3.10

 

 

40



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

15.  Segment Information

 

The Company’s segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. The results of operations of Securities America, which were previously included in the Corporate & Other segment, have been presented as discontinued operations for all periods presented and the related assets and liabilities have been classified as held for sale. See Note 1 and Note 16 for additional information on discontinued operations.

 

The following is a summary of assets by segment:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Advice & Wealth Management

 

$

12,096

 

$

11,241

 

Asset Management

 

7,492

 

7,854

 

Annuities

 

83,503

 

84,836

 

Protection

 

18,884

 

18,571

 

Corporate & Other

 

8,240

 

8,539

 

Assets held for sale

 

165

 

173

 

Total assets

 

$

130,380

 

$

131,214

 

 

The following is a summary of segment results:

 

 

 

Three Months Ended September 30, 2011

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

Revenue from external customers

 

$

717

 

$

686

 

$

648

 

$

465

 

$

(49

)

$

 

$

2,467

 

Intersegment revenue

 

231

 

22

 

38

 

36

 

 

(327

)

 

Total revenues

 

948

 

708

 

686

 

501

 

(49

)

(327

)

2,467

 

Banking and deposit interest expense

 

12

 

1

 

 

 

 

(1

)

12

 

Net revenues

 

$

936

 

$

707

 

$

686

 

$

501

 

$

(49

)

$

(326

)

$

2,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income tax provision

 

$

114

 

$

97

 

$

136

 

$

64

 

$

(164

)

$

 

$

247

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

81

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

166

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

168

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(105

)

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

273

 

 

41



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

 

 

Three Months Ended September 30, 2010

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

Revenue from external customers

 

$

607

 

$

641

 

$

600

 

$

469

 

$

32

 

$

 

$

2,349

 

Intersegment revenue

 

238

 

21

 

26

 

31

 

 

(316

)

 

Total revenues

 

845

 

662

 

626

 

500

 

32

 

(316

)

2,349

 

Banking and deposit interest expense

 

15

 

 

 

 

 

 

15

 

Net revenues

 

$

830

 

$

662

 

$

626

 

$

500

 

$

32

 

$

(316

)

$

2,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income tax provision

 

$

88

 

$

104

 

$

264

 

$

67

 

$

(77

)

$

 

$

446

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

132

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

314

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

312

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(32

)

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

344

 

 

 

 

Nine Months Ended September 30, 2011

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

Revenue from external customers

 

$

2,138

 

$

2,136

 

$

1,886

 

$

1,434

 

$

52

 

$

 

$

7,646

 

Intersegment revenue

 

705

 

63

 

106

 

109

 

1

 

(984

)

 

Total revenues

 

2,843

 

2,199

 

1,992

 

1,543

 

53

 

(984

)

7,646

 

Banking and deposit interest expense

 

36

 

2

 

 

 

 

(2

)

36

 

Net revenues

 

$

2,807

 

$

2,197

 

$

1,992

 

$

1,543

 

$

53

 

$

(982

)

$

7,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income tax provision

 

$

322

 

$

329

 

$

433

 

$

261

 

$

(312

)

$

 

$

1,033

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

288

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

745

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(73

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

672

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(151

)

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

823

 

 

42



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 

 

 

Nine Months Ended September 30, 2010

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

Revenue from external customers

 

$

1,861

 

$

1,533

 

$

1,782

 

$

1,455

 

$

379

 

$

 

$

7,010

 

Intersegment revenue

 

640

 

62

 

76

 

69

 

1

 

(848

)

 

Total revenues

 

2,501

 

1,595

 

1,858

 

1,524

 

380

 

(848

)

7,010

 

Banking and deposit interest expense

 

53

 

1

 

 

 

3

 

(1

)

56

 

Net revenues

 

$

2,448

 

$

1,594

 

$

1,858

 

$

1,524

 

$

377

 

$

(847

)

$

6,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax provision

 

$

219

 

$

178

 

$

517

 

$

320

 

$

32

 

$

 

$

1,266

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

262

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

1,004

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,006

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

189

 

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

817

 

 

16.  Discontinued Operations

 

The components of income (loss) from discontinued operations, net of tax, are as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

Total net revenues

 

$

102

 

$

116

 

$

342

 

$

346

 

Pretax income (loss)

 

$

2

 

$

(4

)

$

(117

)

$

3

 

Income tax provision (benefit)

 

 

(2

)

(44

)

1

 

Income (loss) from discontinued operations, net of tax

 

$

2

 

$

(2

)

$

(73

)

$

2

 

 

Assets and liabilities classified as held for sale are as follows:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

29

 

$

23

 

Receivables

 

42

 

40

 

Other assets

 

94

 

110

 

Total assets held for sale

 

$

165

 

$

173

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Long-term debt

 

$

5

 

$

5

 

Accounts payable and accrued expenses

 

24

 

26

 

Other liabilities

 

31

 

48

 

Total liabilities held for sale

 

$

60

 

$

79

 

 

17.  Shareholders’ Equity

 

In May 2010, the Company’s Board of Directors authorized the expenditure of up to $1.5 billion for the repurchase of the Company’s common stock through the date of its 2012 annual shareholders meeting. In June 2011, the Company’s Board of Directors authorized an additional expenditure of up to $2.0 billion for the repurchase of the Company’s common stock through June 28, 2013.

 

43



Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2011 (“2010 10-K”), as well as our current reports on Form 8-K and other publicly available information. Certain reclassifications of prior year amounts have been made to conform to the current presentation. References below to “Ameriprise Financial,” the “Company,” “we,” “us,” and “our” refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.

 

Overview

 

We provide financial planning, products and services that are designed to be utilized as solutions for our clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. Our model for delivering these solutions is centered on building long-term personal relationships between our branded advisors and clients, and in the case of our products distributed through unaffiliated advisors, by supporting those advisors in building strong client relationships. We believe that our focus on personal relationships, together with our strengths in financial planning and product development and distribution, allow us to fully address the evolving financial needs of our clients and our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000.

 

Our branded advisors use a financial planning and advisory process designed to provide comprehensive advice that focuses on all aspects of our clients’ finances. This approach allows us to recommend actions and a broad range of product solutions consisting of investment, annuity, insurance, banking and other financial products that can help clients attain over time a return or form of protection while accepting what they determine to be an appropriate range and level of risk. Our approach puts us in a strong position to capitalize on significant demographic and market trends, which we believe will continue to drive increased demand for our financial planning and other financial services. Our emphasis on deep client-advisor relationships has been central to the success of our business model through the extreme market conditions of the past few years, and we believe it will help us to navigate future market and economic cycles.

 

As of September 30, 2011, we had a network of more than 9,700 financial advisors and registered representatives affiliated with us and doing business under our brand name (“Ameriprise advisors”). The financial product solutions we offer through Ameriprise advisors include both our own products and services and the products of other companies. The Ameriprise advisor network is the primary distribution channel through which we offer our life insurance and annuity products and services, as well as a range of banking and protection products. We offer our advisors training, tools, leadership, marketing programs and other field and centralized support to assist them in delivering advice and product solutions to clients. We support unaffiliated advisors with sales and service support and our solutions which they provide to clients. We believe our approach not only improves the products and services we provide to their clients, but also allows us to reinvest in enhanced services for clients and increase support for financial advisors. Our integrated model of financial planning, diversified product manufacturing and affiliated and non-affiliated product distribution affords us a deep understanding of our clients, which allows us to better manage the risk profile of our businesses. We believe our focus on meeting clients’ needs through personal financial planning results in more satisfied clients with deeper, longer lasting relationships with our company and higher retention of our experienced financial advisors.

 

We continue to establish Ameriprise Financial as a financial services leader as we focus on meeting the financial needs of the mass affluent and affluent, as evidenced by our continued leadership in financial planning, a client retention percentage rate of 92% and our status as a top ten ranked firm within core portions of our four main operating segments, including the size of our U.S. advisor force, long-term U.S. mutual funds, variable annuities and variable universal life (“VUL”) insurance.

 

Additionally, Securities America Financial Corporation, through its subsidiaries (collectively, “Securities America”), provides a platform for affiliation of independent financial advisors and registered representatives who do not conduct business under the Ameriprise brand. Securities America operates under its own name, management and legal entity organization, and operating, compliance and technology infrastructure. During the third quarter of 2011, we signed a definitive agreement to sell Securities America to Ladenburg Thalmann Financial Services, Inc. for $150 million in cash and potential future payments if Securities America reaches certain financial criteria. The sale closed on November 4, 2011. The results of Securities America have been presented as discontinued operations for all periods presented and the related assets and liabilities have been classified as held for sale.

 

44



Table of Contents

 

We have four main operating segments: Advice & Wealth Management, Asset Management, Annuities and Protection, as well as our Corporate & Other segment. Our four main operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships.

 

Equity price, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our annuities, banking and deposit products and universal life (“UL”) insurance products, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets associated with variable annuity and VUL products, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.

 

In June 2009, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to the required consolidation of certain variable interest entities (“VIEs”). We adopted the accounting standard effective January 1, 2010 and recorded as a cumulative change in accounting principle an increase to appropriated retained earnings of consolidated investment entities of $473 million and consolidated approximately $5.5 billion of client assets and $5.1 billion of liabilities in VIEs onto our Consolidated Balance Sheets that were not previously consolidated. Management views the VIE assets as client assets and the liabilities have recourse only to those assets. While the economics of our business have not changed, the financial statements were impacted. Prior to adoption, we consolidated certain property funds and hedge funds. These entities and the VIEs consolidated as of January 1, 2010, are defined as consolidated investment entities (“CIEs”). Changes in the valuation of the CIE assets and liabilities impact pretax income. The net income (loss) of the CIEs is reflected in net income (loss) attributable to noncontrolling interests. The results of operations of the CIEs are reflected in the Corporate & Other segment. On a consolidated basis, the management fees we earn for the services we provide to the CIEs and the related general and administrative expenses are eliminated and the changes in the assets and liabilities related to the CIEs, primarily debt and underlying syndicated loans, are reflected in net investment income. We continue to include the fees in the management and financial advice fees line within our Asset Management segment.

 

Management believes that operating measures, which exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. Management uses certain of these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management’s Discussion and Analysis, these non-GAAP measures are referred to as operating measures. While the consolidation of the CIEs impacts our balance sheet and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. The CIEs we manage have the following characteristics:

 

·          They were formed on behalf of institutional investors to obtain a diversified investment portfolio and were not formed in order to obtain financing for Ameriprise Financial.

 

·          Ameriprise Financial receives customary, industry standard management fees for the services it provides to these CIEs and has a fiduciary responsibility to maximize the investors’ returns.

 

·          Ameriprise Financial does not have any obligation to provide financial support to the CIEs, does not provide any performance guarantees of the CIEs and has no obligation to absorb the investors’ losses.

 

·          Management excludes the impact of consolidating the CIEs on assets, liabilities, pretax income and equity for setting our financial performance targets and annual incentive award compensation targets.

 

It is management’s priority to increase shareholder value over a multi-year horizon by achieving our on-average, over-time financial targets.

 

Our financial targets are:

 

·          Operating total net revenue growth of 6% to 8%,

 

·          Operating earnings per diluted share growth of 12% to 15%, and

 

·          Operating return on equity excluding accumulated other comprehensive income of 12% to 15%.

 

45



Table of Contents

 

Net revenues increased $121 million, or 5%, to $2.5 billion for the three months ended September 30, 2011 compared to $2.3 billion for the prior year period. Operating net revenues exclude net realized gains or losses and revenues or losses of the CIEs and include the fees we earn from services provided to the CIEs. Operating net revenues increased $194 million, or 8%, to $2.5 billion for the three months ended September 30, 2011 compared to $2.3 billion for the prior year period.

 

Net revenues increased $656 million, or 9%, to $7.6 billion for the nine months ended September 30, 2011 compared to $7.0 billion for the prior year period. Operating net revenues increased $990 million, or 15%, to $7.6 billion for the nine months ended September 30, 2011 compared to $6.6 billion for the prior year period

 

Net income from continuing operations attributable to Ameriprise Financial per diluted share decreased $0.21, or 16%, to $1.12 for the three months ended September 30, 2011 compared to $1.33 for the prior year period. Operating earnings exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs. Operating earnings per diluted share decreased $0.31, or 23%, to $1.04 for the three months ended September 30, 2011 compared to $1.35 for the prior year period.

 

Net income from continuing operations attributable to Ameriprise Financial per diluted share increased $0.49, or 16%, to $3.58 for the nine months ended September 30, 2011 compared to $3.09 for the prior year period. Operating earnings per diluted share increased $0.46, or 14%, to $3.68 for the nine months ended September 30, 2011 compared to $3.22 for the prior year period.

 

Return on equity from continuing operations excluding accumulated other comprehensive income was 12.1% for the twelve months ended September 30, 2011 compared to 11.2% for the prior year period. Operating return on equity is calculated using operating earnings for the last twelve months in the numerator and the average Ameriprise Financial, Inc. shareholders’ equity from continuing operations excluding the impact of consolidating CIEs and accumulated other comprehensive income as of the last day of the trailing four quarters and the current quarter in the denominator. Operating return on equity excluding accumulated other comprehensive income was 13.4% for the twelve months ended September 30, 2011 compared to 12.1% for the prior year period.

 

On April 30, 2010, we acquired the long-term asset management business of Columbia Management Group from Bank of America (the “Columbia Management Acquisition”). The acquisition, the integration of which is expected to be completed in early 2012, has enhanced the scale and performance of our retail mutual fund and institutional asset management businesses. We incurred pretax non-recurring integration costs related to the Columbia Management Acquisition of $24 million and $74 million for the three months and nine months ended September 30, 2011, respectively. In total, we have incurred $181 million of pretax non-recurring integration costs through September 30, 2011. These costs include system integration costs, proxy and other regulatory filing costs, employee reduction and retention costs, and investment banking, legal and other acquisition costs. Columbia Management net synergies remain on track for our target of $130 million for 2011.

 

Critical Accounting Policies

 

The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” in our 2010 10-K.

 

Recent Accounting Pronouncements

 

For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations and financial condition, see Note 2 to our Consolidated Financial Statements.

 

We will adopt new accounting rules for the deferral of insurance and annuity acquisition costs on January 1, 2012 on a retrospective basis. We estimate that the change will reduce our DAC asset by a range of $2.0 billion to $2.2 billion, which will decrease book value by a range of $1.3 billion to $1.4 billion after-tax. The change will not impact our strong excess capital position or cash flow. We estimate that the change will have a marginal impact to operating earnings in 2012.

 

46



Table of Contents

 

Assets Under Management and Administration

 

Assets under management (“AUM”) include assets for which we provide investment management services, such as the assets of the Columbia funds and Threadneedle funds, assets of institutional clients and assets of clients in our Ameriprise advisor branded platform held in wrap accounts (“branded client wrap assets”) as well as assets managed by sub-advisors selected by us. AUM also includes certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account, RiverSource Variable Product funds held in separate accounts of our life insurance subsidiaries and client assets of CIEs. These assets do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority.

 

Assets under administration (“AUA”) include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We generally record fees received from administered assets as distribution fees. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets. AUA also includes certain assets on our Consolidated Balance Sheets for which we do not provide investment management services and do not recognize management fees, such as investments in non-affiliated funds held in the separate accounts of our life insurance subsidiaries. These assets do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority.

 

The following table presents detail regarding our AUM and AUA:

 

 

 

September 30,

 

 

 

 

 

2011

 

2010

 

Change

 

 

 

(in billions)

 

 

 

Assets Under Management and Administration

 

 

 

 

 

 

 

Advice & Wealth Management AUM

 

$

98.2

 

$

91.1

 

8

%

Asset Management AUM

 

417.0

 

444.9

 

(6

)

Eliminations

 

(13.9

)

(11.6

)

(20

)

Total Assets Under Management

 

501.3

 

524.4

 

(4

)

Total Assets Under Administration

 

98.6

 

98.8

 

 

Total AUM and AUA

 

$

599.9

 

$

623.2

 

(4

)%

 

Total AUM decreased $23.1 billion, or 4%, to $501.3 billion as of September 30, 2011 compared to the prior year period primarily due to market depreciation and Asset Management AUM net outflows, partially offset by branded client wrap account net inflows.

 

47



Table of Contents

 

Consolidated Results of Operations for the Three Months Ended September 30, 2011 and 2010

 

Management believes that operating measures, which exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents our consolidated results of operations:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

1,127

 

$

(9

)

$

1,136

 

$

996

 

$

(9

)

$

1,005

 

$

131

 

13

%

Distribution fees

 

389

 

 

389

 

349

 

 

349

 

40

 

11

 

Net investment income

 

445

 

(67

)

512

 

525

 

19

 

506

 

6

 

1

 

Premiums

 

311

 

 

311

 

303

 

 

303

 

8

 

3

 

Other revenues

 

195

 

22

 

173

 

176

 

9

 

167

 

6

 

4

 

Total revenues

 

2,467

 

(54

)

2,521

 

2,349

 

19

 

2,330

 

191

 

8

 

Banking and deposit interest expense

 

12

 

 

12

 

15

 

 

15

 

(3

)

(20

)

Total net revenues

 

2,455

 

(54

)

2,509

 

2,334

 

19

 

2,315

 

194

 

8

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

624

 

 

624

 

519

 

 

519

 

105

 

20

 

Interest credited to fixed accounts

 

213

 

 

213

 

227

 

 

227

 

(14

)

(6

)

Benefits, claims, losses and settlement expenses

 

257

 

(119

)

376

 

636

 

(18

)

654

 

(278

)

(43

)

Amortization of deferred acquisition costs

 

318

 

63

 

255

 

(246

)

10

 

(256

)

511

 

NM

 

Interest and debt expense

 

71

 

47

 

24

 

74

 

45

 

29

 

(5

)

(17

)

General and administrative expense

 

725

 

30

 

695

 

678

 

23

 

655

 

40

 

6

 

Total expenses

 

2,208

 

21

 

2,187

 

1,888

 

60

 

1,828

 

359

 

20

 

Income from continuing operations before income tax provision

 

247

 

(75

)

322

 

446

 

(41

)

487

 

(165

)

(34

)

Income tax provision

 

81

 

10

 

71

 

132

 

(3

)

135

 

(64

)

(47

)

Income from continuing operations

 

166

 

(85

)

251

 

314

 

(38

)

352

 

(101

)

(29

)

Income (loss) from discontinued operations, net of tax

 

2

 

2

 

 

(2

)

(2

)

 

 

 

Net income

 

168

 

(83

)

251

 

312

 

(40

)

352

 

(101

)

(29

)

Less: Net loss attributable to noncontrolling interests

 

(105

)

(105

)

 

(32

)

(32

)

 

 

 

Net income attributable to Ameriprise Financial

 

$

273

 

$

22

 

$

251

 

$

344

 

$

(8

)

$

352

 

$

(101

)

(29

)%

 


NM Not Meaningful.

(1) Includes the elimination of management fees we earn for services provided to the CIEs and the related expense; revenues and expenses of the CIEs; net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and income (loss) from discontinued operations. Income tax provision is calculated using the statutory tax rate of 35% on applicable adjustments.

 

48


 


Table of Contents

 

The following table presents the components of the adjustments in the table above:

 

 

 

Three Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

 

 

Other

 

Total

 

 

 

Other

 

Total

 

 

 

CIEs

 

Adjustments (1)

 

Adjustments

 

CIEs

 

Adjustments (1)

 

Adjustments

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

(9

)

$

 

$

(9

)

$

(9

)

$

 

$

(9

)

Distribution fees

 

 

 

 

 

 

 

Net investment income

 

(65

)

(2

)

(67

)

17

 

2

 

19

 

Premiums

 

 

 

 

 

 

 

Other revenues

 

22

 

 

22

 

9

 

 

9

 

Total revenues

 

(52

)

(2

)

(54

)

17

 

2

 

19

 

Banking and deposit interest expense

 

 

 

 

 

 

 

Total net revenues

 

(52

)

(2

)

(54

)

17

 

2

 

19

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

 

 

 

 

 

 

Interest credited to fixed accounts

 

 

 

 

 

 

 

Benefits, claims, losses and settlement expenses

 

 

(119

)

(119

)

 

(18

)

(18

)

Amortization of deferred acquisition costs

 

 

63

 

63

 

 

10

 

10

 

Interest and debt expense

 

47

 

 

47

 

45

 

 

45

 

General and administrative expense

 

6

 

24

 

30

 

4

 

19

 

23

 

Total expenses

 

53

 

(32

)

21

 

49

 

11

 

60

 

Income from continuing operations before income tax provision

 

(105

)

30

 

(75

)

(32

)

(9

)

(41

)

Income tax provision

 

 

10

 

10

 

 

(3

)

(3

)

Income from continuing operations

 

(105

)

20

 

(85

)

(32

)

(6

)

(38

)

Income (loss) from discontinued operations, net of tax

 

 

2

 

2

 

 

(2

)

(2

)

Net income

 

(105

)

22

 

(83

)

(32

)

(8

)

(40

)

Less: Net loss attributable to noncontrolling interests

 

(105

)

 

(105

)

(32

)

 

(32

)

Net income attributable to Ameriprise Financial

 

$

 

$

22

 

$

22

 

$

 

$

(8

)

$

(8

)

 


(1)  Other adjustments include net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and income (loss) from discontinued operations.

 

49



Table of Contents

 

The following table presents a reconciliation of operating earnings per diluted share:

 

 

 

Three Months Ended
September 30,

 

Per Diluted Share
Three Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions, except per share amounts, unaudited)

 

Income from continuing operations

 

$

166

 

$

314

 

 

 

 

 

Less: Net loss attributable to noncontrolling interests

 

(105

)

(32

)

 

 

 

 

Net income from continuing operations attributable to Ameriprise Financial

 

271

 

346

 

$

1.12

 

$

1.33

 

Income (loss) from discontinued operations, net of tax

 

2

 

(2

)

0.01

 

(0.01

)

Net income attributable to Ameriprise Financial

 

273

 

344

 

1.13

 

1.32

 

Operating adjustments, after-tax

 

(22

)

8

 

(0.09

)

0.03

 

Operating earnings

 

$

251

 

$

352

 

$

1.04

 

$

1.35

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

238.0

 

255.3

 

 

 

 

 

Diluted

 

242.0

 

259.9

 

 

 

 

 

 

The following table presents a reconciliation of operating return on equity excluding accumulated other comprehensive income:

 

 

 

Twelve Months Ended

 

 

 

September 30, 2011

 

September 30, 2010

 

 

 

(in millions, unaudited)

 

Net income from continuing operations attributable to Ameriprise Financial

 

$

1,202

 

$

1,052

 

Less: Adjustments (1)

 

(58

)

(38

)

Operating earnings

 

$

1,260

 

$

1,090

 

 

 

 

 

 

 

Total Ameriprise Financial, Inc. shareholders’ equity

 

$

10,609

 

$

9,973

 

Less: Assets and liabilities held for sale

 

50

 

103

 

Less: Accumulated other comprehensive income, net of tax

 

655

 

483

 

Total Ameriprise Financial, Inc. shareholders’ equity from continuing operations excluding AOCI

 

9,904

 

9,387

 

Less: Equity impacts attributable to CIEs

 

510

 

344

 

Operating equity

 

$

9,394

 

$

9,043

 

 

 

 

 

 

 

Return on equity from continuing operations, excluding AOCI

 

12.1

%

11.2

%

Operating return on equity excluding AOCI (2)

 

13.4

%

12.1

%

 


(1)  Adjustments reflect the trailing twelve months’ sum of after-tax net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of DAC and DSIC; and integration and restructuring charges.

(2)  Operating return on equity excluding accumulated other comprehensive income is calculated using the trailing twelve months of earnings excluding the after-tax net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of DAC and DSIC; integration and restructuring charges; and discontinued operations in the numerator, and Ameriprise Financial, Inc. shareholders’ equity excluding accumulated other comprehensive income; the impact of CIEs; and the assets and liabilities held for sale using a five point average of quarter-end equity in the denominator.

 

Overall

 

Net income attributable to Ameriprise Financial decreased $71 million, or 21%, to $273 million for the three months ended September 30, 2011 compared to $344 million for the prior year period. Net income from continuing operations attributable to Ameriprise Financial decreased $75 million, or 22%, to $271 million for the three months ended September 30, 2011 compared to $346 million for the prior year period. Operating earnings excludes net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs. Operating earnings decreased $101 million, or 29%, to $251 million for the three months ended September 30, 2011 compared to $352 million for the prior year period reflecting the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization. The market impact on DAC and DSIC amortization was a $65 million pretax charge in the third quarter of 2011 compared to a $39 million pretax benefit in the third quarter of 2010.

 

50



Table of Contents

 

The total pretax impacts on our revenues and expenses for the third quarter of 2011 attributable to the review of valuation assumptions and models on an operating basis were as follows:

 

Segment Pretax Benefit (Charge)

 

Other Revenues

 

Benefits,
Claims, Losses
and Settlement
Expenses

 

Amortization
of DAC

 

Total

 

 

 

(in millions)

 

Valuation assumptions and model changes:

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

40

 

$

(65

)

$

(25

)

Protection

 

(20

)

4

 

2

 

(14

)

Total

 

$

(20

)

$

44

 

$

(63

)

$

(39

)

 

The total pretax impacts on our revenues and expenses for the third quarter of 2010 attributable to the review of valuation assumptions and models on an operating basis were as follows:

 

Segment Pretax Benefit (Charge)

 

Other Revenues

 

Benefits,
Claims, Losses
and Settlement
Expenses

 

Amortization
of DAC

 

Total

 

 

 

(in millions)

 

Valuation assumptions and model changes:

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

(261

)

$

332

 

$

71

 

Protection

 

(20

)

(44

)

15

 

(49

)

Total

 

$

(20

)

$

(305

)

$

347

 

$

22

 

 

Net Revenues

 

Net revenues increased $121 million, or 5%, to $2.5 billion for the three months ended September 30, 2011 compared to $2.3 billion for the prior year period. Operating net revenues exclude net realized gains or losses and revenues or losses of the CIEs and include the fees we earn from services provided to the CIEs. Operating net revenues increased $194 million, or 8%, to $2.5 billion for the three months ended September 30, 2011 compared to $2.3 billion for the prior year period driven by growth in asset-based fees from net inflows in branded client wrap assets and increased client activity.

 

Management and financial advice fees increased $131 million, or 13%, to $1.1 billion for the three months ended September 30, 2011 compared to $996 million for the prior year period. Operating management and financial advice fees include the fees we earn from services provided to the CIEs. Operating management and financial advice fees increased $131 million, or 13%, to $1.1 billion for the three months ended September 30, 2011 compared to $1.0 billion for the prior year period driven by growth in asset-based fees from net inflows in branded client wrap assets. Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion at September 30, 2011 compared to the prior year period due to net inflows, partially offset by market depreciation. Total Asset Management AUM decreased $27.9 billion, or 6%, to $417.0 billion at September 30, 2011 compared to the prior year period due to net outflows and market depreciation. The period end S&P 500 Index decreased 1% compared to the prior year period. Average variable annuities contract accumulation values increased $6.0 billion, or 12%, from the prior year period due to higher average equity market levels, as well as net inflows. The daily average S&P 500 Index increased 12% compared to the prior year period.

 

Distribution fees increased $40 million, or 11%, to $389 million for the three months ended September 30, 2011 compared to $349 million in the prior year period primarily due to higher asset-based fees from net inflows in branded client wrap assets and increased client activity.

 

Net investment income decreased $80 million, or 15%, to $445 million for the three months ended September 30, 2011 compared to $525 million in the prior year period. Net investment income for the third quarter of 2011 included a $65 million loss for changes in the assets and liabilities of CIEs, primarily debt and underlying syndicated loans, compared to a $17 million gain in the prior year period. Operating net investment income excludes net realized gains or losses and changes in the assets and liabilities of CIEs. Operating net investment income increased $6 million, or 1%, to $512 million for the three months ended September 30, 2011 compared to $506 million for the prior year period due to $43 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities, partially offset by a decrease in net investment income reflecting the low interest rate environment and lower invested assets resulting from net outflows in certificates.

 

51



Table of Contents

 

Premiums increased $8 million, or 3%, to $311 million for the three months ended September 30, 2011 compared to $303 million for the prior year period primarily due to growth in Auto and Home premiums driven by higher volumes, as well as higher sales of immediate annuities with life contingencies. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues increased $19 million, or 11%, to $195 million for the three months ended September 30, 2011 compared to $176 million in the prior year period. Operating other revenues exclude revenues or losses of the CIEs. Operating other revenues increased $6 million, or 4%, to $173 million for the three months ended September 30, 2011 compared to $167 million in the prior year period. Operating other revenues for the three months ended September 30, 2011 included higher fees from variable annuity guarantees driven by higher in force amounts compared to the prior year period.

 

Banking and deposit interest expense decreased $3 million, or 20%, to $12 million for the three months ended September 30, 2011 compared to $15 million in the prior year period primarily due to lower certificate balances, as well as a decrease in crediting rates on certificate products.

 

Expenses

 

Total expenses increased $320 million, or 17%, to $2.2 billion for the three months ended September 30, 2011 compared to $1.9 billion for the prior year period. Operating expenses exclude the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and expenses of the CIEs. Operating expenses increased $359 million, or 20%, to $2.2 billion for the three months ended September 30, 2011 compared to $1.8 billion for the prior year period primarily due to the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization, as well as increases in distribution expenses and general and administrative expense.

 

Distribution expenses increased $105 million, or 20%, to $624 million for the three months ended September 30, 2011 compared to $519 million for the prior year period as a result of higher year-over-year average retail balances and higher advisor compensation from business growth.

 

Interest credited to fixed accounts decreased $14 million, or 6%, to $213 million for the three months ended September 30, 2011 compared to $227 million for the prior year period driven by lower average variable annuities fixed sub-account balances and a lower average crediting rate on interest sensitive fixed annuities, as well as lower average fixed annuity account balances. Average variable annuities fixed sub-account balances decreased $147 million, or 3%, to $4.8 billion for the third quarter of 2011 compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.7% in the third quarter of 2011 compared to 3.8% in the prior year period. Average fixed annuities contract accumulation values decreased $311 million, or 2%, to $14.2 billion for the third quarter of 2011 compared to the prior year period.

 

Benefits, claims, losses and settlement expenses decreased $379 million, or 60%, to $257 million for the three months ended September 30, 2011 compared to $636 million for the prior year period. Operating benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges and DSIC amortization, decreased $278 million, or 43%, to $376 million for the three months ended September 30, 2011 compared to $654 million for the prior year period primarily due to the impact of updating valuation assumptions and models. Operating benefits, claims, losses and settlement expenses in the third quarter of 2011 included a benefit of $44 million from updating valuation assumptions and models compared to an expense of $305 million in the prior year period. Benefits, claims, losses and settlement expenses related to our Auto and Home business increased from the prior year period due to $23 million of catastrophe losses primarily from Hurricane Irene claims and higher reserves reflecting elevated reserve levels for future claims. The market impact to DSIC was an expense of $9 million in the third quarter of 2011 compared to a benefit of $5 million in the prior year period.

 

Amortization of DAC increased $564 million to $318 million for the three months ended September 30, 2011 compared to a benefit of $246 million for the prior year period. Operating amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed living benefits, increased $511 million to $255 million for the three months ended September 30, 2011 compared to a benefit of $256 million for the prior year period primarily due to the impact of updating valuation assumptions and models, as well as the market impact on amortization of DAC. Operating amortization of DAC in the third quarter of 2011 included an expense of $63 million from updating valuation assumptions and models compared to a benefit of $347 million in the prior year period. The market impact on amortization of DAC was an expense of $56 million for the three months ended September 30, 2011 compared to a benefit of $34 million for the prior year period.

 

52



Table of Contents

 

Interest and debt expense decreased $3 million, or 4%, to $71 million for the three months ended September 30, 2011 compared to $74 million for the prior year period. Operating interest and debt expense, which excludes interest expense on CIE debt, decreased $5 million, or 17%, to $24 million for the three months ended September 30, 2011 compared to $29 million for the prior year period due to lower outstanding debt balances.

 

General and administrative expense increased $47 million, or 7%, to $725 million for the three months ended September 30, 2011 compared to $678 million for the prior year period. Operating general and administrative expense excludes integration and restructuring charges and expenses of the CIEs. Integration and restructuring charges increased $5 million to $24 million in the third quarter of 2011 compared to $19 million in the prior year period. Operating general and administrative expense increased $40 million, or 6%, to $695 million for the three months ended September 30, 2011 compared to $655 million for the prior year period primarily due to $10 million of Threadneedle project implementation costs, primarily related to a new transfer agency agreement, and higher costs related to new product and distribution investments compared to the prior year period.

 

Income Taxes

 

Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 32.5% for the three months ended September 30, 2011, compared to 29.7% for the three months ended September 30, 2010. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 22.9% for the three months ended September 30, 2011, compared to 27.7% for the three months ended September 30, 2010. Our operating effective tax rate was 22.0% for the three months ended September 30, 2011, compared to 27.7% for the three months ended September 30, 2010.

 

The following table presents a reconciliation of our operating effective tax rate:

 

 

 

Three Months Ended
September 30, 2011

 

Three Months Ended
September 30, 2010

 

 

 

GAAP

 

Operating

 

GAAP

 

Operating

 

 

 

(in millions, unaudited)

 

Income from continuing operations before income tax provision

 

$

247

 

$

322

 

$

446

 

$

487

 

Less: Pretax loss attributable to noncontrolling interests

 

(105

)

 

(32

)

 

Income from continuing operations before income tax provision excluding CIEs

 

$

352

 

$

322

 

$

478

 

$

487

 

 

 

 

 

 

 

 

 

 

 

Income tax provision from continuing operations

 

$

81

 

$

71

 

$

132

 

$

135

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

32.5

%

22.0

%

29.7

%

27.7

%

Effective tax rate excluding noncontrolling interests

 

22.9

%

22.0

%

27.7

%

27.7

%

 

On September 25, 2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that we receive.

 

53



Table of Contents

 

Results of Operations by Segment for the Three Months Ended September 30, 2011 and 2010

 

The following table presents summary financial information by segment:

 

 

 

Three Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

 

 

(in millions, unaudited)

 

Advice & Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

936

 

$

(2

)

$

938

 

$

830

 

$

 

$

830

 

Expenses

 

822

 

 

822

 

742

 

1

 

741

 

Pretax income

 

$

114

 

$

(2

)

$

116

 

$

88

 

$

(1

)

$

89

 

Asset Management

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

707

 

$

2

 

$

705

 

$

662

 

$

1

 

$

661

 

Expenses

 

610

 

24

 

586

 

558

 

18

 

540

 

Pretax income

 

$

97

 

$

(22

)

$

119

 

$

104

 

$

(17

)

$

121

 

Annuities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

686

 

$

(2

)

$

688

 

$

626

 

$

(1

)

$

627

 

Expenses

 

550

 

(56

)

606

 

362

 

(8

)

370

 

Pretax income

 

$

136

 

$

54

 

$

82

 

$

264

 

$

7

 

$

257

 

Protection

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

501

 

$

(1

)

$

502

 

$

500

 

$

 

$

500

 

Expenses

 

437

 

 

437

 

433

 

 

433

 

Pretax income

 

$

64

 

$

(1

)

$

65

 

$

67

 

$

 

$

67

 

Corporate & Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

(49

)

$

(42

)

$

(7

)

$

32

 

$

28

 

$

4

 

Expenses

 

115

 

62

 

53

 

109

 

58

 

51

 

Pretax loss

 

(164

)

(104

)

(60

)

(77

)

(30

)

(47

)

Less: Pretax loss attributable to noncontrolling interests

 

(105

)

(105

)

 

(32

)

(32

)

 

Pretax loss attributable to Ameriprise Financial

 

$

(59

)

$

1

 

$

(60

)

$

(45

)

$

2

 

$

(47

)

Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

(326

)

$

(9

)

$

(317

)

$

(316

)

$

(9

)

$

(307

)

Expenses

 

(326

)

(9

)

(317

)

(316

)

(9

)

(307

)

Pretax income

 

$

 

$

 

$

 

$

 

$

 

$

 

 


(1)  Includes the elimination of management fees we earn for services provided to the CIEs and the related expense; revenues and expenses of the CIEs; net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; and integration and restructuring charges.

 

54



Table of Contents

 

Advice & Wealth Management

 

Our Advice & Wealth Management segment provides financial planning and advice, as well as full service brokerage and banking services, primarily to retail clients through our Ameriprise financial advisors. Ameriprise financial advisors utilize a diversified selection of both affiliated and non-affiliated products to help clients meet their financial needs. A significant portion of revenues in this segment is fee-based, driven by the level of client assets, which is impacted by both market movements and net asset flows. We also earn net investment income on invested assets primarily from certificate and banking products. This segment earns revenues (distribution fees) for distributing non-affiliated products and earns intersegment revenues (distribution fees) for distributing our affiliated products and services to our retail clients. Intersegment expenses for this segment include expenses for investment management services provided by the Asset Management segment.

 

In addition to purchases of affiliated and non-affiliated mutual funds and other securities on a stand-alone basis, clients may purchase mutual funds, among other securities, in connection with investment advisory fee-based “wrap account” programs or services, and pay fees based on a percentage of their assets.

 

The following table presents the changes in branded client wrap assets for the three months ended September 30:

 

 

 

2011

 

2010

 

 

 

(in billions)

 

Beginning balance

 

$

105.9

 

$

83.0

 

Net flows

 

0.8

 

1.6

 

Market appreciation/(depreciation) and other

 

(9.8

)

6.5

 

Ending balance

 

$

96.9

 

$

91.1

 

 

The following table presents the changes in branded client wrap assets for the twelve months ended September 30:

 

 

 

2011

 

2010

 

 

 

(in billions)

 

Beginning balance

 

$

91.1

 

$

76.9

 

Net flows

 

7.7

 

8.1

 

Market appreciation/(depreciation) and other

 

(1.9

)

6.1

 

Ending balance

 

$

96.9

 

$

91.1

 

 

Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion compared to the prior year period due to net inflows, partially offset by market depreciation.

 

Management believes that operating measures, which exclude net realized gains or losses and integration and restructuring charges for our Advice & Wealth Management segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

55



Table of Contents

 

The following table presents the results of operations of our Advice & Wealth Management segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

401

 

$

 

$

401

 

$

333

 

$

 

$

333

 

$

68

 

20

%

Distribution fees

 

461

 

 

461

 

429

 

 

429

 

32

 

7

 

Net investment income

 

71

 

(2

)

73

 

66

 

 

66

 

7

 

11

 

Other revenues

 

15

 

 

15

 

17

 

 

17

 

(2

)

(12

)

Total revenues

 

948

 

(2

)

950

 

845

 

 

845

 

105

 

12

 

Banking and deposit interest expense

 

12

 

 

12

 

15

 

 

15

 

(3

)

(20

)

Total net revenues

 

936

 

(2

)

938

 

830

 

 

830

 

108

 

13

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

547

 

 

547

 

478

 

 

478

 

69

 

14

 

General and administrative expense

 

275

 

 

275

 

264

 

1

 

263

 

12

 

5

 

Total expenses

 

822

 

 

822

 

742

 

1

 

741

 

81

 

11

 

Pretax income

 

$

114

 

$

(2

)

$

116

 

$

88

 

$

(1

)

$

89

 

$

27

 

30

%

 


(1) Adjustments include net realized gains or losses and integration and restructuring charges.

 

Our Advice & Wealth Management segment pretax income increased $26 million, or 30%, to $114 million for the three months ended September 30, 2011 compared to $88 million in the prior year period. Our Advice & Wealth Management segment pretax operating income, which excludes net realized gains or losses and integration and restructuring charges, increased $27 million, or 30%, to $116 million for the three months ended September 30, 2011 compared to $89 million in the prior year period due to improved advisor productivity and new client flows. Pretax margin was 12.2% for the third quarter of 2011 compared to 10.6% for the prior year period. Pretax operating margin was 12.4% for the third quarter of 2011 compared to 10.7% for the prior year period. We continued to increase the productivity of our advisors. Operating net revenue per advisor was $97,000 in the third quarter of 2011, a 14% increase compared to the prior year period, primarily driven by higher assets under management and increased client activity. The number of branded advisors increased for the second consecutive quarter, driven by the strongest quarter for experienced advisor recruiting since the second quarter of 2009 and continued strong advisor retention.

 

Net Revenues

 

Net revenues increased $106 million, or 13%, to $936 million for the three months ended September 30, 2011 compared to $830 million in the prior year period. Operating net revenues exclude net realized gains or losses. Operating net revenues increased $108 million, or 13%, to $938 million for the three months ended September 30, 2011 compared to $830 million in the prior year period driven by higher management and distribution fees from growth in assets under management and increased client activity.

 

Management and financial advice fees increased $68 million, or 20%, to $401 million for the three months ended September 30, 2011 compared to $333 million for the prior year period driven by growth in assets under management. Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion compared to the prior year period due to net inflows, partially offset by market depreciation.

 

Distribution fees increased $32 million, or 7%, to $461 million for the three months ended September 30, 2011 compared to $429 million for the prior year period primarily driven by growth in assets under management and increased client activity.

 

Net investment income increased $5 million, or 8%, to $71 million for the three months ended September 30, 2011 compared to $66 million for the prior year period. Operating net investment income, which excludes net realized gains or losses, increased $7 million, or 11%, to $73 million for the three months ended September 30, 2011 compared to $66 million for the prior year period due to higher banking and brokerage invested asset balances and $6 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities, partially offset by a decrease in net investment income due to lower certificate invested assets resulting from net outflows in certificates driven by lower interest crediting rates.

 

56


 

 

 

 

 

 

 


Table of Contents

 

Banking and deposit interest expense decreased $3 million, or 20%, to $12 million for the three months ended September 30, 2011 compared to $15 million for the prior year period primarily due to lower certificate balances, as well as a decrease in crediting rates on certificate products.

 

Expenses

 

Total expenses increased $80 million, or 11%, to $822 million for the three months ended September 30, 2011 compared to $742 million for the prior year period. Operating expenses, which exclude integration and restructuring charges, increased $81 million, or 11%, to $822 million for the three months ended September 30, 2011 compared to $741 million for the prior year period primarily due to an increase in distribution expenses.

 

Distribution expenses increased $69 million, or 14%, to $547 million for the three months ended September 30, 2011 compared to $478 million for the prior year period primarily due to higher advisor compensation from business growth.

 

Asset Management

 

Our Asset Management segment provides investment advice and investment products to retail and institutional clients. Columbia Management Investment Advisers, LLC (formerly RiverSource Investments, LLC, and referred to as “Columbia” or “Columbia Management”) predominantly provides U.S. domestic products and services and Threadneedle Asset Management Holdings Sàrl (“Threadneedle”) predominantly provides international investment products and services. Columbia retail products are distributed through unaffiliated third party financial institutions, through our Advice & Wealth Management segment and also through Bank of America and its affiliates. Institutional products and services are primarily sold through our institutional sales force. Threadneedle retail products are primarily distributed through third parties. Retail products include mutual funds and variable product funds underlying insurance and annuity separate accounts. Institutional asset management services are designed to meet specific client objectives and may involve a range of products including those that focus on traditional asset classes, separately managed accounts, individually managed accounts, collateralized loan obligations, hedge funds, collective funds and property funds. Revenues in this segment are primarily earned as fees based on managed asset balances, which are impacted by both market movements and net asset flows. In addition to the products and services provided to third party clients, management teams serving our Asset Management segment provide all intercompany asset management services. The fees for all such services are reflected within the Asset Management segment results through intersegment transfer pricing. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management, Annuities and Protection segments.

 

On April 30, 2010, we completed the acquisition of the long-term asset management business of the Columbia Management Group from Bank of America. The acquisition significantly enhanced the capabilities of the Asset Management segment by increasing its scale, broadening its retail and institutional distribution capabilities and strengthening and diversifying its lineup of retail and institutional products. The integration of the Columbia Management business, which is ongoing and is expected to be completed in early 2012, has involved organizational changes to our portfolio management and analytical teams and to our operational, compliance, sales and marketing support staffs. This integration has also involved the streamlining of our U.S. domestic product offerings. As a result of the integration, we combined RiverSource Investments, our legacy U.S. asset management business, with Columbia Management, under the Columbia brand. Total U.S. retail assets and number of funds under the Columbia brand as of September 30, 2011 were $194.1 billion and 205 funds, respectively.

 

Threadneedle will remain our primary international investment management platform. Threadneedle manages four Open Ended Investment Companies (“OEICs”) and one Societe d’Investissement A Capital Variable (“SICAV”) offering. The four OEICs are Threadneedle Investment Funds ICVC (“TIF”), Threadneedle Specialist Investment Funds ICVC (“TSIF”), Threadneedle Focus Investment Funds (“TFIF”) and Threadneedle Advantage Portfolio Funds (“TPAF”). TIF, TSIF, TFIF and TPAF are structured as umbrella companies with a total of 52 (33, 14, 2 and 3, respectively) sub funds covering the world’s bond and equity markets. The SICAV is the Threadneedle (Lux) SICAV (“T(Lux)”). T(Lux) is structured as an umbrella company with a total of 28 sub funds covering the world’s bond, commodities and equity markets. In addition, Threadneedle manages 13 unit trusts, 10 of which invest into the OEICs, 6 property unit trusts and 1 property fund of funds.

 

57



Table of Contents

 

The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of September 30, 2011:

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

Mutual Fund Rankings in top 2 Lipper Quartiles

 

 

 

 

 

 

 

 

 

 

 

Domestic Equity

 

Equal weighted

 

1 year

54%

 

 

 

 

3 year

48%

 

 

 

 

5 year

66%

 

 

Asset weighted

 

1 year

56%

 

 

 

 

3 year

60%

 

 

 

 

5 year

60%

 

 

 

 

 

 

International Equity

 

Equal weighted

 

1 year

33%

 

 

 

 

3 year

41%

 

 

 

 

5 year

50%

 

 

Asset weighted

 

1 year

18%

 

 

 

 

3 year

61%

 

 

 

 

5 year

66%

 

 

 

 

 

 

Taxable Fixed Income

 

Equal weighted

 

1 year

70%

 

 

 

 

3 year

58%

 

 

 

 

5 year

68%

 

 

Asset weighted

 

1 year

85%

 

 

 

 

3 year

56%

 

 

 

 

5 year

73%

 

 

 

 

 

 

Tax Exempt Fixed Income

 

Equal weighted

 

1 year

100%

 

 

 

 

3 year

100%

 

 

 

 

5 year

95%

 

 

Asset weighted

 

1 year

100%

 

 

 

 

3 year

100%

 

 

 

 

5 year

99%

 

 

 

 

 

 

Asset Allocation Funds

 

Equal weighted

 

1 year

95%

 

 

 

 

3 year

57%

 

 

 

 

5 year

57%

 

 

Asset weighted

 

1 year

92%

 

 

 

 

3 year

88%

 

 

 

 

5 year

88%

 

 

 

 

 

 

Number of funds with 4 or 5 Morningstar star ratings

 

 

 

Overall

54

 

 

 

 

3 year

48

 

 

 

 

5 year

46

 

 

 

 

 

 

Percent of funds with 4 or 5 Morningstar star ratings

 

 

 

Overall

46%

 

 

 

 

3 year

41%

 

 

 

 

5 year

41%

 

 

 

 

 

 

Percent of assets with 4 or 5 Morningstar star ratings

 

 

 

Overall

58%

 

 

 

 

3 year

39%

 

 

 

 

5 year

41%

 

Mutual fund performance rankings are based on the performance of Class Z fund shares for Columbia branded mutual funds. In instances where a fund’s Class Z shares do not have a full one, three or five year track record, performance for an older share class of the same fund, typically Class A shares, is utilized for the period before Class Z shares were launched. No adjustments to the historical track records are made to account for differences in fund expenses between share classes of a fund.

 

Equal Weighted Rankings in Top 2 Quartiles: Counts the number of funds with above median ranking divided by the total number of funds. Asset size is not a factor.

 

Asset Weighted Rankings in Top 2 Quartiles: Sums the total assets of the funds with above median ranking (using Class Z and appended Class Z) divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.

 

Aggregated data includes all Columbia branded mutual funds.

 

58



Table of Contents

 

Threadneedle

 

 

 

 

 

 

 

 

 

 

 

Retail Fund Rankings in Top 2 Morningstar Quartiles or Above Index Benchmark

 

 

 

 

 

 

 

 

 

Equity

 

Equal weighted

 

1 year

65%

 

 

 

 

3 year

78%

 

 

 

 

5 year

86%

 

 

Asset weighted

 

1 year

67%

 

 

 

 

3 year

82%

 

 

 

 

5 year

90%

 

 

 

 

 

 

Fixed Income

 

Equal weighted

 

1 year

64%

 

 

 

 

3 year

69%

 

 

 

 

5 year

73%

 

 

Asset weighted

 

1 year

58%

 

 

 

 

3 year

62%

 

 

 

 

5 year

91%

 

 

 

 

 

 

Allocation (Managed) Funds

 

Equal weighted

 

1 year

50%

 

 

 

 

3 year

83%

 

 

 

 

5 year

100%

 

 

Asset weighted

 

1 year

54%

 

 

 

 

3 year

87%

 

 

 

 

5 year

100%

 

The performance of each fund is measured on a consistent basis against the most appropriate benchmark — a peer group of similar funds or an index.

 

Equal weighted: Counts the number of funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total number of funds. Asset size is not a factor.

 

Asset weighted: Sums the assets of the funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total sum of assets in the funds. Funds with more assets will receive a greater share of the total percentage above or below median or index.

 

Aggregated Allocation (Managed) Funds include funds that invest in other funds of the Threadneedle range including those funds that invest in both equity and fixed income.

 

Aggregated Threadneedle data includes funds on the Threadneedle platform sub-advised by Columbia as well as advisors not affiliated with Ameriprise Financial, Inc.

 

The following tables present changes in Columbia and Threadneedle managed assets for the three months ended September 30:

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Appreciation/

 

 

 

 

 

 

 

July 1,

 

 

 

Depreciation

 

Foreign

 

September 30,

 

 

 

2011

 

Net Flows

 

& Other (1)

 

Exchange

 

2011

 

 

 

(in billions)

 

Columbia Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

$

225.4

 

$

(1.9

)

$

(29.4

)

$

 

$

194.1

 

Institutional Funds

 

127.5

 

(2.0

)

(3.7

)

 

121.8

 

Alternative Funds

 

9.3

 

(0.2

)

(0.1

)

 

9.0

 

Less: Eliminations

 

(0.2

)

 

 

 

(0.2

)

Total Columbia Managed Assets

 

362.0

 

(4.1

)

(33.2

)

 

324.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Threadneedle Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

36.6

 

(1.2

)

(4.4

)

(0.9

)

30.1

 

Institutional Funds

 

72.5

 

0.4

 

(5.7

)

(2.0

)

65.2

 

Alternative Funds

 

1.3

 

 

(0.1

)

 

1.2

 

Total Threadneedle Managed Assets

 

110.4

 

(0.8

)

(10.2

)

(2.9

)

96.5

 

Less: Sub-Advised Eliminations

 

(5.2

)

0.1

 

0.9

 

 

(4.2

)

Total Managed Assets

 

$

467.2

 

$

(4.8

)

$

(42.5

)

$

(2.9

)

$

417.0

 

 

59



Table of Contents

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Appreciation/

 

 

 

 

 

 

 

July 1,

 

 

 

Depreciation

 

Foreign

 

September 30,

 

 

 

2010

 

Net Flows

 

& Other (1)

 

Exchange

 

2010

 

 

 

 

 

 

 

(in billions)

 

 

 

 

 

Columbia Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

$

189.4

 

$

(2.1

)

$

18.0

 

$

 

$

205.3

 

Institutional Funds

 

128.0

 

(0.6

)

4.4

 

 

131.8

 

Alternative Funds

 

10.0

 

(0.1

)

0.2

 

 

10.1

 

Less: Eliminations

 

 

 

(0.1

)

 

(0.1

)

Total Columbia Managed Assets

 

327.4

 

(2.8

)

22.5

 

 

347.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Threadneedle Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

27.3

 

(0.3

)

2.3

 

1.4

 

30.7

 

Institutional Funds

 

60.5

 

1.6

 

4.6

 

3.1

 

69.8

 

Alternative Funds

 

1.5

 

(0.2

)

 

0.1

 

1.4

 

Total Threadneedle Managed Assets

 

89.3

 

1.1

 

6.9

 

4.6

 

101.9

 

Less: Sub-Advised Eliminations

 

(3.4

)

(0.1

)

(0.6

)

 

(4.1

)

Total Managed Assets

 

$

413.3

 

$

(1.8

)

$

28.8

 

$

4.6

 

$

444.9

 

 


(1) Distributions of Retail Funds are included in market appreciation/depreciation and other.

 

The following table presents changes in Columbia and Threadneedle managed assets for the twelve months ended September 30, 2011:

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Appreciation/

 

 

 

 

 

 

 

October 1,

 

 

 

Depreciation

 

Foreign

 

September 30,

 

 

 

2010

 

Net Flows

 

& Other (1)

 

Exchange

 

2011

 

 

 

(in billions)

 

Columbia Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

$

205.3

 

$

(3.1

)

$

(8.1

)

$

 

$

194.1

 

Institutional Funds

 

131.8

 

(7.2

)

(2.8

)

 

121.8

 

Alternative Funds

 

10.1

 

(1.2

)

0.1

 

 

9.0

 

Less: Eliminations

 

(0.1

)

 

(0.1

)

 

(0.2

)

Total Columbia Managed Assets

 

347.1

 

(11.5

)

(10.9

)

 

324.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Threadneedle Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

30.7

 

1.5

 

(1.8

)

(0.3

)

30.1

 

Institutional Funds

 

69.8

 

(3.9

)

(0.2

)

(0.5

)

65.2

 

Alternative Funds

 

1.4

 

(0.2

)

 

 

1.2

 

Total Threadneedle Managed Assets

 

101.9

 

(2.6

)

(2.0

)

(0.8

)

96.5

 

Less: Sub-Advised Eliminations

 

(4.1

)

(0.9

)

0.8

 

 

(4.2

)

Total Managed Assets

 

$

444.9

 

$

(15.0

)

$

(12.1

)

$

(0.8

)

$

417.0

 

 


(1) Distributions of Retail Funds are included in market appreciation/depreciation and other.

 

Columbia assets under management were $324.7 billion at September 30, 2011 compared to $347.1 billion a year ago driven by net outflows and market depreciation. Columbia had $4.1 billion of net outflows in the third quarter of 2011, evenly divided between retail and institutional channels. Columbia retail outflows were primarily in equity portfolios and were in line with industry trends. Columbia institutional outflows were primarily comprised of lower-fee, former parent-company relationships where the assets are expected to continue to transition over time and fluctuate quarter to quarter. Threadneedle assets under management were $96.5 billion at September 30, 2011, down 5% from a year ago reflecting market depreciation and net outflows. Threadneedle had a total of $0.8 billion of net outflows in the quarter, comprised of $1.2 billion of retail outflows primarily from European clients, partially offset by $0.4 billion of institutional net inflows. Institutional net flows were positive as new mandates in the Middle East more than offset continued run-off of the low-margin Zurich assets.

 

Management believes that operating measures, which exclude net realized gains or losses and integration charges for our Asset Management segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

60



Table of Contents

 

The following table presents the results of operations of our Asset Management segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

599

 

$

 

$

599

 

$

551

 

$

 

$

551

 

$

48

 

9

%

Distribution fees

 

108

 

 

108

 

103

 

 

103

 

5

 

5

 

Net investment income (loss)

 

(2

)

2

 

(4

)

6

 

1

 

5

 

(9

)

NM

 

Other revenues

 

3

 

 

3

 

2

 

 

2

 

1

 

50

 

Total revenues

 

708

 

2

 

706

 

662

 

1

 

661

 

45

 

7

 

Banking and deposit interest expense

 

1

 

 

1

 

 

 

 

1

 

NM

 

Total net revenues

 

707

 

2

 

705

 

662

 

1

 

661

 

44

 

7

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

258

 

 

258

 

215

 

 

215

 

43

 

20

 

Amortization of deferred acquisition costs

 

5

 

 

5

 

5

 

 

5

 

 

 

General and administrative expense

 

347

 

24

 

323

 

338

 

18

 

320

 

3

 

1

 

Total expenses

 

610

 

24

 

586

 

558

 

18

 

540

 

46

 

9

 

Pretax income

 

$

97

 

$

(22

)

$

119

 

$

104

 

$

(17

)

$

121

 

$

(2

)

(2

)%

 


NM Not Meaningful.

(1) Adjustments include net realized gains or losses and integration charges.

 

Our Asset Management segment pretax income decreased $7 million, or 7%, to $97 million for the three months ended September 30, 2011 compared to $104 million for the prior year period. Our Asset Management segment pretax operating income, which excludes net realized gains or losses and integration charges, decreased $2 million, or 2%, to $119 million for the three months ended September 30, 2011 compared to $121 million for the prior year period. Pretax margin was 13.7% for the third quarter of 2011 compared to 15.7% for the prior year period. Pretax operating margin was 16.9% for the third quarter of 2011 compared to 18.3% for the prior year period.

 

Net Revenues

 

Net revenues increased $45 million, or 7%, to $707 million for the three months ended September 30, 2011 compared to $662 million for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $44 million, or 7%, to $705 million for the three months ended September 30, 2011 compared to $661 million for the prior year period driven by an increase in management fees.

 

Management and financial advice fees increased $48 million, or 9%, to $599 million for the three months ended September 30, 2011 compared to $551 million for the prior year period primarily due to growth in average assets, partially offset by net outflows.

 

Distribution fees increased $5 million, or 5%, to $108 million for the three months ended September 30, 2011 compared to $103 million for the prior year period primarily due to growth in average assets, partially offset by net outflows.

 

Net investment loss was $2 million for the three months ended September 30, 2011 compared to income of $6 million for the prior year period. Operating net investment loss, which excludes net realized gains or losses, was $4 million for the three months ended September 30, 2011 compared to income of $5 million for the prior year period. Net investment loss for the third quarter of 2011 included losses on seed money investments compared to gains in the prior year period.

 

61



Table of Contents

 

Expenses

 

Total expenses increased $52 million, or 9%, to $610 million for the three months ended September 30, 2011 compared to $558 million for the prior year period. Operating expenses, which exclude integration charges, increased $46 million, or 9%, to $586 million for the three months ended September 30, 2011 compared to $540 million for the prior year period primarily due to higher distribution expenses.

 

Distribution expenses increased $43 million, or 20%, to $258 million for the three months ended September 30, 2011 compared to $215 million for the prior year period primarily due to growth in average assets, partially offset by net outflows.

 

General and administrative expense increased $9 million, or 3%, to $347 million for the three months ended September 30, 2011 compared to $338 million for the prior year period. Integration charges increased $6 million to $24 million for the three months ended September 30, 2011 compared to $18 million in the prior year period. Operating general and administrative expense, which excludes integration charges, increased $3 million, or 1%, to $323 million for the three months ended September 30, 2011 compared to $320 million for the prior year period due to $10 million of Threadneedle project implementation costs, primarily related to a new transfer agency agreement, partially offset by a decrease in compensation expense.

 

Annuities

 

Our Annuities segment provides variable and fixed annuity products of RiverSource Life companies to retail clients. Prior to the fourth quarter of 2010, our variable annuity products were distributed through affiliated financial advisors as well as unaffiliated advisors through third-party distribution. During the fourth quarter of 2010, we discontinued new sales of our variable annuities in non-Ameriprise channels to further strengthen the risk and return characteristics of the business. Our fixed annuity products are distributed through affiliated advisors as well as unaffiliated advisors through third-party distribution. Revenues for our variable annuity products are primarily earned as fees based on underlying account balances, which are impacted by both market movements and net asset flows. Revenues for our fixed annuity products are primarily earned as net investment income on invested assets supporting fixed account balances, with profitability significantly impacted by the spread between net investment income earned and interest credited on the fixed account balances. We also earn net investment income on invested assets supporting reserves for immediate annuities and for certain guaranteed benefits offered with variable annuities and on capital supporting the business. Intersegment revenues for this segment reflect fees paid by the Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource Variable Series Trust, Columbia Funds Variable Insurance Trust, Columbia Funds Variable Insurance Trust I and Wanger Advisors Trust funds under the variable annuity contracts. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management segment, as well as expenses for investment management services provided by the Asset Management segment.

 

Management believes that operating measures, which exclude net realized gains or losses and the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, for our Annuities segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

62



Table of Contents

 

The following table presents the results of operations of our Annuities segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

152

 

$

 

$

152

 

$

139

 

$

 

$

139

 

$

13

 

9

%

Distribution fees

 

80

 

 

80

 

65

 

 

65

 

15

 

23

 

Net investment income

 

342

 

(2

)

344

 

326

 

(1

)

327

 

17

 

5

 

Premiums

 

44

 

 

44

 

43

 

 

43

 

1

 

2

 

Other revenues

 

68

 

 

68

 

53

 

 

53

 

15

 

28

 

Total revenues

 

686

 

(2

)

688

 

626

 

(1

)

627

 

61

 

10

 

Banking and deposit interest expense

 

 

 

 

 

 

 

 

 

Total net revenues

 

686

 

(2

)

688

 

626

 

(1

)

627

 

61

 

10

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

83

 

 

83

 

70

 

 

70

 

13

 

19

 

Interest credited to fixed accounts

 

177

 

 

177

 

188

 

 

188

 

(11

)

(6

)

Benefits, claims, losses and settlement expenses

 

(24

)

(119

)

95

 

341

 

(18

)

359

 

(264

)

(74

)

Amortization of deferred acquisition costs

 

261

 

63

 

198

 

(286

)

10

 

(296

)

494

 

NM

 

Interest and debt expense

 

1

 

 

1

 

2

 

 

2

 

(1

)

(50

)

General and administrative expense

 

52

 

 

52

 

47

 

 

47

 

5

 

11

 

Total expenses

 

550

 

(56

)

606

 

362

 

(8

)

370

 

236

 

64

 

Pretax income

 

$

136

 

$

54

 

$

82

 

$

264

 

$

7

 

$

257

 

$

(175

)

(68

)%

 


NM Not Meaningful.

(1)  Adjustments include net realized gains or losses and the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization.

 

Our Annuities segment pretax income decreased $128 million, or 48%, to $136 million for the three months ended September 30, 2011 compared to $264 million for the prior year period. Our Annuities segment pretax operating income, which excludes net realized gains or losses and the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, decreased $175 million, or 68%, to $82 million for the three months ended September 30, 2011 compared to $257 million in the prior year period primarily due to the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization.

 

Net Revenues

 

Net revenues increased $60 million, or 10%, to $686 million for the three months ended September 30, 2011 compared to $626 million for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $61 million, or 10%, to $688 million for the three months ended September 30, 2011 compared to $627 million for the prior year period reflecting higher fee revenue from increased variable annuity separate account balances and higher fees from variable annuity guarantees, as well as an increase in net investment income due to additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities.

 

Management and financial advice fees increased $13 million, or 9%, to $152 million for the three months ended September 30, 2011 compared to $139 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances. Average variable annuities contract accumulation values increased $6.0 billion, or 12%, from the prior year period due to higher average equity market levels, as well as net inflows. Variable annuity net inflows in the third quarter of 2011 included $0.4 billion of net inflows in the Ameriprise channel, partially offset by net outflows from the closed book of variable annuities sold through third-party channels.

 

63



Table of Contents

 

Distribution fees increased $15 million, or 23%, to $80 million for the three months ended September 30, 2011 compared to $65 million for the prior year period primarily due to higher fees on variable annuities driven by higher average separate account balances.

 

Net investment income increased $16 million, or 5%, to $342 million for the three months ended September 30, 2011 compared to $326 million in the prior year period. Operating net investment income, which excludes net realized gains or losses, increased $17 million, or 5%, to $344 million for the three months ended September 30, 2011 compared to $327 million for the prior year period due to $37 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities, partially offset by a decrease in investment income reflecting the low interest rate environment.

 

Other revenues increased $15 million, or 28%, to $68 million for the three months ended September 30, 2011 compared to $53 million for the prior year period due to higher fees from variable annuity guarantees driven by higher in force amounts.

 

Expenses

 

Total expenses increased $188 million, or 52%, to $550 million for the three months ended September 30, 2011 compared to $362 million for the prior year period. Operating expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, increased $236 million, or 64%, to $606 million for the three months ended September 30, 2011 compared to $370 million for the prior year period primarily due to the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization.

 

Distribution expenses increased $13 million, or 19%, to $83 million for the three months ended September 30, 2011 compared to $70 million for the prior year period from increased asset-based compensation.

 

Interest credited to fixed accounts decreased $11 million, or 6%, to $177 million for the three months ended September 30, 2011 compared to $188 million for the prior year period driven by lower average variable annuities fixed sub-account balances and a lower average crediting rate on interest sensitive fixed annuities, as well as lower average fixed annuity account balances. Average variable annuities fixed sub-account balances decreased $147 million, or 3%, to $4.8 billion for the third quarter of 2011 compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.7% in the third quarter of 2011 compared to 3.8% in the prior year period. Average fixed annuities contract accumulation values decreased $311 million, or 2%, to $14.2 billion for the third quarter of 2011 compared to the prior year period. Fixed annuities remained in net outflows due to low client demand given current interest rates.

 

Benefits, claims, losses and settlement expenses decreased $365 million to a benefit of $24 million for the three months ended September 30, 2011 compared to an expense of $341 million for the prior year period. Operating benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges and DSIC amortization, decreased $264 million, or 74%, to $95 million for the three months ended September 30, 2011 compared to $359 million in the prior year period primarily due to the impact of updating valuation assumptions and models. Operating benefits, claims, losses and settlement expenses in the third quarter of 2011 included a benefit of $40 million from updating valuation assumptions and models compared to an expense of $261 million in the prior year period. The market impact to DSIC was an expense of $9 million in the third quarter of 2011 compared to a benefit of $5 million in the prior year period.

 

Amortization of DAC increased $547 million to $261 million for the three months ended September 30, 2011 compared to a benefit of $286 million in the prior year period. Operating amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed living benefits, increased $494 million to $198 million for the three months ended September 30, 2011 compared to a benefit of $296 million in the prior year period primarily due to the impact of updating valuation assumptions and models, as well as the market impact on amortization of DAC. Operating amortization of DAC in the third quarter of 2011 included an expense of $65 million from updating valuation assumptions and models compared to a benefit of $332 million in the prior year period. The market impact on amortization of DAC was an expense of $49 million for the three months ended September 30, 2011 compared to a benefit of $24 million for the prior year period.

 

Protection

 

Our Protection segment offers a variety of protection products to address the protection and risk management needs of our retail clients including life, disability income and property-casualty insurance. Life and disability income products are primarily distributed through Ameriprise advisors. Our property-casualty products are sold direct, primarily through affinity relationships. We issue insurance policies through our life insurance subsidiaries and the property casualty companies. The primary sources of revenues for this segment are premiums, fees, and charges we receive to assume insurance-related risk. We earn net investment income on invested assets supporting insurance reserves and capital supporting the business. We also receive fees based on the level of assets supporting variable universal life separate account balances. This segment earns

 

64



Table of Contents

 

intersegment revenues from fees paid by the Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource Variable Series Trust, Columbia Funds Variable Insurance Trust, Columbia Funds Variable Insurance Trust I and Wanger Advisors Trust funds under the variable universal life contracts. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management segment, as well as expenses for investment management services provided by the Asset Management segment.

 

Management believes that operating measures, which exclude net realized gains or losses for our Protection segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the results of operations of our Protection segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

13

 

$

 

$

13

 

$

13

 

$

 

$

13

 

$

 

 

Distribution fees

 

24

 

 

24

 

24

 

 

24

 

 

 

Net investment income

 

106

 

(1

)

107

 

108

 

 

108

 

(1

)

(1

)%

Premiums

 

271

 

 

271

 

264

 

 

264

 

7

 

3

 

Other revenues

 

87

 

 

87

 

91

 

 

91

 

(4

)

(4

)

Total revenues

 

501

 

(1

)

502

 

500

 

 

500

 

2

 

 

Banking and deposit interest expense

 

 

 

 

 

 

 

 

 

Total net revenues

 

501

 

(1

)

502

 

500

 

 

500

 

2

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

9

 

 

9

 

8

 

 

8

 

1

 

13

 

Interest credited to fixed accounts

 

36

 

 

36

 

39

 

 

39

 

(3

)

(8

)

Benefits, claims, losses and settlement expenses

 

281

 

 

281

 

295

 

 

295

 

(14

)

(5

)

Amortization of deferred acquisition costs

 

52

 

 

52

 

35

 

 

35

 

17

 

49

 

General and administrative expense

 

59

 

 

59

 

56

 

 

56

 

3

 

5

 

Total expenses

 

437

 

 

437

 

433

 

 

433

 

4

 

1

 

Pretax income

 

$

64

 

$

(1

)

$

65

 

$

67

 

$

 

$

67

 

$

(2

)

(3

)%

 


(1) Adjustments include net realized gains or losses.

 

Our Protection segment pretax income decreased $3 million, or 4%, to $64 million for the three months ended September 30, 2011, compared to $67 million for the prior year period. Our Protection segment pretax operating income, which excludes net realized gains or losses, decreased $2 million, or 3%, to $65 million for the three months ended September 30, 2011, compared to $67 million for the prior year period.

 

Net Revenues

 

Net revenues increased $1 million to $501 million for the three months ended September 30, 2011 compared to $500 million for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $2 million to $502 million for the three months ended September 30, 2011 compared to $500 million for the prior year period.

 

Premiums increased $7 million, or 3%, to $271 million for the three months ended September 30, 2011 compared to $264 million for the prior year period due to growth in Auto and Home premiums driven by higher volumes. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $4 million, or 4%, to $87 million for the three months ended September 30, 2011 compared to $91 million for the prior year period due to higher reinsurance costs driven by higher reinsured amounts.

 

65



Table of Contents

 

Expenses

 

Total expenses increased $4 million, or 1%, to $437 million for the three months ended September 30, 2011 compared to $433 million for the prior year period due to an increase in amortization of DAC, partially offset by a decrease in benefits, claims, losses and settlement expenses.

 

Benefits, claims, losses and settlement expenses decreased $14 million, or 5%, to $281 million for the three months ended September 30, 2011 compared to $295 million for the prior year period. Benefits, claims, losses and settlement expenses in the third quarter of 2011 included a benefit of $4 million from updating valuation assumptions and models compared to an expense of $44 million in the prior year period. Benefits, claims, losses and settlement expenses related to our Auto and Home business increased from the prior year period due to $23 million of catastrophe losses primarily from Hurricane Irene claims and higher reserves reflecting elevated reserve levels for future claims.

 

Amortization of DAC increased $17 million, or 49%, to $52 million for the three months ended September 30, 2011 compared to $35 million for the prior year period. Amortization of DAC in the third quarter of 2011 included a benefit of $2 million from updating valuation assumptions and models compared to a benefit of $15 million in the prior year period. The market impact on amortization of DAC was an expense of $7 million for the three months ended September 30, 2011 compared to a benefit of $10 million for the prior year period, which was partially offset by a decrease in DAC amortization as a result of better persistency and lower current period profits due to higher direct claims.

 

Corporate & Other

 

Our Corporate & Other segment consists of net investment income on corporate level assets, including excess capital held in our subsidiaries and other unallocated equity and other revenues from various investments as well as unallocated corporate expenses. The Corporate & Other segment also includes revenues and expenses of CIEs.

 

Management believes that operating measures, which exclude net realized gains or losses, integration and restructuring charges and the impact of consolidating CIEs for our Corporate & Other segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the results of operations of our Corporate & Other segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

Distribution fees

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

(71

)

(64

)

(7

)

19

 

19

 

 

(7

)

NM

 

Other revenues

 

22

 

22

 

 

13

 

9

 

4

 

(4

)

NM

 

Total revenues

 

(49

)

(42

)

(7

)

32

 

28

 

4

 

(11

)

NM

 

Banking and deposit interest expense

 

 

 

 

 

 

 

 

NM

 

Total net revenues

 

(49

)

(42

)

(7

)

32

 

28

 

4

 

(11

)

NM

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

 

 

 

 

 

 

 

 

Interest and debt expense

 

70

 

47

 

23

 

72

 

45

 

27

 

(4

)

(15

)%

General and administrative expense

 

45

 

15

 

30

 

37

 

13

 

24

 

6

 

25

 

Total expenses

 

115

 

62

 

53

 

109

 

58

 

51

 

2

 

4

 

Pretax loss

 

(164

)

(104

)

(60

)

(77

)

(30

)

(47

)

(13

)

(28

)

Less: Net loss attributable to noncontrolling interests

 

(105

)

(105

)

 

(32

)

(32

)

 

 

 

Pretax loss attributable to Ameriprise Financial

 

$

(59

)

$

1

 

$

(60

)

$

(45

)

$

2

 

$

(47

)

$

(13

)

(28

)%

 


NM Not Meaningful.

(1) Includes revenues and expenses of the CIEs; net realized gains or losses; and integration and restructuring charges.

 

66



Table of Contents

 

The following table presents the components of the adjustments in the table above:

 

 

 

Three Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

CIEs

 

Other
Adjustments 
(1)

 

Total
Adjustments

 

CIEs

 

Other
Adjustments 
(1)

 

Total
Adjustments

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

$

(65

)

$

1

 

$

(64

)

$

17

 

$

2

 

$

19

 

Other revenues

 

22

 

 

22

 

9

 

 

9

 

Total revenues

 

(43

)

1

 

(42

)

26

 

2

 

28

 

Banking and deposit interest expense

 

 

 

 

 

 

 

Total net revenues

 

(43

)

1

 

(42

)

26

 

2

 

28

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

 

 

 

 

 

 

Interest and debt expense

 

47

 

 

47

 

45

 

 

45

 

General and administrative expense

 

15

 

 

15

 

13

 

 

13

 

Total expenses

 

62

 

 

62

 

58

 

 

58

 

Pretax income (loss)

 

(105

)

1

 

(104

)

(32

)

2

 

(30

)

Less: Net loss attributable to noncontrolling interests

 

(105

)

 

(105

)

(32

)

 

(32

)

Pretax income attributable to Ameriprise Financial

 

$

 

$

1

 

$

1

 

$

 

$

2

 

$

2

 

 


(1) Other adjustments include net realized gains or losses and integration and restructuring charges.

 

Our Corporate & Other segment pretax loss attributable to Ameriprise Financial was $59 million for the three months ended September 30, 2011 compared to $45 million in the prior year period. Our Corporate & Other segment pretax operating loss excludes net realized gains or losses, integration and restructuring charges and the impact of consolidating CIEs. Our Corporate & Other segment pretax operating loss was $60 million for the three months ended September 30, 2011 compared to $47 million in the prior year period.

 

Net revenues were a loss of $49 million for the three months ended September 30, 2011 compared to a gain of $32 million for the prior year period reflecting the impact of consolidating CIEs. Operating net revenues, which exclude revenues or losses of CIEs and net realized gains or losses, were a loss of $7 million for the three months ended September 30, 2011 compared to a gain of $4 million for the prior year period.

 

Net investment loss was $71 million for the three months ended September 30, 2011 compared to income of $19 million for the prior year period. Net investment loss for the third quarter of 2011 included a $65 million loss for changes in the assets and liabilities of CIEs, primarily debt and underlying syndicated loans, compared to a $17 million gain in the prior year period. Operating net investment loss, which excludes changes in the assets and liabilities of CIEs and net realized gains or losses, was $7 million for the three months ended September 30, 2011 compared to nil for the prior year period.

 

Other revenues increased $9 million to $22 million for the three months ended September 30, 2011 compared to $13 million for the prior year period. Operating other revenues, which exclude revenues or losses of the CIEs, were nil for the three months ended September 30, 2011 compared to $4 million for the prior year period.

 

Total expenses increased $6 million, or 6%, to $115 million for the three months ended September 30, 2011 compared to $109 million for the prior year period. Operating expenses, which exclude expenses of CIEs and integration and restructuring charges, increased $2 million, or 4%, to $53 million for the three months ended September 30, 2011 compared to $51 million for the prior year period.

 

Interest and debt expense decreased $2 million, or 3%, to $70 million for the three months ended September 30, 2011 compared to $72 million for the prior year period. Operating interest and debt expense, which excludes interest expense on CIE debt, decreased $4 million, or 15%, to $23 million for the three months ended September 30, 2011 compared to $27 million for the prior year period due to lower outstanding debt balances.

 

General and administrative expense increased $8 million, or 22%, to $45 million for the three months ended September 30, 2011 compared to $37 million for the prior year period. Operating general and administrative expense, which excludes expenses of the CIEs and integration and restructuring charges, increased $6 million, or 25%, to $30 million for the three months ended September 30, 2011 compared to $24 million for the prior year period.

 

67



Table of Contents

 

Consolidated Results of Operations for the Nine Months Ended September 30, 2011 and 2010

 

Management believes that operating measures, which exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents our consolidated results of operations:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

3,436

 

$

(29

)

$

3,465

 

$

2,638

 

$

(28

)

$

2,666

 

$

799

 

30

%

Distribution fees

 

1,202

 

 

1,202

 

1,062

 

 

1,062

 

140

 

13

 

Net investment income

 

1,458

 

(16

)

1,474

 

1,769

 

265

 

1,504

 

(30

)

(2

)

Premiums

 

915

 

 

915

 

884

 

 

884

 

31

 

4

 

Other revenues

 

635

 

60

 

575

 

657

 

112

 

545

 

30

 

6

 

Total revenues

 

7,646

 

15

 

7,631

 

7,010

 

349

 

6,661

 

970

 

15

 

Banking and deposit interest expense

 

36

 

 

36

 

56

 

 

56

 

(20

)

(36

)

Total net revenues

 

7,610

 

15

 

7,595

 

6,954

 

349

 

6,605

 

990

 

15

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

1,886

 

 

1,886

 

1,483

 

 

1,483

 

403

 

27

 

Interest credited to fixed accounts

 

632

 

 

632

 

686

 

 

686

 

(54

)

(8

)

Benefits, claims, losses and settlement expenses

 

1,045

 

(85

)

1,130

 

1,285

 

(63

)

1,348

 

(218

)

(16

)

Amortization of deferred acquisition costs

 

572

 

53

 

519

 

43

 

45

 

(2

)

521

 

NM

 

Interest and debt expense

 

221

 

148

 

73

 

212

 

130

 

82

 

(9

)

(11

)

General and administrative expense

 

2,221

 

87

 

2,134

 

1,979

 

99

 

1,880

 

254

 

14

 

Total expenses

 

6,577

 

203

 

6,374

 

5,688

 

211

 

5,477

 

897

 

16

 

Income from continuing operations before income tax provision

 

1,033

 

(188

)

1,221

 

1,266

 

138

 

1,128

 

93

 

8

 

Income tax provision

 

288

 

(13

)

301

 

262

 

(18

)

280

 

21

 

8

 

Income from continuing operations

 

745

 

(175

)

920

 

1,004

 

156

 

848

 

72

 

8

 

Income (loss) from discontinued operations, net of tax

 

(73

)

(73

)

 

2

 

2

 

 

 

 

Net income

 

672

 

(248

)

920

 

1,006

 

158

 

848

 

72

 

8

 

Less: Net income (loss) attributable to non- controlling interests

 

(151

)

(151

)

 

189

 

189

 

 

 

 

Net income attributable to Ameriprise Financial

 

$

823

 

$

(97

)

$

920

 

$

817

 

$

(31

)

$

848

 

$

72

 

8

%

 


NM Not Meaningful.

(1)  Includes the elimination of management fees we earn for services provided to the CIEs and the related expense; revenues and expenses of the CIEs; net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and income (loss) from discontinued operations. Income tax provision is calculated using the statutory tax rate of 35% on applicable adjustments.

 

68



Table of Contents

 

The following table presents the components of the adjustments in the table above:

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

CIEs

 

Other
Adjustments 
(1)

 

Total
Adjustments

 

CIEs

 

Other
Adjustments 
(1)

 

Total
Adjustments

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

(29

)

$

 

$

(29

)

$

(28

)

$

 

$

(28

)

Distribution fees

 

 

 

 

 

 

 

Net investment income

 

(21

)

5

 

(16

)

251

 

14

 

265

 

Premiums

 

 

 

 

 

 

 

Other revenues

 

60

 

 

60

 

112

 

 

112

 

Total revenues

 

10

 

5

 

15

 

335

 

14

 

349

 

Banking and deposit interest expense

 

 

 

 

 

 

 

Total net revenues

 

10

 

5

 

15

 

335

 

14

 

349

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

 

 

 

 

 

 

Interest credited to fixed accounts

 

 

 

 

 

 

 

Benefits, claims, losses and settlement expenses

 

 

(85

)

(85

)

 

(63

)

(63

)

Amortization of deferred acquisition costs

 

 

53

 

53

 

 

45

 

45

 

Interest and debt expense

 

148

 

 

148

 

130

 

 

130

 

General and administrative expense

 

13

 

74

 

87

 

16

 

83

 

99

 

Total expenses

 

161

 

42

 

203

 

146

 

65

 

211

 

Income from continuing operations before income tax provision

 

(151

)

(37

)

(188

)

189

 

(51

)

138

 

Income tax provision

 

 

(13

)

(13

)

 

(18

)

(18

)

Income from continuing operations

 

(151

)

(24

)

(175

)

189

 

(33

)

156

 

Income (loss) from discontinued operations, net of tax

 

 

(73

)

(73

)

 

2

 

2

 

Net income

 

(151

)

(97

)

(248

)

189

 

(31

)

158

 

Less: Net income (loss) attributable to noncontrolling interests

 

(151

)

 

(151

)

189

 

 

189

 

Net income attributable to Ameriprise Financial

 

$

 

$

(97

)

$

(97

)

$

 

$

(31

)

$

(31

)

 


(1)  Other adjustments include net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and income (loss) from discontinued operations.

 

The following table presents a reconciliation of operating earnings per diluted share:

 

 

 

Nine Months Ended
September 30,

 

Per Diluted Share
Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions, except per share amounts, unaudited)

 

Income from continuing operations

 

$

745

 

$

1,004

 

 

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

 

(151

)

189

 

 

 

 

 

Net income from continuing operations attributable to Ameriprise Financial

 

896

 

815

 

$

3.58

 

$

3.09

 

Income (loss) from discontinued operations, net of tax

 

(73

)

2

 

(0.29

)

0.01

 

Net income attributable to Ameriprise Financial

 

823

 

817

 

3.29

 

3.10

 

Operating adjustments, after-tax

 

97

 

31

 

0.39

 

0.12

 

Operating earnings

 

$

920

 

$

848

 

$

3.68

 

$

3.22

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

245.0

 

259.0

 

 

 

 

 

Diluted

 

250.2

 

263.4

 

 

 

 

 

 

69



Table of Contents

 

Overall

 

Net income attributable to Ameriprise Financial increased $6 million, or 1%, to $823 million for the nine months ended September 30, 2011 compared to $817 million for the prior year period. Net income from continuing operations attributable to Ameriprise Financial increased $81 million, or 10%, to $896 million for the nine months ended September 30, 2011 compared to $815 million for the prior year period. Loss from discontinued operations, net of tax, of $73 million for the nine months ended September 30, 2011 included a $77 million after-tax charge related to previously disclosed legal expenses. Operating earnings exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; income (loss) of discontinued operations; and the impact of consolidating CIEs. Operating earnings increased $72 million, or 8%, to $920 million for the nine months ended September 30, 2011 compared to $848 million for the prior year period reflecting higher revenues from business growth and an additional four months of Columbia Management results, partially offset by the impact of updating valuation assumptions and models and the market impacts on DAC and DSIC amortization. The market impact on DAC and DSIC amortization was a $44 million pretax charge for the nine months ended September 30, 2011 compared to an $8 million pretax benefit for the nine months ended September 30, 2010.

 

The total pretax impacts on our revenues and expenses for the nine months ended September 30, 2011 attributable to the review of valuation assumptions and models on an operating basis were as follows:

 

Segment Pretax Benefit (Charge)

 

Other Revenues

 

Benefits,
Claims, Losses
and Settlement
Expenses

 

Amortization
of DAC

 

Total

 

 

 

(in millions)

 

Valuation assumptions and model changes:

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

40

 

$

(65

)

$

(25

)

Protection

 

(20

)

4

 

2

 

(14

)

Total

 

$

(20

)

$

44

 

$

(63

)

$

(39

)

 

The total pretax impacts on our revenues and expenses for the nine months ended September 30, 2010 attributable to the review of valuation assumptions and models on an operating basis were as follows:

 

Segment Pretax Benefit (Charge)

 

Other Revenues

 

Benefits,
Claims, Losses
and Settlement
Expenses

 

Amortization
of DAC

 

Total

 

 

 

(in millions)

 

Valuation assumptions and model changes:

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

(256

)

$

353

 

$

97

 

Protection

 

(20

)

(44

)

22

 

(42

)

Total

 

$

(20

)

$

(300

)

$

375

 

$

55

 

 

Net Revenues

 

Net revenues increased $656 million, or 9%, to $7.6 billion for the nine months ended September 30, 2011 compared to $7.0 billion for the prior year period. Operating net revenues exclude net realized gains or losses and revenues or losses of the CIEs and include the fees we earn from services provided to the CIEs. Operating net revenues increased $990 million, or 15%, to $7.6 billion for the nine months ended September 30, 2011 compared to $6.6 billion for the prior year period driven by growth in asset-based fees from net inflows in branded client wrap assets, the Columbia Management Acquisition and increased client activity.

 

Management and financial advice fees increased $798 million, or 30%, to $3.4 billion for the nine months ended September 30, 2011 compared to $2.6 billion for the prior year period. Operating management and financial advice fees include the fees we earn from services provided to the CIEs. Operating management and financial advice fees increased $799 million, or 30%, to $3.5 billion for the nine months ended September 30, 2011 compared to $2.7 billion for the prior year period primarily due to an additional four months of business resulting from the Columbia Management Acquisition and net inflows in branded client wrap assets. Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion at September 30, 2011 compared to the prior year period due to net inflows, partially offset by market depreciation. Total Asset Management AUM decreased $27.9 billion, or 6%, to $417.0 billion at September 30, 2011 compared to the prior year period primarily due to net outflows and market depreciation. The period end S&P 500 Index decreased 1% compared to the prior year period. Average variable annuities contract accumulation values increased $8.3 billion, or 17%, from the prior year period due to higher average equity market levels, as well as net inflows. The daily average S&P 500 Index increased 15% compared to the prior year period.

 

70



Table of Contents

 

Distribution fees increased $140 million, or 13%, to $1.2 billion for the nine months ended September 30, 2011 compared to $1.1 billion in the prior year period primarily due to higher asset-based fees driven by the Columbia Management Acquisition and net inflows in branded client wrap assets, as well as increased client activity.

 

Net investment income decreased $311 million, or 18%, to $1.5 billion for the nine months ended September 30, 2011 compared to $1.8 billion in the prior year period. Net investment income for the nine months ended September 30, 2011 included a $21 million loss for changes in the assets and liabilities of CIEs, primarily debt and underlying syndicated loans, compared to a $251 million gain in the prior year period. Operating net investment income excludes net realized gains or losses and changes in the assets and liabilities of CIEs. Operating net investment income decreased $30 million, or 2%, to $1.5 billion for the nine months ended September 30, 2011 compared to $1.5 billion for the prior year period primarily due to a decrease in investment income on fixed maturity securities driven by lower invested assets resulting from net outflows in certificates driven by lower interest crediting rates and lower investments in annuity general account assets due to the implementation of changes to the Portfolio Navigator program in the second quarter of 2010 and lower interest sensitive fixed annuity account balances, partially offset by $43 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities in the third quarter of 2011.

 

Premiums increased $31 million, or 4%, to $915 million for the nine months ended September 30, 2011 compared to $884 million for the prior year period primarily due to growth in Auto and Home premiums driven by higher volumes, as well as higher sales of immediate annuities with life contingencies. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $22 million, or 3%, to $635 million for the nine months ended September 30, 2011 compared to $657 million in the prior year period. Operating other revenues exclude revenues of the CIEs. Operating other revenues increased $30 million, or 6%, to $575 million for the nine months ended September 30, 2011 compared to $545 million in the prior year period. During the second quarter of 2011, we reclassified from accumulated other comprehensive income into earnings a $27 million gain on an interest rate hedge put in place in anticipation of issuing debt between December 2010 and June 2011. Operating other revenues for the nine months ended September 30, 2011 also included higher fees from variable annuity guarantees driven by higher in force amounts compared to the prior year period, offset by a $25 million benefit from payments related to the Reserve Funds matter in the first quarter of 2010.

 

Banking and deposit interest expense decreased $20 million, or 36%, to $36 million for the nine months ended September 30, 2011 compared to $56 million in the prior year period primarily due to lower certificate balances, as well as a decrease in crediting rates on certificate products.

 

Expenses

 

Total expenses increased $889 million, or 16%, to $6.6 billion for the nine months ended September 30, 2011 compared to $5.7 billion for the prior year period. Operating expenses exclude the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization; integration and restructuring charges; and expenses of the CIEs. Operating expenses increased $897 million, or 16%, to $6.4 billion for the nine months ended September 30, 2011 compared to $5.5 billion for the prior year period primarily due to the impact of updating valuation assumptions and models, the market impact on DAC and DSIC amortization, as well as increases in distribution expenses and general and administrative expense.

 

Distribution expenses increased $403 million, or 27%, to $1.9 billion for the nine months ended September 30, 2011 compared to $1.5 billion in the prior year period as a result of the Columbia Management Acquisition, as well as higher advisor compensation from business growth.

 

Interest credited to fixed accounts decreased $54 million, or 8%, to $632 million for the nine months ended September 30, 2011 compared to $686 million for the prior year period driven by lower average variable annuities fixed sub-account balances and a lower average crediting rate on interest sensitive fixed annuities, as well as lower average fixed annuity account balances. Average variable annuities fixed sub-account balances decreased $721 million, or 13%, to $4.8 billion for the nine months ended September 30, 2011 compared to the prior year period primarily due to the implementation of changes to the Portfolio Navigator program in the second quarter of 2010. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.7% for the nine months ended September 30, 2011 compared to 3.8% in the prior year period. Average fixed annuities contract accumulation values decreased $270 million, or 2%, to $14.3 billion for the nine months ended September 30, 2011 compared to the prior year period.

 

Benefits, claims, losses and settlement expenses decreased $240 million, or 19%, to $1.0 billion for the nine months ended September 30, 2011 compared to $1.3 billion for the prior year period. Operating benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges and DSIC amortization, decreased $218 million, or 16%, to $1.1 billion for the nine months ended September 30, 2011 compared to $1.3 billion for the prior year period. Operating benefits, claims, losses and settlement expenses for the nine months ended

 

71



Table of Contents

 

September 30, 2011 included a benefit of $44 million from updating valuation assumptions and models compared to an expense of $300 million in the prior year period. Benefits, claims, losses and settlement expenses related to our Auto and Home business increased from the prior year period primarily due to $38 million of catastrophe losses from storms in the 2011 period, higher auto liability reserves, and higher elevated reserve levels for future storm claims. Benefits, claims, losses and settlement expenses related to our immediate annuities with life contingencies increased from the prior year period due to an unfavorable change in reserves primarily driven by higher premiums. In addition, benefits, claims, losses and settlement expenses increased as a result of higher universal life claims and an increase in ongoing reserve levels for universal life products with secondary guarantees compared to the prior year period. The market impact to DSIC was an expense of $6 million in the 2011 period compared to nil in the prior year period. Benefits, claims, losses and settlement expenses for the prior year period included a $21 million expense, net of DSIC, as a result of the implementation of changes to the Portfolio Navigator program.

 

Amortization of DAC increased $529 million to $572 million for the nine months ended September 30, 2011 compared to $43 million in the prior year period. Operating amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed living benefits, increased $521 million to $519 million for the nine months ended September 30, 2011 compared to a benefit of $2 million for the prior year period primarily due to the impact of updating valuation assumptions and models, as well as the market impact on amortization of DAC. Operating amortization of DAC in the 2011 period included an expense of $63 million from updating valuation assumptions and models compared to a benefit of $375 million in the prior year period. The market impact on amortization of DAC was an expense of $38 million in the 2011 period compared to a benefit of $8 million in the prior year period. Amortization of DAC for the nine months ended September 30, 2010 included a benefit of $19 million as a result of the implementation of changes to the Portfolio Navigator program.

 

Interest and debt expense increased $9 million, or 4%, to $221 million for the nine months ended September 30, 2011 compared to $212 million in the prior year period. Operating interest and debt expense, which excludes interest expense on CIE debt, decreased $9 million, or 11%, to $73 million for the nine months ended September 30, 2011 compared to $82 million in the prior year period due to lower outstanding debt balances.

 

General and administrative expense increased $242 million, or 12%, to $2.2 billion for the nine months ended September 30, 2011 compared to $2.0 billion for the prior year period. Operating general and administrative expense excludes integration and restructuring charges and expenses of the CIEs. Integration and restructuring charges decreased $9 million to $74 million for the nine months ended September 30, 2011 compared to $83 million in the prior year period. Operating general and administrative expense increased $254 million, or 14%, to $2.1 billion for the nine months ended September 30, 2011 compared to $1.9 billion for the prior year period primarily reflecting an additional four months of ongoing expenses from the Columbia Management Acquisition, as well as $10 million of Threadneedle project implementation costs, primarily related to a new transfer agency agreement, higher compensation expense and an increase in investment spending compared to the prior year period.

 

Income Taxes

 

Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 27.8% for the nine months ended September 30, 2011, compared to 20.7% for the nine months ended September 30, 2010. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 24.3% for both the nine months ended September 30, 2011 and 2010. Our operating effective tax rate was 24.7% for the nine months ended September 30, 2011, compared to 24.8% for the nine months ended September 30, 2010.

 

The following table presents a reconciliation of our operating effective tax rate:

 

 

 

Nine Months Ended
September 30, 2011

 

Nine Months Ended
September 30, 2010

 

 

 

GAAP

 

Operating

 

GAAP

 

Operating

 

 

 

(in millions, unaudited)

 

Income from continuing operations before income tax provision

 

$

1,033

 

$

1,221

 

$

1,266

 

$

1,128

 

Less: Pretax income (loss) attributable to noncontrolling interests

 

(151

)

 

189

 

 

Income from continuing operations before income tax provision excluding CIEs

 

$

1,184

 

$

1,221

 

$

1,077

 

$

1,128

 

 

 

 

 

 

 

 

 

 

 

Income tax provision from continuing operations

 

$

288

 

$

301

 

$

262

 

$

280

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

27.8

%

24.7

%

20.7

%

24.8

%

Effective tax rate excluding noncontrolling interests

 

24.3

%

24.7

%

24.3

%

24.8

%

 

72



Table of Contents

 

Results of Operations by Segment for the Nine Months Ended September 30, 2011 and 2010

 

The following table presents summary financial information by segment:

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

 

 

(in millions, unaudited)

 

Advice & Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

2,807

 

$

(1

)

$

2,808

 

$

2,448

 

$

 

$

2,448

 

Expenses

 

2,485

 

 

2,485

 

2,229

 

7

 

2,222

 

Pretax income

 

$

322

 

$

(1

)

$

323

 

$

219

 

$

(7

)

$

226

 

Asset Management

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

2,197

 

$

2

 

$

2,195

 

$

1,594

 

$

2

 

$

1,592

 

Expenses

 

1,868

 

74

 

1,794

 

1,416

 

71

 

1,345

 

Pretax income

 

$

329

 

$

(72

)

$

401

 

$

178

 

$

(69

)

$

247

 

Annuities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,992

 

$

(4

)

$

1,996

 

$

1,858

 

$

6

 

$

1,852

 

Expenses

 

1,559

 

(32

)

1,591

 

1,341

 

(18

)

1,359

 

Pretax income

 

$

433

 

$

28

 

$

405

 

$

517

 

$

24

 

$

493

 

Protection

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,543

 

$

3

 

$

1,540

 

$

1,524

 

$

2

 

$

1,522

 

Expenses

 

1,282

 

 

1,282

 

1,204

 

 

1,204

 

Pretax income

 

$

261

 

$

3

 

$

258

 

$

320

 

$

2

 

$

318

 

Corporate & Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

53

 

$

44

 

$

9

 

$

377

 

$

367

 

$

10

 

Expenses

 

365

 

190

 

175

 

345

 

179

 

166

 

Pretax income (loss)

 

(312

)

(146

)

(166

)

32

 

188

 

(156

)

Less: Pretax income (loss) attributable to noncontrolling interests

 

(151

)

(151

)

 

189

 

189

 

 

Pretax loss attributable to Ameriprise Financial

 

$

(161

)

$

5

 

$

(166

)

$

(157

)

$

(1

)

$

(156

)

Eliminations

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

(982

)

$

(29

)

$

(953

)

$

(847

)

$

(28

)

$

(819

)

Expenses

 

(982

)

(29

)

(953

)

(847

)

(28

)

(819

)

Pretax income

 

$

 

$

 

$

 

$

 

$

 

$

 

 


(1)        Includes the elimination of management fees we earn for services provided to the CIEs and the related expense; revenues and expenses of the CIEs; net realized gains or losses; the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization; and integration and restructuring charges.

 

73



Table of Contents

 

Advice & Wealth Management

 

Management believes that operating measures, which exclude net realized gains or losses and integration and restructuring charges for our Advice & Wealth Management segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the changes in branded client wrap assets:

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

(in billions)

 

Balance at January 1

 

$

97.5

 

$

81.3

 

Net flows

 

5.9

 

5.8

 

Market appreciation/(depreciation) and other

 

(6.5

)

4.0

 

Balance at September 30

 

$

96.9

 

$

91.1

 

 

Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion compared to the prior year period due to net inflows, partially offset by market depreciation.

 

The following table presents the results of operations of our Advice & Wealth Management segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

1,195

 

$

 

$

1,195

 

$

996

 

$

 

$

996

 

$

199

 

20

%

Distribution fees

 

1,406

 

 

1,406

 

1,243

 

 

1,243

 

163

 

13

 

Net investment income

 

196

 

(1

)

197

 

210

 

 

210

 

(13

)

(6

)

Other revenues

 

46

 

 

46

 

52

 

 

52

 

(6

)

(12

)

Total revenues

 

2,843

 

(1

)

2,844

 

2,501

 

 

2,501

 

343

 

14

 

Banking and deposit interest expense

 

36

 

 

36

 

53

 

 

53

 

(17

)

(32

)

Total net revenues

 

2,807

 

(1

)

2,808

 

2,448

 

 

2,448

 

360

 

15

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

1,662

 

 

1,662

 

1,418

 

 

1,418

 

244

 

17

 

General and administrative expense

 

823

 

 

823

 

811

 

7

 

804

 

19

 

2

 

Total expenses

 

2,485

 

 

2,485

 

2,229

 

7

 

2,222

 

263

 

12

 

Pretax income

 

$

322

 

$

(1

)

$

323

 

$

219

 

$

(7

)

$

226

 

$

97

 

43

%

 


(1)        Adjustments include net realized gains or losses and integration and restructuring charges.

 

Our Advice & Wealth Management segment pretax income increased $103 million, or 47%, to $322 million for the nine months ended September 30, 2011 compared to $219 million in the prior year period. Our Advice & Wealth Management segment pretax operating income, which excludes net realized gains or losses and integration and restructuring charges, increased $97 million, or 43%, to $323 million for the nine months ended September 30, 2011 compared to $226 million in the prior year period due to improved advisor productivity and new client flows. Pretax margin was 11.5% for the nine months ended September 30, 2011 compared to 8.9% for the prior year period. Pretax operating margin was 11.5% for the nine months ended September 30, 2011 compared to 9.2% for the prior year period.

 

Net Revenues

 

Net revenues increased $359 million, or 15%, to $2.8 billion for the nine months ended September 30, 2011 compared to $2.4 billion in the prior year period. Operating net revenues exclude net realized gains or losses. Operating net revenues increased $360 million, or 15%, to $2.8 billion for the nine months ended September 30, 2011 compared to $2.4 billion in the prior year period driven by higher management and distribution fees from growth in assets under management and increased client activity.

 

74



Table of Contents

 

Management and financial advice fees increased $199 million, or 20%, to $1.2 billion for the nine months ended September 30, 2011 compared to $996 million for the prior year period driven by growth in assets under management. Branded client wrap assets increased $5.8 billion, or 6%, to $96.9 billion compared to the prior year period due to net inflows, partially offset by market depreciation.

 

Distribution fees increased $163 million, or 13%, to $1.4 billion for the nine months ended September 30, 2011 compared to $1.2 billion for the prior year period primarily driven by growth in assets under management and increased client activity.

 

Net investment income decreased $14 million, or 7%, to $196 million for the nine months ended September 30, 2011 compared to $210 million for the prior year period. Operating net investment income, which excludes net realized gains or losses, decreased $13 million, or 6%, to $197 million for the nine months ended September 30, 2011 compared to $210 million for the prior year period due to a decrease in investment income on fixed maturity securities driven by lower invested assets resulting from net outflows in certificates driven by lower interest crediting rates, partially offset by higher banking and brokerage invested asset balances and $6 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities in the third quarter of 2011.

 

Banking and deposit interest expense decreased $17 million, or 32%, to $36 million for the nine months ended September 30, 2011 compared to $53 million for the prior year period primarily due to lower certificate balances, as well as a decrease in crediting rates on certificate products.

 

Expenses

 

Total expenses increased $256 million, or 11%, to $2.5 billion for the nine months ended September 30, 2011 compared to $2.2 billion for the prior year period. Operating expenses, which exclude integration and restructuring charges, increased $263 million, or 12%, to $2.5 billion for the nine months ended September 30, 2011 compared to $2.2 billion for the prior year period primarily due to an increase in distribution expenses.

 

Distribution expenses increased $244 million, or 17%, to $1.7 billion for the nine months ended September 30, 2011 compared to $1.4 billion for the prior year period primarily due to higher advisor compensation from business growth.

 

Asset Management

 

Management believes that operating measures, which exclude net realized gains or losses and integration charges for our Asset Management segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following tables present the changes in Columbia and Threadneedle managed assets:

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Appreciation/

 

 

 

 

 

 

 

January 1,

 

 

 

Depreciation

 

Foreign

 

September 30,

 

 

 

2011

 

Net Flows

 

& Other (1)

 

Exchange

 

2011

 

 

 

(in billions)

 

Columbia Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

$

218.5

 

$

(2.2

)

$

(22.2

)

$

 

$

194.1

 

Institutional Funds

 

127.2

 

(3.2

)

(2.2

)

 

121.8

 

Alternative Funds

 

10.0

 

(0.9

)

(0.1

)

 

9.0

 

Less: Eliminations

 

(0.2

)

 

 

 

(0.2

)

Total Columbia Managed Assets

 

355.5

 

(6.3

)

(24.5

)

 

324.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Threadneedle Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

33.4

 

0.2

 

(3.5

)

 

30.1

 

Institutional Funds

 

70.9

 

(2.1

)

(3.6

)

 

65.2

 

Alternative Funds

 

1.3

 

(0.1

)

 

 

1.2

 

Total Threadneedle Managed Assets

 

105.6

 

(2.0

)

(7.1

)

 

96.5

 

Less: Sub-Advised Eliminations

 

(4.3

)

(0.9

)

1.0

 

 

(4.2

)

Total Managed Assets

 

$

456.8

 

$

(9.2

)

$

(30.6

)

$

 

$

417.0

 

 

75



Table of Contents

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Appreciation/

 

 

 

 

 

 

 

January 1,

 

 

 

Depreciation

 

Foreign

 

September 30,

 

 

 

2010

 

Net Flows

 

& Other (1)

 

Exchange

 

2010

 

 

 

(in billions)

 

Columbia Managed Assets: (2)

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

$

76.9

 

$

(4.2

)

$

132.6

(3)

$

 

$

205.3

 

Institutional Funds

 

62.3

 

(3.1

)

72.6

(4)

 

131.8

 

Alternative Funds

 

9.9

 

0.2

 

 

 

10.1

 

Less: Eliminations

 

(0.1

)

 

 

 

(0.1

)

Total Columbia Managed Assets

 

149.0

 

(7.1

)

205.2

 

 

347.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Threadneedle Managed Assets:

 

 

 

 

 

 

 

 

 

 

 

Retail Funds

 

29.1

 

0.6

 

1.9

 

(0.9

)

30.7

 

Institutional Funds

 

66.8

 

(0.4

)

5.3

 

(1.9

)

69.8

 

Alternative Funds

 

1.9

 

(0.1

)

(0.3

)

(0.1

)

1.4

 

Total Threadneedle Managed Assets

 

97.8

 

0.1

 

6.9

 

(2.9

)

101.9

 

Less: Sub-Advised Eliminations

 

(3.6

)

(0.2

)

(0.3

)

 

(4.1

)

Total Managed Assets

 

$

243.2

 

$

(7.2

)

$

211.8

 

$

(2.9

)

$

444.9

 

 


(1)    Distributions of Retail Funds are included in market appreciation/depreciation and other.

(2)    Prior to the Columbia Management Acquisition, the domestic managed assets of our Asset Management segment, which are now included in Columbia Managed Assets, were managed by RiverSource Investments.

(3)    Included in Market appreciation/depreciation and other is $118.1 billion due to the Columbia Management Acquisition, including $3 billion of assets that were transferred to RiverSource Sub-advised through the implementation of changes to the Portfolio Navigator program, and an additional $13.1 billion of Portfolio Navigator related assets sub-advised by others.

(4)    Included in Market appreciation/depreciation and other is $68.4 billion due to the Columbia Management Acquisition.

 

The following table presents the results of operations of our Asset Management segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

1,846

 

$

 

$

1,846

 

$

1,329

 

$

 

$

1,329

 

$

517

 

39

%

Distribution fees

 

346

 

 

346

 

249

 

 

249

 

97

 

39

 

Net investment income

 

2

 

2

 

 

10

 

2

 

8

 

(8

)

NM

 

Other revenues

 

5

 

 

5

 

7

 

 

7

 

(2

)

(29

)

Total revenues

 

2,199

 

2

 

2,197

 

1,595

 

2

 

1,593

 

604

 

38

 

Banking and deposit interest expense

 

2

 

 

2

 

1

 

 

1

 

1

 

NM

 

Total net revenues

 

2,197

 

2

 

2,195

 

1,594

 

2

 

1,592

 

603

 

38

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

776

 

 

776

 

507

 

 

507

 

269

 

53

 

Amortization of deferred acquisition costs

 

15

 

 

15

 

16

 

 

16

 

(1

)

(6

)

General and administrative expense

 

1,077

 

74

 

1,003

 

893

 

71

 

822

 

181

 

22

 

Total expenses

 

1,868

 

74

 

1,794

 

1,416

 

71

 

1,345

 

449

 

33

 

Pretax income

 

$

329

 

$

(72

)

$

401

 

$

178

 

$

(69

)

$

247

 

$

154

 

62

%

 


NM Not Meaningful.

(1)   Adjustments include net realized gains or losses and integration charges.

 

76



Table of Contents

 

Our Asset Management segment pretax income increased $151 million, or 85%, to $329 million for the nine months ended September 30, 2011 compared to $178 million for the prior year period. Our Asset Management segment pretax operating income, which excludes net realized gains or losses and integration charges, increased $154 million, or 62%, to $401 million for the nine months ended September 30, 2011 compared to $247 million for the prior year period. Earnings in the 2011 period reflected nine months of Columbia Management earnings compared to five months in the prior year period, which impacted revenues and expenses. Pretax margin was 15.0% for the nine months ended September 30, 2011 compared to 11.2% for the prior year period. Pretax operating margin was 18.3% for the nine months ended September 30, 2011 compared to 15.5% for the prior year period.

 

Net Revenues

 

Net revenues increased $603 million, or 38%, to $2.2 billion for the nine months ended September 30, 2011 compared to $1.6 billion for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $603 million, or 38%, to $2.2 billion for the nine months ended September 30, 2011 compared to $1.6 billion for the prior year period driven by an increase in management and distribution fees.

 

Management and financial advice fees increased $517 million, or 39%, to $1.8 billion for the nine months ended September 30, 2011 compared to $1.3 billion for the prior year period due to an additional four months of business resulting from the Columbia Management Acquisition, as well as an increase in average assets, partially offset by net outflows.

 

Distribution fees increased $97 million, or 39%, to $346 million for the nine months ended September 30, 2011 compared to $249 million for the prior year period driven by an additional four months of business resulting from the Columbia Management Acquisition, as well as an increase in average assets, partially offset by net outflows.

 

Expenses

 

Total expenses increased $452 million, or 32%, to $1.9 billion for the nine months ended September 30, 2011 compared to $1.4 billion for the prior year period. Operating expenses, which exclude integration charges, increased $449 million, or 33%, to $1.8 billion for the nine months ended September 30, 2011 compared to $1.3 billion for the prior year period due to an increase in distribution expenses and general and administrative expense.

 

Distribution expenses increased $269 million, or 53%, to $776 million for the nine months ended September 30, 2011 compared to $507 million for the prior year period due to an additional four months of business resulting from the Columbia Management Acquisition, as well as an increase in average assets, partially offset by net outflows.

 

General and administrative expense increased $184 million, or 21%, to $1.1 billion for the nine months ended September 30, 2011 compared to $893 million for the prior year period. Integration charges increased $3 million to $74 million for the nine months ended September 30, 2011 compared to $71 million in the prior year period. Operating general and administrative expense, which excludes integration charges, increased $181 million, or 22%, to $1.0 billion for the nine months ended September 30, 2011 compared to $822 million for the prior year period reflecting an additional four months of ongoing expenses of Columbia Management, as well as $10 million of Threadneedle project implementation costs, primarily related to a new transfer agency agreement, and higher investment spending compared to the prior year period.

 

77



Table of Contents

 

Annuities

 

Management believes that operating measures, which exclude net realized gains or losses and the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, for our Annuities segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the results of operations of our Annuities segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

468

 

$

 

$

468

 

$

396

 

$

 

$

396

 

$

72

 

18

%

Distribution fees

 

236

 

 

236

 

211

 

 

211

 

25

 

12

 

Net investment income

 

971

 

(4

)

975

 

986

 

6

 

980

 

(5

)

(1

)

Premiums

 

127

 

 

127

 

116

 

 

116

 

11

 

9

 

Other revenues

 

190

 

 

190

 

149

 

 

149

 

41

 

28

 

Total revenues

 

1,992

 

(4

)

1,996

 

1,858

 

6

 

1,852

 

144

 

8

 

Banking and deposit interest expense

 

 

 

 

 

 

 

 

 

Total net revenues

 

1,992

 

(4

)

1,996

 

1,858

 

6

 

1,852

 

144

 

8

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

240

 

 

240

 

201

 

 

201

 

39

 

19

 

Interest credited to fixed accounts

 

526

 

 

526

 

574

 

 

574

 

(48

)

(8

)

Benefits, claims, losses and settlement expenses

 

226

 

(85

)

311

 

517

 

(63

)

580

 

(269

)

(46

)

Amortization of deferred acquisition costs

 

406

 

53

 

353

 

(105

)

45

 

(150

)

503

 

NM

 

Interest and debt expense

 

1

 

 

1

 

2

 

 

2

 

(1

)

(50

)

General and administrative expense

 

160

 

 

160

 

152

 

 

152

 

8

 

5

 

Total expenses

 

1,559

 

(32

)

1,591

 

1,341

 

(18

)

1,359

 

232

 

17

 

Pretax income

 

$

433

 

$

28

 

$

405

 

$

517

 

$

24

 

$

493

 

$

(88

)

(18

)%

 


NM Not Meaningful.

(1)   Adjustments include net realized gains or losses and the market impact on variable annuity living benefits, net of hedges, DSIC and DAC amortization.

 

Our Annuities segment pretax income decreased $84 million, or 16%, to $433 million for the nine months ended September 30, 2011 compared to $517 million for the prior year period. Our Annuities segment pretax operating income, which excludes net realized gains or losses and the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, decreased $88 million, or 18%, to $405 million for the nine months ended September 30, 2011 compared to $493 million in the prior year period primarily due to the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization.

 

Net Revenues

 

Net revenues increased $134 million, or 7%, to $2.0 billion for the nine months ended September 30, 2011 compared to $1.9 billion for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $144 million, or 8%, to $2.0 billion for the nine months ended September 30, 2011 compared to $1.9 billion for the prior year period reflecting higher fee revenue from increased variable annuity separate account balances and higher fees from variable annuity guarantees.

 

Management and financial advice fees increased $72 million, or 18%, to $468 million for the nine months ended September 30, 2011 compared to $396 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances. Average variable annuities contract accumulation values increased $8.3 billion, or 17%, from the prior year period due to higher average equity market levels, as well as net inflows. Variable annuity net inflows for the nine months ended September 30, 2011 included $1.2 billion of net inflows in the Ameriprise channel, partially offset by net outflows from the closed book of variable annuities sold through third-party channels.

 

78



Table of Contents

 

Distribution fees increased $25 million, or 12%, to $236 million for the nine months ended September 30, 2011 compared to $211 million for the prior year period primarily due to higher fees on variable annuities driven by higher average separate account balances.

 

Net investment income decreased $15 million, or 2%, to $971 million for the nine months ended September 30, 2011 compared to $986 million in the prior year period. Operating net investment income, which excludes net realized gains or losses, decreased $5 million, or 1%, to $975 million for the nine months ended September 30, 2011 compared to $980 million for the prior year period due to a decrease in investment income on fixed maturity securities primarily reflecting lower investments in the general account due to the implementation of changes to the Portfolio Navigator program in the second quarter of 2010 and lower interest sensitive fixed annuity account balances, partially offset by $37 million of additional bond discount amortization investment income related to prior periods resulting from revisions to the accounting classification of certain structured securities in the third quarter of 2011.

 

Premiums increased $11 million, or 9%, to $127 million for the nine months ended September 30, 2011 compared to $116 million for the prior year period due to higher sales of immediate annuities with life contingencies.

 

Other revenues increased $41 million, or 28%, to $190 million for the nine months ended September 30, 2011 compared to $149 million for the prior year period due to higher fees from variable annuity guarantees driven by higher in force amounts.

 

Expenses

 

Total expenses increased $218 million, or 16%, to $1.6 billion for the nine months ended September 30, 2011 compared to $1.3 billion for the prior year period. Operating expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges, DSIC and DAC amortization, increased $232 million, or 17%, to $1.6 billion for the nine months ended September 30, 2011 compared to $1.4 billion for the prior year period primarily due to the impact of updating valuation assumptions and models and the market impact on DAC and DSIC amortization.

 

Distribution expenses increased $39 million, or 19%, to $240 million for the nine months ended September 30, 2011 compared to $201 million for the prior year period primarily due to higher variable annuity compensation.

 

Interest credited to fixed accounts decreased $48 million, or 8%, to $526 million for the nine months ended September 30, 2011 compared to $574 million for the prior year period driven by lower average variable annuities fixed sub-account balances and a lower average crediting rate on interest sensitive fixed annuities, as well as lower average fixed annuity account balances. Average variable annuities fixed sub-account balances decreased $721 million, or 13%, to $4.8 billion for the nine months ended September 30, 2011 compared to the prior year period primarily due to the implementation of changes to the Portfolio Navigator program in the second quarter of 2010. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.7% for the nine months ended September 30, 2011 compared to 3.8% in the prior year period. Average fixed annuities contract accumulation values decreased $270 million, or 2%, to $14.3 billion for the nine months ended September 30, 2011 compared to the prior year period. Fixed annuities remained in net outflows due to low client demand given current interest rates.

 

Benefits, claims, losses and settlement expenses decreased $291 million, or 56%, to $226 million for the nine months ended September 30, 2011 compared to $517 million for the prior year period. Operating benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed living benefits, net of hedges and DSIC amortization, decreased $269 million, or 46%, to $311 million for the nine months ended September 30, 2011 compared to $580 million in the prior year period. Operating benefits, claims, losses and settlement expenses in the 2011 period included a benefit of $40 million from updating valuation assumptions and models compared to an expense of $256 million in the prior year period. Benefits, claims, losses and settlement expenses related to our immediate annuities with life contingencies increased from the prior year period due to an unfavorable change in reserves primarily driven by higher premiums. The market impact to DSIC was an expense of $6 million in the 2011 period compared to nil in the prior year period. Benefits, claims, losses and settlement expenses for the prior year period included a $21 million expense, net of DSIC, as a result of the implementation of changes to the Portfolio Navigator program.

 

Amortization of DAC increased $511 million to $406 million for the nine months ended September 30, 2011 compared to a benefit of $105 million in the prior year period. Operating amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed living benefits, increased $503 million to $353 million for the nine months ended September 30, 2011 compared to a benefit of $150 million in the prior year period primarily due to the impact of updating valuation assumptions and models, as well as the market impact on amortization of DAC. Operating amortization of DAC in the 2011 period included an expense of $65 million from updating valuation assumptions and models compared to a benefit of $353 million in the prior year period. The market impact on amortization of DAC was an expense of $33 million in

 

79



Table of Contents

 

the 2011 period compared to a benefit of $1 million in the prior year period. Amortization of DAC in the prior year period included a benefit of $13 million as a result of the implementation of changes to the Portfolio Navigator program.

 

Protection

 

Management believes that operating measures, which exclude net realized gains or losses for our Protection segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the results of operations of our Protection segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

42

 

$

 

$

42

 

$

39

 

$

 

$

39

 

$

3

 

8

%

Distribution fees

 

70

 

 

70

 

72

 

 

72

 

(2

)

(3

)

Net investment income

 

326

 

3

 

323

 

322

 

2

 

320

 

3

 

1

 

Premiums

 

800

 

 

800

 

781

 

 

781

 

19

 

2

 

Other revenues

 

305

 

 

305

 

310

 

 

310

 

(5

)

(2

)

Total revenues

 

1,543

 

3

 

1,540

 

1,524

 

2

 

1,522

 

18

 

1

 

Banking and deposit interest expense

 

 

 

 

 

 

 

 

 

Total net revenues

 

1,543

 

3

 

1,540

 

1,524

 

2

 

1,522

 

18

 

1

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

25

 

 

25

 

25

 

 

25

 

 

 

Interest credited to fixed accounts

 

106

 

 

106

 

112

 

 

112

 

(6

)

(5

)

Benefits, claims, losses and settlement expenses

 

819

 

 

819

 

768

 

 

768

 

51

 

7

 

Amortization of deferred acquisition costs

 

151

 

 

151

 

132

 

 

132

 

19

 

14

 

General and administrative expense

 

181

 

 

181

 

167

 

 

167

 

14

 

8

 

Total expenses

 

1,282

 

 

1,282

 

1,204

 

 

1,204

 

78

 

6

 

Pretax income

 

$

261

 

$

3

 

$

258

 

$

320

 

$

2

 

$

318

 

$

(60

)

(19

)%

 


(1) Adjustments include net realized gains or losses.

 

Our Protection segment pretax income decreased $59 million, or 18%, to $261 million for the nine months ended September 30, 2011, compared to $320 million for the prior year period. Our Protection segment pretax operating income, which excludes net realized gains or losses, decreased $60 million, or 19%, to $258 million for the nine months ended September 30, 2011, compared to $318 million for the prior year period.

 

Net Revenues

 

Net revenues increased $19 million, or 1%, to $1.5 billion for the nine months ended September 30, 2011 compared to $1.5 billion for the prior year period. Operating net revenues, which exclude net realized gains or losses, increased $18 million, or 1%, to $1.5 billion for the nine months ended September 30, 2011 compared to $1.5 billion for the prior year period due to Auto and Home premium growth.

 

Premiums increased $19 million, or 2%, to $800 million for the nine months ended September 30, 2011 compared to $781 million for the prior year period due to growth in Auto and Home premiums driven by higher volumes. Auto and Home policy counts increased 8% period-over-period.

 

80



Table of Contents

 

Expenses

 

Total expenses increased $78 million, or 6%, to $1.3 billion for the nine months ended September 30, 2011 compared to $1.2 billion for the prior year period primarily due to increases in benefits, claims, losses and settlement expenses and amortization of DAC.

 

Benefits, claims, losses and settlement expenses increased $51 million, or 7%, to $819 million for the nine months ended September 30, 2011 compared to $768 million for the prior year period. Benefits, claims, losses and settlement expenses in the 2011 period included a benefit of $4 million from updating valuation assumptions and models compared to an expense of $44 million in the prior year period. Benefits, claims, losses and settlement expenses related to our Auto and Home business increased from the prior year period primarily due to $38 million of catastrophe losses from storms in the 2011 period, higher auto liability reserves, and higher elevated reserve levels for future storm claims. In addition, benefits, claims, losses and settlement expenses increased as a result of higher universal life claims and an increase in ongoing reserve levels for universal life products with secondary guarantees compared to the prior year period.

 

Amortization of DAC increased $19 million, or 14%, to $151 million for the nine months ended September 30, 2011 compared to $132 million for the prior year period. Amortization of DAC in the 2011 period included a benefit of $2 million from updating valuation assumptions and models compared to a benefit of $22 million in the prior year period. Amortization of DAC in the prior year period also included a benefit of $6 million as a result of the implementation of changes to the Portfolio Navigator program. The market impact on amortization of DAC was an expense of $5 million in the 2011 period compared to a benefit of $7 million in the prior year period, which was partially offset by a decrease in DAC amortization as a result of better persistency and lower current period profits due to higher direct claims.

 

Corporate & Other

 

Management believes that operating measures, which exclude net realized gains or losses, integration and restructuring charges and the impact of consolidating CIEs for our Corporate & Other segment, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. See our discussion on the use of these non-GAAP measures in the Overview section above.

 

The following table presents the results of operations of our Corporate & Other segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

GAAP

 

Adjustments(1)

 

Operating

 

GAAP

 

Adjustments(1)

 

Operating

 

Operating Change

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

Distribution fees

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

(36

)

(16

)

(20

)

241

 

255

 

(14

)

(6

)

(43

)%

Other revenues

 

89

 

60

 

29

 

139

 

112

 

27

 

2

 

7

 

Total revenues

 

53

 

44

 

9

 

380

 

367

 

13

 

(4

)

(31

)

Banking and deposit interest expense

 

 

 

 

3

 

 

3

 

(3

)

NM

 

Total net revenues

 

53

 

44

 

9

 

377

 

367

 

10

 

(1

)

(10

)

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

1

 

 

1

 

 

 

 

1

 

NM

 

Interest and debt expense

 

220

 

148

 

72

 

210

 

130

 

80

 

(8

)

(10

)

General and administrative expense

 

144

 

42

 

102

 

135

 

49

 

86

 

16

 

19

 

Total expenses

 

365

 

190

 

175

 

345

 

179

 

166

 

9

 

5

 

Pretax income (loss)

 

(312

)

(146

)

(166

)

32

 

188

 

(156

)

(10

)

(6

)

Less: Net income (loss) attributable to noncontrolling interests

 

(151

)

(151

)

 

189

 

189

 

 

 

 

Pretax loss attributable to Ameriprise Financial

 

$

(161

)

$

5

 

$

(166

)

$

(157

)

$

(1

)

$

(156

)

$

(10

)

(6

)%

 


NM Not Meaningful.

(1)   Includes revenues and expenses of the CIEs; net realized gains or losses; and integration and restructuring charges.

 

81



Table of Contents

 

The following table presents the components of the adjustments in the table above:

 

 

 

Nine Months Ended September 30,

 

 

 

2011

 

2010

 

 

 

 

 

Other

 

Total

 

 

 

Other

 

Total

 

 

 

CIEs

 

Adjustments (1)

 

Adjustments

 

CIEs

 

Adjustments (1)

 

Adjustments

 

 

 

(in millions, unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

$

(21

)

$

5

 

$

(16

)

$

251

 

$

4

 

$

255

 

Other revenues

 

60

 

 

60

 

112

 

 

112

 

Total revenues

 

39

 

5

 

44

 

363

 

4

 

367

 

Banking and deposit interest expense

 

 

 

 

 

 

 

Total net revenues

 

39

 

5

 

44

 

363

 

4

 

367

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution expenses

 

 

 

 

 

 

 

Interest and debt expense

 

148

 

 

148

 

130

 

 

130

 

General and administrative expense

 

42

 

 

42

 

44

 

5

 

49

 

Total expenses

 

190

 

 

190

 

174

 

5

 

179

 

Pretax income (loss)

 

(151

)

5

 

(146

)

189

 

(1

)

188

 

Less: Net income (loss) attributable to noncontrolling interests

 

(151

)

 

(151

)

189

 

 

189

 

Pretax income (loss) attributable to Ameriprise Financial

 

$

 

$

5

 

$

5

 

$

 

$

(1

)

$

(1

)

 


(1)         Other adjustments include net realized gains or losses and integration and restructuring charges.

 

Our Corporate & Other segment pretax loss attributable to Ameriprise Financial was $161 million for the nine months ended September 30, 2011 compared to $157 million in the prior year period. Our Corporate & Other segment pretax operating loss excludes net realized gains or losses, integration and restructuring charges and the impact of consolidating CIEs. Our Corporate & Other segment pretax operating loss was $166 million for the nine months ended September 30, 2011 compared to $156 million in the prior year period.

 

Net revenues decreased $324 million, or 86%, to $53 million for the nine months ended September 30, 2011 compared to $377 million for the prior year period reflecting the impact of consolidating CIEs. Operating net revenues, which exclude revenues or losses of CIEs and net realized gains or losses, decreased $1 million, or 10%, to $9 million for the nine months ended September 30, 2011 compared to $10 million for the prior year period.

 

Net investment loss was $36 million for the nine months ended September 30, 2011 compared to income of $241 million for the prior year period. Net investment loss for the nine months ended September 30, 2011 included a $21 million loss for changes in the assets and liabilities of CIEs, primarily debt and underlying syndicated loans, compared to a $251 million gain in the prior year period. Operating net investment loss, which excludes net investment income or loss of the CIEs and net realized gains or losses, was $20 million for the nine months ended September 30, 2011 compared to $14 million for the prior year period.

 

Other revenues decreased $50 million, or 36%, to $89 million for the nine months ended September 30, 2011 compared to $139 million for the prior year period. Operating other revenues, which exclude revenues or losses of the CIEs, increased $2 million, or 7%, to $29 million for the nine months ended September 30, 2011 compared to $27 million for the prior year period. During the second quarter of 2011, we reclassified from accumulated other comprehensive income into earnings a $27 million gain on an interest rate hedge put in place in anticipation of issuing debt between December 2010 and June 2011. Operating other revenues for the 2010 period included a $25 million benefit from payments related to the Reserve Funds matter.

 

Total expenses increased $20 million, or 6%, to $365 million for the nine months ended September 30, 2011 compared to $345 million for the prior year period. Operating expenses, which exclude expenses of CIEs and integration and restructuring charges, increased $9 million, or 5%, to $175 million for the nine months ended September 30, 2011 compared to $166 million for the prior year period.

 

82



Table of Contents

 

Interest and debt expense increased $10 million, or 5%, to $220 million for the nine months ended September 30, 2011 compared to $210 million for the prior year period. Operating interest and debt expense, which excludes interest expense on CIE debt, decreased $8 million, or 10%, to $72 million for the nine months ended September 30, 2011 compared to $80 million for the prior year period due to lower outstanding debt balances.

 

General and administrative expense increased $9 million, or 7%, to $144 million for the nine months ended September 30, 2011 compared to $135 million for the prior year period. Operating general and administrative expense, which excludes expenses of the CIEs and integration and restructuring charges, increased $16 million, or 19%, to $102 million for the nine months ended September 30, 2011 compared to $86 million for the prior year period.

 

Market Risk

 

Our primary market risk exposures are interest rate, equity price, foreign currency exchange rate and credit risk. Equity price and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the spread income generated on our annuities, banking, brokerage client cash balances, and face amount certificate products and UL insurance products, the value of DAC and DSIC assets associated with variable annuity and variable UL products, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.

 

The guaranteed benefits associated with our variable annuities are guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Each of these guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying investment assets.

 

We continue to utilize a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result.  Our comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities; Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. We use various index options across the term structure, interest rate swaps and swaptions, total return swaps and futures to manage the risk exposures. The exposures are measured and monitored daily, and adjustments to the hedge portfolio are made as necessary.

 

To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12 month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, stock market certificates and the associated hedge assets, we assumed no change in implied market volatility despite the 10% drop in equity prices.

 

The following tables present our estimate of the impact on pretax income from these hypothetical market movements as of September 30, 2011:

 

 

 

Equity Price Exposure to Pretax Income

 

Equity Price Decline 10%

 

Before Hedge Impact

 

Hedge Impact

 

Net Impact

 

 

 

(in millions)

 

Asset-based management and distribution fees (1)

 

$

(167

)

$

5

 

$

(162

)

DAC and DSIC amortization (2) (3)

 

(149

)

 

(149

)

Variable annuity riders:

 

 

 

 

 

 

 

GMDB and GMIB (3)

 

(51

)

 

(51

)

GMWB

 

(135

)

212

 

77

 

GMAB

 

(39

)

58

 

19

 

DAC and DSIC amortization (4)

 

N/A

 

N/A

 

(35

)

Total variable annuity riders

 

(225

)

270

 

10

 

Equity indexed annuities

 

1

 

(1

)

 

Stock market certificates

 

2

 

(2

)

 

Total

 

$

(538

)

$

272

 

$

(301

)

 

83



Table of Contents

 

 

 

Interest Rate Exposure to Pretax Income

 

Interest Rate Increase 100 Basis Points

 

Before Hedge Impact

 

Hedge Impact

 

Net Impact

 

 

 

(in millions)

 

Asset-based management and distribution fees (1)

 

$

(36

)

$

 

$

(36

)

Variable annuity riders:

 

 

 

 

 

 

 

GMWB

 

488

 

(596

)

(108

)

GMAB

 

55

 

(62

)

(7

)

DAC and DSIC amortization (4)

 

N/A

 

N/A

 

33

 

Total variable annuity riders

 

543

 

(658

)

(82

)

Fixed annuities, fixed portion of variable annuities and fixed insurance products

 

23

 

 

23

 

Brokerage client cash balances

 

71

 

 

71

 

Flexible savings and other fixed rate savings products

 

13

 

 

13

 

Total

 

$

614

 

$

(658

)

$

(11

)

 


N/A  Not Applicable.

(1)        Excludes incentive income which is impacted by market and fund performance during the period and cannot be readily estimated.

(2)        Market impact on DAC and DSIC amortization resulting from lower projected profits.

(3)        In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, we have not changed our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumed management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. We make this same conservative assumption in estimating the impact from GMDB and GMIB riders.

(4)        Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.

 

The above results compare to an estimated negative net impact to pretax income of $326 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $11 million related to a 100 basis point increase in interest rates as of December 31, 2010. The changes in sensitivities at September 30, 2011 compared to December 31, 2010 are primarily due to the market turmoil in the third quarter 2011.

 

Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with key policyholder behavior assumptions loaded to provide risk margins and with discount rates increased to reflect a current market estimate of our risk of nonperformance specific to these liabilities. For variable annuity riders introduced prior to mid-2009, management elected to hedge based on best estimate policyholder behavior assumptions. For riders issued since mid-2009, management has been hedging on a basis that includes risk margins related to policyholder behavior. The nonperformance spread risk is not hedged.

 

Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, we have not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor have we tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.

 

The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.

 

84



Table of Contents

 

Fair Value Measurements

 

We report certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, properties held by our consolidated property funds, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions. Companies are not permitted to use market prices that are the result of a forced liquidation or distressed sale. We include actual market prices, or observable inputs, in our fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. We validate prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors.

 

Non-Agency Residential Mortgage Backed Securities Backed by Sub-prime, Alt-A or Prime Collateral

 

Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above sub-prime but may not conform to government-sponsored standards. Prime mortgage lending is the origination of residential mortgage loans to customers with good credit profiles. We have exposure to each of these types of loans predominantly through mortgage backed and asset backed securities. The slowdown in the U.S. housing market, combined with relaxed underwriting standards by some originators, has led to higher delinquency and loss rates for some of these investments. Market conditions have increased the likelihood of other-than-temporary impairments for certain non-agency residential mortgage backed securities. As a part of our risk management process, an internal rating system is used in conjunction with market data as the basis of analysis to assess the likelihood that we will not receive all contractual principal and interest payments for these investments. For the investments that are more at risk for impairment, we perform our own assessment of projected cash flows incorporating assumptions about default rates, prepayment speeds and loss severity to determine if an other-than-temporary impairment should be recognized.

 

The following table presents, as of September 30, 2011, our non-agency residential mortgage backed and asset backed securities backed by sub-prime, Alt-A or prime mortgage loans by credit rating and vintage year:

 

 

 

AAA

 

AA

 

A

 

BBB

 

BB & Below

 

Total

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

 

 

(in millions)

 

Sub-prime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

6

 

$

5

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

6

 

$

5

 

2004

 

20

 

19

 

2

 

2

 

5

 

5

 

7

 

4

 

8

 

6

 

42

 

36

 

2005

 

46

 

44

 

38

 

36

 

12

 

11

 

 

 

29

 

24

 

125

 

115

 

2006

 

42

 

41

 

 

 

 

 

6

 

6

 

46

 

33

 

94

 

80

 

2007

 

15

 

14

 

 

 

 

 

2

 

2

 

6

 

1

 

23

 

17

 

2008

 

 

 

6

 

5

 

 

 

 

 

 

 

6

 

5

 

Re-Remic(1)

 

11

 

11

 

 

 

3

 

3

 

28

 

28

 

 

 

42

 

42

 

Total Sub-prime

 

$

140

 

$

134

 

$

46

 

$

43

 

$

20

 

$

19

 

$

43

 

$

40

 

$

89

 

$

64

 

$

338

 

$

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alt-A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

1

 

$

1

 

$

11

 

$

12

 

$

2

 

$

3

 

$

1

 

$

1

 

$

 

$

 

$

15

 

$

17

 

2004

 

 

 

14

 

13

 

16

 

17

 

59

 

49

 

25

 

20

 

114

 

99

 

2005

 

 

 

 

 

1

 

1

 

9

 

7

 

274

 

192

 

284

 

200

 

2006

 

 

 

 

 

 

 

 

 

122

 

84

 

122

 

84

 

2007

 

 

 

 

 

 

 

 

 

173

 

102

 

173

 

102

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

73

 

72

 

 

 

 

 

 

 

 

 

73

 

72

 

Re-Remic(1)

 

206

 

204

 

 

 

4

 

4

 

 

 

 

 

210

 

208

 

Total Alt-A

 

$

280

 

$

277

 

$

25

 

$

25

 

$

23

 

$

25

 

$

69

 

$

57

 

$

594

 

$

398

 

$

991

 

$

782

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

133

 

$

137

 

$

32

 

$

31

 

$

116

 

$

111

 

$

12

 

$

11

 

$

 

$

 

$

293

 

$

290

 

2004

 

60

 

59

 

18

 

17

 

25

 

24

 

31

 

28

 

65

 

49

 

199

 

177

 

2005

 

3

 

3

 

3

 

3

 

28

 

30

 

41

 

43

 

185

 

148

 

260

 

227

 

2006

 

 

 

 

 

15

 

16

 

 

 

33

 

33

 

48

 

49

 

2007

 

20

 

21

 

20

 

18

 

 

 

9

 

9

 

12

 

9

 

61

 

57

 

Re-Remic(1)

 

1,891

 

1,981

 

110

 

119

 

126

 

125

 

 

 

10

 

18

 

2,137

 

2,243

 

Total Prime

 

$

2,107

 

$

2,201

 

$

183

 

$

188

 

$

310

 

$

306

 

$

93

 

$

91

 

$

305

 

$

257

 

$

2,998

 

$

3,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand Total

 

$

2,527

 

$

2,612

 

$

254

 

$

256

 

$

353

 

$

350

 

$

205

 

$

188

 

$

988

 

$

719

 

$

4,327

 

$

4,125

 

 


(1)        Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds. Credit enhancement has been increased through the Re-Remic process on the securities we own.

 

85



Table of Contents

 

Fair Value of Liabilities and Nonperformance Risk

 

Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for our obligations of our variable annuity riders, we consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust the valuation of variable annuity riders by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of our nonperformance risk. The nonperformance risk adjustment is based on broker quotes for credit default swaps that are adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of September 30, 2011. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $227 million, net of DAC and DSIC amortization and income taxes, based on September 30, 2011 credit spreads.

 

Liquidity and Capital Resources

 

Overview

 

We maintained substantial liquidity during the nine months ended September 30, 2011. At September 30, 2011, we had $2.7 billion in cash and cash equivalents compared to $2.8 billion at December 31, 2010. We have additional liquidity available through an unsecured revolving credit facility for up to $500 million that expires in November 2011. We intend to renew this credit facility. Under the terms of the underlying credit agreement, we can increase this facility to $750 million upon satisfaction of certain approval requirements. Available borrowings under this facility are reduced by any outstanding letters of credit. We have had no borrowings under this credit facility and had $2 million of outstanding letters of credit at September 30, 2011.

 

In March 2010, we issued $750 million of 5.30% senior notes due 2020. A portion of the proceeds was used to retire $340 million of debt that matured in November 2010. On April 30, 2010, we closed on the Columbia Management Acquisition and paid $866 million in the second quarter with cash on hand and assumed liabilities of $30 million. Our subsidiaries, Ameriprise Bank, FSB and RiverSource Life Insurance Company (“RiverSource Life”), are members of the Federal Home Loan Bank (“FHLB”) of Des Moines, which provides these subsidiaries with access to collateralized borrowings. As of September 30, 2011, we had no borrowings from the FHLB. Beginning in 2010, we entered into repurchase agreements to reduce reinvestment risk from higher levels of expected annuity net cash flows. Repurchase agreements allow us to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at September 30, 2011 was $504 million, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from our investment portfolio. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.

 

Dividends from Subsidiaries

 

Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), AMPF Holding Corporation, which is the parent company of our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”) and our clearing broker-dealer subsidiary, American Enterprise Investment Services, Inc. (“AEIS”), our Auto and Home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, our transfer agent subsidiary, Columbia Management Investment Services Corp., our investment advisory company, Columbia Management Investment Advisers, LLC, and Threadneedle. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.

 

86



Table of Contents

 

Actual capital and regulatory capital requirements for our wholly owned subsidiaries subject to regulatory capital requirements were as follows:

 

 

 

Actual Capital

 

Regulatory Capital Requirements

 

 

 

September 30,
2011

 

December 31,
2010

 

September 30,
2011

 

December 31,
2010

 

 

 

(in millions)

 

RiverSource Life(1)(2)

 

$

4,060

 

$

3,813

 

N/A

 

$

652

 

RiverSource Life of NY(1)(2)

 

270

 

291

 

N/A

 

38

 

IDS Property Casualty(1)(3)

 

418

 

411

 

$

146

 

141

 

Ameriprise Insurance Company(1)(3)

 

44

 

44

 

2

 

2

 

ACC(4)(5)

 

165

 

184

 

152

 

173

 

Threadneedle(6)

 

218

 

182

 

170

 

104

 

Ameriprise Bank, FSB(7)

 

395

 

302

 

382

 

294

 

AFSI(3)(4)

 

150

 

119

 

2

 

1

 

Ameriprise Captive Insurance Company(3)

 

43

 

38

 

16

 

12

 

Ameriprise Trust Company(3)

 

44

 

41

 

38

 

40

 

AEIS(3)(4)

 

131

 

115

 

39

 

35

 

Securities America, Inc.(3)(4)

 

6

 

2

 

#

 

#

 

RiverSource Distributors, Inc.(3)(4)

 

23

 

24

 

#

 

#

 

Columbia Management Investment Distributors, Inc.(3)(4)

 

30

 

27

 

#

 

#

 

 


NA  Not applicable.

#            Amounts are less than $1 million.

(1)    Actual capital is determined on a statutory basis.

(2)    Regulatory capital requirement is based on the statutory risk-based filing.

(3)    Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of September 30, 2011 and December 31, 2010

(4)    Actual capital is determined on an adjusted GAAP basis.

(5)    ACC is required to hold capital in compliance with the Minnesota Department of Commerce and SEC capital requirements.

(6)    Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. The actual capital and the regulatory capital requirements at September 30, 2011 represent management’s assessment at June 30, 2011 of the risk based requirements, as specified by FSA regulations and submitted to the FSA in September 2011.

(7)    Ameriprise Bank is required to hold capital in compliance with the Office of Thrift Supervision (“OTS”) regulations and policies, which currently require a Tier 1 (core) capital ratio of not less than 7.5%. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the responsibility for the ongoing examination, supervision, and regulation of federal savings associations, including Ameriprise Bank, transferred from the OTS to the Office of the Comptroller of the Currency (“OCC”) effective July 21, 2011. The primary regulatory reporting requirements under the OCC are expected to become effective during the period ending March 31, 2012.

 

In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries.

 

During the nine months ended September 30, 2011, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.1 billion (including $750 million from RiverSource Life) and contributed cash to its subsidiaries of $113 million. During the nine months ended September 30, 2010, the parent holding company received cash dividends or a return of capital from its subsidiaries of $792 million (including $500 million from RiverSource Life) and contributed cash to its subsidiaries of $38 million.

 

Dividends Paid to Shareholders and Share Repurchases

 

We paid regular quarterly cash dividends to our shareholders totaling $158 million and $138 million for the nine months ended September 30, 2011 and 2010, respectively. On October 24, 2011, our Board of Directors declared a quarterly cash dividend of $0.23 per common share. The dividend will be paid on November 18, 2011 to our shareholders of record at the close of business on November 4, 2011.

 

On May 11, 2010, we announced that our board of directors authorized an expenditure of up to $1.5 billion for the repurchase of shares of our common stock through the date of our 2012 annual shareholders meeting. On June 15, 2011, we announced that our Board of Directors authorized an additional expenditure of up to $2.0 billion for the repurchase of shares of our common stock through June 28, 2013. We intend to fund share repurchases through existing working capital, future earnings and other customary financing methods. The share repurchase program does not require the purchase of any minimum

 

87



Table of Contents

 

number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means. During the nine months ended September 30, 2011, we repurchased a total of 22.4 million shares of our common stock at an average price of $53.79 per share. As of September 30, 2011, we had $1.7 billion remaining under our share repurchase authorizations.

 

Cash Flows

 

Cash flows of CIEs are reflected in our cash flows provided by (used in) operating activities, investing activities and financing activities. Cash held by CIEs is not available for general use by Ameriprise Financial, nor is Ameriprise Financial cash available for general use by its CIEs. As such, the operating, investing and financing cash flows of the CIEs have no impact to the change in cash and cash equivalents.

 

Operating Activities

 

Net cash provided by operating activities for the nine months ended September 30, 2011 decreased $374 million to $1.5 billion compared to $1.8 billion for the nine months ended September 30, 2010. Net cash provided by operating activities for the nine months ended September 30, 2011 included a negative impact of $198 million related to CIEs compared to a positive impact of $225 million in the prior year period. In the 2011 period, operating cash increased $449 million due to an increase in net cash collateral held related to derivative instruments compared to an increase of $627 million in the prior year period. Income taxes paid increased $299 million in the 2011 period compared to the prior year period. Net cash provided by operating activities in the 2011 period included an increase in cash generated from higher asset-based fee revenue, partially offset by higher payments for distribution expenses.

 

Investing Activities

 

Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net flows of our investment certificate, fixed annuity and universal life products reflected in financing activities.

 

Net cash used in investing activities was $1.1 billion for the nine months ended September 30, 2011 compared to $1.0 billion for the nine months ended September 30, 2010. Cash used to purchase Available-for-Sale securities decreased $353 million compared to the prior year period and cash proceeds from sales and maturities, sinking fund payments and calls of Available-for-Sale securities decreased $1.3 billion compared to the prior year period. We paid cash of $866 million for the Columbia Management Acquisition in the second quarter of 2010.

 

Financing Activities

 

Net cash used in financing activities was $559 million for the nine months ended September 30, 2011 compared to $208 million for the nine months ended September 30, 2010. Net cash outflows related to policyholder and contractholder account values were $34 million for the nine months ended September 30, 2011 compared to $1.0 billion for the prior year period. Net cash outflows related to policyholder and contractholder account values in the prior year period included net transfers to separate accounts of $1.3 billion primarily due to the implementation of changes to the Portfolio Navigator program. Cash outflows related to investment certificates and banking time deposits decreased $381 million due to lower maturities, withdrawals and cash surrenders compared to the prior year period. Cash provided by other banking deposits increased $470 million compared to the prior year period.

 

Net cash inflows related to changes in repurchase agreements decreased $763 million compared to the prior year period. Cash received due to issuance of debt, net of issuance costs, was $744 million for the nine months ended September 30, 2010. Cash used for the repurchase of common stock increased $844 million for the nine months ended September 30, 2011 compared to the prior year period.

 

Contractual Commitments

 

There have been no material changes to our contractual obligations disclosed in our 2010 10-K.

 

Off-Balance Sheet Arrangements

 

There have been no material changes in our off-balance sheet arrangements disclosed in our 2010 10-K.

 

88



Table of Contents

 

Forward-Looking Statements

 

This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include:

 

·          statements of the Company’s plans, intentions, positioning, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention and growth of our client base, financial advisor productivity, retention, recruiting and enrollments, acquisition integration, general and administrative costs; consolidated tax rate, return of capital to shareholders, and excess capital position and financial flexibility to capture additional growth opportunities;

 

·          other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and

 

·          statements of assumptions underlying such statements.

 

The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.

 

Such factors include, but are not limited to:

 

·          changes in the valuations, liquidity and volatility in the interest rate, credit default, equity market, and foreign exchange environments;

 

·          changes in and adoptions of relevant accounting standards, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act;

 

·          investment management performance and consumer acceptance of the Company’s products;

 

·          effects of competition in the financial services industry and changes in product distribution mix and distribution channels;

 

·          changes to the Company’s reputation that may arise from employee or affiliated advisor misconduct, legal or regulatory actions, improper management of conflicts of interest or otherwise;

 

·          the Company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the Company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;

 

·          changes to the availability of liquidity and the Company’s credit capacity that may arise due to shifts in market conditions, the Company’s credit ratings and the overall availability of credit;

 

·          risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;

 

·          with respect to VIE pooled investments the Company has determined do not require consolidation under GAAP, the Company’s assessment that it does not have the power over the VIE or hold a variable interest in these investments for which the Company has the potential to receive significant benefits or to absorb significant losses;

 

·          experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed living benefit annuity riders; or from assumptions regarding anticipated claims and losses relating to the Company’s automobile and home insurance products;

 

·          changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;

 

89



Table of Contents

 

·          the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its products;

 

·          the Company’s ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures, including the divestiture of Securities America, joint ventures and the development of new products and services;

 

·          the Company’s ability to realize the financial, operating and business fundamental benefits or to obtain regulatory approvals regarding integrations we plan for the acquisitions we have completed or may pursue and contract to complete in the future, as well as the amount and timing of integration expenses;

 

·          the ability and timing to realize savings and other benefits from re-engineering and tax planning;

 

·          changes in the capital markets and competitive environments induced or resulting from the partial or total ownership or other support by central governments of certain financial services firms or financial assets; and

 

·          general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and publicly-held firms, and regulatory rulings and pronouncements.

 

Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that management is unable to predict at this time that may cause actual results to differ materially from those in forward-looking 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. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included in Part I, Item 1A of our 2010 10-K.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” in this report is incorporated herein by reference. These disclosures should be read in conjunction with the “Quantitative and Qualitative Disclosures About Market Risk” discussion included as Part II, Item 7A of our Annual Report on Form 10-K for 2010 filed with the SEC on February 28, 2011.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, our company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

 

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2011.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

 

90



Table of Contents

 

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

The information set forth in Note 13 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

 

ITEM 1A.  RISK FACTORS

 

There have been no material changes in the risk factors provided in Part I, Item 1A of our 2010 10-K.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table presents the information with respect to purchases made by or on behalf of Ameriprise Financial, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the third quarter of 2011:

 

 

 

 

 

 

 

(c)

 

 

 

Period

 

(a)
Total Number
of Shares
Purchased

 

(b)
Average Price
Paid Per Share

 

Total Number of
Shares Purchased as
part of Publicly
Announced Plans
or Programs
(1)

 

(d)
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans
or Programs
(1)

 

July 1 to July 31, 2011

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

1,514,167

 

$

55.15

 

1,514,167

 

$

2,082,040,842

 

Employee transactions(2)

 

53,663

 

$

57.69

 

N/A

 

N/A

 

August 1 to August 31, 2011

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

5,320,506

 

$

43.80

 

5,320,506

 

$

1,849,000,782

 

Employee transactions(2)

 

491

 

$

52.76

 

N/A

 

N/A

 

September 1 to September 30, 2011

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

3,082,961

 

$

42.13

 

3,082,961

 

$

1,719,119,590

 

Employee transactions(2)

 

90,182

 

$

39.99

 

N/A

 

N/A

 

Totals

 

 

 

 

 

 

 

 

 

Share repurchase program

 

9,917,634

 

$

45.01

 

9,917,634

 

 

 

Employee transactions

 

144,336

 

$

46.61

 

N/A

 

 

 

 

 

10,061,970

 

 

 

9,917,634

 

 

 

 


N/A   Not applicable.

(1)             On May 11, 2010, we announced that our Board of Directors authorized us to repurchase up to $1.5 billion worth of our common stock through the date of the company’s 2012 annual shareholders meeting. On June 15, 2011, we announced that our board of directors authorized an additional expenditure of up to $2.0 billion for the repurchase of shares of our common stock through June 28, 2013. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means.

 

(2)             Restricted shares withheld pursuant to the terms of awards under the amended and revised Ameriprise Financial 2005 Incentive Compensation Plan (the “Plan”) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Plan provides that the value of the shares withheld shall be the closing price of common stock of Ameriprise Financial, Inc. on the date the relevant transaction occurs.

 

ITEM 6.  EXHIBITS

 

The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

 

91



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

AMERIPRISE FINANCIAL, INC.

 

 

(Registrant)

 

 

 

 

 

 

Date: November 7, 2011

By

/s/ Walter S. Berman

 

 

Walter S. Berman

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

 

 

 

 

Date: November 7, 2011

By

/s/ David K. Stewart

 

 

David K. Stewart

 

 

Senior Vice President and

 

 

Controller

 

 

(Principal Accounting Officer)

 

92



Table of Contents

 

EXHIBIT INDEX

 

Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this Quarterly Report on Form 10-Q. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.

 

The following exhibits are filed as part of this Quarterly Report on Form 10-Q. The exhibit numbers followed by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference.

 

Exhibit

 

Description

 

 

 

3.1

 

Amended Restated Certificate of Incorporation of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, File No. 1-32525, filed on April 30, 2010).

 

 

 

3.2

 

Amended and Restated Bylaws of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, File No. 1-32525, filed on April 30, 2010).

 

 

 

4.1

 

Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Form 10 Registration Statement, File No. 1-32525, filed on August 19, 2005). Other instruments defining rights of holders of long-term debt securities of the registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request.

 

 

 

10.1

 

Amendment No. 1 to Credit Agreement, dated as of September 9, 2011, among Ameriprise Financial, Inc., the lenders listed therein, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 1-32525, filed on September 15, 2011).

 

 

 

31.1*

 

Certification of James M. Cracchiolo pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

 

 

 

31.2*

 

Certification of Walter S. Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

 

 

 

32*

 

Certification of James M. Cracchiolo and Walter S. Berman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101*

 

The following materials from Ameriprise Financial, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2011, formatted in XBRL: (i) Consolidated Statements of Operations for the three months and nine months ended September 30, 2011 and 2010; (ii) Consolidated Balance Sheets at September 30, 2011 and December 31, 2010; (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010; (iv) Consolidated Statements of Equity for the nine months ended September 30, 2011 and 2010; and (v) Notes to the Consolidated Financial Statements.

 

E-1