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 March 31, 2012
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 |
|
Smaller reporting company o |
|
(Do not check if a smaller reporting company) |
|
|
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 April 27, 2012 |
|
Common Stock (par value $.01 per share) |
|
218,622,891 shares |
AMERIPRISE FINANCIAL, INC.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts)
|
|
|
Three Months Ended March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
Revenues |
|
|
|
|
| ||
|
Management and financial advice fees |
|
$ |
1,132 |
|
$ |
1,137 |
|
|
Distribution fees |
|
402 |
|
397 |
| ||
|
Net investment income |
|
531 |
|
515 |
| ||
|
Premiums |
|
301 |
|
292 |
| ||
|
Other revenues |
|
206 |
|
204 |
| ||
|
Total revenues |
|
2,572 |
|
2,545 |
| ||
|
Banking and deposit interest expense |
|
11 |
|
13 |
| ||
|
Total net revenues |
|
2,561 |
|
2,532 |
| ||
|
|
|
|
|
|
| ||
|
Expenses |
|
|
|
|
| ||
|
Distribution expenses |
|
666 |
|
634 |
| ||
|
Interest credited to fixed accounts |
|
206 |
|
208 |
| ||
|
Benefits, claims, losses and settlement expenses |
|
492 |
|
383 |
| ||
|
Amortization of deferred acquisition costs |
|
31 |
|
75 |
| ||
|
Interest and debt expense |
|
69 |
|
75 |
| ||
|
General and administrative expense |
|
775 |
|
771 |
| ||
|
Total expenses |
|
2,239 |
|
2,146 |
| ||
|
Income from continuing operations before income tax provision |
|
322 |
|
386 |
| ||
|
Income tax provision |
|
73 |
|
92 |
| ||
|
Income from continuing operations |
|
249 |
|
294 |
| ||
|
Loss from discontinued operations, net of tax |
|
(1 |
) |
(71 |
) | ||
|
Net income |
|
248 |
|
223 |
| ||
|
Less: Net income (loss) attributable to noncontrolling interests |
|
4 |
|
(18 |
) | ||
|
Net income attributable to Ameriprise Financial |
|
$ |
244 |
|
$ |
241 |
|
|
|
|
|
|
|
| ||
|
Earnings per share attributable to Ameriprise Financial, Inc. common shareholders |
|
|
|
|
| ||
|
Basic |
|
|
|
|
| ||
|
Income from continuing operations |
|
$ |
1.08 |
|
$ |
1.24 |
|
|
Loss from discontinued operations |
|
(0.01 |
) |
(0.28 |
) | ||
|
Net income |
|
$ |
1.07 |
|
$ |
0.96 |
|
|
Diluted |
|
|
|
|
| ||
|
Income from continuing operations |
|
$ |
1.06 |
|
$ |
1.21 |
|
|
Loss from discontinued operations |
|
(0.01 |
) |
(0.27 |
) | ||
|
Net income |
|
$ |
1.05 |
|
$ |
0.94 |
|
|
|
|
|
|
|
| ||
|
Cash dividends declared per common share |
|
$ |
— |
|
$ |
0.18 |
|
|
|
|
|
|
|
| ||
|
Supplemental Disclosures: |
|
|
|
|
| ||
|
Total other-than-temporary impairment losses on securities |
|
$ |
(5 |
) |
$ |
— |
|
|
Portion of loss recognized in other comprehensive income (before taxes) |
|
(1 |
) |
(2 |
) | ||
|
Net impairment losses recognized in net investment income |
|
$ |
(6 |
) |
$ |
(2 |
) |
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions)
|
|
|
Three Months Ended March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
248 |
|
$ |
223 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
| ||
|
Foreign currency translation adjustment |
|
31 |
|
28 |
| ||
|
Net unrealized gains (losses) on securities: |
|
|
|
|
| ||
|
Net unrealized securities gains (losses) arising during the period |
|
81 |
|
(62 |
) | ||
|
Reclassification of net securities losses included in net income |
|
1 |
|
1 |
| ||
|
Impact on deferred acquisition costs, deferred sales inducement costs, benefit reserves and reinsurance recoverables |
|
(3 |
) |
25 |
| ||
|
Total net unrealized gains (losses) on securities |
|
79 |
|
(36 |
) | ||
|
Net unrealized gains (losses) on derivatives: |
|
|
|
|
| ||
|
Net unrealized derivative gains arising during the period |
|
10 |
|
1 |
| ||
|
Reclassification of net derivative gains included in net income |
|
(1 |
) |
(4 |
) | ||
|
Total net unrealized gains (losses) on derivatives |
|
9 |
|
(3 |
) | ||
|
Total other comprehensive income (loss), net of tax |
|
119 |
|
(11 |
) | ||
|
Total comprehensive income |
|
367 |
|
212 |
| ||
|
Less: Comprehensive income (loss) attributable to noncontrolling interests |
|
23 |
|
(4 |
) | ||
|
Comprehensive income attributable to Ameriprise Financial |
|
$ |
344 |
|
$ |
216 |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share amounts)
|
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||
|
Assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
2,312 |
|
$ |
2,781 |
|
|
Cash of consolidated investment entities |
|
562 |
|
470 |
| ||
|
Investments |
|
39,104 |
|
38,775 |
| ||
|
Investments of consolidated investment entities, at fair value |
|
4,815 |
|
4,789 |
| ||
|
Separate account assets |
|
71,635 |
|
66,780 |
| ||
|
Receivables |
|
5,473 |
|
5,559 |
| ||
|
Receivables of consolidated investment entities (includes $28 and $39, respectively, at fair value) |
|
43 |
|
59 |
| ||
|
Deferred acquisition costs |
|
2,472 |
|
2,440 |
| ||
|
Restricted and segregated cash and investments |
|
1,875 |
|
1,793 |
| ||
|
Other assets |
|
7,429 |
|
7,751 |
| ||
|
Other assets of consolidated investment entities, at fair value |
|
1,037 |
|
1,110 |
| ||
|
Total assets |
|
$ |
136,757 |
|
$ |
132,307 |
|
|
|
|
|
|
|
| ||
|
Liabilities and Equity |
|
|
|
|
| ||
|
Liabilities: |
|
|
|
|
|
|
|
|
Future policy benefits and claims |
|
$ |
30,994 |
|
$ |
31,710 |
|
|
Separate account liabilities |
|
71,635 |
|
66,780 |
| ||
|
Customer deposits |
|
9,961 |
|
9,850 |
| ||
|
Short-term borrowings |
|
504 |
|
504 |
| ||
|
Long-term debt |
|
2,381 |
|
2,393 |
| ||
|
Debt of consolidated investment entities (includes $4,769 and $4,712, respectively, at fair value) |
|
5,231 |
|
5,178 |
| ||
|
Accounts payable and accrued expenses |
|
887 |
|
1,048 |
| ||
|
Accounts payable and accrued expenses of consolidated investment entities |
|
20 |
|
17 |
| ||
|
Other liabilities |
|
5,272 |
|
5,033 |
| ||
|
Other liabilities of consolidated investment entities (includes $90 and $85, respectively, at fair value) |
|
123 |
|
100 |
| ||
|
Total liabilities |
|
127,008 |
|
122,613 |
| ||
|
|
|
|
|
|
| ||
|
Equity: |
|
|
|
|
| ||
|
Ameriprise Financial, Inc.: |
|
|
|
|
| ||
|
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 305,346,496 and 303,757,574, respectively) |
|
3 |
|
3 |
| ||
|
Additional paid-in capital |
|
6,237 |
|
6,237 |
| ||
|
Retained earnings |
|
5,845 |
|
5,603 |
| ||
|
Appropriated retained earnings of consolidated investment entities |
|
440 |
|
428 |
| ||
|
Treasury shares, at cost (85,739,512 and 81,814,591 shares, respectively) |
|
(4,261 |
) |
(4,034 |
) | ||
|
Accumulated other comprehensive income, net of tax |
|
851 |
|
751 |
| ||
|
Total Ameriprise Financial, Inc. shareholders’ equity |
|
9,115 |
|
8,988 |
| ||
|
Noncontrolling interests |
|
634 |
|
706 |
| ||
|
Total equity |
|
9,749 |
|
9,694 |
| ||
|
Total liabilities and equity |
|
$ |
136,757 |
|
$ |
132,307 |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(in millions, except share data)
|
|
|
Ameriprise Financial, Inc. |
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Appropriated |
|
|
|
|
|
Total |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
Ameriprise |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Earnings of |
|
|
|
Accumulated |
|
Financial, |
|
|
|
|
| |||||||||
|
|
|
Number of |
|
|
|
Additional |
|
|
|
Consolidated |
|
|
|
Other |
|
Inc. |
|
Non- |
|
|
| |||||||||
|
|
|
Outstanding |
|
Common |
|
Paid-In |
|
Retained |
|
Investment |
|
Treasury |
|
Comprehensive |
|
Shareholders’ |
|
controlling |
|
|
| |||||||||
|
|
|
Shares |
|
Shares |
|
Capital |
|
Earnings |
|
Entities |
|
Shares |
|
Income |
|
Equity |
|
Interests |
|
Total |
| |||||||||
|
Balances at January 1, 2011, previously reported |
|
246,697,892 |
|
$ |
3 |
|
$ |
6,029 |
|
$ |
6,190 |
|
$ |
558 |
|
$ |
(2,620 |
) |
$ |
565 |
|
$ |
10,725 |
|
$ |
560 |
|
$ |
11,285 |
|
|
Cumulative effect of change in accounting policies, net of tax |
|
— |
|
— |
|
— |
|
(1,420 |
) |
— |
|
— |
|
85 |
|
(1,335 |
) |
— |
|
(1,335 |
) | |||||||||
|
Balances at January 1, 2011, as adjusted |
|
246,697,892 |
|
3 |
|
6,029 |
|
4,770 |
|
558 |
|
(2,620 |
) |
650 |
|
9,390 |
|
560 |
|
9,950 |
| |||||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Net income (loss) |
|
— |
|
— |
|
— |
|
241 |
|
— |
|
— |
|
— |
|
241 |
|
(18 |
) |
223 |
| |||||||||
|
Other comprehensive income (loss), net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(25 |
) |
(25 |
) |
14 |
|
(11 |
) | |||||||||
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
(4 |
) |
212 |
| |||||||||
|
Net loss reclassified to appropriated retained earnings |
|
— |
|
— |
|
— |
|
— |
|
(28 |
) |
— |
|
— |
|
(28 |
) |
28 |
|
— |
| |||||||||
|
Dividends to shareholders |
|
— |
|
— |
|
— |
|
(46 |
) |
— |
|
— |
|
— |
|
(46 |
) |
— |
|
(46 |
) | |||||||||
|
Noncontrolling interests investments in subsidiaries |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
64 |
|
64 |
| |||||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(27 |
) |
(27 |
) | |||||||||
|
Repurchase of common shares |
|
(6,863,309 |
) |
— |
|
— |
|
— |
|
— |
|
(413 |
) |
— |
|
(413 |
) |
— |
|
(413 |
) | |||||||||
|
Share-based compensation plans |
|
3,073,897 |
|
— |
|
14 |
|
— |
|
— |
|
81 |
|
— |
|
95 |
|
17 |
|
112 |
| |||||||||
|
Balances at March 31, 2011 |
|
242,908,480 |
|
$ |
3 |
|
$ |
6,043 |
|
$ |
4,965 |
|
$ |
530 |
|
$ |
(2,952 |
) |
$ |
625 |
|
$ |
9,214 |
|
$ |
638 |
|
$ |
9,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Balances at January 1, 2012 |
|
221,942,983 |
|
$ |
3 |
|
$ |
6,237 |
|
$ |
5,603 |
|
$ |
428 |
|
$ |
(4,034 |
) |
$ |
751 |
|
$ |
8,988 |
|
$ |
706 |
|
$ |
9,694 |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Net income |
|
— |
|
— |
|
— |
|
244 |
|
— |
|
— |
|
— |
|
244 |
|
4 |
|
248 |
| |||||||||
|
Other comprehensive income, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
100 |
|
100 |
|
19 |
|
119 |
| |||||||||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344 |
|
23 |
|
367 |
| |||||||||
|
Net income reclassified to appropriated retained earnings |
|
— |
|
— |
|
— |
|
— |
|
12 |
|
— |
|
— |
|
12 |
|
(12 |
) |
— |
| |||||||||
|
Dividends to shareholders |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
(2 |
) |
— |
|
(2 |
) | |||||||||
|
Noncontrolling interests investments in subsidiaries |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4 |
|
4 |
| |||||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(88 |
) |
(88 |
) | |||||||||
|
Repurchase of common shares |
|
(5,724,684 |
) |
— |
|
— |
|
— |
|
— |
|
(316 |
) |
— |
|
(316 |
) |
— |
|
(316 |
) | |||||||||
|
Share-based compensation plans |
|
3,388,685 |
|
— |
|
— |
|
— |
|
— |
|
89 |
|
— |
|
89 |
|
1 |
|
90 |
| |||||||||
|
Balances at March 31, 2012 |
|
219,606,984 |
|
$ |
3 |
|
$ |
6,237 |
|
$ |
5,845 |
|
$ |
440 |
|
$ |
(4,261 |
) |
$ |
851 |
|
$ |
9,115 |
|
$ |
634 |
|
$ |
9,749 |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
|
|
|
Three Months Ended March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
Cash Flows from Operating Activities |
|
|
|
|
| ||
|
Net income |
|
$ |
248 |
|
$ |
223 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation, amortization and accretion, net |
|
56 |
|
30 |
| ||
|
Deferred income tax benefit |
|
(56 |
) |
(19 |
) | ||
|
Share-based compensation |
|
32 |
|
42 |
| ||
|
Net realized investment gains |
|
(3 |
) |
(1 |
) | ||
|
Other-than-temporary impairments and provision for loan losses |
|
7 |
|
4 |
| ||
|
Net loss (income) attributable to noncontrolling interests |
|
(4 |
) |
18 |
| ||
|
Changes in operating assets and liabilities before consolidated investment entities: |
|
|
|
|
| ||
|
Restricted and segregated cash and investments |
|
(85 |
) |
6 |
| ||
|
Deferred acquisition costs |
|
(51 |
) |
(7 |
) | ||
|
Other investments, net |
|
(6 |
) |
(3 |
) | ||
|
Future policy benefits and claims, net |
|
294 |
|
57 |
| ||
|
Receivables |
|
(7 |
) |
(65 |
) | ||
|
Brokerage deposits |
|
23 |
|
12 |
| ||
|
Accounts payable and accrued expenses |
|
(165 |
) |
(256 |
) | ||
|
Derivatives collateral, net |
|
(526 |
) |
9 |
| ||
|
Other, net |
|
404 |
|
365 |
| ||
|
Changes in operating assets and liabilities of consolidated investment entities, net |
|
14 |
|
(400 |
) | ||
|
Net cash provided by operating activities |
|
175 |
|
15 |
| ||
|
|
|
|
|
|
| ||
|
Cash Flows from Investing Activities |
|
|
|
|
| ||
|
Available-for-Sale securities: |
|
|
|
|
| ||
|
Proceeds from sales |
|
100 |
|
538 |
| ||
|
Maturities, sinking fund payments and calls |
|
1,174 |
|
1,516 |
| ||
|
Purchases |
|
(1,529 |
) |
(2,379 |
) | ||
|
Proceeds from sales, maturities and repayments of commercial mortgage loans |
|
46 |
|
54 |
| ||
|
Funding of commercial mortgage loans |
|
(72 |
) |
(26 |
) | ||
|
Proceeds from sales of other investments |
|
53 |
|
50 |
| ||
|
Purchase of other investments |
|
(76 |
) |
(80 |
) | ||
|
Purchase of investments by consolidated investment entities |
|
(324 |
) |
(629 |
) | ||
|
Proceeds from sales, maturities and repayments of investments by consolidated investment entities |
|
468 |
|
1,017 |
| ||
|
Purchase of land, buildings, equipment and software |
|
(61 |
) |
(47 |
) | ||
|
Change in consumer banking loans and credit card receivables, net |
|
(14 |
) |
(91 |
) | ||
|
Other, net |
|
1 |
|
4 |
| ||
|
Net cash used in investing activities |
|
(234 |
) |
(73 |
) | ||
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(in millions)
|
|
|
Three Months Ended March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(in millions) |
| ||||
|
Cash Flows from Financing Activities |
|
|
|
|
| ||
|
Investment certificates and banking time deposits: |
|
|
|
|
| ||
|
Proceeds from additions |
|
$ |
185 |
|
$ |
294 |
|
|
Maturities, withdrawals and cash surrenders |
|
(254 |
) |
(431 |
) | ||
|
Change in other banking deposits |
|
149 |
|
244 |
| ||
|
Policyholder and contractholder account values: |
|
|
|
|
| ||
|
Consideration received |
|
392 |
|
291 |
| ||
|
Net transfers to separate accounts |
|
(9 |
) |
(46 |
) | ||
|
Surrenders and other benefits |
|
(335 |
) |
(371 |
) | ||
|
Deferred premium options, net |
|
(76 |
) |
(58 |
) | ||
|
Repayments of debt |
|
— |
|
(6 |
) | ||
|
Dividends paid to shareholders |
|
(62 |
) |
(46 |
) | ||
|
Change in short-term borrowings, net |
|
— |
|
100 |
| ||
|
Repurchase of common shares |
|
(292 |
) |
(393 |
) | ||
|
Exercise of stock options |
|
40 |
|
39 |
| ||
|
Excess tax benefits from share-based compensation |
|
15 |
|
14 |
| ||
|
Borrowings by consolidated investment entities |
|
4 |
|
15 |
| ||
|
Repayments of debt by consolidated investment entities |
|
(90 |
) |
(32 |
) | ||
|
Noncontrolling interests investments in subsidiaries |
|
4 |
|
64 |
| ||
|
Distributions to noncontrolling interests |
|
(88 |
) |
(27 |
) | ||
|
Other, net |
|
— |
|
2 |
| ||
|
Net cash used in financing activities |
|
(417 |
) |
(347 |
) | ||
|
Effect of exchange rate changes on cash |
|
7 |
|
4 |
| ||
|
Net decrease in cash and cash equivalents |
|
(469 |
) |
(401 |
) | ||
|
Cash and cash equivalents at beginning of period |
|
2,781 |
|
2,861 |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
2,312 |
|
$ |
2,460 |
|
|
Supplemental Disclosures: |
|
|
|
|
| ||
|
Interest paid before consolidated investment entities |
|
$ |
37 |
|
$ |
41 |
|
|
Income taxes paid (received), net |
|
(79 |
) |
10 |
| ||
See Notes to Consolidated Financial Statements.
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 intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information related to VIEs.
The results of Securities America Financial Corporation and its subsidiaries (collectively, “Securities America”) have been presented as discontinued operations for all periods presented. The Company completed the sale of Securities America in the fourth quarter of 2011. See Note 14 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. All adjustments made were of a normal recurring nature, except for the prior period adjustments for the retrospective adoption of the new accounting standard for deferred acquisition costs (“DAC”) as described below.
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, 2011, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2012.
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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
On January 1, 2012, the Company retrospectively adopted the new accounting standard for DAC for insurance and annuity products. See Note 2 and Note 6 for further information on the new accounting standard and the resulting changes in the Company’s accounting policies on the deferral of acquisition costs. The following tables present the effect of the change on affected financial statement line items for prior periods retrospectively adjusted. Per share amounts for the three months ended March 31, 2011 did not change as a result of the adoption.
|
|
|
Three Months Ended March 31, 2011 |
| |||||||
|
|
|
Previously |
|
|
|
|
| |||
|
|
|
Reported |
|
Effect of Change |
|
As Adjusted |
| |||
|
|
|
(in millions) |
| |||||||
|
Revenues |
|
|
|
|
|
|
| |||
|
Total net revenues |
|
$ |
2,532 |
|
$ |
— |
|
$ |
2,532 |
|
|
Expenses |
|
|
|
|
|
|
| |||
|
Distribution expenses |
|
619 |
|
15 |
|
634 |
| |||
|
Interest credited to fixed accounts |
|
207 |
|
1 |
|
208 |
| |||
|
Benefits, claims, losses and settlement expenses |
|
382 |
|
1 |
|
383 |
| |||
|
Amortization of deferred acquisition costs |
|
116 |
|
(41 |
) |
75 |
| |||
|
Interest and debt expense |
|
75 |
|
— |
|
75 |
| |||
|
General and administrative expense |
|
746 |
|
25 |
|
771 |
| |||
|
Total expenses |
|
2,145 |
|
1 |
|
2,146 |
| |||
|
Income from continuing operations before income tax provision |
|
387 |
|
(1 |
) |
386 |
| |||
|
Income tax provision |
|
93 |
|
(1 |
) |
92 |
| |||
|
Income from continuing operations |
|
294 |
|
— |
|
294 |
| |||
|
Loss from discontinued operations, net of tax |
|
(71 |
) |
— |
|
(71 |
) | |||
|
Net income |
|
223 |
|
— |
|
223 |
| |||
|
Less: Net loss attributable to noncontrolling interests |
|
(18 |
) |
— |
|
(18 |
) | |||
|
Net income attributable to Ameriprise Financial |
|
$ |
241 |
|
$ |
— |
|
$ |
241 |
|
|
|
|
December 31, 2011 |
| |||||||
|
|
|
Previously |
|
|
|
|
| |||
|
|
|
Reported |
|
Effect of Change |
|
As Adjusted |
| |||
|
|
|
(in millions) |
| |||||||
|
Assets |
|
|
|
|
|
|
| |||
|
Deferred acquisition costs |
|
$ |
4,402 |
|
$ |
(1,962 |
) |
$ |
2,440 |
|
|
Other assets |
|
7,468 |
|
283 |
|
7,751 |
| |||
|
Total assets |
|
133,986 |
|
(1,679 |
) |
132,307 |
| |||
|
Liabilities and Equity |
|
|
|
|
|
|
| |||
|
Liabilities: |
|
|
|
|
|
|
| |||
|
Future policy benefits and claims |
|
31,723 |
|
(13 |
) |
31,710 |
| |||
|
Other liabilities |
|
5,432 |
|
(399 |
) |
5,033 |
| |||
|
Total liabilities |
|
123,025 |
|
(412 |
) |
122,613 |
| |||
|
Equity: |
|
|
|
|
|
|
| |||
|
Retained earnings |
|
6,983 |
|
(1,380 |
) |
5,603 |
| |||
|
Accumulated other comprehensive income, net of tax |
|
638 |
|
113 |
|
751 |
| |||
|
Total equity |
|
10,961 |
|
(1,267 |
) |
9,694 |
| |||
|
Total liabilities and equity |
|
$ |
133,986 |
|
$ |
(1,679 |
) |
$ |
132,307 |
|
|
|
|
December 31, 2010 |
| |||||||
|
|
|
Previously |
|
|
|
|
| |||
|
|
|
Reported |
|
Effect of Change |
|
As Adjusted |
| |||
|
|
|
(in millions) |
| |||||||
|
Retained earnings |
|
$ |
6,190 |
|
$ |
(1,420 |
) |
$ |
4,770 |
|
|
Accumulated other comprehensive income, net of tax |
|
565 |
|
85 |
|
650 |
| |||
|
Total equity |
|
$ |
11,285 |
|
$ |
(1,335 |
) |
$ |
9,950 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
2. Recent Accounting Pronouncements
Adoption of New Accounting Standards
Comprehensive Income
In June 2011, the Financial Accounting Standards Board (“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 Company retrospectively adopted the standard in the first quarter of 2012. The adoption of the standard did not have any effect on 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 on or after December 15, 2011. The Company adopted the standard in the first quarter of 2012. The adoption of the standard 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.
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 Company adopted the standard in the first quarter of 2012. The adoption of the standard did not have any effect 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 standard for DAC. Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts are capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ compensation and benefits directly related to time spent performing acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and contract selling) for a contract that has been acquired, (iii) other costs related to acquisition activities that would not have been incurred had the acquisition of the contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other acquisition related costs are expensed as incurred. The Company retrospectively adopted the new standard on January 1, 2012. The cumulative effect of the adoption reduced retained earnings by $1.4 billion after-tax and increased accumulated other comprehensive income by $113 million after-tax, totaling to a $1.3 billion after-tax reduction in total equity at January 1, 2012. See Note 1 and Note 6 for additional information on the adoption of this standard.
Future Adoption of New Accounting Standards
Balance Sheet
In December 2011, the FASB updated the accounting standards to require new disclosures about offsetting assets and liabilities. The standard requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The standard is effective for interim and annual periods beginning on or after January 1, 2013 on a retrospective basis. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
3. Consolidated Investment Entities
The Company provides asset management services to various collateralized debt obligations (“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.
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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fair Value of Assets and Liabilities
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
|
|
|
March 31, 2012 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Investments: |
|
|
|
|
|
|
|
|
| ||||
|
Corporate debt securities |
|
$ |
— |
|
$ |
295 |
|
$ |
4 |
|
$ |
299 |
|
|
Common stocks |
|
106 |
|
34 |
|
8 |
|
148 |
| ||||
|
Other structured investments |
|
— |
|
57 |
|
— |
|
57 |
| ||||
|
Syndicated loans |
|
— |
|
4,116 |
|
195 |
|
4,311 |
| ||||
|
Total investments |
|
106 |
|
4,502 |
|
207 |
|
4,815 |
| ||||
|
Receivables |
|
— |
|
28 |
|
— |
|
28 |
| ||||
|
Other assets |
|
— |
|
2 |
|
1,035 |
|
1,037 |
| ||||
|
Total assets at fair value |
|
$ |
106 |
|
$ |
4,532 |
|
$ |
1,242 |
|
$ |
5,880 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
|
Debt |
|
$ |
— |
|
$ |
— |
|
$ |
4,769 |
|
$ |
4,769 |
|
|
Other liabilities |
|
— |
|
90 |
|
— |
|
90 |
| ||||
|
Total liabilities at fair value |
|
$ |
— |
|
$ |
90 |
|
$ |
4,769 |
|
$ |
4,859 |
|
|
|
|
December 31, 2011 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Investments: |
|
|
|
|
|
|
|
|
| ||||
|
Corporate debt securities |
|
$ |
— |
|
$ |
314 |
|
$ |
4 |
|
$ |
318 |
|
|
Common stocks |
|
75 |
|
25 |
|
13 |
|
113 |
| ||||
|
Other structured investments |
|
— |
|
54 |
|
— |
|
54 |
| ||||
|
Syndicated loans |
|
— |
|
3,962 |
|
342 |
|
4,304 |
| ||||
|
Total investments |
|
75 |
|
4,355 |
|
359 |
|
4,789 |
| ||||
|
Receivables |
|
— |
|
39 |
|
— |
|
39 |
| ||||
|
Other assets |
|
— |
|
2 |
|
1,108 |
|
1,110 |
| ||||
|
Total assets at fair value |
|
$ |
75 |
|
$ |
4,396 |
|
$ |
1,467 |
|
$ |
5,938 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
|
Debt |
|
$ |
— |
|
$ |
— |
|
$ |
4,712 |
|
$ |
4,712 |
|
|
Other liabilities |
|
— |
|
85 |
|
— |
|
85 |
| ||||
|
Total liabilities at fair value |
|
$ |
— |
|
$ |
85 |
|
$ |
4,712 |
|
$ |
4,797 |
|
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 |
|
|
|
|
|
|
|
|
| |||||
|
|
|
Debt |
|
Common |
|
Syndicated |
|
Other |
|
|
| |||||
|
|
|
Securities |
|
Stocks |
|
Loans |
|
Assets |
|
Debt |
| |||||
|
|
|
(in millions) |
| |||||||||||||
|
Balance, January 1, 2012 |
|
$ |
4 |
|
$ |
13 |
|
$ |
342 |
|
$ |
1,108 |
|
$ |
(4,712 |
) |
|
Total gains (losses) included in: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income |
|
— |
|
(1 |
)(1) |
3 |
(1) |
(27 |
)(2) |
(125 |
)(1) | |||||
|
Other comprehensive income |
|
— |
|
— |
|
— |
|
32 |
|
— |
| |||||
|
Purchases |
|
— |
|
6 |
|
7 |
|
12 |
|
— |
| |||||
|
Sales |
|
— |
|
(2 |
) |
(5 |
) |
(90 |
) |
— |
| |||||
|
Settlements |
|
— |
|
— |
|
(30 |
) |
— |
|
68 |
| |||||
|
Transfers into Level 3 |
|
— |
|
1 |
|
86 |
|
— |
|
— |
| |||||
|
Transfers out of Level 3 |
|
— |
|
(9 |
) |
(208 |
) |
— |
|
— |
| |||||
|
Balance, March 31, 2012 |
|
$ |
4 |
|
$ |
8 |
|
$ |
195 |
|
$ |
1,035 |
|
$ |
(4,769 |
) |
|
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at March 31, 2012 |
|
$ |
— |
|
$ |
— |
|
$ |
2 |
(1) |
$ |
(34 |
)(2) |
$ |
(125 |
)(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 |
|
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 |
|
— |
|
5 |
(1) |
— |
|
4 |
(1) |
4 |
(2) |
(184 |
)(1) | ||||||
|
Other comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
24 |
|
— |
| ||||||
|
Purchases |
|
— |
|
— |
|
— |
|
26 |
|
12 |
|
— |
| ||||||
|
Sales |
|
(1 |
) |
— |
|
— |
|
(2 |
) |
(15 |
) |
— |
| ||||||
|
Issuances |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(10 |
) | ||||||
|
Settlements |
|
— |
|
— |
|
— |
|
(3 |
) |
1 |
|
32 |
| ||||||
|
Transfers into Level 3 |
|
1 |
|
11 |
|
— |
|
192 |
|
7 |
|
— |
| ||||||
|
Transfers out of Level 3 |
|
— |
|
(1 |
) |
(22 |
) |
(1 |
) |
— |
|
— |
| ||||||
|
Balance, March 31, 2011 |
|
$ |
6 |
|
$ |
26 |
|
$ |
— |
|
$ |
216 |
|
$ |
920 |
|
$ |
(5,333 |
) |
|
Changes in unrealized gains (losses) included in income relating to assets held at March 31, 2011 |
|
$ |
— |
|
$ |
5 |
(1) |
$ |
— |
|
$ |
4 |
(1) |
$ |
13 |
(3) |
$ |
(184 |
)(1) |
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Represents a $3 million gain included in other revenues and a $1 million gain included in net investment income in the Consolidated Statements of Operations.
(3) Represents a $12 million gain included in other revenues and a $1 million gain included in net investment income in the Consolidated Statements of Operations.
Securities and loans transferred from Level 2 to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. Securities and loans transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a third party pricing service with observable inputs. For assets and liabilities held by consolidated investment entities at the end of the reporting period that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table provides a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities held by consolidated investment entities at March 31, 2012:
|
|
|
Fair Value |
|
Valuation Technique |
|
Unobservable Input |
|
Range (Weighted Average) | |
|
|
|
(in millions) |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| ||
|
Other assets |
|
$ |
1,035 |
|
Discounted cash flow/market comparables |
|
Equivalent yield |
|
3.1% - 10.7% (6.6%) |
|
|
|
|
|
|
Expected rental value |
|
$2 - $1,281 $(34) | ||
|
|
|
|
|
|
|
|
|
| |
|
Debt |
|
$ |
4,769 |
|
Discounted cash flow |
|
Annual default rate |
|
2.5% - 4.5% (2.8%) |
|
|
|
|
|
|
|
Discount rate |
|
2.3% - 45% (3.8%) | |
|
|
|
|
|
|
|
Constant prepayment rate |
|
5% - 10% (9.6%) | |
|
|
|
|
|
|
|
Loss recovery |
|
36.4% - 63.6% (61.9%) | |
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Generally, a significant increase (decrease) in the expected rental value used in the fair value measurement of properties held by consolidated investment entities in isolation would result in a significantly higher (lower) fair value measurement and a significant increase (decrease) in the equivalent yield in isolation would result in a significantly lower (higher) fair value measurement.
Generally, a significant increase (decrease) in the annual default rate and discount rate used in the fair value measurement of the CDO’s debt in isolation could result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation could result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate in isolation could result in a significantly higher (lower) fair value measurement.
Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third party pricing services with multiple non-binding broker quotes as the underlying valuation source is classified as Level 2. The fair value of syndicated loans obtained from third party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of the third party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
See Note 10 for a description of the Company’s determination of the fair value of corporate debt securities, common stocks and other structured investments.
Receivables
For receivables of the consolidated CDOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Other Assets
Other assets consist primarily of properties held in consolidated pooled investment vehicles managed by Threadneedle. The fair value of these properties is calculated by a third party appraisal service by discounting future cash flows generated by the expected market rental value for the property using the equivalent yield of a similar investment property. Inputs used in determining the equivalent yield and expected rental value of the property may 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. Management reviews the valuation report and assumptions used to ensure that the valuation was performed in accordance with applicable independence, appraisal and valuation standards. Given the significance of the unobservable inputs to these measurements, these assets are classified as Level 3.
For other assets of the consolidated CDOs, the carrying value approximates fair value as the nature of these assets has historically been short term. The fair value of these assets is classified as Level 2.
Liabilities
Debt
The fair value of the CDO’s debt is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about default, discount, prepayment 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.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CDOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.
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.
The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
|
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||
|
|
|
(in millions) |
| ||||
|
Syndicated loans |
|
|
|
|
| ||
|
Unpaid principal balance |
|
$ |
4,473 |
|
$ |
4,548 |
|
|
Excess unpaid principal over fair value |
|
(162 |
) |
(244 |
) | ||
|
Fair value |
|
$ |
4,311 |
|
$ |
4,304 |
|
|
|
|
|
|
|
| ||
|
Fair value of loans more than 90 days past due |
|
$ |
20 |
|
$ |
18 |
|
|
Fair value of loans in nonaccrual status |
|
20 |
|
18 |
| ||
|
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both |
|
15 |
|
16 |
| ||
|
|
|
|
|
|
| ||
|
Debt |
|
|
|
|
| ||
|
Unpaid principal balance |
|
$ |
5,267 |
|
$ |
5,335 |
|
|
Excess unpaid principal over fair value |
|
(498 |
) |
(623 |
) | ||
|
Fair value |
|
$ |
4,769 |
|
$ |
4,712 |
|
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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 $9 million and $(33) million for the three months ended March 31, 2012 and 2011, 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 |
| ||||||
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
| ||
|
|
|
(in millions) |
|
|
|
|
| ||||
|
Debt of consolidated CDOs due 2012-2021 |
|
$ |
4,769 |
|
$ |
4,712 |
|
1.1 |
% |
0.9 |
% |
|
Floating rate revolving credit borrowings due 2014 |
|
367 |
|
378 |
|
3.1 |
|
3.2 |
| ||
|
Floating rate revolving credit borrowings due 2015 |
|
95 |
|
88 |
|
2.9 |
|
3.0 |
| ||
|
Total |
|
$ |
5,231 |
|
$ |
5,178 |
|
|
|
|
|
The debt of the consolidated CDOs has both fixed and floating interest rates, which range from 0% to 13.2%. 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. 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 $462 million and $466 million as of March 31, 2012 and December 31, 2011, respectively. The consolidated pooled investment vehicles have entered into interest rate swaps and collars to manage the interest rate exposure on the floating rate revolving credit borrowings. The fair value of these derivative instruments was a liability of $19 million and $20 million as of March 31, 2012 and December 31, 2011, respectively. The overall effective interest rate reflecting the impact of the derivative contracts was 5.0% as of both March 31, 2012 and December 31, 2011.
4. Investments
The following is a summary of Ameriprise Financial investments:
|
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||
|
|
|
(in millions) |
| ||||
|
Available-for-Sale securities, at fair value |
|
$ |
34,805 |
|
$ |
34,505 |
|
|
Commercial mortgage loans, net |
|
2,615 |
|
2,589 |
| ||
|
Policy loans |
|
741 |
|
742 |
| ||
|
Other investments |
|
943 |
|
939 |
| ||
|
Total |
|
$ |
39,104 |
|
$ |
38,775 |
|
The following is a summary of net investment income:
|
|
|
Three Months Ended March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(in millions) |
| ||||
|
Investment income on fixed maturities |
|
$ |
447 |
|
$ |
470 |
|
|
Net realized gains (losses) |
|
(2 |
) |
1 |
| ||
|
Affordable housing partnerships |
|
(8 |
) |
(7 |
) | ||
|
Other |
|
33 |
|
24 |
| ||
|
Consolidated investment entities |
|
61 |
|
27 |
| ||
|
Total net investment income |
|
$ |
531 |
|
$ |
515 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Available-for-Sale securities distributed by type were as follows:
|
|
|
March 31, 2012 |
| |||||||||||||
|
Description of Securities |
|
Amortized |
|
Gross |
|
Gross |
|
Fair Value |
|
Noncredit |
| |||||
|
|
|
(in millions) |
| |||||||||||||
|
Corporate debt securities |
|
$ |
16,687 |
|
$ |
1,737 |
|
$ |
(31 |
) |
$ |
18,393 |
|
$ |
— |
|
|
Residential mortgage backed securities |
|
7,356 |
|
281 |
|
(279 |
) |
7,358 |
|
(127 |
) | |||||
|
Commercial mortgage backed securities |
|
4,284 |
|
301 |
|
(1 |
) |
4,584 |
|
— |
| |||||
|
Asset backed securities |
|
2,032 |
|
63 |
|
(39 |
) |
2,056 |
|
(14 |
) | |||||
|
State and municipal obligations |
|
1,994 |
|
170 |
|
(51 |
) |
2,113 |
|
— |
| |||||
|
U.S. government and agencies obligations |
|
59 |
|
9 |
|
— |
|
68 |
|
— |
| |||||
|
Foreign government bonds and obligations |
|
183 |
|
22 |
|
— |
|
205 |
|
— |
| |||||
|
Common stocks |
|
6 |
|
5 |
|
— |
|
11 |
|
— |
| |||||
|
Other debt obligations |
|
17 |
|
— |
|
— |
|
17 |
|
— |
| |||||
|
Total |
|
$ |
32,618 |
|
$ |
2,588 |
|
$ |
(401 |
) |
$ |
34,805 |
|
$ |
(141 |
) |
|
|
|
December 31, 2011 |
| |||||||||||||
|
Description of Securities |
|
Amortized |
|
Gross |
|
Gross |
|
Fair Value |
|
Noncredit |
| |||||
|
|
|
(in millions) |
| |||||||||||||
|
Corporate debt securities |
|
$ |
16,380 |
|
$ |
1,741 |
|
$ |
(81 |
) |
$ |
18,040 |
|
$ |
— |
|
|
Residential mortgage backed securities |
|
7,440 |
|
287 |
|
(331 |
) |
7,396 |
|
(139 |
) | |||||
|
Commercial mortgage backed securities |
|
4,430 |
|
291 |
|
(2 |
) |
4,719 |
|
— |
| |||||
|
Asset backed securities |
|
1,968 |
|
61 |
|
(44 |
) |
1,985 |
|
(15 |
) | |||||
|
State and municipal obligations |
|
2,026 |
|
162 |
|
(58 |
) |
2,130 |
|
— |
| |||||
|
U.S. government and agencies obligations |
|
61 |
|
10 |
|
— |
|
71 |
|
— |
| |||||
|
Foreign government bonds and obligations |
|
126 |
|
19 |
|
(1 |
) |
144 |
|
— |
| |||||
|
Common stocks |
|
5 |
|
4 |
|
— |
|
9 |
|
— |
| |||||
|
Other debt obligations |
|
11 |
|
— |
|
— |
|
11 |
|
— |
| |||||
|
Total |
|
$ |
32,447 |
|
$ |
2,575 |
|
$ |
(517 |
) |
$ |
34,505 |
|
$ |
(154 |
) |
(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.
At both March 31, 2012 and December 31, 2011, fixed maturity securities comprised approximately 89% 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 March 31, 2012 and December 31, 2011, the Company’s internal analysts rated $1.3 billion and $1.2 billion, respectively, of securities, using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follow