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Ameriprise Financial, Inc. 10-Q 2011

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 March 31, 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 April 22, 2011

Common Stock (par value $.01 per share)

 

242,284,677 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 ended March 31, 2011 and 2010

3

 

 

 

 

 

 

Consolidated Balance Sheets — March 31, 2011 and December 31, 2010

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows — Three months ended March 31, 2011 and 2010

5

 

 

 

 

 

 

Consolidated Statements of Equity — Three months ended March 31, 2011 and 2010

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

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

40

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65

 

 

 

 

 

Item 4.

Controls and Procedures

65

 

 

 

 

Part II.

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

66

 

 

 

 

 

Item 1A.

Risk Factors

66

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

 

 

 

Item 6.

Exhibits

66

 

 

 

 

Signatures

67

 

 

 

 

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 March 31,

 

 

 

2011

 

2010

 

Revenues

 

 

 

 

 

Management and financial advice fees

 

$

1,184

 

$

774

 

Distribution fees

 

467

 

391

 

Net investment income

 

515

 

590

 

Premiums

 

292

 

282

 

Other revenues

 

209

 

255

 

Total revenues

 

2,667

 

2,292

 

Banking and deposit interest expense

 

13

 

21

 

Total net revenues

 

2,654

 

2,271

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

Distribution expenses

 

716

 

525

 

Interest credited to fixed accounts

 

207

 

228

 

Benefits, claims, losses and settlement expenses

 

384

 

354

 

Amortization of deferred acquisition costs

 

116

 

118

 

Interest and debt expense

 

75

 

64

 

General and administrative expense

 

885

 

621

 

Total expenses

 

2,383

 

1,910

 

Pretax income

 

271

 

361

 

Income tax provision

 

48

 

65

 

Net income

 

223

 

296

 

Less: Net income (loss) attributable to noncontrolling interests

 

(18

)

82

 

Net income attributable to Ameriprise Financial

 

$

241

 

$

214

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

$

0.96

 

$

0.82

 

Diluted

 

0.94

 

0.81

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

Basic

 

251.6

 

260.8

 

Diluted

 

257.7

 

265.0

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

0.18

 

$

0.17

 

Supplemental Disclosures:

 

 

 

 

 

Net investment income:

 

 

 

 

 

Net investment income before impairment losses on securities

 

$

517

 

$

620

 

Total other-than-temporary impairment losses on securities

 

 

(32

)

Portion of loss recognized in other comprehensive income

 

(2

)

2

 

Net impairment losses recognized in net investment income

 

(2

)

(30

)

Net investment income

 

$

515

 

$

590

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

2,460

 

$

2,861

 

Investments

 

37,457

 

37,053

 

Separate account assets

 

70,260

 

68,330

 

Receivables

 

5,505

 

5,037

 

Deferred acquisition costs

 

4,638

 

4,619

 

Restricted and segregated cash

 

1,472

 

1,516

 

Other assets

 

4,767

 

4,905

 

Total assets before consolidated investment entities

 

126,559

 

124,321

 

Consolidated Investment Entities:

 

 

 

 

 

Cash

 

906

 

472

 

Investments, at fair value

 

5,363

 

5,444

 

Receivables (includes $60 and $33, respectively, at fair value)

 

84

 

60

 

Other assets, at fair value

 

920

 

895

 

Total assets of consolidated investment entities

 

7,273

 

6,871

 

Total assets

 

$

133,832

 

$

131,192

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Future policy benefits and claims

 

$

29,817

 

$

30,208

 

Separate account liabilities

 

70,260

 

68,330

 

Customer deposits

 

8,911

 

8,779

 

Short-term borrowings

 

497

 

397

 

Long-term debt

 

2,298

 

2,317

 

Accounts payable and accrued expenses

 

885

 

1,137

 

Other liabilities

 

3,882

 

3,015

 

Total liabilities before consolidated investment entities

 

116,550

 

114,183

 

Consolidated Investment Entities:

 

 

 

 

 

Debt (includes $5,333 and $5,171, respectively, at fair value)

 

5,712

 

5,535

 

Accounts payable and accrued expenses

 

22

 

22

 

Other liabilities (includes $346 and $154, respectively, at fair value)

 

359

 

167

 

Total liabilities of consolidated investment entities

 

6,093

 

5,724

 

Total liabilities

 

122,643

 

119,907

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Ameriprise Financial, Inc.:

 

 

 

 

 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 302,773,507 and 301,366,044, respectively)

 

3

 

3

 

Additional paid-in capital

 

6,043

 

6,029

 

Retained earnings

 

6,385

 

6,190

 

Appropriated retained earnings of consolidated investment entities

 

530

 

558

 

Treasury shares, at cost (59,865,027 and 54,668,152 shares, respectively)

 

(2,952

)

(2,620

)

Accumulated other comprehensive income, net of tax

 

542

 

565

 

Total Ameriprise Financial, Inc. shareholders’ equity

 

10,551

 

10,725

 

Noncontrolling interests

 

638

 

560

 

Total equity

 

11,189

 

11,285

 

Total liabilities and equity

 

$

133,832

 

$

131,192

 

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

223

 

$

296

 

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

 

 

 

 

 

Capitalization of deferred acquisition and sales inducement costs

 

(126

)

(119

)

Amortization of deferred acquisition and sales inducement costs

 

129

 

130

 

Depreciation, amortization and accretion, net

 

30

 

22

 

Deferred income tax expense (benefit)

 

(19

)

437

 

Share-based compensation

 

42

 

39

 

Net realized investment gains

 

(1

)

(32

)

Other-than-temporary impairments and provision for loan losses

 

3

 

34

 

Net loss (income) attributable to noncontrolling interests

 

18

 

(82

)

Changes in operating assets and liabilities before consolidated investment entities:

 

 

 

 

 

Restricted and segregated cash

 

6

 

(59

)

Trading securities and equity method investments, net

 

(3

)

5

 

Future policy benefits and claims, net

 

57

 

8

 

Receivables

 

(348

)

(267

)

Brokerage deposits

 

12

 

8

 

Accounts payable and accrued expenses

 

(256

)

(161

)

Derivatives collateral, net

 

9

 

(79

)

Other, net

 

639

 

(5

)

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

 

(400

)

(56

)

Net cash provided by operating activities

 

15

 

119

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Available-for-Sale securities:

 

 

 

 

 

Proceeds from sales

 

538

 

825

 

Maturities, sinking fund payments and calls

 

1,516

 

1,842

 

Purchases

 

(2,379

)

(1,809

)

Proceeds from sales, maturities and repayments of commercial mortgage loans

 

54

 

62

 

Funding of commercial mortgage loans

 

(26

)

(49

)

Proceeds from sales of other investments

 

50

 

36

 

Purchase of other investments

 

(80

)

(9

)

Purchase of investments by consolidated investment entities

 

(629

)

(405

)

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

 

1,017

 

454

 

Return of capital in investments of consolidated investment entities

 

4

 

1

 

Purchase of land, buildings, equipment and software

 

(47

)

(21

)

Change in policy and certificate loans, net

 

2

 

 

Change in consumer banking loans and credit card receivables, net

 

(91

)

(75

)

Other, net

 

(2

)

(1

)

Net cash provided by (used in) investing activities

 

(73

)

851

 

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

Cash Flows from Financing Activities

 

 

 

 

 

Investment certificates and banking time deposits:

 

 

 

 

 

 Proceeds from additions

 

$

294

 

$

294

 

Maturities, withdrawals and cash surrenders

 

(431

)

(607

)

Change in other banking deposits

 

244

 

384

 

Policyholder and contractholder account values:

 

 

 

 

 

 Consideration received

 

291

 

430

 

Net transfers to separate accounts

 

(46

)

(39

)

Surrenders and other benefits

 

(371

)

(358

)

Deferred premium options, net

 

(58

)

(36

)

Issuance of debt, net of issuance costs

 

 

744

 

Repayments of debt

 

(6

)

 

Change in short-term borrowings, net

 

100

 

 

Dividends paid to shareholders

 

(46

)

(45

)

Repurchase of common shares

 

(393

)

(15

)

Exercise of stock options

 

39

 

32

 

Excess tax benefits from share-based compensation

 

14

 

1

 

Borrowings by consolidated investment entities

 

15

 

 

Repayments of debt by consolidated investment entities

 

(32

)

(1

)

Noncontrolling interests investments in subsidiaries

 

64

 

1

 

Distributions to noncontrolling interests

 

(27

)

(23

)

Other, net

 

2

 

(3

)

Net cash provided by (used in) financing activities

 

(347

)

759

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

4

 

(10

)

Net increase (decrease) in cash and cash equivalents

 

(401

)

1,719

 

Cash and cash equivalents at beginning of period

 

2,861

 

3,097

 

Cash and cash equivalents at end of period

 

$

2,460

 

$

4,816

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Interest paid on debt before consolidated investment entities

 

$

24

 

$

4

 

Income taxes paid, net

 

10

 

154

 

Non-cash investing activity:

 

 

 

 

 

Affordable housing partnership commitments not yet remitted

 

 

12

 

 

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 

 

Non-

 

 

 

 

 

Outstanding

 

Common

 

Paid-In

 

Retained

 

Investment

 

Treasury

 

Comprehensive

 

controlling

 

 

 

 

 

Shares

 

Shares

 

Capital

 

Earnings

 

Entities

 

Shares

 

Income

 

Interests

 

Total

 

Balances at January 1, 2010

 

255,095,491

 

$

3

 

$

5,748

 

$

5,282

 

$

 

$

(2,023

)

$

263

 

$

603

 

$

9,876

 

Change in accounting principle

 

 

 

 

 

473

 

 

 

 

473

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

214

 

 

 

 

82

 

296

 

Net income reclassified to appropriated retained earnings

 

 

 

 

 

35

 

 

 

(35

)

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

 

 

 

164

 

 

164

 

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

 

 

 

 

 

 

 

(24

)

 

(24

)

Change in net unrealized derivatives losses

 

 

 

 

 

 

 

(7

)

 

(7

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(31

)

(36

)

(67

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

362

 

Dividends paid to shareholders

 

 

 

 

(45

)

 

 

 

 

(45

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 

1

 

1

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(23

)

(23

)

Repurchase of common shares

 

(429,318

)

 

 

 

 

(15

)

 

 

(15

)

Share-based compensation plans

 

2,739,315

 

 

71

 

 

 

 

 

 

71

 

Balances at March 31, 2010

 

257,405,488

 

$

3

 

$

5,819

 

$

5,451

 

$

508

 

$

(2,038

)

$

365

 

$

592

 

$

10,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

241

 

 

 

 

(18

)

223

 

Net loss reclassified to appropriated retained earnings

 

 

 

 

 

(28

)

 

 

28

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

 

 

 

(50

)

 

(50

)

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

 

 

 

 

 

 

 

16

 

 

16

 

Change in net unrealized derivatives gains

 

 

 

 

 

 

 

(3

)

 

(3

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

14

 

14

 

28

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

214

 

Dividends paid to shareholders

 

 

 

 

(46

)

 

 

 

 

(46

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 

64

 

64

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(27

)

(27

)

Repurchase of common shares

 

(6,863,309

)

 

 

 

 

(413

)

 

 

(413

)

Share-based compensation plans

 

3,073,897

 

 

14

 

 

 

81

 

 

17

 

112

 

Balances at March 31, 2011

 

242,908,480

 

$

3

 

$

6,043

 

$

6,385

 

$

530

 

$

(2,952

)

$

542

 

$

638

 

$

11,189

 

 

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.

 

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.

 

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

 

How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments

 

In April 2010, the Financial Accounting Standards Board (“FASB”) updated the accounting standards regarding investment funds determined to be VIEs. Under this standard an insurance enterprise would not be required to consolidate a voting-interest investment fund when it holds the majority of the voting interests of the fund through its separate accounts. In addition, the enterprise would not consider the interests held through separate accounts in evaluating its economic interests in a VIE, unless the separate account contract holder is a related party. The standard is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2010. The adoption of the standard did not have any effect on the Company’s consolidated results of operations and financial condition.

 

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 11 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

 

8



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

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 consolidated 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

 

Receivables

 

In April 2011, the 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 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 deferred acquisition costs (“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 standard is effective for interim and annual periods beginning after December 15, 2011, with earlier adoption permitted if it is at the beginning of an entity’s annual reporting period. The standard is to be applied prospectively; however, retrospective application to all prior periods presented is permitted but not required. The Company will adopt the standard on January 1, 2012. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

 

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.

 

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Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

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.

 

The following tables reflect the impact of consolidated investment entities on the Consolidated Balance Sheets and the Consolidated Statements of Operations:

 

 

 

March 31, 2011

 

 

 

Before

 

Consolidated

 

 

 

 

 

 

 

Consolidation

 

Investment Entities

 

Eliminations

 

Total

 

 

 

(in millions)

 

Total assets

 

$

126,617

 

$

7,273

 

$

(58

)

$

133,832

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

116,550

 

$

6,093

 

$

 

$

122,643

 

Total Ameriprise Financial shareholders’ equity

 

10,050

 

559

 

(58

)

10,551

 

Noncontrolling interests equity

 

17

 

621

 

 

638

 

Total liabilities and equity

 

$

126,617

 

$

7,273

 

$

(58

)

$

133,832

 

 

 

 

December 31, 2010

 

 

 

Before

 

Consolidated

 

 

 

 

 

 

 

Consolidation

 

Investment Entities

 

Eliminations

 

Total

 

 

 

(in millions)

 

Total assets

 

$

124,379

 

$

6,871

 

$

(58

)

$

131,192

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

114,183

 

$

5,724

 

$

 

$

119,907

 

Total Ameriprise Financial shareholders’ equity

 

10,196

 

587

 

(58

)

10,725

 

Noncontrolling interests equity

 

 

560

 

 

560

 

Total liabilities and equity

 

$

124,379

 

$

6,871

 

$

(58

)

$

131,192

 

 

10



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

 

 

Three Months Ended March 31, 2011

 

 

 

Before

 

Consolidated

 

 

 

 

 

 

 

Consolidation

 

Investment Entities

 

Eliminations

 

Total

 

 

 

(in millions)

 

Total net revenues

 

$

2,617

 

$

47

 

$

(10

)

$

2,654

 

Total expenses

 

2,328

 

65

 

(10

)

2,383

 

Pretax income (loss)

 

289

 

(18

)

 

271

 

Income tax provision

 

48

 

 

 

48

 

Net income (loss)

 

241

 

(18

)

 

223

 

Net loss attributable to noncontrolling interests

 

 

(18

)

 

(18

)

Net income attributable to Ameriprise Financial

 

$

241

 

$

 

$

 

$

241

 

 

 

 

Three Months Ended March 31, 2010

 

 

 

Before

 

Consolidated

 

 

 

 

 

 

 

Consolidation

 

Investment Entities

 

Eliminations

 

Total

 

 

 

(in millions)

 

Total net revenues

 

$

2,144

 

$

136

 

$

(9

)

$

2,271

 

Total expenses

 

1,865

 

54

 

(9

)

1,910

 

Pretax income

 

279

 

82

 

 

361

 

Income tax provision

 

65

 

 

 

65

 

Net income

 

214

 

82

 

 

296

 

Net income attributable to noncontrolling interests

 

 

82

 

 

82

 

Net income attributable to Ameriprise Financial

 

$

214

 

$

 

$

 

$

214

 

 

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, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

373

 

$

6

 

$

379

 

Common stocks

 

33

 

78

 

26

 

137

 

Other structured investments

 

 

66

 

 

66

 

Syndicated loans

 

 

4,565

 

216

 

4,781

 

Total investments

 

33

 

5,082

 

248

 

5,363

 

Receivables

 

 

60

 

 

60

 

Other assets

 

 

 

920

 

920

 

Total assets at fair value

 

$

33

 

$

5,142

 

$

1,168

 

$

6,343

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

 

$

 

$

5,333

 

$

5,333

 

Other liabilities

 

 

346

 

 

346

 

Total liabilities at fair value

 

$

 

$

346

 

$

5,333

 

$

5,679

 

 

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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

 

 

 

 

 

 

 

 

 

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

 

 

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, 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 in to (out of) of Level 3

 

1

(3)

10

(4)

(22

)(5)

191

(3)

7

(3)

 

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

(6)

$

(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 securities that were transferred to Level 3 as the fair value of these securities is now based on a single broker quote.

(4)

Represents securities with a fair value of $1 million that were transferred to Level 2 as the fair value of the securities is now obtained from a nationally-recognized pricing service with observable inputs and securities with a fair value of $11 million that were transferred to Level 3 as the fair value of the securities is now based on a single broker quote.

(5)

Represents securities that were transferred to Level 2 as the fair value of these securities is now obtained from a nationally-recognized pricing service with observable inputs.

(6)

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.

 

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Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

 

 

Corporate

 

Other

 

 

 

 

 

 

 

Debt

 

Structured

 

Other

 

 

 

 

 

Securities

 

Investments

 

Assets

 

Debt

 

 

 

(in millions)

 

Balance, January 1, 2010

 

$

 

$

 

$

831

 

$

 

Cumulative effect of accounting change