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 June 30, 2007

 

 

 

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

 

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

incorporation or organization)

 

 

 

 

 

55 Ameriprise Financial Center, Minneapolis, Minnesota

 

55474

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code

(612) 671-3131

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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.

Yesx    Noo

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

Large Accelerated Filer x        Accelerated Filer o        Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso    Nox

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 July 27, 2007

Common Stock (par value $.01 per share)

 

235,284,642 shares

 

 




AMERIPRISE FINANCIAL, INC.

FORM 10-Q

INDEX

Part I.

Financial Information:

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Statements of Income Three months and six months ended June 30, 2007 and 2006

3

 

 

 

 

 

 

Consolidated Balance Sheets June 30, 2007 and December 31, 2006

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Six months ended June 30, 2007 and 2006

5

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – Six months ended June 30, 2007 and 2006

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

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

19

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

 

 

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

 

PART II.

Other Information:

 

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

 

 

Item 1A.

Risk Factors

39

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

41

 

 

 

 

 

Item 6.

Exhibits

41

 

 

 

 

 

Signatures

42

 

 

 

 

Exhibit Index

E-1

 

2




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in millions, except per share amounts)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

863

 

$

721

 

$

1,654

 

$

1,431

 

Distribution fees

 

415

 

325

 

759

 

626

 

Net investment income

 

485

 

522

 

1,003

 

1,096

 

Premiums

 

243

 

229

 

479

 

449

 

Other revenues

 

176

 

256

 

350

 

400

 

Total revenues

 

2,182

 

2,053

 

4,245

 

4,002

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

905

 

766

 

1,747

 

1,505

 

Interest credited to account values

 

303

 

307

 

590

 

631

 

Benefits, claims, losses and settlement expenses

 

230

 

225

 

449

 

452

 

Amortization of deferred acquisition costs

 

125

 

153

 

259

 

281

 

Interest and debt expense

 

32

 

28

 

64

 

51

 

Separation costs

 

63

 

84

 

148

 

151

 

Other expenses

 

279

 

304

 

527

 

554

 

Total expenses

 

1,937

 

1,867

 

3,784

 

3,625

 

Income before income tax provision

 

245

 

186

 

461

 

377

 

Income tax provision

 

49

 

45

 

100

 

91

 

Net income

 

$

196

 

$

141

 

$

361

 

$

286

 

 

 

 

 

 

 

 

 

 

 

Earnings per Common Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.83

 

$

0.57

 

$

1.51

 

$

1.15

 

Diluted

 

0.81

 

0.57

 

1.49

 

1.14

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

237.4

 

246.3

 

239.0

 

249.3

 

Diluted

 

241.0

 

248.0

 

242.6

 

250.8

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.15

 

$

0.11

 

$

0.30

 

$

0.22

 

 

See Notes to Consolidated Financial Statements.

3




AMERIPRISE FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

3,303

 

$

2,717

 

Investments

 

31,704

 

35,553

 

Separate account assets

 

60,470

 

53,848

 

Receivables

 

3,207

 

2,960

 

Deferred acquisition costs

 

4,462

 

4,499

 

Restricted and segregated cash

 

1,277

 

1,236

 

Other assets

 

3,709

 

3,359

 

Total assets

 

$

108,132

 

$

104,172

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Future policy benefits and claims

 

$

28,318

 

$

30,033

 

Separate account liabilities

 

60,470

 

53,848

 

Customer deposits

 

6,055

 

6,707

 

Debt

 

2,197

 

2,225

 

Accounts payable and accrued expenses

 

1,850

 

1,788

 

Other liabilities

 

1,642

 

1,646

 

Total liabilities

 

100,532

 

96,247

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

Common shares ($.01 par value; shares authorized,1,250,000,000; shares issued, 255,563,468 and 252,909,389, respectively)

 

3

 

3

 

Additional paid-in capital

 

4,533

 

4,353

 

Retained earnings

 

4,428

 

4,268

 

Treasury shares, at cost (20,270,752 and 11,517,958 shares, respectively)

 

(1,009

)

(490

)

Accumulated other comprehensive loss, net of tax:

 

 

 

 

 

Net unrealized securities losses

 

(333

)

(187

)

Net unrealized derivatives losses

 

(4

)

(1

)

Foreign currency translation adjustment

 

(15

)

(18

)

Defined benefit plans

 

(3

)

(3

)

Total accumulated other comprehensive loss

 

(355

)

(209

)

Total shareholders’ equity

 

7,600

 

7,925

 

Total liabilities and shareholders’ equity

 

$

108,132

 

$

104,172

 

 

See Notes to Consolidated Financial Statements.

4




AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

361

 

$

286

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Capitalization of deferred acquisition and sales inducement costs

 

(465

)

(428

)

Amortization of deferred acquisition and sales inducement costs

 

289

 

304

 

Depreciation and amortization

 

85

 

97

 

Deferred income taxes

 

(19

)

(36

)

Share-based compensation

 

75

 

56

 

Net realized investment gains

 

(13

)

(10

)

Other-than-temporary impairments and provision for loan losses

 

2

 

1

 

Premium and discount amortization on Available-for-Sale and other securities

 

58

 

63

 

Changes in operating assets and liabilities:

 

 

 

 

 

Segregated cash

 

3

 

154

 

Trading securities and equity method investments in hedge funds, net

 

(72

)

27

 

Future policy benefits and claims, net

 

(122

)

35

 

Receivables

 

(237

)

(268

)

Accounts payable and accrued expenses

 

57

 

414

 

Other, net

 

(14

)

(159

)

Net cash (used in) provided by operating activities

 

(12

)

536

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Available-for-Sale securities:

 

 

 

 

 

Proceeds from sales

 

2,659

 

1,185

 

Maturities, sinking fund payments and calls

 

1,446

 

1,696

 

Purchases

 

(636

)

(1,770

)

Open securities transactions payable and receivable, net

 

(30

)

35

 

Proceeds from sales and maturities of commercial mortgage loans on real estate

 

284

 

241

 

Funding of commercial mortgage loans on real estate

 

(192

)

(183

)

Proceeds from sales of other investments

 

92

 

71

 

Purchase of other investments

 

(45

)

(101

)

Purchase of land, buildings, equipment and software

 

(155

)

(68

)

Proceeds from sale of land, buildings, equipment and other

 

8

 

66

 

Change in restricted cash

 

(50

)

1

 

Other, net

 

(11

)

(3

)

Net cash provided by investing activities

 

3,370

 

1,170

 

 

See Notes to Consolidated Financial Statements.

5




AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(in millions)

 

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

Cash Flows from Financing Activities

 

 

 

 

 

Investment certificates and banking time deposits:

 

 

 

 

 

Proceeds from additions

 

466

 

849

 

Interest credited to account values

 

106

 

97

 

Maturities, withdrawals and cash surrenders

 

(1,130

)

(1,731

)

Change in other customer deposits

 

(94

)

(152

)

Policyholder and contractholder account values:

 

 

 

 

 

Consideration received

 

491

 

652

 

Interest credited to account values

 

484

 

534

 

Surrenders and other benefits

 

(2,526

)

(2,398

)

Proceeds from issuance of debt, net of issuance costs

 

 

516

 

Principal repayments of debt

 

(28

)

(83

)

Dividends paid to shareholders

 

(63

)

(55

)

Repurchase of common shares

 

(519

)

(332

)

Exercise of stock options

 

27

 

10

 

Excess tax benefits from share-based compensation

 

22

 

16

 

Policy loans:

 

 

 

 

 

Repayments

 

56

 

48

 

Issuances

 

(74

)

(63

)

Other, net

 

2

 

 

Net cash used in financing activities

 

(2,780

)

(2,092

)

Effect of exchange rate changes on cash

 

8

 

13

 

Net increase (decrease) in cash and cash equivalents

 

586

 

(373

)

Cash and cash equivalents at beginning of period

 

2,717

 

2,474

 

Cash and cash equivalents at end of period

 

$

3,303

 

$

2,101

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Interest paid

 

$

67

 

$

52

 

Income taxes paid

 

$

76

 

$

137

 

 

See Notes to Consolidated Financial Statements.

6




AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(in millions, except share amounts)

 

 

Number of
Outstanding
Shares

 

Common
Shares

 

Additional
Paid-In
Capital

 

Retained
Earnings

 

Treasury
Shares

 

Accumulated
Other
Comprehensive
Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2005

 

249,875,554

 

$

2

 

$

4,091

 

$

3,745

 

$

 

$

(151

)

$

7,687

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

286

 

 

 

286

 

Change in net unrealized securities losses

 

 

 

 

 

 

(518

)

(518

)

Foreign currency translation adjustment

 

 

 

 

 

 

3

 

3

 

Total other comprehensive loss

 

 

 

 

 

 

 

(229

)

Dividends paid to shareholders

 

 

 

 

(55

)

 

 

(55

)

Treasury shares

 

(7,904,299

)

 

 

 

(332

)

 

(332

)

Share-based compensation plans

 

2,104,267

 

1

 

163

 

 

 

 

164

 

Balances at June 30, 2006

 

244,075,522

 

$

3

 

$

4,254

 

$

3,976

 

$

(332

)

$

(666

)

$

7,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2006

 

241,391,431

 

$

3

 

$

4,353

 

$

4,268

 

$

(490

)

$

(209

)

$

7,925

 

Change in accounting principles

 

 

 

 

(138

)

 

 

(138

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

361

 

 

 

361

 

Change in net unrealized securities losses

 

 

 

 

 

 

(146

)

(146

)

Change in net unrealized derivatives losses

 

 

 

 

 

 

(3

)

(3

)

Foreign currency translation adjustment

 

 

 

 

 

 

3

 

3

 

Total other comprehensive income

 

 

 

 

 

 

 

215

 

Dividends paid to shareholders

 

 

 

 

(63

)

 

 

(63

)

Treasury shares

 

(8,752,794

)

 

 

 

(519

)

 

(519

)

Share-based compensation plans

 

2,654,079

 

 

129

 

 

 

 

129

 

Other, net

 

 

 

51

 

 

 

 

51

 

Balances at June 30, 2007

 

235,292,716

 

$

3

 

$

4,533

 

$

4,428

 

$

(1,009

)

$

(355

)

$

7,600

 

 

See Notes to Consolidated Financial Statements.

7




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc. (“Ameriprise Financial”), companies in which it directly or indirectly has a controlling financial interest, variable interest entities in which it is the primary beneficiary and certain limited partnerships for which it is the general partner (collectively, the “Company”). All material intercompany transactions and balances between or among Ameriprise Financial and its subsidiaries and affiliates have been eliminated in consolidation. Ameriprise Financial is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to offer solutions for clients’ asset accumulation, income management and insurance protection needs. The Company’s foreign operations in the United Kingdom are conducted through its subsidiary, Threadneedle Asset Management Holdings Limited (“Threadneedle”).

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. 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. 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 which are incorporated by reference in the Annual Report on Form 10-K of Ameriprise Financial, Inc. for the year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2007.

2.   Recent Accounting Pronouncements

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide ‘Investment Companies’ and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance to determine when an entity may apply the provisions of the Audit and Accounting Guide “Investment Companies” (the “Guide”), which requires investment companies to report investments at fair value. SOP 07-1 also addresses whether specialized industry accounting principles should be retained by a parent company in consolidation or by an equity method investor. SOP 07-1 is effective for fiscal years beginning on or after December 15, 2007 with early adoption encouraged. In May 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FASB Interpretation No. (“FIN”) 46(R)-7, “Application of FIN 46(R) to Investment Companies” (“FSP 46(R)-7”). FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities,” allowed for an indefinite deferral of the application of its provisions to unregistered investment companies that account for their investments in accordance with the Guide. FSP 46(R)-7 makes permanent this provision for entities that meet the definition of an investment company under SOP 07-1. FSP 46(R)-7 is effective upon adoption of SOP 07-1. The Company is currently evaluating the impact of adopting SOP 07-1 and FSP 46(R)-7 on its consolidated results of operations and financial condition.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 requires entities to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating whether or not it will elect to adopt SFAS 159 for certain assets and liabilities.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). As of December 31, 2006, the Company adopted the recognition provisions of SFAS 158, which require an entity to recognize the overfunded or underfunded status of an employer’s defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company’s adoption of this provision did not have a material effect on the consolidated results of operations and financial condition. Effective for fiscal years ending after December 15, 2008, SFAS 158 also requires an employer to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position. As of December 31, 2008, the Company will adopt the measurement provisions of SFAS 158, which the Company does not believe will have a material effect on its consolidated results of operations and financial condition.

8




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

2.   Recent Accounting Pronouncements (continued)

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The provisions of SFAS 157 are required to be applied prospectively as of the beginning of the fiscal year in which SFAS 157 is initially applied, except for certain financial instruments as defined in SFAS 157 which will require retrospective application of SFAS 157. The transition adjustment, if any, will be recognized as a cumulative-effect adjustment to the opening balance of retained earnings for the fiscal year of adoption. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated results of operations and financial condition.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007 and recorded as a cumulative change in accounting principle an increase in the liability for unrecognized tax benefits and a decrease in beginning retained earnings of $4 million.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155: (i) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; (ii) clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133; (iii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iv) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (v) amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The Company adopted SFAS 155 as of January 1, 2007. The effect of adopting SFAS 155 was not material.

In September 2005, the AICPA issued SOP 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”). SOP 05-1 provides clarifying guidance on accounting for deferred acquisition costs (“DAC”) associated with an insurance or annuity contract that is significantly modified or internally replaced with another contract. Prior to adoption, the Company accounted for many of these transactions as contract continuations and continued amortizing existing DAC against revenue from the new or modified contract. Effective on January 1, 2007, the Company adopted SOP 05-1 resulting in these transactions being prospectively accounted for as contract terminations. Consistent with this, the Company now anticipates these transactions in establishing amortization periods and other valuation assumptions. As a result of adopting SOP 05-1, the Company recorded as a cumulative change in accounting principle a pretax charge of $206 million, reducing DAC by $204 million, deferred sales inducement costs (“DSIC”) by $11 million and liabilities for future policy benefits by $9 million. The after-tax decrease to retained earnings for these changes was $134 million. The adoption of SOP 05-1 is also expected to result in an increase to DAC and DSIC amortization in 2007.

9




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

3.   Separation and Distribution from American Express

Ameriprise Financial was formerly a wholly owned subsidiary of American Express Company (“American Express”). On February 1, 2005, the American Express Board of Directors announced its intention to pursue the disposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”) through a tax-free distribution to American Express shareholders. Effective as of the close of business on September 30, 2005, American Express completed the separation of Ameriprise Financial and the distribution of the Ameriprise Financial common shares to American Express shareholders (the “Distribution”).

American Express has historically provided a variety of corporate and other support services for the Company, including information technology, treasury, accounting, financial reporting, tax administration, human resources, marketing, legal, procurement and other services. Following the Distribution, American Express has continued to provide the Company with many of these services pursuant to transition services agreements for transition periods of up to two years or more, if extended by mutual agreement of the Company and American Express. By the date of this report, the Company has terminated the majority of these service agreements and has completed the vast majority of separation of its information technology infrastructure from American Express. The remaining linkages are expected to be separated by early September, 2007.

The Company has incurred significant non-recurring separation costs as a result of the Separation. These costs have primarily been associated with establishing the Ameriprise Financial brand, separating and reestablishing the Company’s technology platforms and advisor and employee retention programs.

4.   Investments

The following is a summary of investments:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(in millions)

 

Available-for-Sale securities, at fair value

 

$

27,093

 

$

30,880

 

Commercial mortgage loans on real estate, net

 

2,964

 

3,056

 

Trading securities, at fair value, and equity method investments in hedge funds

 

655

 

579

 

Policy loans

 

669

 

652

 

Other investments

 

323

 

386

 

Total

 

$

31,704

 

$

35,553

 

 

Realized gains and losses on Available-for-Sale securities, determined using the specific identification method, were as follows:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(in millions)

 

Gross realized gains from sales

 

$

18

 

$

11

 

$

34

 

$

23

 

Gross realized losses from sales

 

(14

)

(5

)

(21

)

(13

)

Other-than-temporary impairments

 

(2

)

 

(2

)

(1

)

 

5.   Deferred Acquisition Costs and Deferred Sales Inducement Costs

Effective January 1, 2007, the Company adopted SOP 05-1. SOP 05-1 provides clarifying guidance on accounting for DAC associated with an insurance or annuity contract that is significantly modified or internally replaced with another contract. Prior to adoption, the Company accounted for many of these transactions as contract continuations and continued amortization of existing DAC against revenue from the new or modified contract. The Company’s adoption of SOP 05-1 resulted in these transactions being prospectively accounted for as contract terminations. As a result of adopting SOP 05-1, the Company recorded as a cumulative change in accounting principle a pretax reduction of $204 million and $11 million to DAC and DSIC, respectively.

10




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

5.   Deferred Acquisition Costs and Deferred Sales Inducement Costs (continued)

The balances of and changes in DAC were as follows:

 

 

2007

 

2006

 

 

 

(in millions)

 

Balance at January 1

 

$

4,499

 

$

4,182

 

Cumulative effect of SOP 05-1 adoption

 

(204

)

 

Capitalization of acquisition costs

 

399

 

367

 

Amortization, excluding impact of changes in assumptions

 

(272

)

(257

)

Amortization, impact of other quarter changes in DAC-related assumptions

 

13

 

(24

)

Impact of change in net unrealized securities losses

 

27

 

74

 

Balance at June 30

 

$

4,462

 

$

4,342

 

 

The balances of and changes in DSIC were as follows:

 

 

2007

 

2006

 

 

 

(in millions)

 

Balance at January 1

 

$

452

 

$

370

 

Cumulative effect of SOP 05-1 adoption

 

(11

)

 

Capitalization of sales inducements

 

66

 

61

 

Amortization

 

(30

)

(23

)

Impact of change in net unrealized securities losses

 

4

 

12

 

Balance at June 30

 

$

481

 

$

420

 

 

6.   Future Policy Benefits and Claims and Separate Account Liabilities

Future policy benefits and claims consisted of the following:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(in millions)

 

Fixed annuities

 

$

15,583

 

$

16,841

 

Equity indexed annuities accumulated host values

 

259

 

267

 

Equity indexed annuities embedded derivatives

 

58

 

50

 

Variable annuities fixed sub-accounts

 

5,416

 

5,975

 

Guaranteed minimum withdrawal benefits variable annuity guarantees

 

(40

)

(12

)

Other variable annuity guarantees

 

14

 

26

 

Total annuities

 

21,290

 

23,147

 

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

 

2,554

 

2,562

 

Other life, disability income and long term care insurance

 

3,977

 

3,852

 

Auto and home insurance

 

393

 

381

 

Policy claims and other policyholders’ funds

 

104

 

91

 

Total

 

$

28,318

 

$

30,033

 

 

Separate account liabilities consisted of the following:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(in millions)

 

Variable annuity variable sub-accounts

 

$

49,677

 

$

43,515

 

VUL insurance variable sub-accounts

 

6,324

 

5,772

 

Threadneedle investment liabilities

 

4,469

 

4,561

 

Total

 

$

60,470

 

$

53,848

 

 

11




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

7.   Customer Deposits

Customer deposits consisted of the following:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(in millions)

 

Fixed rate certificates

 

$

3,005

 

$

3,540

 

Stock market based certificates

 

1,032

 

1,041

 

Stock market embedded derivative reserves

 

48

 

48

 

Other

 

82

 

91

 

Less: accrued interest classified in other liabilities

 

(40

)

(42

)

Total investment certificate reserves

 

4,127

 

4,678

 

Brokerage deposits

 

1,213

 

1,176

 

Banking deposits

 

715

 

853

 

Total

 

$

6,055

 

$

6,707

 

 

8.   Debt

Debt and the stated interest rates were as follows:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

Outstanding
Balance

 

Stated
Interest Rate

 

Outstanding
Balance

 

Stated
Interest Rate

 

 

 

(in millions)

 

 

 

(in millions)

 

 

 

Senior notes due 2010

 

$

800

 

5.4

%

$

800

 

5.4

%

Senior notes due 2015

 

700

 

5.7

 

700

 

5.7

 

Junior subordinated notes due 2066

 

500

 

7.5

 

500

 

7.5

 

Fixed and floating rate notes due 2011:

 

 

 

 

 

 

 

 

 

Floating rate senior notes

 

56

 

5.9

 

84

 

5.9

 

Fixed rate notes

 

86

 

8.6

 

86

 

8.6

 

Fixed rate senior notes

 

46

 

7.2

 

46

 

7.2

 

Fixed rate notes

 

9

 

13.3

 

9

 

13.3

 

Total

 

$

2,197

 

 

 

$

2,225

 

 

 

 

On November 23, 2005, the Company issued $1.5 billion of unsecured senior notes (“senior notes”) including $800 million of five-year senior notes, which mature November 15, 2010, and $700 million of 10-year senior notes, which mature November 15, 2015, and incurred debt issuance costs of $7 million. Interest payments are due semi-annually on May 15 and November 15.

In June 2005, the Company entered into interest rate swap agreements totaling $1.5 billion, which qualified as cash flow hedges related to planned debt offerings. The Company terminated the swap agreements in November 2005 when the senior notes were issued. The related gain on the swap agreements of $71 million was recorded to accumulated other comprehensive income and is being amortized as a reduction to interest expense over the period in which the hedged cash flows are expected to occur. Considering the impact of the hedge credits, the effective interest rates on the senior notes due 2010 and 2015 are 4.8% and 5.2%, respectively.

On May 26, 2006, the Company issued $500 million of unsecured junior subordinated notes (“junior notes”), which mature June 1, 2066, and incurred debt issuance costs of $6 million. For the initial 10-year period, the junior notes carry a fixed interest rate of 7.5% payable semi-annually in arrears on June 1 and December 1. From June 1, 2016 until the maturity date, interest on the junior notes will accrue at an annual rate equal to the three-month LIBOR plus a margin equal to 290.5 basis points, payable quarterly in arrears.

The fixed and floating rate notes due 2011 are non-recourse debt of a collateralized debt obligation (“CDO”). The debt will be extinguished from the cash flows of the investments held within the portfolio of the CDO, which assets are held for the benefit of the CDO debt holders. The related interest expense on these notes is reflected in net investment income.

On September 30, 2005, the Company obtained an unsecured revolving credit facility for $750 million expiring in September 2010 from various third party financial institutions. Under the terms of the credit agreement, the Company may increase the amount of this facility to $1.0 billion. As of June 30, 2007 and December 31, 2006, no borrowings were outstanding under this facility. Outstanding letters of credit issued against this facility were $6 million and $5 million as of June 30, 2007 and December 31, 2006, respectively. The Company has agreed under this credit agreement not to pledge the shares of its principal subsidiaries and was in compliance with this covenant as of June 30, 2007 and December 31, 2006.

12




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

9.   Share-Based Compensation

The Company’s share-based compensation plans consist of the Ameriprise Financial 2005 Incentive Compensation Plan and the Deferred Equity Program for Independent Financial Advisors.

The Ameriprise Financial 2005 Incentive Compensation Plan (“2005 ICP”) as amended and restated effective as of April 25, 2007, allows for the grant of stock and cash incentive awards to employees, directors and independent contractors, including stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares and similar awards designed to comply with the applicable federal regulations and laws of jurisdiction.

The Deferred Equity Program for Independent Financial Advisors (“P2 Deferral Plan”) adopted as of September 30, 2005, gives certain advisors the option to defer a portion of their commissions in the form of share-based awards, which are subject to forfeiture based on future service requirements. The Company provides a match of the share-based awards.

For the three months and six months ended June 30, 2007, the Company recognized expense of $40 million and $75 million, respectively, related to awards under these share-based compensation plans. For the three months and six months ended June 30, 2006, the Company recognized expense of $32 million and $56 million, respectively, related to awards under these share-based compensation plans.

As of June 30, 2007, there was $220 million of total unrecognized compensation cost related to non-vested awards under the Company’s share-based compensation plans. That cost is expected to be recognized over a weighted-average period of 2.7 years.

10.   Other Expenses

Other expenses consisted of the following:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(in millions)

 

Professional and consultant fees

 

$

114

 

$

91

 

$

205

 

$

176

 

Information technology and communications

 

39

 

54

 

64

 

101

 

Facilities and equipment

 

48

 

44

 

90

 

94

 

Advertising and promotion

 

25

 

34

 

52

 

62

 

Legal and regulatory

 

18

 

46

 

48

 

71

 

Travel and meetings

 

29

 

21

 

51

 

39

 

Printing and distribution

 

26

 

26

 

55

 

51

 

Minority interest

 

16

 

25

 

27

 

28

 

Other

 

52

 

38

 

108

 

85

 

Other expenses capitalized as DAC

 

(88

)

(75

)

(173

)

(153

)

Total

 

$

279

 

$

304

 

$

527

 

$

554

 

 

11.   Income Taxes

The Company’s effective tax rates were 20.0% and 21.7% for the three months and six months ended June 30, 2007, respectively. The Company’s effective tax rates for the three months and six months ended June 30, 2006 were 24.3% and 24.2%, respectively. The effective tax rate for the three months ended June 30, 2007 was impacted by a $16 million tax benefit related to the finalization of certain income tax audits. The effective tax rate for the three months ended June 30, 2006 was impacted by $5 million of non-tax deductible charges.

The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses realized for tax return purposes and capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. The Company has $140 million in capital loss carryforwards that expire December 31, 2009 for which the benefit is reflected in deferred tax assets. Additionally, the Company has $45 million in capital loss carryforwards that expire December 31, 2009 as a result of the 2005 first short period tax return filed with American Express. Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets. Accordingly, no valuation allowance for deferred tax assets was established as of June 30, 2007 and December 31, 2006.

13




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

11.   Income Taxes (continued)

Effective January 1, 2007, the Company adopted the provisions of FIN 48. As a result of the implementation of FIN 48 the Company recognized a $4 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. As of the date of adoption the Company had $113 million of gross unrecognized tax benefits. If recognized, approximately $57 million, net of federal tax benefits, would affect the effective tax rate. As of June 30, 2007, the Company had $81 million of gross unrecognized tax benefits. If recognized, approximately $42 million, net of federal tax benefits, would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net reduction of interest and penalties of $10 million and $7 million for the three months and six months ended June 30, 2007, respectively. The Company had $16 million and $9 million for the payment of interest and penalties accrued at January 1, 2007 and June 30, 2007, respectively.

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. However, there are a number of open audits and quantification of a range cannot be made at this time.

The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”), as part of the overall examination of the American Express Company consolidated return, commenced an examination of the Company’s U.S. income tax returns for 1997 through 2002 in the third quarter of 2005. In the first quarter of 2007, the IRS expanded the period of the exam to include 2003 through 2004. The Company or certain of its subsidiaries state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2005.

The Company’s Tax Allocation Agreement with American Express, dated as of September 30, 2005, governs the allocation of consolidated U.S. federal and applicable combined or unitary state and local income tax liabilities between American Express and the Company for tax periods prior to September 30, 2005. In addition, this Tax Allocation Agreement provides for certain restrictions and indemnities in connection with the tax treatment of the Distribution and addresses other tax-related matters.

12.   Earnings per Common Share

The computations of basic and diluted earnings per common share are as follows:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

196

 

$

141

 

$

361

 

$

286

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic: Weighted-average common shares outstanding

 

237.4

 

246.3

 

239.0

 

249.3

 

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

 

3.6

 

1.7

 

3.6

 

1.5

 

Diluted: Weighted-average common shares outstanding

 

241.0

 

248.0

 

242.6

 

250.8

 

 

 

 

 

 

 

 

 

 

 

Earnings per Common Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.83

 

$

0.57

 

$

1.51

 

$

1.15

 

Diluted

 

0.81

 

0.57

 

1.49

 

1.14

 

 

Basic weighted average common shares for the three months and six months ended June 30, 2007 included 1.9 million and 1.8 million, respectively, of vested, nonforfeitable restricted stock units and 3.6 million and 3.6 million, respectively, of non-vested restricted stock awards and restricted stock units that are forfeitable but receive nonforfeitable dividends. Basic weighted average common shares for the three months and six months ended June 30, 2006 included 1.9 million and 2.0 million, respectively, of vested, nonforfeitable restricted stock units and 3.7 million and 3.7 million, respectively, of non-vested restricted stock awards and restricted stock units that are forfeitable but receive nonforfeitable dividends. Potentially dilutive securities include nonqualified stock options and other share-based awards.

14




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

13.   Segment Information

The Company’s two main operating segments, Asset Accumulation and Income (“AA&I”) and Protection, are aligned with the financial solutions the Company offers to address clients’ needs.

The AA&I segment offers products and services, both the Company’s and other companies’, to help retail clients address identified financial objectives related to asset accumulation and income management. Products and services in this segment are related to asset management, brokerage and banking, and include mutual funds, wrap accounts, variable and fixed annuities, brokerage accounts and investment certificates. This operating segment also serves institutional clients by providing investment management services in separately managed accounts, sub-advisory and alternative investments. The Company earns revenues in this segment primarily through fees it receives based on managed assets and annuity separate account assets. These fees are impacted by both market movements and net asset flows. The Company also earns net investment income on owned assets, principally supporting the fixed annuity and certificate businesses and capital supporting the business, and distribution fees on sales of mutual funds and other products. This segment includes the results of Securities America Financial Corporation, which through its operating subsidiary, Securities America, Inc. (“SAI”), operates its own separately branded distribution network.

The Protection segment offers a variety of protection products, both the Company’s and other companies’, including life, disability income, long term care and auto and home insurance to address the identified protection and risk management needs of retail clients. The Company earns revenues in this operating segment primarily through premiums, fees and charges that the Company receives to assume insurance-related risk, fees the Company receives on assets supporting variable universal life separate account balances and net investment income on owned assets supporting insurance reserves and capital supporting the business.

The Corporate and Other (“Corporate”) segment consists of income derived from financial planning fees, investment income on corporate level assets including unallocated equity and unallocated corporate expenses. This segment also includes non-recurring separation costs.

The accounting policies of the segments are the same as those of the Company, except for the method of capital allocation and the accounting for gains (losses) from intercompany revenues and expenses, which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation method that allows the Company to more efficiently manage its capital. The Company evaluates the performance of each segment based on income before income tax provision. The Company allocates certain non-recurring items, such as separation costs, to the Corporate segment.

The following is a summary of assets by segment:

 

 

June 30,
2007

 

December 31,
2006

 

 

 

(in millions)

 

Asset Accumulation and Income

 

$

86,798

 

$

83,308

 

Protection

 

17,993

 

17,360

 

Corporate and Other

 

3,341

 

3,504

 

Total assets

 

$

108,132

 

$

104,172

 

 

15




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

13. Segment Information (continued)

The following is a summary of segment operating results:

Three Months Ended June 30,

 

Asset
Accumulation
and Income

 

Protection

 

Corporate
and Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

2007

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

1,612

 

$

499

 

$

71

 

$

 

$

2,182

 

Intersegment revenue

 

4

 

9

 

 

(13

)

 

Total revenues

 

$

1,616

 

$

508

 

$

71

 

$

(13

)

$

2,182

 

Income (loss) before income tax provision

 

$

278

 

$

102

 

$

(135

)

$

 

245

 

Income tax provision

 

 

 

 

 

 

 

 

 

49

 

Net income

 

 

 

 

 

 

 

 

 

$

196

 

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

1,488

 

$

491

 

$

74

 

$

 

$

2,053

 

Intersegment revenue

 

5

 

5

 

 

(10

)

 

Total revenues

 

$

1,493

 

$

496

 

$

74

 

$

(10

)

$

2,053

 

Income (loss) before income tax provision

 

$

222

 

$

92

 

$

(128

)

$

 

186

 

Income tax provision

 

 

 

 

 

 

 

 

 

45

 

Net income

 

 

 

 

 

 

 

 

 

$

141

 

 

Six Months Ended June 30,

 

Asset
Accumulation
and Income

 

Protection

 

Corporate 
and Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

2007

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

3,104

 

$

991

 

$

150

 

$

 

$

4,245

 

Intersegment revenue

 

9

 

17

 

 

(26

)

 

Total revenues

 

$

3,113

 

$

1,008

 

$

150

 

$

(26

)

$

4,245

 

Income (loss) before income tax provision

 

$

510

 

$

203

 

$

(252

)

$

 

461

 

Income tax provision

 

 

 

 

 

 

 

 

 

100

 

Net income

 

 

 

 

 

 

 

 

 

$

361

 

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

2,906

 

$

958

 

$

138

 

$

 

$

4,002

 

Intersegment revenue

 

9

 

11

 

 

(20

)

 

Total revenues

 

$

2,915

 

$

969

 

$

138

 

$

(20

)

$

4,002

 

Income (loss) before income tax provision

 

$

450

 

$

166

 

$

(239

)

$

 

377

 

Income tax provision

 

 

 

 

 

 

 

 

 

91

 

Net income

 

 

 

 

 

 

 

 

 

$

286

 

 

16




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

14.   Related Party Transactions

The Company may engage in transactions in the ordinary course of business with significant shareholders or their subsidiaries, between the Company and its directors and officers or with other companies whose directors or officers may also serve as directors or officers for the Company or its subsidiaries. The Company carries out these transactions on customary terms. Other than for the share repurchase from Berkshire Hathaway Inc. and subsidiaries (“Berkshire”) described below, the transactions have not had a material impact on the Company’s consolidated results of operations or financial condition.

Davis Selected Advisors, L.P. or its affiliates (“Davis”) owned approximately 9% of the Company’s common stock at December 31, 2006. In the ordinary course of business, the Company obtains investment advisory or sub-advisory services from Davis. The Company, or the mutual funds or other clients to which the Company provides advisory services, pay fees to Davis for its services. In the ordinary course of business, Davis pays fees to the Company for distribution services of Davis’ products to the Company’s clients.

FMR Corp. or its affiliates (“FMR”) owned approximately 7% of the Company’s common stock at December 31, 2006. In the ordinary course of business, the Company pays fees to FMR for distribution services of RiverSource Funds to FMR’s clients and FMR pays fees to the Company for distribution services of FMR’s investment products to the Company’s clients.

On March 29, 2006, the Company entered into a Stock Purchase and Sale Agreement with Warren E. Buffet and Berkshire to repurchase 6.4 million shares of the Company’s common stock. The repurchase was completed on March 29, 2006 at a price per share equal to the March 29, 2006 closing price of $42.91 and reduced Berkshire’s ownership of the Company’s common stock to approximately 9.8% of common shares then outstanding. Berkshire’s ownership of the Company’s common stock was further reduced to 3% at December 31, 2006.

The Company’s executive officers and directors may have transactions with the Company or its subsidiaries involving financial products and insurance services. All obligations arising from these transactions are in the ordinary course of the Company’s business and are on the same terms in effect for comparable transactions with the general public. Such obligations involve normal risks of collection and do not have features or terms that are unfavorable to the Company’s subsidiaries.

15.   Common Share Repurchases

In January 2006, the Company’s Board of Directors authorized the repurchase of up to 2 million shares of the Company’s common stock. In March 2006, the Company’s Board of Directors authorized the expenditure of up to $750 million for the repurchase of additional shares through March 31, 2008. In March 2007, the Company’s Board of Directors authorized the expenditure of up to an additional $1.0 billion for the repurchase of shares through March 15, 2009. During the six months ended June 30, 2007 and 2006, the Company repurchased a total of 8.2 million shares and 7.4 million shares, respectively, of its common stock for an aggregate cost of $494 million and $316 million, respectively. As of June 30, 2007, the Company had purchased all shares under the January 2006 and March 2007 authorizations and had $871 million remaining under the March 2007 authorization.

The Company may also reacquire shares of its common stock under its 2005 ICP related to restricted stock awards. Restricted shares that are forfeited before the vesting period has lapsed are recorded as treasury shares. In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations. These vested restricted shares reacquired by the Company and the Company’s payment of the holders’ income tax obligations are recorded as a treasury share purchase. The restricted shares forfeited under the 2005 ICP and recorded as treasury were 0.1 million during both the six months ended June 30, 2007 and 2006. For the six months ended June 30, 2007 and 2006, the Company reacquired 0.5 million shares and 0.4 million shares, respectively, of its common stock through the surrender of restricted shares upon vesting and paid in the aggregate $25 million and $16 million, respectively, related to the holders’ income tax obligations on the vesting date.

16.   Contingencies

The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships.

17




AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

16.   Contingencies (continued)

As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and has been subject to examination by the SEC, National Association of Securities Dealers (“NASD”), Office of Thrift Supervision, state insurance regulators and various other regulatory authorities concerning its business activities and practices, including: sales and product or service features of, or disclosures pertaining to, financial plans, its mutual funds, annuities, insurance products and brokerage services; non-cash compensation paid to its field leaders and financial advisors; supervision of its financial advisors; and sales of, or brokerage or revenue sharing practices relating to, other companies’ real estate investment trust (“REIT”) shares, mutual fund shares or other investment products. Other open matters relate, among other things, to the administration of death claims to multiple beneficiaries under the Company’s variable annuities, the portability (or network transferability) of the Company’s RiverSource mutual funds, supervisory practices in connection with financial advisors’ outside business activities, the suitability of product recommendations made to retail financial planning clients and the delivery of financial plans, and the suitability of particular trading strategies. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including the Company. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.

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

Certain legal and regulatory proceedings involving the Company are described below.

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona, and was later transferred to the United States District Court for the District of Minnesota. The plaintiffs alleged that they are investors in several of the Company’s mutual funds and they purported to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs alleged that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. On July 6, 2007, the Court granted Ameriprise’s motion for summary judgment, dismissing all claims with prejudice.

In October 2005, the Company reached a comprehensive settlement regarding the consolidated securities class action lawsuit filed against the Company, its former parent and affiliates in October 2004 called “In re American Express Financial Advisors Securities Litigation.” The settlement, under which the Company denies any liability, includes a one-time payment of $100 million to the class members. On July 18, 2007, the Court entered an Order and Final Judgment, which approved the parties’ settlement as fair, reasonable and adequate. The Order and Final Judgment dismisses the Class Action Complaint with prejudice, releases the defendants from all liability for the claims asserted and any other claims based upon the same core allegations, and enjoins class members from asserting such claims in the future. The parties will now move to dismiss the previously disclosed related class action captioned Haritos et al. v. American Express Financial Advisors Inc. pending in the United States District Court for the District of Arizona, based on the fact that the claims in the Haritos action are covered by the In re AEFA settlement.

In March 2006, a lawsuit captioned Good, et al. v. Ameriprise Financial, Inc. et al. (Case No. 00-cv-01027) was filed in the United States District Court for the District of Minnesota. The lawsuit has been brought as a putative class action and plaintiffs purport to represent all of the Company’s advisors who sold shares of REITs and tax credit limited partnerships between March 2000 and March 2006. Plaintiffs seek unspecified compensatory and restitutionary damages as well as injunctive relief, alleging that the Company incorrectly calculated commissions owed advisors for the sale of these products. The matter is in the discovery stage.

The Company previously reported two adverse arbitration awards issued in 2006 by NASD panels against Securities America, Inc. and former registered representatives of SAI. Those arbitrations involved customer claims relating to suitability, disclosures, supervision and certain other sales practices. Other clients of those former registered representative have presented claims.

18




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

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. We believe it is useful to read our MD&A in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2007, as well as our current reports on Form 8-K and other publicly available information.

Overview

We are a leading financial planning and services company with more than 12,000 financial advisors and registered representatives that provides solutions for clients’ asset accumulation, income management and insurance protection needs. We seek to deliver solutions through a comprehensive financial planning approach built on a long-term client relationship with a knowledgeable financial advisor and to help clients achieve their identified financial goals by providing investment, insurance and other financial products that position them to realize their financial goals or form of protection while they are accepting an appropriate range and level of risk. We specialize in meeting the retirement-related financial needs of the mass affluent and affluent. We also offer asset management products and services to institutional clients.

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

It is our management’s priority to increase shareholder value over a multi-year horizon by achieving our on-average, over-time financial targets. We measure progress against these goals excluding the impact of our separation from American Express Company (“American Express”), specifically, non-recurring separation costs. Our financial targets, adjusted to exclude these impacts, are:

·                  Annual revenue growth of 6% to 8%,

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

·                  Return on equity of 12% to 15%.

Our revenues in the second quarter of 2007 were $2.2 billion, an increase of 6% over the same period last year. Revenues for the second quarter of 2006 included $66 million from the sale of our defined contribution recordkeeping business. Excluding this item, revenues in the second quarter of 2007 increased 10% over the prior year period. The increase in revenues primarily reflected growth in our fee-based businesses, including growth in management, financial advice and services fees and distribution fees, primarily driven by continued strong net inflows in wrap accounts and annuity variable accounts, increased sales of direct investments and market appreciation. These positives were partially offset by a decline in net investment income due to decreases in annuity fixed account and certificate balances.

Our consolidated net income for the three months ended June 30, 2007 was $196 million, up $55 million, or 39%, from net income of $141 million for the three months ended June 30, 2006. Our adjusted earnings, which exclude after-tax non-recurring separation costs, rose 22% to $237 million for the three months ended June 30, 2007 from $195 million for the three months ended June 30, 2006. Our earnings per diluted share for the second quarter of 2007 were $0.81, an increase of 42% from $0.57 for the second quarter of 2006. Our adjusted earnings per diluted share were $0.98 for the three months ended June 30, 2007, up 24% from $0.79 for the three months ended June 30, 2006.

Return on equity for the trailing twelve months ended June 30, 2007 was 9.2% compared to 7.1% for the trailing twelve months ended June 30, 2006. Adjusted return on equity for the trailing twelve months ended June 30, 2007 rose to 12.5% from 10.7% for the trailing twelve months ended June 30, 2006.

We continue to establish Ameriprise Financial as a financial services leader as we focus on meeting the financial needs of the mass affluent and affluent, as evidenced by growth in our mass affluent and affluent client groups, financial plans, cash sales and owned, managed and administered assets. Our mass affluent and affluent client groups as of June 30, 2007 increased 12% since June 30, 2006. The percentage of our clients with a financial plan at June 30, 2007 was 45% compared to 44% at June 30, 2006. While our franchisee advisors increased 2%, the total number of advisors decreased 2% from the prior year quarter, as we hired fewer employee advisors and continued to focus on further strengthening advisor productivity and distribution economics. Advisor productivity increased from the year-ago period as reflected by a 20% growth in total gross dealer concession (“GDC”) compared to the second quarter of 2006, primarily driven by continued strength in variable annuity sales, wrap account net inflows and growth in sales of direct investments. Our franchisee advisor retention rate as of June 30, 2007 improved to 93%, up from 91% as of June 30, 2006.

19




Our owned, managed and administered assets increased to $483.9 billion at June 30, 2007, a net increase of 13% from June 30, 2006 assets of $427.9 billion. For the second quarter of 2007, we had net inflows in RiverSource annuity variable accounts of $1.5 billion and net inflows in Ameriprise Financial and Securities America, Inc. (“SAI”) wrap accounts of $3.5 billion, which reflects our clients increasingly choosing fee-based products within their portfolios. Our certificate and annuity fixed accounts had total net outflows of $1.5 billion for the three months ended June 30, 2007, reflecting the current interest rate environment and our strategy to focus on less capital-intensive products. RiverSource managed funds had net inflows of $0.7 billion in the second quarter of 2007 compared to net outflows of $0.6 billion in the same period of 2006. This improvement in net flows was driven by increased sales driven by strong investment performance, increased penetration of goal-based solutions and effective wholesaling. Administered assets increased over the year-ago period primarily due to increased brokerage activity and market appreciation.

Significant Factors Affecting our Results of Operations and Financial Condition

Share Repurchase

In March 2007, our Board of Directors authorized the expenditure of up to $1 billion for the repurchase of shares of our common stock through March 15, 2009. This authorization was in addition to a Board authorization in March 2006 for the expenditure of up to $750 million for the repurchase of shares through the end of March 2008 and a Board authorization in January 2006 to repurchase up to 2 million shares by the end of 2006. Through June 30, 2007, we have purchased 18.9 million shares under these programs for an aggregate cost of $964 million. As of June 30, 2007, we had purchased all shares under the January 2006 and March 2006 authorizations and had $871 million remaining under the March 2007 authorization.

Sale of our Defined Contribution Recordkeeping Business

On June 1, 2006, we completed the sale of our defined contribution recordkeeping business and recognized $66 million of revenues and $30 million of expenses in connection with the sale. The administered assets transferred in connection with this sale were approximately $16.7 billion. Although our defined contribution recordkeeping business generated approximately $60 million in annual revenue, we will experience expense savings related to this sale and do not anticipate a material impact on pretax income. We continue to manage approximately $11.2 billion of defined contribution assets under investment management only contracts.

Launch of Ameriprise Bank, FSB and Acquisition of Bank Deposits and Loans

In September 2006, we obtained our federal savings bank charter and launched Ameriprise Bank, FSB (“Ameriprise Bank”), a wholly owned subsidiary. In the second half of 2006, Ameriprise Bank acquired $493 million of customer loans and assumed $963 million of customer deposits from American Express Bank, FSB, a subsidiary of American Express, and received cash of $470 million in connection with these transactions. Ameriprise Bank offers a suite of borrowing, cash management and personal trust products and services, primarily through our branded advisors. We are currently building our banking platform, and do not expect it to be a significant contributor to earnings in the near term.

Financing Arrangements

On May 26, 2006, we issued $500 million principal amount of junior subordinated notes due 2066 (“junior notes”). These junior notes carry a fixed interest rate of 7.518% for the first 10 years and a variable interest rate thereafter. These junior notes receive at least a 75% equity credit by the majority of our credit rating agencies for purposes of their calculation of our debt to total capital ratio. The net proceeds from the issuance were for general corporate purposes.

Separation from American Express

Our separation from American Express resulted in specifically identifiable impacts to our consolidated results of operations and financial condition.

Separation and Distribution

On February 1, 2005, the American Express Board of Directors announced its intention to pursue the disposition of 100% of its shareholdings in our company (the “Separation”) through a tax-free distribution to American Express shareholders. Effective as of the close of business on September 30, 2005, American Express completed the Separation of our company and the distribution of our common shares to American Express shareholders (the “Distribution”). Prior to the Distribution, we had been a wholly owned subsidiary of American Express.

20




Separation Costs

Since the Separation announcement through June 30, 2007, we have incurred $802 million of non-recurring separation costs and expect to incur a total of approximately $875 million. These costs are primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing our technology platforms and advisor and employee retention programs. We expect to incur all remaining costs in the second half of 2007.

Services and Operations Provided by American Express

American Express has historically provided us a variety of corporate and other support services, including information technology, treasury, accounting, financial reporting, tax administration, human resources, marketing, legal, procurement and other services. Following the Distribution, American Express has continued to provide us with many of these services pursuant to transition services agreements for periods of up to two years or more, if extended by mutual agreement between us and American Express. By the date of this report, the Company has terminated the majority of these service agreements and has completed the vast majority of separation of its information technology infrastructure from American Express. The remaining linkages are expected to be separated by early September, 2007.

Equity Markets and Interest Rates

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

For additional information regarding our sensitivity to equity risk and interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk.”

Recent Accounting Pronouncements

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

Non-GAAP Financial Information

We follow accounting principles generally accepted in the United States (“GAAP”). This report includes information on both a GAAP and non-GAAP basis. The non-GAAP presentation in this report excludes non-recurring separation costs from all periods, and discontinued operations and AMEX Assurance for periods prior to 2006. Our non-GAAP financial measures, which we view as important indicators of financial performance, include:

·             expenses excluding non-recurring separation costs;

·             adjusted earnings or net income excluding non-recurring separation costs;

·             adjusted earnings per diluted share; and

·             adjusted return on equity, using as the numerator adjusted earnings for the last 12 months (income before discontinued operations and excluding non-recurring separation costs and AMEX Assurance) and as the denominator a five-point average of equity excluding both the assets and liabilities of discontinued operations and equity allocated to expected non-recurring separation costs as of the last day of the preceding four quarters and the current quarter.

Management believes that the presentation of these non-GAAP financial measures best reflects the underlying performance of our ongoing operations and facilitates a more meaningful trend analysis. These non-GAAP measures are also used for goal setting, certain compensation related to our annual incentive award program and evaluating our performance on a basis comparable to that used by securities analysts.

21




A reconciliation of non-GAAP measures is as follows:

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(in millions, except per share amounts)

 

Consolidated Income Data

 

 

 

 

 

 

 

 

 

Net income

 

$

196

 

$

141

 

$

361

 

$

286

 

Add: Separation costs, after-tax

 

41

 

54

 

96

 

98

 

Adjusted earnings

 

$

237

 

$

195

 

$

457

 

$

384

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares

 

241.0

 

248.0

 

242.6

 

250.8

 

Adjusted earnings per diluted share

 

$

0.98

 

$

0.79

 

$

1.88

 

$

1.53

 

 

 

 

 

 

 

 

 

 

 

Separation costs

 

$

63

 

$

84

 

$

148

 

$

151

 

Less: Tax benefit attributable to separation costs

 

22

 

30

 

52

 

53

 

Separation costs, after-tax

 

$

41

 

$

54

 

$

96

 

$

98

 

 

 

 

Twelve Months Ended June 30,

 

 

 

2007

 

2006

 

 

 

(in millions, except percentages)

 

Return on Equity

 

 

 

 

 

Return on equity excluding discontinued operations

 

9.2

%

7.1

%

 

 

 

 

 

 

Income before discontinued operations

 

$

706

 

$

520

 

Add: Separation costs, after-tax

 

233

 

239

 

Less: AMEX Assurance net income

 

 

3

 

Adjusted earnings

 

$

939

 

$

756

 

 

 

 

 

 

 

Equity excluding discontinued operations

 

$

7,649

 

$

7,348

 

Less: Equity allocated to expected separation costs

 

158

 

291

 

Adjusted equity

 

$

7,491

 

$

7,057

 

 

 

 

 

 

 

Adjusted return on equity

 

12.5

%

10.7

%

 

Owned, Managed and Administered Assets

We earn management fees on our owned separate account assets based on the market value of assets held in the separate accounts. We record the income associated with our owned investments, including net realized gains and losses associated with these investments and other-than-temporary impairments of these investments, as net investment income. For managed assets, we receive management fees based on the value of these assets. We generally report these fees as management, financial advice and service fees. We may also receive distribution fees based on the value of these assets. We generally record fees received from administered assets as distribution fees.

Fluctuations in our owned, managed and administered assets impact our revenues. Our owned, managed and administered assets are impacted by net flows of client assets and market movements. Owned assets are also affected by changes in our capital structure. During the second quarter of 2007, RiverSource funds returned to net inflows, achieving $0.7 billion in net inflows compared to net outflows of $0.6 billion during the prior year quarter. Overall, during the second quarter of 2007, we had net inflows in our managed assets of $2.9 billion in Ameriprise Financial wrap accounts, $0.6 billion in SAI wrap accounts and $0.4 billion in RiverSource institutional funds, and had $1.5 billion in net inflows in our owned RiverSource annuity variable accounts. In addition, we had net outflows in our owned certificate and fixed annuity assets of $1.5 billion during the second quarter of 2007, reflecting a continued trend of net outflows in these assets as clients choose other products in the current interest rate environment and as we focus on fee-based products.

22




The following table presents information regarding our owned assets, which are included in our Consolidated Balance Sheets, and our managed and administered assets, which are not recorded on our Consolidated Balance Sheets:

 

 

 

June 30,

 

 

 

 

 

2007

 

2006

 

% Change

 

 

 

(in billions, except percentages)

 

Owned Assets:

 

 

 

 

 

 

 

Separate accounts(1)

 

$

60.5

 

$

45.8

 

32

%

Investments

 

31.7

 

37.0

 

(14

)

Other(2)

 

8.7

 

6.3

 

38

 

Total owned assets

 

100.9

 

89.1

 

13

 

Managed Assets:

 

 

 

 

 

 

 

Managed Assets—Retail

 

 

 

 

 

 

 

RiverSource Mutual Funds

 

62.3

 

56.8

 

10

 

Threadneedle(3) Mutual Funds

 

17.9

 

14.9

 

20

 

Ameriprise Financial Wrap Account Assets

 

76.2

 

56.7

 

34

 

SAI Wrap Account Assets

 

12.9

 

9.8

 

32

 

Total managed assets—retail

 

169.3

 

138.2

 

23

 

Managed Assets—Institutional

 

 

 

 

 

 

 

RiverSource

 

29.1

 

27.3

 

7

 

Threadneedle(3)

 

110.7

 

105.2

 

5

 

Total managed assets—institutional

 

139.8

 

132.5

 

6

 

Managed Assets—Retirement Services

 

 

 

 

 

 

 

RiverSource Collective Funds

 

9.6

 

10.9

 

(12

)

Managed Assets—Eliminations(4)

 

(8.2

)

(5.5

)

49

 

Total managed assets

 

310.5

 

276.1

 

12

 

Administered Assets

 

72.5

 

62.7

 

16

 

Total Owned, Managed and Administered Assets

 

$

483.9

 

$

427.9

 

13

 

 


(1)             Includes $24.7 billion and $19.6 billion, respectively, of RiverSource managed funds supporting separate account assets, which are not included in RiverSource managed assets in this table.

(2)             Includes cash and cash equivalents, restricted and segregated cash, receivables and other assets.

(3)       Threadneedle Asset Management Holdings Limited (“Threadneedle”) is a subsidiary of our company.

(4)             Includes eliminations for RiverSource mutual fund assets included in Ameriprise Financial wrap account assets.

23




Consolidated Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

The following table presents our consolidated results of operations for the three months ended June 30, 2007 and 2006:

 

 

Three Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

863

 

$

721

 

$

142

 

20

%

Distribution fees

 

415

 

325

 

90

 

28

 

Net investment income

 

485

 

522

 

(37

)

(7

)

Premiums

 

243

 

229

 

14

 

6

 

Other revenues

 

176

 

256

 

(80

)

(31

)

Total revenues

 

2,182

 

2,053

 

129

 

6

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits:

 

 

 

 

 

 

 

 

 

Field

 

538

 

436

 

102

 

23

 

Non-field

 

367

 

330

 

37

 

11

 

Total compensation and benefits

 

905

 

766

 

139

 

18

 

Interest credited to account values

 

303

 

307

 

(4

)

(1

)

Benefits, claims, losses and settlement expenses

 

230

 

225

 

5

 

2

 

Amortization of deferred acquisition costs

 

125

 

153

 

(28

)

(18

)

Interest and debt expense

 

32

 

28

 

4

 

14

 

Separation costs

 

63

 

84

 

(21

)

(25

)

Other expenses

 

279

 

304

 

(25

)

(8

)

Total expenses

 

1,937

 

1,867

 

70

 

4

 

Income before income tax provision

 

245

 

186

 

59

 

32

 

Income tax provision

 

49

 

45

 

4

 

9

 

Net income

 

$

196

 

$

141

 

$

55

 

39

 

 

Overall

Consolidated net income for the three months ended June 30, 2007 was $196 million, up $55 million, or 39%, from $141 million for the three months ended June 30, 2006. This increase in income reflected strong growth in fee-based businesses and expense controls resulting in pretax income margin improving to 11.2% for the second quarter of 2007 from 9.1% for the prior year period. The growth in fee-based businesses was driven by strong net inflows in wrap accounts and annuity variable accounts, as well as market appreciation. These positives were partially offset by lower spread income due to declining annuity fixed account and certificate balances. The strong net inflows in wrap accounts and annuity variable accounts and declining annuity fixed account and certificate balances reflect our strategic shift to less capital-intensive, fee-based products.

Income in both the second quarter of 2007 and 2006 was impacted by non-recurring separation costs of $63 million and $84 million, respectively ($41 million and $54 million, respectively, after-tax). Excluding these non-recurring separation costs, our pretax income margin improved to 14.1% for the second quarter of 2007 from 13.2% for the second quarter of 2006.

Revenues

Management, financial advice and service fees increased $142 million, or 20%, to $863 million for the second quarter of 2007, primarily driven by the growth in our fee-based businesses of our AA&I segment. Our AA&I segment had increases in fees related to brokerage and variable annuities of $57 million and $48 million, respectively. Wrap account assets increased 34% and annuity variable account assets increased 35% over the prior year quarter driven by strong net inflows and market appreciation. These increases were partially offset by a decline in fees relative to the second quarter of 2006 of $11 million due to the sale of our defined contribution recordkeeping business in the second quarter of 2006.

Distribution fees for the three months ended June 30, 2007 were $415 million, up $90 million, or 28%, from the year-ago period, driven by strong advisor cash sales, including an increase in sales of direct investments as clients reinvested proceeds from real estate investment trust liquidations. Total cash sales were up 17% from the year-ago period. Distribution fees were also positively impacted by market appreciation.

24




Net investment income for the three months ended June 30, 2007 decreased $37 million, or 7%, from the three months ended June 30, 2006, primarily driven by lower average account balances in annuity fixed accounts and certificates, partially offset by higher net investment income attributable to derivatives used to hedge certain expense line items. As expected, annuity fixed accounts and certificate balances are declining as clients choose other products in the current interest rate environment and as we focus on fee-based products. Included in net investment income were net realized investment gains of $2 million in the second quarter of 2007 compared to $6 million in the same period of 2006. Net investment income related to derivatives used to hedge certain expense line items increased $7 million, which included a $24 million increase in net investment income related to derivatives used to hedge interest credited expenses for stock market certificates and equity indexed annuities, partially offset by a $17 million decrease in net investment income related to options used to hedge benefits, claims, losses and settlement expenses for Guaranteed Minimum Withdrawal Benefit (“GMWB”) riders.

Premiums increased $14 million, or 6%, to $243 million for the second quarter of 2007 compared to the same period in 2006. This increase was primarily driven by premium increases of $10 million in auto and home insurance resulting from increased policy counts.

Other revenues decreased $80 million, or 31%, to $176 million for the three months ended June 30, 2007, compared to the same period in 2006. This decrease was primarily related to the inclusion of $66 million in proceeds from the sale of our defined contribution recordkeeping business and $18 million from recognizing previously deferred cost of insurance revenues in the second quarter of 2006. Excluding these items, other revenues increased 2% as higher fees from variable annuity riders and cost of insurance charges for variable universal life/universal life (“VUL/UL”) insurance products were offset by lower revenues related to certain consolidated limited partnerships.

Expenses

The increase in compensation and benefits-field primarily reflects higher commissions paid driven by overall business growth and increases in advisor productivity, as reflected by 20% growth in total GDC and higher advisor assets under management.

Compensation and benefits–non-field increased $37 million, or 11%, from the year-ago period, primarily due to higher accrued management incentive compensation in recognition of year-to-date performance and higher technology related spending on investment initiatives. Compensation and benefits–non-field in the second quarter of 2006 included $16 million of severance and other costs related to the sale of our defined contribution recordkeeping business.

The decrease in interest credited to account values reflects a decrease related to annuities of $16 million and an increase related to certificates and other products of $13 million. The decrease related to annuities was primarily attributable to a continued decline in fixed annuity account balances, partially offset by market related changes to our equity indexed annuities. The increase in interest credited to certificates was primarily attributable to higher stock market participation costs driven by equity market appreciation, partially offset by declining balances.

Benefits, claims, losses and settlement expenses increased $5 million, or 2%. Expenses in the second quarter of 2006 included a $12 million reduction to auto and home insurance reserves related to accident years 2004 and 2005 and $7 million of additional claims expense in connection with the recognition of previously deferred cost of insurance revenues. Volume-driven increases in auto and home and variable universal life insurance expenses were offset by favorable mortality experience and the favorable impact of markets on liabilities for guaranteed benefits associated with our variable annuity business.

Amortization of DAC decreased $28 million, or 18%, primarily due to a $28 million unfavorable adjustment related to auto and home products in the second quarter of 2006. Increases in DAC amortization from growth in business volumes and the recurring impact of adopting SOP 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”) were offset by the favorable impact of equity markets.

Separation costs incurred in the second quarter of 2007 were primarily associated with separating and reestablishing our technology platforms. In the second quarter of 2006, these costs were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. We expect to incur all remaining separation costs in the second half of 2007.

Other expenses decreased $25 million, or 8%, from the year-ago period. Other expenses for the second quarter of 2006 included $14 million of expenses associated with the sale of the defined contribution recordkeeping business. Legal and regulatory expenses decreased $28 million compared to the prior period and other expenses attributable to certain consolidated limited partnerships decreased $9 million. These decreases were partially offset by an increase in professional and consultant fees related to increased spending on investment initiatives.

Income Taxes

Our effective tax rate was 20.0% for the three months ended June 30, 2007, compared to 24.3% for the three months ended June 30, 2006. The effective tax rate for the three months ended June 30, 2007 was impacted by a $16 million tax benefit related to the finalization of certain income tax audits. The effective tax rate for the three months ended June 30, 2006 was impacted by $5 million of non-tax deductible charges.

25




Results of Operations by Segment

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 13 to our Consolidated Financial Statements for the three months ended June 30, 2007 and 2006:

 

 

Three Months Ended

 

Three Months Ended

 

 

 

June 30, 2007

 

June 30, 2006

 

 

 

 

 

Percent Share
of Total

 

 

 

Percent Share
of Total

 

 

 

(in millions, except percentages)

 

Total revenues

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

1,616

 

74

%

$

1,493

 

73

%

Protection

 

508

 

23

 

496

 

24

 

Corporate and Other

 

71

 

3

 

74

 

4

 

Eliminations

 

(13

)

 

(10

)

(1

)

Consolidated total revenues

 

$

2,182

 

100

%

$

2,053

 

100

%

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

1,338

 

69

%

$

1,271

 

68

%

Protection

 

406

 

21

 

404

 

22

 

Corporate and Other

 

206

 

11

 

202

 

11

 

Eliminations

 

(13

)

(1

)

(10

)

(1

)

Consolidated total expenses

 

$

1,937

 

100

%

$

1,867

 

100

%

 

 

 

 

 

 

 

 

 

 

Pretax segment income (loss)

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

278

 

113

%

$

222

 

119

%

Protection

 

102

 

42

 

92

 

50

 

Corporate and Other

 

(135

)

(55

)

(128

)

(69

)

Consolidated income before income tax provision

 

$

245

 

100

%

$

186

 

100

%

 

Asset Accumulation and Income

The following table presents the results of operations of our AA&I segment for the three months ended June 30, 2007 and 2006:

 

 

Three Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

788

 

$

654

 

$

134

 

20

%

Distribution fees

 

386

 

297

 

89

 

30

 

Net investment income

 

392

 

427

 

(35

)

(8

)

Other revenues

 

50

 

115

 

(65

)

(57

)

Total revenues

 

1,616

 

1,493

 

123

 

8

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

472

 

376

 

96

 

26

 

Interest credited to account values

 

267

 

271

 

(4

)

(1

)

Benefits, claims, losses and settlement expenses

 

7

 

12

 

(5

)

(42

)

Amortization of deferred acquisition costs

 

85

 

91

 

(6

)

(7

)

Interest and debt expense

 

3

 

5

 

(2

)

(40

)

Other expenses

 

504

 

516

 

(12

)

(2

)

Total expenses

 

1,338

 

1,271

 

67

 

5

 

Pretax segment income

 

$

278

 

$

222

 

$

56

 

25

 

 

26




Overall

Our AA&I segment results for the three months ended June 30, 2007 were led by the growth in our fee-based businesses, primarily driven by strong wrap and annuity variable account inflows and market appreciation, and continued advisor productivity gains. These improvements to profitability were partially offset by the impact of lower account balances and spread compression in fixed annuity and certificate products and the sale of our defined contribution recordkeeping business in the second quarter of 2006.

Revenues

Management, financial advice and service fees increased primarily as a result of growth in our variable annuity account assets and wrap account assets. Management, financial advice and service fees related to variable annuities increased $48 million, or 33%, and were driven by higher levels of annuity variable account values, which increased 35% to $49.7 billion at June 30, 2007. Our brokerage business had an increase in management, financial advice and service fees of $57 million, or 27%, driven by net increases in wrap account assets of 34% to $89.1 billion at June 30, 2007. Overall, managed assets increased 12% over the prior year quarter.

The growth in distribution fees was driven by our brokerage business, which had an increase in distribution fees of $92 million, or 38%, compared to the year-ago period primarily driven by strong advisor cash sales, including an increase in sales of direct investments as clients reinvested proceeds from real estate investment trust liquidations. Distribution fees were also positively impacted by market appreciation.

Net investment income declined $35 million compared to the second quarter of 2006. The decline was primarily attributable to declining average balances in annuity fixed accounts and certificate products, partially offset by higher net investment income attributable to derivatives used to hedge certain expense line items and net interest income from Ameriprise Bank. Net investment income related to derivatives used to hedge certain expense line items increased $7 million, which included a $24 million increase in net investment income related to derivatives used to hedge interest credited expenses for stock market certificates and equity indexed annuities, partially offset by a $17 million decrease in net investment income related to options used to hedge benefits, claims, losses and settlement expenses for Guaranteed Minimum Withdrawal Benefit (“GMWB”) riders. Net realized investment gains were $1 million in the second quarter of 2007 compared to $6 million in the second quarter of 2006.

Other revenues decreased $65 million, or 57%, primarily due to the inclusion of $66 million in proceeds from the sale of the defined contribution recordkeeping business in the second quarter of 2006. Revenues related to certain consolidated limited partnerships decreased $13 million compared to the second quarter of 2006. The expenses related to the consolidated limited partnerships are primarily reflected within other expenses. Variable annuity guaranteed benefit rider charges increased $11 million from the second quarter of 2006.

Expenses

The increase in compensation and benefits-field reflects higher commissions paid driven by strong sales activity and higher GDC.

The decrease in interest credited to account values reflects a decrease related to annuities of $16 million and an increase related to certificates of $13 million. The decrease related to annuities was primarily attributable to the continued decline in fixed annuity account balances, partially offset by market related changes to our equity indexed annuities. The increase in interest credited to certificates was primarily attributable to higher stock market participation costs driven by equity market appreciation, partially offset by declining balances.

The $5 million decrease in benefits, claims, losses and settlement expenses in the second quarter of 2007 was primarily attributable to favorable market impacts on variable annuity benefit expenses.

DAC amortization decreased $6 million, or 7%, to $85 million for the three months ended June 30, 2007, primarily due to decreases in DAC amortization related to mutual fund products and fixed annuities. For variable annuities, increases in DAC amortization from growth in business volumes and the recurring impact of adopting SOP 05-1 were offset by the favorable impact of equity markets.

Other expenses, which include compensation and benefits–non-field, decreased $12 million, or 2%, to $504 million for the second quarter of 2007, primarily due to $30 million of costs associated with the sale of our defined contribution recordkeeping business in the second quarter of 2006 and a decrease in legal and regulatory expenses, partially offset by higher accrued management incentive compensation in recognition of year-to-date performance, expenses attributable to Ameriprise Bank and increased spending on investment initiatives.

27




Protection

The following table presents the results of operations of our Protection segment for the three months ended June 30, 2007 and 2006:

 

 

Three Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

24

 

$

19

 

$

5

 

26

%

Distribution fees

 

29

 

27

 

2

 

7

 

Net investment income

 

88

 

86

 

2

 

2

 

Premiums

 

251

 

234

 

17

 

7

 

Other revenues

 

116

 

130

 

(14

)

(11

)

Total revenues

 

508

 

496

 

12

 

2

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

24

 

22

 

2

 

9

 

Interest credited to account values

 

36

 

36

 

 

 

Benefits, claims, losses and settlement expenses

 

223

 

213

 

10

 

5

 

Amortization of deferred acquisition costs

 

40

 

62

 

(22

)

(35

)

Other expenses

 

83

 

71

 

12

 

17

 

Total expenses

 

406

 

404

 

2

 

 

Pretax segment income

 

$

102

 

$

92

 

$

10

 

11

 

 

Overall

Our Protection segment results for the three months ended June 30, 2007 were driven by growth in our auto and home insurance and VUL/UL businesses. We continue to gain market share in our auto and home insurance business as a result of our Costco alliance. Auto and home insurance policies in-force generated through this alliance were up 16% at June 30, 2007 compared to June 30, 2006. Total life insurance in-force increased 8% to $181 billion at June 30, 2007.

Revenues

Premiums increased $17 million, or 7%, to $251 million for the three months ended June 30, 2007, primarily due to higher volumes in our auto and home insurance products. Auto and home average policy counts increased 8% over the second quarter of 2006.

The decrease in other revenues in the second quarter of 2007 was related to recognizing $18 million in the second quarter of 2006 of previously deferred cost of insurance revenues.

Expenses

Benefits, claims, losses and settlement expenses increased $10 million, or 5%, to $223 million for the three months ended June 30, 2007. Expenses in the second quarter of 2006 included a $12 million reduction to auto and home insurance reserves related to accident years 2004 and 2005 and $7 million of additional claims expense in connection with the recognition of previously deferred cost of insurance revenues. Volume-driven increases in auto and home and variable universal life insurance expenses were partially offset by favorable mortality experience.

DAC amortization decreased $22 million, or 35%, to $40 million for the three months ended June 30, 2007 primarily due to a $28 million unfavorable adjustment related to auto and home products in the second quarter of 2006.

Other expenses, which include compensation and benefits–non-field, increased $12 million, or 17%, over the prior year quarter primarily due to higher accrued management incentive compensation in recognition of year-to-date performance and increased distribution costs.

28




Corporate and Other

The following table presents the results of operations of our Corporate segment for the three months ended June 30, 2007 and 2006:

 

 

Three Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

53

 

$

51

 

$

2

 

4

%

Distribution fees

 

 

1

 

(1

)

#

 

Net investment income

 

7

 

11

 

(4

)

(36

)

Other revenues

 

11

 

11

 

 

 

Total revenues

 

71

 

74

 

(3

)

(4

)

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

49

 

43

 

6

 

14

 

Interest and debt expense

 

31

 

25

 

6

 

24

 

Separation costs

 

63

 

84

 

(21

)

(25

)

Other expenses

 

63

 

50

 

13

 

26

 

Total expenses

 

206

 

202

 

4

 

2

 

Pretax segment loss

 

$

(135

)

$

(128

)

$

(7

)

(5

)

 


#                 Variance of 100% or greater.

Overall

Our Corporate pretax segment loss was $135 million for the three months ended June 30, 2007, compared to $128 million for the three months ended June 30, 2006. The higher pretax segment loss in the second quarter of 2007 was primarily due to a decrease in net investment income and higher expenses, partially offset by a $21 million decrease in separation costs.

Revenues

Management, financial advice and service fees increased $2 million, or 4%, to $53 million for the three months ended June 30, 2007, primarily due to higher financial planning fees.

Net investment income decreased $4 million, or 36%, to $7 million for the three months ended June 30, 2007, primarily due to the mark-to-market of equity market hedges, partially offset by the mark-to-market of trading securities and lower amortization of affordable housing partnerships compared to the second quarter of 2006.

Expenses

The increase in compensation and benefits-field in the second quarter of 2007 relates to higher financial planning volume.

The increase in interest and debt expense in the second quarter of 2007 primarily reflects the interest on the junior notes issued in May 2006. Interest expense on the junior notes was $9 million for the three months ended June 30, 2007 compared to $4 million for the three months ended June 30, 2006.

Separation costs incurred in the second quarter of 2007 were primarily associated with separating and reestablishing our technology platforms. In the second quarter of 2006, these costs were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. We expect to incur all remaining separation costs in the second half of 2007.

Other expenses, which include compensation and benefits–non-field, increased $13 million, or 26%, from the year-ago period primarily due to higher accrued management incentive compensation in recognition of year-to-date performance and increased spending on investment initiatives.

29




Consolidated Results of Operations

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

The following table presents our consolidated results of operations for the six months ended June 30, 2007 and 2006:

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

1,654

 

$

1,431

 

$

223

 

16

%

Distribution fees

 

759

 

626

 

133

 

21

 

Net investment income

 

1,003

 

1,096

 

(93

)

(8

)

Premiums

 

479

 

449

 

30

 

7

 

Other revenues

 

350

 

400

 

(50

)

(13

)

Total revenues

 

4,245

 

4,002

 

243

 

6

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits:

 

 

 

 

 

 

 

 

 

Field

 

1,024

 

859

 

165

 

19

 

Non-field

 

723

 

646

 

77

 

12

 

Total compensation and benefits

 

1,747

 

1,505

 

242

 

16

 

Interest credited to account values

 

590

 

631

 

(41

)

(6

)

Benefits, claims, losses and settlement expenses

 

449

 

452

 

(3

)

(1

)

Amortization of deferred acquisition costs

 

259

 

281

 

(22

)

(8

)

Interest and debt expense

 

64

 

51

 

13

 

25

 

Separation costs

 

148

 

151

 

(3

)

(2

)

Other expenses

 

527

 

554

 

(27

)

(5

)

Total expenses

 

3,784

 

3,625

 

159

 

4

 

Income before income tax provision

 

461

 

377

 

84

 

22

 

Income tax provision

 

100

 

91

 

9

 

10

 

Net income

 

$

361

 

$

286

 

$

75

 

26

 

 

Overall

Consolidated net income for the six months ended June 30, 2007 was $361 million, up $75 million, or 26%, from $286 million for the six months ended June 30, 2006. This income growth reflected strong growth in fee-based businesses and expense controls resulting in pretax income margin improving to 10.9% for the first half of 2007 from 9.4% for the prior year period. The strong growth in fee-based businesses was driven by strong net inflows in wrap accounts and annuity variable accounts, as well as market appreciation. These positives were partially offset by lower spread income due to declining annuity fixed account and certificate balances. The strong net inflows in wrap accounts and annuity variable accounts and declining annuity fixed account and certificate balances reflect our strategic shift to less capital-intensive, fee-based products.

Income in both the first half of 2007 and 2006 was impacted by non-recurring separation costs of $148 million and $151 million, respectively ($96 million and $98 million, respectively, after-tax). Excluding these non-recurring separation costs, our pretax income margin improved to 14.3% for the first half of 2007 from 13.2% for the first half of 2006.

Revenues

Management, financial advice and service fees increased $223 million, or 16%, primarily driven by the growth in our fee-based businesses of our AA&I segment. Our AA&I segment had increases in fees related to brokerage and variable annuities of $88 million and $87 million, respectively. Wrap account assets increased 34% and annuity variable account assets increased 35% over the prior year period driven by strong net inflows and market appreciation. These increases were partially offset by a decline in fees relative to the first half of 2006 of $27 million due to the sale of our defined contribution recordkeeping business in the second quarter of 2006.

Distribution fees for the six months ended June 30, 2007 were $759 million, up $133 million, or 21%, from the year-ago period driven by strong advisor cash sales, including an increase in sales of direct investments as clients reinvested proceeds from real estate investment trust liquidations. Total cash sales were up 15% from the year-ago period. Distribution fees were also positively impacted by market appreciation.

30




Net investment income for the six months ended June 30, 2007 decreased $93 million, or 8%, from the six months ended June 30, 2006, primarily driven by lower average account balances in annuity fixed accounts and certificates and lower owned hedge fund investments, partially offset by an increase in net investment income attributable to Ameriprise Bank. As expected, annuity fixed account and certificate balances are declining as clients choose other products in the current interest rate environment and as we focus on fee-based products. Included in net investment income were net realized investment gains of $11 million in the first half of 2007 compared to $10 million in the same period of 2006. Net gains on trading securities and equity method investments in owned hedge funds were $16 million lower in the first half of 2007 compared to the first half of 2006, primarily due to the planned liquidation of externally managed hedge funds. Net investment income related to derivatives used to hedge certain expense line items increased $3 million, which included a $12 million increase in net investment income related to derivatives used to hedge interest credited expenses for stock market certificates and equity indexed annuities, partially offset by a $9 million decrease in net investment income related to options used to hedge benefits, claims, losses and settlement expenses for GMWB riders.

Premiums increased $30 million, or 7%, to $479 million for the six months ended June 30, 2007 compared to the same period in 2006. This increase was primarily driven by premium increases of $24 million in auto and home insurance resulting from increased policy counts.

Other revenues decreased $50 million, or 13%, to $350 million for the six months ended June 30, 2007, compared to the same period in 2006. This decrease was primarily related to the inclusion of $66 million in proceeds from the sale of our defined contribution recordkeeping business and $18 million from recognizing previously deferred cost of insurance revenues in the first half of 2006. Excluding these items, other revenues increased 11% primarily due to higher fees from variable annuity rider charges and cost of insurance charges for VUL/UL products, partially offset by lower revenues related to certain consolidated limited partnerships.

Expenses

The increase in compensation and benefits-field primarily reflects higher commissions paid driven by overall business growth and increases in advisor productivity, as reflected by 19% growth in total GDC and higher advisor assets under management.

Compensation and benefits–non-field increased $77 million, or 12%, from the year-ago period primarily related to higher accrued incentive compensation in recognition of year-to-date performance and higher technology related spending on investment initiatives, partially offset by lower severance costs and the elimination of expenses related to our defined contribution recordkeeping business, which was sold in the second quarter of 2006.

The decrease in interest credited to account values reflects a decrease related to annuities of $48 million and an increase related to certificates and other products of $7 million. The decrease related to annuities was primarily attributable to the continued decline in fixed annuity account balances. The increase in interest credited to certificates was primarily attributable to higher stock market participation costs driven by equity market appreciation, partially offset by declining balances.

Benefits, claims, losses and settlement expenses decreased $3 million, or 1%, primarily due to the favorable impact of markets on liabilities for guaranteed benefits associated with our variable annuity business. Expenses in the first half of 2006 included a $12 million reduction to auto and home insurance reserves related to accident years 2004 and 2005 and $7 million of additional claims expense in connection with the recognition of previously deferred cost of insurance revenues. Expenses in the first half of 2007 included an unfavorable $12 million adjustment in reserves for disability income insurance claims.

Amortization of DAC decreased $22 million, or 8%, primarily due to a $28 million unfavorable adjustment related to auto and home products in the second quarter of 2006 and lower DAC amortization associated with mutual fund products, partially offset by higher DAC amortization associated with variable annuities driven by growth in variable annuity product volumes and the recurring impact of adopting SOP 05-1.

Interest and debt expense increased $13 million, or 25%, due to the issuance of $500 million of junior notes in May 2006.

Separation costs incurred in the first half of 2007 were primarily associated with separating and reestablishing our technology platforms. In the first half of 2006, these costs were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. We expect to incur all remaining separation costs in the second half of 2007.

Other expenses decreased $27 million, or 5%, from the year-ago period. Other expenses for the first half of 2006 included $14 million of expenses associated with the sale of the defined contribution recordkeeping business. Legal and regulatory expenses decreased $23 million and expenses capitalized as DAC increased $20 million resulting in a decrease to other expenses. These decreases were partially offset by higher professional and consultant fees related to increased spending on investment initiatives, as well as expenses related to Ameriprise Bank and other expenses related to corporate activities.

Income Taxes

Our effective tax rate was 21.7% for the six months ended June 30, 2007, compared to 24.2% for the six months ended June 30, 2006. The effective tax rate for the six months ended June 30, 2007 was impacted by a $16 million tax benefit related to the finalization of certain income tax audits.

31




Results of Operations by Segment

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 13 to our Consolidated Financial Statements for the six months ended June 30, 2007 and 2006:

 

 

Six Months Ended

 

Six Months Ended

 

 

 

June 30, 2007

 

June 30, 2006

 

 

 

 

 

Percent Share
of Total

 

 

 

Percent Share
of Total

 

 

 

(in millions, except percentages)

 

Total revenues

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

3,113

 

73

%

$

2,915

 

73

%

Protection

 

1,008

 

24

 

969

 

24

 

Corporate and Other

 

150

 

4

 

138

 

3

 

Eliminations

 

(26

)

(1

)

(20

)

 

Consolidated total revenues

 

$

4,245

 

100

%

$

4,002

 

100

%

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

2,603

 

69

%

$

2,465

 

68

%

Protection

 

805

 

21

 

803

 

22

 

Corporate and Other

 

402

 

11

 

377

 

10

 

Eliminations

 

(26

)

(1

)

(20

)

 

Consolidated total expenses

 

$

3,784

 

100

%

$

3,625

 

100

%

 

 

 

 

 

 

 

 

 

 

Pretax segment income (loss)

 

 

 

 

 

 

 

 

 

Asset Accumulation and Income

 

$

510

 

111

%

$

450

 

119

%

Protection

 

203

 

44

 

166

 

44

 

Corporate and Other

 

(252

)

(55

)

(239

)

(63

)

Consolidated income before income tax provision

 

$

461

 

100

%

$

377

 

100

%

 

Asset Accumulation and Income

The following table presents the results of operations of our AA&I segment for the six months ended June 30, 2007 and 2006:

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

1,506

 

$

1,300

 

$

206

 

16

%

Distribution fees

 

703

 

570

 

133

 

23

 

Net investment income

 

807

 

902

 

(95

)

(11

)

Other revenues

 

97

 

143

 

(46

)

(32

)

Total revenues

 

3,113

 

2,915

 

198

 

7

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

891

 

742

 

149

 

20

 

Interest credited to account values

 

520

 

559

 

(39

)

(7

)

Benefits, claims, losses and settlement expenses

 

(1

)

16

 

(17

)

#

 

Amortization of deferred acquisition costs

 

184

 

178

 

6

 

3

 

Interest and debt expense

 

6

 

8

 

(2

)

(25

)

Other expenses

 

1,003

 

962

 

41

 

4

 

Total expenses

 

2,603

 

2,465

 

138

 

6

 

Pretax segment income

 

$

510

 

$

450

 

$

60

 

13

 

 


#                 Variance of 100% or greater.

32




Overall

Our AA&I segment results for the six months ended June 30, 2007 were led by the growth in our fee-based businesses, primarily driven by strong net inflows in wrap and annuity variable accounts and market appreciation, and continued advisor productivity gains. These improvements to profitability were partially offset by the impact of lower account balances and spread compression in the fixed annuity and certificate products.

Revenues

Management, financial advice and service fees increased $206 million, or 16%, primarily as a result of growth in our wrap account assets and variable annuity account assets. Management, financial advice and service fees related to variable annuities increased $87 million, or 31%, and were driven by higher levels of annuity variable account values, which increased 35% to $49.7 billion at June 30, 2007. Our brokerage business had an increase in management, financial advice and service fees of $88 million, or 21%, driven by net increases in wrap account assets of 34% to $89.1 billion at June 30, 2007. Overall, managed assets increased 12% over the prior year period.

The growth in distribution fees was driven by our brokerage business, which had an increase in distribution fees of $144 million, or 32%, compared to the year-ago period primarily due to strong advisor cash sales, including an increase in sales of direct investments as clients reinvested proceeds from real estate investment trust liquidations. Distribution fees were also positively impacted by market appreciation.

Net investment income declined $95 million, or 11%, compared to the first half of 2006. The decline was primarily attributable to declining average balances in annuity fixed accounts and certificate products and lower owned hedge fund investments, partially offset by an increase in net investment income attributable to Ameriprise Bank. Net realized investment gains were $9 million in the first half of 2007 compared to $7 million in the first half of 2006. Net gains on trading securities and equity method investments in owned hedge funds were $16 million lower in the first half of 2007 compared to the first half of 2006, primarily due to the planned liquidation of externally managed hedge funds. Net investment income related to derivatives used to hedge certain expense line items increased $3 million, which included a $12 million increase in net investment income related to derivatives used to hedge interest credited expenses for stock market certificates and equity indexed annuities, partially offset by a $9 million decrease in net investment income related to options used to hedge benefits, claims, losses and settlement expenses for GMWB riders.

Other revenues decreased $46 million, or 32%, primarily due to the inclusion of $66 million in proceeds from the sale of the defined contribution recordkeeping business in the first half of 2006. Variable annuity guaranteed benefit rider charges increased $18 million from the first half of 2006.

Expenses

The increase in compensation and benefits-field reflects higher commissions paid driven by strong sales activity and higher GDC.

The decrease in interest credited to account values reflects a decrease related to annuities of $48 million and an increase related to certificates of $9 million. The decrease related to annuities was primarily attributable to the continued decline in fixed annuity account balances. The increase in interest credited to certificates was primarily attributable to higher stock market participation costs driven by equity market appreciation, partially offset by declining balances.

The $17 million decrease in benefits, claims, losses and settlement expenses in the first half of 2007 was primarily attributable to the favorable impact of markets on liabilities for guaranteed benefits associated with our variable annuity business.

DAC amortization increased $6 million, or 3%, to $184 million for the six months ended June 30, 2007 primarily due to increased amortization of DAC associated with variable annuities driven by growth in variable annuity product volumes and the recurring impact of adopting SOP 05-1, partially offset by reduced amortization of DAC associated with mutual fund products.

Other expenses, which include compensation and benefits–non-field, increased $41 million, or 4%, to $1.0 billion for the first half of 2007, primarily due to higher accrued management incentive compensation in recognition of year-to-date performance, expenses attributable to Ameriprise Bank and increased spending on investment initiatives. These increases were partially offset by a decrease in legal and regulatory expenses. In addition, the first half of 2006 included $30 million of costs associated with the sale of our defined contribution recordkeeping business.

33




Protection

The following table presents the results of operations of our Protection segment for the six months ended June 30, 2007 and 2006:

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

46

 

$

38

 

$

8

 

21

%

Distribution fees

 

57

 

55

 

2

 

4

 

Net investment income

 

177

 

175

 

2

 

1

 

Premiums

 

496

 

460

 

36

 

8

 

Other revenues

 

232

 

241

 

(9

)

(4

)

Total revenues

 

1,008

 

969

 

39

 

4

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

49

 

45

 

4

 

9

 

Interest credited to account values

 

70

 

72

 

(2

)

(3

)

Benefits, claims, losses and settlement expenses

 

450

 

436

 

14

 

3

 

Amortization of deferred acquisition costs

 

75

 

103

 

(28

)

(27

)

Other expenses

 

161

 

147

 

14

 

10

 

Total expenses

 

805

 

803

 

2

 

 

Pretax segment income

 

$

203

 

$

166

 

$

37

 

22

 

 

Overall

Our Protection segment results for the six months ended June 30, 2007 were driven by growth in our auto and home insurance and VUL/UL businesses. We continue to gain market share in our auto and home insurance business as a result of our Costco alliance. Auto and home insurance policies in-force generated through this alliance were up 16% at June 30, 2007 compared to June 30, 2006. Total life insurance in-force increased 8% to $181 billion at June 30, 2007.

Revenues

Premiums increased $36 million, or 8%, to $496 million for the six months ended June 30, 2007, primarily due to higher volumes in our auto and home insurance products. Auto and home average policy counts increased 8% over the first half of 2006.

Other revenues decreased primarily due to recognizing $18 million of previously deferred cost of insurance revenues in the first half of 2006. This decrease was partially offset by an $8 million increase in cost of insurance charges on VUL/UL products due to volume increases.

Expenses

Benefits, claims, losses and settlement expenses increased $14 million, or 3%, to $450 million for the six months ended June 30, 2007. Expenses in the first half of 2006 included a $12 million reduction to auto and home insurance reserves related to accident years 2004 and 2005 and $7 million of additional claims expense in connection with the recognition of previously deferred cost of insurance revenues. Expenses in the first half of 2007 included an unfavorable $12 million adjustment in reserves for disability income insurance claims.

DAC amortization decreased $28 million, or 27%, to $75 million for the six months ended June 30, 2007, primarily due to a $28 million unfavorable adjustment related to auto and home products in the first half of 2006.

Other expenses, which include compensation and benefits–non-field, increased $14 million, or 10%, over the prior year period partially due to higher accrued management incentive compensation in recognition of year-to-date performance and increased distribution costs.

34




Corporate and Other

The following table presents the results of operations of our Corporate segment for the six months ended June 30, 2007 and 2006:

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management, financial advice and service fees

 

$

107

 

$

99

 

$

8

 

8

%

Distribution fees

 

 

1

 

(1

)

#

 

Net investment income

 

23

 

22

 

1

 

5

 

Other revenues

 

20

 

16

 

4

 

25

 

Total revenues

 

150

 

138

 

12

 

9

 

Expenses

 

 

 

 

 

 

 

 

 

Compensation and benefits-field

 

97

 

83

 

14

 

17

 

Interest and debt expense

 

62

 

46

 

16

 

35

 

Separation costs

 

148

 

151

 

(3

)

(2

)

Other expenses

 

95

 

97

 

(2

)

(2

)

Total expenses

 

402

 

377

 

25

 

7

 

Pretax segment loss

 

$

(252

)

$

(239

)

$

(13

)

(5

)

 

Overall

Our Corporate pretax segment loss was $252 million for the six months ended June 30, 2007, compared to $239 million for the six months ended June 30, 2006. The higher pretax segment loss in the first half of 2007 was primarily due to higher compensation and benefits-field expense and higher interest and debt expense, partially offset by an increase in revenues.

Revenues

Management, financial advice and service fees increased $8 million, or 8%, to $107 million for the six months ended June 30, 2007, primarily due to higher financial planning fees.

Expenses

The increase in compensation and benefits-field in the first half of 2007 relates to higher financial planning volume.

The increase in interest and debt expense in the first half of 2007 primarily reflects the interest on the junior notes issued in May 2006. Interest expense on the junior notes was $19 million for the six months ended June 30, 2007 compared to $4 million for the prior year period.

Separation costs incurred in the first half of 2007 were primarily associated with separating and reestablishing our technology platforms. In the first half of 2006, these costs were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. We expect to incur all remaining separation costs in the second half of 2007.

35




Liquidity and Capital Resources

We maintained substantial liquidity during the second quarter of 2007. At June 30, 2007, we had $3.3 billion in cash and cash equivalents, an increase from $2.1 billion at June 30, 2006. We have additional liquidity available through an unsecured revolving credit facility for $750 million that expires in September 2010. Under the terms of the underlying credit agreement, we can increase this facility to $1.0 billion. Available borrowings under this facility are reduced by any outstanding letters of credit. We have had no borrowings under this credit facility and had $6 million of outstanding letters of credit at June 30, 2007. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.

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

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

 

 

Actual Capital as of

 

 

 

(in millions)

 

June 30,
2007

 

December 31,
2006

 

Regulatory Capital
Requirement

 

RiverSource Life Insurance Company(1)(2)

 

$

3,381

 

$

3,511

 

$

590

 

RiverSource Life Insurance Co. of New York(1)(2)

 

281

 

348

 

38

 

IDS Property Casualty Insurance Company(1)(3)(4)

 

553

 

523

 

115

 

AMEX Assurance Company(1)(2)(4)

 

122

 

118

 

6

 

Ameriprise Insurance Company(1)(3)

 

48

 

47

 

2

 

Ameriprise Certificate Company(5)

 

250

 

279

 

228

 

Threadneedle Asset Management Holdings Limited(6)

 

246

 

222

 

182

 

Ameriprise Bank, FSB(7)

 

172

 

169

 

172

 

Ameriprise Financial Services, Inc.(3)(5)

 

126

 

85

 

#

 

Ameriprise Captive Insurance Company(1)(3)

 

11

 

 

11

 

Ameriprise Trust Company(3)

 

53

 

49

 

36

 

American Enterprise Investment Services, Inc.(3)(5)

 

59

 

38

 

6

 

Securities America, Inc.(3)(5)

 

16

 

2

 

#

 

RiverSource Distributors, Inc.(3)(5)

 

5

 

#

 

#

 

 


#                 Amounts are less than $1 million.

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

(2)       Regulatory capital requirement is based on the most recent statutory risk-based capital filing, as of December 31, 2006.

(3)       Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of June 30, 2007.

(4)       IDS Property Casualty Insurance Company uses certain insurance licenses held by AMEX Assurance Company (“AMEX Assurance”). The AMEX Assurance travel insurance and card related business was ceded to American Express effective July 1, 2005, and was deconsolidated on a GAAP basis effective September 30, 2005. Effective September 30, 2005, we entered into an agreement to sell the AMEX Assurance legal entity to American Express on or before September 30, 2007.

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

(6)       Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. Both actual capital and regulatory capital requirements are as of December 31, 2006, based on the most recent required U.K. filing.  Actual capital as of December 31, 2006 relates to the June 30, 2006 filing.

(7)            Ameriprise Bank holds capital in compliance with the Federal Deposit Insurance Corporation policy regarding de novo depository institutions.

In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our company from our subsidiaries and in deciding to use cash to make capital contributions to our subsidiaries. During the six months ended June 30, 2007, Ameriprise Financial, Inc. received dividends from and made contributions to subsidiaries of $440 million and $40 million, respectively. Of the dividends received, $250 million came from ordinary dividends from RiverSource Life.

36




Operating Activities

Net cash used in operating activities for the six months ended June 30, 2007 was $12 million compared to $536 million provided by operating activities for the six months ended June 30, 2006, a change of $548 million. The cash flows for the six months ended June 30, 2006 included proceeds of $154 million related to the liquidation of segregated cash investments due to declines in brokerage deposits as well as $203 million related to securities sold under agreements to repurchase. The remaining change was primarily related to an increase in incentive compensation payments in the first half of 2007 compared to the first half of 2006 and a $100 million payment in the first half of 2007 related to the settlement of a consolidated securities class action lawsuit.

Investing Activities

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

Net cash provided by investing activities for the six months ended June 30, 2007 was $3.4 billion compared to $1.2 billion for the six months ended June 30, 2006. Purchases of Available-for-Sale securities decreased $1.1 billion to $636 million for the six months ended June 30, 2007, compared to $1.8 billion for the six months ended June 30, 2006. Proceeds from sales of Available-for-Sale securities for the six months ended June 30, 2007 increased $1.5 billion to $2.7 billion from $1.2 billion for the six months ended June 30, 2006.

Investments are principally funded by sales of insurance, annuities and investment certificates and by reinvested income. Our total investments at June 30, 2007 and December 31, 2006 included investments held by our insurance subsidiaries of $26.2 billion and $29.6 billion, respectively.

Our Available-for-Sale investments primarily include corporate debt securities and mortgage and other asset-backed securities, which had fair values of $14.7 billion and $10.7 billion, respectively, at June 30, 2007 compared to $16.8 billion and $12.3 billion, respectively, at December 31, 2006. Our Available-for-Sale corporate debt securities comprise a diverse portfolio, with the largest concentrations of the portfolio in the following industries: 35% in banking and finance, 21% in utilities and 12% in media. Investments also included $3.0 billion and $3.1 billion of commercial mortgage loans on real estate as of June 30, 2007 and December 31, 2006, respectively. At both June 30, 2007 and December 31, 2006, 69% of our Available-for-Sale investment portfolio was rated A or better, while 6% and 7%, respectively, of our Available-for-Sale investment portfolio was below investment grade.

Financing Activities

Net cash used in financing activities was $2.8 billion for the six months ended June 30, 2007 compared to $2.1 billion for the six months ended June 30, 2006. This change was primarily related to the issuance of our junior notes in the second quarter of 2006.

Cash used for surrenders and other benefits on policyholder and contractholder account values, most of which related to fixed annuities, increased $128 million for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. Cash flows related to receipts from investment certificates and banking time deposits declined $383 million for the six months ended June 30, 2007, compared to the same period in 2006, while cash used for investment certificate and banking time deposit maturities, withdrawals and cash surrenders decreased $601 million.

We used cash of $494 million for the six months ended June 30, 2007 for the purchase of 8.2 million treasury shares under our share repurchase programs. We used our existing working capital to fund these share repurchases, and we currently intend to fund additional share repurchases through existing working capital, future earnings, debt capacity and other customary financing methods. Pursuant to the Ameriprise Financial 2005 Incentive Compensation Plan, we reacquired 0.5 million shares of our common stock in the first half of 2007 through the surrender of restricted shares upon vesting and paid in the aggregate $25 million related to the holders’ income tax obligations on the vesting date. We have $871 million remaining under a share repurchase program authorized by our Board of Directors. This share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, purchases may be commenced or suspended at any time without prior notice.

Contractual Commitments

There have been no material changes in our contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.

37




Off-Balance Sheet Arrangements

During the six months ended June 30, 2007, we closed on one structured investment that we manage, which has approximately $490 million issued. As a condition to managing this structure, we were required to invest approximately $3 million in the residual or “equity” tranche of the facility, which is the most subordinated tranche of securities issued by the structured investment entity. As an investor in the residual tranche, our return correlates to the performance of the portfolio of high-yield investments comprising the structured investment. Our exposure as an investor is limited solely to our aggregate investment in these facilities, and we have no obligation, contingent or otherwise, that could require any further funding of the investment. The structured investment is considered a variable interest entity but is not consolidated as we are not considered the primary beneficiary.

Forward-Looking Statements

This report contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those described in these forward-looking statements. We have made various forward-looking statements in this report. Examples of such forward-looking statements include:

·                  statements of our plans, intentions, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, the establishment of our new brands and competitive environment;

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

·                  statements of assumptions underlying such statements.

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

Such factors include, but are not limited to:

·                  changes in the interest rate and equity market environments;

·                  changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions;

·                  investment management performance and consumer acceptance of our products;

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

·                  our capital structure as a stand-alone company, including ratings and indebtedness, and limitations on subsidiaries to pay dividends;

·                  risks of default by issuers of investments we own or by counterparties to derivative or reinsurance arrangements;

·                  experience deviations from assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products;

·                  the impact of the separation from American Express;

·                  the impacts of our efforts to improve distribution economics and to grow third-party distribution of our products, and the ability to establish our new brands; and

·                  general economic and political factors, including consumer confidence in the economy.

Readers are cautioned that the foregoing list of factors is not exhaustive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included as Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 27, 2007.

38




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the six months ended June 30, 2007. For additional information, refer to “Management’s Discussion and Analysis – Quantitative and Qualitative Disclosures about Market Risks” of the Ameriprise Financial, Inc. 2006 Annual Report to Shareholders filed as Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on February 27, 2007.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2007.

Changes in Internal Control Over Financial Reporting

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

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The information set forth in Note 16 to Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

ITEM 1A.  RISK FACTORS

There have been no material changes in the risk factors provided in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on February 27, 2007.

39




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

The following table presents the information with respect to purchases made by or on behalf of Ameriprise Financial, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the second quarter of 2007.

(a)

 

(b)

 

 

 

(c)

 

(d)

 

Period

 

Total Number of
Shares Purchased

 

Average Price
Paid per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(1) (2)

 

Approximate Dollar
Value of Shares
that May Yet
Be Purchased
Under the Plans
or Programs
(1) (2)

 

 

 

 

 

 

 

 

 

 

 

April 1 to April 30, 2007

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

224,208

 

$

58.34

(3)

224,208

 

$

 

Share repurchase program(2)

 

1,125,792

 

$

60.17

(3)

1,125,792

 

$

932,257,204

 

Employee transactions(4)

 

962

 

$

57.61

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

May 1 to May 31, 2007

 

 

 

 

 

 

 

 

 

Share repurchase program(2)

 

 

$

 

 

$

932,257,204

 

Employee transactions(4)

 

2,876

 

$

60.41

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

June 1 to June 30, 2007

 

 

 

 

 

 

 

 

 

Share repurchase program(2)

 

946,300

 

$

64.30

(3)

946,300

 

$

871,412,683

 

Employee transactions(4)

 

28,263

 

$

63.07

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

 

 

 

 

Share repurchase programs

 

2,296,300

 

$

61.69

 

2,296,300

 

 

 

Employee transactions

 

32,101

 

$

62.67

 

N/A

 

 

 

 

 

2,328,401

 

 

 

2,296,300

 

 

 

 


(1)             On March 29, 2006, we announced that our Board of Directors authorized us to repurchase up to $750 million worth of our common stock through March 31, 2008. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through block trades or other means.

(2)             On March 15, 2007, we announced that our Board of Directors authorized us to repurchase up to $1.0 billion worth of our common stock through March 15, 2009. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through block trades or other means.

(3)             Includes commissions and other transaction costs of approximately $0.02 per share.

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

40




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company’s 2007 annual meeting of shareholders was held on April 25, 2007. The holders of 209,804,254 shares of common stock, which represents approximately 88 percent of the outstanding shares entitled to vote as of the record date, were represented at the meeting in person or by proxy.

At the meeting, the vote on the election of four Class II directors, each for a term of three years to expire at the 2010 annual meeting or until their successors are elected and qualified, was as follows:

Name

 

Votes For

 

Votes Against

 

Abstentions

 

James M. Cracchiolo

 

205,735,634

 

2,289,166

 

1,779,454

 

Warren D. Knowlton

 

206,907,510

 

1,367,598

 

1,529,146

 

H. Jay Sarles

 

206,662,008

 

1,600,785

 

1,541,461

 

Robert F. Sharpe, Jr.

 

201,869,355

 

6,373,739

 

1,561,160

 

 

At the meeting, the vote on a proposal to approve the Amended and Restated Ameriprise Financial 2005 Incentive Compensation Plan was as follows:

 

Votes For

 

Votes Against

 

Abstentions

 

Broker Non-Votes

 

178,527,832

 

6,663,084

 

1,819,416

 

22,793,922

 

 

At the meeting, the vote on ratification of the Audit Committee’s selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2007 was as follows:

 

Votes For

 

Votes Against

 

Abstentions

 

207,892,456

 

487,020

 

1,424,778

 

 

ITEM 6.  EXHIBITS

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

41




SIGNATURES

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

 

 

AMERIPRISE FINANCIAL, INC.

 

 

(Registrant)

 

 

 

 

 

 

 

Date: August 2, 2007

By

/s/ Walter S. Berman

 

 

 

Walter S. Berman

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

 

 

 

 

Date: August 2, 2007

By

/s/ David K. Stewart

 

 

 

David K. Stewart

 

 

Senior Vice President and

 

 

Controller

 

 

(Principal Accounting Officer)

 

42




EXHIBIT INDEX

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

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

Exhibit

 

Description

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, File No. 1-32525, filed on October 4, 2005).

 

 

 

3.2

 

Amended and Restated Bylaws of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K, File No. 1-32525, filed on February 27, 2007).

 

 

 

4.1

 

Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Form 10 Registration Statement, File No. 1-32525, filed on August 19, 2005).

 

 

 

 

 

Other instruments defining rights of holders of long-term debt securities of the registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request.

 

 

 

31.1*

 

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

 

 

 

31.2*

 

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

 

 

 

32*

 

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

 

E-1