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| AMP > SEC Filings for AMP > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the "Forward-Looking Statements" that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management's Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission ("SEC") on February 29, 2008 ("2007 10-K"), as well as our current reports on Form 8-K and other publicly available information.
Overview
We are engaged in providing financial planning, products and services that are designed to be utilized as solutions for our clients' cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs with a network of more than 12,000 financial advisors and registered representatives ("affiliated financial advisors"). Our asset management, annuity, and auto and home protection products are also distributed outside of our affiliated financial advisors, through third party advisors and affinity relationships.
We strive to deliver solutions to our clients through an approach focused on building long term personal relationships. We offer financial planning and advice that aims to be responsive to our clients' evolving needs and helps them achieve their identified financial goals by recommending to clients actions and a range of product solutions consisting of investment, annuities, insurance, banking and other financial products that help them achieve a positive return or form of protection while accepting what they determine to be an appropriate range and level of risk. The financial product solutions we offer through our affiliated advisors include our own products and services and products of other companies. Our financial planning and advisory process is designed to provide comprehensive advice, when appropriate, to address our clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. We believe that our focus on personal relationships, together with our strengths in financial planning and product development, allows us to better address our clients' financial needs, including the financial needs of our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. This focus also puts us in a strong position to capitalize on significant demographic and market trends, which we believe will continue to drive increased demand for our financial planning and other financial services.
We have four main operating segments: Advice & Wealth Management, Asset Management, Annuities and Protection, as well as our Corporate & Other segment. Our four main operating segments are aligned with the financial solutions we offer to address our clients' needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly 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.
Equity market, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the "spread" income generated on our annuities, banking and deposit products and universal life ("UL") insurance products, the value of deferred acquisition costs ("DAC") and deferred sales inducement costs ("DSIC") assets associated with variable annuity and 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 "Market Risk."
It is 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 the unprecedented impacts of the 2008 credit market events ("credit market losses") and non-recurring separation costs related to our separation from American Express Company ("American Express") which was completed in 2007. Our financial targets, adjusted to exclude these impacts are:
† Net revenue growth of 6% to 8%,
† Earnings per diluted share growth of 12% to 15%, and
† Return on equity of 12% to 15%.
Our net revenues for the quarter ended September 30, 2008 were $1.6 billion, a decrease of $470 million or 22% from the same period a year ago. Net revenues for the nine months ended September 30, 2008 were $5.6 billion, a decrease of $676 million or 11% from the nine months ended September 30, 2007. This revenue decline primarily reflects the unprecedented impacts of
the credit market events that occurred during the last few weeks of September 2008. The majority of the impacts from the credit market events have been reflected in net investment income. Net investment income decreased $439 million from the year-ago quarter amount and decreased $687 million from the nine months ended September 30, 2007 amount. The credit market events and weak equity markets also negatively impacted management and financial advice fees and distribution fees.
Our adjusted net revenues, which exclude the realized losses on securities and the provision for uncollectible distribution fees in 2008, were $2.0 billion for the three months ended September 30, 2008 compared to $2.1 billion for the same period a year ago. Adjusted net revenues for the nine months ended September 30, 2008 were $6.0 billion compared $6.3 billion for the nine months ended September 30, 2007.
Our consolidated net loss for the quarter ended September 30, 2008 was $70 million, a decline of $268 million from our consolidated net income of $198 million for the quarter ended September 30, 2007. Consolidated net income for the nine months ended September 30, 2008 was $331 million, a decline of $228 million, or 41%, from net income of $559 million for the nine months ended September 30, 2007. The decline in net income for the three and nine months ended September 30, 2008 is primarily due to the after-tax impacts of our realized losses on Available-for-Sale investment securities, the losses incurred related to the mark-to-market of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds managed by our subsidiary, RiverSource Investments LLC, the cost of guaranteeing specific client holdings in an unaffiliated money market mutual fund, partially offset by the favorable net impact from our annual review of valuation assumptions for RiverSource Life Insurance Company ("RiverSource Life") products and our conversion to a new industry standard valuation system that provides enhanced modeling capabilities.
Our adjusted earnings, which exclude the after-tax credit market losses in 2008 and non-recurring separation costs in 2007, were $231 million for the three months ended September 30, 2008 compared to $237 million for the three months ended September 30, 2007. Adjusted earnings were $632 million for the nine months ended September 30, 2008, a decrease of 9%, or $62 million from adjusted earnings of $694 million for the year-ago period.
Loss per share for the three months ended September 30, 2008 was $0.32, compared to earnings per diluted share of $0.83 for the year-ago period. Adjusted earnings per diluted share were $1.04 for the three months ended September 30, 2008 compared to $0.99 for the three months ended September 30, 2007, an increase of 5%.
Earnings per diluted share for the nine months ended September 30, 2008 were $1.46, down $0.86, or 37%, from earnings per diluted share of $2.32 for the nine months ended September 30, 2007. Adjusted earnings per diluted share were $2.79 for the nine months ended September 30, 2008 compared to adjusted earnings per diluted share of $2.87 for the nine months ended September 30, 2007
Return on equity for the trailing twelve months ended September 30, 2008 was 7.9% compared to 9.4% for the trailing twelve months ended September 30, 2007. Adjusted return on equity for the trailing twelve months ended September 30, 2008 and 2007 was 12.5% and 12.4%, respectively.
We continue to establish Ameriprise Financial as a financial services leader as we focus on meeting the financial needs of the mass affluent and affluent, as evidenced by our continued leadership in financial planning and our strong corporate foundation. Our client retention percentage rate decreased one percentage point to 94% from the retention percentage rate in the year-ago period. Our franchisee advisor retention rate remained stable at 93% as of September 30, 2008 compared to the annual retention rate in the year-ago period. Branded financial plan net cash sales for the three and nine months ended September 30, 2008 increased 9% and 4%, respectively, as compared to the year-ago periods.
Our owned, managed and administered ("OMA") assets declined to $395.5 billion at September 30, 2008, a net decrease of 20% from September 30, 2007 OMA assets of $491.9 billion. For the nine months ended September 30, 2008, we had net inflows in wrap accounts of $4.9 billion, offset by market declines of $14.6 billion. RiverSource variable annuities had net inflows of $2.2 billion, but variable annuity contract accumulation values decreased by $6.8 billion, net of market-driven declines in separate account asset values. Our fixed annuities had total net outflows of $1.1 billion. RiverSource managed assets had net outflows of $10.4 billion and market declines of $17.2 billion. Threadneedle Asset Management Holdings Limited ("Threadneedle") managed assets had net outflows of $9.2 billion, primarily related to low-margin institutional assets and market declines of $17.8 billion.
During the third quarter of 2008, we announced three acquisitions. All transactions are expected to close in the fourth quarter of 2008. On July 7, 2008, we announced a definitive agreement to acquire J. & W. Seligman & Co., an asset management firm, for total consideration of approximately $440 million. On August 5, 2008, our wholly owned subsidiary, Securities America Financial Corporation, announced a definitive agreement to acquire Brecek & Young Advisors, Inc. from Security Benefit Corporation and on August 12, 2008 we announced a definitive agreement to acquire H&R Block Financial Advisors for $315 million in cash from H&R Block.
Share Repurchase Program
During the three and nine months ended September 30, 2008, we purchased 2.3 million shares and 12.7 million shares, respectively, for an aggregate cost of $94 million and $614 million, respectively. During the three and nine months ended September 30, 2007, we purchased 2.9 million shares and 11.1 million shares, respectively, for an aggregate cost of $171 million and $665 million, respectively. In April 2008, our Board of Directors authorized the expenditure of up to $1.5 billion for the repurchase of our common stock through April 2010. As of September 30, 2008, we had $1.3 billion remaining under this share repurchase authorization. In light of the current market environment, we have temporarily suspended our stock repurchase program.
Separation from 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 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. Our separation from American Express resulted in specifically identifiable impacts to our 2007 consolidated results of operations and financial condition.
We incurred a total of $890 million of non-recurring separation costs as part of our separation from American Express. These costs were primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing our technology platforms and advisor and employee retention programs. Our separation from American Express was completed in 2007.
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 credit market losses and non-recurring separation costs. Certain of our key non-GAAP financial measures include:
† adjusted net revenues, or net revenues excluding securities losses and the provision for uncollectible distribution fees;
† adjusted earnings or net income (loss) excluding credit market losses and 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 and as the denominator a five-point average of equity excluding 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 operations and facilitates a more meaningful trend analysis. These non-GAAP measures were 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.
A reconciliation of non-GAAP measures is as follows:
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