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AMP > SEC Filings for AMP > Form 10-Q on 1-May-2013All Recent SEC Filings

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Form 10-Q for AMERIPRISE FINANCIAL INC


1-May-2013

Quarterly Report


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

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the "Forward-Looking Statements" that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management's Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission ("SEC") on February 27, 2013 ("2012 10-K"), as well as our current reports on Form 8-K and other publicly available information. Certain reclassifications of prior year amounts have been made to conform to the current presentation. References below to "Ameriprise Financial," "Ameriprise," the "Company," "we," "us," and "our" refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.

Overview

Ameriprise Financial is a diversified financial services company with a 118 year history of providing financial solutions. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients. We are America's leader in financial planning and a leading global financial institution with more than $707 billion in assets under management and administration as of March 31, 2013.

Our strategy is centered on helping our clients confidently achieve their goals by providing advice and managing their assets and protecting their assets and income. We utilize two go-to-market approaches in carrying out this strategy:
Wealth Management and Asset Management.

Our wealth management capabilities are centered on the long-term, personal relationships between our clients and our financial advisors and registered representatives (our "advisors"). Through our advisors, we offer financial planning, products and services designed to be used as solutions for our clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. Our focus on personal relationships, together with our discipline in financial planning and strengths in product development and advice, allow us to address the evolving financial and retirement-related needs of our clients, including our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. The financial product solutions we offer through our advisors include both our own products and services and the products of other companies. Our advisor network is the primary channel through which we offer our affiliated insurance and annuity products and services.

Our network of more than 9,700 advisors is the primary means through which we engage in our wealth management activities. We offer our advisors training, tools, leadership, marketing programs and other field and centralized support to assist them in delivering advice and product solutions. We believe that our nationally recognized brand and practice vision, local marketing support, integrated operating platform and comprehensive set of products and solutions constitute a compelling value proposition for financial advisors, as evidenced by our strong advisor retention rate and our ability to attract and retain experienced and productive advisors. We have and will continue to invest in and develop capabilities and tools designed to maximize advisor productivity and client satisfaction.

We are in a strong position to capitalize on significant demographic and market trends driving increased demand for financial advice and solutions. In the U.S., the ongoing transition of baby boomers into retirement, as well as recent economic and financial market crises, continues to drive demand for financial advice and solutions. In addition, the amount of investable assets held by mass affluent and affluent households, our target market, have grown and accounts for over half of U.S. investable assets. We believe our differentiated financial planning model, broad range of products and solutions, as well as our demonstrated financial strength in the face of persistent economic headwinds, will help us capitalize on these trends.

Our asset management capabilities are global in scale, with Columbia Management Investment Advisers, LLC ("Columbia" or "Columbia Management") as the primary provider of U.S. products and services and Threadneedle Asset Management Holdings Sàrl ("Threadneedle") as the primary provider of products and services outside of the U.S. We offer a broad spectrum of investment advice and products to individual, institutional and high-net worth investors. These investment products are primarily provided through third parties, though we also provide our asset management products through our advisor channel. Our underlying asset management philosophy is based on delivering consistently strong and competitive investment performance. The quality and breadth of our asset management capabilities are demonstrated by 118 of our mutual funds, including 52 Columbia Management funds and 66 Threadneedle funds, being rated as four- and five-star funds by Morningstar.

We are positioned to continue to grow our assets under management and to strengthen our asset management offerings to existing and new clients. Our asset management capabilities are well positioned to address mature markets in the U.S. and Europe. We also have the capability to leverage existing strengths to effectively expand into new global and emerging markets, to which investors are increasingly looking as a source of growth and income. In the past few years, we have


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expanded beyond our traditional strengths in the U.S. and U.K. to gather assets in Continental Europe, Asia, Australia, the Middle East and Africa. In addition, we expect to leverage the collective investment and distribution capabilities of Columbia and Threadneedle to develop new solutions designed to manage an increasingly complex and volatile marketplace.

The financial results from the businesses underlying our go to market approaches are reflected in our five operating segments:

† Advice & Wealth Management;

† Asset Management;

† Annuities;

† Protection; and

† Corporate & Other.

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

Financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results. The persistent economic headwinds of the past several years have mitigated growth opportunities in our industry by affecting asset values and dampening client confidence and activity. In addition, the business and regulatory environment in which we operate remains subject to elevated uncertainty and change. To succeed, we expect to continue focusing on our key strategic objectives. The success of these and other strategies may be affected by the factors discussed in "Item 1A Risk Factors" in our 2012 10-K and other factors as discussed herein.

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

Earnings, as well as operating earnings, will continue to be negatively impacted by the ongoing low interest rate environment. In addition to continuing spread compression in our interest sensitive product lines, there is also the potential for interest rate related impacts to DAC and DSIC amortization and the level of reserves as a result of our ongoing review of various actuarial related assumptions, which could be material.

In January 2013, we completed the conversion of our federal savings bank subsidiary, Ameriprise Bank, FSB, to a limited powers national trust bank , which conversion included changing the name of this subsidiary to Ameriprise National Trust Bank (references herein to "Ameriprise Bank" pertain to this same subsidiary whether before or after its conversion). In connection with this conversion, deposit-taking and credit-originating activities of Ameriprise Bank were terminated. In addition, Ameriprise Financial was deregistered by the Federal Reserve as a savings and loan holding company and will no longer be subject to supervision and regulation as such. We will continue to make available to our clients certain deposit and credit products via referral arrangements with respected third party financial institutions. The transition released approximately $375 million of formerly required capital, which we anticipate using to repurchase shares throughout 2013. We estimate that the transition will reduce our annual earnings by approximately $60 million in 2013. At the enterprise level, we anticipate that the earnings per share impact will be neutralized by the end of 2013, as we redeploy the excess capital to shareholders through share repurchases.

We consolidate certain collateralized debt obligations ("CDOs") and other investment products (collectively, "investment entities") for which we provide asset management services to and sponsor for the investment of client assets in the normal course of business. These entities are defined as consolidated investment entities ("CIEs"). For further information on CIEs, see Note 3 to our Consolidated Financial Statements. Changes in the valuation of the CIE assets and liabilities impact pretax income. The net income (loss) of the CIEs is reflected in net income (loss) attributable to noncontrolling interests. The results of operations of the CIEs are reflected in the Corporate & Other segment. On a consolidated basis, the management fees we earn for the services we provide to the CIEs and the related general and administrative expenses are eliminated and the changes in the assets and liabilities related to the CIEs, primarily debt and underlying syndicated loans, are reflected in net investment income. We continue to include the fees in the management and financial advice fees line within our Asset Management segment.


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While our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), management believes that operating measures, which exclude net realized gains or losses; the market impact on variable annuity guaranteed living benefits, net of hedges and the related DSIC and DAC amortization; the market impact on index universal life benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. While the consolidation of the CIEs impacts our balance sheet and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. Management uses certain of these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management's Discussion and Analysis, these non-GAAP measures are referred to as operating measures.

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

Our financial targets are:

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

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

† Operating return on equity excluding accumulated other comprehensive income of 15% to 18%.

The following tables reconcile our GAAP measures to operating measures:

                                            Three Months Ended March 31,
                                              2013                2012
                                                    (in millions)
Total net revenues                       $         2,691     $         2,561
Less: Revenue attributable to the CIEs                82                  52
Less: Net realized gains (losses)                      1                  (2 )
Operating total net revenues             $         2,608     $         2,511




                                                                                          Per Diluted Share
                                            Three Months Ended March 31,            Three Months Ended March 31,
                                             2013                 2012                2013                  2012
                                                           (in millions, except per share amounts)
Net income                              $           365      $           248
Less: Net income attributable to
noncontrolling interests                             30                    4
Net income attributable to
Ameriprise Financial                                335                  244    $            1.58      $         1.05
Less: Loss from discontinued
operations, net of tax                               (1 )                 (1 )                  -               (0.01 )
Net income from continuing
operations attributable to
Ameriprise Financial                                336                  245                 1.58                1.06
Add: Integration/restructuring
charges, net of tax (1)                               1                   15                    -                0.06
Add: Market impact on variable
annuity guaranteed living benefits,
net of tax (1)                                        2                   74                 0.01                0.32
Less: Net realized gains (losses),
net of tax (1)                                        1                   (1 )                  -               (0.01 )
Operating earnings                      $           338      $           335    $            1.59      $         1.45

Weighted average common shares
outstanding:
Basic                                             208.4                227.3
Diluted                                           212.3                231.7



(1) Calculated using the statutory tax rate of 35%.


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The following table reconciles the trailing twelve months' sum of net income attributable to Ameriprise Financial to operating earnings and the five-point average of quarter-end equity to operating equity:

                                                                Twelve Months Ended March 31,
                                                                  2013                 2012
                                                                        (in millions)
Net income attributable to Ameriprise Financial             $          1,120     $          1,119
Less: Income (loss) from discontinued operations, net of
tax                                                                       (2 )                 10
Net income from continuing operations attributable to
Ameriprise Financial                                                   1,122                1,109
Less: Adjustments (1)                                                   (126 )               (156 )
Operating earnings                                          $          1,248     $          1,265

Total Ameriprise Financial, Inc. shareholders' equity       $          9,066     $          9,114
Less: Assets and liabilities held for sale                                 -                   11
Less: Accumulated other comprehensive income, net of tax               1,068                  741
Total Ameriprise Financial, Inc. shareholders' equity
from continuing operations, excluding AOCI                             7,998                8,362
Less: Equity impacts attributable to CIEs                                384                  454
Operating equity                                            $          7,614     $          7,908

Return on equity from continuing operations, excluding
AOCI                                                                    14.0 %               13.3 %
Operating return on equity, excluding AOCI (2)                          16.4 %               16.0 %



(1) Adjustments reflect the trailing twelve months' sum of after-tax net realized gains/losses; the market impact on variable annuity guaranteed living benefits, net of hedges and related DSIC and DAC amortization; the market impact on index universal life benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; and integration and restructuring charges. After-tax is calculated using the statutory tax rate of 35%.

(2) Operating return on equity, excluding accumulated other comprehensive income ("AOCI"), is calculated using the trailing twelve months of earnings excluding the after-tax net realized gains/losses; market impact on variable annuity guaranteed living benefits, net of hedges and related DSIC and DAC amortization; the market impact on index universal benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; integration/restructuring charges; and discontinued operations in the numerator, and Ameriprise Financial shareholders' equity, excluding AOCI; the impact of consolidating investment entities; and the assets and liabilities held for sale using a five-point average of quarter-end equity in the denominator.

Critical Accounting Policies

The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. These accounting policies are discussed in detail in "Management's Discussion and Analysis - Critical Accounting Policies" in our 2012 10-K.

Recent Accounting Pronouncements

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

Assets Under Management and Administration

Assets under management ("AUM") include external client assets for which we provide investment management services, such as the assets of the Columbia funds and Threadneedle funds, assets of institutional clients and assets of clients in our advisor platform held in wrap accounts as well as assets managed by sub-advisers selected by us. AUM also includes certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account and the variable product funds held in the separate accounts of our life insurance subsidiaries and client assets of CIEs. These assets do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority. Corporate & Other AUM primarily includes former bank assets that are managed within our Corporate & Other segment.


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

The following table presents detail regarding our AUM and AUA:

                                                 March 31,
                                              2013      2012        Change
                                                      (in billions)
Assets Under Management and Administration
Advice & Wealth Management AUM               $ 134.2   $ 114.4   $ 19.8    17 %
Asset Management AUM                           466.5     463.0      3.5     1
Corporate & Other AUM                            1.0         -      1.0    NM
Eliminations                                   (19.1 )   (13.9 )   (5.2 ) (37 )
Total Assets Under Management                  582.6     563.5     19.1     3
Total Assets Under Administration              125.1     111.4     13.7    12
Total AUM and AUA                            $ 707.7   $ 674.9     32.8     5 %

Total AUM increased $19.1 billion, or 3%, to $582.6 billion as of March 31, 2013 compared to the prior year period due to a $19.8 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows and market appreciation. See our segment results of operations discussion below for additional information on changes in our AUM.

Consolidated Results of Operations for the Three Months Ended March 31, 2013 and 2012

The following table presents our consolidated results of operations:

                                       Three Months Ended March 31,
                                         2013                2012                  Change
                                                            (in millions)
Revenues
Management and financial advice
fees                                $         1,244     $         1,132    $      112           10 %
Distribution fees                               434                 402            32            8
Net investment income                           489                 531           (42 )         (8 )
Premiums                                        310                 301             9            3
Other revenues                                  222                 206            16            8
Total revenues                                2,699               2,572           127            5
Banking and deposit interest
expense                                           8                  11            (3 )        (27 )
Total net revenues                            2,691               2,561           130            5
Expenses
Distribution expenses                           726                 666            60            9
Interest credited to fixed
accounts                                        198                 206            (8 )         (4 )
Benefits, claims, losses and
settlement expenses                             409                 505           (96 )        (19 )
Amortization of deferred
acquisition costs                                75                  31            44           NM
Interest and debt expense                        66                  69            (3 )         (4 )
General and administrative
expense                                         730                 762           (32 )         (4 )
Total expenses                                2,204               2,239           (35 )         (2 )
Income from continuing
operations before income tax
provision                                       487                 322           165           51
Income tax provision                            121                  73            48           66
Income from continuing
operations                                      366                 249           117           47
Loss from discontinued
operations, net of tax                           (1 )                (1 )           -            -
Net income                                      365                 248           117           47
Less: Net income attributable to
noncontrolling interests                         30                   4            26           NM
Net income attributable to
Ameriprise Financial                $           335     $           244    $       91           37 %

NM Not Meaningful.


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Overall

Income from continuing operations before income tax provision increased $165 million, or 51%, compared to the prior year period primarily reflecting the impact of market appreciation, wrap account net inflows and the market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC and DAC amortization), partially offset by the negative impact of the continued low interest rate environment and asset management net outflows. The market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $2 million for the first quarter of 2013 compared to an expense of $113 million for the prior year period. The negative impact of the continued low interest rate environment was approximately $23 million pretax for the three months ended March 31, 2013 compared to the prior year period.

Net Revenues

Net revenues increased $130 million, or 5%, compared to the prior year period primarily due to higher management and financial advice fees and distribution fees, partially offset by lower net investment income.

Management and financial advice fees increased $112 million, or 10%, compared to the prior year period primarily due to higher asset-based fees driven by an increase in average AUM, as well as revenue enhancements related to various pricing adjustments. Average AUM increased $26.9 billion, or 5%, compared to the . . .

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