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AMP > SEC Filings for AMP > Form 10-Q on 5-May-2014All Recent SEC Filings

Show all filings for AMERIPRISE FINANCIAL INC

Form 10-Q for AMERIPRISE FINANCIAL INC


5-May-2014

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, 2013, filed with the Securities and Exchange Commission ("SEC") on February 27, 2014 ("2013 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 119 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 $782 billion in assets under management and administration as of March 31, 2014.
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 compelling 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 throughout the economic downturn of recent past years, will help us capitalize on these trends.
Our asset management capabilities are increasingly global in scale, with Columbia Management Investment Advisers, LLC ("Columbia" or "Columbia Management") as the primary provider of products and services in the U.S. 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 113 of our mutual funds, including 51 Columbia Management funds and 62 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. In the past few years, we have expanded beyond our traditional strengths in the U.S. and UK to gather assets in Continental Europe, Asia, Australia, the Middle East and Africa. In addition, we continue to pursue opportunities to leverage the collective capabilities of Columbia and


AMERIPRISE FINANCIAL, INC.

Threadneedle in order to enhance our current range of investment solutions, to develop new solutions that are responsive to client demand in an increasingly complex marketplace and to maximize the distribution capabilities of our global business.
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.

In the first quarter of 2014, we made the following changes to our previously reported segment data:
• Ameriprise interest and debt expense was allocated to all segments to more accurately reflect management's assessment of capital allocation.

• Interest accretion income from the intercompany transfer of former bank assets was eliminated for segment reporting resulting in this accretion no longer being allocated to the Annuities and Protection segments. The corresponding offset is no longer reported in the Corporate & Other segment.

• Certain fixed wholesaling costs were reclassified from distribution expenses to general and administrative expense to improve consistency in our presentation of wholesaling distribution expense across all segments. This change also impacted the Consolidated Statements of Income.

The reallocations and reclassifications did not result in any changes to our previously reported consolidated net income or shareholders' equity. 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. 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 2013 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 fixed annuities, fixed insurance, deposit products and the fixed portion of variable annuities and variable insurance contracts, 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, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our operating earnings. For additional discussion on our interest rate risk, see Item 3. "Quantitative and Qualitative Disclosures About Market Risk." 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.
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


AMERIPRISE FINANCIAL, INC.

annuity guaranteed benefits, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life benefits, net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; 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,
                                                                  2014              2013
                                                                     (in millions)
Total net revenues                                          $         2,996     $    2,691
Less: Revenue attributable to CIEs                                      177             82
Less: Net realized gains                                                  5              1
Less: Market impact on indexed universal life benefits                    2              -
Operating total net revenues                                $         2,812     $    2,608


                                                                                          Per Diluted Share
                                             Three Months Ended March 31,            Three Months Ended March 31,
                                                2014                2013                 2014                 2013
                                                            (in millions, except per share amounts)
Net income                                $        515         $        365
Less: Net income attributable to
noncontrolling interests                           115                   30
Net income attributable to Ameriprise
Financial                                          400                  335     $         2.01             $    1.58
Less: Loss from discontinued operations,
net of tax                                          (1 )                 (1 )                -                     -
Net income from continuing operations
attributable to Ameriprise Financial               401                  336               2.01                  1.58
Add: Restructuring charges, net of tax
(1)                                                  -                    1                  -                     -
Add: Market impact on variable annuity
guaranteed benefits, net of tax (1)                 10                    2               0.05                  0.01
Add: Market impact on indexed universal
life benefits, net of tax (1)                       (1 )                  -                  -                     -
Less: Net realized gains (losses), net of
tax (1)                                              3                    1               0.02                     -
Operating earnings                        $        407         $        338     $         2.04             $    1.59

Weighted average common shares
outstanding:
Basic                                            195.5                208.4
Diluted                                          199.1                212.3


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


                          AMERIPRISE FINANCIAL, INC.


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,
                                                                 2014          2013
                                                                    (in millions)
Net income attributable to Ameriprise Financial               $   1,399     $   1,120
Less: Income from discontinued operations, net of tax                (3 )          (2 )
Net income from continuing operations attributable to
Ameriprise Financial                                              1,402         1,122
Less: Adjustments (1)                                              (127 )        (126 )
Operating earnings                                            $   1,529     $   1,248

Total Ameriprise Financial, Inc. shareholders' equity         $   8,432     $   9,066
Less: Accumulated other comprehensive income, net of tax            731         1,068
Total Ameriprise Financial, Inc. shareholders' equity from
continuing operations, excluding AOCI                             7,701         7,998
Less: Equity impacts attributable to CIEs                           337           384
Operating equity                                              $   7,364     $   7,614

Return on equity from continuing operations, excluding AOCI        18.2 %        14.0 %
Operating return on equity, excluding AOCI (2)                     20.8 %        16.4 %


(1) Adjustments reflect the trailing twelve months' sum of after-tax net realized gains/losses; the market impact on variable annuity guaranteed benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed 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 benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed universal benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; integration and 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 2013 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.


AMERIPRISE FINANCIAL, INC.

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.
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,
                                             2014        2013           Change
                                                    (in billions)
Assets Under Management and Administration
Advice & Wealth Management AUM             $ 159.8     $ 134.2     $ 25.6      19  %
Asset Management AUM                         503.9       466.5       37.4       8
Corporate & Other AUM                          0.9         1.0       (0.1 )   (10 )
Eliminations                                 (20.5 )     (19.1 )     (1.4 )    (7 )
Total Assets Under Management                644.1       582.6       61.5      11
Total Assets Under Administration            138.7       125.1       13.6      11
Total AUM and AUA                          $ 782.8     $ 707.7     $ 75.1      11  %

Total AUM increased $61.5 billion, or 11%, to $644.1 billion as of March 31, 2014 compared to $582.6 billion as of March 31, 2013 due to a $25.6 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows and market appreciation and a $37.4 billion increase in Asset Management AUM driven by market appreciation, partially offset by net outflows. See our segment results of operations discussion below for additional information on changes in our AUM.


                          AMERIPRISE FINANCIAL, INC.


Consolidated Results of Operations for the Three Months Ended March 31, 2014
and 2013
The following table presents our consolidated results of operations:
                                                 Three Months Ended March 31,
                                                    2014               2013                Change
                                                               (in millions)
Revenues
Management and financial advice fees          $       1,386       $       1,244      $  142        11  %
Distribution fees                                       476                 434          42        10
Net investment income                                   471                 489         (18 )      (4 )
Premiums                                                330                 310          20         6
Other revenues                                          340                 222         118        53
Total revenues                                        3,003               2,699         304        11
Banking and deposit interest expense                      7                   8          (1 )     (13 )
Total net revenues                                    2,996               2,691         305        11
Expenses
Distribution expenses                                   786                 698          88        13
Interest credited to fixed accounts                     186                 198         (12 )      (6 )
Benefits, claims, losses and settlement
expenses                                                450                 409          41        10
Amortization of deferred acquisition costs               87                  75          12        16
Interest and debt expense                                79                  66          13        20
General and administrative expense                      758                 758           -         -
Total expenses                                        2,346               2,204         142         6
Income from continuing operations before
income tax provision                                    650                 487         163        33
Income tax provision                                    134                 121          13        11
Income from continuing operations                       516                 366         150        41
Loss from discontinued operations, net of tax            (1 )                (1 )         -        NM
Net income                                              515                 365         150        41
Less: Net income attributable to
noncontrolling interests                                115                  30          85        NM
Net income attributable to Ameriprise
Financial                                     $         400       $         335      $   65        19  %
NM  Not Meaningful.

Overall
Income from continuing operations before income tax provision increased $163 million, or 33%, to $650 million for the three months ended March 31, 2014 compared to $487 million for the prior year period primarily reflecting the impact of market appreciation, wrap account net inflows, a $27 million benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the managed volatility funds and an increase in net income attributable to noncontrolling interests, partially offset by the negative impact from spread compression in our interest sensitive product lines, the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), approximately $20 million in higher weather-related losses in the first quarter of 2014, a $30 million increase in auto liability reserves in the first quarter of 2014 and asset management net outflows. The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $15 million for the first quarter of 2014, which included a $2 million expense associated with policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the managed volatility funds, compared to an expense of $2 million for the prior year period. The negative impact on earnings from spread compression in our interest sensitive product lines was approximately $18 million pretax for the three months ended March 31, 2014 compared to the prior year period.

Net Revenues
Net revenues increased $305 million, or 11%, to $3.0 billion for the three months ended March 31, 2014 compared to $2.7 billion for the prior year period primarily due to higher management and financial advice fees, distribution fees and other revenues.

. . .

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