Ameriprise Financial 09.30.2013

 
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 September 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from_______________________to_______________________                 
Commission File No. 1-32525 
AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
13-3180631
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1099 Ameriprise Financial Center, Minneapolis, Minnesota
55474
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:  (612) 671-3131 
Former name, former address and former fiscal year, if changed since last report:  Not Applicable 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).             Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x
 
Accelerated Filer o
Non-Accelerated Filer
(Do not check if a smaller reporting company) o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at
October 18, 2013
Common Stock (par value $.01 per share)
 
194,540,676 shares
 


Table of Contents

AMERIPRISE FINANCIAL, INC.
 
FORM 10-Q
 
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


AMERIPRISE FINANCIAL, INC. 
PART I. FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts) 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
1,318

 
$
1,191

 
$
3,856

 
$
3,475

Distribution fees
441

 
391

 
1,323

 
1,189

Net investment income
491

 
427

 
1,431

 
1,430

Premiums
324

 
309

 
949

 
912

Other revenues
247

 
161

 
718

 
569

Total revenues
2,821

 
2,479

 
8,277

 
7,575

Banking and deposit interest expense
8

 
11

 
24

 
32

Total net revenues
2,813

 
2,468

 
8,253

 
7,543

Expenses
 

 
 

 
 

 
 

Distribution expenses
757

 
667

 
2,243

 
1,996

Interest credited to fixed accounts
204

 
207

 
600

 
622

Benefits, claims, losses and settlement expenses
492

 
542

 
1,391

 
1,456

Amortization of deferred acquisition costs
(14
)
 
67

 
153

 
197

Interest and debt expense
68

 
68

 
194

 
209

General and administrative expense
704

 
718

 
2,181

 
2,243

Total expenses
2,211

 
2,269

 
6,762

 
6,723

Income from continuing operations before income tax provision
602

 
199

 
1,491

 
820

Income tax provision
154

 
47

 
395

 
248

Income from continuing operations
448

 
152

 
1,096

 
572

Income (loss) from discontinued operations, net of tax
1

 
(1
)
 
(1
)
 
(3
)
Net income
449

 
151

 
1,095

 
569

Less: Net income (loss) attributable to noncontrolling interests
67

 
(22
)
 
57

 
(71
)
Net income attributable to Ameriprise Financial
$
382

 
$
173

 
$
1,038

 
$
640

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

 
 

 
 

 
 

Basic
 

 
 

 
 

 
 

Income from continuing operations
$
1.90

 
$
0.81

 
$
5.07

 
$
2.91

Loss from discontinued operations

 
(0.01
)
 

 
(0.02
)
Net income
$
1.90

 
$
0.80

 
$
5.07

 
$
2.89

Diluted
 

 
 

 
 

 
 

Income from continuing operations
$
1.86

 
$
0.79

 
$
4.97

 
$
2.85

Loss from discontinued operations

 

 

 
(0.01
)
Net income
$
1.86

 
$
0.79

 
$
4.97

 
$
2.84

Cash dividends declared per common share
$
0.52

 
$
0.35

 
$
1.49

 
$
0.70

Supplemental Disclosures:
 

 
 

 
 

 
 

Total other-than-temporary impairment losses on securities
$
(7
)
 
$
(8
)
 
$
(11
)
 
$
(27
)
Portion of loss recognized in other comprehensive income (loss) (before taxes)
6

 
(7
)
 
5

 
(2
)
Net impairment losses recognized in net investment income
$
(1
)
 
$
(15
)
 
$
(6
)
 
$
(29
)
See Notes to Consolidated Financial Statements.

3

Table of Contents

AMERIPRISE FINANCIAL, INC. 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions) 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
449

 
$
151

 
$
1,095

 
$
569

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Foreign currency translation adjustment
80

 
33

 
7

 
43

Net unrealized gains (losses) on securities:
 

 
 

 
 

 
 

Net unrealized securities gains (losses) arising during the period
(67
)
 
378

 
(869
)
 
615

Reclassification of net securities (gains) losses included in net income
(5
)
 
44

 
(5
)
 
49

Impact on deferred acquisition costs, deferred sales inducement costs, benefit reserves and reinsurance recoverables
18

 
(112
)
 
283

 
(174
)
Total net unrealized gains (losses) on securities
(54
)
 
310

 
(591
)
 
490

Net unrealized gains on derivatives:
 

 
 

 
 

 
 

Net unrealized derivative gains arising during the period

 

 

 
10

Reclassification of net derivative (gains) losses included in net income
1

 

 
1

 
(1
)
Total net unrealized gains on derivatives
1

 

 
1

 
9

Total other comprehensive income (loss), net of tax
27

 
343

 
(583
)
 
542

Total comprehensive income
476

 
494

 
512

 
1,111

Less: Comprehensive income (loss) attributable to noncontrolling interests
114

 
(4
)
 
63

 
(45
)
Comprehensive income attributable to Ameriprise Financial
$
362

 
$
498

 
$
449

 
$
1,156

See Notes to Consolidated Financial Statements.


4

Table of Contents

AMERIPRISE FINANCIAL, INC. 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share amounts)
 
September 30, 2013
 
December 31, 2012
Assets
 

 
 

Cash and cash equivalents
$
3,125

 
$
2,371

Cash of consolidated investment entities
340

 
579

Investments
35,404

 
36,877

Investments of consolidated investment entities, at fair value
4,636

 
4,370

Separate account assets
77,788

 
72,397

Receivables
4,362

 
4,220

Receivables of consolidated investment entities (includes $26 and $77, respectively, at fair value)
141

 
95

Deferred acquisition costs
2,610

 
2,399

Restricted and segregated cash and investments
2,259

 
2,538

Other assets
7,943

 
7,667

Other assets of consolidated investment entities, at fair value
1,600

 
1,216

Total assets
$
140,208

 
$
134,729

Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Policyholder account balances, future policy benefits and claims
$
29,943

 
$
31,217

Separate account liabilities
77,788

 
72,397

Customer deposits
6,744

 
6,526

Short-term borrowings
500

 
501

Long-term debt
2,947

 
2,403

Debt of consolidated investment entities (includes $4,459 and $4,450, respectively, at fair value)
5,242

 
4,981

Accounts payable and accrued expenses
1,290

 
1,228

Accounts payable and accrued expenses of consolidated investment entities
127

 
96

Other liabilities
6,329

 
5,467

Other liabilities of consolidated investment entities (includes $94 and $166, respectively, at fair value)
129

 
201

Total liabilities
131,039

 
125,017

Equity:
 

 
 

Ameriprise Financial, Inc.:
 

 
 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 316,115,977 and 309,399,529, respectively)
3

 
3

Additional paid-in capital
6,840

 
6,503

Retained earnings
7,107

 
6,381

Appropriated retained earnings of consolidated investment entities
335

 
336

Treasury shares, at cost (120,876,387 and 105,456,535 shares, respectively)
(6,565
)
 
(5,325
)
Accumulated other comprehensive income, net of tax
605

 
1,194

Total Ameriprise Financial, Inc. shareholders’ equity
8,325

 
9,092

Noncontrolling interests
844

 
620

Total equity
9,169

 
9,712

Total liabilities and equity
$
140,208

 
$
134,729

See Notes to Consolidated Financial Statements.

5

Table of Contents

AMERIPRISE FINANCIAL, INC. 
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(in millions, except share data) 
 
Ameriprise Financial, Inc.
 
 
 
 
 
Number of
Outstanding
Shares
 
Common
Shares
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Appropriated
Retained
Earnings of
Consolidated
Investment
Entities
 
Treasury
Shares
 
Accumulated
Other 
Comprehensive
Income
 
Total
Ameriprise
Financial,
Inc.
Shareholders’
Equity
 
Non-controlling
Interests
 
Total
Balances at January 1, 2012
221,942,983

 
$
3

 
$
6,237

 
$
5,603

 
$
428

 
$
(4,034
)
 
$
751

 
$
8,988

 
$
706

 
$
9,694

Comprehensive income (loss):
Net income (loss)

 

 

 
640

 

 

 

 
640

 
(71
)
 
569

Other comprehensive income, net of tax

 

 

 

 

 

 
516

 
516

 
26

 
542

Total comprehensive income (loss)
 
1,156

 
(45
)
 
1,111

Net loss reclassified to appropriated retained earnings

 

 

 

 
(30
)
 

 

 
(30
)
 
30

 

Dividends to shareholders

 

 

 
(156
)
 

 

 

 
(156
)
 

 
(156
)
Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 
123

 
123

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(158
)
 
(158
)
Repurchase of common shares
(19,209,287
)
 

 

 

 

 
(1,008
)
 

 
(1,008
)
 

 
(1,008
)
Share-based compensation plans
4,693,531

 

 
126

 

 

 
89

 

 
215

 
8

 
223

Other

 

 

 

 
(8
)
 

 

 
(8
)
 

 
(8
)
Balances at September 30, 2012
207,427,227

 
$
3

 
$
6,363

 
$
6,087

 
$
390

 
$
(4,953
)
 
$
1,267

 
$
9,157

 
$
664

 
$
9,821

Balances at January 1, 2013
203,942,994

 
$
3

 
$
6,503

 
$
6,381

 
$
336

 
$
(5,325
)
 
$
1,194

 
$
9,092

 
$
620

 
$
9,712

Comprehensive income:
Net income

 

 

 
1,038

 

 

 

 
1,038

 
57

 
1,095

Other comprehensive income (loss), net of tax

 

 

 

 

 

 
(589
)
 
(589
)
 
6

 
(583
)
Total comprehensive income
 
449

 
63

 
512

Net loss reclassified to appropriated retained earnings

 

 

 

 
(1
)
 

 

 
(1
)
 
1

 

Dividends to shareholders

 

 

 
(307
)
 

 

 

 
(307
)
 

 
(307
)
Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

 
290

 
290

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(142
)
 
(142
)
Repurchase of common shares
(17,362,549
)
 

 

 

 

 
(1,339
)
 

 
(1,339
)
 

 
(1,339
)
Share-based compensation plans
8,659,145

 

 
337

 
(5
)
 

 
99

 

 
431

 
12

 
443

Balances at September 30, 2013
195,239,590

 
$
3

 
$
6,840

 
$
7,107

 
$
335

 
$
(6,565
)
 
$
605

 
$
8,325

 
$
844

 
$
9,169

See Notes to Consolidated Financial Statements.

6

Table of Contents

AMERIPRISE FINANCIAL, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)

 
Nine Months Ended 
 September 30,
 
2013
 
2012
Cash Flows from Operating Activities
 
 
 
Net income
$
1,095

 
$
569

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion, net
175

 
168

Deferred income tax benefit
(73
)
 

Share-based compensation
106

 
98

Net realized investment losses (gains)
(13
)
 
46

Net unrealized trading losses

 
2

Loss (income) and gain from sale of equity method investments
(28
)
 
9

Other-than-temporary impairments and provision for loan losses
7

 
33

Net losses (gains) of consolidated investment entities
(63
)
 
95

Changes in operating assets and liabilities:
 
 
 
Restricted and segregated cash and investments
193

 
(109
)
Deferred acquisition costs
(98
)
 
(32
)
Other investments, net
(2
)
 
19

Policyholder account balances, future policy benefits and claims, net
(1,024
)
 
(428
)
Derivatives, net of collateral
1,094

 
309

Receivables
(138
)
 
(139
)
Brokerage deposits
(157
)
 
207

Accounts payable and accrued expenses
62

 
90

Cash held by consolidated investment entities
249

 
(137
)
Investment properties of consolidated investment entities
(357
)
 
(94
)
Other operating assets and liabilities of consolidated investment entities, net
(46
)
 
25

Other, net
124

 
152

Net cash provided by operating activities
1,106

 
883

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Proceeds from sales
327

 
600

Maturities, sinking fund payments and calls
3,826

 
3,668

Purchases
(4,094
)
 
(3,345
)
Proceeds from sales, maturities and repayments of commercial mortgage loans
229

 
197

Funding of commercial mortgage loans
(292
)
 
(162
)
Proceeds from sales of other investments
248

 
136

Purchase of other investments
(267
)
 
(273
)
Purchase of investments by consolidated investment entities
(2,437
)
 
(1,215
)
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
2,215

 
1,619

Purchase of land, buildings, equipment and software
(68
)
 
(143
)
Change in consumer loans, net
143

 
40

Other, net
27

 
(9
)
Net cash provided by (used in) investing activities
(143
)
 
1,113

See Notes to Consolidated Financial Statements.

7

Table of Contents

AMERIPRISE FINANCIAL, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
(in millions)

 
Nine Months Ended 
 September 30,
 
2013
 
2012
Cash Flows from Financing Activities
 
 
 
Investment certificates and banking time deposits:
 
 
 
Proceeds from additions
$
1,724

 
$
966

Maturities, withdrawals and cash surrenders
(1,349
)
 
(724
)
Change in other banking deposits

 
(246
)
Policyholder account balances:
 
 
 
Consideration received
1,020

 
1,082

Net transfers to separate accounts
(54
)
 
(30
)
Surrenders and other benefits
(910
)
 
(909
)
Cash paid for purchased options with deferred premiums
(290
)
 
(256
)
Issuance of debt, net of issuance costs
593

 

Change in short-term borrowings, net
(2
)
 
(5
)
Dividends paid to shareholders
(300
)
 
(212
)
Repurchase of common shares
(1,205
)
 
(1,008
)
Exercise of stock options
100

 
77

Excess tax benefits from share-based compensation
101

 
41

Borrowings by consolidated investment entities
1,187

 
175

Repayments of debt by consolidated investment entities
(969
)
 
(374
)
Noncontrolling interests investments in subsidiaries
290

 
123

Distributions to noncontrolling interests
(142
)
 
(158
)
Other, net
(1
)
 
(3
)
Net cash used in financing activities
(207
)
 
(1,461
)
Effect of exchange rate changes on cash
(2
)
 
9

Net increase in cash and cash equivalents
754

 
544

Cash and cash equivalents at beginning of period
2,371

 
2,781

Cash and cash equivalents at end of period
$
3,125

 
$
3,325

Supplemental Disclosures:
 
 
 
Interest paid before consolidated investment entities
$
124

 
$
133

Income taxes paid, net
182

 
174

Non-cash investing activity:
 
 
 
Affordable housing partnership commitments not yet remitted
26

 
16

See Notes to Consolidated Financial Statements.




8

Table of Contents

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
1.  Basis of Presentation
 
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through its subsidiary, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”).
 
The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). The income or loss generated by consolidated entities which will not be realized by the Company’s shareholders is attributed to noncontrolling interests in the Consolidated Statements of Operations. Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company, excluding noncontrolling interests, is defined as “Ameriprise Financial.” All intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information related to VIEs.
 
The results of Securities America Financial Corporation and its subsidiaries (collectively, “Securities America”) have been presented as discontinued operations for all periods presented. The Company completed the sale of Securities America in the fourth quarter of 2011.
 
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made to conform to the current presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the consolidated Financial Statements and Notes in the Company’s annual report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2013.
 
The Company has reclassified certain prior year amounts in the Consolidated Statements of Cash Flows within operating activities to provide more detail related to derivatives. The Company previously classified the change in freestanding derivatives hedging guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”) liabilities in the “Policyholder account balances, future policy benefits and claims” line, the change in all other freestanding derivatives in the “Other, net” line, and the change in derivatives collateral in the “Derivatives collateral, net” line within operating cash flows. The Company reclassified the changes in freestanding derivatives, as well as the change in derivatives collateral, to a new line titled “Derivatives, net of collateral” within operating cash flows.
 
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. Except for the adjustment described below, all adjustments made were of a normal recurring nature.
 
In the second quarter of 2012, the Company made a correction for a tax item related to prior periods, which resulted in a $32 million decrease to net income attributable to Ameriprise Financial. The Company discovered it had received incomplete data from a third party service provider for securities lending activities that resulted in the miscalculation of the Company’s dividend received deduction and foreign tax credit, which resulted in an understatement of taxes payable and an overstatement of reported earnings in prior periods. Management determined that the effect of this correction was not material to the Consolidated Financial Statements for all prior periods. The Company resolved the data issue and stopped the securities lending that negatively impacted its tax position.
 
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued.
 

9

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


2.  Recent Accounting Pronouncements
 
Adoption of New Accounting Standards
 
Comprehensive Income
 
In February 2013, the Financial Accounting Standards Board (“FASB”) updated the accounting standard related to comprehensive income. The update requires entities to provide information about significant amounts reclassified out of accumulated other comprehensive income (“AOCI”). The standard is effective for interim and annual periods beginning after December 15, 2012 and is required to be applied prospectively. The Company adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on the Company’s consolidated results of operations and financial condition. See Note 13 for the required disclosures.
 
Balance Sheet
 
In December 2011, the FASB updated the accounting standards to require new disclosures about offsetting assets and liabilities. The standard requires an entity to disclose both gross and net information about certain financial instruments and transactions subject to master netting arrangements (or similar agreements) or eligible for offset in the statement of financial position. The standard is effective for interim and annual periods beginning on or after January 1, 2013 on a retrospective basis. The Company adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on the Company’s consolidated results of operations and financial condition. See Note 11 for the required disclosures.
 
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
 
In October 2010, the FASB updated the accounting standard for deferred acquisition costs (“DAC”). Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts are capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ compensation and benefits directly related to time spent performing acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and contract selling) for a contract that has been acquired, (iii) other costs related to acquisition activities that would not have been incurred had the acquisition of the contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other acquisition related costs are expensed as incurred. The Company retrospectively adopted the new standard on January 1, 2012. The cumulative effect of the adoption reduced retained earnings by $1.4 billion after-tax and increased AOCI by $113 million after-tax, totaling to a $1.3 billion after-tax reduction in total equity at January 1, 2012.
 
Future Adoption of New Accounting Standards
 
Income Taxes
 
In July 2013, the FASB updated the accounting standard for income taxes. The update provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard is effective for interim and annual periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of the standard is not expected to have a material impact on the Company's consolidated results of operations and financial condition.
 

10

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


3.  Consolidated Investment Entities
 
The Company provides asset management services to various collateralized debt obligations (“CDOs”) and other investment products (collectively, “investment entities”), which are sponsored by the Company. Certain of these investment entities are considered to be VIEs while others are considered to be voting rights entities (“VREs”). The Company consolidates certain of these investment entities.
 
The CDOs managed by the Company are considered VIEs. These CDOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CDO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CDOs are non-recourse to the Company. The CDO’s debt holders have recourse only to the assets of the CDO. The assets of the CDOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CDO’s collateral pool. The Company generally earns management fees from the CDOs based on the par value of outstanding debt and, in certain instances, may also receive performance-based fees. In the normal course of business, the Company has invested in certain CDOs, generally an insignificant portion of the unrated, junior subordinated debt.
 
For certain of the CDOs, the Company has determined that consolidation is required as it has power over the CDOs and holds a variable interest in the CDOs for which the Company has the potential to receive benefits or the potential obligation to absorb losses that are significant to the CDO. For other CDOs managed by the Company, the Company has determined that consolidation is not required as the Company does not hold a variable interest in the CDOs or it does hold a variable interest but does not have the potential to receive benefits or the potential obligation to absorb losses that are significant to the CDO.
 
The Company provides investment advice and related services to private, pooled investment vehicles organized as limited partnerships, limited liability companies or foreign (non-U.S.) entities. Certain of these pooled investment vehicles are considered VIEs while others are VREs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The Company provides seed money occasionally to certain of these funds. For certain of the pooled investment vehicles, the Company has determined that consolidation is required as the Company stands to absorb a majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns. For other VIE pooled investment vehicles, the Company has determined that consolidation is not required because the Company is not expected to absorb the majority of the expected losses or receive the majority of the expected residual returns. For the pooled investment vehicles which are VREs, the Company consolidates the structure when it has a controlling financial interest.
 
The Company also provides investment advisory, distribution and other services to the Columbia and Threadneedle mutual fund families. The Company has determined that consolidation is not required for these mutual funds.
 
In addition, the Company may invest in structured investments including VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company includes these investments in Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to its relative size, position in the capital structure of these entities and the Company’s lack of power over the structures. The Company’s maximum exposure to loss as a result of its investment in structured investments that it does not consolidate is limited to its carrying value. The Company has no obligation to provide further financial or other support to these structured investments nor has the Company provided any support to these structured investments. See Note 4 for additional information about these structured investments.


11

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Fair Value of Assets and Liabilities
 
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 10 for the definition of the three levels of the fair value hierarchy.
 
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
September 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$

 
$
217

 
$
2

 
$
219

U.S. government and agencies obligations
3

 

 

 
3

Common stocks
136

 
32

 
7

 
175

Other structured investments

 
33

 

 
33

Syndicated loans

 
3,904

 
302

 
4,206

Total investments
139

 
4,186

 
311

 
4,636

Receivables

 
26

 

 
26

Other assets

 
9

 
1,591

 
1,600

Total assets at fair value
$
139

 
$
4,221

 
$
1,902

 
$
6,262

Liabilities
 

 
 

 
 

 
 

Debt
$

 
$

 
$
4,459

 
$
4,459

Other liabilities

 
94

 

 
94

Total liabilities at fair value
$

 
$
94

 
$
4,459

 
$
4,553

 
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$

 
$
251

 
$
3

 
$
254

Common stocks
91

 
32

 
14

 
137

Other structured investments

 
57

 

 
57

Syndicated loans

 
3,720

 
202

 
3,922

Total investments
91

 
4,060

 
219

 
4,370

Receivables

 
77

 

 
77

Other assets

 
2

 
1,214

 
1,216

Total assets at fair value
$
91

 
$
4,139

 
$
1,433

 
$
5,663

Liabilities
 

 
 

 
 

 
 

Debt
$

 
$

 
$
4,450

 
$
4,450

Other liabilities

 
166

 

 
166

Total liabilities at fair value
$

 
$
166

 
$
4,450

 
$
4,616

 

12

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
Corporate
Debt
Securities
 
Common
Stocks
 
Syndicated
Loans
 
Other
Assets
 
Debt
 
 
(in millions)
  
#VALUE!
$
3

 
$
16

  
$
292

  
$
1,322

  
$
(4,677
)
 
Total gains (losses) included in:
 

 
 

  
 

  
 

  
 

  
Net income

 
(1
)
(1) 
(1
)
(1) 
20

(2) 
50

(1) 
Other comprehensive income

 

  

  
73

  

  
Purchases

 

  
72

  
239

  

  
Sales

 

 
(8
)
 
(54
)
 

 
Issues

 

 

 

  

 
Settlements
(1
)
 

 
(13
)
 

  
168

 
Transfers into Level 3

 

 
105

 

  

 
Transfers out of Level 3

 
(8
)
 
(145
)
 
(9
)
  

 
Balance, September 30, 2013
$
2

 
$
7

 
$
302

  
$
1,591

  
$
(4,459
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2013
$

 
$
(1
)
(1) 
$
(2
)
(1) 
$
(1
)
(2) 
$
50

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
 
Corporate
Debt
Securities
 
Common
Stocks
 
Syndicated
Loans
 
Other
Assets
 
Debt
 
 
(in millions)
  
#VALUE!
$
4

 
$
12

 
$
169

  
$
1,080

  
$
(4,726
)
 
Total gains (losses) included in:
 

 
 

 
 

  
 

  
 

  
Net income

 


2

(1) 
(27
)
(2) 
(82
)
(1) 
Other comprehensive income

 

 

  
21

 

  
Purchases

 

 
26

 
146

 

  
Sales

 

 
(2
)
 
(62
)
 

  
Settlements

 

 
(22
)
 

 
117

  
Transfers into Level 3

 
1

 
59

 

  

  
Transfers out of Level 3

 

 
(49
)
 

  

  
Balance, September 30, 2012
$
4

 
$
13

 
$
183

 
$
1,158

  
$
(4,691
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2012
$

 
$

 
$
1

(1) 
$
(39
)
(2) 
$
(81
)
(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.


13

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Corporate
Debt
Securities
 
Common
Stocks
 
Syndicated
Loans
 
Other
Assets
 
Debt
 
 
(in millions)
  
Balance, January 1, 2013
$
3

 
$
14

  
$
202

  
$
1,214

  
$
(4,450
)
 
Total gains (losses) included in:
 

 
 

  
 

  
 

  
 

  
Net income

 




22

(2) 
(38
)
(1) 
Other comprehensive income (loss)

 

  

  
(1
)
 

  
Purchases
1

 

 
265

 
434

 

  
Sales
(1
)
 
(3
)
 
(52
)
 
(77
)
 

  
Issues

 

 

 

  
(926
)
 
Settlements
(1
)
 

 
(46
)
 

  
955

 
Transfers into Level 3

 
15

 
232

 
8

  

 
Transfers out of Level 3

 
(19
)
 
(299
)
 
(9
)
  

 
Balance, September 30, 2013
$
2

 
$
7

  
$
302

  
$
1,591

  
$
(4,459
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2013

 
(2
)
(1) 
(1
)
(1) 
5

(2) 
(10
)
(1) 
 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
 
Corporate
Debt
Securities
 
Common
Stocks
 
Syndicated
Loans
 
Other
Assets
 
Debt
 
 
(in millions)
  
Balance, January 1, 2012
$
4

 
$
13

  
$
342

  
$
1,108

  
$
(4,712
)
 
Total gains (losses) included in:
 

 
 

  
 

  
 

  
 

  
Net income

 
(1
)
(1) 
6

(1) 
(64
)
(2) 
(223
)
(1) 
Other comprehensive income

 

  

  
20

  

  
Purchases

 
6

  
59

  
254

  

  
Sales

 
(4
)
 
(8
)
 
(160
)
 

  
Issues

 

  

 

  

  
Settlements

 

  
(84
)
 

  
244

  
Transfers into Level 3

 
14

  
186

 

  

  
Transfers out of Level 3

 
(15
)
 
(318
)
 

  

  
Balance, September 30, 2012
$
4

 
$
13

  
$
183

  
$
1,158

  
$
(4,691
)
 
Changes in unrealized losses included in income relating to assets and liabilities held at September 30, 2012
$

 
$

  
$


$
(86
)
(2) 
$
(221
)
(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
Securities and loans transferred from Level 2 to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. Securities and loans transferred from Level 3 to Level 2 represent assets with fair values that are now obtained from a third party pricing service with observable inputs or priced in active markets. During the reporting periods, there were no transfers between Level 1 and Level 2.
 

14

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities held by consolidated investment entities:
 
September 30, 2013
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Other assets
$
1,591

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
3.5
%
12.5%
 
7.6
%
 
 

 
 
 
Expected rental value (per square foot)
 
$5
$308
 
$29
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
4,459

 
Discounted cash flow
 
Annual default rate
 
2.5
%
2.5%
 
2.5
%
 
 

 
 
 
Discount rate
 
1.5
%
9.3%
 
2.8
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
10.0%
 
9.7
%
 
 

 
 
 
Loss recovery
 
36.4
%
63.6%
 
62.5
%
 
December 31, 2012
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Other assets
$
1,214

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
4.1
%
12.9%
 
7.2
%
 
 

 
 
 
Expected rental value (per square foot)
 
$4
$309
 
$32
 
 
 
 
 
 
 
 
 
 
 
 
Debt
$
4,450

 
Discounted cash flow
 
Annual default rate
 
2.5
%
4.5%
 
2.5
%
 
 

 
 
 
Discount rate
 
1.6
%
30.0%
 
2.9
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
10.0%
 
9.6
%
 
 

 
 
 
Loss recovery
 
36.4
%
63.6%
 
62.0
%
 
Level 3 measurements not included in the tables above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.
 
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
 
Generally, a significant increase (decrease) in the expected rental value used in the fair value measurement of properties held by consolidated investment entities in isolation would result in a significantly higher (lower) fair value measurement and a significant increase (decrease) in the equivalent yield in isolation would result in a significantly lower (higher) fair value measurement.
 
Generally, a significant increase (decrease) in the annual default rate and discount rate used in the fair value measurement of the CDO’s debt in isolation would result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate in isolation would result in a significantly higher (lower) fair value measurement.
 

15

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Determination of Fair Value
 
Assets
 
Investments
 
The fair value of syndicated loans obtained from third party pricing services with multiple non-binding broker quotes as the underlying valuation source is classified as Level 2. The fair value of syndicated loans obtained from third party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
 
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of the third party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.

See Note 10 for a description of the Company’s determination of the fair value of corporate debt securities, U.S. government and agencies obligations, common stocks and other structured investments.
 
Receivables
 
For receivables of the consolidated CDOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
 
Other Assets
 
Other assets consist primarily of properties held in consolidated pooled investment vehicles managed by Threadneedle. The fair value of these properties is calculated by a third party appraisal service by discounting future cash flows generated by the expected market rental value for the property using the equivalent yield of a similar investment property. Inputs used in determining the equivalent yield and expected rental value of the property may include: rental cash flows, current occupancy, historical vacancy rates, tenant history and assumptions regarding how quickly the property can be occupied and at what rental rates. Management reviews the valuation report and assumptions used to ensure that the valuation was performed in accordance with applicable independence, appraisal and valuation standards. Given the significance of the unobservable inputs to these measurements, these assets are classified as Level 3.
 
Other assets of the consolidated CDO’s consist primarily of warrants. Warrants that are traded directly with the issuer are classified as Level 2 when the price is derived from observable market data. Warrants from an issuer whose securities are not priced in active markets are classified as Level 3.
 
Liabilities
 
Debt
 
The fair value of the CDOs’ debt is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about default, discount, prepayment and recovery rates of the CDOs’ underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the CDOs’ debt is classified as Level 3.
 
Other Liabilities
 
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CDOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.
 
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CDOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CDOs.
 

16

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
 
September 30, 2013
 
December 31, 2012
 
(in millions)
Syndicated loans
 

 
 

Unpaid principal balance
$
4,261

 
$
4,023

Excess unpaid principal over fair value
(55
)
 
(101
)
Fair value
$
4,206

 
$
3,922

Fair value of loans more than 90 days past due
$
24

 
$
34

Fair value of loans in nonaccrual status
24

 
34

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
34

 
38

Debt
 

 
 

Unpaid principal balance
$
4,696

 
$
4,757

Excess unpaid principal over fair value
(237
)
 
(307
)
Fair value
$
4,459

 
$
4,450

Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.
 
Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $32 million and $(8) million for the three months ended September 30, 2013 and 2012, respectively. Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $23 million and $(34) million for the nine months ended September 30, 2013 and 2012, respectively. The majority of the syndicated loans and debt have floating rates; as such, changes in their fair values are primarily attributable to changes in credit spreads.
 
Debt of the consolidated investment entities and the stated interest rates were as follows:
 
Carrying Value
 
Weighted Average Interest Rate
 
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
 
(in millions)
 
 
 
 
Debt of consolidated CDOs due 2016-2025
$
4,459

 
$
4,450

 
1.0
%
 
0.9
%
Floating rate revolving credit borrowings due 2014
302

 
309

 
2.6

 
2.6

Floating rate revolving credit borrowings due 2015
95

 
104

 
2.4

 
2.4

Floating rate revolving credit borrowings due 2017
118

 
118

 
4.5

 
4.5

Floating rate revolving credit borrowings due 2018
268

 

 
3.5

 

Total
$
5,242

 
$
4,981

 
 

 
 

The debt of the consolidated CDOs has both fixed and floating interest rates, which range from 0% to 13.2%. The interest rates on the debt of CDOs are weighted average rates based on the outstanding principal and contractual interest rates. The carrying value of the debt of the consolidated CDOs represents the fair value of the aggregate debt. The carrying value of the floating rate revolving credit borrowings represents the outstanding principal amount of debt of certain consolidated pooled investment vehicles managed by Threadneedle. The fair value of this debt was $783 million and $531 million as of September 30, 2013 and December 31, 2012, respectively. The consolidated pooled investment vehicles have entered into interest rate swaps and collars to manage the interest rate exposure on the floating rate revolving credit borrowings. The fair value of these derivative instruments is recorded gross and was a liability of $11 million and $17 million at September 30, 2013 and December 31, 2012, respectively. The overall effective interest rate reflecting the impact of the derivative contracts was 4.3% and 4.8% as of September 30, 2013 and December 31, 2012, respectively.

17

Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


4.  Investments
 
The following is a summary of Ameriprise Financial investments:
 
September 30, 2013
 
December 31, 2012
 
(in millions)
Available-for-Sale securities, at fair value
$
30,084

 
$
31,472

Mortgage loans, net
3,524

 
3,609

Policy and certificate loans
769

 
754

Other investments
1,027

 
1,042

Total
$
35,404

 
$
36,877

 
The following is a summary of net investment income:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Investment income on fixed maturities
$
390

 
$
442

 
$
1,194

 
$
1,353

Net realized gains (losses)
6

 
(68
)
 
7

 
(75
)
Affordable housing partnerships
(3
)
 
(5
)
 
(11
)
 
(17
)
Other
17

 
15

 
76

 
51

Consolidated investment entities
81

 
43

 
165

 
118

Total net investment income
$
491

 
$
427

 
$
1,431

 
$
1,430

 
Available-for-Sale securities distributed by type were as follows:
 
 
September 30, 2013
Description of Securities
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
Noncredit
OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
16,198

 
$
1,392

 
$
(88
)
 
$
17,502

 
$
2

Residential mortgage backed securities
 
5,895

 
171

 
(123
)
 
5,943

 
(43
)
Commercial mortgage backed securities
 
2,612

 
166

 
(8
)
 
2,770

 

Asset backed securities
 
1,377

 
54

 
(6
)
 
1,425

 

State and municipal obligations
 
2,079

 
116

 
(72