Ameriprise Financial Reports Fourth Quarter and Full Year 2006 Results.Net income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share $0.69 for the quarter, including $0.33 of non-recurring separation costs; Adjusted earnings per diluted share for the quarter $1.02 MINNEAPOLIS -- Ameriprise Financial Ameriprise Financial, Inc. (NYSE: AMP) is a company offering financial advice and products. It is the successor to American Express Financial Advisors (AEFA), which was a subsidiary of the American Express Company. , Inc. (NYSE NYSE See: New York Stock Exchange :AMP) today reported net income of $171 million for the quarter ended December 31, 2006, an increase of 54 percent from net income of $111 million for the year-ago quarter. Adjusted earnings (1) increased 30 percent to $251 million in the fourth quarter of 2006 compared to the fourth quarter of 2005. Adjusted earnings for the quarters exclude after-tax non-recurring separation costs. Net income per diluted share for the fourth quarter of 2006 was $0.69, an increase of 57 percent from the prior year period. Adjusted earnings per diluted share for the fourth quarter of 2006 were $1.02, an increase of 32 percent from the year-ago period. The weighted average diluted share count for the fourth quarter of 2006 was 246.3 million, down from 250.3 million for the fourth quarter of 2005. Revenues grew 16 percent to $2.2 billion in the fourth quarter of 2006. Growth reflected fundamental improvement in asset-based fees, distribution fees and premiums as a result of increasing advisor productivity and market appreciation. Growth was partially offset by continued declines in net investment income, primarily as a result of declining balances in annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. fixed accounts and certificates. Return on equity for the year ended December 31, 2006 was 8.3 percent. Adjusted return on equity increased to 11.8 percent compared to 10.2 percent for 2005. During the quarter, the Company repurchased 921,000 shares of its common stock for approximately $48 million. For the full year, income before discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. grew 13 percent to $631 million, and adjusted earnings grew 25 percent to $866 million compared to 2005. Income before discontinued operations per diluted share for 2006 was $2.54, an increase of 12 percent from the prior year. Adjusted earnings per diluted share for 2006 were $3.48, an increase of 24 percent from a year ago. Revenues grew 9 percent, or $656 million. Adjusted revenues grew 11 percent, or $794 million, to $8.1 billion. "This was a strong quarter for Ameriprise Financial, and it was a fitting conclusion to a highly successful first year as a public company," said Jim Cracchiolo, chairman and chief executive officer. "We are generating positive momentum in our business metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. as we continue to establish Ameriprise Financial as a financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. leader. Growth in owned, managed and administered assets, mass affluent Mass affluent and emerging affluent are marketing terms used to refer to the growing high end of the mass market. It is most commonly used by the financial services industry to refer to individuals with US$100,000 to US$1,000,000 of liquid financial assets,[1] and affluent clients, financial plans and cash sales sales made for ready, money, in distinction from those on which credit is given; stocks sold, to be delivered on the day of transaction. See also: Cash all accelerated in the fourth quarter. We increased our branded advisor count and substantially increased productivity. As a result, we've seen solid financial performance in our fourth quarter and full year results as revenue and earnings growth met or exceeded our target ranges and adjusted return on equity increased to within 20 basis points of our near-term goal. "In addition, we're on track to complete all activities required to fully separate from American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. later this year, with the majority of the work already behind us." (1) Adjusted earnings exclude discontinued operations and AMEX AMEX See: American Stock Exchange Assurance from the full year 2005 period and non- recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. separation costs from both periods. See definitions and reconciliations throughout the release. Fourth Quarter 2006 Summary Management believes that the presentation of adjusted financial measures best reflects the underlying performance of the Company's ongoing operations. The adjusted financial measures exclude discontinued operations and AMEX Assurance from the full year 2005 period and non-recurring separation costs from all periods. This presentation is consistent with the non-GAAP financial information presented in the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for year-end 2005, filed March 8, 2006 with the Securities and Exchange Commission. [TABLE OMITTED] Included in consolidated net income and adjusted earnings for the fourth quarter of 2006 were $27 million in pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern realized net investment gains primarily related to recoveries on WorldCom securities. This compared to $5 million in pretax net investment gains in the fourth quarter of 2005. Fourth Quarter 2006 Consolidated Operating Highlights * Mass affluent and affluent client groups increased 10 percent from the year-ago period. * Advice sales were up 11 percent from the year-ago period. Overall, client financial plan penetration ended the quarter at 45 percent compared to 44 percent in the prior year period, with planning penetration of newly acquired mass affluent and affluent clients substantially higher. * Strong advisor productivity increases drove 27 percent growth in total Gross Dealer Concession Gross Dealer Concession or GDC is the revenue to a brokerage firm when commissioned securities and insurance salespeople sell a product, whether it is an investment like stocks, bonds, or mutual funds, or insurance like life insurance or long term care insurance. (GDC GDC Game Developers Conference GDC General Dental Council GDC Gouvernement du Canada GDC Georgia Department of Corrections GDC Global Data Center GDC Guglielmi Detachable Coil GDC Global Development Center GDC Institute for Genetic Disease Control in Animals ) from the year-ago period, primarily driven by strong equity markets, continued strength in wrap account Wrap Account An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes this also includes funds of funds. net inflows and strong growth in sales of direct investments. * During the quarter, the number of branded advisors increased by 195 to 10,829, up 2 percent year-over-year, with total advisors up 1 percent year-over-year to 12,592. Franchisee advisor retention remained strong at 93 percent. * Owned, managed and administered assets were $466 billion at December 31, 2006 with year-over-year growth of 9 percent, primarily as a result of strong equity markets. This also reflected the sale of the defined contribution recordkeeping business in the second quarter of 2006, which resulted in the transfer of $17 billion in administered assets and lowered year-over-year reported growth by 4 percentage points. * Strong net inflows in wrap accounts and variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. continued with $1.6 billion in wrap net inflows and $1.5 billion in annuity variable account net inflows. * RiverSource Investments and Threadneedle Investments delivered consistent, competitive investment performance across equity, fixed income and alternative portfolios. * RiverSource(SM) mutual fund net outflows of $1.5 billion included $0.7 billion of the previously disclosed $0.8 billion outflow related to American Express repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. its 401(k) offerings. Excluding this single event, net flows continued to improve primarily due to 35 percent growth in sales and lower redemptions in the branded advisor channel. * Annuity fixed account net outflows of $1.1 billion reflected the current interest rate environment and the Company's strategy to focus on products that offer a more attractive return on capital. * Life insurance in-force increased 9 percent year-over-year to $174 billion. * On December 31, 2006, the Company consolidated its five life insurance entities into two and renamed them RiverSource Life Insurance Company and RiverSource Life Insurance Co. of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . * The Company exceeded its full-year reengineering target and applied a majority of the savings to investments for longer-term growth. * Separation remains well executed, on budget and on track for completion by September 30, 2007. The Company expects to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. non-recurring separation costs through the end of the year. [TABLE OMITTED] (1) For this non-GAAP presentation of separation costs, after-tax is calculated using the statutory tax rate of 35%, adjusted for permanent differences, if any. Fourth Quarter 2006 Consolidated Results Net income grew 54 percent to $171 million. Adjusted earnings grew 30 percent to $251 million, with adjusted pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. up 29 percent compared to the year-ago quarter. Results were positively impacted by the Company's efforts to gather assets and grow revenues from higher-returning, less capital-intensive products, reflected in strong net inflows in wrap accounts and variable annuities. Market appreciation also favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impacted results. These positives were partially offset by the impact of lower spread income in the fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. and certificate businesses in the Asset Accumulation and Income (AA&I) segment, higher expenses related to legal and regulatory items in the AA&I segment, and increased interest expense from establishing an independent capital structure, reflected in the Corporate and Other segment. Revenues Consolidated revenues rose 16 percent to $2.2 billion. Growth reflected strong sales of direct investments, continued strong net inflows in wrap accounts and variable annuities, as well as market appreciation. These positives were partially offset by lower net investment income due to declining annuity fixed account and certificate balances. Management, financial advice and service fees grew 25 percent, or $163 million, to $814 million. Underlying year-over-year growth was driven by 32 percent growth in wrap assets and 31 percent growth in annuity variable account assets. In the quarter, the Company recognized $46 million in Threadneedle hedge fund hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" performance fees for the full year's performance, which compared to a $12 million reduction in revenue as a result of hedge fund performance in the fourth quarter of 2005. These increases were partially offset by $15 million in lower fee revenue due to the sale of the defined contribution recordkeeping business. Distribution fees grew 35 percent, or $97 million, to $374 million. Underlying business activity was strong, with total cash sales up 22 percent. In the quarter, sales of direct investments far exceeded historical trends due to client reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. of proceeds from certain real estate investment trust liquidations. Net investment income declined 1 percent, or $8 million, to $566 million. Overall, this reflected the ongoing trend of declining assets in the fixed annuity and certificate businesses. Results were positively impacted by realized net investment gains of $27 million, primarily related to recoveries on WorldCom securities, compared to $5 million in net investment gains in the prior year period. These increases were partially offset by a $9 million loss in net investment income from the consolidation, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation 04-5, of certain limited partnerships holding client assets we manage. Premiums grew 5 percent, or $11 million, to $239 million, primarily driven by a 9 percent increase in policy counts in Auto and Home. Other revenues grew 21 percent, or $29 million, to $168 million, primarily due to the consolidation of certain limited partnerships holding client assets we manage, in accordance with EITF 04-5, and growth in variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. rider fees. Expenses Compensation and benefits - Field increased 28 percent, or $104 million, to $478 million. This increase was primarily the result of overall business growth as reflected by the 27 percent growth in GDC. Compensation and benefits - Non-field increased 33 percent, or $93 million, to $374 million. This reflected a $42 million increase specifically related to Threadneedle hedge fund performance compensation for the full year, as well as higher costs related to corporate and other investment management incentives in recognition of strong performance. Interest credited to account values decreased 5 percent, or $18 million, to $316 million, reflecting continued declines in annuity fixed account and certificate balances, partially offset by increased crediting rates on certificates. Stock market appreciation also increased the crediting rates for stock market certificates and equity indexed annuities. These equity market-driven expense increases are hedged, resulting in correlated cor·re·late v. cor·re·lat·ed, cor·re·lat·ing, cor·re·lates v.tr. 1. To put or bring into causal, complementary, parallel, or reciprocal relation. 2. increases in net investment income. Benefits, claims, losses and settlement expenses increased 5 percent, or $11 million, to $245 million, primarily reflecting higher life and health insurance benefits. In the fourth quarter of 2006, volume-driven increases in Auto and Home benefits were offset by a net release of $9 million in reserves, primarily reflecting continued improvement in the 2004 and 2005 accident year results. Amortization of deferred acquisition cost (DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ) expenses decreased 7 percent, or $8 million, to $104 million. Volume-driven increases in variable annuity DAC amortization were more than offset by the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact of equity market appreciation. Interest and debt expense increased 57 percent, or $12 million, to $33 million, reflecting costs associated with the Company establishing its long-term independent corporate capital structure. The Company replaced short-term debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. with fixed rate, medium-term debt in the fourth quarter of 2005 and issued junior subordinated notes (hybrid securities Hybrid Security A security that combines two or more different financial instruments. Notes: Hybrid securities generally combine both debt and equity characteristics. ) in the second quarter of 2006. Other expenses increased 9 percent, or $24 million, to $285 million, reflecting $31 million in expenses related to legal and regulatory items in the current quarter, partially offset by corporate cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. initiatives. Taxes The effective tax rate on net income was 15.5 percent for the quarter, as compared to 12.0 percent in the prior year period. The effective tax rate on adjusted earnings was 23.0 percent, down slightly from 23.4 percent from the fourth quarter of 2005. Included in net income and adjusted earnings for the fourth quarter of 2006 was a $16 million tax benefit primarily due to a change in the effective state income tax rate applied to deferred tax assets as a result of the Company's separation from American Express. Balance Sheet and Capital During the fourth quarter of 2006, the Company repurchased 921,000 shares for approximately $48 million. The quarter-end basic share count was 242.8 million and the ending diluted share count was 246.2 million. The average diluted share count for the quarter was 246.3 million. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. as of December 31, 2006 was $7.9 billion, an increase of $238 million compared to December 31, 2005, as retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. were offset by $470 million in share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. and a $58 million decline in accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as primarily related to the impact of rising interest rates on the Company's fixed income investment portfolio. Book value per outstanding share was $32.83 as of December 31, 2006. The Company remains committed to maintaining the safety and soundness of its balance sheet, continuing to maintain substantial liquidity and a high quality investment portfolio, and continuing to actively manage and mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. risk exposures.* Cash and cash equivalents were more than $2.7 billion. * The quality of the Available-for-Sale fixed income investment portfolio, representing approximately 30 percent of balance sheet assets, remained high, with 7 percent below investment grade. * Unrealized net investment losses in the Available-for-Sale investment portfolio were $0.3 billion at quarter end. * The Company continued to purchase long-dated customized put options designed to closely match the product features sold to customers as variable annuity Guaranteed Minimum Withdrawal Benefit riders, hedging equity market, interest rate and volatility risk Volatility risk The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset. . * The debt to capital ratio as of December 31, 2006 was 21.9 percent. The debt to capital ratio excluding non-recourse debt Non-Recourse Debt A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral if the borrower defaults. Notes: These types of projects are characterized by high capital expenditures, long loan periods, and uncertain revenue and with 75 percent equity credit for the hybrid securities was 16.4 percent. For the fourth quarter of 2006 the ratio of earnings to fixed charges was 6.0 times. Excluding interest on non-recourse debt, the ratio of earnings to fixed charges was 6.5 times. [TABLE OMITTED] Full Year 2006 Consolidated Results For all of 2006, income before discontinued operations grew 13 percent to $631 million. Adjusted earnings grew 25 percent to $866 million compared to 2005. Income before discontinued operations per share was $2.54, up 12 percent from $2.26 for the prior year. Adjusted earnings per share were $3.48, up 24 percent from $2.80 for the prior year. Weighted average diluted shares for full year 2006 were 248.5 million compared to 247.2 million in 2005. Revenues grew 9 percent, or $656 million. Adjusted revenues grew 11 percent, or $794 million, to $8.1 billion. Growth was primarily driven by a 15 percent, or $390 million, increase in management, financial advice and service fees, a $150 million increase in distribution fees and a $202 million increase in other revenues, primarily due to the consolidation of certain limited partnerships, in accordance with EITF 04-5, holding client assets we manage and proceeds from the sale of the defined contribution recordkeeping business. Expenses increased 8 percent, or $536 million. Adjusted expenses increased 9 percent, or $592 million, to $7.0 billion. This increase was primarily due to a 19 percent, or $500 million, increase in field and non-field compensation and benefits due to increased business activity, higher performance incentives and costs related to operating as an independent company. [TABLE OMITTED] Asset Accumulation and Income Segment - Fourth Quarter 2006 Results Pretax segment income increased 33 percent, or $62 million, to $249 million for the fourth quarter. Strong underlying growth was driven primarily by fee-based businesses. Total revenues increased 18 percent, or $247 million, to $1.6 billion, reflecting strong broker-dealer activity including client reinvestment of proceeds from certain real estate investment trust liquidations and continued growth in asset management fee-based and performance-based revenues, both positively impacted by market appreciation. In the quarter, the Company recognized $46 million in Threadneedle hedge fund performance fees for the full year, which compared to a $12 million reduction in revenue as a result of hedge fund performance in the fourth quarter of 2005. These increases were partially offset by a $9 million loss in net investment income from the consolidation of certain limited partnerships holding client assets we manage, in accordance with EITF 04-5, and $15 million in lower fees due to the sale of the defined contribution recordkeeping business. Total expenses increased 16 percent, or $185 million, to $1.3 billion, primarily due to a $109 million increase in field compensation related to business growth and a $100 million increase in other expenses. This increase in other expenses reflected higher costs related to incentives in recognition of strong management performance, including $33 million specifically related to Threadneedle hedge fund investment performance for the full year, compared to a $9 million reduction in expense in the fourth quarter of 2005, and $30 million in higher expenses related to legal and regulatory items. Segment Highlights * Total managed assets of $300 billion were up 14 percent from the prior year period. * Fourth quarter investment performance at RiverSource Investments and Threadneedle Investments remained strong, which contributed to improved three-year track records compared to year end 2005. * Wrap product net inflows of $1.6 billion in the quarter and market appreciation resulted in total wrap ending assets of $76.4 billion, up 32 percent from the prior year period. * Total RiverSource mutual fund outflows of $1.5 billion compared to $2.2 billion in the prior year period and $0.7 billion in the third quarter of 2006. Fourth quarter net outflows included previously disclosed outflows related to American Express repositioning its 401(k) offerings. Management believes the year-over-year sales growth of 35 percent reflects client and advisor recognition of RiverSource investment performance and strong client and advisor adoption of goal-based products. * Growth in total managed institutional assets of 13 percent to $143 billion reflected year-to-date net outflows of lower margin Zurich assets, offset by the positive impacts of foreign currency translation and market appreciation. * Cash sales through third party distributors increased 61 percent compared to the prior year period, reflecting strong variable annuity sales. The Company continues to sign agreements to offer RiverSource Funds outside Ameriprise Financial and is building its third party mutual fund wholesaling capabilities. * RiverSource annuity variable account net inflows of $1.5 billion in the quarter and market appreciation resulted in $43.5 billion in total ending balances, up 31 percent from the prior year period. * RiverSource annuity fixed account net outflows of $1.1 billion in the quarter combined with the full year net outflow resulted in $23.1 billion in ending balances, down 11 percent from the prior year period. The tax equivalent spread, which excludes the impact of realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. / (losses), declined to 2.00 percent from 2.06 percent in the prior year period. * Certificate net flows were relatively flat in the quarter, resulting in $4.7 billion in ending balances, down 16 percent from the prior year period. The tax equivalent spread declined to 0.75 percent from 1.49 percent in the prior year period, primarily due to higher interest crediting rates. The full year spread of 1.12 percent is down substantially from 1.68 percent for 2005. [TABLE OMITTED] Protection Segment - Fourth Quarter 2006 Results Pretax segment income increased 36 percent, or $28 million, to $106 million for the fourth quarter of 2006. Revenues grew 7 percent, or $31 million, to $502 million. This increase included $11 million in higher Auto and Home premiums; an $11 million increase in net investment income, primarily from increased realized net investment gains; and a $9 million increase from management fees and other revenue related to variable universal life / universal life (VUL/UL) products. Expenses increased 1 percent, or $3 million, to $396 million. This included a $10 million increase in benefits, claims, losses and settlement expenses, primarily due to increased life and health related benefits. In the fourth quarter of 2006, volume-driven increases in Auto and Home benefits were offset by a net release of $9 million in reserves, primarily reflecting continued improvement in 2004 and 2005 accident year results. Segment Highlights * Life insurance in-force increased 9 percent to $174 billion. * VUL/UL policyholder Policyholder An individual who owns an insurance policy. account balances grew 14 percent to $8.3 billion, reflecting market appreciation and the Company's continuing leadership position in VUL VUL Variable Universal Life VUL Vulnerability (unit) VUL Vulgar . * Auto and Home premiums grew 8 percent to $147 million. [TABLE OMITTED] Corporate and Other and Eliminations Segment - Fourth Quarter 2006 Results This segment primarily reflects financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against fees and associated compensation, unallocated corporate expenses and interest expense on securities considered part of the corporate capital structure. The pretax segment loss was $152 million for the fourth quarter of 2006, compared to a pretax loss pretax loss A loss reported before tax benefits are considered. of $138 million in the year-ago quarter. Excluding non-recurring separation costs, the segment incurred an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $29 million in the quarter compared to a loss of $13 million in the prior year period. A $13 million improvement in net investment income reflected higher investment asset balances due to the issuance of hybrid securities during the second quarter of 2006. This increase in revenues was primarily offset by higher interest and debt expense associated with establishing the Company's long-term corporate capital structure and higher unallocated corporate expenses. Management believes separation activities continue to be well-executed, on-budget and on track. Separation costs incurred in the quarter were $123 million, the largest component of which related to reestablishing the Company's technology infrastructure. Since separation, the Company has incurred $654 million in non-recurring separation costs. Definitions Allocated Equity - The internal allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of consolidated shareholders' equity, excluding accumulated other comprehensive income (loss), to the Company's operating segments for purposes of measuring segment return on allocated equity. Allocated equity does not represent insurance company risk-based capital or other regulatory capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. applicable to the Company and certain of its subsidiaries. AMEX Assurance Company - A legal entity owned by IDS Property Casualty Insurance Company that offers travel and other card insurance to American Express Company (American Express) customers. This business had historically been reported in the Travel Related Services segment of American Express. Under the separation agreement with American Express, 100 percent of this business was ceded to an American Express subsidiary in return for an arm's length arm's length adj. the description of an agreement made by two parties freely and independently of each other, and without some special relationship, such as being a relative, having another deal on the side or one party having complete control of the other. ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. fee. Ameriprise Financial expects to sell the legal entity of AMEX Assurance to American Express on or before September 30, 2007 for a fixed price equal to the net book value of AMEX Assurance. Asset Management Net Flows - A calculation of sales less redemptions plus other. Other includes reinvested dividends. Client Group - In general, a client group consists of accounts for an individual, spouse spouse A legal marriage partner as defined by state law or domestic partner and any accounts owned for, by or with the individual's unmarried children under the age of 21. Clients With a Financial Plan Percentage - The period-end number of current clients who have received a financial plan or have entered into an agreement to receive and have paid for a financial plan, divided by the number of active retail client groups, serviced by branded employees, franchise advisors and the Company's customer service organization. Contribution Margin - Total revenues less compensation and benefits - field, interest credited to account values and benefits, claims, losses and settlement expenses as a percentage of total revenues. Debt to Capital Ratio - A ratio comprised of total debt divided by total capital. This ratio is also presented excluding non-recourse debt of a collateralized debt obligation Collateralized Debt Obligation (CDO) A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations, (CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the ) consolidated in accordance with FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 46(R) and non-recourse debt of property fund limited partnerships managed by Threadneedle consolidated in accordance with EITF 04-5. In addition, we provide debt to capital ratio information, excluding non-recourse debt that reflects an equity credit on our junior subordinated notes we issued on May 26, 2006. These junior subordinated notes receive at least a 75 percent equity credit by the majority of the rating agencies. Deferred Acquisition Costs (DAC) - This represents the costs of acquiring new protection, annuity and certain mutual fund business, principally direct sales commissions and other distribution and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. costs that have been deferred on the sale of annuity, life, disability income and long term care insurance and, to a lesser extent, deferred marketing and promotion expenses on auto and home insurance and deferred distribution costs distribution costs distribute npl → Vertriebskosten pl on certain mutual fund products. These costs are deferred to the extent they are recoverable from future profits. Emerging Issues Task Force Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" (EITF 04-5) - EITF 04-5 provides guidance on whether a partnership should be consolidated by one of its partners. The Company's adoption of EITF 04-5, effective January 1, 2006, resulted in the consolidation of certain limited partnerships for which the Company is the general partner. As a result, the Company consolidates certain property fund limited partnerships managed by Threadneedle Investments and certain hedge funds managed by RiverSource Investments. Gross Dealer Concession (GDC) - An internal measure based upon the weighted average production of advisor activity used to represent financial results attributable to advisor activity and to determine advisor compensation. Life Insurance in-Force - The total amount of all life insurance death benefits currently insured by the Company. Mass Affluent - Individuals with $100,000 to $1 million in investable assets. Mass Affluent and Affluent Client Groups - Client groups with $100,000 or more in invested assets or comparable product values with the Company. Non-Recurring Separation Costs - The Company has incurred significant non-recurring separation costs as a result of the separation from American Express. Separation costs generally consist of costs associated with separating and reestablishing the Company's technology platforms, establishing the Ameriprise Financial brand and advisor and employee retention programs. Ratio of Earnings to Fixed Charges - A ratio comprised of earnings divided by fixed charges. Earnings are defined as income before income tax provision, discontinued operations and accounting change plus interest and debt expense, the interest portion of rental expense, amortization of capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. and adjustments related to equity investments and minority interests in consolidated entities. Fixed charges are defined as interest and debt expense, the interest portion of rental expense and capitalized interest. The ratio is also presented excluding the effect of interest on non-recourse debt of a CDO consolidated in accordance with FIN 46(R) and the Threadneedle managed property fund limited partnerships consolidated in accordance with EITF 04-5. Segments: Asset Accumulation and Income Segment - This segment offers products and services, both the Company's and other companies', to help the Company's retail clients address identified financial objectives related to asset accumulation and income management. Products and services in this segment are related to asset management, brokerage and banking, and include mutual funds, wrap accounts, variable and fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. , brokerage accounts Brokerage Account An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. and investment certificates. This operating segment also serves institutional clients by providing investment management services in separately managed accounts, sub-advisory, and alternative investments. The Company earns revenues in this segment primarily through fees it receives based on managed assets and annuity separate account assets. These fees are impacted by both market movements and net asset flows. The Company also earns net investment income on owned assets, principally supporting the fixed annuity and certificate businesses and capital supporting the business, and distribution fees on sales of mutual funds and other products. This segment includes the results of SAFC SAFC South Australian Film Corporation SAFC Sunderland Association Football Club SAFC Securities America Financial Corporation SAFC South Australia Film Corporation SAFC Stirling Albion Football Club (UK) , which through its operating subsidiary An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Securities America, Inc. ("SAI"), operates its own separately branded distribution network. Protection Segment - This segment offers a variety of protection products, both the Company's and other companies', including life, disability income, long term care and auto and home insurance to address the identified protection and risk management needs of the Company's retail clients. The Company earns revenues in this operating segment primarily through premiums, fees and charges that the Company receives to assume insurance-related risk, fees the Company receives on assets supporting variable universal life separate account balances, and net investment income on owned assets supporting insurance reserves and capital supporting the business. Corporate and Other and Eliminations Segment - This segment consists of income derived from financial planning fees, investment income on corporate level assets including unallocated equity and unallocated corporate expenses. This segment also includes non-recurring costs associated with the Company's separation from American Express. Total Clients - The sum of all clients, individual, business and institutional, that receive investment management and/or other services, excluding those clients serviced by SAFC and Threadneedle. Ameriprise Financial, Inc. is a leading financial planning and services company with more than 12,000 financial advisors and registered representatives that provides solutions for clients' asset accumulation, income management and insurance protection needs. The Company's financial advisors deliver tailored solutions to clients through a comprehensive and personalized per·son·al·ize tr.v. per·son·al·ized, per·son·al·iz·ing, per·son·al·iz·es 1. To take (a general remark or characterization) in a personal manner. 2. To attribute human or personal qualities to; personify. financial planning approach built on a long-term relationship with a knowledgeable advisor. The Company specializes in meeting the retirement-related financial needs of the mass affluent. Financial advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal and investments are available through Ameriprise Financial Services, Inc. Member NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). and SIPC (Simply Interactive PC) An earlier umbrella term from Microsoft and Intel for a PC that works like a home appliance. For example, it has a sealed case, uses external connectors for expansion and boots in just a couple of seconds. . For more information, visit ameriprise.com. Forward Looking Statements This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that reflect the Company's plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. The Company has made various forward-looking statements in this news release. Examples of such forward-looking statements include: * statements of plans, intentions, expectations, objectives or goals, including those relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the establishment of the Company's new brands, mass affluent client acquisition strategy, asset flows and competitive environment; * statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ; and * statements of assumptions underlying such statements. The words "believe," "expect," "anticipate," "optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op ," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to: * the impact of the separation from American Express; * ability to establish the Company's new brands; * the Company's capital structure as a stand-alone company stand-alone company An independent operating firm. For example, a large diversified firm may consider spinning off a subsidiary because, as a stand-alone company, the subsidiary would command a higher price-earnings ratio than the parent. , including ratings and indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , and limitations on subsidiaries to pay dividends; * changes in the interest rate and equity market environments; * changes in the regulatory environment, including ongoing legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. and regulatory actions; * investment management performance; * effects of competition in the financial services industry and changes in product distribution mix and distribution channels; * risks of default by issuers of investments the Company owns or by counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. to derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. or reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. arrangements; * experience deviations from assumptions regarding morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. , mortality and persistency in certain annuity and insurance products; and * general economic and political factors, including consumer confidence in the economy. Readers are cautioned that the foregoing list of factors is not exhaustive. There may also be other risks that the Company is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the "Risk Factors" discussion included as Part 1, Item 1A of the Company's Annual Report on Form 10-K filed with the SEC on March 8, 2006. The financial results discussed in this release represent past performance only, which may not be used to predict or project future results. For information about Ameriprise Financial entities, please refer to the Fourth Quarter 2006 Statistical Supplement available at ir.ameriprise.com. Additional Tables Full Year 2006: * Consolidated Income Statements consolidated income statement An income statement that combines the income statements of two or more organizations. As with other consolidated statements, a consolidated income statement eliminates any funds owed to or due from firms within the same group. Reconciled to Adjusted * Asset Accumulation and Income Segment - Income Statements * Protection Segment - Income Statements Reconciled to Adjusted * Corporate and Other and Eliminations - Income Statements Reconciliation Tables: * Selected Adjusted Consolidated Income Data to GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). - Three Months Ended December 31, 2006 * Selected Adjusted Consolidated Income Data to GAAP - Three Months Ended December 31, 2005 * Selected Adjusted Consolidated Income Data to GAAP - Year Ended December 31, 2006 * Selected Adjusted Consolidated Income Data to GAAP - Year Ended December 31, 2005 * Return on Equity - Twelve months ended December 31, 2006 * Return on Equity - Twelve months ended December 31, 2005 * Ratio of Earnings to Fixed Charges * Debt to Total Capital at December 31, 2006 [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] (1) Return on equity calculated using the 12 month trailing income before discontinued operations in the numerator numerator the upper part of a fraction. numerator relationship see additive genetic relationship. numerator Epidemiology The upper part of a fraction and the average of shareholders' equity before the assets and liabilities of discontinued operations as of the last day of the preceding four quarters and the current quarter in the denominator denominator the bottom line of a fraction; the base population on which population rates such as birth and death rates are calculated. denominator . (2) Adjusted return on equity calculated using adjusted earnings (income before discontinued operations excluding non-recurring separation costs and AMEX Assurance) in the numerator, and equity excluding both the assets and liabilities of discontinued operations and equity allocated to expected non-recurring separation costs as of the last day of the preceding four quarters and the current quarter in the denominator. Both return on equity calculations use the trailing twelve months' return, and equity calculated using a five point average of quarter-end equity. [TABLE OMITTED] (1) Ratio of Earnings to Fixed Charges is a ratio comprised of earnings divided by fixed charges. Earnings are defined as income before income tax provision, plus interest and debt expense, the interest portion of rental expense, amortization of capitalized interest and adjustments related to equity investments and minority interests in consolidated entities. Fixed charges are defined as interest and debt expense, the interest portion of rental expense and capitalized interest. The ratio is also presented excluding the effect of interest on non-recourse debt of a Collatarized Debt Obligation consolidated in accordance with FIN 46(R). [TABLE OMITTED] The Company's junior subordinated notes receive an equity credit of at least 75% by the majority of the rating agencies. [c] 2007 Ameriprise Financial, Inc. All rights reserved. |
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