Ameriprise Financial, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011, filed February 24, 2012. The filing also provides unaudited fourth-quarter data for the quarter ended December 31, 2011.
Business Context
Ameriprise is a diversified financial services holding company operating through Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other segments. Products include financial planning, brokerage, banking, mutual funds, asset management, annuities, life and disability insurance, and property-casualty insurance.
- Assets under management and administration were $631.3 billion at year-end, including $527.6 billion managed and $103.7 billion administered.
- The company had more than 9,700 affiliated advisors, approximately 11,139 employees, and a 92% client retention rate.
- Ameriprise completed the sale of Securities America in the fourth quarter for $150 million in cash plus potential contingent payments.
Financial Results and Key Metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total net revenues | $10.192 billion | $9.512 billion | 7% |
| Total expenses | $8.807 billion | $7.878 billion | 12% |
| Income from continuing operations | $1.030 billion | $1.284 billion | (20%) |
| Net income attributable to Ameriprise | $1.076 billion | $1.097 billion | (2%) |
| Diluted EPS from continuing operations | $4.61 | $4.27 | 8% |
| Operating diluted EPS | $5.00 | $4.53 | 10% |
| ROE excluding AOCI | 11.5% | 11.6% | (0.1 pts) |
| Operating ROE excluding CIEs and AOCI | 13.2% | 12.9% | 0.3 pts |
Revenue growth was led by management and financial advice fees, which increased 20% to $4.537 billion, and distribution fees, which increased 9% to $1.573 billion. Net investment income declined 11% to $2.046 billion, primarily because of lower interest rates, lower invested assets, and a smaller gain from consolidated investment entities.
Expenses increased substantially because of higher distribution compensation, additional Columbia Management operating costs, valuation assumption changes, and higher amortization of deferred acquisition costs. GAAP amortization of deferred acquisition costs increased to $618 million from $127 million.
Segment Performance
| Segment | 2011 Operating Pretax Income | Year-over-Year Change |
|---|---|---|
| Advice & Wealth Management | $406 million | 26% |
| Asset Management | $528 million | 29% |
| Annuities | $579 million | (13%) |
| Protection | $367 million | (9%) |
| Corporate & Other | $(241) million | 8% larger loss |
- Advice & Wealth Management benefited from improved advisor productivity, new client flows, and higher wrap-account fees. Wrap assets increased 6% to $103.4 billion.
- Asset Management benefited from a full year of Columbia Management results, but managed assets declined 5% to $435.5 billion because of Columbia net outflows and market depreciation. Threadneedle managed assets increased 8% to $113.6 billion.
- Annuities were pressured by valuation assumption changes, market-related DAC amortization, low interest rates, and fixed-annuity outflows.
- Protection earnings declined because of higher claims, higher auto liability reserves, increased universal-life claims, and $45 million of catastrophe losses versus $29 million in 2010.
Cash Flow, Liquidity, Debt and Capital
- Net cash provided by operating activities increased to $2.178 billion from $1.847 billion.
- Net cash used in investing activities was $1.146 billion, including $7.236 billion of purchases of available-for-sale securities and $150 million of proceeds from the Securities America sale.
- Net cash used in financing activities was $1.111 billion, including $1.495 billion of common-share repurchases and $212 million of shareholder dividends.
- Cash and cash equivalents were $2.781 billion at year-end, compared with $2.838 billion in 2010.
- Ameriprise had a $500 million unsecured revolving credit facility, expandable to $750 million, with no borrowings and $2 million of letters of credit outstanding.
- Long-term debt was $2.393 billion and short-term borrowings were $504 million. Total company debt excluding consolidated investment entities was approximately $2.897 billion.
- The company repurchased 27.9 million shares for $1.5 billion during 2011, with $1.5 billion remaining under authorization.
- Insurance subsidiaries maintained capital well above regulatory action levels; RiverSource Life total adjusted capital was $3.1 billion, or 494% of company-action-level RBC.
Material Changes Versus the Prior Period
- Operating earnings increased 4% to $1.232 billion, despite lower GAAP continuing-operations income and a challenging low-rate environment.
- Columbia Management contributed an additional four months of results compared with 2010; integration and restructuring costs were $95 million in 2011, bringing cumulative pretax integration costs to $202 million.
- Assets under management and administration declined 3% from $647.5 billion to $631.3 billion, primarily because of Asset Management net outflows and market depreciation.
- Variable-annuity guaranteed-benefit reserves increased materially: GMWB reserves rose to $1.377 billion from $337 million, and GMAB reserves rose to $237 million from $104 million.
- Share count declined substantially because of repurchases; diluted weighted-average shares fell to 246.3 million from 262.3 million.
- The quarterly dividend increased to $0.28 per share declared in December 2011; total dividends declared for the year were $1.15 per share.
Guidance, Outlook, Risks and Unusual Items
Management stated long-term financial targets of 6%–8% operating revenue growth, 12%–15% operating diluted EPS growth, and 12%–15% operating ROE excluding AOCI. Management expected Columbia Management integration to be completed in 2012 and expected the low-interest-rate environment to continue to pressure operating earnings, spreads, DAC and DSIC amortization, and reserves.
- Management identified valuation assumption and model changes as a significant 2011 item, producing a $39 million pretax operating charge overall, including a $25 million charge in Annuities and a $14 million charge in Protection.
- The Securities America discontinued-operations loss was $60 million after tax, including a $77 million after-tax legal expense charge and a $14 million after-tax gain on sale.
- The company retrospectively adopted new insurance acquisition-cost rules on January 1, 2012, reducing DAC by $2.0 billion and retained earnings by $1.4 billion after tax. Management said the change would not affect cash flow or excess capital and expected only a marginal 2012 operating-earnings effect.
- Material risks include equity-market declines, persistent low or rising interest rates, spread compression, variable-annuity guarantees, investment and reinsurance counterparty defaults, credit losses, reserve inadequacy, litigation, regulatory changes, advisor misconduct, technology failures, and restricted subsidiary dividend capacity.
- Legal and regulatory matters include an appeal involving alleged excessive mutual-fund fees, an ongoing insider-trading inquiry in which neither Ameriprise nor Seligman was identified as a target, and a putative ERISA class action alleging more than $20 million of damages related to the company’s 401(k) plan.
- A hypothetical 10% equity-market decline was estimated to reduce pretax income by approximately $319 million after hedge effects. A hypothetical 100-basis-point rate increase was estimated to increase pretax income by approximately $61 million.
Most Important Facts for Investors to Verify
- Reconcile GAAP earnings with operating earnings and assess the effect of excluding DAC and DSIC amortization, variable-annuity guarantee market impacts, consolidated investment entities, and integration costs.
- Review the sustainability of revenue growth given the 3% decline in total AUM and continued Columbia Management net outflows.
- Monitor GMWB and GMAB reserve growth, hedge effectiveness, policyholder behavior assumptions, and sensitivity to equity and interest-rate changes.
- Evaluate liquidity and parent-company funding dependence on dividends from regulated subsidiaries, particularly RiverSource Life.
- Assess debt maturities, short-term repurchase-agreement funding, and the availability of the revolving credit facility.
- Review the January 2012 DAC accounting change and its effect on reported equity, ROE comparisons, and future operating results.
- Track pending litigation, regulatory inquiries, ERISA claims, reinsurance exposure to Genworth, and potential changes under Dodd-Frank and other financial-services regulations.