Ameriprise Financial, Inc. — 2012 Form 10-K Summary
Business context and reporting period
Ameriprise is a diversified financial-services holding company operating through Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other segments. The filing covers the fiscal year ended December 31, 2012, including fourth-quarter results. The company reported $681.0 billion of assets under management and administration at year-end, up 8% from $631.3 billion in 2011.
Key financial metrics
| Metric | 2012 FY | 2011 FY | Change |
|---|---|---|---|
| Total net revenues | $10.217 billion | $10.192 billion | +0.2% |
| Income from continuing operations | $903 million | $1.070 billion | -16% |
| Net income attributable to Ameriprise | $1.029 billion | $1.116 billion | -8% |
| Diluted EPS | $4.62 | $4.53 | +2% |
| Operating earnings | $1.245 billion | $1.274 billion | -2% |
| Operating diluted EPS | $5.59 | $5.17 | +8% |
| Cash flow from operating activities | $1.505 billion | $2.178 billion | -31% |
| Cash and cash equivalents | $2.371 billion | $2.781 billion | -15% |
| Long-term debt | $2.403 billion | $2.393 billion | +0.4% |
Fourth-quarter 2012 net revenues were $2.674 billion, pretax income from continuing operations was $418 million, income from continuing operations was $331 million, net income attributable to Ameriprise was $389 million, and diluted EPS was $1.81. The implied net-income-attributable margin was approximately 10.1% for the full year and 14.5% for the fourth quarter.
- Management and financial advice fees increased 3% to $4.692 billion, while distribution fees increased 3% to $1.616 billion.
- Net investment income declined 6% to $1.933 billion, primarily because of continued low interest rates.
- Benefits, claims, losses and settlement expenses increased 19% to $1.846 billion, largely because of variable-annuity guaranteed-benefit market impacts.
- Operating segment earnings were $443 million for Advice & Wealth Management, $557 million for Asset Management, $567 million for Annuities, $398 million for Protection, and a $270 million loss for Corporate & Other.
- Operating return on equity excluding accumulated other comprehensive income was 16.2%, compared with 16.0% in 2011.
Material changes versus the prior comparable period
- Total assets under management increased 7% to $562.4 billion; assets under administration increased 14% to $118.6 billion.
- Advice & Wealth Management operating earnings increased 9%, supported by wrap-account growth. Wrap assets rose 21% to $124.6 billion, including $9.6 billion of net inflows.
- Asset Management operating earnings increased 5%, despite $18.7 billion of net managed-asset outflows. Threadneedle assets increased 13%, while Columbia assets increased 1%.
- Annuities operating earnings declined 9% because of lower investment income and continued spread pressure from low rates. Variable-annuity account balances increased 9% to $68.1 billion, while fixed-annuity balances declined 3% to $13.8 billion.
- Protection operating earnings increased 3%, supported by higher auto and home premiums and policy counts. Auto and home catastrophe losses increased to $55 million, including $20 million related to Superstorm Sandy.
- The company repurchased 24.6 million shares for approximately $1.3 billion and paid $314 million of regular dividends. Year-end treasury shares totaled 105.5 million.
- Financing cash outflows increased to $6.342 billion, primarily because of the liquidation of $4.6 billion of banking deposits during the bank-conversion process and shareholder capital returns.
Guidance, outlook, commentary, risks and unusual items
- Management’s stated long-term financial targets are operating total net-revenue growth of 6%–8%, operating diluted-EPS growth of 12%–15%, and operating ROE excluding accumulated other comprehensive income of 15%–18%.
- Ameriprise completed the conversion of Ameriprise Bank, FSB to Ameriprise National Trust Bank in January 2013. Deposit-taking and credit-originating activities ended; management expects annual 2013 earnings to decline by approximately $60 million, offset at the enterprise level by share repurchases funded partly by approximately $375 million of released capital.
- The company recorded $26 million of 2012 restructuring charges related to exiting the banking business, including $7 million associated with an interest-rate hedge.
- The 2012 market impact on variable-annuity guaranteed living benefits reduced pretax earnings by $265 million, compared with a $62 million reduction in 2011. The company uses derivatives to hedge portions of GMWB and GMAB exposure, but hedge effectiveness and counterparty performance remain material risks.
- Management reduced its modeled starting 10-year Treasury-rate assumption by 150 basis points in the 2012 annual unlocking review and assumed rates would remain low until mid-2013. Low rates caused approximately $90 million of pretax pressure in 2012.
- 2012 included a $16 million decrease in tax expense from an out-of-period deferred-tax correction and a $32 million increase in tax expense related to securities-lending tax errors. Management considered both corrections immaterial to current and prior financial statements.
- The company faces significant market, interest-rate, credit, liquidity, insurance-reserve, persistency, mortality, morbidity, reinsurance, regulatory, litigation, technology, cybersecurity, and investment-performance risks.
- Pending matters include regulatory inquiries, an ERISA-related 401(k) class action alleging more than $20 million in damages, a class action concerning sales of an Inland Western REIT, and an insider-trading inquiry in which the company stated it was not a target. Loss ranges were not reasonably estimable for these matters.
- Contractual commitments totaled $50.289 billion, including $38.011 billion for insurance and annuity obligations, $2.244 billion of long-term debt, $2.133 billion of debt interest, and $1.428 billion of purchase obligations.
Most important facts for investors to verify
- Reconcile GAAP income and EPS with operating earnings and operating EPS, particularly the $265 million variable-annuity market impact and restructuring charges.
- Review variable-annuity guarantee exposure, hedge results, nonperformance-risk assumptions, and sensitivity to a 10% equity decline or 100-basis-point rate increase.
- Assess the sustainability of asset-based fee revenue given $18.7 billion of Asset Management net outflows and the shift from equity to lower-fee fixed-income products.
- Confirm the financial and capital effects of the bank conversion, including the expected $60 million annual earnings reduction and planned share repurchases.
- Evaluate liquidity available to the parent, subsidiary dividend restrictions, regulatory capital ratios, debt maturities, and the $500 million revolving credit facility.
- Review litigation, regulatory inquiries, tax contingencies, reinsurance recoverables, and long-term-care obligations, including the approximately $1.6 billion Genworth reinsurance exposure.
- Consider the retrospective adoption of new deferred-acquisition-cost accounting rules when comparing 2012 with prior periods.