Ameriprise 2005 Annual Report Download - page 26

24 |Ameriprise Financial, Inc.
needs of our retail clients. We earn revenues in this operating
segment primarily through premiums and fees that we receive
to assume insurance-related risk, fees we receive on owned
and administered assets and net investment income we earn
on assets on our consolidated balance sheets related to this
segment.
Our third operating segment, Corporate and Other, consists of
income derived from corporate level assets and unallocated
corporate expenses, as well as the results of SAFC, which
through its operating subsidiary, Securities America, Inc. (SAI),
operates its own separately branded distribution network. This
segment also includes non-recurring costs associated with our
separation from American Express.
Significant Factors Affecting our Results of
Operations and Financial Condition
Separation from American Express
On February 1, 2005, the American Express Board of Directors
announced its intention to pursue the disposition of 100% of
its shareholdings in our company through a tax-free distribu-
tion to American Express shareholders (the Separation). On
September 30, 2005, American Express divested 100% of its
shareholdings in our company to American Express sharehold-
ers (the Distribution). The Separation and Distribution resulted
in specifically identifiable impacts to our reported consolidated
balance sheets and statements of income.
American Express provided a capital contribution to our com-
pany of approximately $1.1 billion to fund costs related to
the Separation and Distribution, to adequately support strong
debt ratings for our company on the Distribution and to
indemnify us for the after-tax cost of $65 million with respect
to the comprehensive settlement of a consolidated securities
class action lawsuit.
We replaced our inter-company indebtedness with American
Express, initially with a bridge loan from selected financial
institutions, and on November 23, 2005 through the
issuance of $1.5 billion of unsecured senior debt securities
with 5- and 10-year maturities.
We have incurred $293 million of pretax non-recurring sepa-
ration costs through December 31, 2005, and expect to incur
a total of approximately $875 million. These costs include
advisor and employee retention program costs, costs associ-
ated with establishing the Ameriprise Financial brand and
costs to separate and reestablish our technology platforms.
In addition, we have incurred higher ongoing expenses asso-
ciated with establishing ourselves as an independent
company.
Two businesses were transferred to American Express. The
assets, liabilities and results of operations of our former sub-
sidiary, American Express International Deposit Company
(AEIDC), are classified as discontinued operations. As dis-
cussed in Note 1, effective September 30, 2005, we entered
into an agreement to sell our interest in the AMEX Assurance
legal entity to American Express within two years after the
Distribution for approximately $115 million. This transaction,
combined with ceding of all travel and other card insurance
business to American Express, created a variable interest
entity for U.S. GAAP purposes for which we are not the pri-
mary beneficiary. Accordingly, we deconsolidated AMEX
Assurance as of September 30, 2005 for U.S. GAAP
purposes.
Capital Contribution
In connection with the Separation and Distribution, American
Express provided us a capital contribution of approximately
$1.1 billion. The capital contribution was intended to cover the
separation costs described above, and to provide adequate
support for a senior debt rating of our company on the
Distribution that allows us to have efficient access to the capi-
tal markets and support the current financial strength ratings
of our insurance subsidiaries. We contributed $650 million of
the capital contribution from American Express to our sub-
sidiary IDS Life Insurance Company (IDS Life) to absorb
non-recurring separation costs expected to be incurred by that
legal entity and to support its current financial strength rat-
ings.
New Financing Arrangements
On November 23, 2005 we issued $800 million principal
amount of 5.35% senior unsecured notes due November 15,
2010 and $700 million principal amount of 5.65% senior
unsecured notes due November 15, 2015 (senior notes). The
proceeds from the senior notes were used to repay a bridge
loan, which was drawn on September 28, 2005 to repay
American Express for inter-company loans, and for other gen-
eral corporate purposes. In September 2005 we also obtained
an unsecured revolving credit facility of $750 million expiring
in September 2010 from various third-party financial institu-
tions. Under the terms of the credit agreement we may
increase the amount of this facility to $1.0 billion and as of
December 31, 2005, no borrowings were outstanding under
this facility. See “Liquidity and Capital Resources—Description
of Indebtedness” and Note 8 to our consolidated financial
statements.
Replacement of Services and Operations Provided by
American Express
American Express has historically provided a variety of corpo-
rate and other support services for our businesses, including
information technology, treasury, accounting, financial report-
ing, tax administration, human resources, marketing, legal,
procurement and other services. American Express is continu-
ing to provide us with many of these services pursuant to a
transition services agreement. Those services are generally
being provided for a term that began after the Distribution and
will expire on the earlier to occur of the second anniversary of
the Distribution or the date of termination of a particular serv-
ice pursuant to the transition services agreement. Other than
technology-related expenses, we currently expect that the