Ameriprise 2005 Annual Report Download - page 31

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Ameriprise Financial, Inc. |
including our corporate office employees, Threadneedle
employees, other portfolio management employees and
Ameriprise Auto & Home Insurance employees.
Interest credited to account values. Interest credited to account
values represents the amounts contributed to contractholder
and policyholder account balances for annuity contracts, and
variable and fixed universal life policies, as well as amounts
credited to investment certificate holder account balances.
Benefits, claims, losses and settlement expenses. Benefits,
claims, losses and settlement expenses represent losses and
claims on annuities and protection products (including life, dis-
ability, auto and home and long-term care insurance). It also
includes changes in the related insurance reserves.
Amortization of deferred acquisition costs. DAC represents the
costs of acquiring new protection, annuity and mutual fund
business, principally direct sales commissions and other distri-
bution and underwriting costs that have been deferred on the
sale of annuity, life, disability income and long-term care insur-
ance and, to a lesser extent, deferred marketing and
promotion expenses on auto and home insurance and
deferred distribution fees for certain mutual fund products. We
defer these costs to the extent they are recoverable from
future profits. For our annuity and protection products, we
amortize DAC over periods approximating the lives of the busi-
ness, principally as a percentage of premiums or estimated
gross profits associated with the products, depending on the
product’s characteristics. For certain mutual fund products, we
generally amortize DAC over fixed periods on a straight-line
basis adjusted for redemptions. For more information regard-
ing the assumptions underlying DAC amortization, see
“—Critical Accounting Policies—Deferred Acquisition Costs”
described previously.
Separation Costs. Separation costs include expenses related to
the separation from American Express. Separation costs primarily
relate to advisor and employee retention program costs, costs
associated with establishing the Ameriprise Financial brand and
costs to separate and reestablish our technology platforms.
Other expenses. Other expenses primarily include advertising
costs, information technology costs, legal and regulatory
costs, other professional services, communications costs and
facilities expenses. These expenses are not associated with
the separation from American Express.
Expense Allocations Prior to the Distribution
For the periods preceding the Distribution, we prepared our
consolidated financial information as if we had been a stand-
alone company. In the preparation of our consolidated financial
information for those periods, we made certain allocations of
expenses that our management believes to be a reasonable
reflection of costs we would have otherwise incurred as a
stand-alone company but were paid by American Express. For
more information regarding these expenses, see Notes 1 and
21 to our consolidated financial statements.
Our financial information presented may not be indicative of
our consolidated results of operations, financial condition or
cash flows in the future or what our consolidated results of
operations, financial condition or cash flows would have been
had we been a separate, stand-alone entity during all periods
presented.
Non-GAAP Financial Information
We follow accounting principles generally accepted in the
United States (GAAP). This report includes information on both
a GAAP and non-GAAP basis. The non-GAAP presentation in
this report excludes items that are a direct result of the
Separation and Distribution, which consist of discontinued
operations, AMEX Assurance and non-recurring separation
costs, and also excludes the cumulative effect of accounting
change. Our non-GAAP financial measures, which we view as
important indicators of financial performance, include:
adjusted revenues or revenues excluding AMEX Assurance;
revenue growth excluding the impact of the separation;
expenses excluding separation costs and AMEX Assurance;
adjusted earnings or income before discontinued operations,
cumulative effect of accounting change, AMEX Assurance and
non-recurring separation costs;
net income growth excluding the impact of the separation;
and
return on average equity excluding the impact of the separa-
tion, or adjusted return on equity, using as the numerator
adjusted earnings for the last twelve months and as the
denominator a five point average of 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.
Management believes that the presentation of these non-GAAP
financial measures excluding these specific income statement
impacts best reflects the underlying performance of our ongo-
ing operations and facilitates a more meaningful trend
analysis. These non-GAAP measures are also used for goal
setting, certain compensation related to our annual incentive
award program and evaluating our performance on a basis
comparable to that used by securities analysts.