Ameriprise 2005 Annual Report Download - page 64

62 |Ameriprise Financial, Inc.
products and services to retail clients through its advisor net-
work. The Company offers its annuity products through outside
channels, such as banks and broker-dealer networks. This seg-
ment also serves institutional clients in the separately
managed account, sub-advisory and 401(k) markets, among
others. The Protection segment offers various life, disability
income, long-term care, and brokered insurance products
through the Company’s advisor network. The Company offers
auto and home insurance products on a direct basis to retail
clients principally through its strategic marketing alliances.
The Company has a Corporate and Other segment, which con-
sists of income derived from corporate level assets and
unallocated corporate expenses, primarily separation costs, as
well as the results of its subsidiary, Securities America
Financial Corporation, which operates its own independent
separately branded distribution platform.
On September 30, 2003, the Company acquired Threadneedle
Asset Management Holdings Limited (Threadneedle), one of
the leading asset management groups in the United Kingdom,
for cash of £340 million (approximately $565 million at
September 30, 2003 exchange rates). As a result, the
Company acquired $3.6 billion of assets, $3.0 billion of liabili-
ties, both of which were consolidated into the Company’s
Consolidated Balance Sheets, and $81.1 billion of assets
under management. Included in the assets under manage-
ment are certain assets of Zurich Financial Services, U.K.,
which Threadneedle will continue to manage for an initial term
of up to eight years from the date of acquisition of
Threadneedle by the Company, subject to certain performance
criteria. Threadneedle entered into an agreement with The
Zurich Group when the Company acquired Threadneedle from
Zurich in 2003 for Threadneedle to continue to manage cer-
tain assets of Zurich Financial Services.
Principles of Consolidation
The Company consolidates all non-variable interest entities in
which it holds a greater than 50% voting interest, except for
immaterial seed money investments in mutual and hedge
funds, which are accounted for as trading securities. Entities
in which the Company holds a greater than 20% but less than
50% voting interest are accounted for under the equity
method. Additionally, other investments in hedge funds in
which the Company holds an interest that is less than 50% are
accounted for under the equity method. All other investments
are accounted for under the cost method where the Company
owns less than a 20% voting interest and does not exercise
significant influence, or as Available-for-Sale or trading securi-
ties, as applicable.
The Company also consolidates all variable interest entities
(VIEs) for which it is considered to be the primary beneficiary
pursuant to Financial Accounting Standards Board (FASB)
Interpretation No. 46, “Consolidation of Variable Interest
Entities,” as revised (FIN 46). The determination as to whether
an entity is a VIE is based on the amount and characteristics
of the entity’s equity. In general, FIN 46 requires a VIE to be
consolidated when an enterprise has a variable interest for
which it is deemed to be the primary beneficiary, which means
that it will absorb a majority of the VIE’s expected losses,
receive a majority of the VIE’s expected residual return, or
both.
Qualifying Special Purpose Entities (QSPEs) under Statement
of Financial Accounting Standards (SFAS) No. 140, “Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” (SFAS No. 140) are not consoli-
dated. Such QSPEs included a securitization trust containing a
majority of the Company’s rated collateralized debt obligations
(CDOs) for which the Company sold all of its retained interests
in 2005. See Note 4 for more information. Other entities
where the Company has an interest, is the sponsor or trans-
feror are evaluated using the control, risk and reward criteria
as outlined under U.S. generally accepted accounting princi-
ples (GAAP).
The accompanying Consolidated Financial Statements are pre-
pared in accordance with U.S. GAAP. All material intercompany
accounts and transactions have been eliminated in consolida-
tion. Certain reclassifications of prior period amounts have
been made to conform to the current presentation.
Foreign Currency Translation
Net assets of foreign subsidiaries, whose functional currency
is other than the U.S. dollar, are translated into U.S. dollars
based upon exchange rates prevailing at the end of each year.
The resulting translation adjustment, along with any related
hedge and tax effects, are included in accumulated other com-
prehensive income (loss), a component of shareholders’
equity. Revenues and expenses are translated at the average
month end exchange rates during the year. Gains and losses
related to non-functional currency transactions, including non-
U.S. operations where the functional currency is the U.S.
dollar, are reported net in other revenues in the Company’s
Consolidated Statements of Income.
Amounts Based on Estimates and Assumptions
Accounting estimates are an integral part of the Consolidated
Financial Statements. In part, they are based upon assump-
tions concerning future events. Among the more significant are
those that relate to investment securities valuation and recog-
nition of other-than-temporary impairments, amortization of
deferred acquisition costs (DAC), income taxes and recognition
of deferred tax assets and liabilities. These accounting esti-
mates reflect the best judgment of management and actual
results could differ.
Revenues
The Company generates revenue from a wide range of invest-
ment and insurance products. Principal sources of revenue
include management, financial advice and service fees, distri-
bution fees, net investment income and premiums.