Ameriprise 2005 Annual Report Download - page 68

66 |Ameriprise Financial, Inc.
Deferred Acquisition Costs
DAC represent the costs of acquiring new business, principally
direct sales commissions and other distribution and underwrit-
ing costs that have been deferred on the sale of annuity and
insurance and, to a lesser extent, certain mutual fund prod-
ucts. These costs are deferred to the extent they are
recoverable from future profits. For annuity and insurance prod-
ucts, DAC are amortized over periods approximating the lives
of the business, generally as a percentage of premiums or
estimated gross profits depending on the products’ character-
istics. For certain mutual fund products, DAC are generally
amortized over fixed periods on a straight-line basis adjusted
for redemptions.
Separate Account Assets and Liabilities
Separate account assets and liabilities are funds held for the
exclusive benefit of variable annuity and variable life insurance
contractholders. The Company receives investment manage-
ment fees, mortality and expense risk fees, minimum death
benefit guarantee fees and cost of insurance charges from the
related accounts.
The Company provides contractual mortality assurances to
variable annuity contractholders that the net assets of the
separate accounts will not be affected by future variations in
the actual life expectancy experience of the annuitants and
beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers
to, or withdrawals from, the separate account assets for such
actuarial adjustments for variable annuities that are in the
benefit payment period. The Company also guarantees that
the rates at which administrative charges are deducted from
contract funds will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the
rates at which insurance charges and administrative charges
are deducted from contract funds will not exceed contractual
maximums.
Restricted and Segregated Cash
The Company has restricted cash, primarily related to
Threadneedle and consolidated VIEs, totaling $5 million and
$547 million at December 31, 2005 and 2004, respectively,
which cannot be utilized for operations. At December 31, 2005
and 2004, amounts segregated under federal and other regu-
lations reflect resale agreements of $1,062 million and
$989 million, respectively, segregated in special bank
accounts for the benefit of the Company’s brokerage cus-
tomers. The Company’s policy is to take possession of
securities purchased under agreements to resell. Such securi-
ties are valued daily and additional collateral is obtained when
appropriate.
Other Assets
Other assets include land, buildings, equipment and software,
goodwill and other intangible assets, deferred sales induce-
ment costs, derivatives and other miscellaneous assets.
Land, Buildings, Equipment and Software
Land, buildings, equipment and software are carried at cost
less accumulated depreciation or amortization. The Company
capitalizes certain costs to develop or obtain software for
internal use. The Company generally uses the straight-line
method of depreciation and amortization over periods ranging
from three to thirty years. At December 31, 2005 and 2004,
land, buildings, equipment and software were $658 million and
$677 million, respectively, net of accumulated depreciation of
$668 million and $566 million, respectively. Depreciation
expense for the years ended December 31, 2005, 2004 and
2003 was $144 million, $133 million and $114 million,
respectively.
Goodwill and Other Intangible Assets
Goodwill represents the amount of an acquired company’s
acquisition cost in excess of the fair value of assets acquired
and liabilities assumed. The Company evaluates goodwill for
impairment annually and whenever events and circumstances
make it likely that impairment may have occurred, such as a
significant adverse change in the business climate or a deci-
sion to sell or dispose of a reporting unit. In determining
whether impairment has occurred, the Company uses a com-
parative market multiples approach. In applying this
methodology, a number of factors, including actual operating
results, future business plans, economic projections and other
market data are applied.
Intangible assets are amortized over their estimated useful
lives unless they are deemed to have indefinite useful lives.
The Company evaluates intangible assets for impairment annu-
ally and whenever events and circumstances make it likely that
impairment may have occurred, such as a significant adverse
change in the business climate or a decision to sell or dispose
of a reporting unit. For intangible assets subject to amortiza-
tion, impairment is recognized if the carrying amount is not
recoverable or the carrying amount exceeds the fair value of
the intangible asset.
Deferred Sales Inducement Costs
Deferred sales inducement costs (DSIC) consist of bonus
interest credits and premium credits added to certain annuity
contract values. These benefits are capitalized to the extent
they are incremental to amounts that would be credited on
similar contracts without the applicable feature. These costs
were previously included in DAC and were reclassified as part
of the adoption of American Institute of Certified Public
Accountants (AICPA) Statement of Position 03-1, “Accounting
and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate
Accounts” (SOP 03-1). The amounts capitalized are amortized
using the same methodology and assumptions used to amor-
tize DAC.
Derivative Financial Instruments and Hedging Activities
Derivative financial instruments are classified on the
Consolidated Balance Sheets at fair value within other assets