Ameriprise 2006 Annual Report Download - page 68

separating and reestablishing the Company’s technology plat-
forms and advisor and employee retention programs.
Other Expenses
Other expenses primarily include professional and consultant
fees, information technology and communications, facilities
and equipment, advertising and promotion and legal and
regulatory. Other expenses are net of amounts capitalized as
DAC. Other expenses also include expenses related to certain
limited partnerships that were consolidated beginning in 2006,
which primarily consist of the portion of net income of these
partnerships not owned by the Company.
Advertising costs are charged to expense in the year in which
the advertisement first takes place, except for certain
direct-response advertising costs primarily associated with
the solicitation of auto and home insurance products.
Direct-response advertising expenses directly attributable to
the sale of auto and home insurance products are capitalized
and generally amortized over the life of the policy.
Income Taxes
The Company’s provision for income taxes represents the net
amount of income taxes that the Company expects to pay or to
receive from various taxing jurisdictions in connection with its
operations. The Company provides for income taxes based on
amounts that the Company believes it will ultimately owe.
Inherent in the provision for income taxes are estimates and
judgments regarding the tax treatment of certain items and
the realization of certain offsets and credits.
Balance Sheet
Cash and Cash Equivalents
Cash equivalents include time deposits and other highly liquid
investments with original maturities of 90 days or less.
Investments
Investments consist of the following:
Available-for-Sale Securities
Available-for-Sale securities are carried at fair value with
unrealized gains (losses) recorded in accumulated other
comprehensive income (loss), net of income tax provision
(benefit) and net of adjustments in other asset and liability
balances, such as DAC, to reflect the expected impact on their
carrying values had the unrealized gains (losses) been realized
as of the respective balance sheet date. Gains and losses are
recognized in consolidated results of operations upon
disposition of the securities. In addition, losses are also
recognized when management determines that a decline in
value is other-than-temporary, which requires judgment
regarding the amount and timing of recovery. Indicators of
other-than-temporary impairment for debt securities include
issuer downgrade, default or bankruptcy. The Company also
considers the extent to which cost exceeds fair value, the
duration of that difference and management’s judgment about
the issuer’s current and prospective financial condition, as well
as the Company’s ability and intent to hold until recovery. Fair
value is generally based on quoted market prices. However,
the Company’s Available-for-Sale securities portfolio also
contains structured investments of various asset quality,
including CDOs (backed by high-yield bonds and bank loans),
which are not readily marketable. As a result, the carrying values
of these structured investments are based on future cash flow
projections that require a significant degree of management
judgment as to the amount and timing of cash payments,
defaults and recovery rates of the underlying investments and,
as such, are subject to change.
Commercial Mortgage Loans on Real Estate, Net
Commercial mortgage loans on real estate, net reflect principal
amounts outstanding less allowances for loan losses. The
allowance for loan losses is measured as the excess of the
loan’s recorded investment over the present value of its
expected principal and interest payments discounted at the
loan’s effective interest rate, or the fair value of collateral.
Additionally, the level of the allowance for loan losses considers
other factors, including historical experience, economic
conditions and geographic concentrations. Management
regularly evaluates the adequacy of the allowance for loan
losses and believes it is adequate to absorb estimated losses
in the portfolio.
The Company generally stops accruing interest on commercial
mortgage loans for which interest payments are delinquent
more than three months. Based on management’s judgment
as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the
recorded investment in the loan.
Trading Securities and Equity Method Investments in
Hedge Funds
Trading securities and equity method investments in hedge
funds include common stocks, underlying investments of
consolidated hedge funds, hedge fund investments managed
by third parties and seed money investments. Trading securities
are carried at fair value with unrealized and realized gains
(losses) recorded within net investment income. The carrying
value of equity method investments in hedge funds reflects
the Company’s original investment and its share of earnings or
losses of the hedge funds subsequent to the date of invest-
ment, and approximates fair value.
Policy Loans
Policy loans include life insurance policy, annuity and invest-
ment certificate loans. These loans are carried at the
aggregate of the unpaid loan balances, which do not exceed
the cash surrender values of underlying products.
Other Investments
Other investments reflect the Company’s interest in affordable
housing partnerships and syndicated loans. Affordable housing
partnerships are carried at amortized cost, as the Company
has no influence over the operating or financial policies of the
66 Ameriprise Financial, Inc. 2006 Annual Report