Ameriprise 2006 Annual Report Download - page 70

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. Other
assets in 2006 also include assets related to consolidated
limited partnerships.
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 30 years. At December 31, 2006 and 2005,
land, buildings, equipment and software were $705 million and
$658 million, respectively, net of accumulated depreciation of
$781 million and $668 million, respectively. Depreciation and
amortization expense for the years ended December 31, 2006,
2005 and 2004 was $128 million, $144 million and
$133 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
decision to sell or dispose of a reporting unit. In determining
whether impairment has occurred, the Company uses a
comparative market multiples approach.
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
annually and whenever events and circumstances make it likely
that impairment may have occurred, such as a significant
adverse change in the business climate. For intangible assets
subject to amortization, 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
DSIC consist of bonus interest credits and premium credits
added to certain annuity contract and insurance policy values.
These benefits are capitalized to the extent they are incremental
to amounts that would be credited on similar contracts without
the applicable feature. The amounts capitalized are amortized
using the same methodology and assumptions used to
amortize DAC.
Derivative Financial Instruments and Hedging Activities
Derivative financial instruments are recorded at fair value
within other assets or other liabilities. The fair value of the
Company’s derivative financial instruments is determined
using either market quotes or valuation models that are based
upon the net present value of estimated future cash flows and
incorporate current market data inputs. In certain instances,
the fair value includes structuring costs incurred at the
inception of the transaction. The accounting for the change in
the fair value of a derivative financial instrument depends on
its intended use and the resulting hedge designation, if any.
The Company currently designates derivatives as cash flow
hedges or hedges of net investment in foreign operations or, in
certain circumstances, does not designate derivatives as
accounting hedges. Additionally, the Company has also
designated derivatives as fair value hedges.
For derivative financial instruments that qualify as fair value
hedges, changes in the fair value of the derivatives as well as of
the corresponding hedged assets, liabilities or firm commitments
are recognized in current earnings as a component of net invest-
ment income. If a fair value hedge is de-designated or terminated
prior to maturity, previous adjustments to the carrying value of
the hedged item are recognized into earnings to match the earn-
ings pattern of the hedged item.
For derivative financial instruments that qualify as cash flow
hedges, the effective portions of the gain or loss on the
derivative instruments are reported in accumulated other
comprehensive income (loss) and reclassified into earnings
when the hedged item or transaction impacts earnings. The
amount that is reclassified into earnings is presented in the
Consolidated Statements of Income with the hedged instrument
or transaction impact. Any ineffective portion of the gain or
loss is reported currently in earnings as a component of net
investment income. If a hedge is de-designated or terminated
prior to maturity, the amount previously recorded in
accumulated other comprehensive income (loss) is recognized
into earnings over the period that the hedged item impacts
earnings. For any hedge relationships that are discontinued
because the forecasted transaction is not expected to occur
according to the original strategy, any related amounts
previously recorded in accumulated other comprehensive
income (loss) are recognized in earnings immediately.
For derivative financial instruments that qualify as net invest-
ment hedges in foreign operations, the effective portions of
the change in fair value of the derivatives are recorded in
accumulated other comprehensive income (loss) as part of
the foreign currency translation adjustment. Any ineffective
portions of net investment hedges are recognized in net
investment income during the period of change.
For derivative financial instruments that do not qualify for
hedge accounting or are not designated as hedges, changes in
fair value are recognized in current period earnings, generally
as a component of net investment income.
Derivative financial instruments that are entered into for hedging
purposes are designated as such at the time the Company
enters into the contract. For all derivative financial instruments
that are designated for hedging activities, the Company formally
documents all of the hedging relationships between the hedge
instruments and the hedged items at the inception of the
relationships. Management also formally documents its risk
management objectives and strategies for entering into the
hedge transactions. The Company formally assesses, at
inception and on a quarterly basis, whether derivatives desig-
nated as hedges are highly effective in offsetting the fair value
68 Ameriprise Financial, Inc. 2006 Annual Report