Ameriprise 2007 Annual Report Download - page 76

DAC against revenue for the new or modified contract. Effective
January 1, 2007, the Company adopted SOP 05-1 resulting in these
transactions being prospectively accounted for as contract terminations.
Consistent with this, the Company now anticipates these transactions
in establishing amortization periods and other valuation assumptions.
As a result of adopting SOP 05-1, the Company recorded as a
cumulative change in accounting principle $206 million, reducing
DAC by $204 million, DSIC by $11 million and liabilities for future
policy benefits by $9 million. The after-tax decrease to retained
earnings for these changes was $134 million. The adoption of SOP
05-1, among other things, resulted in an increase to DAC and DSIC
amortization in 2007.
4. Separation and Distribution from
American Express
Ameriprise Financial was formerly a wholly owned subsidiary of
American Express Company (“American Express”). On February 1, 2005,
the American Express Board of Directors announced its intention to
pursue the disposition of 100% of its shareholdings in Ameriprise
Financial (the “Separation”) through a tax-free distribution to
American Express shareholders. In preparation for the disposition,
Ameriprise Financial approved a stock split of its 100 common shares
entirely held by American Express into 246 million common shares.
Effective as of the close of business on September 30, 2005,
American Express completed the separation of Ameriprise Financial
and the distribution of the Ameriprise Financial common shares to
American Express shareholders (the “Distribution”). The Distribu-
tion was effectuated through a pro-rata dividend to American Express
shareholders consisting of one share of Ameriprise Financial common
stock for every five shares of American Express common stock owned
by its shareholders on September 19, 2005, the record date. Prior to
August 1, 2005, Ameriprise Financial was named American Express
Financial Corporation.
In connection with the Separation and Distribution, Ameriprise Finan-
cial entered into the following transactions with American Express:
• Effective August 1, 2005, the Company transferred its 50%
ownership interest and the related assets and liabilities of its
subsidiary, American Express International Deposit Company
(“AEIDC”), to American Express for $164 million through a non-
cash dividend equal to the net book value excluding $26 million of
net unrealized investment losses of AEIDC. In connection with
the AEIDC transfer, American Express paid the Company a
$164 million capital contribution. The results of operations and
cash flows of AEIDC are shown as discontinued operations in the
accompanying Consolidated Financial Statements.
• Effective July 1, 2005, the Company’s subsidiary, AMEX Assur-
ance Company (“AMEX Assurance”), ceded 100% of its travel
insurance and card related business offered to American Express
customers to an American Express subsidiary in return for an arm’s
length ceding fee. As of September 30, 2005, the Company
entered into an agreement to sell the AMEX Assurance legal entity
to American Express on or before September 30, 2007 for a fixed
price equal to the net book value of AMEX Assurance as of the
Distribution, which was approximately $115 million. These trans-
actions created a variable interest entity, for GAAP purposes, for
which the Company was not the primary beneficiary. Accordingly,
the Company deconsolidated AMEX Assurance for GAAP
purposes as of September 30, 2005. The sale of AMEX Assurance
was completed on September 30, 2007 for a sale price of
$115 million.
• A tax allocation agreement with American Express was signed
effective September 30, 2005.
• American Express provided the Company a capital contribution of
approximately $1.1 billion, which is in addition to the
$164 million capital contribution noted above.
• Ameriprise Financial and American Express completed the split of
the American Express Retirement Plan, which resulted in
additional pension liability in 2006 and 2005 of $5 million and
$32 million, respectively, and adjustments to additional paid in
capital in 2006 and 2005 of $5 million and $18 million (net of
tax), respectively.
As a result of the Distribution, Ameriprise Financial entered into an
unsecured bridge loan in the amount of $1.4 billion. That loan was
drawn down in September 2005 and was repaid using proceeds from
a $1.5 billion senior note issuance in November 2005.
The Company incurred significant non-recurring separation costs as
a result of the Separation. These costs were primarily associated with
establishing the Ameriprise Financial brand, separating and reestab-
lishing the Company’s technology platforms and advisor and
employee retention programs. During the years ended
December 31, 2007, 2006 and 2005, $236 million ($154 million
after-tax), $361 million ($235 million after-tax) and $293 million
($191 million after-tax), respectively, of such costs were incurred.
American Express had historically provided a variety of corporate and
other support services for the Company, including information
technology, treasury, accounting, financial reporting, tax administra-
tion, human resources, marketing, legal and other services. Following
the Distribution, American Express provided the Company with
many of these services pursuant to transition services agreements for
transition periods of up to two years or more, if extended by mutual
agreement of the Company and American Express. The Company
has terminated all of these service agreements and has completed its
separation from American Express.
5. Acquisition of Bank Deposits and
Loans
On September 29, 2005, the Company and American Express Bank,
FSB (“AEBFSB”), a subsidiary of American Express, entered into a
Purchase and Assumption Agreement (the “Agreement”) pursuant to
which the Company agreed to purchase assets and assume liabilities,
primarily consumer loans and deposits of AEBFSB, upon obtaining a
federal savings bank charter. In September 2006, the Company and
AEBFSB entered into amendments to the Agreement, pursuant to
which the Company agreed to acquire the assets and liabilities from
AEBFSB in three phases. Ameriprise Bank, FSB (“Ameriprise Bank”),
a wholly owned subsidiary of the Company, commenced operations
in September 2006 subsequent to obtaining the charter and
performed the agreement with AEBFSB. In the three phases
completed from September to November 2006, Ameriprise Bank
74 Ameriprise Financial 2007 Annual Report