Ameriprise 2009 Annual Report Download - page 59

net investment income. Our derivatives primarily provide economic hedges to equity market and interest rate exposures. Examples
include structured derivatives, options, futures, equity and interest rate swaps and swaptions that economically hedge the equity and
interest rate exposure of derivatives embedded in certain annuity and certificate liabilities, as well as exposure to price risk arising from
affiliated mutual fund seed money investments.
For derivative instruments that qualify as fair value hedges, changes in the fair value of the derivatives, as well as of the hedged risk within
the corresponding hedged assets, liabilities or firm commitments are recognized in current earnings. If a fair value hedge designation is
removed or the hedge is terminated prior to maturity, previous adjustments to the carrying value of the hedged item are recognized into
earnings over the remaining life of the hedged item.
For derivative 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. Any ineffective portion of the gain or loss is reported currently in earnings. If a hedge designation is removed or a hedge is
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 instruments that qualify as net investment 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 in foreign operations are recognized in earnings during the period of change.
For further details on the types of derivatives we use and how we account for them, see Note 2 and Note 20 to our Consolidated Financial
Statements.
Income Tax Accounting
Income taxes, as reported in our Consolidated Financial Statements, represent the net amount of income taxes that we expect to pay to or
receive from various taxing jurisdictions in connection with our operations. We provide for income taxes based on amounts that we
believe we will ultimately owe taking into account the recognition and measurement for uncertain tax positions. Inherent in the provision
for income taxes are estimates and judgments regarding the tax treatment of certain items. In the event that the ultimate tax treatment of
items differs from our estimates, we may be required to significantly change the provision for income taxes recorded in our Consolidated
Financial Statements.
In connection with the provision for income taxes, our Consolidated Financial Statements reflect certain amounts related to deferred tax
assets and liabilities, which result from temporary differences between the assets and liabilities measured for financial statement
purposes versus the assets and liabilities measured for tax return purposes. Among our deferred tax assets is a significant deferred tax
asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under
current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which
the capital losses are recognized for tax purposes.
Our life insurance subsidiaries will not be able to file a consolidated U.S. federal income tax return with the other members of our
affiliated group until 2010, which will result in net operating and capital losses, credits and other tax attributes generated by one group
not being available to offset income earned or taxes owed by the other group during the period of non-consolidation. This lack of
consolidation could affect our ability to fully realize certain of our deferred tax assets, including the capital losses.
We are required to establish a valuation allowance for any portion of our deferred tax assets that management believes will not be
realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such
allowance if required. Factors used in making this determination include estimates relating to the performance of the business including
the ability to generate capital gains. Consideration is given to, among other things in making this determination, i) future taxable income
exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable
income in prior carryback years, and iv) tax planning strategies. It is likely that management will need to identify and implement
appropriate planning strategies to ensure our ability to realize our deferred tax assets and avoid the establishment of a valuation
44 ANNUAL REPORT 2009