Ameriprise 2012 Annual Report Download - page 67

variability of cash flows to be received or paid related to a recognized asset or liability (‘‘cash flow hedges’’) or (iii) hedges
of foreign currency exposures of net investments in foreign operations (‘‘net investment hedges in foreign operations’’).
Our accounting policy is to not offset fair value amounts recognized for derivatives and collateral arrangements executed
with the same counterparty under the same master netting arrangement. For derivative instruments that do not qualify for
hedge accounting or are not designated as accounting hedges, changes in fair value are recognized in current period
earnings.
For derivative instruments that qualify as fair value hedges, changes in the fair value of the derivatives, as well as changes
in the fair value of the hedged assets, liabilities or firm commitments, are recognized on a net basis in current period
earnings. The carrying value of the hedged item is adjusted for the change in fair value from the designated hedged risk. 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 portion of the gain or loss on the derivative
instruments is reported in accumulated other comprehensive income 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 Operations with the hedged instrument or transaction impact. Any ineffective portion of the gain or loss is reported in
current period earnings as a component of net investment income. If a hedge designation is removed or a hedge is
terminated prior to maturity, the amount previously recorded in accumulated other comprehensive income is reclassified to
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 are recognized in earnings immediately.
For derivative instruments that qualify as net investment hedges in foreign operations, the effective portion of the change
in fair value of the derivatives is recorded in accumulated other comprehensive income as part of the foreign currency
translation adjustment. Any ineffective portion of net investment hedges in foreign operations is recognized in net
investment income 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 15 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. Included in deferred tax
assets are significant capital losses that have been recognized for financial statement purposes but not yet for tax return
purposes as well as future deductible capital losses realized 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.
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. Management may 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 allowance with respect to such assets. In the
opinion of management, it is currently more likely than not that we will not realize the full benefit of certain state net
operating losses and therefore a valuation allowance of $16 million has been established at December 31, 2012.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results
of operations and financial condition, see Note 3 to our Consolidated Financial Statements.
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