================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO _____________________
COMMISSION FILE NO. 811-00002
AMERIPRISE CERTIFICATE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-6009975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1099 AMERIPRISE FINANCIAL CENTER, MINNEAPOLIS, MINNESOTA 55474
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 671-3131
Former name, former address and former fiscal year, if changed since last
report: NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-Accelerated Filer [X] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 3, 2009
----- -------------------------------
Common Stock (par value $10 per share) 150,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
================================================================================
AMERIPRISE CERTIFICATE COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Statements of Operations - Three months and nine months
ended September 30, 2009 and 2008 ...................... 3
Balance Sheets - September 30, 2009 and December 31,
2008 ................................................... 4
Statements of Cash Flows - Nine months ended September
30, 2009 and 2008 ...................................... 5
Statements of Shareholder's Equity - Nine months ended
September 30, 2009 and 2008 ............................ 6
Notes to Financial Statements .......................... 7
Item 2. Management's Narrative Analysis ........................ 20
Item 4T. Controls and Procedures ................................ 23
Part II. Other Information:
Item 1. Legal Proceedings ...................................... 24
Item 1A. Risk Factors ........................................... 24
Item 6. Exhibits ............................................... 24
Signatures ...................................................... 25
Exhibit Index ................................................... E-1
2
AMERIPRISE CERTIFICATE COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
2009 2008 2009 2008
------- -------- -------- ---------
Investment income $57,414 $ 51,539 $170,693 $ 142,815
Investment expenses 9,005 8,950 28,316 25,667
------- -------- -------- ---------
Net investment income before provision for certificate
reserves and income taxes 48,409 42,589 142,377 117,148
Net provision for certificate reserves 27,148 37,560 99,409 113,658
------- -------- -------- ---------
Net investment income before income taxes 21,261 5,029 42,968 3,490
Income tax expense 7,876 1,300 15,804 981
------- -------- -------- ---------
Net investment income 13,385 3,729 27,164 2,509
Net realized investment gains (losses) before income taxes 6,170 (35,955) 1,998 (46,188)
Income tax expense (benefit) 2,159 (12,584) 699 (16,166)
------- -------- -------- ---------
Net realized gain (loss) on investments 4,011 (23,371) 1,299 (30,022)
------- -------- -------- ---------
Net income (loss) $17,396 $(19,642) $ 28,463 $ (27,513)
======= ======== ======== =========
Supplemental Disclosures:
Net realized investment gains before income taxes:
Net realized investment gains before income taxes
and impairment losses on securities $ 6,816 $ 11,060
------- --------
Total other-than-temporary impairment losses on securities (167) (9,841)
Portion of loss recognized in other comprehensive income (479) 779
------- --------
Net impairment losses recognized in net realized
investment gains before income taxes (646) (9,062)
------- --------
Total net realized investment gains before income taxes $ 6,170 $ 1,998
======= ========
See Notes to Financial Statements.
3
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, 2009 DECEMBER 31, 2008
------------------ -----------------
(UNAUDITED)
ASSETS
Qualified Assets
Cash equivalents $ 320,480 $1,164,484
Investments in unaffiliated issuers 4,379,423 3,667,485
Receivables 40,292 39,479
Equity index options, purchased 152,145 23,693
---------- ----------
Total qualified assets 4,892,340 4,895,141
---------- ----------
Other Assets
Deferred taxes, net 73,115 136,172
Current taxes receivable -- 9,578
Due from related party -- 2,848
---------- ----------
Total other assets 73,115 148,598
---------- ----------
Total assets $4,965,455 $5,043,739
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Certificate reserves $4,491,371 $4,885,589
Current taxes payable to parent 10,404 3,205
Payable for investment securities purchased 1,242 26,332
Equity index options, written 124,318 18,681
Accounts payable and accrued liabilities 44,950 19,427
---------- ----------
Total liabilities 4,672,285 4,953,234
---------- ----------
SHAREHOLDER'S EQUITY:
Common shares ($10 par value; 150,000 shares authorized and issued) 1,500 1,500
Additional paid-in capital 357,964 322,964
Accumulated deficit (21,348) (81,505)
Accumulated other comprehensive loss, net of tax (44,946) (152,454)
---------- ----------
Total shareholder's equity 293,170 90,505
---------- ----------
Total liabilities and shareholder's equity $4,965,455 $5,043,739
========== ==========
See Notes to Financial Statements.
4
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2009 2008
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 28,463 $ (27,513)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Interest added to certificate loans (161) (188)
Amortization of premiums and accretion of discounts, net (5,872) 4,587
Deferred taxes, net (12,067) (58,956)
Net realized (gain) loss on investments (1,954) 46,188
Provision for loan loss 1,500 --
Changes in other operating assets and liabilities:
Trading securities, net 16,618 --
Dividends and interest receivable 5,001 (2,798)
Due to parent for income taxes 16,777 8,904
Certificate reserves, net 21,360 19,616
Other, net 8,591 29,540
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 78,256 19,380
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Sales 224,512 14,381
Maturities and redemptions 1,479,599 770,424
Purchases (2,278,532) (1,089,051)
Below investment grade syndicated bank loans and
first mortgage loans on real estate:
Sales 1,223 2,329
Maturities and redemptions 31,351 64,237
Purchases (132) (103,756)
Certificate loans:
Payments 688 588
Fundings (391) (424)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (541,682) (341,272)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from certificate owners 2,034,873 1,808,975
Certificate maturities and cash surrenders (2,450,451) (1,024,573)
Capital contribution from parent 35,000 75,000
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (380,578) 859,402
----------- -----------
NET (DECREASE) INCREASE IN CASH EQUIVALENTS (844,004) 537,510
Cash equivalents at beginning of period 1,164,484 76,079
----------- -----------
Cash equivalents at end of period $ 320,480 $ 613,589
=========== ===========
SUPPLEMENTAL DISCLOSURES INCLUDING NON-CASH TRANSACTIONS:
Cash paid (received) for income taxes $ 8,420 $ (11,589)
Certificate maturities and surrenders through loan reductions 1,115 1,093
See Notes to Financial Statements.
5
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
RETAINED EARNINGS/
(ACCUMULATED DEFICIT)
------------------------------------
APPROPRIAT- APPROPRI-
ED FOR PRE- ATED FOR ACCUMULAT-
NUMBER DECLARED ADDITIONAL ED OTHER
OF OUT- ADDITIONAL ADDITIONAL INTEREST ON COMPREHEN-
STANDING COMMON PAID-IN CREDITS AND ADVANCE UNAPPRO- SIVE LOSS -
SHARES SHARES CAPITAL INTEREST PAYMENTS PRIATED NET OF TAX TOTAL
-------- ------ ---------- ----------- ----------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT SHARE
DATA)
BALANCES AT JANUARY 1, 2008 150,000 $1,500 $207,964 $ 949 $15 $ -- $ (33,804) $176,624
Comprehensive income:
Net loss -- -- -- -- -- (27,513) -- (27,513)
Other comprehensive
loss, net of tax:
Change in net unrealized
securities losses -- -- -- -- -- -- (69,803) (69,803)
--------
Total comprehensive loss (97,316)
Transfer to unappropriated/
from appropriated -- -- -- (810) -- 810 -- --
Receipt of capital from parent -- -- 48,297 -- -- 26,703 -- 75,000
------- ------ -------- ----- --- -------- --------- --------
BALANCES AT SEPTEMBER 30, 2008 150,000 $1,500 $256,261 $ 139 $15 $ -- $(103,607) $154,308
======= ====== ======== ===== === ======== ========= ========
BALANCES AT JANUARY 1, 2009 150,000 $1,500 $322,964 $ 50 $15 $(81,570) $(152,454) $ 90,505
Change in accounting
principle, net of tax -- -- -- -- -- 31,694 (31,694) --
Comprehensive income:
Net income -- -- -- -- -- 28,463 -- 28,463
Other comprehensive
income, net of tax:
Change in net unrealized
securities losses -- -- -- -- -- -- 138,792 138,792
Change in noncredit related
impairments on
securities and net
unrealized securities
losses on previously
impaired securities -- -- -- -- -- -- 410 410
--------
Total comprehensive income 167,665
Transfer to unappropriated/
from appropriated -- -- -- (50) -- 50 -- --
Receipt of capital from parent -- -- 35,000 -- -- -- -- 35,000
------- ------ -------- ----- --- -------- --------- --------
BALANCES AT SEPTEMBER 30, 2009 150,000 $1,500 $357,964 $ -- $15 $(21,363) $ (44,946) $293,170
======= ====== ======== ====== === ======== ========= ========
See Notes to Consolidated Financial Statements.
6
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Ameriprise Certificate Company ("ACC" or the "Company"), is a wholly owned
subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"). The
accompanying Financial Statements have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). The interim financial
information in this report has not been audited. In the opinion of management,
all adjustments necessary for a fair presentation of the results of operations
and financial position for the interim periods have been made. All adjustments
made were of a normal, recurring nature. Results of operations reported for
interim periods are not necessarily indicative of results for the entire year.
These Financial Statements and Notes should be read in conjunction with the
Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the
year ended December 31, 2008, filed with the Securities and Exchange Commission
("SEC") on March 3, 2009.
ACC evaluated events or transactions that may have occurred after the balance
sheet date for potential recognition or disclosure through November 3, 2009, the
date the financial statements were issued.
2. RECENT ACCOUNTING PRONOUNCEMENTS
ADOPTION OF NEW ACCOUNTING STANDARDS
The Hierarchy of GAAP
In June 2009, the Financial Accounting Standards Board ("FASB") established the
FASB Accounting Standards CodificationTM ("Codification") as the single source
of authoritative accounting principles recognized by the FASB in the preparation
of financial statements in conformity with GAAP. The Codification supersedes
existing nongrandfathered, non-SEC accounting and reporting standards. The
Codification did not change GAAP but rather organized it into a hierarchy where
all guidance within the Codification carries an equal level of authority. The
Codification became effective on July 1, 2009. The Codification did not have a
material effect on ACC's results of operations and financial condition.
Subsequent Events
In May 2009, the FASB updated the accounting standards on the recognition and
disclosure of subsequent events. The standard also requires the disclosure of
the date through which subsequent events were evaluated. The standard is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. ACC adopted the standard in the second
quarter of 2009. The adoption did not have a material effect on ACC's results of
operations and financial condition.
Fair Value
In April 2009, the FASB updated the accounting standards to provide guidance on
estimating the fair value of a financial asset or liability when the trade
volume and level of activity for the asset or liability have significantly
decreased relative to historical levels. The standard requires entities to
disclose the inputs and valuation techniques used to measure fair value and any
changes in valuation inputs or techniques. In addition, debt and equity
securities as defined by GAAP shall be disclosed by major category. This
standard is effective for interim and annual reporting periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009,
and is to be applied prospectively. ACC early adopted the standard in the first
quarter of 2009. The adoption did not have a material effect on ACC's results of
operations and financial condition.
In April 2009, the FASB updated the accounting standards to require interim
disclosures about the fair value of in-scope financial instruments that are not
reported at fair value. This standard is effective for interim and annual
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. ACC applied the disclosure requirements of
the standard in the first quarter of 2009. See Note 4 for the required
disclosures.
In September 2006, the FASB updated the accounting standards to define fair
value, establish a framework for measuring fair value and expand disclosures
about fair value measurements. The new standard applies under other accounting
standards that require or permit fair value measurements. Accordingly, the
standard does not require any new fair value measurements. The provisions of the
standard are required to be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, except for certain financial
instruments as defined in the standard that require retrospective application.
Any retrospective application will be recognized as a cumulative effect
adjustment to the opening balance of accumulated deficit for the fiscal year of
adoption. ACC adopted the standard effective January 1, 2008. This adoption did
not have a material impact on ACC's results of operations and financial
condition.
7
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Recognition and Presentation of Other-Than-Temporary Impairment
In April 2009, the FASB updated the accounting standards for the recognition and
presentation of other-than-temporary impairments. The standard amends existing
guidance on other-than-temporary impairments for debt securities and requires
that the credit portion of other-than-temporary impairments be recorded in
earnings and the noncredit portion of losses be recorded in other comprehensive
income. The standard requires separate presentation of both the credit and
noncredit portions of other-than-temporary impairments on the financial
statements and additional disclosures. This standard is effective for interim
and annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. At the date of adoption, the
portion of previously recognized other-than-temporary impairments that represent
the noncredit related loss component shall be recognized as a cumulative effect
of adoption with an adjustment to the opening balance of accumulated deficit
with a corresponding adjustment to accumulated other comprehensive loss. ACC
adopted the standard in the first quarter of 2009 and recorded a cumulative
effect decrease to the opening balance of accumulated deficit of $32 million,
net of income taxes, and a corresponding increase to accumulated other
comprehensive loss, net of income taxes. See Note 3 for ACC's updated accounting
policy and disclosures required by this standard.
Disclosures about Derivative Instrument and Hedging Activities
In March 2008, the FASB updated the accounting standards for disclosures about
derivative instruments and hedging activities. The standard intends to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures about their impact on an entity's financial
position, financial performance, and cash flows. The standard requires
disclosures regarding the objectives for using derivative instruments, the fair
value of derivative instruments and their related gains and losses, and the
accounting for derivatives and related hedged items. The standard is effective
for fiscal years and interim periods beginning after November 15, 2008, with
early adoption permitted. ACC applied the new disclosure requirements in the
first quarter of 2009. See Note 5 for the required disclosures.
Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB updated the accounting standards for noncontrolling
interests in consolidated financial statements to establish the accounting and
reporting for ownership interest in subsidiaries not attributable, directly or
indirectly, to a parent. The standard requires noncontrolling (minority)
interests to be classified as equity (instead of as a liability) within the
consolidated balance sheet, and net income (loss) attributable to both the
parent and the noncontrolling interests to be disclosed on the face of the
consolidated statement of operations. The standard is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years with
early adoption prohibited. The provisions of the standard are to be applied
prospectively, except for the presentation and disclosure requirements which are
to be applied retrospectively to all periods presented. ACC adopted the new
standard as of January 1, 2009. The adoption did not have a material effect on
ACC's results of operations and financial condition.
FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent)
In September 2009, the FASB updated the accounting standards to allow for net
asset value ("NAV") to be used as a practical expedient in estimating the fair
value of alternative investments without readily determinable fair values. The
standard also requires additional disclosure by major category of investment
related to restrictions on the investor's ability to redeem the investment as of
the measurement date, unfunded commitments and the investment strategies of the
investees. The disclosures are required for all investments within the scope of
the standard regardless of whether the fair value of the investment is measured
using the NAV or another method. The standard is effective for interim and
annual periods ending after December 15, 2009, with early adoption permitted.
ACC does not expect the adoption to have a material effect on its results of
operations and financial condition.
Measuring Liabilities at Fair Value
In August 2009, the FASB updated the accounting standards to provide additional
guidance on estimating the fair value of a liability in a hypothetical
transaction where the liability is transferred to a market participant. The
standard is effective for the first reporting period, including interim periods,
beginning after issuance. ACC does not expect the adoption to have a material
effect on ACC's consolidated results of operations and financial condition.
8
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Accounting for Transfers of Financial Assets
In June 2009, the FASB updated the accounting standards related to accounting
for transfers of financial assets. The standard improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. The standard is effective for interim and
annual reporting periods beginning after November 15, 2009, with early adoption
prohibited, and must be applied to transfers of financial assets occurring on or
after the effective date. The adoption of the standard is not expected to have a
material effect on ACC's consolidated results of operations and financial
condition.
3. INVESTMENTS
Investments in unaffiliated issuers were as follows:
SEPTEMBER 30, 2009 DECEMBER 31, 2008
------------------ -----------------
(IN THOUSANDS)
Available-for-Sale securities, at fair value
(amortized cost: 2009, $4,119,731; 2008, $3,521,116) $4,048,058 $3,286,403
Below investment grade syndicated bank loans and commercial mortgage loans,
at cost (fair value: 2009, $325,006; 2008, $289,401) 326,016 357,863
Trading securities, at fair value (amortized cost: 2009, nil; 2008, $16,611) -- 16,618
Certificate loans - secured by certificate reserves, at cost, which
approximates fair value 5,349 6,601
---------- ----------
Total $4,379,423 $3,667,485
========== ==========
Available-for-Sale Securities
Effective January 1, 2009, ACC early adopted an accounting standard that
significantly changed ACC's accounting policy regarding the timing and amount of
other-than-temporary impairments for Available-for-Sale securities as follows.
When the fair value of an investment is less than its amortized cost, ACC
assesses whether or not (i) it has the intent to sell the security (made a
decision to sell) or (ii) it is more likely than not that ACC will be required
to sell the security before its anticipated recovery. If either of these
conditions are met, ACC must recognize an other-than-temporary impairment for
the difference between the investment's amortized cost basis and its fair value
through earnings. For securities that do not meet the above criteria, and ACC
does not expect to recover a security's amortized cost basis, the security is
considered other-than-temporarily impaired. For these securities, ACC separates
the total impairment into the credit loss component and the amount of the loss
related to other factors. The amount of the total other-than-temporary
impairment related to credit loss is recognized in earnings. The amount of the
total other-than-temporary impairment related to other factors is recognized in
other comprehensive income, net of income taxes. For Available-for-Sale
securities that have recognized an other-than-temporary impairment through
earnings, if through subsequent evaluation there is a significant increase in
the cash flow expected, the difference between the amortized cost basis and the
cash flows expected to be collected is accreted as interest income. Subsequent
increases and decreases in the fair value of Available-for-Sale securities are
included in other comprehensive income. ACC's Statements of Shareholder's Equity
present all changes in other comprehensive income associated with
Available-for-Sale securities that have been other-than-temporarily impaired on
a separate line from fair value changes recorded in other comprehensive income
from all other securities.
ACC provides a supplemental disclosure on the face of its Statements of
Operations that presents (i) total other-than-temporary impairment losses
recognized during the period and (ii) the portion of other-than-temporary
impairment losses recognized in other comprehensive income. The sum of these
amounts represents the credit-related portion of other-than-temporary
impairments that were recognized in earnings during the period. The portion of
other-than-temporary losses recognized in other comprehensive income includes:
(i) the portion of other-than-temporary impairment losses related to factors
other than credit recognized during the period and (ii) reclassifications of
other-than-temporary impairment losses previously determined to be related to
factors other than credit that are determined to be credit-related in the
current period. The amount presented on the Statements of Operations as the
portion of other-than-temporary losses recognized in other comprehensive income
excludes subsequent increases and decreases in the fair value of these
securities.
For all securities that are considered temporarily impaired, ACC does not intend
to sell these securities (has not made a decision to sell) and it is not more
likely than not that ACC will be required to sell the security before recovery
of its amortized cost basis. ACC believes that it will collect all principal and
interest due on all investments that have amortized cost in excess of fair value
that are considered only temporarily impaired.
9
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Corporate debt securities
Factors ACC considers in determining whether declines in the fair value of fixed
maturity securities are other-than-temporary include: (i) the extent to which
the market value is below amortized cost; (ii) the duration of time in which
there has been a significant decline in value; (iii) fundamental analysis of the
liquidity, business prospects and overall financial condition of the issuer; and
(iv) market events that could impact credit ratings, economic and business
climate, litigation and government actions, and similar external business
factors. In order to determine the amount of the credit loss component for
corporate debt securities considered other-than-temporarily impaired, a best
estimate of the present value of cash flows expected to be collected discounted
at the security's effective interest rate is compared to the amortized cost
basis of the security. The significant inputs to cash flow projections consider
potential debt restructuring terms, projected cash flows available to pay
creditors and ACC's position in the debtor's overall capital structure.
Structured investments
For structured investments (e.g., residential mortgage backed securities,
commercial mortgage backed securities, asset backed securities and other
structured investments), ACC also considers factors such as overall deal
structure and its position within the structure, quality of underlying
collateral, delinquencies and defaults, loss severities, recoveries, prepayments
and cumulative loss projections in assessing potential other-than-temporary
impairments of these investments. Based upon these factors, securities that have
indicators of potential other-than-temporary impairment are subject to detailed
review by management. Securities for which declines are considered temporary
continue to be carefully monitored by management. For the nine months ended
September 30, 2009, certain non-agency mortgage backed securities were deemed
other-than-temporarily impaired. Generally, the credit loss component for the
non-agency mortgage backed securities is determined as the amount the amortized
cost basis exceeds the present value of the projected cash flows expected to be
collected. Significant inputs considered in these projections are consistent
with the factors considered in assessing potential other-than-temporary
impairment for these investments. Forward interest rates are considered in the
cash flow projections and are used to calculate the discount rate used to
determine the present value of the expected cash flows when structures are
supported by variable rate securities. Current effective interest rates are used
to discount cash flows supported by fixed rate securities.
Available-for-Sale securities distributed by type were as follows:
SEPTEMBER 30, 2009
-----------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES FAIR VALUE
- ------------------------- -------------- ---------------- ---------------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $1,699,384 $24,999 $(142,847) $1,581,536
Corporate debt securities 1,199,606 30,148 (2,967) 1,226,787
Commercial mortgage backed securities 599,634 15,405 (705) 614,334
Asset backed securities 466,301 17,211 (9,855) 473,657
U.S. government and agencies obligations 135,194 1,510 -- 136,704
Common and preferred stocks 19,612 -- (4,572) 15,040
---------- ------- --------- ----------
Total $4,119,731 $89,273 $(160,946) $4,048,058
========== ======= ========= ==========
DECEMBER 31, 2008
-----------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES
- ------------------------- -------------- ---------------- ---------------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $1,348,369 $11,434 $(156,220) $1,203,583
Corporate debt securities 1,623,978 637 (49,426) 1,575,189
Commercial mortgage backed securities 273,099 590 (7,077) 266,612
Asset backed securities 247,159 376 (26,506) 221,029
U.S. government and agencies obligations 4,899 168 -- 5,067
Common and preferred stocks 19,612 -- (8,689) 10,923
State and municipal obligations 4,000 -- -- 4,000
---------- ------- --------- ----------
Total $3,521,116 $13,205 $(247,918) $3,286,403
========== ======= ========= ==========
10
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At September 30, 2009 and December 31, 2008, fixed maturity securities comprised
approximately 86% and 70%, respectively, of ACC's total investments. These
securities were rated by Moody's Investors Service ("Moody's"), Standard &
Poor's Ratings Services ("S&P"), and Fitch Ratings Ltd. ("Fitch"), except for
approximately $17.8 million and $65.8 million of securities at September 30,
2009 and December 31, 2008, respectively, which were rated by ACC's internal
analysts using criteria similar to Moody's, S&P and Fitch. Ratings on fixed
maturity securities are presented using the median of ratings from Moody's, S&P
and Fitch. If only two of the ratings are available, the lower rating is used. A
summary of fixed maturity securities by rating was as follows:
SEPTEMBER 30, 2009 DECEMBER 31, 2008
-------------------------------------------- ------------------------------------------
AMORTIZED PERCENT OF TOTAL AMORTIZED PERCENT OF TOTAL
RATINGS COST FAIR VALUE FAIR VALUE COST FAIR VALUE FAIR VALUE
- ------- ------------ ---------- ---------------- ---------- ---------- ----------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
AAA $2,227,565 $2,268,748 56% $1,627,746 $1,495,970 46%
AA 210,872 196,147 5 246,614 223,318 7
A 403,314 396,180 10 339,662 327,926 10
BBB 899,154 902,344 22 1,176,153 1,140,420 34
Below investment grade 359,214 269,599 7 111,329 87,846 3
---------- ---------- --- ---------- ---------- ---
Total fixed maturities $4,100,119 $4,033,018 100% $3,501,504 $3,275,480 100%
========== ========== === ========== ========== ===
At September 30, 2009 and December 31, 2008, approximately 36% and 50%,
respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage
backed securities.
The following tables provide information about Available-for-Sale securities
with gross unrealized losses and the length of time that individual securities
have been in a continuous unrealized loss position:
SEPTEMBER 30, 2009
---------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
----------------------- ----------------------- -----------------------
UNREALIZED UNREALIZED UNREALIZED
DESCRIPTION OF SECURITIES FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
- ------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $246,115 $(7,561) $331,934 $(135,286) $578,049 $(142,847)
Corporate debt securities 6,264 (4) 95,390 (2,963) 101,654 (2,967)
Commercial mortgage backed securities 33,014 (248) 52,750 (457) 85,764 (705)
Asset backed securities 89,619 (2,133) 65,930 (7,722) 155,549 (9,855)
Common and preferred stocks -- -- 15,040 (4,572) 15,040 (4,572)
-------- ------- -------- --------- -------- ---------
Total $375,012 $(9,946) $561,044 $(151,000) $936,056 $(160,946)
======== ======= ======== ========= ======== =========
DECEMBER 31, 2008
---------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
----------------------- ----------------------- -----------------------
UNREALIZED UNREALIZED UNREALIZED
DESCRIPTION OF SECURITIES FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
- ------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $ 250,733 $(64,652) $224,942 $ (91,568) $ 475,675 $(156,220)
Corporate debt securities 1,211,101 (24,142) 171,502 (25,284) 1,382,603 (49,426)
Commercial mortgage backed securities 70,870 (2,424) 121,918 (4,653) 192,788 (7,077)
Asset backed securities 165,128 (22,772) 32,421 (3,734) 197,549 (26,506)
Common and preferred stocks -- -- 10,922 (8,689) 10,922 (8,689)
---------- --------- -------- --------- ---------- ---------
Total $1,697,832 $(113,990) $561,705 $(133,928) $2,259,537 $(247,918)
========== ========= ======== ========= ========== =========
11
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following tables summarize the unrealized losses by ratio of fair value to
amortized cost:
SEPTEMBER 30, 2009
------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
---------------------------------- ---------------------------------- ----------------------------------
RATIO OF NUMBER GROSS NUMBER GROSS NUMBER GROSS
FAIR VALUE TO OF FAIR UNREALIZED OF FAIR UNREALIZED OF FAIR UNREALIZED
AMORTIZED COST SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES
- -------------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SECURITIES)
95% - 100% 31 $321,546 $(3,324) 64 $195,424 $ (2,902) 95 $516,970 $ (6,226)
90% - 95% 4 39,591 (2,454) 17 29,580 (2,103) 21 69,171 (4,557)
80% - 90% -- -- -- 20 82,597 (12,388) 20 82,597 (12,388)
Less than 80% 2 13,875 (4,168) 62 253,443 (133,607) 64 267,318 (137,775)
--- -------- ------- --- -------- --------- --- -------- ---------
Total 37 $375,012 $(9,946) 163 $561,044 $(151,000) 200 $936,056 $(160,946)
=== ======== ======= === ======== ========= === ======== =========
DECEMBER 31, 2008
----------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
------------------------------------ ---------------------------------- ------------------------------------
RATIO OF NUMBER GROSS NUMBER GROSS NUMBER GROSS
FAIR VALUE TO OF FAIR UNREALIZED OF FAIR UNREALIZED OF FAIR UNREALIZED
AMORTIZED COST SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES
- -------------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SECURITIES)
95% - 100% 140 $1,313,461 $ (18,621) 45 $245,247 $ (5,339) 185 $1,558,708 $ (23,960)
90% - 95% 20 161,149 (11,401) 18 74,460 (5,809) 38 235,609 (17,210)
80% - 90% 15 74,866 (11,174) 26 91,374 (16,561) 41 166,240 (27,735)
Less than 80% 31 148,356 (72,794) 70 150,624 (106,219) 101 298,980 (179,013)
--- ---------- --------- --- -------- --------- --- ---------- ---------
Total 206 $1,697,832 $(113,990) 159 $561,705 $(133,928) 365 $2,259,537 $(247,918)
=== ========== ========= === ======== ========= === ========== =========
As part of ACC's ongoing monitoring process, management determined that a
majority of the gross unrealized losses on its Available-for-Sale securities are
attributable to changes in credit spreads across sectors. The primary driver of
lower unrealized losses in 2009 compared to 2008 was the tightening of credit
spreads across sectors. A portion of the decrease in unrealized losses was
offset by an increase due to the adoption of a new accounting standard effective
January 1, 2009. ACC recorded a cumulative effect increase to the amortized cost
of previously other-than-temporarily impaired investments that increased the
gross unrealized losses on Available-for-Sale securities by $48.8 million. This
impact is due to impairment of Available-for-Sale securities recognized in other
comprehensive income previously recognized through earnings for factors other
than credit.
The following table presents the amounts recognized in the Statements of
Operations for other-than-temporary impairments related to credit losses on
securities for which a portion of the securities' total other-than-temporary
impairments was recognized in other comprehensive income:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2009 2009
------------- -------------
(IN THOUSANDS)
Beginning balance of credit losses on securities held for
which a portion of other-than-temporary impairment was
recognized in other comprehensive income $58,143 $50,866
Reductions for securities sold during the period (realized) (1,650) (1,650)
Additional increases to the amount related to credit losses
for which an other-than-temporary impairment was
previously recognized 646 7,923
------- -------
Ending balance of credit losses on securities held as of
September 30 for which a portion of other-than-
temporary impairment was recognized in other
comprehensive income $57,139 $57,139
======= =======
The change in net unrealized securities losses in other comprehensive income
includes two components, net of tax: (i) unrealized gains (losses) that arose
from changes in the market value of securities that were held during the period
and (ii) (gains) losses that were previously unrealized, but have been
recognized in current period net income due to sales of Available-for-Sale
securities. As a result of the adoption of a new accounting standard effective
January 1, 2009, net unrealized investment gains (losses) arising during the
period also includes other-than-temporary impairment losses on
Available-for-Sale securities related to factors other than credit that were
recognized in other comprehensive income during the period. Additionally,
reclassification of (gains) losses included in net income contains noncredit
other-than-temporary impairment losses that were previously unrealized, but have
been recognized in current period net income due to their reclassification as
credit losses.
12
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following table presents a rollforward of the net unrealized securities
losses on Available-for-Sale securities included in accumulated other
comprehensive loss:
ACCUMULATED OTHER
NET COMPREHENSIVE
UNREALIZED LOSS RELATED TO NET
INVESTMENT DEFERRED UNREALIZED INVESTMENT
GAINS (LOSSES) INCOME TAX GAINS (LOSSES)
-------------- ---------- ---------------------
(IN THOUSANDS)
Balance at January 1, 2008 $ (52,006) $ 18,202 $ (33,804)
Net unrealized investment losses arising during the period (153,342) 53,669 (99,673)
Reclassification of losses included in net loss 45,954 (16,084) 29,870
--------- -------- ---------
Balance at September 30, 2008 $(159,394) $ 55,787 $(103,607)
========= ======== =========
Balance at January 1, 2009 $(234,545) $ 82,091 $(152,454)
Cumulative effect of accounting change (48,760)(1) 17,066 (31,694)
Net unrealized investment gains arising during the period 216,633 (75,822) 140,811
Reclassification of gains included in net income (2,476) 867 (1,609)
--------- -------- ---------
Balance at September 30, 2009 $ (69,148) $ 24,202 $ (44,946)(2)
========= ======== =========
(1) Amount represents the cumulative effect of adopting a new accounting
standard on January 1, 2009. See footnote 2 for additional information on
the adoption impact.
(2) At September 30, 2009, Accumulated Other Comprehensive Loss Related to Net
Unrealized Investment Losses included $(31.3) million of noncredit related
impairments and net unrealized securities losses on previously impaired
securities.
Net realized gains and losses on Available-for-Sale securities, determined using
the specific identification method, recognized in earnings were as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2009 2008 2009 2008
------ -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
Gross realized gains from sales $5,988 $ 149 $13,288 $ 836
Gross realized losses from sales (140) (4,717) (1,749) (4,819)
Impairment losses (646) (31,186) (9,062) (41,971)
The $0.6 million and $9.1 million of other-than-temporary impairments recognized
in net realized investment losses before income taxes for the three months and
nine months ended September 30, 2009, respectively, were related to credit
losses in non-agency residential mortgage backed securities.
Available-for-Sale securities by contractual maturity as of September 30, 2009
were as follows:
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
Due within one year $ 592,044 $ 601,716
Due after one year through five years 715,446 735,146
Due after five years through 10 years 18,685 17,723
Due after 10 years 8,625 8,906
---------- ----------
1,334,800 1,363,491
Residential mortgage backed securities 1,699,384 1,581,536
Commercial mortgage backed securities 599,634 614,334
Asset backed securities 466,301 473,657
Common and preferred stocks 19,612 15,040
---------- ----------
Total $4,119,731 $4,048,058
========== ==========
Actual maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations. Residential mortgage backed
securities, commercial mortgage backed securities, and asset backed securities
are not due at a single maturity date. As such, these securities, as well as
common and preferred stocks, were not included in the maturities distribution.
13
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. FAIR VALUES OF ASSETS AND LIABILITIES
GAAP defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date; that is, an exit price. The exit price
assumes the asset or liability is not exchanged subject to a forced liquidation
or distressed sale.
VALUATION HIERARCHY
ACC categorizes its fair value measurements according to a three-level
hierarchy. The hierarchy prioritizes the inputs used by ACC's valuation
techniques. A level is assigned to each fair value measurement based on the
lowest level input that is significant to the fair value measurement in its
entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 Unadjusted quoted prices for identical assets or liabilities in active
markets that are accessible at the measurement date.
Level 2 Prices or valuations based on observable inputs other than quoted prices
in active markets for identical assets and liabilities.
Level 3 Prices or valuations that require inputs that are both significant to
the fair value measurement and unobservable.
Determination of Fair Value
ACC uses valuation techniques consistent with the market and income approaches
to measure the fair value of its assets and liabilities. ACC's market approach
uses prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities. ACC's income approach
uses valuation techniques to convert future projected cash flows to a single
discounted present value amount. When applying either approach, ACC maximizes
the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair
value and the general classification of these instruments pursuant to the fair
value hierarchy.
ASSETS
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of
90 days or less. ACC's cash equivalents are classified as Level 2 and are
measured at amortized cost, which is a reasonable estimate of fair value because
of the short time between the purchase of the instrument and its expected
realization.
Investments in Unaffiliated Issuers (Available-for-Sale Securities and Trading
Securities)
When available, the fair value of securities is based on quoted prices in active
markets. If quoted prices are not available, fair values are obtained from
nationally-recognized pricing services. Level 1 securities include U.S.
Treasuries. Level 2 securities include agency mortgage backed securities and
certain non-agency mortgage backed securities, asset backed securities,
municipal and corporate bonds and U.S. agency securities. Level 3 securities
include certain non-agency mortgage backed securities and corporate bonds.
Through ACC's own experience transacting in the marketplace and through
discussions with its pricing vendors, ACC believes that the market for certain
non-agency residential mortgage backed securities is inactive. Indicators of
inactive markets include: pricing services' reliance on brokers or discounted
cash flow analyses to provide prices, an increase in the disparity between
prices provided by different pricing services for the same security,
unreasonably large bid-offer spreads and a significant decrease in the volume of
trades relative to historical levels. In certain cases, this market inactivity
has resulted in ACC applying valuation techniques that rely more on an income
approach (discounted cash flows using market rates) than on a market approach
(prices from pricing services). ACC considers market observable yields for other
asset classes it considers to be of similar risk which includes nonperformance
and liquidity for individual securities to set the discount rate for applying
the income approach to certain non-agency residential mortgage backed
securities.
Derivatives (Equity Index Options, Purchased and Written)
The fair values of derivatives that are traded in certain over-the-counter
markets are measured using pricing models with market observable inputs such as
interest rates and equity index levels. These measurements are classified as
Level 2 within the fair value hierarchy.
14
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
LIABILITIES
Certificate Reserves
ACC uses various Black-Scholes calculations to determine the fair value of the
embedded derivative liability associated with the provisions of its stock market
certificates. The inputs to these calculations are primarily market observable.
As a result, these measurements are classified as Level 2.
The following tables present the balances of assets and liabilities measured at
fair value on a recurring basis:
SEPTEMBER 30, 2009
--------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ---------- -------- ----------
(IN THOUSANDS)
Assets
Cash equivalents $ -- $ 320,480 $ -- $ 320,480
Available-for-Sale securities:
Residential mortgage backed securities -- 781,981 799,555 1,581,536
Corporate debt securities -- 1,214,717 12,070 1,226,787
Commercial mortgage backed securities -- 614,334 -- 614,334
Asset backed securities -- 327,915 145,742 473,657
U.S. government and agencies obligations 416 136,288 -- 136,704
Common and preferred stocks -- 15,040 -- 15,040
---- ---------- -------- ----------
Total Available-for-Sale securities 416 3,090,275 957,367 4,048,058
Trading securities -- -- -- --
Equity index options, purchased -- 152,145 -- 152,145
---- ---------- -------- ----------
Total assets at fair value $416 $3,562,900 $957,367 $4,520,683
==== ========== ======== ==========
Liabilities
Certificate reserves $ -- $ 28,139 $ -- $ 28,139
Equity index options, written -- 124,318 -- 124,318
---- ---------- -------- ----------
Total liabilities at fair value $ -- $ 152,457 $ -- $ 152,457
==== ========== ======== ==========
DECEMBER 31, 2008
--------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ---------- -------- ----------
(IN THOUSANDS)
Assets
Cash equivalents $ -- $1,164,484 $ -- $1,164,484
Available-for-Sale securities:
Residential mortgage backed securities -- 738,349 465,234 1,203,583
Corporate debt securities -- 1,541,536 33,653 1,575,189
Commercial mortgage backed securities -- 266,612 -- 266,612
Asset backed securities -- 153,477 67,552 221,029
U.S. government and agencies obligations 458 4,609 -- 5,067
Common and preferred stocks -- 10,923 -- 10,923
State and municipal obligations -- 4,000 -- 4,000
---- ---------- -------- ----------
Total Available-for-Sale securities 458 2,719,506 566,439 3,286,403
Trading securities -- 16,618 -- 16,618
Equity index options, purchased -- 23,693 -- 23,693
---- ---------- -------- ----------
Total assets at fair value $458 $3,924,301 $566,439 $4,491,198
==== ========== ======== ==========
Liabilities
Certificate reserves $ -- $ 5,007 $ -- $ 5,007
Equity index options, written -- 18,681 -- 18,681
---- ---------- -------- ----------
Total liabilities at fair value $ -- $ 23,688 $ -- $ 23,688
==== ========== ======== ==========
15
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following tables provide a summary of changes in Level 3 assets and
liabilities measured at fair value on a recurring basis:
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- ----------------------------- ----------- ---------- ---------- ----------- --------
Balance, July 1, 2009 $649,837 $ 30,579 $158,403 $-- $838,819
Total gains (losses) included in:
Net income 1,919(1) -- 3,091(2) -- 5,010
Other comprehensive income 22,160 498 2,690 -- 25,348
Purchases, sales, issuances and settlements, net 125,639 (19,007) (18,442) -- 88,190
-------- -------- -------- --- --------
Balance, September 30, 2009 $799,555 $ 12,070 $145,742 $-- $957,367
======== ======== ======== === ========
Change in unrealized gains (losses) included in net income
relating to Level 3 assets held at September 30, 2009 $ 901(3) $ -- $ 2,594(4) $-- $ 3,495
(1) Represents a $280 gain included in net realized gain (loss) on investments
and $1,639 included in investment income in the Statements of Operations.
(2) Represents a $478 gain included in net realized gain (loss) on investments
and $2,613 included in investment income in the Statements of Operations.
(3) Represents a $646 loss included in net realized gain (loss) on investments
and $1,547 included in investment income in the Statements of Operations.
(4) Included in investment income in the Statements of Operations.
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- ----------------------------- ----------- ---------- ---------- ----------- --------
Balance, July 1, 2008 $316,718 $49,522 $47,376 $-- $413,616
Total gains (losses) included in:
Net loss (16,525)(1) -- 4,416(2) 80 (12,029)
Other comprehensive income 18,105 (492) (745) -- 16,868
Purchases, sales, issuances and settlements, net (14,344) (4,919) (1,635) (80) (20,978)
-------- ------- ------- --- --------
Balance, September 30, 2008 $303,954 $44,111 $49,412 $-- $397,477
======== ======= ======= === ========
Change in unrealized gains (losses) included in net loss
relating to Level 3 assets held at September 30, 2008 $(16,525)(1) $ -- $ 4,416(2) $-- $(12,109)
(1) Represents a $17,868 loss included in net realized gain (loss) on
investments and $1,343 included in investment income in the Statements of
Operations.
(2) Included in investment income in the Statements of Operations.
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- ----------------------------- ----------- ---------- ---------- ----------- --------
Balance, January 1, 2009 $465,234 $ 33,653 $ 67,552 $-- $566,439
Total gains (losses) included in:
Net income (4,995)(1) -- 6,043(2) 8 1,056
Other comprehensive income 16,700 1,690 3,379 --- 21,769
Purchases, sales, issuances and settlements, net 322,616 (23,273) 68,768 (8) 368,103
-------- -------- -------- --- --------
Balance, September 30, 2009 $799,555 $ 12,070 $145,742 $-- $957,367
======== ======== ======== === ========
Change in unrealized gains (losses) included in net income
relating to Level 3 assets held at September 30, 2009 $ (4,266)(3) $ -- $ 5,543(4) $-- $ 1,277
(1) Represents a $8,437 loss included in net realized gain (loss) on
investments and $3,442 included in investment income in the Statements of
Operations.
(2) Represents a $478 gain included in net realized gain (loss) on investments
and $5,565 included in investment income in the Statements of Operations.
(3) Represents a $7,923 loss included in net realized gain (loss) on
investments and $3,657 included in investment income in the Statements of
Operations.
(4) Included in investment income in the Statements of Operations.
16
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- ----------------------------- ----------- ---------- ---------- ----------- --------
Balance, January 1, 2008 $359,316 $ 67,797 $42,927 $ -- $470,040
Total gains (losses) included in:
Net loss (27,183)(1) -- 4,754(2) 565 (21,864)
Other comprehensive loss (32,903) 231 (4,461) -- (37,133)
Purchases, sales, issuances and settlements, net 4,724 (23,917) 6,192 (565) (13,566)
-------- -------- ------- ----- --------
Balance, September 30, 2008 $303,954 $ 44,111 $49,412 $ -- $397,477
======== ======== ======= ===== ========
Change in unrealized gains (losses) included in net loss
relating to Level 3 assets held at September 30, 2008 $(27,183)(1) $ -- $ 4,754(2) $ -- $(22,429)
(1) Represents a $28,653 loss included in net realized gain (loss) on
investments and $1,470 income included in investment income in the
Statements of Operations.
(2) Included in investment income in the Statements of Operations.
During the reporting periods, there were no material assets or liabilities
measured at fair value on a nonrecurring basis.
The following table provides the carrying value and the estimated fair value of
financial instruments that are not reported at fair value. All other financial
instruments that are reported at fair value have been included in the table
above with balances of assets and liabilities measured at fair value on a
recurring basis.
SEPTEMBER 30, 2009
----------------------------
CARRYING VALUE FAIR VALUE
-------------- -----------
(IN THOUSANDS)
FINANCIAL ASSETS
Investments in unaffiliated issuers $ 331,365 $ 330,356
FINANCIAL LIABILITIES
Certificate reserves $4,463,232 $4,423,729
Investments in unaffiliated issuers
The fair value of commercial mortgage loans, except those with significant
credit deterioration, has been determined by discounting contractual cash flows
using discount rates that reflect current pricing for loans with similar
remaining maturities and characteristics including loan-to-value ratio,
occupancy rate, refinance risk, debt-service coverage, location, and property
condition. For commercial mortgage loans with significant credit deterioration,
fair value is determined using the same adjustments as above with an additional
adjustment for ACC's estimate of the amount recoverable on the loan.
Below investment grade syndicated bank loans' fair value is determined using
broker quotes.
Certificate reserves
The fair value of investment certificate reserves is determined by discounting
cash flows using discount rates that reflect current pricing for assets with
similar terms and characteristics, with adjustments for early withdrawal
behavior, penalty fees, expense margin and ACC's non-performance risk specific
to these liabilities.
17
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. DERIVATIVES AND HEDGING ACTIVITIES
Derivative instruments enable ACC to manage its exposure to various market
risks. The value of such instruments is derived from an underlying variable or
multiple variables, including equity and interest rate indices or prices. ACC
primarily enters into derivative agreements for risk management purposes related
to ACC's products and operations.
ACC uses derivatives as economic hedges of equity and interest rate risk related
to various products and transactions of ACC. ACC does not designate any
derivatives for hedge accounting. The following table presents the balance sheet
location and the gross fair value of derivative instruments, including embedded
derivatives, at September 30, 2009:
FAIR VALUE
DERIVATIVES NOT DESIGNATED AS ----------------------------------------------------------------------
HEDGING INSTRUMENTS BALANCE SHEET LOCATION ASSET BALANCE SHEET LOCATION LIABILITY
- ----------------------------- ---------------------- -------- ----------------------------------
(IN THOUSANDS)
EQUITY CONTRACTS
Stock market certificates Equity index options, Equity index options,
purchased $152,145 written $124,318
Stock market certificates
embedded derivatives -- Certificate reserves 28,139
-------- --------
Total $152,145 $152,457
======== ========
See note 4 for additional information regarding ACC's fair value measurement of
derivative instruments.
The following table presents a summary of the impact of derivatives not
designated as hedging instruments on the Statement of Operations:
AMOUNT OF GAIN (LOSS) ON
DERIVATIVES RECOGNIZED IN INCOME
---------------------------------------
DERIVATIVES NOT DESIGNATED AS LOCATION OF GAIN (LOSS) ON THREE MONTHS ENDED NINE MONTHS ENDED
HEDGING INSTRUMENTS DERIVATIVES RECOGNIZED IN INCOME SEPTEMBER 30, 2009 SEPTEMBER 30, 2009
- ----------------------------- -------------------------------------- ------------------ ------------------
(IN THOUSANDS)
EQUITY CONTRACTS
Stock market certificates Net provision for certificate reserves $ 8,995 $ 10,416
Stock market certificates embedded derivatives Net provision for certificate reserves (12,306) (23,132)
--------- --------
Total $ (3,311) $(12,716)
========= ========
Ameriprise Stock Market Certificates ("SMC") offer a return based upon the
relative change in a major stock market index between the beginning and end of
the SMC's term. The SMC product contains an embedded derivative. The equity
based return of the certificate must be separated from the host contract and
accounted for as a derivative instrument. As a result of fluctuations in equity
markets, and the corresponding changes in value of the embedded derivative, the
amount of expenses incurred by ACC related to the SMC product will positively or
negatively impact reported earnings. As a means of hedging its obligations under
the provisions for these certificates, ACC purchases and writes call options on
the S&P 500 Index. ACC views this strategy as a prudent management of equity
market sensitivity, such that earnings are not exposed to undue risk presented
by changes in equity market levels. The gross notional amount of these
derivative contracts was $1.5 billion at September 30, 2009. ACC also purchases
futures on the S&P 500 Index to economically hedge its obligations. The futures
are marked-to-market daily and exchange traded, exposing ACC to no counterparty
risk. At September 30, 2009, ACC had no futures contracts outstanding.
CREDIT RISK
Credit risk associated with ACC's derivatives is the risk that a derivative
counterparty will not perform in accordance with the terms of the applicable
derivative contract. To mitigate such risk, ACC has established guidelines and
oversight of credit risk through a comprehensive enterprise risk management
program that includes members of senior management. Key components of this
program are to require preapproval of counterparties and the use of master
netting arrangements and collateral arrangements wherever practical. As of
September 30, 2009, ACC held $15.9 million in cash and recorded a corresponding
liability in accounts payable and accrued liabilities for collateral ACC is
obligated to return to counterparties. As of September 30, 2009, ACC's maximum
credit exposure related to derivative assets after considering netting
arrangements with counterparties and collateral arrangements was approximately
$12.0 million.
18
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. CONTINGENCIES
ACC is not aware that it is a party to any pending legal, arbitration, or
regulatory proceedings that would have a material adverse effect on its
financial condition, results of operations or liquidity. However, it is possible
that the outcome of any such proceedings could have a material adverse effect on
results of operations in any particular reporting period as the proceedings are
resolved.
7. INCOME TAXES
ACC's effective tax rates were 36.6% and 36.7% for the three months and nine
months ended September 30, 2009, respectively, compared to 36.5% and 35.6% for
the three months and nine months ended September 30, 2008, respectively. The
effective tax rate for the nine months ended September 30, 2009 reflected the
level of current year tax advantaged items relative to the level of pretax
income. The effective tax rate for the nine months ended September 30, 2008
reflected the level of current year tax advantaged items relative to the level
of pretax loss.
As of September 30, 2009 and December 31, 2008, ACC had $4.4 million of gross
unrecognized tax benefits. If recognized, approximately $1.2 million, net of
federal tax benefits, of the unrecognized tax benefits as of September 30, 2009
and December 31, 2008, would affect the effective tax rate.
ACC recognizes interest and penalties related to unrecognized tax benefits as a
component of the income tax provision. ACC had $1.3 million for the payment of
interest and penalties accrued at September 30, 2009 and December 31, 2008.
It is not expected that the total amounts of unrecognized tax benefits will
change materially in the next 12 months.
ACC files income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, ACC is no longer subject to U.S. federal or
state and local income tax examinations by tax authorities for years before
1997. In the fourth quarter of 2008, the Internal Revenue Service ("IRS"),
commenced an examination of ACC's U.S. income tax returns for 2005 through 2007.
The IRS, as part of the overall examination of the American Express Company
consolidated return, completed its field examination of ACC's U.S. income tax
returns for 1997 through 2002 during 2008 and completed its field examination of
2003 through 2004 in the third quarter of 2009. However, for federal income tax
purposes, these years continue to remain open as a consequence of certain issues
under appeal. ACC's state income tax returns are currently under examination by
various jurisdictions for years ranging from 1998 through 2006.
19
AMERIPRISE CERTIFICATE COMPANY
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS
The following information should be read in conjunction with Ameriprise
Certificate Company's ("ACC") Financial Statements and related notes presented
in Part I, Item 1. This discussion may contain forward-looking statements that
reflect ACC's plans, estimates and beliefs. Actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to these differences include, but are not limited
to, those discussed under "Forward-Looking Statements." ACC believes it is
useful to read its management's narrative analysis in conjunction with its
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
Securities and Exchange Commission ("SEC") on March 3, 2009 ("2008 10-K"), as
well as its current reports on Form 8-K and other publicly available
information.
ACC is a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"). ACC is registered as an investment company under the Investment
Company Act of 1940 and is in the business of issuing face-amount investment
certificates. Face-amount investment certificates issued by ACC entitle the
certificate owner to receive at maturity a stated amount of money and interest
or credits declared from time to time by ACC, at its discretion. The
certificates issued by ACC are not insured by any government agency. ACC's
certificates are sold primarily by Ameriprise Financial Services, Inc., an
affiliate of ACC. Ameriprise Financial Services, Inc. is registered as a
broker-dealer in all 50 states, the District of Columbia and Puerto Rico.
ACC's future profitability is dependent upon changes in the economic, credit and
equity environments, as well as the competitive environment. Ameriprise
Financial and unaffiliated third parties offer certain competing products which
have demonstrated strong appeal to investors.
Management's narrative analysis of the results of operations is presented in
lieu of management's discussion and analysis of financial condition and results
of operations, pursuant to General Instructions H(2)(a) of Form 10-Q.
CRITICAL ACCOUNTING POLICIES
Valuation of Investments
Effective January 1, 2009, ACC early adopted an accounting standard that
significantly changed ACC's accounting policy regarding the timing and amount of
other-than-temporary impairments for Available-for-Sale securities. For
information regarding the changes to ACC's accounting policy, see Note 3 to the
Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements and their expected
impact on ACC's future results of operations or financial condition, see Note 2
to the financial statements.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Net income for the nine months ended September 30, 2009 was $28.5 million
compared to a net loss of $27.5 million for the nine months ended September 30,
2008, an increase of $56.0 million. This increase is due primarily to net
realized investment losses for the nine months ended September 30, 2008 compared
to net realized investment gains for the nine months ended September 30, 2009,
as well as decreased interest crediting rates in the 2009 period.
For the nine months ended September 30, 2009, investment income increased $27.9
million, or 20%, to $170.7 million compared to the same period in 2008. This
increase was primarily the result of an increase in investment holdings compared
to the prior year period.
Investment expenses for the nine months ended September 30, 2009 increased $2.6
million, or 10%, to $28.3 million compared to the same period in 2008. This
increase was primarily due to higher average investment balances compared to the
prior year period.
The provision for certificate reserves decreased $14.2 million, or 13%, to $99.4
million for the nine months ended September 30, 2009 compared to the same period
in 2008, primarily due to decreased client crediting rates.
Net realized investment gains before income taxes for the nine months ended
September 30, 2009 were $2.0 million compared to net realized investment losses
before income taxes of $46.2 million for the nine months ended September 30,
2008. In the nine months ended September 30, 2009, net realized gains from sales
of Available-for-Sale securities were $13.3 million offset partially by $1.7
million of gross realized investment losses and other-than-temporary impairments
recognized in earnings of $9.1 million. In the nine months ended September 30,
2008, net realized gains from sales of Available-for-Sale securities were $0.8
million offset by $4.8 million of gross realized investment losses and
other-than-temporary impairments recognized in earnings of $42.0 million. The
other-than-temporary impairment charges recognized in the 2008 period primarily
related to securities issued by Lehman Brothers, Washington Mutual, and various
other non-agency residential mortgage backed securities.
20
AMERIPRISE CERTIFICATE COMPANY
The effective tax rate was 36.7% for the nine months ended September 30, 2009
compared to 35.6% for the nine months ended September 30, 2008. The effective
tax rate for the nine months ended September 30, 2009 reflected the level of
current year tax advantaged items relative to the level of pretax income. The
effective tax rate for the nine months ended September 30, 2008 reflected the
level of current year tax advantaged items relative to the level of pretax loss.
MARKET RISK
Equity market and interest rate fluctuations can have a significant impact on
ACC's results of operations, primarily due to the effects they have on the
spread income generated on ACC's face amount certificate products.
There have been no material changes in ACC's net risk exposure to pretax income
based on its sources of market risk during the nine months ended September 30,
2009.
CREDIT RISK
ACC is exposed to credit risk within its investment portfolio, including its
loan portfolio, and through its derivative activities. Credit risk relates to
the uncertainty of an obligor's continued ability to make timely payments in
accordance with the contractual terms of the financial instrument or contract.
ACC considers its total potential credit exposure to each counterparty and its
affiliates to ensure compliance with pre-established credit guidelines at the
time it enters into a transaction which would potentially increase its credit
risk. These guidelines and oversight of credit risk are managed through a
comprehensive enterprise risk management program that includes members of senior
management.
ACC manages the risk of credit-related losses in the event of nonperformance by
counterparties by applying disciplined fundamental credit analysis and
underwriting standards, prudently limiting exposures to lower-quality,
higher-yielding investments, and diversifying exposures by issuer, industry,
region and underlying investment type. ACC remains exposed to occasional adverse
cyclical economic downturns during which default rates may be significantly
higher than the long term historical average used in pricing.
ACC manages its credit risk related to over-the-counter derivatives by entering
into transactions with creditworthy counterparties, maintaining collateral
arrangements and through the use of master netting arrangements that provide for
a single net payment to be made by one counterparty to another at each due date
and upon termination. Generally, ACC's current credit exposure on
over-the-counter derivative contracts is limited to a derivative counterparty's
net positive fair value of derivate contracts after taking into consideration
the existence of netting arrangements and any collateral received. This exposure
is monitored and managed to an acceptable threshold level.
Because exchange-traded futures are effected through regulated exchanges, and
positions are marked to market and generally cash settled on a daily basis, ACC
has minimal exposure to credit-related losses in the event of nonperformance by
counterparties to such derivative instruments.
For additional information regarding ACC's sensitivity to market and credit
risk, see "Management's Narrative Analysis" in ACC's 2008 10-K.
FAIR VALUE MEASUREMENTS
ACC reports certain assets and liabilities at fair value; specifically
derivatives, embedded derivatives, and most investments and cash equivalents.
Fair value assumes the exchange of assets or liabilities occurs in orderly
transactions. Generally accepted accounting principles ("GAAP") do not require
the use of market prices that are the result of a forced liquidation or
distressed sale. ACC includes actual market price or observable inputs in its
fair value measurements to the extent available. Broker quotes are obtained when
quotes from pricing services are not available. ACC validates prices obtained
from third parties through a variety of means such as: price variance analysis,
subsequent sales testing, stale price review, price comparison across pricing
vendors and due diligence reviews of vendors.
Inactive Markets
Through ACC's own experience transacting in the marketplace and through
discussions with its pricing vendors, ACC believes that the market for certain
non-agency residential mortgage backed securities is inactive. Indicators of
inactive markets include: pricing services' reliance on brokers or discounted
cash flow analysis to provide prices, an increase in the disparity between
prices provided by different pricing services for the same security,
unreasonably large bid-offer spreads and a significant decrease in the volume of
trades relative to historical levels. In certain cases, this market inactivity
has resulted in ACC applying valuation techniques that rely more on an income
approach (discounted cash flows using market rates) than on a market approach
(prices from pricing services). ACC considers market observable yields for other
asset classes of similar risk which includes nonperformance and liquidity for
individual securities to set the discount rate for
21
AMERIPRISE CERTIFICATE COMPANY
applying the income approach to certain non-agency residential mortgage backed
securities. The discount rates used for the fair value of these securities at
September 30, 2009 ranged from 11% to 22%.
Non-agency Residential Mortgage Backed Securities Backed by Subprime, Alt-A or
Prime Collateral
Subprime mortgage lending is the origination of residential mortgage loans to
customers with weak credit profiles. Alt-A mortgage lending is the origination
of residential mortgage loans to customers who have credit ratings above
subprime but may not conform to government-sponsored standards. Prime mortgage
lending is the origination of residential mortgage loans to customers with good
credit profiles. ACC has exposure to these types of loans predominantly through
mortgage backed and asset backed securities. The slowdown in the U.S. housing
market, combined with relaxed underwriting standards by some originators, has
recently led to higher delinquency and loss rates for some of these investments.
Recent market conditions have increased the likelihood of other-than-temporary
impairments for certain non-agency residential mortgage backed securities. As a
part of ACC's risk management process, an internal rating system is used in
conjunction with market data as the basis of analysis to assess the likelihood
that ACC will not receive all contractual principal and interest payments for
these investments. For the investments that are more at risk for impairment, ACC
performs its own assessment of projected cash flows incorporating assumptions
about default rates, prepayment speeds, loss severity, and geographic
concentrations to determine if an other-than-temporary impairment should be
recognized.
The following table presents as of September 30, 2009, ACC's non-agency
residential mortgage backed and asset backed securities backed by subprime,
Alt-A or prime mortgage loans by credit rating and vintage year (in thousands):
AAA AA A BBB BB & BELOW TOTAL
------------------ ----------------- ----------------- ----------------- ------------------ -------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE COST VALUE COST VALUE
--------- -------- --------- ------- --------- ------- --------- ------- --------- -------- ---------- --------
SUBPRIME
2003 & prior $ 1,693 $ 1,219 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 1,693 $ 1,219
2004 11,403 10,579 -- -- 9,464 9,375 -- -- 10,358 6,178 31,225 26,132
2005 23,087 22,255 36,412 35,854 5,128 4,956 1,441 1,258 -- -- 66,068 64,323
2006 -- -- 2,749 2,746 7,937 7,692 5,943 5,620 -- -- 16,629 16,058
2007 -- -- -- -- 7,424 7,046 -- -- -- -- 7,424 7,046
2008 -- -- -- -- -- -- -- -- -- -- -- --
Re-Remic(1) -- -- -- -- -- -- 22,303 21,864 -- -- 22,303 21,864
-------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- --------
Total Subprime $ 36,183 $ 34,053 $ 39,161 $38,600 $29,953 $29,069 $29,687 $28,742 $ 10,358 $ 6,178 $ 145,342 $136,642
======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ========
ALT-A
2003 & prior $ 6,341 $ 5,896 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 6,341 $ 5,896
2004 8,999 6,784 6,296 2,925 22,047 15,492 5,133 3,089 -- -- 42,475 28,290
2005 -- -- 6,078 4,108 -- -- 7,722 4,764 89,299 56,125 103,099 64,997
2006 -- -- -- -- 3,562 3,431 -- -- 40,807 28,871 44,369 32,302
2007 -- -- -- -- -- -- -- -- 59,351 35,352 59,351 35,352
2008 -- -- -- -- -- -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- --------
Total Alt-A $ 15,340 $ 12,680 $ 12,374 $ 7,033 $25,609 $18,923 $12,855 $ 7,853 $189,457 $120,348 $ 255,635 $166,837
======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ========
PRIME
2003 & prior $ 38,295 $ 38,266 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 38,295 $ 38,266
2004 42,303 38,372 37,465 30,278 9,125 5,045 12,615 6,795 3,595 1,798 105,103 82,288
2005 4,276 4,093 23,845 19,874 11,735 9,935 42,721 33,576 44,005 32,555 126,582 100,033
2006 -- -- -- -- -- -- -- -- 4,632 3,641 4,632 3,641
2007 -- -- -- -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- -- -- -- --
Re-Remic(1) 383,983 384,382 -- -- -- -- -- -- -- -- 383,983 384,382
-------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- --------
Total Prime $468,857 $465,113 $ 61,310 $50,152 $20,860 $14,980 $55,336 $40,371 $ 52,232 $ 37,994 $ 658,595 $608,610
======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ========
GRAND TOTAL $520,380 $511,846 $112,845 $95,785 $76,422 $62,972 $97,878 $76,966 $252,047 $164,520 $1,059,572 $912,089
======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ========
(1) Re-Remics of mortgage backed securities are prior vintages with cash flows
structured into senior and subordinated bonds. Credit enhancement on senior
bonds is increased through the Re-Remic process. ACC did not have any
exposure to subordinate tranches as of September 30, 2009.
22
AMERIPRISE CERTIFICATE COMPANY
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, that reflect ACC's plans,
estimates and beliefs. ACC's actual results could differ materially from those
described in these forward-looking statements. The words "believe," "expect,"
"anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should,"
"could," "would," "likely," and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements. Forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from such statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. ACC
undertakes no obligation to update or revise any forward-looking statements.
ITEM 4T. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
ACC maintains disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) designed to provide reasonable assurance that the information required to
be reported in the Exchange Act filings is recorded, processed, summarized and
reported within the time periods specified and pursuant to SEC regulations,
including controls and procedures designed to ensure that this information is
accumulated and communicated to ACC's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding the required disclosure. It should be noted that, because of inherent
limitations, ACC's disclosure controls and procedures, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the disclosure controls and procedures are met.
ACC's management, with the participation of its Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report. Based upon
that evaluation, ACC's Chief Executive Officer and Chief Financial Officer have
concluded that ACC's disclosure controls and procedures were effective at a
reasonable level of assurance as of September 30, 2009.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in ACC's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, ACC's internal control
over financial reporting.
23
AMERIPRISE CERTIFICATE COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 6 to the Financial Statements in Part 1, Item
1 is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item
1A of ACC's 2008 10-K.
ITEM 6. EXHIBITS
The list of exhibits required to be filed as exhibits to this report are listed
on page E-1 hereof, under "Exhibit Index," which is incorporated herein by
reference.
24
AMERIPRISE CERTIFICATE COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERIPRISE CERTIFICATE COMPANY
(Registrant)
Date: November 3, 2009 By /s/ William F. Truscott
-------------------------------------
William F. Truscott
Chief Executive Officer
Date: November 3, 2009 By /s/ Ross P. Palacios
-------------------------------------
Ross P. Palacios
Chief Financial Officer
25
AMERIPRISE CERTIFICATE COMPANY
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation of American Express
Certificate Company, dated Aug. 1, 2005, filed electronically on or
about March 10, 2006 as Exhibit 3(a) to Registrant's Form 10-K is
incorporated by reference.
3.2 Current By-Laws, filed electronically as Exhibit 3(e) to
Post-Effective Amendment No. 19 to Registration Statement No.
33-26844, are incorporated herein by reference.
* 31.1 Certification of William F. Truscott, pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
* 31.2 Certification of Ross P. Palacios, pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
* 32.1 Certification of William F. Truscott and Ross P. Palacios, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed electronically herewith.
E-1