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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, 2007
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. 2-23772
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.)
52 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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]
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 8, 2007
- --------------------------------------- -------------------------------
Common Shares (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.
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AMERIPRISE CERTIFICATE COMPANY
FORM 10-Q
INDEX
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements
Statements of Income -- Three months and nine months ended September 30, 2007 and 2006............1
Balance Sheets -- September 30, 2007 and December 31, 2006........................................2
Statements of Cash Flows -- Nine months ended September 30, 2007 and 2006.........................3
Statements of Comprehensive Income -- Three months and nine months ended
September 30, 2007 and 2006.......................................................................4
Notes to Financial Statements...................................................................5-7
Item 2. Management's Narrative Analysis...................................................................8
Item 4T. Controls and Procedures...........................................................................9
Part II. Other Information:
Item 1. Legal Proceedings................................................................................10
Item 1A. Risk Factors.....................................................................................10
Item 6. Exhibits.........................................................................................10
Signatures..................................................................................................11
Exhibit Index..............................................................................................E-1
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
2007 2006 2007 2006
-------------- -------------- -------------- --------------
Investment income......................................... $ 55,074 $ 69,451 $ 180,318 $ 205,573
Investment expenses....................................... 8,719 8,709 27,545 29,013
------------- ------------- ------------- -------------
Net investment income before provision for
certificate reserves and income taxes.................. 46,355 60,742 152,773 176,560
Provision for certificate reserves........................ 46,165 55,663 152,147 152,776
------------- ------------- ------------- -------------
Net investment income before income taxes................. 190 5,079 626 23,784
Income tax provision (benefit)............................ 455 1,989 (835) 8,486
------------- ------------- ------------- -------------
Net investment (loss) income........................... (265) 3,090 1,461 15,298
------------- ------------- ------------- -------------
Net realized investment gains (losses) before income taxes 1,730 860 1,095 (1,166)
Income tax provision (benefit)............................ 605 301 383 (408)
------------- ------------- ------------- -------------
Net realized gains (losses) on investments................ 1,125 559 712 (758)
Net income................................................ ------------- ------------- ------------- -------------
$ 860 $ 3,649 $ 2,173 $ 14,540
============= ============= ============= =============
</Table>
See Notes to Financial Statements.
1
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
September 30, December 31,
2007 2006
------------- ------------
(unaudited)
ASSETS
Qualified Assets
Cash and cash equivalents.......................................................... $ 72,984 $ 174,247
Investments in unaffiliated issuers................................................ 3,924,643 4,668,818
Equity index options, purchased.................................................... 91,070 103,806
Receivables........................................................................ 30,589 34,384
------------- ------------
Total qualified assets................................................................ 4,119,286 4,981,255
------------- ------------
Other Assets
Deferred taxes, net................................................................ 55,116 72,138
Due from parent for federal income taxes........................................... 113 --
Due from other affiliates.......................................................... 16 94
------------- ------------
Total other assets.................................................................... 55,245 72,232
------------- ------------
Total assets.......................................................................... $ 4,174,531 $ 5,053,487
============= ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Certificate reserves............................................................... $ 3,909,483 $ 4,719,602
Equity index options, written...................................................... 45,843 55,794
Amounts due to brokers............................................................. 422 1,830
Accounts payable and accrued liabilities........................................... 31,530 46,709
Current taxes payable to parent.................................................... -- 41
------------- ------------
Total liabilities..................................................................... 3,987,278 4,823,976
------------- ------------
Shareholder's equity
Common shares ($10 par value, 150,000 shares authorized and issued)................ 1,500 1,500
Additional paid-in capital......................................................... 223,245 274,115
Retained earnings.................................................................. 1,531 3,488
Accumulated other comprehensive loss, net of tax................................... (39,023) (49,592)
------------- ------------
Total shareholder's equity............................................................ 187,253 229,511
------------- ------------
Total liabilities and shareholder's equity............................................ $ 4,174,531 $ 5,053,487
============= ============
</Table>
See Notes to Financial Statements.
2
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
Nine Months Ended
September 30,
---------------------------------
2007 2006
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................ $ 2,173 $ 14,540
Adjustments to reconcile net income to net cash provided by operating activities:
Interest added to certificate loans................................................ (241) (277)
Amortization of premiums, accretion of discounts, net.............................. 7,398 9,018
Deferred taxes, net................................................................ 9,486 (10,477)
Net realized investment losses before income tax provision......................... 605 1,166
Provision for loan loss............................................................ (1,700) --
Changes in other operating assets and liabilities:
Equity index options purchased and written, net.................................... 2,785 (7,247)
Due from parent -- federal income taxes............................................ (154) (452)
Dividends and interest receivable.................................................. 5,080 3,987
Other assets and liabilities, net.................................................. (13,349) 5,930
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................. 12,083 16,188
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Sales.............................................................................. 207,469 456,911
Maturities and redemptions......................................................... 574,087 621,313
Purchases.......................................................................... (78,051) (94,439)
Other investments:
Sales.............................................................................. 6,540 10,816
Maturities and redemptions......................................................... 103,140 84,674
Purchases.......................................................................... (59,913) (88,674)
Certificate loans:
Payments........................................................................... 749 1,216
Fundings........................................................................... (814) (934)
Changes in amounts due to and from brokers, net....................................... (2,998) (6,897)
------------- -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES............................................. 750,209 983,986
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from certificate owners................................................... 638,120 1,239,017
Provision for certificate reserves................................................. 152,147 152,776
Certificate maturities and cash surrenders......................................... (1,598,822) (2,430,570)
Proceeds from reverse repurchase agreements........................................ 30,000 684,000
Payments on reverse repurchase agreements.......................................... (30,000) (684,000)
Dividend/return of capital to parent............................................... (55,000) (60,000)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES................................................. (863,555) 1,098,777
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................. (101,263) (98,603)
Cash and cash equivalents beginning of period......................................... 174,247 119,100
------------- -------------
CASH AND CASH EQUIVALENTS END OF PERIOD............................................... $ 72,984 $ 20,497
============= =============
SUPPLEMENTAL DISCLOSURES INCLUDING NON-CASH TRANSACTIONS:
Cash (refunded) paid for income taxes.............................................. $ (11,564) $ 19,094
Certificate maturities and surrenders through loan reductions...................... 1,564 1,530
</Table>
See Notes to Financial Statements.
3
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
Net income................................................... $ 860 $ 3,649 $ 2,173 $ 14,540
OTHER COMPREHENSIVE INCOME
Unrealized gains on Available-for-Sale securities:
Unrealized holding gains arising during the period...... 19,151 64,114 16,045 4,320
Income tax benefit...................................... 6,851 22,440 5,871 1,512
------------ ------------ ------------ ------------
Net unrealized holding gains arising during the period 12,300 41,674 10,174 2,808
------------ ------------ ------------ ------------
Reclassification adjustment for (gains) losses included
in net income......................................... (47) (856) 608 1,217
Income tax (expense) benefit............................ (15) (299) 213 426
------------ ------------ ------------ ------------
Net reclassification adjustment for (gains) losses
included in net income.............................. (32) (557) 395 791
------------ ------------ ------------ ------------
Net unrealized gains on Available-for-Sale securities........ 12,268 41,117 10,569 3,599
------------ ------------ ------------ ------------
NET OTHER COMPREHENSIVE INCOME............................... 12,268 41,117 10,569 3,599
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME................................... $ 13,128 $ 44,766 $ 12,742 $ 18,139
============ ============ ============ ============
</Table>
See Notes to Financial Statements.
4
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, 2006, filed with the Securities and Exchange Commission
("SEC") on March 1, 2007. Certain reclassifications of prior period amounts have
been made to conform to the current presentation.
SEPARATION OF AMERIPRISE FINANCIAL
Ameriprise Financial was formerly a wholly-owned subsidiary of American Express
Company ("American Express"). On February 1, 2005, the American Express Board of
Directors announced its intention to pursue the disposition of 100% of its
shareholdings in Ameriprise Financial (the "Separation") through a tax-free
distribution to American Express shareholders. Effective as of the close of
business on September 30, 2005, American Express completed the Separation and
distribution of Ameriprise Financial common shares to American Express
shareholders (the "Distribution").
During the third quarter of 2005, ACC agreed with American Express Bank Limited
("AEB"), a subsidiary of American Express, to execute an orderly wind-down of
the certificate business marketed through AEB and American Express Bank
International ("AEBI"). This wind-down has been completed. The amount of
certificate reserves associated with this business was approximately nil and
$4.4 million as of September 30, 2007 and December 31, 2006, respectively.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2007, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 07-1, "Clarification of the Scope of the
Audit and Accounting Guide 'Investment Companies' and Accounting by Parent
Companies and Equity Method Investors for Investments in Investment Companies"
("SOP 07-1"). SOP 07-1 provided clarification on the definition of an investment
company. In October 2007, the Financial Accounting Standards Board ("FASB")
indefinitely deferred the effective date of SOP 07-1 with the intention of
re-deliberating the guidance provided. The Company will delay evaluating the
impact of adopting SOP 07-1 until after the FASB finalizes its deliberations.
In May 2007, the FASB issued FASB Staff Position ("FSP") FASB Interpretation No.
("FIN") 46(R)-7, "Application of FIN 46(R) to Investment Companies" ("FSP
46(R)-7"). FSP 46(R)-7 is dependent upon clarification of the definition of an
investment company as provided in SOP 07-1 and is effective upon the adoption of
that SOP. The Company will delay evaluating the impact of adopting FSP 46(R)-7
until after the FASB finalizes its deliberations.
In February 2007, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities -- Including an amendment of FASB Statement No. 115" ("SFAS 159").
SFAS 159 gives entities the option to measure certain financial instruments and
other items at fair value that are not currently permitted to be measured at
fair value. The objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 requires entities
to report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. SFAS 159 also
establishes presentation and disclosure requirements. SFAS 159 is effective as
of the beginning of an entity's first fiscal year that begins after November 15,
2007. The Company is currently evaluating whether or not it will elect to adopt
SFAS 159 for certain assets and liabilities.
5
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements" ("SFAS
157"), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit fair value
measurements. Accordingly, SFAS 157 does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. The provisions of SFAS
157 are required to be applied prospectively as of the beginning of the fiscal
year in which SFAS 157 is initially applied, except for certain financial
instruments as defined in SFAS 157 which will require retrospective application
of SFAS 157. The transition adjustment, if any, will be recognized as a
cumulative-effect adjustment to the opening balance of retained earnings for the
fiscal year of adoption. The Company is currently evaluating the impact of
adopting SFAS 157 on its results of operations and financial condition.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109"
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109, "Accounting for Income
Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company adopted FIN 48 as of January 1,
2007 and recorded as a cumulative change in accounting principle an increase in
the liability for unrecognized tax benefits and a decrease in beginning retained
earnings of $4 million.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS 155"). SFAS 155 amends SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") and SFAS 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 140"). SFAS 155: (i) permits fair value remeasurement for
any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; (ii) clarifies which interest-only and
principal-only strips are not subject to the requirements of SFAS 133; (iii)
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation;
(iv) clarifies that concentrations of credit risk in the form of subordination
are not embedded derivatives; and (v) amends SFAS 140 to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. The Company adopted SFAS 155 as of January 1,
2007. The effect of adopting SFAS 155 was not material to ACC's results of
operations and financial condition.
3. INVESTMENTS IN UNAFFILIATED ISSUERS
Investments in unaffiliated issuers were:
<Table>
<Caption>
September 30, December 31,
2007 2006
------------- -------------
(in thousands)
Available-for-Sale securities, at fair value
(amortized cost: 2007, $3,617,097; 2006, $4,328,549)............................... $ 3,555,610 $ 4,250,409
First mortgage loans on real estate and other loans, at cost
(fair value: 2007, $365,997; 2006, $421,526)....................................... 360,765 408,883
Certificate loans -- secured by certificate reserves, at cost,
which approximates fair value...................................................... 8,268 9,526
------------- -------------
Total................................................................................. $ 3,924,643 $ 4,668,818
============= =============
</Table>
6
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS IN UNAFFILIATED ISSUERS (CONTINUED)
Gross realized investment gains and losses on Available-for-Sale securities and
other-than-temporary impairment losses on Available-for-Sale securities included
in net realized investment gains (losses) before income taxes were as follows:
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2007 2006 2007 2006
------------- ------------- ------------- --------------
(in thousands)
Gross realized investment gains............................. $ 268 $ 1,095 $ 1,380 $ 1,753
Gross realized investment losses............................ $ (221) $ (239) $ (1,803) $ (2,970)
Other-than-temporary impairments............................ $ -- $ -- $ (185) $ --
</Table>
Also included in net realized investment gain (losses) before income taxes for
the three and nine months ended September 30, 2007 was a decrease of $1.7
million to the allowance for loan losses on commercial mortgage loans.
4. COMMITMENTS AND CONTINGENCIES
Commitments to fund first mortgage loans on real estate at September 30, 2007
and December 31, 2006 were $2.5 million and nil, respectively. ACC holds the
mortgage document for all outstanding mortgages, which gives it the right to
take possession of the property if the borrower fails to perform according to
the terms of the agreements. ACC employs policies and procedures designed to
ensure the creditworthiness of the borrowers and that funds will be available on
the funding date. ACC's investments in first mortgage loans on real estate are
restricted to 80 percent or less of the market value of the real estate at the
time of the loan funding.
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.
5. INCOME TAXES
The effective tax rate was 55.2% and (26.3)% for the three months and nine
months ended September 30, 2007, respectively, compared to 38.6% and 35.7% for
the three months and nine months ended September 30, 2006, respectively. The
effective tax rate for the three months ended September 30, 2007 reflects 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, 2007
reflects the impact of a $0.9 million tax benefit related to the settlement of
taxes for capital losses in prior years and the level of current year tax
advantaged items relative to the level of pretax income.
Effective January 1, 2007, ACC adopted the provisions of FIN 48, which did not
have an effect on ACC's balance sheet or statement of income. As of the date of
adoption, ACC had $4.0 million of gross unrecognized tax benefits. If
recognized, approximately $0.8 million, net of federal tax benefits, 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 recognized interest and penalties of
$0.1 million and $0.2 million for the three months and nine months ended
September 30, 2007, respectively. ACC had $0.7 million and $0.9 million for the
payment of interest and penalties accrued at January 1, 2007 and September 30,
2007, respectively.
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, the Company is no longer subject to U.S.
federal or state and local income tax examinations by tax authorities for years
before 1997. The Internal Revenue Service ("IRS"), as part of the overall
examination of the American Express Company consolidated return, commenced an
examination of ACC's U.S. income tax returns for 1997 through 2002 in the third
quarter of 2005. In the first quarter of 2007, the IRS expanded the period of
the examination to include 2003 through 2004. ACC's state income tax returns are
currently under examination by various jurisdictions for years ranging from 1998
through 2005.
7
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 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, 2006, filed with the Securities and
Exchange Commission ("SEC") on March 1, 2007, 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 (the "1940 Act") 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 follows U.S. generally accepted accounting principles ("GAAP"). Certain
reclassifications of prior period amounts have been made to conform to the
current presentation.
ACC's profitability has declined in recent periods and is not expected to
improve significantly largely due to the competitive context and the current
interest rate environment. Affiliates of 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.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
For the nine months ended September 30, 2007, investment income decreased $25.3
million, or 12.3 percent compared to the same period last year. This was
primarily a result of a reduction in holdings, due to lower client volumes and
client net outflows. The decrease was offset by a small increase in the average
rate of returns on investments.
Investment expenses for the nine months ended September 30, 2007 decreased $1.5
million, or 5.1 percent compared to the same period in 2006. The decrease is
mainly due to lower distribution fees, as a result of lower client volumes and
less distribution fees being paid to American Express Bank Limited ("AEB") and
American Express Bank International ("AEBI") as a result of the business
wind-down of AEB and AEBI. This decrease was partially offset by an increase in
transfer agent fees paid to RiverSource Service Corporation, an affiliate of
ACC, due to a revised transfer agent agreement effective in the first quarter of
2007.
The provision for certificate reserves decreased $0.6 million or 0.4 percent for
the nine months ended September 30, 2007 compared to the same period in 2006.
The decrease included lower stock market participation costs, resulting from
lower client volumes, partially offset by higher equity market appreciation and
increases in client crediting rates. Included in the nine months ended September
30, 2006 was a $1.0 million offset for interest credited on Stock Market
Certificates.
For the nine months ended September 30, 2007 and 2006, $3.1 million and $1.8
million of total investment gains were offset by $2.0 million and $3.0 million
of investment losses and impairments, respectively. Investment gains for the
nine months ended September 30, 2007 included a decrease of $1.7 million to the
allowance for loan losses on commercial mortgage loans. Included in the total
investment losses for the nine months ended September 30, 2007 was $0.2 million
of other-than-temporary impairment losses on investments. For the nine months
ended September 30, 2006, virtually all investment gains and losses were from
securities classified as Available-for-Sale.
The effective tax rate was (26.3)% for the nine months ended September 30, 2007
compared to 35.7% for the nine months ended September 30, 2006. The effective
tax rate for the nine months ended September 30, 2007 reflects the impact of a
$0.9 million tax benefit related to the settlement of taxes for capital losses
in prior years and the level of current year tax advantaged items relative to
the level of pretax income.
8
RECENT ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements and their expected
impact on our future results of operations or financial condition, see Note 2 to
the Financial Statements.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, which are subject to risks and
uncertainties. 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.
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. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors, which could cause actual results, performance or
achievements to differ materially from future results, performance or
achievements. These statements are not guarantees or indicative of future
performance. Important assumptions and other important factors that could cause
actual results to differ materially from those forward-looking statements
include, but are not limited to, those factors, risks and uncertainties
described in "Item 1A-Risk Factors" and elsewhere in ACC's Annual Report on Form
10-K. Our future financial condition and results of operations, as well as any
forward-looking statements contained in this report are made only as of the date
hereof. 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 ACC's 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, 2007.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 4 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 the Company's Annual Report on Form 10-K for the year ended December 31,
2006 filed with the SEC on March 1, 2007.
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.
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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 8, 2007 By
/s/ William F. Truscott
-----------------------------------
William F. Truscott
Chief Executive Officer
Date: November 8, 2007 By
/s/ Brian J. McGrane
-----------------------------------
Brian J. McGrane
Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
EXHIBIT DESCRIPTION
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 Brian J. McGrane pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
32.1 Certification of William F. Truscott and Brian J. McGrane pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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