01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Ameriprise Financial (NYSE: AMP) reported 2007 results that reflect a company completing its separation from American Express, with net income up 29% to $814 milliona on net revenues of $8.7 billion (up 8%) and pretax income of $1.0 billion.
Management highlighted that adjusted earnings, which exclude after-tax separation costs, rose 12% to $968 millionb, and adjusted return on equity improved to 12.6% from 11.8%. The company said it met or exceeded its adjusted financial targets for 2007, and the separation costs have now been fully incurred, with $890 million in cumulative non-recurring costs since the 2005 spin-off. Growth was driven by fee-based businesses.
Management and financial advice fees rose 20% to $3.2 billionc, supported by wrap account inflows of $11.7 billion and variable annuity inflows of $4.9 billion. Owned, managed and administered assets reached $480.2 billion, up 3%. Net investment income fell 6% to $2.1 billion as fixed annuity and certificate balances declined, reflecting management's deliberate shift toward fee-based revenue that is less capital-intensive.
Risk factors remain significant. Variable annuity guaranteed living benefit reserves grew sharply as market volatility increased, with GMWB and GMAB reserves moving to positive liabilities of $136 milliond and $33 million. The 10% equity-market sensitivity was estimated at a $141 million pretax impact after hedging.
The company also disclosed elevated regulatory scrutiny, several pending customer and regulatory matters, and a 6% share of invested assets rated below investment grade. Capital return remained active, with $977 million of share repurchases in 2007 and $418 million remaining under the current authorization.
02—Key points
Key Highlights
- Net income rose 29% to $814 million; adjusted earnings rose 12% to $968 million, excluding after-tax separation costs of $154 million.
- Net revenues increased 8% to $8.65 billion, led by management and financial advice fees (up 20%) and distribution fees (up 12%).
- Owned, managed and administered assets grew 3% to $480.2 billion, with wrap account assets up 23% and net wrap inflows of $11.7 billion.
- Adjusted return on equity improved to 12.6% from 11.8%, within management's 12% to 15% target range.
- Net investment income declined 6% to $2.1 billion as fixed annuity and certificate balances shrank, consistent with the strategic shift toward fee-based revenue.
- Variable annuity living benefit costs rose sharply in volatile markets; GMWB reserves increased to $136 million from a net asset of $12 million, and a 10% equity decline implies a $141 million pretax exposure after hedging.
- Returned capital through $977 million of 2007 share repurchases and $133 million of dividends; $418 million remains under the March 2007 buyback authorization.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $8.76B |
| Operating Expenses | $7.50B |
| Net Income | $814.00M |
| EPS (Basic) | $3.45 |
| EPS (Diluted) | $3.39 |
| Shares Outstanding (Basic) | 236.20M |
| Shares Outstanding (Diluted) | 239.90M |
05—Questions
Frequently Asked Questions
How did Ameriprise's profitability change in 2007, and what drove it?
Net income rose 29% to $814 million, and pretax income increased 27% to $1.02 billion. Growth came mainly from fee-based businesses, including wrap accounts and variable annuities, supported by market appreciation and advisor productivity gains. A $125 million decline in non-recurring separation costs also helped. Partly offsetting these gains were higher distribution expenses and increased variable annuity living benefit costs.
Are the separation costs from American Express over?
Yes. Management states that all separation costs were incurred by December 31, 2007, and the separation from American Express is complete. Total non-recurring separation costs since the 2005 spin-off reached $890 million. Investors should still note that 2007 results included $236 million of pretax separation costs, so year-over-year comparisons are best viewed on the adjusted basis the company provides.
What are the main risks tied to the variable annuity business?
The company guarantees minimum withdrawal, accumulation, and death benefits on variable annuities, so a sustained equity decline or higher volatility can raise guaranteed benefit payouts. Reserves for GMWB and GMAB riders turned positive in 2007, and management estimates a 10% equity decline would reduce pretax income by about $141 million after hedging. The company hedges a portion of this exposure with puts, calls, futures, and swaps, but hedges may not fully offset losses.
How strong is the balance sheet and capital position?
Shareholders' equity was $7.8 billion at year-end 2007, and cash and cash equivalents were $3.8 billion. Debt totaled $2.0 billion, including $1.5 billion of senior notes and $500 million of junior subordinated notes. The company has an undrawn $750 million revolving credit facility, and its principal insurance subsidiaries held capital well above regulatory action levels. Credit ratings include A+ from A.M. Best for RiverSource Life, which is important to sales of its annuity and insurance products.
What regulatory and legal exposures should investors monitor?
The company disclosed ongoing examinations and inquiries from the SEC, FINRA, state regulators, and attorneys general concerning sales practices, financial plan delivery, non-cash compensation, and REIT and fund distribution. A New Hampshire action alleging statutory violations and forgery is pending, and the parties agreed to a stay while discussing resolution. Management said it cannot estimate the possible loss or range of loss from these matters, and an adverse outcome could be material.
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