01—Abstract
Summary
Summary of the 10-K filed February 24, 2010. Cited figures are marked; the original filing is the authoritative source.
Ameriprise Financial (NYSE: AMP) reported a return to profitability in fiscal 2009 after a loss in 2008.
Net income attributable to Ameriprise Financial was $722 milliona, or $2.95 per diluted share, versus a net loss of $38 million (-$0.17 per share) in 2008. Net revenues rose 13% to $7.8 billion, driven mainly by a $1.2 billion increase in net investment income, which benefited from $53 million of net realized gains compared with $777 million of realized losses in 2008. Total expenses fell 6% to $6.9 billion, largely because DAC amortization dropped 77% and distribution expenses declined.
Owned, managed and administered assets grew 23% to $457.8 billion, and shareholders' equity rose to $9.3 billionb from $6.2 billion, supported by a $869 million common stock issuance in June 2009. The filing also highlights ongoing headwinds and pending transactions. Management expects a challenging business climate to persist, and the company remains exposed to variable annuity guaranteed-benefit liabilities, which increase when equity markets fall.
Debt was $2.2 billionc at year-end, and the company holds an unrelated capital cushion at its insurance subsidiaries. Management's stated multi-year targets are net revenue growth of 6% to 8%, diluted EPS growth of 12% to 15%, and return on equity of 12% to 15%. The pending acquisition of Columbia Management's long-term asset management business, expected to close in spring 2010 for $0.9 to $1.2 billion, is a key strategic event, with integration costs estimated at $130 to $160 million through 2011.
For investors, the key questions are whether the 2009 earnings recovery is sustainable given market sensitivity, how the Columbia integration will perform, and whether the company can maintain its advisor network and retention rates. The filing shows strong liquidity, improving capital at subsidiaries, and a diversified model across four main segments, but also significant regulatory scrutiny and litigation exposure, including pending class actions tied to private placement sales through Securities America.
02—Key points
Key Highlights
- Net income attributable to Ameriprise Financial rose to $722 million ($2.95 diluted EPS) in 2009 from a net loss of $38 million in 2008.
- Net revenues increased 13% to $7.8 billion, led by net investment income of $2.0 billion, up from $817 million, largely due to lower realized investment losses.
- Total expenses decreased 6% to $6.9 billion, with DAC amortization down 77% to $217 million.
- Owned, managed and administered assets reached $457.8 billion, up 23% from $372.1 billion, including wrap account assets of $94.9 billion.
- Shareholders' equity increased to $9.3 billion, supported by an $869 million common stock offering in June 2009.
- Pending acquisition of Columbia Management's long-term asset management business ($0.9 to $1.2 billion, expected spring 2010) is a major strategic move.
- Variable annuity guaranteed benefit exposure remains a key risk, with equity market declines and interest rate moves affecting earnings and hedging costs.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 24, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $7.54B$7.10B | +6.2% |
| Operating Expenses | $6.48B$7.34B | −11.8% |
| Operating Income | $721.00M— | — |
| Net Income | $722.00M-$36.00M | +2105.6% |
| EPS (Basic) | $2.98$-0.16 | +1962.5% |
| EPS (Diluted) | $2.95$-0.16 | +1943.8% |
| Shares Outstanding (Basic) | 242.20M222.30M | +9.0% |
| Shares Outstanding (Diluted) | 244.40M224.90M | +8.7% |
05—Questions
Frequently Asked Questions
What drove the swing from a 2008 loss to a 2009 profit?
The swing was driven mainly by a $1.2 billion increase in net investment income, reflecting net realized investment gains of $53 million in 2009 versus losses of $777 million in 2008, which were primarily other-than-temporary impairments. Lower DAC amortization ($217 million vs. $933 million) and expense controls also contributed, partly offset by higher benefits expenses tied to variable annuity living benefit guarantees.
What is the Columbia Management acquisition and why does it matter?
Ameriprise agreed to acquire the long-term asset management business of Columbia Management Group from Bank of America for $900 million to $1.2 billion, funded with cash on hand. Management expects it to close in spring 2010 and to make Ameriprise a top-ten firm in core portions of its four main segments. Integration and acquisition costs are estimated at $130 million to $160 million through 2011.
How exposed is the company to market downturns?
Significantly. Asset-based management and distribution fees fall with equity markets, and a 10% equity decline would reduce pretax income by roughly $287 million net of hedges, according to the sensitivity table. Variable annuity guaranteed benefits, especially GMWB and GMAB riders, also create losses when markets fall, although the company hedges a portion of this exposure.
Is the company's capital and liquidity position adequate?
The filing reports $3.1 billion in cash and cash equivalents, an undrawn $750 million revolving credit facility, and subsidiaries holding capital well above regulatory action levels (for example, RiverSource Life at 430% of company action level RBC). Debt totaled $2.2 billion, and the company refinanced part of its 2010 senior notes with 2019 and 2039 issues. Share repurchases were suspended since September 2008, with about $1.3 billion authorization remaining.
What regulatory and legal risks should investors watch?
Ameriprise faces elevated regulatory scrutiny from the SEC, FINRA and state regulators, including reviews of annuity and private placement sales. It also faces the Gallus excessive-fee lawsuit under the Investment Company Act, which the Supreme Court may review, and class actions and arbitrations tied to Securities America's sales of private placement interests issued by Medical Capital and Provident Shale. The company says it cannot estimate potential losses, and it notes that ratings downgrades could increase surrenders and raise borrowing costs.
06—Continue