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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, 2009MARCH 31, 2010
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, 2009MAY 4, 2010
----- ---------------------------------------------------------
Common StockShares (par value $10 per share) 150,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(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
Part I. Financial Information:
Item 1. Financial Statements
Statements of Operations - Three months ended
March 31, 2010 and nine months
ended September 30, 2009 and 2008 ................................................... 3
Balance Sheets - September 30, 2009March 31, 2010 and December 31, 2008 ...................................................2009 .. 4
Statements of Cash Flows - NineThree months ended
September
30,March 31, 2010 and 2009 and 2008 ................................................................... 5
Statements of Shareholder's Equity - NineThree months ended
September 30,March 31, 2010 and 2009 and 2008 ......................................................... 6
Notes to Financial Statements .......................... 7
Item 2. Management's Narrative Analysis ........................ 2017
Item 4T. Controls and Procedures ................................ 2319
Part II. Other Information:
Item 1. Legal Proceedings ...................................... 2420
Item 1A. Risk Factors ........................................... 2420
Item 6. Exhibits ............................................... 2420
Signatures ...................................................... 2521
Exhibit Index ................................................... E-1
2
AMERIPRISE CERTIFICATE COMPANY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)(IN THOUSANDS)
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------MARCH 31,
-----------------
2010 2009
2008 2009 2008
------- -------- -------- ----------------
Investment income $57,414 $ 51,539 $170,693 $ 142,815$44,455 $51,484
Investment expenses 9,005 8,950 28,316 25,6678,520 10,448
------- -------- -------- ----------------
Net investment income before provision for certificate reserves and income taxes 48,409 42,589 142,377 117,14835,935 41,036
Net provision for certificate reserves 27,148 37,560 99,409 113,65816,996 38,657
------- -------- -------- ----------------
Net investment income before income taxes 21,261 5,029 42,968 3,49018,939 2,379
Income tax expense 7,876 1,300 15,804 9816,921 887
------- -------- -------- ----------------
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)12,018 1,492
------- -------- -------- ----------------
Net realized gain (loss) on investments 4,011 (23,371) 1,299 (30,022)3,811 (1,719)
Income tax expense (benefit) 1,334 (602)
------- -------- -------- ----------------
Net incomerealized gain (loss) $17,396 $(19,642)on investments 2,477 (1,117)
------- -------
NET INCOME $14,495 $ 28,463 $ (27,513)375
======= ======== ======== ================
Supplemental Disclosures:
Net realized investment gains before income taxes:gain (loss) on investments:
Net realized investment gainsgain on investments before income taxes
and impairment losses on securities $ 6,8166,381 $ 11,0602,717
------- ---------------
Total other-than-temporary impairment losses on securities (167) (9,841)(4,662) (1,581)
Portion of loss recognized in other comprehensive income (479) 7792,092 (2,855)
------- ---------------
Net impairment losses recognized in net realized investment gains before income taxes (646) (9,062)gain (loss) on investments (2,570) (4,436)
------- ---------------
Total net realized investment gains before income taxesgain (loss) on investments $ 6,170 $ 1,9983,811 $(1,719)
======= ===============
See Notes to Financial Statements.
3
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS
(in thousands, except share data)(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 2009MARCH 31, DECEMBER 31,
2008
------------------ -----------------2010 2009
----------- ------------
(UNAUDITED)
ASSETS
Qualified Assets
Cash equivalents $ 320,480 $1,164,484453,111 $ 309,183
Investments in unaffiliated issuers 4,379,423 3,667,4853,395,663 3,960,440
Receivables 40,292 39,47983,703 39,630
Equity index options, purchased 152,145 23,693131,252 166,392
---------- ----------
Total qualified assets 4,892,340 4,895,141
---------- ----------
Other Assets4,063,729 4,475,645
Deferred taxes, net 73,115 136,17259,654 70,793
Current taxes receivable -- 9,578
Due from related party -- 2,848parent 398 62
---------- ----------
Total other assets 73,115 148,59860,052 70,855
---------- ----------
Total assets $4,965,455 $5,043,739$4,123,781 $4,546,500
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:Liabilities
Certificate reserves $4,491,371 $4,885,589$3,776,366 $4,108,272
Current taxes payable to parent 10,404 3,2053,992 18,117
Payable for investment securities purchased 1,242 26,3327,220 1,207
Equity index options, written 124,318 18,681109,472 140,996
Accounts payable and accrued liabilities 44,950 19,42733,717 32,710
---------- ----------
Total liabilities 4,672,285 4,953,234
---------- ----------
SHAREHOLDER'S EQUITY:3,930,767 4,301,302
Shareholder's Equity
Common shares ($10 par value;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)226,086 297,964
Total retained earnings (accumulated deficit) 15 (6,358)
Accumulated other comprehensive loss, net of tax (44,946) (152,454)(34,587) (47,908)
---------- ----------
Total shareholder's equity 293,170 90,505193,014 245,198
---------- ----------
Total liabilities and shareholder's equity $4,965,455 $5,043,739TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,123,781 $4,546,500
========== ==========
See Notes to Financial Statements.
4
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)(IN THOUSANDS)
NINETHREE MONTHS ENDED
SEPTEMBER 30,
-------------------------MARCH 31,
--------------------------
2010 2009
2008
----------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 28,46314,495 $ (27,513)375
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Interest added to certificate loans (161) (188)(37) (50)
Amortization of premiums, and accretionacccretion of
discounts, net (5,872) 4,587(810) (284)
Deferred taxes, net (12,067) (58,956)3,967 (1,953)
Net realized (gain) loss on investments (1,954) 46,188310 942
Provision for loan loss 1,500 --(4,121) 1,000
Changes in other operating assets and liabilities:
Trading securities, net 16,618 -- (137,334)
Dividends and interest receivable 5,001 (2,798)5,110 237
Certificate reserves, net (4,415) 1,408
Due to (from) parent for income taxes 16,777 8,904
Certificate reserves,(14,461) 5,701
Derivatives, net 21,360 19,6163,616 (1,601)
Derivatives collateral, net 3,618 --
Other, net 8,591 29,540
-----------(3,033) (7,725)
--------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 78,256 19,380
-----------4,239 (139,284)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Sales 224,512 14,3811,903 124,157
Maturities and redemptions 1,479,599 770,424554,766 274,540
Purchases (2,278,532) (1,089,051)(33,969) (1,119,926)
Below investment grade syndicated bank loans and
firstcommercial mortgage loans on real estate:loans:
Sales 1,223 2,3291,974 933
Maturities and redemptions 31,351 64,23722,463 7,685
Purchases (132) (103,756)(42) (116)
Certificate loans:
Payments 688 588233 258
Fundings (391) (424)
-----------(148) (115)
--------- -----------
NET CASH USED INPROVIDED BY (USED IN) INVESTING ACTIVITIES (541,682) (341,272)
-----------547,180 (712,584)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from certificate owners 2,034,873 1,808,975269,358 962,628
Certificate maturities and cash surrenders (2,450,451) (1,024,573)(596,849) (863,731)
Capital contribution from parent 35,000 75,000
------------- 30,000
Dividend/return of capital to parent (80,000) --
--------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (380,578) 859,402
-----------(407,491) 128,897
--------- -----------
NET INCREASE (DECREASE) INCREASE IN CASH EQUIVALENTS (844,004) 537,510143,928 (722,971)
Cash equivalents at beginning of period 309,183 1,164,484
76,079--------- -----------
-----------
Cash equivalents at end of periodCASH EQUIVALENTS AT END OF PERIOD $ 320,480453,111 $ 613,589
===========441,513
========= ===========
SUPPLEMENTAL DISCLOSURES INCLUDING NON-CASH
TRANSACTIONS:
Cash paid (received) for income taxes $ 8,42018,704 $ (11,589)(6,377)
Certificate maturities and surrenders through loan
reductions 1,115 1,093467 449
See Notes to Financial Statements.
5
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2010 AND 2009 AND 2008
RETAINED EARNINGS/EARNINGS (ACCUMULATED DEFICIT)
------------------------------------
APPROPRIAT- APPROPRI-
ED----------------------------------------
APPROPRIATED APPROPRIATED
FOR PRE- ATED FOR ACCUMULAT-ACCUMULATED
PRE-DECLARED ADDITIONAL OTHER
NUMBER DECLARED ADDITIONAL ED OTHER
OF OUT- ADDITIONAL ADDITIONAL INTEREST ON COMPREHEN-
STANDINGCOMPREHENSIVE
OUTSTANDING COMMON PAID-IN CREDITS AND ADVANCE UNAPPRO- SIVE LOSS -
SHARES SHARES CAPITAL INTEREST PAYMENTS PRIATEDUNAPPROPRIATED 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
======= ====== ======== ===== === ======== ========= ========
BALANCESBALANCE AT JANUARY 1, 2009 150,000 $1,500 $322,964$ 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 -- -- -- -- -- 28,463375 -- 28,463375
Other comprehensive income,
net of tax:
Change in net unrealized
securities losses -- -- -- -- -- -- 138,792 138,79230,111 30,111
Change in noncredit
related impairments on
securities and net
unrealized securities
losses on previously
impaired securities -- -- -- -- -- -- 410 410(11) (11)
--------
Total comprehensive income 167,66530,475
Transfer to unappropriated/
from appropriated -- -- -- (50)(41) -- 5041 -- --
Receipt of capital from parent -- -- 35,00030,000 -- -- -- -- 35,00030,000
------- ------ -------- --------- --- -------- --------- --------
BALANCESBALANCE AT SEPTEMBER 30,MARCH 31, 2009 150,000 1,500 352,964 9 15 (49,460) (154,048) 150,980
======= ====== ======== ==== === ======== ========= ========
BALANCE AT JANUARY 1, 2010 150,000 1,500 297,964 -- 15 (6,373) (47,908) 245,198
Comprehensive income:
Net income -- -- -- -- -- 14,495 -- 14,495
Other comprehensive income,
net of tax:
Change in net unrealized
securities losses -- -- -- -- -- -- 15,192 15,192
Change in noncredit related
impairments on securities
and net unrealized
securities losses on prev-
iously impaired securities -- -- -- -- -- -- (1,871) (1,871)
--------
Total comprehensive income 27,816
Dividend/return of capital to
parent -- -- (71,878) -- -- (8,122) -- (80,000)
------- ------ -------- ---- --- -------- --------- --------
BALANCE AT MARCH 31, 2010 150,000 $1,500 $357,964$226,086 $ -- $15 $(21,363) $ (44,946) $293,170-- $ (34,587) $193,014
======= ====== ======== ========== === ======== ========= ========
See Notes to Consolidated Financial Statements.
6
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF BUSINESS
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, 2008,2009, filed with the Securities and Exchange Commission
("SEC") on March 3, 2009.February 23, 2010.
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 GAAPSubsequent Events
In June 2009,February 2010, 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 updatedamended the
accounting standards onrelated to the recognition and disclosure of subsequent
events. The standard also requiresamendments remove the disclosure ofrequirement to disclose the date through which
subsequent events were evaluated.are evaluated for SEC filers. The standard is effective for interim and annual reporting periods ending after June 15, 2009,upon
issuance, and shall be applied prospectively. ACC adopted the standard in the
secondfirst quarter of 2009.2010. The adoption did not have a materialany effect on ACC's results of
operations and financial condition.
Fair Value
In April 2009,January 2010, the FASB updated the accounting standards related to
provide guidancedisclosures on estimatingfair value measurements. The standard expands the current
disclosure requirements to include additional detail about significant transfers
between Levels 1 and 2 within the fair value hierarchy and presents activity in
the rollforward of Level 3 activity on a financial asset or liability whengross basis. The standard also
clarifies existing disclosure requirements related to the trade
volume and level of
activitydisaggregation to be used for the asset or liability have significantly
decreased relative to historical levels. The standard requires entities to
discloseassets and liabilities as well as disclosures on
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. Thisvalue. The standard is
effective for interim and annual reporting periods endingbeginning after JuneDecember 15,
2009, with early adoption permittedexcept for the disclosure requirements related to the Level 3 rollforward,
which are effective for interim and annual periods endingbeginning after MarchDecember 15,
2009,
and is to be applied prospectively.2010. ACC early adopted the standard in the first quarter of 2009.2010, except for the
additional disclosures related to the Level 3 rollforward, which ACC will adopt
in the first quarter of 2011. The adoption did not have a materialany 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 ("OTTI")
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.income (loss) when the entity does not intend to sell the security and it is
more likely than not that the entity will not be required to sell the security
prior to recovery of its cost basis. 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.
87
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, 2009MARCH DECEMBER
31, 2008
------------------ -----------------2010 31, 2009
---------- ----------
(IN THOUSANDS)
Available-for-Sale securities,Available-for-Sale:
Fixed maturities, at fair value (amortized cost: 2010, $3,133,605;
2009, $4,119,731; 2008, $3,521,116) $4,048,058 $3,286,403$3,697,972) $3,081,545 $3,627,993
Common and preferred stocks, at fair value (cost: 2010, $19,648;
2009, $19,646) 18,386 15,765
Below investment grade syndicated bank loans and commercial mortgage
loans, at cost (fair value: 2010, $295,415; 2009, $325,006; 2008, $289,401) 326,016 357,863
Trading securities, at fair value (amortized cost: 2009, nil; 2008, $16,611) -- 16,618$313,021) 288,995 309,459
Certificate loans - secured by certificate reserves, at cost,
which approximates fair value 5,349 6,6014,621 5,136
Real estate owned, at fair value less cost to sell 2,116 2,087
---------- ----------
Total $4,379,423 $3,667,485$3,395,663 $3,960,440
========== ==========
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
-----------------------------------------------------------------MARCH 31, 2010
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED GROSS UNREALIZED NON-CREDIT
DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES FAIR VALUE OTTI (1)
- ------------------------- -------------- ---------------- -------------------------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $1,699,384 $24,999 $(142,847) $1,581,536$1,453,782 $21,660 $(125,549) $1,349,893 $(50,085)
Corporate debt securities 1,199,606 30,148 (2,967) 1,226,787781,828 19,236 (383) 800,681 5
Commercial mortgage backed securities 599,634 15,405 (705) 614,334464,546 15,286 (355) 479,477 --
Asset backed securities 466,301 17,211 (9,855) 473,657374,663 20,499 (3,550) 391,612 (1,343)
U.S. government and agencies obligations 135,194 1,51058,786 1,096 -- 136,70459,882 --
Common and preferred stocks 19,61219,648 350 (1,612) 18,386 -- (4,572) 15,040
---------- ------- --------- ---------- --------
Total $4,119,731 $89,273 $(160,946) $4,048,058$3,153,253 $78,127 $(131,449) $3,099,931 $(51,423)
========== ======= ========= ========== ========
DECEMBER 31, 2008
-----------------------------------------------------------------2009
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED GROSS UNREALIZED FAIR VALUENON-CREDIT
DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES FAIR VALUE OTTI (1)
- ------------------------- -------------- ---------------- -------------------------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Residential mortgage backed securities $1,348,369 $11,434 $(156,220) $1,203,583$1,577,876 $20,736 $(138,277) $1,460,335 $(46,683)
Corporate debt securities 1,623,978 637 (49,426) 1,575,1891,026,547 24,668 (976) 1,050,239 850
Commercial mortgage backed securities 273,099 590 (7,077) 266,612538,714 13,247 (759) 551,202 --
Asset backed securities 247,159 376 (26,506) 221,029420,016 17,245 (6,994) 430,267 (2,711)
U.S. government and agencies obligations 4,899 168134,819 1,131 -- 5,067135,950 --
Common and preferred stocks 19,61219,646 82 (3,963) 15,765 -- (8,689) 10,923
State and municipal obligations 4,000 -- -- 4,000
---------- ------- --------- ---------- --------
Total $3,521,116 $13,205 $(247,918) $3,286,403$3,717,618 $77,109 $(150,969) $3,643,758 $(48,544)
========== ======= ========= ========== ======= ========= ==================
10(1) Represents the amount of other-than-temporary impairment losses in
Accumulated Other Comprehensive Loss. Amount includes unrealized gains and
losses on impaired securities subsequent to the impairment measurement
date. These amounts are included in gross unrealized gains and losses as of
the end of the period.
8
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At September 30, 2009March 31, 2010 and December 31, 2008,2009, fixed maturity securities comprised
approximately 86%80% and 70%85%, 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$11.7 million and $65.8$18.0 million of securities at September 30,
2009March 31, 2010
and December 31, 2008,2009, 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, 2009MARCH 31, 2010 DECEMBER 31, 2008
-------------------------------------------- ------------------------------------------2009
------------------------------------ ------------------------------------
PERCENT PERCENT
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%$1,754,707 $1,798,048 59% $2,026,434 $2,062,670 57%
AA 210,872 196,147131,815 130,419 4 189,891 177,780 5
246,614 223,318A 217,269 217,421 7 A 403,314 396,180 10 339,662 327,926 10346,183 342,573 9
BBB 899,154 902,344656,411 656,473 21 782,389 780,706 22 1,176,153 1,140,420 34
Below investment grade 359,214 269,599373,403 279,184 9 353,075 264,264 7 111,329 87,846 3
---------- ---------- --- ---------- ---------- ---
Total fixed maturities $4,100,119 $4,033,018$3,133,605 $3,081,545 100% $3,501,504 $3,275,480$3,697,972 $3,627,993 100%
========== ========== === ========== ========== ===
At September 30, 2009March 31, 2010 and December 31, 2008,2009, approximately 36%40% and 50%38%,
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,MARCH 31, 2009
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
----------------------- ----------------------- -----------------------
UNREALIZED UNREALIZED UNREALIZED------------------------------ ------------------------------ ------------------------------
NUMBER NUMBER NUMBER
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 COSTSECURITIES 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%Residential mortgage
backed securities 20 $207,492 $(6,051) 77 $327,306 $(119,498) 97 $534,798 $(125,549)
Corporate debt
securities 2 1,199 (17) 17 13,345 (366) 19 14,544 (383)
Commercial mortgage
backed securities 5 16,510 (130) 4 39,591 (2,454)10,772 (225) 9 27,282 (355)
Asset backed securities 7 49,128 (698) 10 33,018 (2,852) 17 29,580 (2,103) 21 69,171 (4,557)
80% - 90%82,146 (3,550)
Common and
preferred stocks -- -- -- 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)1 18,000 (1,612) 1 18,000 (1,612)
--- -------- ------- --- -------- --------- --- -------- ---------
Total 37 $375,012 $(9,946) 163 $561,044 $(151,000) 200 $936,056 $(160,946)34 $274,329 $(6,896) 109 $402,441 $(124,553) 143 $676,770 $(131,449)
=== ======== ======= === ======== ========= === ======== =========
DECEMBER 31, 2008
----------------------------------------------------------------------------------------------------------------2009
--------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
------------------------------------ ---------------------------------- ------------------------------------
RATIO------------------------------ ------------------------------ ------------------------------
NUMBER NUMBER NUMBER
DESCRIPTION OF NUMBER GROSS NUMBER GROSS NUMBER GROSS
FAIR VALUE TO OF FAIR UNREALIZED OF FAIR UNREALIZED OF FAIR UNREALIZED
AMORTIZED COSTSECURITIES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES
- -------------- ---------- ------------------ ---------- ---------- -------- ---------- ---------- ------------------ ----------
(IN THOUSANDS, EXCEPT NUMBER OF SECURITIES)
95% - 100% 140 $1,313,461Residential mortgage
backed securities 22 $196,113 $ (18,621) 45 $245,247 $ (5,339) 185 $1,558,708 $ (23,960)
90% - 95% 20 161,149 (11,401)(9,618) 77 $320,859 $(128,659) 99 $516,972 $(138,277)
Corporate debt
securities 5 4,715 (117) 28 56,063 (859) 33 60,778 (976)
Commercial mortgage
backed securities 4 20,315 (321) 9 29,516 (438) 13 49,831 (759)
Asset backed securities 7 34,629 (766) 11 47,960 (6,228) 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)82,589 (6,994)
Common and
preferred stocks -- -- -- 1 15,650 (3,963) 1 15,650 (3,963)
--- ------------------ -------- --- -------- --------- --- -------- ---------
--- ---------- ---------
Total 206 $1,697,832 $(113,990) 159 $561,705 $(133,928) 365 $2,259,537 $(247,918)38 $255,772 $(10,822) 126 $470,048 $(140,147) 164 $725,820 $(150,969)
=== ========== ================= ======== === ======== ========= === ================== =========
9
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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.spreads. The primary driver of lower unrealized losses in 2009 compared to 2008at
March 31, 2010 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 a rollforward of the cumulative 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:loss:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,2010 2009
2009
------------- -------------------- -------
(IN THOUSANDS)
Beginning balance of credit losses on securities
held as of January 1 for which a portion of
other-than-temporary impairment was
recognized in other comprehensive income $58,143loss $57,446 $50,866
ReductionsAdditional amount related to credit losses for
securities sold during the period (realized) (1,650) (1,650)which an other-than-temporary impairment was
not previously recognized 556 --
Additional increases to the amount related to
credit losses for which an
other-than-temporary impairment was
previously recognized 646 7,9231,798 3,297
------- -------
Ending balance of credit losses on securities
held as of September 30March 31 for which a portion of
other-than-
temporaryother-than-temporary impairment was
recognized in other comprehensive income $57,139 $57,139loss $59,800 $54,163
======= =======
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 includesinclude 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
lossesinvestment
gains (losses) on Available-for-Sale securities included in accumulated other
comprehensive loss:
ACCUMULATED
OTHER
NET COMPREHENSIVE
UNREALIZEDNET LOSS RELATED
UNREALIZED TO NET
INVESTMENT UNREALIZED
GAINS DEFERRED UNREALIZED INVESTMENT
GAINS
(LOSSES) INCOME TAX GAINS (LOSSES)
-------------- ---------- ------------------------------- --------------
(IN THOUSANDS)
Balance at January 1, 20082009 $(233,248) $ (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) $ 82,09180,794 $(152,454)
Cumulative effect of accounting change (48,760)(1) 17,066 (31,694)(1)
Net unrealized investment gains arising during the period 216,633 (75,822) 140,81145,357 (15,875) 29,482
Reclassification of losses included in net income 951 (333) 618
--------- -------- ---------
Balance at March 31, 2009 $(235,700) $ 81,652 $(154,048)(2)
========= ======== =========
Balance at January 1, 2010 $ (72,408) $ 24,500 $ (47,908)
Net unrealized investment gains arising during the period 20,510 (7,179) 13,331
Reclassification of gains included in net income (2,476) 867 (1,609)(16) 6 (10)
--------- -------- ---------
Balance at September 30, 2009March 31, 2010 $ (69,148)(51,914) $ 24,20217,327 $ (44,946)(34,587)(2)
========= ======== =========
(1) Amount represents the cumulative effect of adopting a new accounting
standard on January 1, 2009. See footnoteNote 2 for additional information on the
adoption impact.
(2) At September 30,March 31, 2010 and 2009, Accumulated Other Comprehensive Loss Related to
Net Unrealized Investment Losses included $(31.3)$(33.4) million and $(31.7)
million, respectively, of noncredit related impairments on securities and
net unrealized securities losses on previously impaired securities.
10
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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,
-------------------------------- -------------------------------MARCH 31,
----------------------------
2010 2009
2008 2009 2008
------ -------- ------- ---------------
(IN THOUSANDS)
(IN THOUSANDS)
Gross realized gains from sales $5,988 $ 149 $13,2882,715 $ 8363,498
Gross realized losses from sales (140) (4,717) (1,749) (4,819)
Impairment losses (646) (31,186) (9,062) (41,971)(129) (12)
Other-than-temporary impairments related to credit (2,570) (4,436)
The $0.6$2.6 million and $9.1$4.4 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,March 31, 2010 and 2009, respectively, wereprimarily related to
creditcredit-related losses in non-agency residential mortgage backed securities and
corporate debt securities.
Available-for-Sale securities by contractual maturity as of September 30, 2009March 31, 2010 were
as follows:
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
Due within one year $ 592,044500,473 $ 601,716509,615
Due after one year through five years 715,446 735,146324,325 334,649
Due after five years through 10 years 18,685 17,7237,193 7,413
Due after 10 years 8,625 8,9068,623 8,886
---------- ----------
1,334,800 1,363,491840,614 860,563
Residential mortgage backed securities 1,699,384 1,581,5361,453,782 1,349,893
Commercial mortgage backed securities 599,634 614,334464,546 479,477
Asset backed securities 466,301 473,657374,663 391,612
Common and preferred stocks 19,612 15,04019,648 18,386
---------- ----------
Total $4,119,731 $4,048,058$3,153,253 $3,099,931
========== ==========
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 ValueDETERMINATION 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.
11
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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.services, broker quotes, or other model-based
valuation techniques. Level 1 securities primarily include U.S. Treasuries.
Level 2 securities include agency residential mortgage backed securities and
certain non-agencycommercial mortgage backed securities, asset backed securities, municipal and
corporate bonds, and U.S. agency securities.securities and common and preferred stock. The fair
value of these Level 2 securities is based on a market approach with prices
obtained from nationally-recognized pricing services. Observable inputs used to
value these securities can include: reported trades, benchmark yields, issuer
spreads and broker/dealer quotes. Level 3 securities include certainasset backed
securities, corporate bonds and non-agency residential mortgage backed
securities. The fair value of these Level 3 securities is typically based on a
single broker quote, except for the valuation of non-agency residential mortgage
backed securities, and corporate bonds.
Through ACC's own experience transactingdescribed in the marketplace and through
discussions with its pricing vendors,detail below.
While ACC believes that the market for non-agency residential mortgage backed
securities is still inactive, effective March 31, 2010, ACC returned to using
prices from nationally-recognized pricing services to determine the fair value
of certain non-agency residential mortgage backed securities is inactive. Indicatorsbecause the
difference between these prices and the results of inactive markets include: pricing services' reliance on brokers orACC's 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.was not significant.
Derivatives (Equity Index Options, Purchased and Written)
The fair values of derivatives that are traded in certainless active over-the-counter
markets are generally 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.observable
and include interest rates, volatilities, and equity index levels. 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,MARCH 31, 2010
--------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ---------- -------- ----------
(IN THOUSANDS)
Assets
Cash equivalents $ -- $ 453,111 $ -- $ 453,111
Available-for-Sale securities:
Residential mortgage backed securities -- 646,502 703,391 1,349,893
Corporate debt securities -- 791,993 8,688 800,681
Commercial mortgage backed securities -- 479,477 -- 479,477
Asset backed securities -- 264,593 127,019 391,612
U.S. government and agencies obligations 400 59,482 -- 59,882
Common and preferred stocks 64 18,322 -- 18,386
---- ---------- -------- ----------
Total Available-for-Sale securities 464 2,260,369 839,098 3,099,931
Equity index options, purchased -- 131,252 -- 131,252
---- ---------- -------- ----------
Total assets at fair value $464 $2,844,732 $839,098 $3,684,294
==== ========== ======== ==========
Liabilities
Certificate reserves $ -- $ 22,280 $ -- $ 22,280
Equity index options, written -- 109,472 -- 109,472
---- ---------- -------- ----------
Total liabilities at fair value $ -- $ 131,752 $ -- $ 131,752
==== ========== ======== ==========
12
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 2009
--------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ---------- -------- ----------
(IN THOUSANDS)
Assets
Cash equivalents $ -- $ 320,480309,183 $ -- $ 320,480309,183
Available-for-Sale securities:
Residential mortgage backed securities -- 781,981 799,555 1,581,536714,702 745,633 1,460,335
Corporate debt securities -- 1,214,717 12,070 1,226,7871,038,135 12,104 1,050,239
Commercial mortgage backed securities -- 614,334551,202 -- 614,334551,202
Asset backed securities -- 327,915 145,742 473,657299,683 130,584 430,267
U.S. government and agencies obligations 416 136,288398 135,552 -- 136,704135,950
Common and preferred stocks -- 15,04015,765 -- 15,04015,765
---- ---------- -------- ----------
Total Available-for-Sale securities 416 3,090,275 957,367 4,048,058
Trading securities -- -- -- --398 2,755,039 888,321 3,643,758
Equity index options, purchased -- 152,145166,392 -- 152,145166,392
---- ---------- -------- ----------
Total assets at fair value $416 $3,562,900 $957,367 $4,520,683$398 $3,230,614 $888,321 $4,119,333
==== ========== ======== ==========
Liabilities
Certificate reserves $ -- $ 28,13925,796 $ -- $ 28,13925,796
Equity index options, written -- 124,318140,996 -- 124,318140,996
---- ---------- -------- ----------
Total liabilities at fair value $ -- $ 152,457166,792 $ -- $ 152,457166,792
==== ========== ======== ==========
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:
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------------------
(IN THOUSANDS)
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- -----------------------------
----------- ---------- ---------- ----------- --------
Balance, JulyJanuary 1, 2009 $649,8372010 $ 30,579 $158,403745,633 $12,104 $130,584 $-- $838,819$888,321
Total gains (losses) included in:
Net income 1,919(1)(848)(1) -- 3,091(2)887(2) -- 5,01039
Other comprehensive income 22,160 498 2,69013,591 (17) 6,034 -- 25,34819,608
Purchases, sales, issuances and
settlements, net 125,639 (19,007) (18,442)(54,985) (3,399) (10,486) -- 88,190
-------- --------(68,870)
Transfers in and/or out of Level 3 -- -- -- -- --
--------- ------- -------- --- --------
Balance, September 30, 2009 $799,555March 31, 2010 $ 12,070 $145,742703,391 $ 8,688 $127,019 $-- $957,367
======== ========$839,098
========= ======= ======== === ========
Change in unrealized gains (losses) included
in net income relating to Level 3 assets
held at September 30, 2009March 31, 2010 $ 901(3)(848)(1) $ -- $ 2,594(4)887(2) $-- $ 3,49539
(1) Represents a $280 gain$(2,066) loss included in net realized gain (loss) on
investments and $1,639$1,218 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 $646$(289) loss included in net realized gain (loss) on
investments and $1,547$1,176 included in investment income in the Statements of
Operations.
(4) Included in investment income in the Statements of Operations.13
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------------------
(IN THOUSANDS)
RESIDENTIAL
MORTGAGE CORPORATE ASSET OTHER
BACKED DEBT BACKED STRUCTURED
AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL
- -----------------------------
----------- ---------- ---------- ----------- --------
Balance, JulyJanuary 1, 2008 $316,718 $49,522 $47,3762009 $465,234 $33,653 $ 67,552 $-- $413,616$566,439
Total gains (losses) included in:
Net loss (16,525)income (2,866)(1) -- 4,416(2) 80 (12,029)1,504(2) 8(3) (1,354)
Other comprehensive income 18,105 (492) (745)17,912 604 (2,760) -- 16,86815,756
Purchases, sales, issuances and
settlements, net (14,344) (4,919) (1,635) (80) (20,978)219,876 (3,278) 48,304 (8) 264,894
Transfers in and/or out of Level 3 -- -- -- -- --
-------- ------- --------------- --- --------
Balance, September 30, 2008 $303,954 $44,111 $49,412March 31, 2009 $700,156 $30,979 $114,600 $-- $397,477$845,735
======== ======= =============== === ========
Change in unrealized gains (losses) included
in net lossincome relating to Level 3 assets
held at September 30, 2008 $(16,525)(1)March 31, 2009 $ (2,911)(4) $ -- $ 4,416(2)1,504(2) $-- $(12,109)$ (1,407)
(1) Represents a $17,868$(3,079) loss included in net realized gain (loss) on
investments and $1,343$213 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 $8,437gain included in net realized gain (loss) on investments in
the Statements of Operations.
(4) Represents a $(3,297) loss included in net realized gain (loss) on
investments and $3,442$386 included in investment income in the Statements of
Operations.
(2) Represents a $478 gain includedACC recognizes transfers between levels of the fair value hierarchy as of the
beginning of the quarter in net realized gain (loss) on investmentswhich each transfer occurred. There were no
transfers between Level 1 and $5,565 included in investment income inLevel 2 during 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.three months ended March 31,
2010.
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 above in the
table
above with balances of assets and liabilities measured at fair value on a
recurring basis.
SEPTEMBER 30,MARCH 31, 2010 DECEMBER 31, 2009
------------------------------------------------------- ---------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- --------------------- -------------- ----------
(IN THOUSANDS)
FINANCIAL ASSETS
Investments in unaffiliated issuersBelow investment grade
syndicated bank loans $ 331,365168,431 $ 330,356170,186 $ 179,176 $ 179,579
Commercial mortgage loans 120,564 125,229 130,283 133,442
Certificate loans 4,621 4,621 5,136 5,136
FINANCIAL LIABILITIES
Certificate reserves $4,463,232 $4,423,729$3,754,086 $3,725,597 $4,082,476 $4,052,657
Investments in unaffiliated issuers
The fair value of below investment grade syndicated bank loans is obtained from
a nationally-recognized pricing service.
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.14
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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-performancenonperformance 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:by type of derivative and product:
FAIR VALUEASSET LIABILITY
------------------------ ------------------------
DERIVATIVES NOT DESIGNATED AS ----------------------------------------------------------------------BALANCE SHEET MARCH 31, DECEMBER 31, BALANCE SHEET MARCH 31, DECEMBER 31,
HEDGING INSTRUMENTS BALANCE SHEET LOCATION ASSET BALANCE SHEET2010 2009 LOCATION LIABILITY2010 2009
- ----------------------------- ---------------------- -------- ----------------------------------------------- --------- ------------ ------------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
EQUITY CONTRACTS
Stock market certificates Equity index options, Equity index
options, options,
purchased $152,145$131,252 $166,392 written $124,318$109,472 $140,996
Stock market certificates Certificate
embedded derivatives -- Certificate-- reserves 28,13922,280 25,796
-------- -------- -------- --------
Total $152,145 $152,457$131,252 $166,392 $131,752 $166,792
======== ======== ======== ========
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 StatementStatements of Operations:
AMOUNT OF GAIN (LOSS) ON
DERIVATIVES RECOGNIZED IN INCOME
---------------------------------------
DERIVATIVES NOT DESIGNATED AS LOCATION OF GAIN (LOSS) ON THREE MONTHS ENDED NINETHREE MONTHS ENDED
HEDGING INSTRUMENTS DERIVATIVES RECOGNIZED IN INCOME SEPTEMBER 30, 2009 SEPTEMBER 30,MARCH 31, 2010 MARCH 31, 2009
- ------------------------------------------------------------------------------ -------------------------------------- ------------------ ------------------
(IN THOUSANDS)
EQUITY CONTRACTS
Stock market certificates Net provision for certificate reserves $ 8,995 $ 10,416$2,970 $(2,838)
Stock market certificates embedded derivatives Net provision for certificate reserves (12,306) (23,132)
--------- --------3,516 (2,123)
------ -------
Total $ (3,311) $(12,716)
========= ========$6,486 $(4,961)
====== =======
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.March 31, 2010. 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 futuresThe gross notional amount of these contracts outstanding.was $0.3 million at March 31,
2010.
15
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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,March
31, 2010, ACC held $15.9$11.9 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,March 31, 2010, ACC's maximum credit exposure
related to derivative assets after considering netting arrangements with
counterparties and collateral arrangements was approximately $12.0$9.9 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'sThe effective tax rates were 36.6% and 36.7%rate was 36.3% for the three months and nine
months ended September 30, 2009, respectively,March 31, 2010
compared to 36.5% and 35.6%43.2% for the three months and nine months ended September 30, 2008, respectively.March 31, 2009. The effective tax
raterates for the nine months ended September 30, 2009both three month periods reflected the level of current yearperiod 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, 2009March 31, 2010 and December 31, 2008,2009, 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, 2009March 31, 2010 and
December 31, 2008,2009, 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$1.4 million for the payment of
interest and penalties accrued at September 30, 2009March 31, 2010 and December 31, 2008.2009.
It is not expectedreasonably possible that the total amounts of unrecognized tax benefits
will change materiallyin the next 12 months. Based on the current audit position of ACC,
it is estimated that the total amount of gross unrecognized tax benefits may
decrease by $4.4 million 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, theThe 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. In the fourth quarter of
2008, the IRS commenced an examination of ACC's U.S. income tax returns for 2005
through 2007, which is expected to be completed in the second quarter of 2010.
ACC's state income tax returns are currently under examination by various
jurisdictions for years ranging from 1998 through 2006.
1916
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, 2008,2009, filed with the
Securities and Exchange Commission ("SEC") on March 3, February 23, 2010 ("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,ACC's critical accounting policies are discussed in detail in "Management's
Narrative Analysis -- Critical Accounting Policies" in its 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.10-K.
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 NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2010 AND 2009 AND 2008
Net income for the ninethree months ended September 30,March 31, 2010 was $14.5 million compared
$0.4 million for the three months ended March 31, 2009, was $28.5an increase of $14.1
million, due primarily to decreased expenses related to certificate reserves
caused by the run-off of certificate rate promotions.
For the three months ended March 31, 2010, investment income decreased $7.0
million, or 13.7%, to $44.5 million compared to athe prior year period. This
decrease is primarily the result of lower asset balances due to net loss of $27.5 millionoutflows.
Investment expenses for the ninethree 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 asMarch 31, 2010 decreased interest crediting rates in the 2009 period.
For the nine months ended September 30, 2009, investment income increased $27.9$1.9
million, or 20%18.5%, to $170.7$8.5 million compared to the same period in 2008.2009. This
increase was primarily thedecrease is due to lower distribution fees as a result of an increasedeclining certificate
reserve balances in investment holdingsthe first quarter of 2010 compared to the prior year period.
Investment expensesfirst quarter of
2009.
The provision for certificate reserves decreased $21.7 million, or 56.0%, to
$17.0 million for the ninethree months ended September 30, 2009 increased $2.6
million, or 10%, to $28.3 millionMarch 31, 2010 compared to the same
period in 2008.2009. This increase was primarilydecrease is 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 decreasedlower client volumes as a result of net
outflows and lower interest crediting rates.
Net realized investment gains before income taxesgain on investments for the ninethree months ended September 30, 2009 were $2.0March 31, 2010 was
$3.8 million compared to net realized investment losses
before income taxesloss on investments of $46.2$1.7 million for
the ninethree months ended September 30,
2008. InMarch 31, 2009. Included in the ninenet investment gains for
the three months ended September 30, 2009, net realized gains from sales
of Available-for-Sale securities were $13.3March 31, 2010 was a $5.2 million decrease in the below
investment grade syndicated bank loans reserve partially offset partially by $1.7
million of gross realized investment lossesan increase
in the commercial mortgage loan reserve 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 investmentimpairment
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
otheron non-agency residential mortgage backed securities and corporate debt
securities. 20
AMERIPRISE CERTIFICATE COMPANYIncluded in the net investment losses for the three months ended
March 31, 2009 was $4.4 million of other-than-temporary impairment losses on
investments. These other-than-temporary impairment charges primarily related to
credit losses on non-agency residential mortgage backed securities and corporate
debt securities primarily in the gaming industry.
The effective tax rate was 36.7%36.3% for the ninethree months ended September 30, 2009March 31, 2010
compared to 35.6%43.2% for the ninethree 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,March 31, 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.17
AMERIPRISE CERTIFICATE COMPANY
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") doCompanies are not require
thepermitted to 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
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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 marketMarket
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 offor 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,March 31, 2010, 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 $ 1,6931,632 $ 1,2191,535 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 1,6931,632 $ 1,2191,535
2004 11,403 10,57910,642 10,403 -- -- 9,464 9,3758,198 8,027 -- -- 10,358 6,178 31,225 26,1329,120 7,777 27,960 26,207
2005 23,087 22,255 36,412 35,854 5,128 4,956 1,441 1,25810,509 10,690 37,531 39,984 4,399 4,492 1,174 1,065 -- -- 66,068 64,32353,613 56,231
2006 -- -- 2,749 2,746 7,937 7,692 5,943 5,6202,326 2,177 -- -- 16,629 16,0585,174 5,080 4,248 4,027 11,748 11,284
2007 -- -- -- -- 7,424 7,0465,167 5,322 -- -- -- -- 7,424 7,0465,167 5,322
2008 -- -- -- -- -- -- -- -- -- -- -- --
2009 -- -- -- -- -- -- -- -- -- --
Re-Remic(1) -- -- -- -- -- -- 22,303 21,86417,112 16,713 -- -- 22,303 21,864
--------17,112 16,713
-------- -------- ------- ------- ------- ------- ------- ------- -------- -------- ------------------ --------
Total Subprime $ 36,18322,783 $ 34,05322,628 $39,857 $42,161 $17,764 $17,841 $23,460 $22,858 $ 39,161 $38,600 $29,953 $29,069 $29,687 $28,74213,368 $ 10,358 $ 6,178 $ 145,342 $136,642
========11,804 $117,232 $117,292
======== ======== ======= ======= ======= ======= ======= ======= ======== ======== ================== ========
ALT-A
2003 & prior $ 6,3415,322 $ 5,8964,906 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 6,3415,322 $ 5,8964,906
2004 8,999 6,784 6,296 2,925 22,047 15,492 5,133 3,089 -- -- 42,475 28,2905,190 4,744 2,772 2,113 16,948 14,469 10,713 5,629 3,364 958 38,987 27,913
2005 -- -- 6,078 4,108 -- -- 7,722 4,764 89,299 56,125 103,099 64,997-- -- 2,822 1,931 93,581 61,489 96,403 63,420
2006 -- -- -- -- 3,562 3,431 -- -- 40,807 28,871 44,369 32,302-- -- 36,782 27,050 36,782 27,050
2007 -- -- -- -- -- -- -- -- 59,351 35,352 59,351 35,35252,056 27,274 52,056 27,274
2008 -- -- -- -- -- -- -- -- -- -- -- --
-------- -------- --------------- ------- ------- ------- ------- ------- -------- -------- ------------------ --------
Total Alt-A $ 15,34010,512 $ 12,6809,650 $ 12,3742,772 $ 7,033 $25,609 $18,923 $12,8552,113 $16,948 $14,469 $13,535 $ 7,853 $189,457 $120,348 $ 255,635 $166,837
========7,560 $185,783 $116,771 $229,550 $150,563
======== ======== ======= ======= ======= ======= ======= ======= ======== ======== ================== ========
PRIME
2003 & prior $ 38,29533,148 $ 38,26633,217 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 38,29533,148 $ 38,26633,217
2004 42,303 38,372 37,465 30,278 9,125 5,045 12,615 6,795 3,595 1,798 105,103 82,28827,989 27,391 26,718 24,579 5,763 5,217 21,363 16,275 22,593 7,304 104,426 80,766
2005 4,276 4,093 23,845 19,874 11,735 9,935 42,721 33,576 44,005 32,555 126,582 100,0333,755 3,533 13,534 11,942 10,975 9,985 26,991 22,051 62,492 54,404 117,747 101,915
2006 -- -- -- -- -- -- -- -- 4,632 3,641 4,632 3,6414,011 3,565 4,011 3,565
2007 -- -- -- -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- -- -- -- --
Re-Remic(1) 383,983 384,3822009 -- -- -- -- -- -- -- -- 383,983 384,382
---------- -- -- --
Re-Remic(1) 313,434 311,579 -- -- -- -- -- -- -- -- 313,434 311,579
-------- -------- ------- ------- ------- ------- ------- ------- -------- -------- ------------------ --------
Total Prime $468,857 $465,113$378,326 $375,720 $40,252 $36,521 $16,738 $15,202 $48,354 $38,326 $ 61,310 $50,152 $20,860 $14,980 $55,336 $40,37189,096 $ 52,232 $ 37,994 $ 658,595 $608,610
========65,273 $572,766 $531,042
-------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
GRAND TOTAL $411,621 $407,998 $82,881 $80,795 $51,450 $47,512 $85,349 $68,744 $288,247 $193,848 $919,548 $798,897
======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ========
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.
22March 31, 2010.
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AMERIPRISE CERTIFICATE COMPANY
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect ACC'smanagement's plans,
estimates and beliefs. ACC's actualActual 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," "forecast," "on pace," "project" 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 in 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, under the supervision and with the participation of its Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
theACC'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, 2009.March 31, 2010.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been noany 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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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,I, 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 20082009 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.
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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 ByMay 4, 2010 /s/ William F. Truscott
-----------------------------------------------------------------------------
William F. Truscott
Chief Executive Officer
Date: November 3, 2009 ByMay 4, 2010 /s/ Ross P. Palacios
-----------------------------------------------------------------------------
Ross P. Palacios
Chief Financial Officer
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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.herewithin.
E-1