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 MARCH 31,JUNE 30, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO _____________________
COMMISSION FILE NO. 2-23772
AMERIPRISE CERTIFICATE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-6009975
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
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 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. (Check one):
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 MAY 7,AUGUST 5, 2008
- --------------------------------------- --------------------------
-----------------------------
Common Shares (par value $10 per share) 150,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
AMERIPRISE CERTIFICATE COMPANY
FORM 10-Q
INDEX
PAGE NO.
--------
Part I. Financial Information:
Item 1. Financial Statements
Statements of Operations -- Three months and six months
ended March 31,June 30, 2008 and 2007...............................................2007.......................... 1
Balance Sheets -- March 31,June 30, 2008 and December 31, 2007.........2007.... 2
Statements of Cash Flows -- ThreeSix months ended March 31,June 30,
2008 and 2007...............................................2007 ........................................ 3
Statements of Comprehensive (Loss) IncomeLoss -- Three months and six
months ended March 31,June 30, 2008 and 2007...............................2007................... 4
Notes to Financial Statements.................................. 5-9Statements............................ 5-11
Item 2. Management's Narrative Analysis........................... 10-12Analysis.......................... 12-14
Item 4T. Controls and Procedures.................................. 1214
Part II. Other Information:
Item 1. Legal Proceedings......................................... 13Proceedings........................................ 15
Item 1A. Risk Factors............................................. 1315
Item 6. Exhibits.................................................. 13Exhibits................................................. 15
Signatures........................................................ 1416
Exhibit Index..................................................... E-1
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)(in thousands)
THREE MONTHS ENDED MARCH 31,
-----------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2008 2007 2008 2007
-------- ------- --------------- --------
Investment income.................................................................. $17,880 $60,872income..................................................... $ 46,376 $55,326 $ 91,276 $113,996
Investment expenses................................................................ 8,406 9,473expenses................................................... 8,311 9,352 16,717 18,825
-------- ------- --------------- --------
Net investment income before provision for certificate reserves and
income taxes... 9,474 51,399taxes...................................................... 38,065 45,974 74,559 95,171
Provision for certificate reserves................................................. 12,044 50,885reserves.................................... 37,034 46,052 76,098 94,735
-------- ------- --------------- --------
Net investment income (loss) income before income taxes................................... (2,570) 514taxes...................... 1,031 (78) (1,539) 436
Income tax benefit................................................................. (844) (682)provision (benefit)........................................ 524 (608) (319) (1,290)
-------- ------- --------------- --------
Net investment income (loss) income.................................................... (1,726) 1,196.......................................... 507 530 (1,220) 1,726
-------- ------- --------------- --------
Net realized investment gainslosses before income taxes.................................. 484 79taxes.................... (10,717) (714) (10,233) (635)
Income tax provision............................................................... 170 28benefit.................................................... (3,751) (250) (3,582) (222)
-------- ------- --------------- --------
Net realized gainslosses on investments.................................................. 314 51investments.................................... (6,966) (464) (6,651) (413)
-------- ------- --------------- --------
Net (loss) income.................................................................. $(1,412)income..................................................... $ 1,247(6,459) $ 66 $ (7,871) $ 1,313
======== ======= =============== ========
See Notes to Financial Statements.
1
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)(in thousands, except share data)
MARCH 31,JUNE 30, DECEMBER 31,
2008 2007
----------- ------------
(unaudited)(UNAUDITED)
ASSETS
Qualified Assets
Cash equivalents......................................................equivalents ...................................................... $ 391,386358,831 $ 76,079
Investments in unaffiliated issuers................................... 3,487,926issuers ................................... 3,833,860 3,769,068
Receivables........................................................... 26,243Receivables ........................................................... 32,059 29,118
Equity index options, purchased....................................... 25,397purchased ....................................... 20,705 58,575
---------- ----------
Total qualified assets................................................... 3,930,952assets ................................................... 4,245,455 3,932,840
---------- ----------
Other Assets
Deferred income taxes, net................................................... 54,168net ............................................ 70,028 40,434
Current taxes receivable.............................................. 2,601receivable .............................................. 137 9,287
Due from related party................................................ 370party ................................................ 137 132
---------- ----------
Total other assets....................................................... 57,139assets ....................................................... 70,302 49,853
---------- ----------
Total assets............................................................. $3,988,091assets ............................................................. $4,315,757 $3,982,693
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Certificate reserves.................................................. $3,818,465reserves .................................................. $4,050,040 $3,757,494
Current taxes payable to parent ....................................... 4,209 --
Payable for investment securities purchased........................... 684purchased ........................... 78,240 1,263
Equity index options, written......................................... 12,440written ......................................... 10,222 26,796
Accounts payable and accrued liabilities.............................. 11,636liabilities .............................. 12,872 20,516
---------- ----------
Total liabilities........................................................ 3,843,225liabilities ........................................................ 4,155,583 3,806,069
---------- ----------
Shareholder's equity
Common shares ($10 par value, 150,000 shares authorized and issued)... 1,500 1,500
Additional paid-in capital............................................capital ............................................ 235,720 207,964
207,964
(Accumulated deficit) retained earnings............................... (448)Retained earnings ..................................................... 337 964
Accumulated other comprehensive loss, net of tax...................... (64,150)tax ...................... (77,383) (33,804)
---------- ----------
Total shareholder's equity............................................... 144,866equity ............................................... 160,174 176,624
---------- ----------
Total liabilities and shareholder's equity............................... $3,988,091equity ............................... $4,315,757 $3,982,693
========== ==========
See Notes to Financial Statements.
2
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)(in thousands)
THREESIX MONTHS ENDED
MARCH 31,
---------------------JUNE 30,
-----------------------
2008 2007
--------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES................................................ACTIVITIES $ (1,412)(7,871) $ 1,2471,313
Net (loss) incomeincome.......................................................................
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Interest added to certificate loans.............................................. (51) (79)loans.................................................. (127) (161)
Amortization of premiums, accretion of discounts, net............................ 1,950 2,497net................................ 3,072 4,914
Deferred income taxes, net.............................................................. 1,141 2,617net........................................................... (7,593) (1,091)
Net realized gainloss on investments before income tax provision..................... (484) (79)provision......................... 10,233 635
Changes in other operating assets and liabilities:
Equity index options purchased and written, net.................................. 18,822 2,749net...................................... 21,296 681
Dividends and interest receivable................................................ 2,154 1,147(payable) receivable.......................................... (3,300) 3,711
Due to (from) parent for income taxes............................................ 6,686 (2,453)taxes....................................................... 13,359 7,595
Other assets and liabilities, net................................................ (24,614) (3,130)
--------- ---------net.................................................... (22,611) 10,362
-------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 4,192 4,516
--------- ---------ACTIVITIES............................................... 6,458 27,959
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Sales............................................................................ 2,809 13,161Sales................................................................................ 2,740 183,628
Maturities and redemptions....................................................... 226,805 169,739
Purchases........................................................................ (3,024) (74,545)redemptions........................................................... 553,803 361,359
Purchases............................................................................ (586,051) (78,051)
First mortgage loans on real estate and other loans:
Sales............................................................................ 933 1,697Sales................................................................................ 1,515 4,296
Maturities and redemptions....................................................... 8,665 22,749
Purchases........................................................................ (5,242) (18,215)redemptions........................................................... 34,195 76,347
Purchases............................................................................ (77,155) (47,651)
Certificate loans:
Payments......................................................................... 242 235
Fundings......................................................................... (101) (146)
--------- ---------Payments............................................................................. 412 487
Fundings............................................................................. (223) (291)
-------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES........................................... 231,087 114,675
--------- ---------ACTIVITIES..................................... (70,764) 500,124
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from certificate owners................................................. 326,384 238,347owners..................................................... 928,647 461,973
Certificate maturities and cash surrenders....................................... (246,356) (393,647)surrenders........................................... (616,589) (1,011,828)
Capital contribution from parent..................................................... 35,000 --
Dividend/return of capital to parent.............................................parent................................................. -- (15,000)
--------- ---------(30,000)
-------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................. 80,028 (170,300)
--------- ---------ACTIVITIES..................................... 347,058 (579,855)
-------- -----------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS......................................... 315,307 (51,109)EQUIVALENTS............................................. 282,752 (51,772)
Cash equivalents beginning of period................................................period.................................................... 76,079 174,247
--------- ----------------- -----------
CASH EQUIVALENTS END OF PERIOD......................................................PERIOD.......................................................... $358,831 $ 391,386 $ 123,138
========= =========122,475
======== ===========
SUPPLEMENTAL DISCLOSURES INCLUDING NON-CASH TRANSACTIONS:
Cash received for income taxes...................................................taxes....................................................... $(15,513) $ (11,044) $ (2,589)(10,112)
Certificate maturities and surrenders through loan reductions.................... 613 559reductions........................ 998 932
See Notes to Financial Statements.
3
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS (UNAUDITED)
(IN THOUSANDS)(in thousands)
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2008 2007 2008 2007
-------- -------- -------- -------
Net (loss) income..................................................................income .................................................. $ (1,412)(6,459) $ 1,24766 $ (7,871) $ 1,313
OTHER COMPREHENSIVE (LOSS) INCOMELOSS
Unrealized (losses) gainslosses on Available-for-Sale securities:
Unrealized holding (losses) gainslosses arising during
the period.................. (47,514) 20,796period ................................................ (31,619) (23,902) (79,133) (3,106)
Income tax (benefit) expense................................................. (17,485) 7,596benefit ........................................... (11,439) (8,576) (28,924) (980)
-------- ------- -------- -------
Net unrealized holding (losses) gainslosses arising during the period........... (30,029) 13,200period ... (20,180) (15,326) (50,209) (2,126)
-------- ------- -------- -------
Reclassification adjustment for gainslosses included
in net (loss) income.......... (488) (72)income ...................................... 10,688 727 10,200 655
Income tax expense........................................................... (171) (25)benefit ........................................... 3,741 253 3,570 228
-------- ------- -------- -------
Net reclassification adjustment for gainslosses
included in net (loss) income... (317) (47)income .......................... 6,947 474 6,630 427
-------- ------- -------- -------
Net unrealized (losses) gainslosses on Available-for-Sale securities..................... (30,346) 13,153securities ............. (13,233) (14,852) (43,579) (1,699)
-------- ------- -------- -------
NET OTHER COMPREHENSIVE (LOSS) INCOME.............................................. (30,346) 13,153LOSS ....................................... (13,233) (14,852) (43,579) (1,699)
-------- ------- -------- -------
TOTAL COMPREHENSIVE (LOSS) INCOME.................................................. $(31,758) $14,400LOSS ........................................... $(19,692) $(14,786) $(51,450) $ (386)
======== ======== ======== =======
See Notes to Financial Statements.
4
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Ameriprise Certificate Company ("ACC" or the "Company") is a wholly owned
subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"). The
accompanying Financial Statements have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). The interim financial
information in this report has not been audited. In the opinion of management,
all adjustments necessary for a fair presentation of the results of operations
and financial position for the interim periods have been made. All adjustments
made were of a normal, recurring nature. Results of operations reported for
interim periods are not necessarily indicative of results for the entire year.
RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to conform to
the current presentation. In the second quarter of 2008, ACC reclassified the
mark-to-market adjustment on certain derivatives from investment income to
provision for certificate reserves. This reclassification was made to enhance
transparency and to better align the financial statement captions with the key
drivers of the business. 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, 2007, filed with the Securities and Exchange Commission ("SEC") on February
29, 2008. Certain reclassifications of prior period amounts
have been made to conform to the current presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 161 "Disclosures about
Derivative Instruments and Hedging Activities--an amendment of FASB Statement
No. 133" ("SFAS 161"). SFAS 161 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. SFAS 161 requires disclosures regarding the objectives for using
derivative instruments, the fair values of derivative instruments and their
related gains and losses, and the accounting for derivatives and related hedged
items. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008, with early adoption permitted. The CompanyACC is currently
evaluating the impact of SFAS 161 on its disclosures. The Company'sACC's adoption of SFAS 161
will not impact its results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. SFAS 157
applies under other accounting pronouncements that require or permit fair value
measurements. Accordingly, SFAS 157 does not require any new fair value
measurements. The provisions of SFAS 157 are required to be applied
prospectively as of the beginning of the fiscal year in which SFAS 157 is
initially applied, except for certain financial instruments as defined in SFAS
157 that require retrospective application. Any retrospective application of SFAS 157. The transition
adjustment, if any, will
be recognized as a cumulative-effectcumulative effect adjustment to the opening balance of
retained earnings for the fiscal year of adoption. The
CompanyACC adopted SFAS 157
effective January 1, 2008. The adoption of SFAS 157 did not have a material
effect on the Company'sACC's results of operations and financial condition.
In accordance with FSPFASB Staff Position ("FSP") FAS 157-2, "Effective Date of
FASB Statement No. 157" ("FSP 157-2"), the CompanyACC will defer the adoption of SFAS 157
until January 1, 2009 for all nonfinancial assets and nonfinancial liabilities,
except for those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. In January 2008, the FASB published for comment
Proposed FSP FAS 157-c "Measuring Liabilities under FASB Statement No. 157"
("FSP 157-c"). FSP 157-c would amend SFAS 157 to clarify the accounting
principles on the fair value measurement of liabilities. The CompanyACC is monitoring the
impact that this proposed FSP could have on its results of operations and
financial condition. See Note 4 for additional information regarding the Company's
adoptionfair
values of SFAS 157.ACC's assets and liabilities.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The CompanyACC adopted FIN 48 as of January 1, 2007. The effect
of adopting FIN 48 on the Company'sACC's results of operations and financial condition was
not material.
5
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS IN UNAFFILIATED ISSUERS
Investments in unaffiliated issuers were:
MARCH 31,JUNE 30, DECEMBER 31,
2008 2007
---------- -----------------------
(in thousands)
Available-for-Sale securities, at fair value
(amortized cost: 2008, $3,244,842;$3,556,717; 2007, $3,472,672) ..... $3,143,370.................. $3,434,312 $3,419,201
First mortgage loans on real estate and other loans, at cost
(fair value: 2008, $335,637;$390,089; 2007, $341,925) ............. 337,336.......................... 392,685 341,944
Certificate loans - secured by certificate reserves, at cost,
which approximates fair value ............................ 7,220value......................................... 6,863 7,923
Total ................................................................... ---------- ----------
Total ....................................................... $3,487,926$3,833,860 $3,769,068
========== ==========
Gross realized investment gains and losses on Available-for-Sale securities and
other-than-temporary impairment losses on Available-for-Sale securities included
in net realized investment gainslosses before income taxes were as follows:
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2008 2007 ----- -----2008 2007
-------- ------- -------- -------
(in thousands) (in thousands)
Gross realized investment gains ....................gains...... $ 583104 $ 886226 $ 687 $ 1,112
Gross realized investment losses ...................losses..... (7) (768) (102) (1,582)
Other-than-temporary impairments..... (10,785) (185) (10,785) (185)
ACC regularly reviews Available-for-Sale securities for impairments in value
considered to be other-than-temporary. The cost basis of securities that are
determined to be other-than-temporarily impaired is written down to current fair
value with a corresponding charge to net income. A write-down for impairment can
be recognized for both credit-related events and for change in fair value due to
changes in interest rates. Once a security is written down to fair value through
net income, any subsequent recovery in value cannot be recognized in net income
until the principal is returned.
Factors ACC considers in determining whether declines in the fair value of
fixed-maturity securities are other-than-temporary include: 1) the extent to
which the market value is below amortized cost; 2) our ability and intent to
hold the investment for a sufficient period of time for it to recover to an
amount at least equal to its carrying value; 3) the duration of time in which
there has been a significant decline in value; 4) fundamental analysis of the
liquidity, business prospects and overall financial condition of the issuer; and
5) market events that could impact credit ratings, economic and business
climate, litigation and government actions, and similar external business
factors. For structured investments (e.g., mortgage-backed securities), 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, cumulative loss projections, and discounted
cash flows in assessing potential other-than-temporary impairment 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 three and six months ended June 30, 2008, other-than-temporary
impairments of $10.8 million relate to two Alt-A mortgage-backed securities.
6
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS IN UNAFFILIATED ISSUERS (CONTINUED)
Available-for-Sale securities distributed by type were as follows:
JUNE 30, 2008
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION OF SECURITIES COST GAINS LOSSES VALUE
- ------------------------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Mortgage and other asset-backed securities.. $2,113,606 $4,377 $(105,681) $2,012,302
Corporate debt securities................... 1,399,449 1,304 (20,217) 1,380,536
U.S. government and agencies obligations.... 20,050 40 (126) 19,964
Common and preferred stocks................. 19,612 -- (2,088) 17,524
State and municipal obligations............. 4,000 -- (14) 3,986
Total.................................... ---------- ------ --------- ----------
$3,556,717 $5,721 $(128,126) $3,434,312
========== ====== ========= ==========
DECEMBER 31, 2007
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION OF SECURITIES COST GAINS LOSSES VALUE
- ------------------------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Mortgage and other asset-backed securities.. $2,159,248 $4,055 $(37,189) $2,126,114
Corporate debt securities................... 1,264,467 1,043 (20,979) 1,244,531
U.S. government and agencies obligations.... 20,345 43 (12) 20,376
Common and preferred stocks................. 19,612 -- (355) 19,257
State and municipal obligations............. 9,000 -- (77) 8,923
Total.................................... ---------- ------ -------- ----------
$3,472,672 $5,141 $(58,612) $3,419,201
========== ====== ======== ==========
7
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS IN UNAFFILIATED ISSUERS (CONTINUED)
The following table provides 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:
JUNE 30, 2008
-------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
----------------------- --------------------- -----------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
DESCRIPTION OF SECURITIES VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ------------------------- ---------- ---------- -------- ---------- ---------- ----------
(IN THOUSANDS)
Mortgage and other
asset-backed securities.................. 1,019,028 (50,338) 569,203 (55,343) 1,588,231 (105,681)
Corporate debt securities................... $ (95) $(814)
Other-than-temporary impairments ...................746,426 $ (5,674) $248,502 $(14,543) $ 994,928 $ (20,217)
State and municipal obligations............. -- -- 3,986 (14) 3,986 (14)
U.S. government and
agencies obligations..................... 4,538 (126) -- -- 4,538 (126)
Common and preferred stocks................. 17,524 (2,088) -- -- 17,524 (2,088)
Total.................................... ---------- -------- -------- -------- ---------- ---------
$1,787,516 $(58,226) $821,691 $(69,900) $2,609,207 $(128,126)
========== ======== ======== ======== ========== =========
DECEMBER 31, 2007
-------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
---------------------- ----------------------- -----------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
DESCRIPTION OF SECURITIES VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ------------------------- --------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Mortgage and other
asset-backed securities.................. 296,515 (16,389) 1,495,484 (20,800) 1,791,999 (37,189)
Corporate debt securities................... $ 63,658 $ (728) $1,051,911 $(20,251) $1,115,569 $(20,979)
State and municipal obligations............. -- -- 8,924 (77) 8,924 (77)
U.S. government and
agencies obligations..................... -- -- 14,986 (12) 14,986 (12)
Common and preferred stocks................. 19,257 (355) -- -- 19,257 (355)
Total.................................... -------- -------- ---------- -------- ---------- --------
$379,430 $(17,472) $2,571,305 $(41,140) $2,950,735 $(58,612)
======== ======== ========== ======== ========== ========
8
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENTS IN UNAFFILIATED ISSUERS (CONTINUED)
In evaluating potential other-than-temporary impairments, ACC considers the
extent to which amortized cost exceeds fair value and the duration of that
difference. A key metric in performing this evaluation is the ratio of fair
value to amortized cost. The following table summarizes the unrealized losses by
ratio of fair value to amortized cost:
JUNE 30, 2008
----------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
------------------------------------ ---------------------------------- ------------------------------------
RATIO OF
FAIR VALUE TO NUMBER GROSS NUMBER GROSS NUMBER GROSS
AMORTIZED OF FAIR UNREALIZED OF FAIR UNREALIZED OF FAIR UNREALIZED
COST SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES
- ------------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SECURITIES)
95%-100% ....... 168 $1,546,625 $(14,317) 98 $579,068 $(10,721) 266 $2,125,693 $ (25,038)
90%-95% ........ 17 99,754 (8,280) 35 97,526 (7,162) 52 197,280 (15,442)
80%-90% ........ 12 89,891 (11,591) 21 66,331 (11,229) 33 156,222 (22,820)
Less than 80% .. 6 51,246 (24,038) 20 78,766 (40,788) 26 130,012 (64,826)
--- ---------- -------- --- -------- -------- --- ---------- ---------
Total ....... 203 $1,787,516 $(58,226) 174 $821,691 $(69,900) 377 $2,609,207 $(128,126)
=== ========== ======== === ======== ======== === ========== =========
DECEMBER 31, 2007
----------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL
---------------------------------- ------------------------------------ ------------------------------------
RATIO OF
FAIR VALUE TO NUMBER GROSS NUMBER GROSS NUMBER GROSS
AMORTIZED OF FAIR UNREALIZED OF FAIR UNREALIZED OF FAIR UNREALIZED
COST SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES
- ------------- ---------- -------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF SECURITIES)
95%-100% ....... 54 $242,284 $ (3,148) 304 $2,489,523 $(27,745) 358 $2,731,807 $(30,893)
90%-95% ........ 13 96,727 (8,392) 17 41,920 (3,198) 30 138,647 (11,590)
80%-90% ........ 2 40,419 (5,932) 7 23,197 (4,201) 9 63,616 (10,133)
Less than 80% .. -- -- -- 7 16,665 (5,996) 7 16,665 (5,996)
--- -------- -------- --- ---------- -------- --- ---------- --------
Total ....... 69 $379,430 $(17,472) 335 $2,571,305 $(41,140) 404 $2,950,735 $(58,612)
=== ======== ======== === ========== ======== === ========== ========
9
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. FAIR VALUES OF ASSETS AND LIABILITIES
Effective January 1, 2008, the CompanyACC adopted SFAS 157, which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS 157 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
in an
orderly transaction; it is notsubject to a forced liquidation or distressed sale. As a result of adopting SFAS
157, the CompanyACC did not record any transition adjustments.
VALUATION HIERARCHY
Under SFAS 157, the CompanyACC categorizes its fair value measurements according to a
three-level hierarchy. The hierarchy prioritizes the inputs used by the
Company'sACC'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.
6
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
DETERMINATION OF FAIR VALUE
The CompanyACC uses valuation techniques consistent with the market and income approaches
to measure the fair value of its assets and liabilities. The
Company'sACC's market approach
uses prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities. The Company'sACC's income approach
uses valuation techniques to convert future projected cash flows to a single
discounted present value amount. When applying either approach, the CompanyACC maximizes
the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair
value and the general classification of these instruments pursuant to the fair
value hierarchy.
ASSETS
Cash equivalents
Cash equivalents include highly liquid investments with original maturities of
90 days or less. The Company'sACC'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)
When available, the fair value of securities is based on quoted prices in active
markets. If quoted prices are not available, fair values are measured using
independent pricing modelsobtained from
nationally-recognized pricing services, broker quotes, or other model-based
valuation techniques such as the present value of cash flows. Level 1 securities
include U.S. Treasuries. Level 2 securities include:include agency mortgage-backed
securities and certain non-agency mortgage-backed securities, asset-backed
securities, municipal and corporate bonds and certain U.S. agency securities. Level 3
securities include certain non-agency mortgage-backed securities and corporate
bonds.
Derivatives (Equity index options, purchased and written)
The fair values of derivatives that are traded in certain over-the-counter
markets are measured using pricing models with market observable inputs such as
interest rates and equity index levels. These measurements are classified as
Level 2 within the fair value hierarchy.
10
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
LIABILITIES
Certificate reserves
The CompanyACC uses various Black-Scholes calculations to determine the fair value of the
embedded derivative liability associated with the provisions of its stock market
certificates. The inputs to these calculations are primarily market observable.
As a result, these measurements are classified as Level 2.
7
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The following table presents the balances of assets and liabilities measured at
fair value on a recurring basis:
MARCH 31,JUNE 30, 2008
------------------------------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------- ---------- -------- ----------
----------
(IN THOUSANDS)(in thousands)
Assets
Cash equivalents ...................................................equivalents........................ $ -- $ 391,386358,831 $ -- $ 391,386358,831
Investments in unaffiliated issuers ................................ 20,469 2,717,857 405,044 3,143,370issuers..... 394 3,020,302 413,616 3,434,312
Equity index options, purchased ....................................purchased......... -- 25,39720,705 -- 25,397
-------20,705
---- ---------- ------------------ ----------
Total assets at fair value ............................................ $20,469 $3,134,640 $ 405,044 $3,560,153
=======value................. $394 $3,399,838 $413,616 $3,813,848
==== ========== ================== ==========
Liabilities
Certificate reserves ...............................................reserves.................... $ -- $ 13,14610,681 $ -- $ 13,14610,681
Equity index options, written ......................................written........... -- 12,44010,222 -- 12,440
-------10,222
---- ---------- ------------------ ----------
Total liabilities at fair value .......................................value............ $ -- $ 25,58620,903 $ -- $ 25,586
=======20,903
==== ========== ================== ==========
The following table provides a summary of changes in Level 3 assets and
liabilities measured at fair value on a recurring basis for the three and six
months ended March 31,June 30, 2008:
INVESTMENTS IN UNAFFILIATED ISSUERS
---------------
(IN THOUSANDS)-------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2008 JUNE 30, 2008
------------------ ----------------
(in thousands)
Balance, January 1 .......................................beginning of period.............................. $405,044 $470,040
Total gains (losses)losses included in:
Net (loss) income .................................. 375 loss............................................ (10,210)(1) (9,835)(1)
Other comprehensive (loss) income .................. (45,794)loss............................ (8,207) (54,001)
Purchases, sales, issuances and settlements, net ...... (19,577)
Transfers in (out) .................................... --net....... 26,989 7,412
-------- --------
Balance, March 31 ........................................ $405,044end of period.................................... $413,616 $413,616
======== --------========
Change in unrealized gains (losses) included in net incomeloss
relating to assets held at March 31 ................... $ (111)(1)June 30..................... $(10,310)(2) $(10,421)(2)
======== ========
- ----------
(1) IncludedRepresents a $10,685 and $10,685 loss included in net realized investment
losses before income taxes and $475 and $850 income included in investment
income for the three and six months ended June 30, 2008, respectively.
(2) Represents a $10,785 and $10,785 loss included in net realized investment
losses before income taxes and $475 and $364 income included in investment
income for the Statements of Operations.three and six months ended June 30, 2008, respectively.
During the reporting period, there were no material assets or liabilities
measured at fair value on a nonrecurring basis.
11
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
At March 31,June 30, 2008 and December 31, 2007, ACC had no commitments to fund first
mortgage loans on real estate. ACC holds the mortgage document for all
outstanding mortgages, which gives it the right to take possession of the
property if the borrower fails to perform according to the terms of the
agreements. ACC employs policies and procedures designed to ensure the
creditworthiness of the borrowers and that funds will be available on the
funding date. ACC's investments in first mortgage loans on real estate are
restricted to 80 percent or less of the market value of the real estate at the
time of the loan funding.
ACC is not aware that it is a party to any pending legal, arbitration, or
regulatory proceedings that would have a material adverse effect on its
financial condition, results of operations or liquidity. However, it is possible
that the outcome of any such proceedings could have a material adverse effect on
results of operations in any particular reporting period as the proceedings are
resolved.
8
AMERIPRISE CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INCOME TAXES
The effective tax rate was 32.3%33.3% and 33.1% for the three months and six months
ended March 31,June 30, 2008, respectively, compared to (110.3)%108.3% and 759.8% for the three
months and six months ended March 31, 2007.June 30, 2007, respectively. The effective tax rate
for the threesix months ended March 31,June 30, 2008 reflectsreflected the level of current year tax
advantaged items relative to the level of pretax income. The effective tax rate
for the threesix months ended March 31,June 30, 2007 reflectsreflected the impact of a $0.9 million
tax benefit related to the settlement of taxes for capital losses in prior years.years
and the level of current year tax advantaged items relative to the level of
pretax income.
As of March 31,June 30, 2008 and December 31, 2007, ACC had $4.0$4 million of gross
unrecognized tax benefits. If recognized, approximately $0.8 million, net of
federal tax benefits, of the unrecognized tax benefits as of March 31,June 30, 2008 and
December 31, 2007 would affect the effective tax rate.
ACC recognizes interest and penalties related to unrecognized tax benefits as a
component of the income tax provision. ACC recognized interest and penalties of
$0.1 million for the threesix months ended March 31,June 30, 2008. ACC had $1.1 million and
$1.0 million for the payment of interest and penalties accrued at March 31,June 30, 2008
and December 31, 2007, respectively.
It is not expected that the total amounts of unrecognized tax benefits will
change materially in the next 12 months.
ACC files income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, the CompanyACC is no longer subject to U.S. federal or
state and local income tax examinations by tax authorities for years before
1997. The Internal Revenue Service ("IRS"), as part of the overall examination
of the American Express Company consolidated return, commenced an examination of
ACC's U.S. income tax returns for 1997 through 2002 in the third quarter of
2005. In the first quarter of 2007, the IRS expanded the period of the
examination to include 2003 through 2004. ACC's state income tax returns are
currently under examination by various jurisdictions for years ranging from 1998
through 2005.
7. SUBSEQUENT EVENT
On April 30, 2008, the Company received a capital infusion of $15 million from
Ameriprise Financial.
912
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, 2007, filed with the
Securities and Exchange Commission ("SEC") on February 29, 2008 ("2007 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 (the "1940 Act") and is in the business of issuing
face-amount investment certificates. Face-amount investment certificates issued
by ACC entitle the certificate owner to receive at maturity a stated amount of
money and interest or credits declared from time to time by ACC, at its
discretion. The certificates issued by ACC are not insured by any government
agency. ACC's certificates are sold primarily by Ameriprise Financial Services,
Inc., an affiliate of ACC. Ameriprise Financial Services, Inc. is registered as
a broker-dealer in all 50 states, the District of Columbia and Puerto Rico.
ACC follows U.S. generally accepted accounting principles ("GAAP"). Certain
reclassifications of prior period amounts have been made to conform to the
current presentation. In the second quarter of 2008, ACC reclassified the
mark-to-market adjustment on certain derivatives from investment income to
provision for certificate reserves. This reclassification was made to enhance
transparency and to better align the financial statement captions with the key
drivers of the business. Prior period amounts were reclassified to conform to
the current presentation.
ACC's profitability has declined in recent periods and future profitability is
dependent primarily on the interest rate environment and investment
opportunities. Affiliates of Ameriprise Financial and unaffiliated third parties
offer certain competing products which have demonstrated strong appeal to
investors.
Management's narrative analysis of the results of operations is presented in
lieu of management's discussion and analysis of financial condition and results
of operations, pursuant to General Instructions H(2)(a) of Form 10-Q.
MARKET RISK
Equity market and interest rate fluctuations can have a significant impact on
the Company'sACC's results of operations, primarily due to the effects they have on the
asset management and other asset-based fees we earn, the "spread"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 ourits sources of market risk during the threesix months ended March 31,June 30, 2008.
CREDIT RISK
ACC is exposed to credit risk within its investment portfolio, which includes
loans, and through derivative counterparties. Credit risk relates to the
uncertainty of an obligor's continued ability to make timely payments in
accordance with the contractual terms of the instrument or contract. The
Company'sACC's
potential derivative credit exposure to each counterparty is aggregated with all
of its other exposures to the counterparty to determine compliance with
established credit and market risk limits at the time it enters into a
derivative transaction. ACC manages credit risk through fundamental credit
analysis, issuer and industry concentration guidelines, and diversification
requirements. These guidelines and oversight of credit risk are managed through
our comprehensive enterprise risk management program that includes members of
senior management.
The CompanyACC manages the risk of adverse default experience on these investments 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 property type. For each
counterparty or borrowing entity and its affiliates, ACC's exposures from all
types of transactions are aggregated and managed in relation to guidelines set
by risk tolerance thresholds and external and internal rating quality. ACC
remains exposed to occasional adverse cyclical economic downturns during which
default rates may be significantly higher than the long-termlong term historical average
used in pricing.
Credit exposures on derivative contracts may take into account enforceable
netting arrangements and collateral arrangements. Before executing a new type of
structure of derivative contract, the CompanyACC determines the variability of the
contract's potential market and credit exposures and whether such variability
might reasonably be expected to create exposure to a counterparty in excess of
established limits.
For additional information regarding ourACC's sensitivity to market and credit
risk, see "Management's Narrative Analysis" in ACC's 2007 10-K.
1013
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS 157157") defines fair value, provides a framework for measuring fair value
and expands disclosures about fair value measurements. Fair value assumes the
exchange of assets or liabilities in orderly transactions. ACC includes actual
market prices,price, or observable inputs in ourits fair value measurements to the extent
available. SFAS 157 does not require the use of market prices that are the
result of a forced liquidation or distressed sale. Recent market conditions have
increased the likelihood of other-than-temporary impairments for certain
non-agency residential mortgage-backed and asset-backed securities.
Sub-prime 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
sub-prime but may not conform to government-sponsored standards. ACC has
exposure to these types of loans only through mortgage-backed and asset-backed
securities. The slow down 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. As a part of ACC's
risk management process, an internal rating system is used in conjunction with
market data as the basis for 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 ourits 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. Based on
this analysis, other than the two Alt-A mortgage-backed securities that had
credit-related impairments recorded in the six months ended June 30, 2008, all
contractual payments are expected to be received.
The following table presents ouras of June 30, 2008 ACC's residential
mortgage-backed and asset-backed securities backed by sub-prime and Alt-A
mortgage loans by credit rating and vintage yearyear. For presentation in this
table, other-than-temporarily impaired securities are shown at their internal
rating of BB and below (amounts 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
--------- -------- --------- ------- --------- ------
--------- ------- --------- ----- --------- --------
SUB-PRIME
2003 & prior ........ $ 1,8211,699 $ 1,8261,549 $ -- $ -- $ -- $ --
$2004 .......... 8,127 6,987 899 686 -- $ --
$-- $-- $ 1,821 $ 1,826
2004 .............. 9,114 7,9362005 .......... 17,371 16,170 -- -- -- --
10,570 10,038 -- -- 19,684 17,974
2005 .............. 19,295 18,559 -- -- -- -- -- -- -- -- 19,295 18,559
2006 .............. -- -- -- -- -- -- -- --.......... 9,412 8,772 -- -- -- --
2007 .............. -- -- -- -- -- --.......... -- -- -- -- -- --
2008 .............. -- -- -- -- -- --.......... -- -- -- -- -- --
-------- -------- ------- ------- ------ ------
------- ------- --- --- -------- --------
TOTAL
SUB-PRIME .. $ 30,23036,609 $ 28,32133,478 $ 899 $ 686 $ -- $ --
======== ======== ======= ======= ====== ======
ALT-A
2003 & prior .. $ 8,427 $ 7,910 $ -- $ -- $ -- $ --
$10,570 $10,038 $-- $-- $ 40,800 $ 38,359
======== ======== ======= ======= ====== ====== ======= ======= === === ======== ========
ALT-A
2003 & prior ...... $ 8,854 $ 8,197 $2004 .......... 45,638 42,001 12,776 8,392 -- $ --
$ -- $ -- $ -- $ -- $-- $-- $ 8,854 $ 8,197
2004 .............. 49,443 46,932 13,448 11,7312005 .......... 133,677 111,310 4,260 2,628 4,676 4,141
2006 .......... 65,326 44,987 -- -- -- --
-- -- 62,891 58,663
2005 .............. 125,776 107,448 4,436 3,695 6,864 6,8522007 .......... 87,517 70,514 -- -- -- --
137,076 117,995
2006 .............. 102,260 77,421 -- -- -- -- -- -- -- -- 102,260 77,421
2007 .............. 52,692 36,712 -- -- -- -- -- -- -- -- 52,692 36,712
2008 .............. -- -- -- -- -- --.......... -- -- -- -- -- --
-------- -------- ------- ------- ------ ------
------- ------- --- --- -------- --------
TOTAL ALT-A $339,025 $276,710 $17,884 $15,426 $6,864 $6,852 $ -- $ -- $-- $-- $363,773 $298,988$340,585 $276,722 $17,036 $11,020 $4,676 $4,141
======== ======== ======= ======= ====== ======
======= ======= === === ======== ========
GRAND TOTAL $369,255 $305,031 $17,884 $15,426 $6,864 $6,852 $10,570 $10,038 $-- $-- $404,573 $337,347$377,194 $310,200 $17,935 $11,706 $4,676 $4,141
======== ======== ======= ======= ====== ======
BBB BB & BELOW TOTAL
------------------ ------------------ -------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- ------- --------- ------- --------- --------
SUB-PRIME
2003 & prior .. $ -- $ -- $ -- $ -- $ 1,699 $ 1,549
2004 .......... 10,268 9,451 -- -- 19,294 17,124
2005 .......... 2,396 2,163 -- -- 19,767 18,333
2006 .......... -- -- -- -- 9,412 8,772
2007 .......... -- -- -- -- -- --
2008 .......... -- -- -- -- -- --
------- ------- ------- ------- -------- --------
TOTAL
SUB-PRIME .. $12,664 $11,614 $ -- $ -- $ 50,172 $ 45,778
======= ======= === ========== ======= ======== ========
ALT-A
2003 & prior .. $ -- $ -- $ -- $ -- $ 8,427 $ 7,910
2004 .......... -- -- -- -- 58,414 50,393
2005 .......... -- -- -- -- 142,613 118,079
2006 .......... -- -- 24,835 24,835 90,161 69,822
2007 .......... -- -- -- -- 87,517 70,514
2008 .......... -- -- -- -- -- --
------- ------- ------- ------- -------- --------
TOTAL ALT-A $ -- $ -- $24,835 $24,835 $387,132 $316,718
======= ======= ======= ======= ======== ========
GRAND TOTAL $12,664 $11,614 $24,835 $24,835 $437,304 $362,496
======= ======= ======= ======= ======== ========
RESULTS OF OPERATIONS FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2008 AND 2007
For the threesix months ended March 31,June 30, 2008, investment income decreased $43.0$22.7
million, or 70.6%19.9%, compared to the same period last year. This was primarily a
result of losses on equity index options due to the effect of the equity market
declines during the first quarter of 2008 on the value of options hedging
outstanding stock market certificates. The decrease is also attributed to a reduction in holdings, due to lower average client volumesvolumes. This
decrease is offset slightly by an increase in the sales of the Flexible Savings
Certificate, due to the promotion on the seven and client net outflows.thirteen month term
certificates which began in April 2008.
Investment expenses for the threesix months ended March 31,June 30, 2008 decreased $1.1$2.1
million, or 11.3%11.2%, compared to the same period in 2007. TheThis decrease is due to
lower distribution fees, lower transfer agent fees, and lower advisory and
service fees to RiverSource Service Corporation, an affiliate of ACC, mainly due
to lower client volumes on average, compared to the same period in 2007.
14
The provision for certificate reserves decreased $38.8$18.6 million, or 76.3%19.7%, for
the threesix months ended March 31,June 30, 2008 compared to the same period in 2007. This is
mainlywas
primarily due to lower stock market participation costs, resulting from equity
market depreciation. Thea decrease is also attributed to lowerin average client volumes.
11
For the threesix months ended March 31,June 30, 2008 and 2007, $0.6$0.7 million and $0.9$1.1 million
of gross realized investment gains were offset by $0.1$10.9 million and $0.8$1.7 million
of gross realized investment losses, respectively. Virtually allIncluded in the total
investment losses for the six months ended June 30, 2008 and 2007 was $10.8
million and $0.2 million, respectively, of other-than-temporary impairment
losses on investments. The impairment charges for the six months ended June 30,
2008 related to the other-than-temporary impairment of two Alt-A mortgage-backed
securities. The majority of the realized investment gains and losses were from
securities classified as Available-for-Sale.
The effective tax rate was 32.3%33.1% for the threesix months ended March 31,June 30, 2008 compared
to (110.3)%759.8% for the threesix months ended March 31,June 30, 2007. The effective tax rate for the
threesix months ended March 31,June 30, 2008 reflected the level of current year tax
advantaged items relative to the level of pretax income. The effective tax rate
for the six months ended June 30, 2007 reflectsreflected the impact of a $0.9 million
tax benefit related to the settlement of taxes for capital losses in prior years.years
and the level of tax advantaged items relative to the level of pretax income.
RECENT ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements and their expected
impact on our future results of operations or financial condition, see Note 2 to
the Financial Statements.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, which are subject to risks and
uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors, which could cause actual results, performance or
achievements to differ materially from future results, performance or
achievements. These statements are not guarantees or indicative of future
performance. Important assumptions and other important factors that could cause
actual results to differ materially from those forward-looking statements
include, but are not limited to, those factors, risks and uncertainties
described in "Item 1A. Risk Factors" and elsewhere in ACC's Annual Report on
Form 10-K for the year ended December 31, 2007 filed with the SEC on February
29, 2008.10-K. Any
forward-looking statements contained in this report are made only as of the date
hereof. ACC undertakes no obligation to update or revise any forward-looking
statements.
ITEM 4T. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
ACC maintains disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) designed to provide reasonable assurance that the information required to
be reported in the Exchange Act filings is recorded, processed, summarized and
reported within the time periods specified and pursuant to SEC regulations,
including controls and procedures designed to ensure that this information is
accumulated and communicated to ACC's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding the required disclosure. It should be noted that, because of inherent
limitations, ACC's disclosure controls and procedures, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the disclosure controls and procedures are met.
ACC's management, with the participation of its Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of ACC's disclosure
controls and procedures as of the end of the period covered by this report.
Based upon that evaluation, ACC's Chief Executive Officer and Chief Financial
Officer have concluded that ACC's disclosure controls and procedures were
effective at a reasonable level of assurance as of March 31,June 30, 2008.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the second quarter of 2008 ACC made certain changes to internal controls
over financial reporting related to the implementation of a new general ledger
system. The system changes were not undertaken in response to any actual or
perceived deficiencies in its internal control over financial reporting. There
have not been anywere no other 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.
1215
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 5 to the Financial Statements in Part 1, Item
1 is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item
1A of ACC's Annual Report on Form 10-K for the year ended December 31, 2007
filed with the SEC on February 29, 2008.
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.
1316
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: May 7,August 5, 2008 By /s/ William F. Truscott
-------------------------------------
William F. Truscott
Chief Executive Officer
Date: May 7,August 5, 2008 By /s/ Brian J. McGrane
-------------------------------------
Brian J. McGrane
Chief Financial Officer
1417
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
EXHIBIT DESCRIPTION
- ------- -----------
* 31.1 Certification of William F. Truscott pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
* 31.2 Certification of Brian J. McGrane pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
* 32.1 Certification of William F. Truscott and Brian J. McGrane pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
* Filed electronically herewithin.herewith.
E-1