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EX-31.1 - EX-31.1 - AMERIPRISE CERTIFICATE COc54367exv31w1.txt
EX-32.1 - EX-32.1 - AMERIPRISE CERTIFICATE COc54367exv32w1.txt
EX-31.2 - EX-31.2 - AMERIPRISE CERTIFICATE COc54367exv31w2.txt


================================================================================ 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, 2009 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, 2009 ----- ------------------------------- Common Stock (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 Part I. Financial Information: Item 1. Financial Statements Statements of Operations - Three months and nine months ended September 30, 2009 and 2008 ...................... 3 Balance Sheets - September 30, 2009 and December 31, 2008 ................................................... 4 Statements of Cash Flows - Nine months ended September 30, 2009 and 2008 ...................................... 5 Statements of Shareholder's Equity - Nine months ended September 30, 2009 and 2008 ............................ 6 Notes to Financial Statements .......................... 7 Item 2. Management's Narrative Analysis ........................ 20 Item 4T. Controls and Procedures ................................ 23 Part II. Other Information: Item 1. Legal Proceedings ...................................... 24 Item 1A. Risk Factors ........................................... 24 Item 6. Exhibits ............................................... 24 Signatures ...................................................... 25 Exhibit Index ................................................... E-1 2
AMERIPRISE CERTIFICATE COMPANY PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ -------------------- 2009 2008 2009 2008 ------- -------- -------- --------- Investment income $57,414 $ 51,539 $170,693 $ 142,815 Investment expenses 9,005 8,950 28,316 25,667 ------- -------- -------- --------- Net investment income before provision for certificate reserves and income taxes 48,409 42,589 142,377 117,148 Net provision for certificate reserves 27,148 37,560 99,409 113,658 ------- -------- -------- --------- Net investment income before income taxes 21,261 5,029 42,968 3,490 Income tax expense 7,876 1,300 15,804 981 ------- -------- -------- --------- 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) ------- -------- -------- --------- Net realized gain (loss) on investments 4,011 (23,371) 1,299 (30,022) ------- -------- -------- --------- Net income (loss) $17,396 $(19,642) $ 28,463 $ (27,513) ======= ======== ======== ========= Supplemental Disclosures: Net realized investment gains before income taxes: Net realized investment gains before income taxes and impairment losses on securities $ 6,816 $ 11,060 ------- -------- Total other-than-temporary impairment losses on securities (167) (9,841) Portion of loss recognized in other comprehensive income (479) 779 ------- -------- Net impairment losses recognized in net realized investment gains before income taxes (646) (9,062) ------- -------- Total net realized investment gains before income taxes $ 6,170 $ 1,998 ======= ======== See Notes to Financial Statements. 3
AMERIPRISE CERTIFICATE COMPANY BALANCE SHEETS (in thousands, except share data) SEPTEMBER 30, 2009 DECEMBER 31, 2008 ------------------ ----------------- (UNAUDITED) ASSETS Qualified Assets Cash equivalents $ 320,480 $1,164,484 Investments in unaffiliated issuers 4,379,423 3,667,485 Receivables 40,292 39,479 Equity index options, purchased 152,145 23,693 ---------- ---------- Total qualified assets 4,892,340 4,895,141 ---------- ---------- Other Assets Deferred taxes, net 73,115 136,172 Current taxes receivable -- 9,578 Due from related party -- 2,848 ---------- ---------- Total other assets 73,115 148,598 ---------- ---------- Total assets $4,965,455 $5,043,739 ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Certificate reserves $4,491,371 $4,885,589 Current taxes payable to parent 10,404 3,205 Payable for investment securities purchased 1,242 26,332 Equity index options, written 124,318 18,681 Accounts payable and accrued liabilities 44,950 19,427 ---------- ---------- Total liabilities 4,672,285 4,953,234 ---------- ---------- SHAREHOLDER'S EQUITY: Common shares ($10 par 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) Accumulated other comprehensive loss, net of tax (44,946) (152,454) ---------- ---------- Total shareholder's equity 293,170 90,505 ---------- ---------- Total liabilities and shareholder's equity $4,965,455 $5,043,739 ========== ========== See Notes to Financial Statements. 4
AMERIPRISE CERTIFICATE COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 2009 2008 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 28,463 $ (27,513) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Interest added to certificate loans (161) (188) Amortization of premiums and accretion of discounts, net (5,872) 4,587 Deferred taxes, net (12,067) (58,956) Net realized (gain) loss on investments (1,954) 46,188 Provision for loan loss 1,500 -- Changes in other operating assets and liabilities: Trading securities, net 16,618 -- Dividends and interest receivable 5,001 (2,798) Due to parent for income taxes 16,777 8,904 Certificate reserves, net 21,360 19,616 Other, net 8,591 29,540 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 78,256 19,380 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Available-for-Sale securities: Sales 224,512 14,381 Maturities and redemptions 1,479,599 770,424 Purchases (2,278,532) (1,089,051) Below investment grade syndicated bank loans and first mortgage loans on real estate: Sales 1,223 2,329 Maturities and redemptions 31,351 64,237 Purchases (132) (103,756) Certificate loans: Payments 688 588 Fundings (391) (424) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (541,682) (341,272) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payments from certificate owners 2,034,873 1,808,975 Certificate maturities and cash surrenders (2,450,451) (1,024,573) Capital contribution from parent 35,000 75,000 ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (380,578) 859,402 ----------- ----------- NET (DECREASE) INCREASE IN CASH EQUIVALENTS (844,004) 537,510 Cash equivalents at beginning of period 1,164,484 76,079 ----------- ----------- Cash equivalents at end of period $ 320,480 $ 613,589 =========== =========== SUPPLEMENTAL DISCLOSURES INCLUDING NON-CASH TRANSACTIONS: Cash paid (received) for income taxes $ 8,420 $ (11,589) Certificate maturities and surrenders through loan reductions 1,115 1,093 See Notes to Financial Statements. 5
AMERIPRISE CERTIFICATE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 RETAINED EARNINGS/ (ACCUMULATED DEFICIT) ------------------------------------ APPROPRIAT- APPROPRI- ED FOR PRE- ATED FOR ACCUMULAT- NUMBER DECLARED ADDITIONAL ED OTHER OF OUT- ADDITIONAL ADDITIONAL INTEREST ON COMPREHEN- STANDING COMMON PAID-IN CREDITS AND ADVANCE UNAPPRO- SIVE LOSS - SHARES SHARES CAPITAL INTEREST PAYMENTS PRIATED 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 ======= ====== ======== ===== === ======== ========= ======== BALANCES AT JANUARY 1, 2009 150,000 $1,500 $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 -- -- -- -- -- 28,463 -- 28,463 Other comprehensive income, net of tax: Change in net unrealized securities losses -- -- -- -- -- -- 138,792 138,792 Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities -- -- -- -- -- -- 410 410 -------- Total comprehensive income 167,665 Transfer to unappropriated/ from appropriated -- -- -- (50) -- 50 -- -- Receipt of capital from parent -- -- 35,000 -- -- -- -- 35,000 ------- ------ -------- ----- --- -------- --------- -------- BALANCES AT SEPTEMBER 30, 2009 150,000 $1,500 $357,964 $ -- $15 $(21,363) $ (44,946) $293,170 ======= ====== ======== ====== === ======== ========= ======== See Notes to Consolidated Financial Statements. 6
AMERIPRISE CERTIFICATE COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION Ameriprise Certificate Company ("ACC" or the "Company"), is a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"). The accompanying Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations and financial position for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Financial Statements and Notes should be read in conjunction with the Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2008, filed with the Securities and Exchange Commission ("SEC") on March 3, 2009. 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 GAAP In June 2009, 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 updated the accounting standards on the recognition and disclosure of subsequent events. The standard also requires the disclosure of the date through which subsequent events were evaluated. The standard is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. ACC adopted the standard in the second quarter of 2009. The adoption did not have a material effect on ACC's results of operations and financial condition. Fair Value In April 2009, the FASB updated the accounting standards to provide guidance on estimating the fair value of a financial asset or liability when the trade volume and level of activity for the asset or liability have significantly decreased relative to historical levels. The standard requires entities to disclose 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. 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, and is to be applied prospectively. ACC early adopted the standard in the first quarter of 2009. The adoption did not have a material 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 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. 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. 8
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, 2009 DECEMBER 31, 2008 ------------------ ----------------- (IN THOUSANDS) Available-for-Sale securities, at fair value (amortized cost: 2009, $4,119,731; 2008, $3,521,116) $4,048,058 $3,286,403 Below investment grade syndicated bank loans and commercial mortgage loans, at cost (fair value: 2009, $325,006; 2008, $289,401) 326,016 357,863 Trading securities, at fair value (amortized cost: 2009, nil; 2008, $16,611) -- 16,618 Certificate loans - secured by certificate reserves, at cost, which approximates fair value 5,349 6,601 ---------- ---------- Total $4,379,423 $3,667,485 ========== ========== 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 ----------------------------------------------------------------- GROSS UNREALIZED GROSS UNREALIZED DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES FAIR VALUE ------------------------- -------------- ---------------- ---------------- ---------- (IN THOUSANDS) Residential mortgage backed securities $1,699,384 $24,999 $(142,847) $1,581,536 Corporate debt securities 1,199,606 30,148 (2,967) 1,226,787 Commercial mortgage backed securities 599,634 15,405 (705) 614,334 Asset backed securities 466,301 17,211 (9,855) 473,657 U.S. government and agencies obligations 135,194 1,510 -- 136,704 Common and preferred stocks 19,612 -- (4,572) 15,040 ---------- ------- --------- ---------- Total $4,119,731 $89,273 $(160,946) $4,048,058 ========== ======= ========= ========== DECEMBER 31, 2008 ----------------------------------------------------------------- GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE DESCRIPTION OF SECURITIES AMORTIZED COST GAINS LOSSES ------------------------- -------------- ---------------- ---------------- ---------- (IN THOUSANDS) Residential mortgage backed securities $1,348,369 $11,434 $(156,220) $1,203,583 Corporate debt securities 1,623,978 637 (49,426) 1,575,189 Commercial mortgage backed securities 273,099 590 (7,077) 266,612 Asset backed securities 247,159 376 (26,506) 221,029 U.S. government and agencies obligations 4,899 168 -- 5,067 Common and preferred stocks 19,612 -- (8,689) 10,923 State and municipal obligations 4,000 -- -- 4,000 ---------- ------- --------- ---------- Total $3,521,116 $13,205 $(247,918) $3,286,403 ========== ======= ========= ========== 10
AMERIPRISE CERTIFICATE COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) At September 30, 2009 and December 31, 2008, fixed maturity securities comprised approximately 86% and 70%, 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 million and $65.8 million of securities at September 30, 2009 and December 31, 2008, 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, 2009 DECEMBER 31, 2008 -------------------------------------------- ------------------------------------------ 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% AA 210,872 196,147 5 246,614 223,318 7 A 403,314 396,180 10 339,662 327,926 10 BBB 899,154 902,344 22 1,176,153 1,140,420 34 Below investment grade 359,214 269,599 7 111,329 87,846 3 ---------- ---------- --- ---------- ---------- --- Total fixed maturities $4,100,119 $4,033,018 100% $3,501,504 $3,275,480 100% ========== ========== === ========== ========== === At September 30, 2009 and December 31, 2008, approximately 36% and 50%, 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, 2009 --------------------------------------------------------------------------- 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 $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 COST 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% 4 39,591 (2,454) 17 29,580 (2,103) 21 69,171 (4,557) 80% - 90% -- -- -- 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) --- -------- ------- --- -------- --------- --- -------- --------- Total 37 $375,012 $(9,946) 163 $561,044 $(151,000) 200 $936,056 $(160,946) === ======== ======= === ======== ========= === ======== ========= DECEMBER 31, 2008 ---------------------------------------------------------------------------------------------------------------- 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 COST SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES SECURITIES VALUE LOSSES -------------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT NUMBER OF SECURITIES) 95% - 100% 140 $1,313,461 $ (18,621) 45 $245,247 $ (5,339) 185 $1,558,708 $ (23,960) 90% - 95% 20 161,149 (11,401) 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) --- ---------- --------- --- -------- --------- --- ---------- --------- Total 206 $1,697,832 $(113,990) 159 $561,705 $(133,928) 365 $2,259,537 $(247,918) === ========== ========= === ======== ========= === ========== ========= 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. The primary driver of lower unrealized losses in 2009 compared to 2008 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 the 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: THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2009 2009 ------------- ------------- (IN THOUSANDS) Beginning balance of credit losses on securities held for which a portion of other-than-temporary impairment was recognized in other comprehensive income $58,143 $50,866 Reductions for securities sold during the period (realized) (1,650) (1,650) Additional increases to the amount related to credit losses for which an other-than-temporary impairment was previously recognized 646 7,923 ------- ------- Ending balance of credit losses on securities held as of September 30 for which a portion of other-than- temporary impairment was recognized in other comprehensive income $57,139 $57,139 ======= ======= 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 includes 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 losses on Available-for-Sale securities included in accumulated other comprehensive loss: ACCUMULATED OTHER NET COMPREHENSIVE UNREALIZED LOSS RELATED TO NET INVESTMENT DEFERRED UNREALIZED INVESTMENT GAINS (LOSSES) INCOME TAX GAINS (LOSSES) -------------- ---------- --------------------- (IN THOUSANDS) Balance at January 1, 2008 $ (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) $ 82,091 $(152,454) Cumulative effect of accounting change (48,760)(1) 17,066 (31,694) Net unrealized investment gains arising during the period 216,633 (75,822) 140,811 Reclassification of gains included in net income (2,476) 867 (1,609) --------- -------- --------- Balance at September 30, 2009 $ (69,148) $ 24,202 $ (44,946)(2) ========= ======== ========= (1) Amount represents the cumulative effect of adopting a new accounting standard on January 1, 2009. See footnote 2 for additional information on the adoption impact. (2) At September 30, 2009, Accumulated Other Comprehensive Loss Related to Net Unrealized Investment Losses included $(31.3) million of noncredit related impairments and net unrealized securities losses on previously impaired securities. 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, -------------------------------- ------------------------------- 2009 2008 2009 2008 ------ -------- ------- -------- (IN THOUSANDS) (IN THOUSANDS) Gross realized gains from sales $5,988 $ 149 $13,288 $ 836 Gross realized losses from sales (140) (4,717) (1,749) (4,819) Impairment losses (646) (31,186) (9,062) (41,971) The $0.6 million and $9.1 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, 2009, respectively, were related to credit losses in non-agency residential mortgage backed securities. Available-for-Sale securities by contractual maturity as of September 30, 2009 were as follows: AMORTIZED FAIR COST VALUE ---------- ---------- (IN THOUSANDS) Due within one year $ 592,044 $ 601,716 Due after one year through five years 715,446 735,146 Due after five years through 10 years 18,685 17,723 Due after 10 years 8,625 8,906 ---------- ---------- 1,334,800 1,363,491 Residential mortgage backed securities 1,699,384 1,581,536 Commercial mortgage backed securities 599,634 614,334 Asset backed securities 466,301 473,657 Common and preferred stocks 19,612 15,040 ---------- ---------- Total $4,119,731 $4,048,058 ========== ========== 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 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. 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. Level 1 securities include U.S. Treasuries. Level 2 securities include agency mortgage backed securities and certain non-agency mortgage backed securities, asset backed securities, municipal and corporate bonds and U.S. agency securities. Level 3 securities include certain non-agency mortgage backed securities and corporate bonds. 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 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. 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. 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. 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, 2009 -------------------------------------------- LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------- ---------- -------- ---------- (IN THOUSANDS) Assets Cash equivalents $ -- $ 320,480 $ -- $ 320,480 Available-for-Sale securities: Residential mortgage backed securities -- 781,981 799,555 1,581,536 Corporate debt securities -- 1,214,717 12,070 1,226,787 Commercial mortgage backed securities -- 614,334 -- 614,334 Asset backed securities -- 327,915 145,742 473,657 U.S. government and agencies obligations 416 136,288 -- 136,704 Common and preferred stocks -- 15,040 -- 15,040 ---- ---------- -------- ---------- Total Available-for-Sale securities 416 3,090,275 957,367 4,048,058 Trading securities -- -- -- -- Equity index options, purchased -- 152,145 -- 152,145 ---- ---------- -------- ---------- Total assets at fair value $416 $3,562,900 $957,367 $4,520,683 ==== ========== ======== ========== Liabilities Certificate reserves $ -- $ 28,139 $ -- $ 28,139 Equity index options, written -- 124,318 -- 124,318 ---- ---------- -------- ---------- Total liabilities at fair value $ -- $ 152,457 $ -- $ 152,457 ==== ========== ======== ========== 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: RESIDENTIAL MORTGAGE CORPORATE ASSET OTHER BACKED DEBT BACKED STRUCTURED AVAILABLE-FOR-SALE SECURITIES SECURITIES SECURITIES SECURITIES INVESTMENTS TOTAL ----------------------------- ----------- ---------- ---------- ----------- -------- Balance, July 1, 2009 $649,837 $ 30,579 $158,403 $-- $838,819 Total gains (losses) included in: Net income 1,919(1) -- 3,091(2) -- 5,010 Other comprehensive income 22,160 498 2,690 -- 25,348 Purchases, sales, issuances and settlements, net 125,639 (19,007) (18,442) -- 88,190 -------- -------- -------- --- -------- 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 $ 901(3) $ -- $ 2,594(4) $-- $ 3,495 (1) Represents a $280 gain included in net realized gain (loss) on investments and $1,639 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 loss included in net realized gain (loss) on investments and $1,547 included in investment income in the Statements of Operations. (4) 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, July 1, 2008 $316,718 $49,522 $47,376 $-- $413,616 Total gains (losses) included in: Net loss (16,525)(1) -- 4,416(2) 80 (12,029) Other comprehensive income 18,105 (492) (745) -- 16,868 Purchases, sales, issuances and settlements, net (14,344) (4,919) (1,635) (80) (20,978) -------- ------- ------- --- -------- 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 $(16,525)(1) $ -- $ 4,416(2) $-- $(12,109) (1) Represents a $17,868 loss included in net realized gain (loss) on investments and $1,343 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 $8,437 loss included in net realized gain (loss) on investments and $3,442 included in investment income in the Statements of Operations. (2) Represents a $478 gain included in net realized gain (loss) on investments and $5,565 included in investment income in 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. 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 in the table above with balances of assets and liabilities measured at fair value on a recurring basis. SEPTEMBER 30, 2009 ---------------------------- CARRYING VALUE FAIR VALUE -------------- ----------- (IN THOUSANDS) FINANCIAL ASSETS Investments in unaffiliated issuers $ 331,365 $ 330,356 FINANCIAL LIABILITIES Certificate reserves $4,463,232 $4,423,729 Investments in unaffiliated issuers 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. 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-performance 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: FAIR VALUE DERIVATIVES NOT DESIGNATED AS ---------------------------------------------------------------------- HEDGING INSTRUMENTS BALANCE SHEET LOCATION ASSET BALANCE SHEET LOCATION LIABILITY ----------------------------- ---------------------- -------- ---------------------------------- (IN THOUSANDS) EQUITY CONTRACTS Stock market certificates Equity index options, Equity index options, purchased $152,145 written $124,318 Stock market certificates embedded derivatives -- Certificate reserves 28,139 -------- -------- Total $152,145 $152,457 ======== ======== 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 Statement of Operations: AMOUNT OF GAIN (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME --------------------------------------- DERIVATIVES NOT DESIGNATED AS LOCATION OF GAIN (LOSS) ON THREE MONTHS ENDED NINE MONTHS ENDED HEDGING INSTRUMENTS DERIVATIVES RECOGNIZED IN INCOME SEPTEMBER 30, 2009 SEPTEMBER 30, 2009 ----------------------------- -------------------------------------- ------------------ ------------------ (IN THOUSANDS) EQUITY CONTRACTS Stock market certificates Net provision for certificate reserves $ 8,995 $ 10,416 Stock market certificates embedded derivatives Net provision for certificate reserves (12,306) (23,132) --------- -------- Total $ (3,311) $(12,716) ========= ======== 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. 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 futures contracts outstanding. 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, ACC held $15.9 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, ACC's maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $12.0 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's effective tax rates were 36.6% and 36.7% for the three months and nine months ended September 30, 2009, respectively, compared to 36.5% and 35.6% for the three months and nine months ended September 30, 2008, respectively. 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. As of September 30, 2009 and December 31, 2008, 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, 2009 and December 31, 2008, 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 million for the payment of interest and penalties accrued at September 30, 2009 and December 31, 2008. 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, 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, the 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. ACC's state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2006. 19
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, filed with the Securities and Exchange Commission ("SEC") on March 3, 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, 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. 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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 Net income for the nine months ended September 30, 2009 was $28.5 million compared to a net loss of $27.5 million for the nine 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 as decreased interest crediting rates in the 2009 period. For the nine months ended September 30, 2009, investment income increased $27.9 million, or 20%, to $170.7 million compared to the same period in 2008. This increase was primarily the result of an increase in investment holdings compared to the prior year period. Investment expenses for the nine months ended September 30, 2009 increased $2.6 million, or 10%, to $28.3 million compared to the same period in 2008. This increase was primarily 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 decreased client crediting rates. Net realized investment gains before income taxes for the nine months ended September 30, 2009 were $2.0 million compared to net realized investment losses before income taxes of $46.2 million for the nine months ended September 30, 2008. In the nine months ended September 30, 2009, net realized gains from sales of Available-for-Sale securities were $13.3 million offset partially by $1.7 million of gross realized investment losses 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 investment 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 other non-agency residential mortgage backed securities. 20
AMERIPRISE CERTIFICATE COMPANY The effective tax rate was 36.7% for the nine months ended September 30, 2009 compared to 35.6% for the nine 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, 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. 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") do not require the 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 21
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 market 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 of 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, 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 $ 1,693 $ 1,219 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 1,693 $ 1,219 2004 11,403 10,579 -- -- 9,464 9,375 -- -- 10,358 6,178 31,225 26,132 2005 23,087 22,255 36,412 35,854 5,128 4,956 1,441 1,258 -- -- 66,068 64,323 2006 -- -- 2,749 2,746 7,937 7,692 5,943 5,620 -- -- 16,629 16,058 2007 -- -- -- -- 7,424 7,046 -- -- -- -- 7,424 7,046 2008 -- -- -- -- -- -- -- -- -- -- -- -- Re-Remic(1) -- -- -- -- -- -- 22,303 21,864 -- -- 22,303 21,864 -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- -------- Total Subprime $ 36,183 $ 34,053 $ 39,161 $38,600 $29,953 $29,069 $29,687 $28,742 $ 10,358 $ 6,178 $ 145,342 $136,642 ======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ======== ALT-A 2003 & prior $ 6,341 $ 5,896 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 6,341 $ 5,896 2004 8,999 6,784 6,296 2,925 22,047 15,492 5,133 3,089 -- -- 42,475 28,290 2005 -- -- 6,078 4,108 -- -- 7,722 4,764 89,299 56,125 103,099 64,997 2006 -- -- -- -- 3,562 3,431 -- -- 40,807 28,871 44,369 32,302 2007 -- -- -- -- -- -- -- -- 59,351 35,352 59,351 35,352 2008 -- -- -- -- -- -- -- -- -- -- -- -- -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- -------- Total Alt-A $ 15,340 $ 12,680 $ 12,374 $ 7,033 $25,609 $18,923 $12,855 $ 7,853 $189,457 $120,348 $ 255,635 $166,837 ======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ======== PRIME 2003 & prior $ 38,295 $ 38,266 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 38,295 $ 38,266 2004 42,303 38,372 37,465 30,278 9,125 5,045 12,615 6,795 3,595 1,798 105,103 82,288 2005 4,276 4,093 23,845 19,874 11,735 9,935 42,721 33,576 44,005 32,555 126,582 100,033 2006 -- -- -- -- -- -- -- -- 4,632 3,641 4,632 3,641 2007 -- -- -- -- -- -- -- -- -- -- -- -- 2008 -- -- -- -- -- -- -- -- -- -- -- -- Re-Remic(1) 383,983 384,382 -- -- -- -- -- -- -- -- 383,983 384,382 -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- ---------- -------- Total Prime $468,857 $465,113 $ 61,310 $50,152 $20,860 $14,980 $55,336 $40,371 $ 52,232 $ 37,994 $ 658,595 $608,610 ======== ======== ======== ======= ======= ======= ======= ======= ======== ======== ========== ======== 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. 22
AMERIPRISE CERTIFICATE COMPANY FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, that reflect ACC's plans, estimates and beliefs. ACC's actual 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," 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 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 the 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. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no 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. 23
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, 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 2008 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. 24
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 By /s/ William F. Truscott ------------------------------------- William F. Truscott Chief Executive Officer Date: November 3, 2009 By /s/ Ross P. Palacios ------------------------------------- Ross P. Palacios Chief Financial Officer 25
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. E-