XML 125 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
Significant Accounting Policies and Consolidated Financial Statement Components (Policies)
 6 Months Ended
Jun. 30, 2013
Accounting Policies [Abstract]  
Basis of Presentation and Use of Estimates
Basis of Presentation and Use of Estimates
 
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), under which we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of two categories of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans and fees receivable within our consolidated statements of operations.
 
We have reclassified certain amounts in our prior period consolidated financial statements related to discontinued operations to conform to current period presentation, and we have eliminated all significant intercompany balances and transactions for financial reporting purposes.
Loans and Fees Receivable
Loans and Fees Receivable
 
Our loans and fees receivable include:  (1) loans and fees receivable, net; (2) loans and fees receivable, at fair value; and (3) loans and fees receivable pledged as collateral under structured financings, at fair value.
 
Components of our aggregated categories of loans and fees receivable, net (in millions) are as follows:

 
Balance at December 31, 2012
 
Additions
 
Subtractions
 
Balance at June 30, 2013
Loans and fees receivable, gross
$
89.1

 
$
109.2

 
$
(98.8
)
 
$
99.5

Deferred revenue
(8.3
)
 
(15.1
)
 
13.9

 
(9.5
)
Allowance for uncollectible loans and fees receivable
(11.2
)
 
(10.0
)
 
7.6

 
(13.6
)
Loans and fees receivable, net
$
69.6

 
$
84.1

 
$
(77.3
)
 
$
76.4

 
Balance at December 31, 2011
 
Additions
 
Subtractions
 
Balance at June 30, 2012
Loans and fees receivable, gross
$
119.3

 
$
95.7

 
$
(102.5
)
 
$
112.5

Deferred revenue
(8.0
)
 
(13.3
)
 
12.8

 
(8.5
)
Allowance for uncollectible loans and fees receivable
(14.7
)
 
(10.3
)
 
8.0

 
(17.0
)
Loans and fees receivable, net
$
96.6

 
$
72.1

 
$
(81.7
)
 
$
87.0


 
As of June 30, 2013 and June 30, 2012, the weighted average remaining accretion periods for the $9.5 million and $8.5 million, respectively, of deferred revenue reflected in the above tables were 14 and 13 months, respectively.

A roll-forward (in millions) of our allowance for uncollectible loans and fees receivable by class of receivable is as follows: 
For the Three Months Ended June 30, 2013
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
Balance at beginning of period
$
(4.0
)
 
$
(2.6
)
 
$
(3.5
)
 
$
(10.1
)
Provision for loan losses
(3.7
)
 
0.5

 
(3.5
)
 
(6.7
)
Charge offs
1.5

 
1.2

 
1.0

 
3.7

Recoveries
(0.1
)
 
(0.3
)
 
(0.1
)
 
(0.5
)
Balance at end of period
$
(6.3
)
 
$
(1.2
)
 
$
(6.1
)
 
$
(13.6
)
Balance at end of period individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
—

Balance at end of period collectively evaluated for impairment
$
(6.3
)
 
$
(1.2
)
 
$
(6.1
)
 
$
(13.6
)
 
 
For the Six Months Ended June 30, 2013
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
Balance at beginning of period
$
(4.6
)
 
$
(3.1
)
 
$
(3.5
)
 
$
(11.2
)
Provision for loan losses
(5.9
)
 
0.7

 
(4.8
)
 
(10.0
)
Charge offs
4.3

 
2.3

 
2.3

 
8.9

Recoveries
(0.1
)
 
(1.1
)
 
(0.1
)
 
(1.3
)
Balance at end of period
$
(6.3
)
 
$
(1.2
)
 
$
(6.1
)
 
$
(13.6
)
Balance at end of period individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
—

Balance at end of period collectively evaluated for impairment
$
(6.3
)
 
$
(1.2
)
 
$
(6.1
)
 
$
(13.6
)
Loans and fees receivable:
 

 
 

 
 

 
 

Loans and fees receivable, gross
$
13.2

 
$
60.7

 
$
25.6

 
$
99.5

Loans and fees receivable individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
—

Loans and fees receivable collectively evaluated for impairment
$
13.2

 
$
60.7

 
$
25.6

 
$
99.5


For the Three Months Ended June 30, 2012
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
Balance at beginning of period
$
(4.5
)
 
$
(6.1
)
 
$
(1.9
)
 
$
(12.5
)
Provision for loan losses (includes $1.4 million of provision netted within income from discontinued operations)
(7.1
)
 
0.7

 
(1.0
)
 
(7.4
)
Charge offs
1.4

 
1.8

 
0.9

 
4.1

Recoveries
(0.3
)
 
(0.9
)
 
—

 
(1.2
)
Balance at end of period
$
(10.5
)
 
$
(4.5
)
 
$
(2.0
)
 
$
(17.0
)
Balance at end of period individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
—

Balance at end of period collectively evaluated for impairment
$
(10.5
)
 
$
(4.5
)
 
$
(2.0
)
 
$
(17.0
)



For the Six Months Ended June 30, 2012
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
Balance at beginning of period
$
(4.0
)
 
$
(8.4
)
 
$
(2.3
)
 
$
(14.7
)
Provision for loan losses (includes $1.8 million of provision netted within income from discontinued operations)
(8.9
)
 
1.3

 
(2.7
)
 
(10.3
)
Charge offs
3.0

 
4.7

 
3.0

 
10.7

Recoveries
(0.6
)
 
(2.1
)
 
—

 
(2.7
)
Balance at end of period
$
(10.5
)
 
$
(4.5
)
 
$
(2.0
)
 
$
(17.0
)
Balance at end of period individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
—

Balance at end of period collectively evaluated for impairment
$
(10.5
)
 
$
(4.5
)
 
$
(2.0
)
 
$
(17.0
)
Loans and fees receivable:
 

 
 

 
 

 
 

Loans and fees receivable, gross
$
27.9

 
$
73.4

 
$
11.2

 
$
112.5

Loans and fees receivable individually evaluated for impairment
$
—

 
$
0.1

 
$
—

 
$
0.1

Loans and fees receivable collectively evaluated for impairment
$
27.9

 
$
73.3

 
$
11.2

 
$
112.4




The components (in millions) of loans and fees receivable, net as of the date of each of our consolidated balance sheets are as follows: 
 
 
June 30, 2013
 
December 31, 2012
Current loans receivable
$
82.4

 
$
71.4

Current fees receivable
3.0

 
0.8

Delinquent loans and fees receivable
14.1

 
16.9

Loans and fees receivable, gross
$
99.5

 
$
89.1


 
Delinquent loans and fees receivable reflect the principal, fee and interest components of loans we did not collect on or prior to the contractual due date.  Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans and fees receivable and typically are charged off 180 days from the point they become delinquent for our credit card, auto finance and other unsecured lending product receivables, or sooner if facts and circumstances earlier indicate non-collectibility.  Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans and fees receivable and effectively offset our provision for losses on loans and fees receivable recorded at net realizable value on our consolidated statements of operations. (All of the above discussion relates only to our loans and fees receivable for which we use net realizable value (i.e., as opposed to fair value) accounting. For loans and fees receivable recorded at fair value, recoveries offset losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries on our consolidated statement of operations.)
 
We consider loan delinquencies a key indicator of credit quality as this measure provides the best ongoing estimate of how a particular class of receivables is performing.  An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of June 30, 2013 and December 31, 2012 is as follows:

Balance at June 30, 2013
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
$
1.2

 
$
5.2

 
$
1.2

 
$
7.6

60-89 days past due
0.9

 
1.5

 
0.8

 
3.2

90 or more days past due
1.5

 
0.6

 
1.2

 
3.3

Delinquent loans and fees receivable, gross
3.6

 
7.3

 
3.2

 
14.1

Current loans and fees receivable, gross
9.6

 
53.4

 
22.4

 
85.4

Total loans and fees receivable, gross
$
13.2

 
$
60.7

 
$
25.6

 
$
99.5

Balance of loans 90 or more days past due and still accruing interest and fees
$
—

 
$
0.1

 
$
—

 
$
0.1

Balance at December 31, 2012
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
$
0.7

 
$
5.4

 
$
0.6

 
$
6.7

60-89 days past due
1.0

 
2.0

 
0.5

 
3.5

90 or more days past due
4.2

 
1.6

 
0.9

 
6.7

Delinquent loans and fees receivable, gross
5.9

 
9.0

 
2.0

 
16.9

Current loans and fees receivable, gross
1.3

 
55.2

 
15.7

 
72.2

Total loans and fees receivable, gross
$
7.2

 
$
64.2

 
$
17.7

 
$
89.1

Balance of loans 90 or more days past due and still accruing interest and fees
$
—

 
$
0.5

 
$
—

 
$
0.5
Investments in Equity-Method Investees
Investments in Equity-Method Investees
 
We account for investments using the equity method of accounting if we have the ability to exercise significant influence, but not control, over the investees. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an incorporated investee of between 20% and 50%, although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting is appropriate. We record our interests in the income of our equity-method investees within the equity in income of equity-method investees category on our consolidated statements of operations.

We use the equity method for our investments in a limited liability company formed in 2004 to acquire a portfolio of credit card receivables. In June 2013, we increased, from 50.0% to 66.7%, our overall ownership in this limited liability company. We continue to account for this investment using the equity method of accounting due to specific voting and veto rights held by each investor, which do not allow us to control this investee. We also use the equity method to account for our March 2011 investment to acquire a 50.0% interest in a joint venture with an unrelated third party that purchased the outstanding notes issued out of the structured financing trust underlying our United Kingdom (“U.K.”) portfolio of credit card receivables (the “U.K. Portfolio”).

We evaluate our investments in the equity-method investees for impairment each quarter by comparing the carrying amount of each investment to its fair value. Because no active market exists for the investees’ limited liability company membership interests, we evaluate our investments for impairment based on our evaluation of the fair value of the equity-method investees’ net assets relative to their carrying values. If we ever were to determine that the carrying values of our investments in equity-method investees were greater than their fair values, we would write the investments down to their fair values.
Income Taxes
Income Taxes
 
Computed considering results for only our continuing operations before income taxes, we experienced negative effective income tax benefit rates of 5.0% and 7.7% for the three and six months ended June 30, 2013, versus our effective income tax benefit rates of 11.8% and 14.4% for the three and six months ended June 30, 2012.  Our negative effective income tax benefit rates for the three and six months ended June 30, 2013 result principally from interest accruals on our liabilities for uncertain tax positions.  Variations in our effective tax rates between the periods principally bear the effects of (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets and (2) intra-period tax allocations associated with our discontinued operations in 2012 as required under GAAP.
 
We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.  We recognized $0.5 million and $0.9 million in potential interest and penalties associated with uncertain tax positions during the three and six months ended June 30, 2013, respectively, compared to $0.5 million and $0.9 million during the three and six months ended June 30, 2012, respectively. To the extent such interest and penalties are not assessed as a result of a resolution of the underlying tax positions, amounts accrued are reduced and reflected as a reduction of income tax expense. We recognized no such reductions in each of the three and six months ended June 30, 2013 and 2012.
Fees and Related Income on Earning Assets
Fees and Related Income on Earning Assets
 
The components (in thousands) of our fees and related income on earning assets are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Fees on credit products
$
5,385

 
$
4,031

 
$
9,301

 
$
6,994

Changes in fair value of loans and fees receivable recorded at fair value
8,342

 
26,942

 
25,065

 
82,871

Changes in fair value of notes payable associated with structured financings recorded at fair value
(970
)
 
(16,073
)
 
(15,575
)
 
(25,390
)
Other
(2,538
)
 
(469
)
 
(1,766
)
 
(177
)
Total fees and related income on earning assets
$
10,219

 
$
14,431

 
$
17,025

 
$
64,298



The above changes in fair value of loans and fees receivable recorded at fair value category excludes the impact of charge offs associated with these receivables which are separately stated on our consolidated statements of operations.  See Note 7, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations. Included within our Other category above during the three and six months ended June 30, 2013 is a $2.4 million charge off of a note we had received from buyers of our JRAS buy-here, pay-here dealer operations that we sold in February 2011.
Recent Accounting Pronouncements
 Recent Accounting Pronouncements
 
In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on respective line items in consolidated statements of income if an amount being reclassified is required to be reclassified in its entirety to net income. For amounts not required to be reclassified to net income in their entirety in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The new reporting requirements do not change the way in which net income or comprehensive income is derived. The new standard applies to both interim and annual financial statements beginning on or after January 1, 2013. Our adoption of the guidance on January 1, 2013 had no effect on our financial condition, results of operations or liquidity since it impacts disclosures only.
 
In December 2011, the FASB issued guidance requiring entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Our adoption of the guidance on January 1, 2013 had no effect on our financial condition, results of operations or liquidity since it impacts disclosures only.
Subsequent Events
Subsequent Events
 
We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events:  (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after June 30, 2013, and based on our evaluation, we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements. We note, however, that on August 5, 2013 we received $10.0 million of escrowed proceeds associated with the August 2012 sale of our Investments in Previously Charged-Off Receivables segment.