Capital One 2011 Annual Report Download - page 178

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
If the agreement involves payments between participants under a revenue or loss sharing arrangement, we must
determine whether to report revenue or loss amounts on a gross basis or on a net basis after taking into
consideration payments due to or due from participants. We evaluate the contractual provisions of each
transaction and applicable accounting guidance in determining the manner in which to report the impact of
revenue and loss sharing amounts in our consolidated balance sheet and the related impact on our allowance for
loan and lease losses. Our consolidated net income is the same regardless of whether we record revenue or
expense amounts on a gross or net basis.
2011 Acquisitions
Hudson’s Bay Company Credit Card Portfolio
On January 7, 2011, in a cash transaction, we acquired the credit card portfolio of Hudson’s Bay Company
(“HBC”), a Canadian operation, from GE Capital Retail Finance. The acquisition and partnership with HBC
significantly expands our credit card customer base in Canada, tripling the number of customer accounts, and
provides an additional distribution channel. The acquisition included outstanding credit card loan receivables
with a fair value of approximately $1.4 billion, and a transfer of approximately 400 employees directly involved
in managing the HBC portfolio.
We accounted for the acquisition as a business combination. Accordingly, we recorded the assets acquired,
including identifiable intangible assets, and liabilities assumed at their respective fair values as of the acquisition
date and consolidated with our results. In connection with the acquisition, we recorded goodwill of $3 million
representing the amount by which the purchase price exceeded the fair value of the net assets acquired. We also
recognized a purchased credit card relationship intangible asset of $11 million at acquisition and a contract-based
intangible asset of $70 million. Because the acquisition was considered to be a taxable transaction, the goodwill
is deductible for tax purposes. The goodwill was assigned to the International Credit Card reporting unit of our
Credit Card segment, and the acquired loan portfolio is reflected in the operations of our International Credit
Card business.
Kohl’s Credit Card Portfolio
In August 2010, we entered into a private-label credit card partnership agreement with Kohl’s Department Stores
(“Kohl’s”). In connection with the partnership agreement, effective April 1, 2011, we acquired Kohl’s existing
private-label credit card loan portfolio from JPMorgan Chase & Co. The existing portfolio, which consists of
more than 20 million Kohl’s customer accounts, had an outstanding principal and interest balance of
approximately $3.7 billion at acquisition. The partnership agreement has an initial seven-year term and an
automatic one-year renewal thereafter. We accounted for the purchase as an asset acquisition.
Under the terms of the partnership agreement and in conjunction with the acquisition, we began issuing Kohl’s
branded private-label credit cards to new and existing Kohl’s customers on April 1, 2011. Risk management
decisions are jointly managed by Kohl’s and us, but we retain final authority over risk management decisions.
Kohl’s has primary responsibility for handling customer service functions and advertising and marketing related
to credit card customers.
We share a fixed percentage of revenues, consisting of finance charges and late fees, with Kohl’s, and Kohl’s is
required to reimburse us for a fixed percentage of credit losses incurred. Revenues and losses related to the
Kohl’s credit card program are reported on a net basis in our consolidated financial statements. The revenue
sharing amounts earned by Kohl’s are reflected as an offset against our revenues in our consolidated statements
of income. The loss sharing amounts from Kohl’s are reflected as a reduction in our provision for loan and lease
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