Capital One 2012 Annual Report Download - page 172

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
contractual provisions of each transaction and applicable accounting guidance to determine the manner in which
to report the impact of shared payment provisions in our consolidated financial statements. Our consolidated net
income is the same regardless of whether revenue and loss sharing arrangements are reported on a gross or net
basis.
Collaborative Arrangements
A collaborative arrangement is a contractual arrangement that involves a joint operating activity between two or
more parties that are active participants in the activity. These parties are exposed to significant risks and rewards
based upon the economic success of the joint operating activity. We assess each of our partnership agreements
with profit, revenue or loss sharing payments to determine if a collaborative arrangement exists and, if so, how
revenue generated from third parties, costs incurred and transactions between participants in the collaborative
arrangement should be accounted for and reported in our consolidated financial statements.
Effective April 1, 2011, we acquired Kohl’s Department Stores (“Kohl’s”) existing private-label credit card loan
portfolio from JPMorgan Chase & Co. pursuant to a partnership agreement we entered into in August 2010 with
Kohl’s. The existing portfolio, which consisted 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.
Based on our assessment, we determined that the Kohl’s partnership agreement meets the definition of a
collaborative arrangement. None of our other partnership agreements are considered to be collaborative
arrangements.
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 and partnership agreement are reported on a net basis in our consolidated financial
statements. Revenue sharing amounts attributable to Kohl’s are recorded as an offset against total net revenue in
our consolidated statements of income. The loss sharing amounts due from Kohl’s are recorded as a reduction in
our provision for credit losses in our consolidated statements of income. The allowance for loan and lease losses
attributable to the Kohl’s portfolio is reduced by the loss sharing amount due from Kohl’s.
Interest income was reduced by $885 million and $607 million in 2012 and 2011, respectively, for amounts
earned by Kohl’s as part of the revenue sharing agreement. Loss sharing amounts attributable to Kohl’s reduced
charge-offs by $167 million and $118 million in 2012 and 2011, respectively. The reduction in the provision for
loan and lease losses attributable to Kohl’s was $199 million and $257 million in 2012 and 2011, respectively.
The expected reimbursement from Kohl’s, which is netted against our allowance for loan and lease losses, was
approximately $170 million and $139 million as of December 31, 2012 and 2011, respectively.
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