Capital One 2013 Annual Report Download - page 171

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We accrue SAC interest income on a monthly basis throughout the term of the SAC period based on the amount
we expect to collect. Accordingly, we do not accrue interest income for borrowers who we expect will pay their
principal balance in full prior to the expiration of the SAC period or for borrowers who we expect will be unable
to pay the full amount.
Card Partnership Agreements
Our partnership agreements relate to alliances with retailers and other partners to provide lending and other
services to mutual customers. We primarily issue private-label and co-branded credit card loans to these
customers over the term of these arrangements, which typically range from two to ten years.
Certain partners assist in or perform marketing activities on our behalf and promote our products and services to
their customers. As compensation for providing these services, we often pay royalties, bounties, or other special
bonuses to these partners. Depending upon the nature of the payments, they are recorded as a reduction of
revenue, marketing expenses or other operating expenses.
If a partnership agreement provides for profit, revenue or loss sharing payments, we must determine whether to
report those payments on a gross or net basis in our consolidated financial statements. We evaluate the
contractual provisions of each transaction and applicable accounting guidance to determine the manner in which
to report the impact of sharing arrangements 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.
Pursuant to a partnership agreement that we entered into in August 2010 with Kohl’s Department Stores
(“Retailer”), we acquired the Retailer’s existing private-label credit card loan portfolio and began issuing the
Retailer’s branded private-label credit cards to new and existing customers in April 2011. The Retailer’s
partnership agreement has an initial seven-year term and an automatic one-year renewal thereafter. Risk
management decisions are jointly managed by the Retailer and us, but we retain final authority over risk
management decisions. The Retailer 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 Retailer’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 the Retailer, and the
Retailer is required to reimburse us for a fixed percentage of credit losses incurred. Revenues and losses related
to the Retailer’s credit card program and partnership agreement are reported on a net basis in our consolidated
financial statements. Revenue sharing amounts attributable to the Retailer are recorded as an offset against total
net revenue in our consolidated statements of income. The loss sharing amounts due from the Retailer are
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