Discover 2009 Annual Report Download - page 113

expenses and other liabilities. With regard to such derivatives hedging interest-bearing deposits, changes in both the fair
value of the derivatives and the gains or losses on the hedged interest-bearing deposits relating to the risk being hedged
are recorded in interest expense and provide offset to one another. Ineffectiveness related to fair value hedges, if any, is
recorded in interest expense. To the extent that differences in notional amounts of the derivatives and hedged liabilities
arise subsequent to the closing of the transactions, the hedge relationship is de-designated, with the change in the fair
value of the derivatives recorded in other income. Basis adjustments to the fair value of the interest-bearing deposits, if
any, resulting from a prior hedging relationship which has been de-designated are amortized to interest expense over the
lives of the previously hedged interest-bearing deposits using the effective yield method.
Accumulated Other Comprehensive Income. In accordance with the requirements of ASC Topic 220, Comprehensive
Income, the Company records unrealized gains and losses on available-for-sale securities, certain pension adjustments
and foreign currency translation adjustments in accumulated other comprehensive income on an after tax basis where
applicable. The Company presents accumulated other comprehensive income, net of tax, in its consolidated statements of
changes in stockholders’ equity.
Translation of Foreign Currencies. Prior to the sale of the Company’s Goldfish business, the financial statements of the
Company’s consolidated foreign subsidiaries were translated into U.S. dollars in accordance with GAAP. Assets and
liabilities were translated using the exchange rate in effect at each year end; income and expense amounts were
translated using the average exchange rate for the period in which the transactions occurred. The translation gains and
losses resulting from the change in exchange rates were reported as a component of accumulated other comprehensive
income included in stockholders’ equity. Upon sale of the Goldfish business, cumulative translation gains were reversed
from accumulated other comprehensive income and recorded as an offset to the loss on sale of discontinued operations.
See Note 3: Discontinued Operations and Note 16: Changes in Accumulated Other Comprehensive Income for more
information. At November 30, 2009 and 2008, the Company has no material foreign subsidiaries.
3. Discontinued Operations
On March 31, 2008, the Company completed the sale of the Goldfish business, previously reported as the
International Card segment, to Barclays Bank PLC. The aggregate sale price under the agreement was £35 million
(equivalent to approximately $70 million), which was paid in cash at closing.
The following table provides summary financial information for discontinued operations related to the sale of the
Company’s Goldfish business (dollars in thousands):
For the Years Ended
November 30,
2008 2007
Revenues(1) ........................................................................................................................................................................ $ 130,935 $ 314,058
Income (loss) from discontinued operations(2) .......................................................................................................................... $ 50,505 $(188,393)
Impairment loss on goodwill and intangibles(3) ........................................................................................................................ — (391,119)
Loss on the sale of discontinued operations(4) .......................................................................................................................... (225,289) (1,007)
Pretax loss from discontinued operations ................................................................................................................................ (174,784) (580,519)
Income tax benefit(4) ............................................................................................................................................................ (39,621) (204,950)
Loss from discontinued operations, net of tax ....................................................................................................................... $(135,163) $(375,569)
(1) Revenues are the sum of net interest income and other income.
(2) During the year ended November 30, 2007, the Goldfish business incurred $96.7 million of expenses related to transactions with Morgan Stanley, substantially all of which were related to interest
expense on borrowings that were repaid in full prior to the Distribution.
(3) Impairment loss for the year ended November 30, 2007 represents non-cash write-downs of $291.2 million of goodwill and $99.9 million of intangible assets.
(4) Loss on the sale of discontinued operations for the year ended November 30, 2008 includes a $27.1 million realization of cumulative foreign currency translation adjustments which were
previously recorded net of tax. As a result, there is no tax impact for the year ended November 30, 2008 related to the realization of cumulative foreign currency translation adjustments.
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