Discover 2009 Annual Report Download - page 153

The following table provides changes in the Company’s Level 3 assets and liabilities measured at fair value on a
recurring basis. Net transfers in and/or out of Level 3 are presented using beginning of the period fair values.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)
Balance at
November 30,
2008
Total Realized
and Unrealized
Gains (Losses)
Purchases,
Sales, Other
Settlements and
Issuances, net
Net Transfers
In and/
or Out of
Level 3
Balance at
November 30,
2009
Change in
unrealized
gains (losses)
related to
financial
instruments
held at
November 30,
2009
Assets
Available-for-sale investment securities ........... $1,127,090 $ (2,177)(2) $1,520,553 $— $2,645,466 $ (23,339)
Amounts due from asset securitization(1) .......... $1,421,567 $(160,087)(3) $ (321,316) $— $ 940,164 $(160,690)
(1) Balances represent only the components of amounts due from asset securitization that are marked to fair value.
(2) Includes net unrealized pretax losses of $14.9 million recorded in other comprehensive income in the consolidated statement of financial condition and net losses on investment securities of $2.8
million recorded in other income, offset in part by $15.6 million of accreted income recorded in interest income.
(3) This unrealized loss is recorded in securitization income in the consolidated statement of income.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under
certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those
associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair
value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During
the year ended November 30, 2009, the Company had no impairments related to these assets.
As of November 30, 2009, the Company had not made any fair value elections with respect to any of its eligible
assets and liabilities as permitted under ASC 825-10-25.
25. Segment Disclosures
The Company’s business activities are managed in two segments: Direct Banking, formerly referred to as U.S. Card,
and Payment Services, formerly referred to as Third-Party Payments. The Company changed the names of its segments to
better reflect the nature of the products and services included in its segments. The composition of each segment, however,
has not changed.
•Direct Banking. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and
small businesses on the Discover Network and other consumer products and services, including personal loans,
student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s
Discover Bank subsidiary.
•Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic
funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business,
which includes credit, debit and prepaid cards issued on the Discover Network by third parties.
The business segment reporting provided to and used by the Company’s chief operating decision maker is prepared
using the following principles and allocation conventions:
• Segment information is presented on a managed basis because management considers the performance of the
entire managed loan portfolio in managing the business. A managed basis presentation, which is a non-GAAP
presentation, involves reporting securitized loans with the Company’s owned loans in the managed basis statements
of financial condition and reporting the earnings on securitized loans in the same manner as the owned loans
instead of as securitization income. The managed basis presentation generally reverses the effects of securitization
transactions.
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