Discover 2009 Annual Report Download - page 63

The following table shows significant line items on our consolidated statement of financial condition on an actual and
pro forma basis, the latter of which gives effect to adjustments expected to be recorded on December 1, 2009 in
connection with adopting Statements No. 166 and 167. The adoption of Statements No. 166 and 167 requires a full
consolidation of the trusts in accordance with GAAP, which is different from a managed presentation. For further
discussion of these differences, see “– GAAP to Managed Data Reconciliations.”
November 30, 2009
Actual
Balance Sheet
November 30, 2009
Pro Forma
Balance Sheet(1)
(dollars in millions)
Assets
Cash and cash equivalents.................................................................................................................... $13,021 $13,021
Restricted cash.................................................................................................................................... 643 1,882
Investment securities............................................................................................................................. 5,035 534
Loan receivables, gross ........................................................................................................................ 23,625 50,854
Allowance for loan losses ..................................................................................................................... (1,758) (3,902)
Loan receivables, net ........................................................................................................................ 21,867 46,952
Amounts due from asset securitization .................................................................................................... 1,692 —
Deferred tax assets .............................................................................................................................. 790 1,578
Other assets ....................................................................................................................................... 2,973 3,151
Total assets .................................................................................................................................. $46,021 $67,118
Liabilities and Stockholders’ Equity
Deposits ............................................................................................................................................ $32,093 $32,093
Long-term borrowings.......................................................................................................................... 2,428 24,760
Other liabilities ................................................................................................................................... 3,064 3,162
Total liabilities .............................................................................................................................. 37,585 60,015
Total stockholders’ equity...................................................................................................................... 8,436 7,103
Total liabilities and stockholders’ equity ............................................................................................ $46,021 $67,118
(1) When presented in financial reports beginning in 2010, assets and liabilities of the securitization trusts will be separately presented on the face of the balance sheet, as required by Statement
No. 167, to reflect the facts that trust assets can be used only to settle trust obligations and that the trusts’ creditors (or beneficial interest holders) do not have recourse to the general credit of the
Company.
The pro forma balance sheet as of November 30, 2009 shown above reflects the following adjustments:
• Consolidation of $22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-
party investors;
• Reclassification of $4.6 billion of certificated retained interests classified as investment securities to loan receivables;
• Recording of a $2.1 billion allowance for loan losses, not previously required under GAAP, for the newly
consolidated and reclassified credit card loan receivables;
• Derecognition of the remaining $0.1 billion value of the interest-only strip receivable, net of tax, recorded in
amounts due from asset securitization and reclassification of the remaining $1.6 billion of amounts due from asset
securitization to restricted cash, loan receivables and other assets; and
• Recording of net deferred tax assets of $0.8 billion, largely related to establishing an allowance for loan losses on
the newly consolidated and reclassified credit card loan receivables.
After adoption, our results of operations will no longer reflect securitization income, but will instead report interest
income, net charge-offs and certain other income associated with all securitized loan receivables and interest expense
associated with debt issued from the trusts to third-party investors in the same line items in our results of operations as
non-securitized credit card loan receivables and corporate debt. Additionally, after adoption, we will no longer record
initial gains on new securitization activity since securitized credit card loans will no longer receive sale accounting
treatment, nor will there be any gains or losses on the revaluation of the interest-only strip receivable as that asset is not
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