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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 years ended
November 30, 2011 and 2010, the Company had no impairments related to these assets. Fair value adjustments for loans held
for sale are periodically recorded in other income in the consolidated statements of income. During the years ended
November 30, 2011 and 2010, the Company recorded a gain of $5.0 million and a loss of $28.1 million, respectively, related to
loans held for sale.
As of November 30, 2011, 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.
23. Derivatives and Hedging Activities
The Company uses derivatives to manage its exposure to various financial risks. The Company does not enter into
derivatives for trading or speculative purposes. Derivatives not designated as hedges are used to manage the Company’s
exposure to interest rate movements and other identified risks but do not meet the strict requirements of hedge accounting. All
derivatives are recorded in other assets at their gross positive fair values and in accrued expenses and other liabilities at their
gross negative fair values.
Derivatives may give rise to counterparty credit risk. The Company enters into derivative transactions with established
dealers that meet minimum credit criteria established by the Company. All counterparties must be pre-approved prior to
engaging in any transaction with the Company. Counterparties are monitored on a periodic basis by the Company to ensure
compliance with the Company’s risk policies and limits.
Derivatives designated as Hedges
Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other
types of forecasted transactions, are considered cash flow hedges. Derivatives designated and qualifying as a hedge of the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges.
Cash Flow Hedges. The Company uses interest rate swaps to manage its exposure to changes in interest rates related to
future cash flows resulting from credit card loan receivables. These transactions are hedged for a maximum period of three
years. The derivatives are designated as a hedge of the risk of overall changes in cash flows on the Company’s portfolios of
prime-based interest receipts and qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging
(“ASC 815”).
The effective portion of the change in the fair value of derivatives designated as cash flow hedges is recorded in other
comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted cash flows affect
earnings. The ineffective portion of the change in fair value of the derivative, if any, is recognized directly in earnings.
Amounts reported in accumulated other comprehensive income related to derivatives at November 30, 2011 will be reclassified
to interest income as interest payments are received on certain of the Company's floating rate credit card loan receivables.
During the next 12 months, the Company estimates it will reclassify to earnings $6.8 million of pretax gains related to its
derivatives designated as cash flow hedges.
Fair Value Hedges. The Company is exposed to changes in fair value of certain of its fixed rate debt obligations due to
changes in interest rates. During the year ended November 30, 2011, the Company used interest rate swaps to manage its
exposure to changes in fair value of certain fixed rate senior notes and interest-bearing brokered deposits attributable to
changes in LIBOR, a benchmark interest rate as defined by ASC 815. The interest rate swaps involve the receipt of fixed rate
amounts from the respective counterparties in exchange for the Company making payments of variable rate amounts over the
life of the agreements without exchange of the underlying notional amounts. These interest rate swaps qualify as fair value
hedges in accordance with ASC 815. Changes in both (i) the fair values of the derivatives and (ii) the hedged fixed rate senior
notes and interest-bearing brokered deposits relating to the risk being hedged were recorded in interest expense and provided
substantial offset to one another. Ineffectiveness related to these fair value hedges was recorded in interest expense. Any basis
differences between the fair value and the carrying amount of the hedged fixed rate senior notes and interest-bearing brokered
deposits at the inception of the hedging relationship is amortized and recorded in interest expense.
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