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Fair Value of Assets Held at November 30, 2009. Below are descriptions of the techniques used to calculate the fair
value of financial instruments on the Company’s statements of financial condition as of November 30, 2009 which were
subsequently derecognized, reclassified or eliminated in consolidation as a result of the adoption of Statements No. 166
and 167 on December 1, 2009.
Available-for-sale investment securities. Fair value of certain certificated subordinated interests issued by DCENT that
were acquired by a wholly-owned subsidiary of the Company were estimated utilizing discounted cash flow analyses,
where estimated contractual principal and interest cash flows were discounted at current market rates for the same or
comparable transactions, if available. If there was little or no market activity, discount rates were derived from indicative
pricing observed in the most recent active market for such instruments, adjusted for changes reflective of incremental
credit risk, liquidity risk, or both.
Held-to-maturity investment securities. The estimated fair values of certain certificated subordinated interests issued by
DCENT and DCMT were derived utilizing a discounted cash flow analysis, where estimated contractual principal and
interest cash flows were discounted at market rates for comparable transactions, if available. If there was little or no
market activity on which to conclude an appropriate discount rate for similarly rated instruments, the discount rate was
interpolated from recent pricing observed on similar asset classes, adjusted for incremental credit risk, liquidity risk, or
both, to reflect, for example, the risk related to the lower rating on the instrument being valued than that which was
observed. A substantial portion of these investment securities were zero coupon certificated retained interests in DCENT
and DCMT, and as such, the aggregate carrying value, or amortized cost, exceeded fair value.
Amounts due from asset securitization. Carrying values of the portion of amounts due from asset securitization that
were short term in nature approximated their fair values. Fair values of the remaining assets recorded in amounts due
from asset securitization reflected the present value of estimated future cash flows utilizing management’s best estimate of
key assumptions with regard to credit card loan receivable performance and interest rate environment projections.
Assets and Liabilities Measured at Fair Value on a Recurring Basis.ASC 820 defines fair value, establishes a fair
value hierarchy that distinguishes between valuations that are based on observable inputs from those based on
unobservable inputs, and requires certain disclosures about those measurements. In general, fair values determined by
Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access. Fair values determined by Level 2 inputs are those that utilize inputs other than
quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs
include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in
an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates
and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency
of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions
involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are
available, the fair values of the related assets or liabilities would be classified as Level 2. Fair values determined by Level
3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the
asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of
the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is
classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company
may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified
within the Level 3 category. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability. Also,
the FASB clarified in ASC 820-10-35 that it is not appropriate to automatically conclude that any transaction price in an
inactive market is determinable of fair value and, thus, the use of Level 3 inputs may result in fair value estimates that are
more reliable than those that would be indicated by the use of observable prices in a market that is not active.
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