Discover 2015 Annual Report Download - page 73

-57-
other expenses. For more information, see Note 8: Goodwill and Intangible Assets to our consolidated financial
statements.
Payment Services
For the Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
Our Payment Services segment reported pretax income of $100 million for the year ended December 31, 2015
as compared to pretax income of $89 million the year ended December 31, 2014, primarily due to a decrease in other
expense partially offset by a decrease in other income. The other expense decline was primarily driven by expenses for
Diners Club International associated with recording Diners Club Italy as held for sale in 2014 and the associated fair
value adjustment. The decrease in other income was primarily driven by a reduction in transaction processing revenue
from PULSE associated with the loss of two large third-party issuers.
Transaction dollar volume decreased $12.6 billion for the year ended December 31, 2015 as compared to the
year ended December 31, 2014, primarily driven by declines in PULSE network volume. The number of transactions
processed on the PULSE network decreased for the year ended December 31, 2015 as compared to the year ended
December 31, 2014.
A weakening of the global economy or negative impacts in foreign currency may adversely affect our financial
condition or results of operations in our Payment Services segment. We continue to work with our Diners Club licensees
with regard to their ability to maintain financing sufficient to support business operations. Although support to licensees
declined in 2015, we may continue to provide additional support in the future, including loans, facilitating transfer of
ownership, or acquiring assets or licenses, which may cause us to incur losses. The licensees that we currently consider
to be of concern accounted for approximately 5% of Diners Club revenue for the year ended December 31, 2015.
For the Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
Our Payment Services segment reported pretax income of $89 million for the year ended December 31, 2014,
up $9 million as compared to the year ended December 31, 2013, primarily as the result of a decrease in loan losses
related to certain Diners Club licensee loans and other expense, partially offset by a decrease in other income. The
decrease in other expense was primarily due to non-recurring expenses incurred in 2013 related to our purchase of the
Diners Club Italy licensee and financial assistance to facilitate the purchase of the Slovenian licensee by a European
bank. The decrease in other expense was partially offset by a fair value adjustment of $21 million resulting from
recording Diners Club Italy as held for sale in 2014. The decrease in other income was primarily driven by a decrease
in transaction processing revenue reflecting the impact of merchant rerouting and lower rates.
Transaction dollar volume increased $5.8 billion for the year ended December 31, 2014 as compared to the
year ended December 31, 2013, primarily driven by a growth in PULSE network volume. The number of transactions
processed on the PULSE network increased slightly for the year ended December 31, 2014 as compared to the year
ended December 31, 2013.
We have been working with our European Diners Club licensees with regard to their ability to maintain financing
sufficient to support business operations. We may provide additional support in the future, including loans, facilitating
transfer of ownership, or acquiring assets or licenses, which may cause us to incur losses. The licensees that we
currently consider to be of concern accounted for approximately 4% of Diners Club revenue for the year ended
December 31, 2014. In addition, Diners Club has $151 million of non-amortizable intangible assets at December 31,
2014. While we determined that none of these intangibles are presently impaired, to the extent that we are unable to
maintain Diners Club revenues at appropriate levels, we may be exposed to a non-cash impairment loss on these assets
that, when recognized, could have a material adverse impact on our results of operations.
Critical Accounting Estimates
In preparing our consolidated financial statements in conformity with accounting principles generally accepted in
the United States (“GAAP”), management must make judgments and use estimates and assumptions about the effects of
matters that are uncertain. For estimates that involve a high degree of judgment and subjectivity, it is possible that
different estimates could reasonably be derived for the same period. For estimates that are particularly sensitive to
changes in economic or market conditions, significant changes to the estimated amount from period to period are also
possible. Management believes the current assumptions and other considerations used to estimate amounts reflected in
our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and