Edgar Filing: Atlanticus Holdings Corp

form10q.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2013

ATLANTICUS HOLDINGS CORPORATION

a Georgia Corporation

IRS Employer Identification No. 58-2336689

SEC File Number 0-53717

Five Concourse Parkway, Suite 400

Atlanta, Georgia 30328

(770) 828-2000

Atlanticus’ common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”).

Atlanticus is not a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.

Atlanticus (1) is required to file reports pursuant to Section 13 or Section 15(d) of the Act, (2) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past 90 days.

Atlanticus has submitted electronically and posted on its corporate Web site every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Atlanticus is a smaller reporting company and is not a shell company.

As of April 30, 2013,13,930,535 shares of common stock, no par value, of Atlanticus were outstanding. (This excludes 1,672,656 loaned shares to be returned as of that date.)

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Page
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statements of Comprehensive Loss	3
		Consolidated Statement of Shareholders’ Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
	Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 3.	Defaults Upon Senior Securities	52
	Item 4.	Mine Safety Disclosures	52
	Item 5.	Other Information	52
	Item 6.	Exhibits	53
		Signatures	54

Atlanticus Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

	March 31,			December 31,
	2013			2012
	(unaudited)
Assets
Unrestricted cash and cash equivalents	$	71,308		$	67,915
Restricted cash and cash equivalents		13,969			12,921
Loans and fees receivable:
Loans and fees receivable, net (of $8,785 and $8,274 in deferred revenue and $10,092 and $11,151 in allowances for uncollectible loans and fees receivable at March 31, 2013 and December 31, 2012, respectively)		70,745			69,625
Loans and fees receivable, at fair value		17,606			20,378
Loans and fees receivable pledged as collateral under structured financings, at fair value		122,976			133,595
Property at cost, net of depreciation		7,054			7,192
Investments in equity-method investees		36,584			37,756
Deposits		16,410			16,397
Prepaid expenses and other assets		12,457			14,647
Total assets	$	369,109		$	380,426
Liabilities
Accounts payable and accrued expenses	$	31,718		$	38,596
Notes payable, at face value		37,168			26,747
Notes payable associated with structured financings, at fair value		129,550			140,127
Convertible senior notes		95,480			95,335
Income tax liability		60,607			60,434
Total liabilities		354,523			361,239

Commitments and contingencies (Note 10)

Equity
Common stock, no par value, 150,000,000 shares authorized: 15,496,135 shares issued and outstanding (including 1,672,656 loaned shares to be returned) at March 31, 2013; and 15,509,179 shares issued and outstanding (including 1,672,656 loaned shares to be returned) at December 31, 2012		-			-
Additional paid-in capital		210,768			211,122
Accumulated other comprehensive loss		(2,440	)		(1,154	)
Retained deficit		(193,681	)		(190,673	)
Total shareholders’ equity		14,647			19,295
Noncontrolling interests		(61	)		(108	)
Total equity		14,586			19,187
Total liabilities and equity	$	369,109		$	380,426

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended March 31,
	2013			2012
Interest income:
Consumer loans, including past due fees	$	19,824		$	25,130
Other		111			202
Total interest income		19,935			25,332
Interest expense		(5,772	)		(10,851	)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable		14,163			14,481
Fees and related income on earning assets		6,806			49,867
Losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries		(5,798	)		(55,628	)
Provision for losses on loans and fees receivable recorded at net realizable value		(3,282	)		(2,503	)
Net interest income, fees and related income on earning assets		11,889			6,217
Other operating income:
Servicing income		2,601			1,264
Other Income		2,136			812
Equity in income of equity-method investees		4,307			6,017
Total other operating income		9,044			8,093
Other operating expense:
Salaries and benefits		4,409			5,667
Card and loan servicing		10,679			10,464
Marketing and solicitation		1,935			816
Depreciation		373			428
Other		6,078			6,975
Total other operating expense		23,474			24,350
Loss on continuing operations before income taxes		(2,541	)		(10,040	)
Income tax (expense) benefit		(446	)		1,716
Loss on continuing operations		(2,987	)		(8,324	)
Discontinued operations:
Income from discontinued operations before income taxes		-			5,874
Income tax expense		-			(2,056	)
Income from discontinued operations		-			3,818
Net loss		(2,987	)		(4,506	)
Net (income) loss attributable to noncontrolling interests in continuing operations		(21	)		74
Net loss attributable to controlling interests	$	(3,008	)	$	(4,432	)
Loss on continuing operations attributable to controlling interests per common share—basic	$	(0.22	)	$	(0.37	)
Loss on continuing operations attributable to controlling interests per common share—diluted	$	(0.22	)	$	(0.37	)
Income from discontinued operations attributable to controlling interests per common share—basic	$	-		$	0.17
Income from discontinued operations attributable to controlling interests per common share—diluted	$	-		$	0.17
Net loss attributable to controlling interests per common share—basic	$	(0.22	)	$	(0.20	)
Net loss attributable to controlling interests per common share—diluted	$	(0.22	)	$	(0.20	)

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss (Unaudited)

(Dollars in thousands)

	For the Three Months Ended March 31,
	2013			2012
Net loss	$	(2,987	)	$	(4,506	)
Other comprehensive (loss) income:
Foreign currency translation adjustment		(1,394	)		1,010
Income tax benefit (expense) related to other comprehensive income		108			(68	)
Comprehensive loss		(4,273	)		(3,564	)
Comprehensive (income) loss attributable to noncontrolling interests		(21	)		74
Comprehensive loss attributable to controlling interests	$	(4,294	)	$	(3,490	)

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Equity

For the Three Months Ended March 31, 2013 and 2012 (Unaudited)

(Dollars in thousands)

	Common Stock
	Shares Issued			Amount		Additional Paid-In Capital			Treasury Stock		Accumulated Other Comprehensive Loss			Retained Deficit			Noncontrolling Interests			Total Equity
Balance at December 31, 2012		15,509,179		$	-	$	211,122		$	-	$	(1,154	)	$	(190,673	)	$	(108	)	$	19,187
Compensatory stock issuances		107,056			-		-			-		-			-			-			-
Contributions by owners of noncontrolling interests		-			-		-			-		-			-			26			26
Amortization of deferred stock-based compensation costs		-			-		90			-		-			-			-			90
Redemption and retirement of shares		(120,100	)		-		(444	)		-		-			-			-			(444	)
Net loss		-			-		-			-		-			(3,008	)		21			(2,987	)
Foreign currency translation adjustment, net of tax		-			-		-			-		(1,286	)		-			-			(1,286	)
Balance at March 31, 2013		15,496,135		$	-	$	210,768		$	-	$	(2,440	)	$	(193,681	)	$	(61	)	$	14,586

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Three Months Ended March 31,
	2013			2012
Operating activities
Net loss	$	(2,987	)	$	(4,506	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion, net		305			404
Losses upon charge off of loans and fees receivable recorded at fair value		8,479			55,628
Provision for losses on loans and fees receivable		3,282			2,881
Interest expense from accretion of discount on convertible senior notes		145			1,253
Income from accretion of discount associated with receivables purchases		(6,812	)		(8,889	)
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value		(2,118	)		(46,612	)
Income from equity-method investments		(4,307	)		(6,017	)
Other non cash adjustments to income		-			291
Changes in assets and liabilities, exclusive of business acquisitions:
Decrease in uncollected fees on earning assets		282			16,997
Increase in income tax liability		281			251
(Increase) decrease in prepaid expenses		(118	)		109
Decrease in accounts payable and accrued expenses		(6,643	)		(1,478	)
Other		3,554			451
Net cash (used in) provided by operating activities		(6,657	)		10,763
Investing activities
(Increase) decrease in restricted cash		(1,048	)		2,003
Investment in equity-method investees		-			(1,354	)
Proceeds from equity-method investees		4,545			11,124
Investments in earning assets		(43,157	)		(49,367	)
Proceeds from earning assets		63,867			89,638
Investments in subsidiaries		-			(3,514	)
Purchases and development of property, net of disposals		(266	)		(714	)
Net cash provided by investing activities		23,941			47,816
Financing activities
Noncontrolling interests contributions, net		26			-
Purchase and retirement of outstanding stock		(444	)		(196	)
Proceeds from borrowings		12,282			365
Repayment of borrowings		(25,002	)		(58,583	)
Net cash used in financing activities		(13,138	)		(58,414	)
Effect of exchange rate changes on cash		(753	)		227
Net increase in unrestricted cash		3,393			392
Unrestricted cash and cash equivalents at beginning of period		67,915			144,913
Unrestricted cash and cash equivalents at end of period	$	71,308		$	145,305
Supplemental cash flow information
Cash paid for interest	$	7,653		$	10,392
Net cash income tax payments	$	165		$	89
Supplemental non-cash information
Issuance of stock options and restricted stock	$	305		$	227
Notes payable associated with capital leases	$	144		$	305

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2013 and 2012

1.	Description of Our Business

Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the “Company”) and those entities we control, principally our majority-owned subsidiaries. We are primarily focused on providing financial services. Through our subsidiaries, we offer an array of financial products and services to a market largely represented by credit risks that regulators classify as “sub-prime.” As discussed further below, we reflect our continuing business lines within two reportable segments: Credit Cards and Other Investments; and Auto Finance. See also Note 4, “Segment Reporting,” for further details.

2.	Significant Accounting Policies and Consolidated Financial Statement Components

The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.

Basis of Presentation and Use of Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), under which we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of two categories of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value, as reported on our consolidated balance sheet at March 31, 2013 and December 31, 2012; these estimates likewise affect our changes in fair value of loans and fees receivable recorded at fair value and changes in fair value of notes payable associated with structured financings recorded at fair value categories within our fees and related income on earning assets line item on our consolidated statement of operations for the three months ended March 31, 2013 and 2012. Additionally, estimates of future credit losses on our loans and fees receivable that we report at net realizable value, rather than fair value, have a significant effect on two categories of such loans and fees receivable, net, that we show on our consolidated balance sheets, as well as on the provision for losses on loans and fees receivable within our consolidated statements of operations.

We have reclassified certain amounts in our prior period consolidated financial statements related to discontinued operations to conform to current period presentation, and we have eliminated all significant intercompany balances and transactions for financial reporting purposes.

Loans and Fees Receivable

Our loans and fees receivable include: (1) loans and fees receivable, net; (2) loans and fees receivable pledged as collateral under structured financings, net; (3) loans and fees receivable, at fair value; and (4) loans and fees receivable pledged as collateral under structured financings, at fair value.

The components of our aggregated categories of loans and fees receivable, net (in millions) for reporting periods relevant to this Report are as follows:

	Balance at December 31, 2012			Additions			Subtractions			Balance at March 31, 2013
Loans and fees receivable, gross	$	89.1		$	52.0		$	(51.5	)	$	89.6
Deferred revenue		(8.3	)		(7.3	)		6.8			(8.8	)
Allowance for uncollectible loans and fees receivable		(11.2	)		(3.3	)		4.4			(10.1	)
Loans and fees receivable, net	$	69.6		$	41.4		$	(40.3	)	$	70.7

	Balance at December 31, 2011			Additions			Subtractions			Balance at March 31, 2012
Loans and fees receivable, gross	$	119.3		$	46.6		$	(54.7	)	$	111.2
Deferred revenue		(8.0	)		(6.5	)		6.4			(8.1	)
Allowance for uncollectible loans and fees receivable		(14.7	)		(2.9	)		5.1			(12.5	)
Loans and fees receivable, net	$	96.6		$	37.2		$	(43.2	)	$	90.6

As of March 31, 2013 and March 31, 2012, the weighted average remaining accretion periods for the $8.8 million and $8.1 million, respectively, of deferred revenue reflected in the above tables were 13.0 and 13.6 months, respectively.

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A roll-forward (in millions) of our allowance for uncollectible loans and fees receivable by class of receivable is as follows:

For the Three Months Ended March 31, 2013	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(4.6	)	$	(3.1	)	$	(3.5	)	$	(11.2	)
Provision for loan losses		(2.2	)		0.2			(1.3	)		(3.3	)
Charge offs		2.8			1.1			1.3			5.2
Recoveries		-			(0.8	)		-			(0.8	)
Balance at end of period	$	(4.0	)	$	(2.6	)	$	(3.5	)	$	(10.1	)
Balance at end of period individually evaluated for impairment	$	-		$	-		$	-		$	-
Balance at end of period collectively evaluated for impairment	$	(4.0	)	$	(2.6	)	$	(3.5	)	$	(10.1	)
Loans and fees receivable:
Loans and fees receivable, gross	$	8.9		$	60.4		$	20.3		$	89.6
Loans and fees receivable individually evaluated for impairment	$	-		$	-		$	-		$	-
Loans and fees receivable collectively evaluated for impairment	$	8.9		$	60.4		$	20.3		$	89.6

For the Three Months Ended March 31, 2012	Credit Cards			Auto Finance			Other Unsecured Lending Products			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(4.0	)	$	(8.4	)	$	(2.3	)	$	(14.7	)
Provision for loan losses (includes $0.4 million of provision netted within income from discontinued operations)		(1.8	)		0.6			(1.7	)		(2.9	)
Charge offs		1.6			2.9			2.1			6.6
Recoveries		(0.3	)		(1.2	)		-			(1.5	)
Balance at end of period	$	(4.5	)	$	(6.1	)	$	(1.9	)	$	(12.5	)
Balance at end of period individually evaluated for impairment	$	-		$	(0.1	)	$	-		$	(0.1	)
Balance at end of period collectively evaluated for impairment	$	(4.5	)	$	(6.0	)	$	(1.9	)	$	(12.4	)
Loans and fees receivable:
Loans and fees receivable, gross	$	24.0		$	78.6		$	8.6		$	111.2
Loans and fees receivable individually evaluated for impairment	$	-		$	0.2		$	-		$	0.2
Loans and fees receivable collectively evaluated for impairment	$	24.0		$	78.4		$	8.6		$	111.0

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The components (in millions) of loans and fees receivable, net as of the date of each of our consolidated balance sheets are as follows:

	As of
	March 31, 2013		December 31, 2012
Current loans receivable	$	77.1	$	71.4
Current fees receivable		2.1		0.8
Delinquent loans and fees receivable		10.4		16.9
Loans and fees receivable, gross	$	89.6	$	89.1

Delinquent loans and fees receivable reflect the principal, fee and interest components of loans that we did not collect on the contractual due date. Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans and fees receivable and typically are charged off 180 days from the point they become delinquent for our credit card, auto finance and other unsecured lending product receivables, or sooner if facts and circumstances earlier indicate non-collectability. Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans and fees receivable and effectively offset our provision for loan losses in our accompanying consolidated statements of operations.

We consider loan delinquencies a key indicator of credit quality as it provides the best ongoing estimate of how a particular class of receivables is performing. An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of March 31, 2013 and December 31, 2012 is as follows:

As of March 31, 2013	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	0.4	$	3.8	$	0.6	$	4.8
60-89 days past due		0.4		1.2		0.5		2.1
90 or more days past due		1.3		0.9		1.3		3.5
Delinquent loans and fees receivable, gross		2.1		5.9		2.4		10.4
Current loans and fees receivable, gross		6.8		54.5		17.9		79.2
Total loans and fees receivable, gross	$	8.9	$	60.4	$	20.3	$	89.6
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	-	$	0.5	$	-	$	0.5

As of December 31, 2012	Credit Cards		Auto Finance		Other Unsecured Lending Products		Total
30-59 days past due	$	0.7	$	5.4	$	0.6	$	6.7
60-89 days past due		1.0		2.0		0.5		3.5
90 or more days past due		4.2		1.6		0.9		6.7
Delinquent loans and fees receivable, gross		5.9		9.0		2.0		16.9
Current loans and fees receivable, gross		1.3		55.2		15.7		72.2
Total loans and fees receivable, gross	$	7.2	$	64.2	$	17.7	$	89.1
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	-	$	0.5	$	-	$	0.5

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Investments in Equity-Method Investees

We account for investments using the equity method of accounting if we have the ability to exercise significant influence, but not control, over the investees. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an incorporated investee of between 20% and 50%, although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting is appropriate. We use the equity method for our investments in a limited liability company formed in 2004 to acquire a portfolio of credit card receivables. We also use the equity method to account for our March 2011 investment to acquire a 50.0% interest in a joint venture with an unrelated third party that purchased the outstanding notes issued out of the structured financing trust underlying our United Kingdom (“U.K.”) portfolio of credit card receivables (the “U.K. Portfolio”). We record our respective interests in the income of our equity-method investees within the equity in income of equity-method investees category on our consolidated statements of operations.

We evaluate our investments in the equity-method investees for impairment each quarter by comparing the carrying amount of each investment to its fair value. Because no active market exists for the investees’ limited liability company membership interests, we evaluate our investments for impairment based on our evaluation of the fair value of the equity-method investees’ net assets relative to their carrying values. If we ever were to determine that the carrying values of our investments in equity-method investees were greater than their fair values, we would write the investments down to their fair values.

Income Taxes

Computed considering results for only our continuing operations before income taxes, we experienced a negative effective income tax benefit rate of 17.6% for the three months ended March 31, 2013, versus our effective income tax benefit rate of 17.1% for the three months ended March 31, 2012. Our negative effective income tax benefit rate for the three months ended March 31, 2013 results principally from interest accruals on our liabilities for uncertain tax positions. Variations in our effective tax rates between the periods principally bear the effects of (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets and (2) intra-period tax allocations associated with our discontinued operations in 2012 as required under GAAP.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $0.4 million and $0.5 million in potential interest and penalties associated with uncertain tax positions during the three months ended March 31, 2013 and 2012, respectively. To the extent such interest and penalties are not assessed as a result of a resolution of the underlying tax position, amounts accrued are reduced and reflected as a reduction of income tax expense. We recognized no such reductions in each of the three months ended March 31, 2013 and 2012.

Fees and Related Income on Earning Assets

The components (in thousands) of our fees and related income on earning assets are as follows:

	For the Three Months Ended March 31,
	2013			2012
Fees on credit products	$	3,916		$	2,963
Changes in fair value of loans and fees receivable recorded at fair value		16,723			55,929
Changes in fair value of notes payable associated with structured financings recorded at fair value		(14,605	)		(9,317	)
Other		772			292
Total fees and related income on earning assets	$	6,806		$	49,867

The above changes in fair value of loans and fees receivable recorded at fair value category excludes the impact of charge offs associated with these receivables which are separately stated on our consolidated statements of operations. See Note 7, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.

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Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on respective line items in consolidated statements of income if an amount being reclassified is required to be reclassified in its entirety to net income. For amounts not required to be reclassified to net income in their entirety in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The new reporting requirements do not change the way in which net income or comprehensive income is derived. The new standard applies to both interim and annual financial statements and is effective for us beginning with this filing. Our adoption of the guidance on January 1, 2013 had no effect on our financial condition, results of operations or liquidity since it impacts disclosures only.

In December 2011, the FASB issued guidance requiring entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Our adoption of the guidance on January 1, 2013 had no effect on our financial condition, results of operations or liquidity since it impacts disclosures only.

Subsequent Events

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after March 31, 2013, and based on our evaluation, we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

3.	Discontinued Operations

In August 2012 we sold our Investments in Previously Charged-Off receivables segment along with our balance transfer card operations. Accordingly, their results of operations are shown as discontinued operations within our consolidated statements of operations for all periods presented. Key components of discontinued operations on our consolidated statements of operations are as follows for the three months ended March 31, 2012:

Net interest income, fees and related income on earning assets	$	15,019
Other operating income		1,132
Other operating expense		10,277
Income before income taxes		5,874
Income tax expense		(2,056	)
Net income	$	3,818
Net income attributable to noncontrolling interests	$	-

4.	Segment Reporting

We operate primarily within one industry consisting of two reportable segments by which we manage our business. Our two reportable segments are: Credit Cards and Other Investments; and Auto Finance.

As of both March 31, 2013 and December 31, 2012, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our 2013 and 2012 revenues associated with our continuing operations were generated outside of the U.S.

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Summary operating segment information (in thousands) is as follows:

	Credit Cards
	and Other			Auto
Three Months Ended March 31, 2013	Investments			Finance			Total
Interest income:
Consumer loans, including past due fees	$	14,044		$	5,780		$	19,824
Other		41			70			111
Total interest income		14,085			5,850			19,935
Interest expense		(5,339	)		(433	)		(5,772	)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable		8,746			5,417			14,163
Fees and related income on earning assets		6,740			66			6,806
Servicing income		2,400			201			2,601
Equity in income of equity-method investees		4,307			-			4,307
Income tax (expense) benefit		(78	)		(368	)		(446	)
(Loss on) income from continuing operations before income taxes	$	(3,971	)	$	1,430		$	(2,541	)
Total assets	$	307,056		$	62,053		$	369,109

	Credit Cards
	and Other			Auto
Three Months Ended March 31, 2012	Investments			Finance			Total
Interest income:
Consumer loans, including past due fees	$	18,694		$	6,436		$	25,130
Other		136			66			202
Total interest income		18,830			6,502			25,332
Interest expense		(7,675	)		(3,176	)		(10,851	)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable		11,155			3,326			14,481
Fees and related income on earning assets		49,540			327			49,867
Servicing income		1,123			141			1,264
Equity in income of equity-method investees		6,017			-			6,017
Income tax benefit (expense)		2,212			(496	)		1,716
Loss on continuing operations before income taxes	$	(8,438	)	$	(1,602	)	$	(10,040	)
Total assets	$	301,278		$	79,148		$	380,426

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5.	Shareholders’ Equity

Retired Shares

During the three months ended March 31, 2013, we repurchased and contemporaneously retired 120,100 shares of our common stock at an aggregate cost of $0.4 million.

6.	Investments in Equity-Method Investees

In the following tables, we summarize (in thousands) combined balance sheet and results of operations data for our equity-method investees:

	As of
	March 31, 2013		December 31, 2012
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	47,662	$	53,375
Investments in non-marketable debt securities, at fair value	$	43,493	$	46,564
Total assets	$	106,354	$	114,375
Notes payable associated with structured financings, at fair value	$	23,720	$	29,279
Total liabilities	$	23,979	$	29,558
Members’ capital	$	82,375	$	84,817

	For the Three Months Ended March 31,
	2013		2012
Net interest income, fees and related income on earning assets	$	8,637	$	14,287
Total other operating income	$	338	$	83
Net income	$	8,414	$	13,490
Net income attributable to investee	$	4,307	$	6,017

As noted above, the above tables include our aforementioned 50.0% interest in the joint venture that purchased in March 2011 the outstanding notes issued out of our U.K. Portfolio structured financing trust. Separate financial data for this entity are as follows:

	As of
	March 31, 2013		December 31, 2012
Investments in non-marketable debt securities, at fair value	$	43,493	$	46,564
Total assets	$	45,042	$	47,125
Total liabilities	$	-	$	-
Members’ capital	$	45,042	$	47,125

	For the Three Months Ended March 31,
	2013		2012
Net interest income, fees and related income on earning assets	$	7,230	$	547
Net income	$	7,219	$	526
Net income attributable to investee	$	3,609	$	520

As noted in Note 8, “Notes Payable,” notes payable with a fair value of $43.5 million correspond with the $43.5 million investment in non-marketable debt securities, at fair value held by our equity method investee as noted in the above table.

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7.	Fair Values of Assets and Liabilities

Valuations and Techniques for Assets

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the March 31, 2013 and December 31, 2012 fair values and carrying amounts (1) of our assets that are required to be carried at fair value in our consolidated financial statements and (2) for our assets not carried at fair value, but for which fair value disclosures are required:

	Quoted Prices in Active		Significant Other		Significant
	Markets for Identical		Observable Inputs		Unobservable		Carrying Amount
Assets – As of March 31, 2013 (1)	Assets (Level 1)		(Level 2)		Inputs (Level 3)		of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value	$	-	$	-	$	76,773	$	51,466
Loans and fees receivable, net for which it is not practicable to estimate fair value (2)	$	-	$	-	$	-	$	19,279
Loans and fees receivable, at fair value	$	-	$	-	$	17,606	$	17,606
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	-	$	-	$	122,976	$	122,976


	Quoted Prices in Active		Significant Other		Significant
	Markets for Identical		Observable Inputs		Unobservable		Carrying Amount
Assets – As of December 31, 2012 (1)	Assets (Level 1)		(Level 2)		Inputs (Level 3)		of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value	$	-	$	-	$	76,384	$	65,198
Loans and fees receivable, net for which it is not practicable to estimate fair value (2)	$	-	$	-	$	-	$	4,427
Loans and fees receivable, at fair value	$	-	$	-	$	20,378	$	20,378
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	-	$	-	$	133,595	$	133,595

(1)	For cash, deposits and other short-term investments, the carrying amount is a reasonable estimate of fair value.

(2)

We do not disclose fair value for this portion of our loans and fees receivable, net because it is not practicable to do so. These loans and fees receivable consist of a variety of receivables that are largely start-up in nature and for which we have neither sufficient history nor a comparable peer group from which we can calculate fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.”

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For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the three months ended March 31, 2013 and March 31, 2012:

				Loans and Fees
				Receivable Pledged as
				Collateral under
	Loans and Fees			Structured
	Receivable, at			Financings, at Fair
	Fair Value			Value			Total
Balance at January 1, 2013	$	20,378		$	133,595		$	153,973
Total gains—realized/unrealized:		-			13,924			13,924
Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value		2,799			-			2,799
Net revaluations of loans and fees receivable, at fair value		(5,571	)		(21,894	)		(27,465	)
Settlements, net		-			(2,649	)		(2,649	)
Impact of foreign currency translation		-			-			-
Net transfers in and/or out of Level 3		-			-			-
Balance at March 31, 2013	$	17,606		$	122,976		$	140,582
Balance at January 1, 2012	$	28,226		$	238,763		$	266,989
Total gains—realized/unrealized:
Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value		-			52,192			52,192
Net revaluations of loans and fees receivable, at fair value		3,737			-			3,737
Settlements, net		(8,453	)		(91,742	)		(100,195	)
Impact of foreign currency translation		-			2,712			2,712
Net transfers in and/or out of Level 3		-			-			-
Balance at March 31, 2012	$	23,510		$	201,925		$	225,435

The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs.

Net Revaluation of Loans and Fees Receivable. We record the net revaluation of loans and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans and fees receivable recorded at fair value.

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For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of March 31, 2013:

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	March 31, 2013				Range
Fair value measurements	(in thousands)		Valuation Technique	Unobservable Input	(Weighted Average)(1)

Loans and fees receivable, at fair value	$	17,606	Discounted cash flows	Gross yield		22.0	%
				Principal payment rate		3.6	%
				Expected credit loss rate		17.0	%
				Servicing rate		11.5	%
				Discount rate		16.0	%
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	122,976	Discounted cash flows	Gross yield	10.5% to 24.8 (19.4		%)
				Principal payment rate	1.5% to 3.2% (2.5		%)
				Expected credit loss rate	10.1% to 22.4% (17.8		%)
				Servicing rate	6.9% to 8.4% (7.8		%)
				Discount rate	16.0% to 16.2% (16.0		%)

(1) Our loans and fees receivable, at fair value consist of a single portfolio with one set of assumptions. As such, no range is given.

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Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the March 31, 2013 and December 31, 2012 fair values and carrying amounts (1) of our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) for our liabilities not carried at fair value, but for which fair value disclosures are required:

	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Carrying Amount
Liabilitiess – As of March 31, 2013	(Level 1)		(Level 2)		(Level 3)		of Liabilities
Liabilities not carried at fair value
CAR revolving credit facility	$	-	$	-	$	20,000	$	20,000
ACC amortizing debt facility	$	-	$	-	$	2,785	$	2,785
Amortizing debt facility	$	-	$	-	$	9,000	$	9,000
Revolving credit facility	$	-	$	-	$	1,895	$	1,895
U.K. Credit card accounts revolving credit facility	$	-	$	-	$	3,445	$	3,445
5.875% Convertible Senior Notes	$	-	$	48,813	$	-	$	94,886
Liabilities carried at fair value
Interest rate swap underlying CAR facility	$	-	$	150	$	-	$	150
Economic sharing arrangement liability	$	-	$	-	$	707	$	707
Notes payable associated with structured financings, at fair value	$	-	$	-	$	129,550	$	129,550


	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Carrying Amount
Liabilities - As of December 31, 2012	(Level 1)		(Level 2)		(Level 3)		of Liabilities
Liabilities not carried at fair value
CAR revolving credit facility	$	-	$	-	$	20,000	$	20,000
ACC amortizing debt facility	$	-	$	-	$	3,896	$	3,896
Revolving credit facility	$	-	$	-	$	1,456	$	1,456
U.K. Credit card accounts revolving credit facility	$	-	$	-	$	1,213	$	1,213
5.875% Convertible Senior Notes	$	-	$	55,787	$	-	$	94,886
Liabilities carried at fair value
Interest rate swap underlying CAR facility	$	-	$	175	$	-	$	175
Economic sharing arrangement liability	$	-	$	-	$	815	$	815
Notes payable associated with structured financings, at fair value	$	-	$	-	$	140,127	$	140,127

Gains and losses associated with fair value changes for our notes payable associated with structured financing liabilities that are carried at fair value are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.” See Note 8, “Notes Payable,” for further discussion on our notes payable.

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For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the three months ended March 31, 2013 and 2012.

	Notes Payable Associated with
	Structured Financings, at Fair Value
	2013			2012
Beginning balance, January 1	$	140,127		$	241,755
Transfers in due to consolidation of equity-method investees		-			-
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value		14,605			9,317
Repayments on outstanding notes payable, net		(22,410	)		(51,136	)
Impact of foreign currency translation		(2,772	)		2,534
Net transfers in and/or out of Level 3		-			-
Ending balance, March 31	$	129,550		$	202,470

The unrealized gains and losses for liabilities within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level 3 liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value. We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations.

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement for the period ended March 31, 2013:

Quantitative information about Level 3 Fair Value Measurements
	Fair Value at
	March 31, 2013				Range
Fair value measurements	(in thousands)		Valuation Technique	Unobservable Input	(Weighted Average)
Notes payable associated with structured financings, at fair value	$	129,550	Discounted cash flows	Gross yield	10.5% to 24.8% (19.4%)
				Principal payment rate	1.5% to 3.2% (2.5%)
				Expected credit loss rate	10.1% to 22.4% (17.8%)
				Discount rate	16.0% to 19.8% (17.4%)

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Other Relevant Data

Other relevant data (in thousands) as of March 31, 2013 and December 31, 2012 concerning certain assets and liabilities we carry at fair value are as follows:

As of March 31, 2013	Loans and Fees Receivable at Fair Value		Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value	$	24,173	$	165,197
Aggregate fair value of loans and fees receivable that are reported at fair value	$	17,606	$	122,976
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	42	$	610
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable	$	1,154	$	7,652

As of December 31, 2012	Loans and Fees Receivable at Fair Value		Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value	$	26,154	$	192,433
Aggregate fair value of loans and fees receivable that are reported at fair value	$	20,378	$	133,595
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	36	$	957
Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable	$	1,643	$	7,591

Notes Payable	Notes Payable Associated with Structured Financings, at Fair Value as of March 31, 2013		Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2012
Aggregate unpaid principal balance of notes payable	$	259,457	$	287,711
Aggregate fair value of notes payable	$	129,550	$	140,127

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8.	Notes Payable

Notes Payable Associated with Structured Financings, at Fair Value

Scheduled (in millions) in the table below are (1) the carrying amounts of structured financing notes secured by certain credit card receivables and reported at fair value as of both March 31, 2013 and December 31, 2012, (2) the outstanding face amounts of structured financing notes secured by certain credit card receivables and reported at fair value as of March 31, 2013, and (3) the carrying amounts of the credit card receivables and restricted cash that provide the exclusive means of repayment for the notes (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of March 31, 2013.

	Carrying Amounts at Fair Value as of
	March 31, 2013		December 31, 2012
Amortizing securitization facility issued out of our upper-tier originated portfolio master trust (stated maturity of June 2013), outstanding face amount of $184.8 million bearing interest at a weighted average 3.7% interest rate, which is secured by credit card receivables and restricted cash aggregating $86.1 million in carrying amount	$	86.1	$	93.6
Amortizing term securitization facility (denominated and referenced in U.K. sterling and a stated maturity of April 2014) issued out of our U.K. Portfolio securitization trust, outstanding face amount of $74.5 million bearing interest at a weighted average 5.3% interest rate, which is secured by credit card receivables and restricted cash aggregating $43.9 million in carrying amount		43.5		46.5
Total structured financing notes reported at fair value that are secured by credit card receivables and to which we are subordinated	$	129.6	$	140.1

Contractual payment allocations within these credit cards receivable structured financings provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us. Each of the structured financing facilities in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreements that allow for acceleration or bullet repayment of the facilities prior to their scheduled expiration dates. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $129.6 million in fair value of structured financing notes in the above table is $130.0 million, which means that our maximum aggregate exposure to pre-tax equity loss associated with the above structured financing arrangements is $0.4 million.

Beyond our role as servicer of the underlying assets within the credit cards receivable structured financings, we have provided no other financial or other support to the structures, and we have no explicit or implicit arrangements that could require us to provide financial support to the structures.

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Notes Payable, at Face Value

Other notes payable outstanding as of March 31, 2013 and December 31, 2012 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in millions); except as otherwise noted, the assets of our parent corporation (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:

	As of
	March 31, 2013		December 31, 2012
Revolving credit facility (expiring October 4, 2014) at a an annual rate equal to 4.75% that is secured by the financial and operating assets of CAR with an aggregate carrying amount of $51.3 million (1)	$	20.0	$	20.0
Amortizing debt facility (expiring December 15, 2014) at a fixed rate of 9.5% at March 31, 2013 that is secured by certain receivables and restricted cash with an aggregate carrying amount of $9.5 million (2)		9.0		-
Amortizing debt facility (expiring November 6, 2016) that is secured by our ACC Auto Finance segment receivables and restricted cash with an aggregate carrying amount of $6.7 million (3)		2.8		3.9
Revolving credit facility that can be drawn to the extent of outstanding eligible principal receivables up to $2.0 million, expiring October 10, 2013 with an annual rate equal to the lender’s cost of funds plus 6.0% (6.8% as of March 31, 2013) (4)		1.9		1.4
Revolving credit facility associated with our credit card accounts in the U.K. that can be drawn to the extent of outstanding eligible principal receivables up to £5.0 million, expiring December 1, 2016 with an annual rate equal to the lender’s cost of funds plus 7.0% (9.8% as of March 31, 2012)		3.4		1.2
Vendor-financed software and equipment purchases (expiring September 2014) at an implied rate of 15%, that are secured by certain equipment		0.1		0.2
Total notes payable outstanding	$	37.2	$	26.7

(1)

Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance operations. The assets of Atlanticus Holdings Corporation are not subject to creditor claims arising due to asset performance-related covenants under this loan.

(2)	Loan is subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could result in required early repayment of the remaining unamortized balance.

(3)

The terms of this lending agreement provided for the application of all excess cash flows from the underlying auto finance receivables portfolio (above and beyond interest costs and contractual servicing compensation to our outsourced third-party servicer) to reduce the outstanding principal balance of the debt, and the outstanding principal balance was repaid in the fourth quarter of 2012. Now that we have repaid the principal portion of the note, the lending agreement requires that we remit 37.5% of future cash flows (net of contractual servicing compensation) generated on the auto finance receivables portfolio to the note holders as additional compensation for the use of their capital. Based on current estimates of this additional compensation, we currently are accruing interest expense on this liability at a 25.8% effective interest rate based on current expectations of future collections; and the amount disclosed in the above table represents our accrued interest expense liability under this lending agreement. The assets of Atlanticus Holdings Corporation are not subject to creditor claims arising under this loan.

(4)

Loan was refinanced in April 2013 to a $2.0 million amortizing structured financing secured by certain receivables. The facility has a variable rate of interest tied to the lender’s cost of funds and matures April 1, 2016. The facility has certain asset performance covenants that if triggered could accelerate the early repayment of the remaining unamortized balance.

In March 2012, we entered into an interest rate swap related to the $20.0 million amount drawn on the CAR facility discussed in the table above. The interest rate swap effectively fixes our interest rate to 4.75% from LIBOR plus 4.0%. We include the fair value of the interest rate swap and changes in its fair value in our consolidated balance sheets and statements of operations, respectively. See Note 7, “Fair Values of Assets and Liabilities,” for more information regarding this interest rate swap.

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9.	Convertible Senior Notes

In May 2005, we issued $250.0 million aggregate principal amount of 3.625% convertible senior notes due 2025 (“3.625% convertible senior notes”), and in November 2005, we issued $300.0 million aggregate principal amount of 5.875% convertible senior notes due 2035 (“5.875% convertible senior notes”). These notes (net of repurchases since the issuance dates) are reflected within convertible senior notes on our consolidated balance sheets. In May of 2012, substantially all of the investors in our 3.625% convertible senior notes exercised then-existing put rights, under which we repaid $83.5 million in face amount of such notes outstanding at par. The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:

	As of
	March 31, 2013			December 31, 2012
Face amount of 3.625% convertible senior notes due 2025	$	450		$	450
Face amount of 5.875% convertible senior notes due 2035		139,467			139,467
Discount		(44,437	)		(44,582	)
Net carrying value	$	95,480		$	95,335
Carrying amount of equity component included in additional paid-in capital	$	108,714		$	108,714
Excess of instruments’ if-converted values over face principal amounts	$	-		$	-

10.	Commitments and Contingencies

General

In the normal course of business through the origination of unsecured credit card receivables, we incur off-balance-sheet risks. These risks include commitments of £1.5 million ($2.2 million) at March 31, 2013 to purchase receivables associated with cardholders who have the right to borrow in excess of their current balances up to the maximum credit limit on their credit card accounts. We have never experienced a situation in which all of our customers have exercised their entire available line of credit at any given point in time, nor do we anticipate this will ever occur in the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit. We also have the effective right to reduce or cancel these available lines of credit at any time. At March 31, 2013, our remaining available lines of credit associated with credit cards related to those issued under programs in the U.K.

Additionally our CAR operations provide floor-plan financing for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The financings allow dealers and finance companies to borrow in excess of their current balances up to the maximum pre-approved credit limit allowed in order to finance ongoing inventory needs. These loans are secured by the underlying auto inventory and in certain cases where we have other lending products outstanding with the dealer, are also secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves. As of March 31, 2013, CAR had unfunded outstanding floor-plan financing commitments totaling $4.8 million. Each draw against unused commitments is reviewed for conformity to pre-established guidelines.

Under our merchant credit products, we give consumers the ability to borrow up to the maximum credit limit assigned to each individual’s account. Our unfunded commitments under these products aggregated $28.9 million at March 31, 2013. We have never experienced a situation in which all of our customers have exercised their entire available line of credit at any given point in time, nor do we anticipate this will ever occur in the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of credit. We also have the effective right to reduce or cancel these available lines of credit at any time.

Atlanticus Services Corporation’s (formerly CompuCredit Corporation and a wholly owned subsidiary of Atlanticus Holdings Corporation) third-party originating financial institution relationships require security (collateral) related to their issuance of credit cards and cardholder purchases thereunder, and notwithstanding the closure of all credit card accounts the receivables of which Atlanticus Services Corporation previously purchased, these institutions hold a remaining $0.2 million of pledged collateral as of March 31, 2013. In addition, in connection with our U.K. Portfolio acquisition, Atlanticus Services Corporation guarantees certain obligations of its subsidiaries and its third-party originating financial institution to one of the European payment systems ($0.2 million as of March 31, 2013). Those obligations include, among other things, compliance with one of the European payment system’s operating regulations and by-laws. Atlanticus Services Corporation also guarantees certain performance obligations of its servicer affiliate to the indenture trustee and the trust created under the structured financing relating to our U.K. Portfolio.

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Under agreements with third-party originating and other financial institutions, we have agreed to (1) indemnify the financial institutions for certain liabilities associated with the financial institutions’ card issuance and other lending activities on our behalf—such indemnification obligations generally being limited to instances in which we either (a) have been afforded the opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial institutions regarding settlement of potentially indemnifiable claims, and (2) certain contingent liabilities (capped at $4.4 million) that could arise for us upon the non-performance by third parties under their financial obligations. As of December 31, 2012, we have assessed the likelihood of any potential payments related to the aforementioned contingencies as remote. We will accrue liabilities related to these contingencies in any future period if and in which we assess the likelihood of an estimable payment as probable.

Total System Services, Inc. provides certain services to Atlanticus Services Corporation as a system of record provider under an agreement that extends through May 2015. If Atlanticus Services Corporation were to terminate its U.S. relationship with Total System Services, Inc. prior to the contractual termination period, it would incur significant penalties ($10.1 million as of December 31, 2012).

We are also subject to certain minimum payments under cancelable and non-cancelable lease arrangements. For further information regarding these commitments See Note 9, “Leases,” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Litigation

We are involved in various legal proceedings that are incidental to the conduct of our business. The most significant of these is described below.

A purported class action lawsuit entitled Knox, et al., vs. First Southern Cash Advance, et al., No. 5 CV 0445, filed in the Superior Court of New Hanover County, North Carolina, on February 8, 2005 named CompuCredit Corporation (now known as Atlanticus Services Corporation) and five of our other subsidiaries as defendants. The plaintiffs allege that in conducting a so-called “payday lending” business, certain subsidiaries within our former Retail Micro-Loans segment (the operations of which were sold in October 2011, subject to our retention of liability for this litigation) violated various laws governing consumer finance, lending, check cashing, trade practices and loan brokering. The plaintiffs further allege that CompuCredit Corporation was the alter ego of the subsidiaries and is liable for their actions. The plaintiffs are seeking damages of up to $75,000 per class member, and attorney’s fees. These claims are similar to those that have been asserted against several other market participants in transactions involving small-balance, short-term loans made to consumers in North Carolina. On January 23, 2012, among other orders, the trial court denied the defendants’ motion to compel arbitration, and granted the plaintiffs’ motion for class certification. We are vigorously defending this lawsuit.

11.	Net Income (Loss) Attributable to Controlling Interests Per Common Share

We compute net income (loss) attributable to controlling interests per common share by dividing income (loss) attributable to controlling interests by the weighted-average common shares (including participating securities) outstanding during the period, as discussed below. Diluted computations applicable in financial reporting periods in which we report income reflect the potential dilution to the basic income per common share computations that could occur if securities or other contracts to issue common stock were exercised, were converted into common stock or were to result in the issuance of common stock that would share in our income or losses. In performing our net income (loss) attributable to controlling interests per common share computations, we apply accounting rules that require us to include all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted calculations. Common stock and unvested share-based payment awards earn dividends equally, and we have included all outstanding restricted stock awards in our basic and diluted calculations for current and prior periods.

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The following table sets forth the computations of net income (loss) per common share (in thousands, except per share data):

	For the Three Months Ended March 31,
	2013			2012
Numerator:
Loss on continuing operations attributable to controlling interests	$	(3,008	)	$	(8,250	)
Income from discontinued operations attributable to controlling interests	$	-		$	3,818
Net loss attributable to controlling interests	$	(3,008	)	$	(4,432	)
Denominator:
Basic (including unvested share-based payment awards) (1)		13,840			21,974
Effect of dilutive stock compensation arrangements (2)		-			83
Diluted (including unvested share-based payment awards) (1)		13,840			22,057
Loss on continuing operations attributable to controlling interests per common share—basic	$	(0.22	)	$	(0.37	)
Loss on continuing operations attributable to controlling interests per common share—diluted	$	(0.22	)	$	(0.37	)

Income from discontinued operations attributable to controlling interests per common share—basic	$	-		$	0.17
Income from discontinued operations attributable to controlling interests per common share—diluted	$	-		$	0.17
Net loss attributable to controlling interests per common share—basic	$	(0.22	)	$	(0.20	)
Net loss attributable to controlling interests per common share—diluted	$	(0.22	)	$	(0.20	)

(1)	Shares related to unvested share-based payment awards we included in our basic and diluted share counts are 197,500 and 92,709 for the three months ended March 31, 2013 and 2012, respectively.

(2)	The effect of dilutive options is shown only for informational purposes where we are in a net loss position. In such situations, the effect of including outstanding options and restricted stock would be anti-dilutive, and they are thus excluded from all loss period calculations.

As their effects were anti-dilutive, we excluded all of our stock options from our net income (loss) per share computations for the three months ended March 31, 2013 and 2012.

For the three months ended March 31, 2013 and 2012, there were no shares potentially issuable and thus includible in the diluted net loss attributable to controlling interests per common share calculation under our 3.625% convertible senior notes due 2025 issued in May 2005 and 5.875% convertible senior notes due 2035 issued in November 2005. However, in future reporting periods during which our closing stock price is above the respective $20.22 and $24.61 conversion prices for the May 2005 and November 2005 convertible senior notes, and depending on the closing stock price at conversion, the maximum potential dilution under the conversion provisions of the May 2005 and November 2005 convertible senior notes is 22,246 and 5.7 million shares, respectively, which could be included in diluted share counts in net income per common share calculations. See Note 9, “Convertible Senior Notes,” for a further discussion of these convertible securities.

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12.	Stock-Based Compensation

We currently have two stock-based compensation plans: the Employee Stock Purchase Plan (the “ESPP”); and the 2008 Equity Incentive Plan (the “2008 Plan”).

The 2008 Plan provides for grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units and incentive awards. The maximum aggregate number of shares of common stock that may be issued under this plan and to which awards may relate is 2,000,000 shares, and 860,518 shares remained available for grant under this plan as of March 31, 2013. Exercises and vestings under our stock-based employee compensation plans resulted in no income tax-related benefits or charges to additional paid-in capital during the three months ended March 31, 2013 and 2012.

Stock Options

Our 2008 Plan and its predecessor plans provide that we may grant options on or shares of our common stock to members of our Board of Directors, employees, consultants and advisors. The exercise price per share of the options may be less than, equal to, or greater than the market price on the date the option is granted. The option period may not exceed 10 years from the date of grant. The vesting requirements for options granted by us range from immediate to 5 years. During the three months ended March 31, 2013 and 2012, we expensed stock option-related compensation costs of $0.0 million and $0.1 million, respectively. We recognize stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award. Information related to options outstanding is as follows:

	For the Three Months Ended March 31, 2013
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average of Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2012		500,000	$	40.99
Issued/Cancelled/Forfeited		-		-
Outstanding at March 31, 2013		500,000	$	40.99		0.1	$	-
Exercisable at March 31, 2013		500,000	$	40.99		0.1	$	-

	For the Three Months Ended March 31, 2012
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average of Remaining Contractual Life		Aggregate