form10q.htm
 
 
 
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
For the quarterly period ended March 31, 2013
 
of

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.)

 
 

 
 
 

 
 
Table of Contents
 
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.
26
 
Item 3.
42
 
Item 4.
Controls and Procedures                                                                                                                   
42
 
PART II. OTHER INFORMATION
       
 
Item 1.
Legal Proceedings                                                                                                                   
43
 
Item 1A.
Risk Factors                                                                                                                   
43
 
Item 2.
52
 
Item 3.
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.
 
 
1

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.
 
 
2


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.
 
 
3

 
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.
 
 
4

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.
 
 
5

 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.
 
6

 
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  
 
 
 
7

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  
 
 
 
8

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.
 
 
9

 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.
 
 
10

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  
 
 
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.
 
 
12

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.”
 
 
13

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.
 
 
14

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.
 
 
15

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.
 
 
16

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%)
 
 
17

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  
 
 
18

 
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.
 
 
19

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