ATLC-2015.03.31-10Q
Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  
FORM 10-Q
 
For the quarterly period ended March 31, 2015
 
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 of the Act, (2) has filed all reports required to be filed by Section 13 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 May 5, 2015, 13,901,480 shares of common stock, no par value, of Atlanticus were outstanding. This excludes 1,459,233 loaned shares to be returned.



Table of Contents

Table of Contents
 

Page
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive Income
 
 
Consolidated Statements of Shareholders' Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
Part II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosure
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
Signatures
 


i

Table of Contents

PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
 
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
 
March 31,
2015
 
December 31,
2014
Assets
 
 
 
Unrestricted cash and cash equivalents
$
31,395

 
$
39,925

Restricted cash and cash equivalents
17,682

 
22,741

Loans and fees receivable:
 

 
 

Loans and fees receivable, net (of $16,790 and $15,730 in deferred revenue and $15,649 and $19,957 in allowances for uncollectible loans and fees receivable at March 31, 2015 and December 31, 2014, respectively)
107,792

 
105,897

Loans and fees receivable, at fair value
13,147

 
18,255

Loans and fees receivable pledged as collateral under structured financings, at fair value
30,743

 
34,905

Rental merchandise, net of depreciation
10,357

 
14,177

Property at cost, net of depreciation
6,799

 
7,036

Investments in equity-method investees
14,437

 
15,833

Deposits
1,026

 
1,589

Prepaid expenses and other assets
16,391

 
7,997

Total assets
$
249,769

 
$
268,355

Liabilities
 

 
 

Accounts payable and accrued expenses
$
36,348

 
$
39,968

Notes payable, at face value
65,237

 
78,749

Notes payable to related parties
20,000

 
20,000

Notes payable associated with structured financings, at fair value
32,294

 
36,511

Convertible senior notes
64,868

 
64,752

Income tax liability
20,736

 
20,933

Total liabilities
239,483

 
260,913

Commitments and contingencies (Note 9)


 


Equity
 

 
 

Common stock, no par value, 150,000,000 shares authorized: 15,376,098 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at March 31, 2015; and 15,308,971 shares issued and outstanding  (including 1,459,233 loaned shares to be returned) at December 31, 2014

 

Additional paid-in capital
210,626

 
210,519

Accumulated other comprehensive loss
(1,068
)
 
(1,841
)
Retained deficit
(199,270
)
 
(201,237
)
Total shareholders’ equity
10,288

 
7,441

Noncontrolling interests
(2
)
 
1

Total equity
10,286

 
7,442

Total liabilities and equity
$
249,769

 
$
268,355


 
See accompanying notes.

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Table of Contents

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
 
For the Three Months Ended March 31,
 
2015
 
2014
Interest income:
 
 
 
Consumer loans, including past due fees
$
17,443

 
$
19,957

Other
32

 
237

Total interest income
17,475

 
20,194

Interest expense
(4,557
)
 
(6,187
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
12,918

 
14,007

Fees and related income on earning assets
13,219

 
32,885

Losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries
10,372

 
(1,885
)
Provision for losses on loans and fees receivable recorded at net realizable value
(3,168
)
 
(7,875
)
Net interest income, fees and related income on earning assets
33,341

 
37,132

Other operating income:
 
 
 
Servicing income
1,560

 
1,240

Other income
267

 
1,067

Equity in income of equity-method investees
1,075

 
2,406

Total other operating income
2,902

 
4,713

Other operating expense:
 
 
 
Salaries and benefits
4,120

 
5,098

Card and loan servicing
10,271

 
13,778

Marketing and solicitation
486

 
762

Depreciation, primarily related to rental merchandise
12,846

 
25,708

Other
7,172

 
5,540

Total other operating expense
34,895

 
50,886

Income (loss) before income taxes
1,348

 
(9,041
)
Income tax benefit (expense)
618

 
(1,982
)
Net income (loss)
1,966

 
(11,023
)
Net loss (income) attributable to noncontrolling interests
1

 
(151
)
Net income (loss) attributable to controlling interests
$
1,967

 
$
(11,174
)
Net income (loss) attributable to controlling interests per common share—basic
$
0.14

 
$
(0.79
)
Net income (loss) attributable to controlling interests per common share—diluted
$
0.14

 
$
(0.79
)

 
See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)

 
For the Three Months Ended March 31,
 
2015
 
2014
Net income (loss)
$
1,966

 
$
(11,023
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(443
)
 
61

Reclassifications of foreign currency translation adjustment to consolidated statements of operations
1,535

 

Income tax (expense) benefit related to other comprehensive income (loss)
(319
)
 
34

Comprehensive income (loss)
2,739

 
(10,928
)
Comprehensive loss (income) attributable to noncontrolling interests
1

 
(151
)
Comprehensive income (loss) attributable to controlling interests
$
2,740

 
$
(11,079
)

 

 

 

 

 

 

 

 

 

 

 

 

 
See accompanying notes.

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Table of Contents

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Equity
For the Three Months Ended March 31, 2015 (Unaudited)
(Dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares Issued
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Deficit
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2014
15,308,971

 
$

 
$
210,519

 
$
(1,841
)
 
$
(201,237
)
 
$
1

 
$
7,442

Compensatory stock issuances, net of forfeitures
88,934

 

 

 

 

 

 

Distributions to owners of noncontrolling interests

 

 

 

 

 
(2
)
 
(2
)
Amortization of deferred stock-based compensation costs

 

 
236

 

 

 

 
236

Redemption and retirement of shares
(21,807
)
 

 
(54
)
 

 

 

 
(54
)
Tax effects of stock-based compensation plans

 

 
(75
)
 

 

 

 
(75
)
Other comprehensive income

 

 

 
773

 
1,967

 
(1
)
 
2,739

Balance at March 31, 2015
15,376,098

 
$

 
$
210,626

 
$
(1,068
)
 
$
(199,270
)
 
$
(2
)
 
$
10,286



See accompanying notes.

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Table of Contents

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
For the Three Months Ended March 31,
 
2015
 
2014
Operating activities
 
 
 
Net income (loss)
$
1,966

 
$
(11,023
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 

 
 

Depreciation of rental merchandise
12,253

 
25,011

Depreciation, amortization and accretion, net
529

 
(131
)
Losses upon charge off of loans and fees receivable recorded at fair value
1,739

 
4,748

Provision for losses on loans and fees receivable
3,168

 
7,875

Interest expense from accretion of discount on convertible senior notes
116

 
158

Income from accretion of discount associated with receivables purchases
(9,375
)
 
(8,209
)
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value
(869
)
 
(3,535
)
Income from equity-method investments
(1,075
)
 
(2,406
)
Changes in assets and liabilities:
 

 
 

Increase in uncollected fees on earning assets
(16
)
 
(11
)
(Decrease) increase in income tax liability
(674
)
 
1,910

Decrease (increase) in deposits
563

 
(15
)
Decrease in accounts payable and accrued expenses
(3,344
)
 
(6,228
)
Additions to rental merchandise
(8,433
)
 
(18,210
)
Other
(5,720
)
 
(3,426
)
Net cash used in operating activities
(9,172
)
 
(13,492
)
Investing activities
 

 
 

(Decrease) increase in restricted cash
5,033

 
(4,579
)
Proceeds from equity-method investees
2,471

 
2,459

Investments in earning assets
(60,586
)
 
(47,695
)
Proceeds from earning assets
72,745

 
62,842

Purchases and development of property, net of disposals
(359
)
 
(1,979
)
Net cash provided by investing activities
19,304

 
11,048

Financing activities
 

 
 

Noncontrolling interests distributions, net
(2
)
 
(145
)
Purchase and retirement of outstanding stock
(54
)
 
(27
)
Proceeds from borrowings
23,132

 
22,998

Repayment of borrowings
(40,974
)
 
(24,100
)
Net cash used in financing activities
(17,898
)
 
(1,274
)
Effect of exchange rate changes on cash
(764
)
 
(22
)
Net decrease in unrestricted cash
(8,530
)
 
(3,740
)
Unrestricted cash and cash equivalents at beginning of period
39,925

 
50,873

Unrestricted cash and cash equivalents at end of period
$
31,395

 
$
47,133

Supplemental cash flow information
 

 
 

Cash paid for interest
$
5,909

 
$
8,134

Net cash income tax payments
$
62

 
$
72

Supplemental non-cash information
 

 
 

Issuance of stock options and restricted stock
$
234

 
$
931

Notes payable associated with capital leases
$

 
$
158


See accompanying notes.

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Table of Contents

Atlanticus Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2015 and 2014
 
1.
Description of Our Business
 
Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the “Company”) and those entities we control. 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 business lines within two reportable segments:  Credit and Other Investments; and Auto Finance. See also Note 3, “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 credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans and fees receivable, net, as shown 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 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, at fair value; and (3) loans and fees receivable pledged as collateral under structured financings, at fair value.

Components of our loans and fees receivable, net (in millions) are as follows:
 
Balance at December 31, 2014
 
Additions
 
Subtractions
 
Balance at March 31, 2015
Loans and fees receivable, gross
$
141.6

 
$
76.3

 
$
(77.7
)
 
$
140.2

Deferred revenue
(15.7
)
 
(10.5
)
 
9.4

 
(16.8
)
Allowance for uncollectible loans and fees receivable
(20.0
)
 
(3.2
)
 
7.6

 
(15.6
)
Loans and fees receivable, net
$
105.9

 
$
62.6

 
$
(60.7
)
 
$
107.8

 
 
Balance at December 31, 2013
 
Additions
 
Subtractions
 
Balance at March 31, 2014
Loans and fees receivable, gross
$
134.7

 
$
65.4

 
$
(71.3
)
 
$
128.8

Deferred revenue
(13.3
)
 
(8.5
)
 
8.2

 
(13.6
)
Allowance for uncollectible loans and fees receivable
(24.2
)
 
(7.9
)
 
9.0

 
(23.1
)
Loans and fees receivable, net
$
97.2

 
$
49.0

 
$
(54.1
)
 
$
92.1



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As of March 31, 2015 and March 31, 2014, the weighted average remaining accretion periods for the $16.8 million and $13.6 million, respectively, of deferred revenue reflected in the above tables were 11 months and 10 months, respectively.
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, 2015
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(2.7
)
 
$
(1.2
)
 
$
(16.1
)
 
$
(20.0
)
Provision for loan losses
 
(0.5
)
 
(0.2
)
 
(2.5
)
 
(3.2
)
Charge offs
 
1.4

 
0.5

 
6.5

 
8.4

Recoveries
 
(0.1
)
 
(0.3
)
 
(0.4
)
 
(0.8
)
Balance at end of period
 
$
(1.9
)
 
$
(1.2
)
 
$
(12.5
)
 
$
(15.6
)
Balance at end of period individually evaluated for impairment
 
$

 
$
(0.1
)
 
$
(1.7
)
 
$
(1.8
)
Balance at end of period collectively evaluated for impairment
 
$
(1.9
)
 
$
(1.1
)
 
$
(10.8
)
 
$
(13.8
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
4.8

 
$
73.4

 
$
62.0

 
$
140.2

Loans and fees receivable individually evaluated for impairment
 
$

 
$
0.2

 
$
2.7

 
$
2.9

Loans and fees receivable collectively evaluated for impairment
 
$
4.8

 
$
73.2

 
$
59.3

 
$
137.3


For the Three Months Ended March 31, 2014
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(11.6
)
 
$
(1.4
)
 
$
(11.2
)
 
$
(24.2
)
Provision for loan losses
 
(4.2
)
 
0.2

 
(3.9
)
 
(7.9
)
Charge offs
 
5.0

 
0.1

 
4.5

 
9.6

Recoveries
 
(0.1
)
 
(0.3
)
 
(0.2
)
 
(0.6
)
Balance at end of period
 
$
(10.9
)
 
$
(1.4
)
 
$
(10.8
)
 
$
(23.1
)
Balance at end of period individually evaluated for impairment
 
$
(0.2
)
 
$

 
$

 
$
(0.2
)
Balance at end of period collectively evaluated for impairment
 
$
(10.7
)
 
$
(1.4
)
 
$
(10.8
)
 
$
(22.9
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
18.5

 
$
59.4

 
$
50.9

 
$
128.8

Loans and fees receivable individually evaluated for impairment
 
$
0.3

 
$

 
$

 
$
0.3

Loans and fees receivable collectively evaluated for impairment
 
$
18.2

 
$
59.4

 
$
50.9

 
$
128.5


    

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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:
 
March 31, 2015
 
December 31, 2014
Current loans receivable
$
119.1

 
$
116.1

Current fees receivable
3.1

 
3.4

Delinquent loans and fees receivable
18.0

 
22.1

Loans and fees receivable, gross
$
140.2

 
$
141.6

 
An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of March 31, 2015 and December 31, 2014 is as follows:
Balance at March 31, 2015
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
 
$
0.3

 
$
4.6

 
$
2.3

 
$
7.2

60-89 days past due
 
0.3

 
1.7

 
1.8

 
3.8

90 or more days past due
 
1.0

 
1.5

 
4.5

 
7.0

Delinquent loans and fees receivable, gross
 
1.6

 
7.8

 
8.6

 
18.0

Current loans and fees receivable, gross
 
3.2

 
65.6

 
53.4

 
122.2

Total loans and fees receivable, gross
 
$
4.8

 
$
73.4

 
$
62.0

 
$
140.2

Balance of loans 90 or more days past due and still accruing interest and fees
 
$

 
$
1.4

 
$

 
$
1.4


Balance at December 31, 2014
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
$
0.4

 
$
6.3

 
$
2.8

 
$
9.5

60-89 days past due
0.4

 
2.1

 
2.2

 
4.7

90 or more days past due
1.6

 
1.7

 
4.6

 
7.9

Delinquent loans and fees receivable, gross
2.4

 
10.1

 
9.6

 
22.1

Current loans and fees receivable, gross
4.3

 
60.6

 
54.6

 
119.5

Total loans and fees receivable, gross
$
6.7

 
$
70.7

 
$
64.2

 
$
141.6

Balance of loans 90 or more days past due and still accruing interest and fees
$

 
$
1.6

 
$

 
$
1.6


Income Taxes
    
We experienced a negative effective income tax expense rate of 45.8% and negative effective income tax benefit rate of 21.9% for the three months ended March 31, 2015 and March 31, 2014, respectively.  Our negative effective income tax expense rate for the three months ended March 31, 2015 resulted principally due to a favorable effective settlement we reached with the Internal Revenue Service (“IRS”) in February, 2015 relative to prior year accruals for uncertain tax positions and interest accruals thereon. The negative effective income tax benefit rate for the three months ended March 31, 2014 resulted principally from the (1) the effects of legislative changes enacted during that period in certain state filing jurisdictions, (2) interest accruals on our liabilities for uncertain tax positions and (3) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets.
 
 We report potential accrued interest and penalties related to our accrued liabilities for uncertain tax positions within our income tax benefit or expense line item on our consolidated statements of operations.  We likewise report the reversal of such accrued interest and penalties within the income tax benefit or expense line item to the extent that we resolve our liabilities for uncertain tax positions in a manner favorable to our accruals therefor. During the three months ended March 31,

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2015, there was no effect of interest and penalties on our income tax expense. In contrast, our income tax benefit was reduced in the three months ended March 31, 2014 by net interest and penalty accruals of $0.6 million.

Fees and Related Income on Earning Assets

The components (in thousands) of our fees and related income on earning assets are as follows:
 
Three months ended March 31,
 
2015
 
2014
Fees on credit products
$
2,174

 
$
5,387

Changes in fair value of loans and fees receivable recorded at fair value
1,231

 
4,692

Changes in fair value of notes payable associated with structured financings recorded at fair value
(362
)
 
(1,157
)
Rental revenue
10,109

 
21,933

Other
67

 
2,030

Total fees and related income on earning assets
$
13,219

 
$
32,885


The above changes in fair value of loans and fees receivable recorded at fair value category exclude the impact of charge offs associated with these receivables which are separately stated on our consolidated statements of operations.  See Note 6, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 establishes a principles-based model under which revenue from a contract is allocated to the distinct performance obligations within the contract and recognized in income as each performance obligation is satisfied. Additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract is also required. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 on its consolidated financial statements.

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, 2015, 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.
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 and Other Investments, and Auto Finance.

As of both March 31, 2015 and December 31, 2014, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our 2015 and 2014 revenues were generated outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.


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Summary operating segment information (in thousands) is as follows:
Three months ended March 31, 2015
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
10,720

 
$
6,723

 
$
17,443

Other
 
32

 

 
32

Total interest income
 
10,752

 
6,723

 
17,475

Interest expense
 
(4,251
)
 
(306
)
 
(4,557
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
6,501

 
$
6,417

 
$
12,918

Fees and related income on earning assets
 
$
13,073

 
$
146

 
$
13,219

Servicing income
 
$
1,359

 
$
201

 
$
1,560

Depreciation of rental merchandise
 
$
(12,253
)
 
$

 
$
(12,253
)
Equity in income of equity-method investees
 
$
1,075

 
$

 
$
1,075

(Loss) income before income taxes
 
$
(579
)
 
$
1,927

 
$
1,348

Income tax benefit (expense)
 
$
1,248

 
$
(630
)
 
$
618

Total assets
 
$
183,219

 
$
66,550

 
$
249,769



Three months ended March 31, 2014
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
14,396

 
$
5,561

 
$
19,957

Other
 
237

 

 
237

Total interest income
 
14,633

 
5,561

 
20,194

Interest expense
 
(5,832
)
 
(355
)
 
(6,187
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
8,801

 
$
5,206

 
$
14,007

Fees and related income on earning assets
 
$
32,802

 
$
83

 
$
32,885

Servicing income
 
$
1,055

 
$
185

 
$
1,240

Depreciation of rental merchandise
 
$
(25,011
)
 
$

 
$
(25,011
)
Equity in income of equity-method investees
 
$
2,406

 
$

 
$
2,406

(Loss) income before income taxes
 
$
(10,063
)
 
$
1,022

 
$
(9,041
)
Income tax expense
 
$
(1,625
)
 
$
(357
)
 
$
(1,982
)
Total assets
 
$
281,700

 
$
56,230

 
$
337,930


4.
Shareholders' Equity
 
Retired Shares
 
During the three months ended March 31, 2015, we repurchased and contemporaneously retired 21,807 shares of our common stock at an aggregate cost of $54,253, pursuant to open market purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the three months ended March 31, 2014, we repurchased and contemporaneously retired 10,781 shares of our common stock at an aggregate cost of $26,629, pursuant to the return of stock by holders of equity incentive awards to pay tax withholding obligations.

We had 1,459,233 loaned shares outstanding at March 31, 2015 and December 31, 2014, which were originally lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned to us.



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Table of Contents

5.
Investments in Equity-Method Investees
 
Our equity-method investments outstanding at March 31, 2015 consist of our 66.7% interest in a joint venture formed to purchase a credit card receivable portfolio. Our 50.0% interest in a joint venture, which was formed to purchase the outstanding notes issued out of the structured financing trust underlying our Non-U.S. Acquired Portfolio, was consolidated as of December 31, 2014. This was a result of our distribution of certain assets to an unrelated third-party partner in that entity for their interest. Accordingly, as of March 31, 2015 and December 31, 2014 only one equity-method investee was included in our financial statements. The results of operations associated with the joint venture prior to consolidation are included in the tables below.

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, 2015
 
December 31, 2014
Loans and fees receivable pledged as collateral under structured financings, at fair value
$
20,538

 
$
22,571

Total assets
$
21,720

 
$
23,831

Total liabilities
$
66

 
$
82

Members’ capital
$
21,654

 
$
23,749

 
Three months ended March 31,
 
2015
 
2014
Net interest income, fees and related income on earning assets
$
1,617

 
$
4,116

Total other operating income
$

 
$
49

Net income
$
1,407

 
$
3,780

Net income attributable to our equity investment in investee
$
1,075

 
$
2,406

 
The above tables include the economics associated with our aforementioned 50.0% interest in the joint venture that purchased in March 2011 the outstanding notes issued out of our Non-U.S. Acquired Portfolio structured financing trust prior to its consolidation in December 2014.  Separate financial data for this entity prior to its consolidation are as follows:
 
As of
 
December 31, 2014
Investments in non-marketable debt securities, at fair value
$

Total assets
$

Total liabilities
$

Members’ capital
$

 
Three Months Ended March 31, 2014
Net interest income, fees and related income on earning assets
$
1,985

Net income
$
1,974

Net income attributable to our equity investment in investee
$
987

    

6.
Fair Values of Assets and Liabilities
 
Valuations and Techniques for Assets
 

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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, 2015 and December 31, 2014 fair values and carrying amounts of (1) our assets that are required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:
Assets – As of March 31, 2015 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$

 
$

 
$
110,744

 
$
104,688

Loans and fees receivable, net for which it is not practicable to estimate fair value (2)
 
$

 
$

 
$

 
$
3,104

Loans and fees receivable, at fair value
 
$

 
$

 
$
13,147

 
$
13,147

Loans and fees receivable pledged as collateral, at fair value
 
$

 
$

 
$
30,743

 
$
30,743


Assets – As of December 31, 2014 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$

 
$

 
$
111,010

 
$
101,753

Loans and fees receivable, net for which it is not practicable to estimate fair value (2)
 
$

 
$

 
$

 
$
4,144

Loans and fees receivable, at fair value
 
$

 
$

 
$
18,255

 
$
18,255

Loans and fees receivable pledged as collateral, at fair value
 
$

 
$

 
$
34,905

 
$
34,905

  
(1)
For cash, deposits and other short-term investments (including our investments in rental merchandise), the carrying amount is a reasonable estimate of fair value.
(2)
We do not provide 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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Table of Contents

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, 2015 and March 31, 2014:
 
Loans and Fees
Receivable, at
Fair Value
 
Loans and Fees
Receivable Pledged as
Collateral under
Structured
Financings, at Fair
Value
 
Total
Balance at January 1, 2015
$
18,255

 
$
34,905

 
$
53,160

Total gains—realized/unrealized:


 


 


Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value

 
1,215

 
1,215

Net revaluations of loans and fees receivable, at fair value
16

 

 
16

Settlements, net
(4,675
)
 
(5,377
)
 
(10,052
)
Impact of foreign currency translation
(449
)
 

 
(449
)
Balance at March 31, 2015
$
13,147

 
$
30,743

 
$
43,890

Balance at January 1, 2014
$
12,080

 
$
88,132

 
$
100,212

Total gains—realized/unrealized:
 

 
 

 
 

Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value

 
2,684

 
2,684

Net revaluations of loans and fees receivable, at fair value
2,008

 

 
2,008

Settlements, net
(2,397
)
 
(11,949
)
 
(14,346
)
Impact of foreign currency translation

 
283

 
283

Balance at March 31, 2014
$
11,691

 
$
79,150

 
$
90,841

  
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, 2015 and December 31, 2014:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at March 31, 2015
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)(1)
Loans and fees receivable, at fair value
 
$
13,147

 
Discounted cash flows
 
Gross yield
 
19.7% to 25.6% (22.2%)

 
 
 

 
 
 
Principal payment rate
 
1.2% to 3.7% (2.3%)

 
 
 

 
 
 
Expected credit loss rate
 
7.0% to 14.4% (10.2%)

 
 
 

 
 
 
Servicing rate
 
5.5% to 15.6% (9.9%)

 
 
 

 
 
 
Discount rate
 
15.9% to 16.2% (16.1%)

Loans and fees receivable pledged as collateral under structured financings, at fair value
 
$
30,743

 
Discounted cash flows
 
Gross yield
 
27.9
%
 
 
 

 
 
 
Principal payment rate
 
2.8
%
 
 
 

 
 
 
Expected credit loss rate
 
13.8
%
 
 
 

 
 
 
Servicing rate
 
11.2
%
 
 
 

 
 
 
Discount rate
 
15.9
%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2014
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)(1)
Loans and fees receivable, at fair value
 
$
18,255

 
Discounted cash flows
 
Gross yield
 
17.9% to 25.6% (21.0%)

 
 
 

 
 
 
Principal payment rate
 
1.5% to 3.6% (2.3%)

 
 
 

 
 
 
Expected credit loss rate
 
7.4% to 13.7% (9.9%)

 
 
 

 
 
 
Servicing rate
 
7.4% to 15.1% (10.5%)

 
 
 

 
 
 
Discount rate
 
15.9% to 16.2% (16.1%)

Loans and fees receivable pledged as collateral under structured financings, at fair value
 
$
34,905

 
Discounted cash flows
 
Gross yield
 
27.2
%
 
 
 

 
 
 
Principal payment rate
 
2.7
%
 
 
 

 
 
 
Expected credit loss rate
 
13.5
%
 
 
 

 
 
 
Servicing rate
 
11.0
%
 
 
 

 
 
 
Discount rate
 
15.9
%

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

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Table of Contents


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, 2015 and December 31, 2014 fair values and carrying amounts of (1) our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which fair value disclosures are required:
Liabilities – As of March 31, 2015
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 
 
 
 
 
 
 
CAR revolving credit facility
 
$

 
$

 
$
29,250

 
$
29,250

ACC amortizing debt facility
 
$

 
$

 
$

 
$

Amortizing debt facilities
 
$

 
$

 
$
29,408

 
$
29,408

Revolving credit facility
 
$

 
$

 
$
4,000

 
$
4,000

U.K. credit card accounts revolving credit facility
 
$

 
$

 
$
2,579

 
$
2,579

Senior secured term loan
 
$

 
$

 
$
20,000

 
$
20,000

5.875% convertible senior notes
 
$

 
$
38,828

 
$

 
$
64,418

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Economic sharing arrangement liability
 
$

 
$

 
$
82

 
$
82

Notes payable associated with structured financings, at fair value
 
$

 
$

 
$
32,294

 
$
32,294


Liabilities - As of December 31, 2014
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
 Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 

 
 

 
 

 
 

CAR revolving credit facility
 
$

 
$

 
$
28,500

 
$
28,500

ACC amortizing debt facility
 
$

 
$

 
$
125

 
$
125

Amortizing debt facilities
 
$

 
$

 
$
42,200

 
$
42,200

Revolving credit facility
 
$

 
$

 
$
4,000

 
$
4,000

U.K. credit card accounts revolving credit facility
 
$

 
$

 
$
3,924

 
$
3,924

Senior secured term loan
 
$

 
$

 
$
20,000

 
$
20,000

5.875% convertible senior notes
 
$

 
$
37,662

 
$

 
$
64,302

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Economic sharing arrangement liability
 
$

 
$

 
$
119

 
$
119

Notes payable associated with structured financings, at fair value
 
$

 
$

 
$
36,511

 
$
36,511

 
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, 2015 and 2014.

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Table of Contents

 
Notes Payable Associated with
Structured Financings, at Fair Value
 
2015
 
2014
Beginning balance, January 1
$
36,511

 
$
94,523

Total (gains) losses—realized/unrealized:
 

 
 

Net revaluations of notes payable associated with structured financings, at fair value
362

 
1,157

Repayments on outstanding notes payable, net
(4,579
)
 
(10,149
)
Impact of foreign currency translation

 
318

Ending balance, March 31
$
32,294

 
$
85,849


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 periods ended March 31, 2015 and December 31, 2014:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at March 31, 2015 (in Thousands)
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
32,294

 
Discounted cash flows
 
Gross yield
 
27.9
%
 
 
 

 
 
 
Principal payment rate
 
2.8
%
 
 
 

 
 
 
Expected credit loss rate
 
13.8
%
 
 
 

 
 
 
Discount rate
 
15.9
%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2014 (in Thousands)
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
36,511

 
Discounted cash flows
 
Gross yield
 
27.2
%
 
 
 

 
 
 
Principal payment rate
 
2.7
%
 
 
 

 
 
 
Expected credit loss rate
 
13.5
%
 
 
 

 
 
 
Discount rate
 
15.9
%


16

Table of Contents

Other Relevant Data
 
Other relevant data (in thousands) as of March 31, 2015 and December 31, 2014 concerning certain assets and liabilities we carry at fair value are as follows:
As of March 31, 2015
 
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
 
$
17,820

 
$
36,527

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
13,147

 
$
30,743

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)
 
$
19

 
$
36

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
 
$
555

 
$
1,355

 
As of December 31, 2014
 
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
 
$
22,785

 
$
41,449

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
18,255

 
$
34,905

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)
 
$
93

 
$
39

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
 
$
647

 
$
1,695


Notes Payable
 
Notes Payable Associated with Structured Financings, at Fair Value as of March 31, 2015
 
Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2014
Aggregate unpaid principal balance of notes payable
 
$
116,656

 
$
121,236

Aggregate fair value of notes payable
 
$
32,294

 
$
36,511



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Table of Contents

7.
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, 2015 and December 31, 2014, (2) the outstanding face amounts of structured financing notes secured by certain credit card receivables and reported at fair value as of March 31, 2015, 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, 2015 and December 31, 2014.
 
Carrying Amounts at Fair Value as of
 
March 31, 2015
 
December 31, 2014
Amortizing securitization facility issued out of our upper-tier originated portfolio master trust (stated maturity of December 2015), outstanding face amount of $116.7 million bearing interest at a weighted average 5.1% interest rate (4.9% as of December 31, 2014), which is secured by credit card receivables and restricted cash aggregating $32.3 million ($36.5 million as of December 31, 2014) in carrying amount
$
32.3

 
$
36.5

Amortizing term securitization facility (denominated and referenced in U.K. sterling and a stated maturity of April 2015) issued out of our Non-U.S. Acquired Portfolio securitization trust

 

Total structured financing notes reported at fair value that are secured by credit card receivables and to which we are subordinated
$
32.3

 
$
36.5

 
In December 2014, the joint venture that was formed to purchase the outstanding notes issued out of the structured financing trust underlying our Non-U.S. Acquired Portfolio was consolidated. This was a result of our distribution of certain assets to an unrelated third-party partner in that entity for their interest.

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 $32.3 million in fair value of structured financing notes in the above table is $32.3 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at March 31, 2015.
 
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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Table of Contents

Notes Payable, at Face Value and Notes Payable to Related Parties
 
Other notes payable outstanding as of March 31, 2015 and December 31, 2014 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 holding company (Atlanticus Holdings Corporation) are subject to creditor claims under these scheduled facilities:
 
As of
 
March 31, 2015
 
December 31, 2014
Revolving credit facilities at a weighted average rate equal to 3.7% (3.7% at December 31, 2014) secured by the financial and operating assets of CAR and another of our borrowing subsidiaries with a combined aggregate carrying amount of $86.4 million ($75.4 million at December 31, 2014)
 
 
 
Revolving credit facility (expiring October 4, 2017) (1) (2)
$
29.2

 
$
28.5

Revolving credit facility (expiring May 17, 2015) (2)
4.0

 
4.0

Amortizing facilities at a weighted average rate equal to 5.2% (5.4% at December 31, 2014) secured by certain receivables, rental streams and restricted cash with a combined aggregate carrying amount of $34.7 million ($42.2 million as of December 31, 2014)
 
 
 
Amortizing debt facility (expiring July 15, 2015) (3)

 
0.5

Amortizing debt facility (expiring August 28, 2015) (3) (4)
15.4

 
7.8

Amortizing debt facility (expiring October 30, 2015) (3) (4)
11.5

 
30.0

Amortizing debt facility (expiring August 1, 2016) (3) (4)
2.5

 
3.9

Other facilities
 
 
 
Senior secured term loan to related parties (expiring November 25, 2015) that is secured by certain assets of the Company with an annual rate equal to 9.0% (5)
20.0

 
20.0

Amortizing debt facility (repaid in March 2015)

 
0.1

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% (9.1% as of March 31, 2015 and 9.2% as of December 31, 2014) secured by certain receivables and restricted cash with a combined aggregate carrying amount of $3.4 million ($4.1 million as of December 31, 2014)
2.6

 
3.9

Total notes payable outstanding
$
85.2

 
$
98.7

 
(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.
(2)
Loans are from the same lender and are cross-collateralized; thus, combined security interests are subject to claims upon the default of either lending arrangement. The assets of Atlanticus Holdings Corporation are not subject to creditor claims arising due to asset performance-related covenants under this loan.
(3)
Loans are 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 balances of the notes.
(4)
These notes were modified to either extend the maturity date, increase the loaned amount or both.
(5)
See Related Party Transactions under Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding this note.
    

8.
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"). The 3.625% convertible senior notes and the 5.875%

19

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convertible senior notes are unsecured, subordinate to existing and future secured obligations and structurally subordinate to existing and future claims of our subsidiaries' creditors. These notes (net of repurchases since the issuance dates) are reflected within convertible senior notes on our consolidated balance sheets.   No put rights exist under our 5.875% convertible senior notes.  

In July 2014 we repurchased $80,000 aggregate principal amount of outstanding 5.875% convertible senior notes for $25,200 In November 2014, we repurchased $46.1 million aggregate principal amount of 5.875% convertible senior notes for $19.1 million plus accrued interest from unrelated third parties. The purchases resulted in an aggregate gain of $12.1 million (net of the notes’ applicable share of deferred costs, which were written off in connection with the repurchase). Upon acquisition, the notes were retired. In April 2015 we notified the remaining holders of the outstanding 3.625% convertible senior notes that we will redeem all outstanding 3.625% convertible senior notes on May 29, 2015. Subsequent to this redemption, only our 5.875% convertible senior notes will remain outstanding.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes:
 
As of
 
March 31, 2015
 
December 31, 2014
Face amount of 3.625% convertible senior notes
$
450


$
450

Face amount of 5.875% convertible senior notes
93,280


93,280

Discount
(28,862
)

(28,978
)
Net carrying value
$
64,868


$
64,752

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
$


$


9.
Commitments and Contingencies
 
General
 
Under our point-of-sale finance 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 $89.5 million at March 31, 2015. 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.
 
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 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 secured by the collateral under those lending arrangements as well, including any outstanding dealer reserves. As of March 31, 2015, CAR had unfunded outstanding floor-plan financing commitments totaling $10.1 million.  Each draw against unused commitments is reviewed for conformity to pre-established guidelines.
 

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Under agreements with third-party originating and other financial institutions we have pledged security (collateral) related to their issuance of consumer credit and purchases thereunder, of which $4.7 million remains pledged to support various ongoing contractual obligations.  In addition, in connection with our Non-U.S. Acquired 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, 2015). 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 Non-U.S. Acquired Portfolio.

Under agreements with third-party originating and other financial institutions, we have agreed to indemnify the financial institutions for certain liabilities associated with the financial institutions’ 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. As of March 31, 2015, 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 in both the U.S. and the U.K. as a system of record provider under agreements that extend through October 2015 and April 2016, respectively. If Atlanticus Services Corporation were to terminate its U.S. or U.K. relationship with Total System Services, Inc. prior to the contractual termination period, it would incur significant penalties ($2.3 million and $1.8 million as of March 31, 2015, respectively).

Currently, HM Revenue and Customs (“HMRC”) within the U.K. is in the preliminary stages of conducting a review principally into filings by one of our U.K. subsidiaries to reclaim valued-added taxes (“VAT”) that it paid on its inputs and that it believed and continues to believe were and are eligible to be reclaimed. Some of these filings have been honored and refunds have therefore been issued to our U.K. subsidiary, and some of the filings have been delayed along with associated refunds pending the outcome of the HMRC review. Given the nature and current early stage of the review and the uncertainties associated therewith, we cannot currently confirm that our U.K. subsidiary will not be required to return to HMRC any VAT refunds it previously received. Accordingly, as of both March 31, 2015 and December 31, 2014 we have accrued a £3.1 million ($4.6 million) liability to HMRC which reflects our current estimate of the potential liability associated with this HMRC review on our future consolidated results of operations or consolidated financial position.

We also are subject to certain minimum payments under cancelable and non-cancelable lease arrangements. For further information regarding these commitments, see Note 8, "Leases" to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Litigation
 
We are involved in various legal proceedings that are incidental to the conduct of our business, none of which are material to us.
 
10.
Net Income (Loss) Attributable to Controlling Interests Per Common Share
 
We compute net income (loss) attributable to controlling interests per common share by dividing net 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 results of operations.  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 certain 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,
 
2015
 
2014
Numerator:
 
 
 
Net income (loss) attributable to controlling interests
$
1,967

 
$
(11,174
)
Denominator:
 

 
 

Basic (including unvested share-based payment awards) (1)
13,923

 
14,081

Effect of dilutive stock compensation arrangements (2)
2

 

Diluted (including unvested share-based payment awards) (1)
13,925

 
14,081

Net income (loss) attributable to controlling interests per common share—basic
$
0.14

 
$
(0.79
)
Net income (loss) attributable to controlling interests per common share—diluted
$
0.14

 
$
(0.79
)

(1)
Shares related to unvested share-based payment awards we included in our basic and diluted share counts are 427,474 for the three months ended March 31, 2015, compared to 567,674 shares for the three months ended March 31, 2014.
(2)
The effect of dilutive stock compensation arrangements 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 included none of our stock options in our net income (loss) per share computations for the three months ended March 31, 2014.
 
For the three months ended March 31, 2015 and 2014, there were no shares potentially issuable and thus includible in the diluted net income (loss) attributable to controlling interests per common share calculations under our 5.875% convertible senior notes. However, in future reporting periods during which our closing stock price is above the $24.61 conversion prices for the 5.875% convertible senior notes, and depending on the closing stock price at conversion, the maximum potential dilution under the conversion provisions of such notes is 3.8 million shares, which could be included in diluted share counts in net income per common share calculations. See Note 8, “Convertible Senior Notes,” for a further discussion of these convertible securities.

11.    Stock-Based Compensation
 
We currently have two stock-based compensation plans, the Employee Stock Purchase Plan (the “ESPP”) and the 2014 Equity Incentive Plan (the “2014 Plan”).  As of March 31, 2015, 41,683 shares remained available for issuance under the ESPP and 637,500 shares remained available for issuance under the 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in $75 thousand in income tax-related charges to additional paid-in capital during the three months ended March 31, 2015 with no such charges or benefits for the three months ended March 31, 2014.

Restricted Stock and Restricted Stock Unit Awards
 
During the three months ended March 31, 2015 and 2014, we granted 88,934 and 80,800 shares of restricted stock (net of any forfeitures), respectively, with aggregate grant date fair values of $0.2 million and $0.3 million, respectively. When we grant restricted stock, we defer the grant date value of the restricted stock and amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the additional paid-in capital component of our consolidated shareholders’ equity. Our restricted stock vests over a range of 12 to 60 months (or other term as specified in the grant) and is amortized to salaries and benefits expense ratably over applicable vesting periods. As of March 31, 2015, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $0.5 million with a weighted-average remaining amortization period of 1.1 years.




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Stock Options
 
Our 2014 Plan provides that we may grant options on or shares of our common stock (and other types of equity awards) 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 5 years from the date of grant.   The vesting requirements for options could range from 0 to 5 years.  We had expense of $70 thousand and $67 thousand related to stock option-related compensation costs during the three months ended March 31, 2015 and 2014, respectively. When applicable, 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:
 
March 31, 2015
 
Number of
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average of Remaining
Contractual Life (in years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014
450,000

 
$
2.52

 

 


Issued

 
$

 

 

Outstanding at March 31, 2015
450,000

 
$
2.52

 
3.9
 
$

Exercisable at March 31, 2015
210,006

 
$
2.53

 
3.9
 
$


We had $0.2 million and $0.6 million of unamortized deferred compensation costs associated with non-vested stock options as of March 31, 2015 and 2014, respectively.


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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following discussion should be read in conjunction with our consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2014, where certain terms (including trust, subsidiary and other entity names and financial, operating and statistical measures) have been defined.
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future events. There are risks, including the factors discussed in “Risk Factors” in Part II, Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations.  For more information, see "Forward-Looking Information" below.  

In this Report, except as the context suggests otherwise, the words “Company,” “Atlanticus Holdings Corporation,” “Atlanticus,” “we,” “our,” “ours” and “us” refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors.

OVERVIEW
 
We are a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market—a market largely represented by credit risks that regulators classify as sub-prime.
 
Currently, within our Credit and Other Investments segment, we are applying the experiences and infrastructure from our 18-year operating history to originate consumer loans through multiple channels, including retail point-of-sale and direct solicitation. In our point-of-sale channel, we partner with retailers and service providers in various industries across the U.S. to provide credit to their customers for the purchase of goods and services or the rental of merchandise to their customers under rent-to-own arrangements. These products are often extended to customers who may have been declined under traditional financing options. We specialize in providing this "second-look" credit service. Using our infrastructure and technology platform, we also provide loan servicing, including underwriting, marketing, customer service and collections operations for third parties. Also through our Credit and Other Investments segment, we engage in testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and infrastructure.

Beyond these activities within our Credit and Other Investments segment, we continue to collect on portfolios of credit card receivables. These receivables include both receivables we originated through third-party financial institutions and portfolios of receivables we purchased from third-party financial institutions. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing.
Additionally, we report within our Credit and Other Investments segment the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer. Prior to December 2014 we also included income from an additional equity-method investee that held structured financing notes underlying credit card receivables for which we are the servicer. This investee was consolidated on our financial statements as of December 31, 2014 subsequent to our distribution of certain assets to an unrelated third-party partner for their interest.

Lastly, we report within our Credit and Other Investments segment, gains associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace peer lending and other financial technologies. These investments are carried at a lower of cost or market valuation, and the remaining associated book value as of March 31, 2015 is negligible given variations in the ascribed values since acquisition. Some of these platforms have raised, and continue to seek, capital at valuations substantially in excess of our associated book value. However, none of these companies are publicly-traded, there is no foreseeable liquidity event, and ascribing value to these investments would be speculative. Based on the performance and/or marketability of these investments in future periods, we could have material gains for our remaining ownership in these or other investment assets.
 
The recurring cash flows we receive within our Credit and Other Investments segment principally include those associated with (1) our point-of-sale and direct-to-consumer finance activities, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

We historically financed most of our credit card receivables through the asset-backed securitization markets. These markets deteriorated significantly in 2008, and the level of “advance rates,” or leverage against credit card receivable assets, in

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the current asset-backed securitization markets is below pre-2008 levels. Considering this reality coupled with constraints on credit card asset returns in the U.S., we no longer market or maintain open credit card accounts in the U.S. We do believe, however, that our point-of-sale and direct-to-consumer finance activities are generating and will continue to generate attractive returns on assets, thereby allowing us to secure debt financing under terms and conditions (including advance rates and pricing) that will allow us to achieve our desired returns on equity, and we continue to pursue growth in this area.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and/or service loans secured by automobiles from or for, and also 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. We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment, we are collecting on portfolios of auto finance receivables that we previously originated through franchised and independent auto dealers in connection with prior business activities, as well as providing certain lending products in addition to our traditional loans secured by automobiles.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including:  (1) the expansion of our point-of-sale and direct-to-consumer finance products; (2) the acquisition of additional financial assets associated with our point-of-sale finance activities as well as the acquisition of receivables portfolios; (3) investments in other assets or businesses that are not necessarily financial services assets or businesses; (4) the repurchase of our convertible senior notes and other debt or our outstanding common stock; and (5) the servicing of receivables and related financial assets for third parties (and in which we have limited or no equity interests) to allow us to leverage our expertise and infrastructure.


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CONSOLIDATED RESULTS OF OPERATIONS

 
 
 
 
 
Income
 
For the Three Months Ended March 31,
 
Increases (Decreases)
(In Thousands)
2015
 
2014
 
from 2014 to 2015
Total interest income
$
17,475

 
$
20,194

 
$
(2,719
)
Interest expense
(4,557
)
 
(6,187
)
 
1,630

Fees and related income on earning assets:
 
 
 
 
 
Fees on credit products
2,174

 
5,387

 
(3,213
)
Changes in fair value of loans and fees receivable recorded at fair value
1,231

 
4,692

 
(3,461
)
Changes in fair value of notes payable associated with structured financings recorded at fair value
(362
)
 
(1,157
)
 
795

Rental revenue
10,109

 
21,933

 
(11,824
)
Other
67

 
2,030

 
(1,963
)
Other operating income:
 
 
 
 
 
Servicing income
1,560

 
1,240

 
320

Other income
267

 
1,067

 
(800
)
Equity in income equity-method investees
1,075

 
2,406

 
(1,331
)
Total
$
29,039

 
$
51,605

 
$
(22,566
)
Losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries
(10,372
)
 
1,885

 
12,257