Atlanticus Holdings Corporation
Annual Report 2015

Plain-text annual report

2015 Annual Report  SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K For the year ended December 31, 2015 of ATLANTICUS HOLDINGS CORPORATION a Georgia Corporation IRS Employer Identification No. 58-2336689 SEC File Number 0-53717 Five Concourse Parkway, Suite 300 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 believes that its executive officers, directors and 10% beneficial owners subject to Section 16(a) of the Act complied with all applicable filing requirements during 2015, except as set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in Atlanticus’ Proxy Statement for the 2016 Annual Meeting of Shareholders. Atlanticus is a smaller reporting company and is not a shell company. The aggregate market value of Atlanticus’ common stock (based upon the closing sales price quoted on the NASDAQ Global Select Market) held by non-affiliates as of June 30, 2015 was $18.3 million. (For this purpose, directors, officers and 10% shareholders have been assumed to be affiliates, and we also have excluded 1,459,233 loaned shares at June 30, 2015.) As of March 22, 2016, 13,903,827 shares of common stock, no par value, of Atlanticus were outstanding. This excludes 1,459,233 loaned shares to be returned. DOCUMENTS INCORPORATED BY REFERENCE Portions of Atlanticus’ Proxy Statement for its 2016 Annual Meeting of Shareholders are incorporated by reference into Part III. Table of Contents Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Part II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Part III Item 10. Item 11. Item 12. Item 13. Item 14. Part IV Item 15. Exhibits and Financial Statement Schedules Page 1 7 17 17 17 17 18 18 19 36 36 36 36 36 37 37 37 37 37 38 i 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. Atlanticus owns Aspire®, Emerge®, Fortiva®, Imagine®, Salute®, Tribute® and other trademarks and service marks in the United States ("U.S.") and the United Kingdom ("U.K."). Cautionary Notice Regarding Forward-Looking Statements We make forward-looking statements in this Report and in other materials we file with the Securities and Exchange Commission (“SEC”) or otherwise make public. In this Report, both Item 1, "Business," and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking statements. In addition, our senior management might make forward-looking statements to analysts, investors, the media and others. Statements with respect to expected revenue; income; receivables; income ratios; net interest margins; long-term shareholder returns; acquisitions and other growth opportunities; divestitures and discontinuations of businesses; loss exposure and loss provisions; delinquency and charge-off rates; the effects of account actions we may take or have taken; changes in collection programs and practices; changes in the credit quality and fair value of our credit card loans and fees receivable and the fair value of their underlying structured financing facilities; the impact of actions by the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve Board, Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”) and other regulators on both us, banks that issue credit cards and other credit products on our behalf, and merchants that participate in our point-of-sale finance operations; account growth; the performance of investments that we have made; operating expenses; the impact of bankruptcy law changes; marketing plans and expenses; the performance of our Auto Finance segment; our plans in the U.K.; the impact of our credit card receivables on our financial performance; the sufficiency of available capital; the prospect for improvements in the capital and finance markets; future interest costs; sources of funding operations and acquisitions; growth and profitability of our point-of-sale finance operations; our entry into international markets; our ability to raise funds or renew financing facilities; share repurchases or issuances; debt retirement; the results associated with our equity- method investees; our servicing income levels; gains and losses from investments in securities; experimentation with new products and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels. Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors” set forth in Part I, Item 1A, and the risk factors and other cautionary statements in other documents we file with the SEC, including the following: • • • • • • • • • • the availability of adequate financing to support growth; the extent to which federal, state, local and foreign governmental regulation of our various business lines and products limits or prohibits the operation of our businesses; current and future litigation and regulatory proceedings against us; the effect of adverse economic conditions on our revenues, loss rates and cash flows; competition from various sources providing similar financial products, or other alternative sources of credit, to consumers; the adequacy of our allowances for uncollectible loans and fees receivable and estimates of loan losses used within our underwriting and analyses; the possible impairment of assets; our ability to manage costs in line with the expansion or contraction of our various business lines; our relationship with the merchants that participate in our point-of-sale finance operations and the banks that provide certain services that are needed to operate our business lines; and theft and employee errors. Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward- looking statements. There also are other factors that we may not describe (because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations. ii We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. iii PART I ITEM 1. BUSINESS General A general discussion of our business follows. For additional information about our business, please visit our website at www.Atlanticus.com. Information contained on or available through our website is not incorporated by reference in this Report. We are a Georgia corporation formed in 2009, as successor to an entity that commenced operations in 1996. We provide various credit and related financial services and products primarily to or associated with the financially underserved consumer credit market. We utilize proprietary analytics and a flexible technology platform to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market. Currently, within our Credit and Other Investments segment, we are applying the experiences gained and infrastructure built from funding over $25 billion in consumer loans over our 19-year operating history to originate a range of consumer loan products through our primary consumer brand, Fortiva. As part of this brand, we market Fortiva Retail Credit, Fortiva Personal Loans and Fortiva Credit Cards through multiple channels, including retail point-of-sale, direct mail solicitation, Internet-based marketing and partnerships with third parties who have relationships with our core customers. In our point-of-sale channel, we partner with retailers and service providers in various industries across the U.S. to offer Fortiva Retail Credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, educational services and home-improvements. Our flexible technology platform allows us to integrate our paperless process and instant decision-making capabilities with our partners' technology infrastructure. 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. Additionally, we are able to market our general purpose Fortiva Personal Loans and Fortiva Credit Cards directly to consumers through additional channels, which enables us to reach consumers through a diverse origination platform that includes direct mail, Internet-based marketing and through partnerships. Our technology platform and proprietary analytics enable us to make instant credit decisions utilizing hundreds of inputs, from multiple sources and thereby offer credit to consumers overlooked by traditional providers of credit. By offering a range of products through a multitude of channels, we seek to provide the right type of credit, whenever and wherever the consumer has a need. 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. 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 lending and other financial technologies. These investments are carried at the lower of cost or market valuation, and the remaining associated book value as of December 31, 2015 is negligible given variations in the ascribed values since acquisition. Some of these investees 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 are no pending liquidity events, and ascribing value to these investments at this time 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. 1 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 the current asset-backed securitization markets is below pre-2008 levels. 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 providing certain installment lending products in addition to our traditional loans secured by automobiles. We closely monitor and manage our expenses based on current product offerings (and in recent years have significantly reduced our overhead infrastructure which was built to accommodate higher account originations and managed receivables levels). As such, we are maintaining our infrastructure and incurring increased overhead and other costs in order to expand point-of-sale and direct-to-consumer finance solutions and new product offerings that we believe have the potential to grow into our infrastructure and allow for long-term shareholder returns. 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. Credit and Other Investments Segment. Our Credit and Other Investments segment includes our point-of-sale and direct-to-consumer finance operations, investments in and servicing of our various credit card receivables portfolios and other product development and limited investment in consumer finance technology platforms that generally capitalize on our credit infrastructure. As previously discussed, through our Fortiva brand (Fortiva Retail Credit, Fortiva Personal Loan, and Fortiva Credit Card) we offer a broad array of products over multiple channels. We leverage proprietary analytics and a robust technology platform to offer loan products to consumers overlooked by other providers of consumer credit. Through Fortiva Retail Credit (our "point-of-sale" operations), we leverage our flexible technology platform to allow retail partners and service providers to offer loan options to their customers who have typically been declined by a primary lender. Our paperless process, instant decision-making and analytical capabilities enable a streamlined customer experience and increased sales for our retail partners. We leverage the same proprietary analytics and infrastructure to offer general purpose loan products directly to consumers through Fortiva Personal Loans and Fortiva Credit Cards (our "direct-to-consumer" products). We reach these consumers through a diverse origination platform that includes direct mail, Internet-based marketing and partnerships. Our growing portfolio of finance assets are generating and we believe 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. Substantially all of the credit card accounts underlying our credit card receivables and portfolios have been closed to new cardholder purchases since 2009. We continue to service our credit card portfolios as they continue to liquidate. Our credit and other operations are heavily regulated, which may cause us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices. We have made several significant changes to our practices over the past several years, and because our account management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices, some of which may produce positive, and others of which may produce adverse, effects on our operating results and financial position. Customers at the lower end of the credit score range intrinsically have higher loss rates than do customers at the higher end of the credit score range. As a result, we price our products to reflect this higher loss rate. As such, our products are subject to greater regulatory scrutiny than the products of prime lenders who are able to price their credit products at much lower levels than we can. See “Consumer and Debtor Protection Laws and Regulations—Credit and Other Investments Segment” and Item 1A, “Risk Factors.” 2 Auto Finance Segment. The operations of our Auto Finance segment are principally conducted through our CAR platform, which we acquired in April 2005. CAR primarily purchases and/or services loans secured by automobiles from or for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. In 2010, we started offering floor-plan financing to this same group of dealers and finance companies. In 2013 we also started offering certain installment lending products in addition to our traditional loans secured by automobiles. While this product represented less than 15% of CAR's net outstanding receivables as of December 31, 2015, we seek to grow the volume of these loans in the coming quarters. Through our CAR operations, we generate revenues on purchased loans through interest earned on the face value of the installment agreements combined with the accretion of discounts on loans purchased. We generally earn discount income over the life of the applicable loan. Additionally, we generate revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third parties. We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our servicing of auto loans for a fee. As of December 31, 2015, our CAR operations served more than 590 dealers in 34 states, the District of Columbia and two U.S. territories. These operations continue to perform well in the current environment (achieving consistent profitability and generating positive cash flows with modest growth). How Do We Manage the Accounts and Mitigate Our Risks? Credit and Other Investments Segment. We manage accounts using credit behavioral scoring, credit file data and our proprietary risk evaluation systems. These strategies include the management of transaction authorizations, account renewals, over-limit accounts, credit line modifications and collection programs. We use an adaptive control system to translate our strategies into account management processes. The system enables us to develop and test multiple strategies simultaneously, which allows us to continually refine our account management activities. We have incorporated our proprietary risk scores into the control system, in addition to standard credit behavior scores used widely in the industry, in order to segment, evaluate and manage the accounts. We believe that by combining external credit file data along with historical and current customer activity, we are able to better predict the true risk associated with current and delinquent accounts. For our point-of-sale and direct-to-consumer finance activities as well as the accounts that are open to purchases, we generally seek to manage credit lines to reward financially underserved customers who are performing well and to mitigate losses from delinquent customer segments. We also employ strategies to reduce otherwise open credit lines for customers demonstrating indicators of increased credit or bankruptcy risk. Data relating to account performance are captured and loaded into our proprietary database for ongoing analysis. We adjust account management strategies as necessary, based on the results of such analyses. Additionally, we use industry-standard fraud detection software to manage the portfolio. We route accounts to manual work queues and suspend charging privileges if the transaction-based fraud models indicate a probability of fraudulent use. Auto Finance Segment. Our CAR operations manage credit quality and loss mitigation at the dealer portfolio level through the implementation of dealer-specific loss reserve accounts. In most instances, the reserve accounts are cross- collateralized across all accounts presented by any single dealer. CAR monitors performance at the dealer portfolio level (by product type) to adjust pricing or the reserve account or to determine whether to terminate future account purchases from such dealer. CAR provides dealers with specific purchase guidelines based upon each product offering and delegates approval authority to assist in the monitoring of transactions during the loan acquisition process. Dealers are subject to specific approval criteria, and individual accounts typically are verified for accuracy before, during and after the acquisition process. Dealer portfolios across the business segment are monitored and compared against expected collections and peer dealer performance. Monitoring of dealer pool vintages, delinquencies and loss ratios helps determine past performance and expected future results, which are used to adjust pricing and reserve requirements. Our CAR operations also manage risk through diversifying their receivables among multiple dealers. How Do We Collect from Our Customers? Credit and Other Investments Segment. The goal of the collections process is to collect as much of the money that is owed to us in the most cost-effective and customer-friendly manner possible. To this end, we employ the traditional cross- section of letters and telephone calls to encourage payment. We also sometimes offer customers flexibility with respect to the application of payments in order to encourage larger or prompter payments. For instance, in certain cases we may vary from our general payment application priority (i.e., of applying payments first to finance charges, then to fees, and then to principal) by agreeing to apply payments first to principal and then to finance charges and fees or by agreeing to provide payments or 3 credits of finance charges and principal to induce or in exchange for an appropriate customer payment. Application of payments in this manner also permits our collectors to assess real time the degree to which a customer’s payments over the life of an account have covered the principal credit extensions to the customer. This allows our collectors to readily identify our potential economic loss associated with the charge off of a particular account (i.e., the excess of principal loaned to the customer over payments received back from the customer throughout the life of the account). Our selection of collection techniques, including, for example, the order in which we apply payments or the provision of payments or credits to induce or in exchange for customer payment, impacts the statistical performance of our portfolios that we reflect under the “Credit and Other Investments Segment” caption within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our collectors employ various and evolving tools when engaging with our customers, and they routinely test and evaluate new tools in their effort toward improving our collections with a greater degree of efficiency. These tools include programs under which we may reduce or eliminate a customer’s annual percentage rate (“APR”) or waive a certain amount of accrued fees, provided the customer makes a minimum number or amount of payments. In some instances, we may agree to match a customer’s payments, for example, with commensurate payments or reductions of finance charges or waivers of fees. In other situations, we may actually settle with customers and adjust their finance charges and fees, for example, based on their commitment and their follow through on their commitment to pay certain portions of the balances they owe. Our collectors may also decrease a customer’s minimum payment under certain collection programs. Additionally, we employ re-aging techniques as discussed below. We also may occasionally use our marketing group to assist in determining various programs to assist in the collection process. Moreover, we voluntarily participate in the Consumer Credit Counseling Service (“CCCS”) program by waiving a certain percentage of a customer’s debt that is considered our “fair share” under the CCCS program. All of our programs are utilized based on the degree of economic success they achieve. We regularly monitor and adapt our collection strategies, techniques, technology and training to optimize our efforts to reduce delinquencies and charge offs. We use our operations systems to develop these proprietary collection strategies and techniques, and we analyze the output from these systems to identify the strategies and techniques that we believe are most likely to result in curing a delinquent account in the most cost-effective manner, rather than treating all accounts the same based on the mere passage of time. As in all aspects of our risk management strategies, we compare the results of each of the above strategies with other collection strategies and devote resources to those strategies that yield the best results. Results are measured based on, among other things, delinquency rates, expected losses and costs to collect. Existing strategies are then adjusted based on these results. We believe that routinely testing, measuring and adjusting collection strategies results in lower bad debt losses and operating expenses. We discontinue charging interest and fees for most of our credit products when loans and fees receivable become contractually 90 or more days past due and we charge off loans and fees receivable when they become contractually more than 180 days past due or 120 days past due for the point-of-sale and direct-to-consumer installment finance products. For our rent- to-own products, we charge off receivables and impair associated rental merchandise if the customer has not made a payment within the previous 90 days. However, if a customer makes a payment greater than or equal to two minimum payments within a month of the charge-off date, we may reconsider whether charge-off status remains appropriate. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full. Our determination of whether an account is contractually past due is relevant to our delinquency and charge-off data included under the “Credit and Other Investments Segment” caption within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Various factors are relevant in analyzing whether an account is contractually past due (e.g., whether an account has not satisfied its minimum payment due requirement), which for us is the trigger for moving receivables through our various delinquency stages and ultimately to charge-off status. For our point-of-sale and direct- to-consumer finance accounts, we consider an account to be delinquent if the customer has not made any required payment as of the payment due date. Accounts under our rent-to-own program are considered delinquent if the customer has not made full payment of any rental amount by the due date and has not returned the rental equipment to us. For credit card accounts, we consider a cardholder’s receivable to be delinquent if the cardholder has failed to pay a minimum amount, computed as the greater of a stated minimum payment or a fixed percentage of the statement balance (for example 3% to 10% of the outstanding balance in some cases or in other cases 1% of the outstanding balance plus any finance charges and late fees billed in the current cycle). Additionally, we may re-age customer accounts that meet our qualifications for re-aging. Re-aging involves changing the delinquency status of an account. It is our policy to work cooperatively with customers demonstrating a willingness and 4 ability to repay their indebtedness and who satisfy other criteria, but are unable to pay the entire past due amount. Generally, to qualify for re-aging, an account must have been opened for at least nine months and may not be re-aged more than once in a twelve-month period or twice in a five-year period. In addition, an account on a workout program may qualify for one additional re-age in a five-year period. The customer also must have made three consecutive minimum monthly payments or the equivalent cumulative amount in the last three billing cycles. If a re-aged account subsequently experiences payment defaults, it will again become contractually delinquent and will be charged off according to our regular charge-off policy. The practice of re-aging an account may affect delinquencies and charge offs, potentially delaying or reducing such delinquencies and charge offs. Auto Finance Segment. Accounts that CAR purchases from approved dealers initially are collected by the originating branch or service center location using a combination of traditional collection practices. The collection process includes contacting the customer by phone or mail, skip tracing and using starter interrupt devices to minimize delinquencies. Uncollectible accounts in our CAR operation generally are returned to the dealer under an agreement with the dealer to charge the balance on the account against the dealer’s reserve account. We generally do not repossess autos in our CAR operation as a result of the agreements that we have with the dealers unless there are insufficient dealer reserves to offset the loss or if a dealer instructs us to do so. Consumer and Debtor Protection Laws and Regulations Credit and Other Investments Segment. Our U.S. business is regulated directly and indirectly under various federal and state consumer protection, collection and other laws, rules and regulations, including the federal Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”), the federal Wall Street Reform and Consumer Protection Act, the federal Truth In Lending Act (“TILA”), the federal Equal Credit Opportunity Act, the federal Fair Credit Reporting Act, the federal Fair Debt Collection Practices Act, the Federal Trade Commission ("FTC") Act, the federal Gramm-Leach-Bliley Act and the federal Telemarketing and Consumer Fraud and Abuse Prevention Act. These laws, rules and regulations, among other things, impose disclosure requirements when consumer products are advertised, when an account is opened, when monthly billing statements are sent and when consumer obligations are collected. In addition, various statutes limit the liability of consumers for unauthorized use, prohibit discriminatory practices in consumer transactions, impose limitations on the types of charges that may be assessed and restrict the use of consumer credit reports and other account-related information. Many of our products are designed for customers at the lower end of the credit score range. We price our products to reflect the higher credit risk of our customers. Because of the inherently greater credit risks of these customers and the resulting higher interest and fees, we and our finance partners are subject to significant regulatory scrutiny. If regulators, including the FDIC (which regulates bank lenders), the CFPB and the FTC, object to the terms of these products, or to our marketing or collection practices, we could be required to modify or discontinue certain products or practices. In the U.K., our operations are subject to U.K. regulations that provide similar consumer protections to those provided under the U.S. regulatory framework. We are licensed and regulated by the Financial Conduct Authority ("FCA"), and we are governed by an extensive legislative and regulatory framework that includes the Consumer Credit Act, the Data Protection Act, Privacy and Electronic Communications Regulations, Consumer Protection and Unfair Trading regulations, Financial Services (Distance Marketing) Regulations, the Enterprise Act, Money Laundering Regulations, Financial Ombudsman Service and Advertising Standards Authority adjudications. The aforementioned legislation and regulations impose strict rules on the form and content of consumer contracts, the calculation and presentation of annual percentage rates ("APRs"), advertising in all forms, parties who can be contacted and disclosures to consumers, among others. The regulators, such as the FCA, provide guidance on consumer credit practices including collections. The FCA requires a comprehensive licensing process. We are currently undertaking steps to ensure that we continue to remain in compliance with all regulations. Auto Finance Segment. This segment is regulated directly and indirectly under various federal and state consumer protection and other laws, rules and regulations, including the federal TILA, the federal Equal Credit Opportunity Act, the federal Fair Credit Reporting Act, the federal Fair Debt Collection Practices Act, the federal Gramm-Leach-Bliley Act and the federal Telemarketing and Consumer Fraud and Abuse Prevention Act. In addition, various state statutes limit the interest rates and fees that may be charged, limit the types of interest computations (e.g., interest bearing or pre-computed) and refunding processes, prohibit discriminatory practices in extending credit, impose limitations on fees and other ancillary products and restrict the use of consumer credit reports and other account-related information. Many of the states in which this segment operates have various licensing requirements and impose certain financial or other conditions in connection with these licensing requirements. Privacy and Data Security Laws and Regulations. We are required to manage, use, and store large amounts of personally identifiable information, principally customers’ confidential personal and financial data, in the course of our business. We depend on our IT networks and systems, and those of third parties, to process, store, and transmit that information. In the past, consumer finance companies have been targeted for sophisticated cyber attacks. A security breach 5 involving our files and infrastructure could lead to unauthorized disclosure of confidential information. We take numerous measures to ensure the security of our hardware and software systems as well as customer information. We are subject to various U.S. federal and state laws and regulations designed to protect confidential personal and financial data. For example, we must comply with guidelines under the Gramm-Leach-Bliley Act that require each financial institution to develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue. Additionally, various federal banking regulatory agencies, and at least 48 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security regulations and laws requiring customer notification in the event of a security breach. Competition Credit and Other Investments Segment. We face substantial competition from other consumer lenders, the intensity of which varies depending upon economic and liquidity cycles. Our point-of-sale and direct-to-consumer finance activities, rent- to-own and credit card businesses compete with national, regional and local bankcard and consumer credit issuers, other general-purpose credit card issuers and retail credit card and merchant credit issuers. Many of these competitors are substantially larger than we are, have significantly greater financial resources than we do and have significantly lower costs of funds than we have. Auto Finance Segment. Competition within the auto finance sector is widespread and fragmented. Our auto finance operations target automobile dealers that oftentimes are not capable of accessing indirect lending from major financial institutions or captive finance companies. We compete mainly with a handful of national and regional companies focused on this credit segment (e.g., Credit Acceptance Corporation, Westlake Financial, Mid-Atlantic Finance, Santander Auto Finance, Western Funding Inc., and America’s Car-Mart) and a large number of smaller, regional private companies with a narrow geographic focus. Individual dealers with access to capital may also compete in this segment through the purchase of receivables from peer dealers in their markets. Employees As of December 31, 2015, we had 319 employees, including 7 part-time employees, most of whom are employed within the U.S., principally in Florida and Georgia. Also included in this employee count are 29 employees in the U.K. We consider our relations with our employees to be good. None of our employees are covered by a collective-bargaining agreement, and we have never experienced any organized work stoppage, strike or labor dispute. Trademarks, Trade Names and Service Marks We have registered and continue to register, when appropriate, various trademarks, trade names and service marks used in connection with our businesses and for private-label marketing of certain of our products. We consider these trademarks, trade names and service marks to be readily identifiable with, and valuable to, our business. This Annual Report on Form 10-K also contains trade names and trademarks of other companies that are the property of their respective owners. Additional Information We are headquartered in Atlanta, Georgia, and our principal executive offices are located at Five Concourse Parkway, Suite 300, Atlanta, Georgia 30328. Our headquarters telephone number is (770) 828-2000, and our website is www.Atlanticus.com. We make available free of charge on our website certain of our recent SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those filings as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Certain corporate governance materials, including our Board of Directors committee charters and our Code of Business Conduct and Ethics, are posted on our website under the heading “For Investors.” From time to time, the corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC or NASDAQ, or as desirable to further the continued effective and efficient governance of our company. 6 ITEM 1A. RISK FACTORS An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described below before deciding to invest in our common stock or other securities. If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline and you may lose all or part of your investment. Investors should be particularly cautious regarding investments in our common stock or other securities at the present time in light of the net contraction of our receivables levels over the last few years, uncertainties as to our business model going forward and our inability to achieve consistent earnings from our operations in recent years. Our Cash Flows and Net Income Are Dependent Upon Payments from Our Loans and Fees Receivable and Other Credit Products The collectibility of our loans and fees receivable is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which customers repay their accounts or become delinquent, and the rate at which customers borrow funds from us. Deterioration in these factors, which we have experienced over the past few years, adversely impacts our business. In addition, to the extent we have over-estimated collectibility, in all likelihood we have over-estimated our financial performance. Some of these concerns are discussed more fully below. Our portfolio of receivables is not diversified and originates from customers whose creditworthiness is considered sub-prime. Historically, we have obtained receivables in one of two ways—we have either solicited for the origination of the receivables or purchased pools of receivables from other issuers. In either case, substantially all of our receivables are from financially underserved borrowers—borrowers represented by credit risks that regulators classify as “sub-prime.” Our reliance on sub-prime receivables has negatively impacted and may in the future negatively impact, our performance. Our various past and current losses might have been mitigated had our portfolios consisted of higher-grade receivables in addition to our sub- prime receivables. We may not successfully evaluate the creditworthiness of our customers and may not price our credit products in a profitable manner. The creditworthiness of our target market generally is considered “sub-prime” based on guidance issued by the agencies that regulate the banking industry. Thus, our customers generally have a higher frequency of delinquencies, higher risks of nonpayment and, ultimately, higher credit losses than consumers who are served by more traditional providers of consumer credit. Some of the consumers included in our target market are consumers who are dependent upon finance companies, consumers with only retail store credit cards and/or lacking general purpose credit cards, consumers who are establishing or expanding their credit, and consumers who may have had a delinquency, a default or, in some instances, a bankruptcy in their credit histories, but who, in our view, have demonstrated creditworthiness. We price our credit products taking into account the perceived risk level of our customers. If our estimates are incorrect, customer default rates will be higher, we will receive less cash from the receivables and the value of our loans and fees receivable will decline, all of which will have a negative impact on performance. It also is unclear whether our current payment rates can be sustained given weakness in the employment outlook and economic environment at large. Economic slowdowns increase our credit losses. During periods of economic slowdown or recession, we experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown or recession than those experienced by more traditional providers of consumer credit because of our focus on the financially underserved consumer market, which may be disproportionately impacted. We are subject to foreign economic and exchange risks. Because of our operations in the U.K., we have exposure to fluctuations in the U.K. economy, and such fluctuations recently have been negative. We also have exposure to fluctuations in the relative values of the U.S. dollar and the British pound. Because the British pound has experienced a net decline in value relative to the U.S. dollar since we commenced our most significant operations in the U.K., we have experienced significant transaction and translation losses within our financial statements. Because a significant portion of our reported income is based on management’s estimates of the future performance of our loans and fees receivable, differences between actual and expected performance of the receivables may cause fluctuations in net income. Significant portions of our reported income (or losses) are based on management’s estimates of cash flows we expect to receive on our loans and fees receivable, particularly for such assets that we report based on fair value. The expected cash flows are based on management’s estimates of interest rates, default rates, payment rates, cardholder 7 purchases, servicing costs, and discount rates. These estimates are based on a variety of factors, many of which are not within our control. Substantial differences between actual and expected performance of the receivables will occur and cause fluctuations in our net income. For instance, higher than expected rates of delinquencies and losses could cause our net income to be lower than expected. Similarly, as we have experienced for our credit card receivables portfolios with respect to financing agreements secured by our loans and fees receivable, levels of loss and delinquency can result in our being required to repay our lenders earlier than expected, thereby reducing funds available to us for future growth. Because all of our credit card receivables structured financing facilities are now in amortization status—which for us generally means that the only meaningful cash flows that we are receiving with respect to the credit card receivables that are encumbered by such structured financing facilities are those associated with our contractually specified fee for servicing the receivables—recent payment and default trends have substantially reduced the cash flows that we receive from these receivables. Due to our relative lack of historical experience with Internet customers, we may not be able to target successfully these customers or evaluate their creditworthiness. We have less historical experience with respect to the credit risk and performance of customers acquired over the Internet. As a result, we may not be able to target and evaluate successfully the creditworthiness of these potential customers should we engage in marketing efforts to acquire these customers. Therefore, we may encounter difficulties managing the expected delinquencies and losses and appropriately pricing our products. We Are Substantially Dependent Upon Borrowed Funds to Fund the Receivables We Originate or Purchase We finance our receivables in large part through financing facilities. All of our financing facilities are of finite duration (and ultimately will need to be extended or replaced) and contain financial covenants and other conditions that must be fulfilled in order for funding to be available. Moreover, some of our facilities currently are in amortization stages (and are not allowing for the funding of any new loans) based on their original terms. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry generally and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain. If additional financing facilities are not available in the future on terms we consider acceptable—an issue that has been made even more acute in the U.S. given recent regulatory changes that have reduced asset-level returns on credit card lending— we will not be able to grow our credit card operations and it will continue to contract in size. Our Financial Performance Is, in Part, a Function of the Aggregate Amount of Receivables That Are Outstanding The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment rates, interest rates, seasonality, general economic conditions, competition from credit card issuers and other sources of consumer financing, access to funding, and the timing, extent and success of our marketing efforts. Our credit card operation currently is contracting. Despite our recent origination efforts, growth is a product of a combination of factors, many of which are not in our control. Factors include: • • • • • • • • • • the availability of funding on favorable terms; the level and success of our marketing efforts; the degree to which we lose business to competitors; the level of usage of our credit products by our customers; the availability of portfolios for purchase on attractive terms; levels of delinquencies and charge offs; the level of costs of soliciting new customers; our ability to employ and train new personnel; our ability to maintain adequate management systems, collection procedures, internal controls and automated systems; and general economic and other factors beyond our control. Reliance upon relationships with a few large retailers in our point-of-sale finance operations may adversely affect our revenues and operating results from these operations. Our three largest retail partners accounted for over 45.0% of our point-of-sale finance revenue in 2015. Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’ revenue from a relatively small number of partners in the future. If a significant partner reduces or terminates its relationship with us, these operations’ revenue could decline significantly and our operating results and financial condition could be harmed. 8 We Operate in a Heavily Regulated Industry Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may expose us to litigation, adversely affect our ability to collect our loans and fees receivable, or otherwise adversely affect our operations. Similarly, regulatory changes could adversely affect our ability or willingness to market credit products and services to our customers. Also, the accounting rules that govern our business are exceedingly complex, difficult to apply and in a state of flux. As a result, how we value our receivables and otherwise account for our business is subject to change depending upon the changes in, and, interpretation of, those rules. Some of these issues are discussed more fully below. Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and regulations may result in changes to our business practices, may make collection of account balances more difficult or may expose us to the risk of fines, restitution and litigation. Our operations and the operations of the issuing banks through which we originate some of our credit products are subject to the jurisdiction of federal, state and local government authorities, including the CFPB, the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, U.K. banking authorities, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general. Our business practices, including the terms of our products and our marketing, servicing and collection practices, are subject to both periodic and special reviews by these regulatory and enforcement authorities. These reviews can range from investigations of specific consumer complaints or concerns to broader inquiries into our practices generally. If as part of these reviews the regulatory authorities conclude that we are not complying with applicable law, they could request or impose a wide range of remedies including requiring changes in advertising and collection practices, changes in the terms of our products (such as decreases in interest rates or fees), the imposition of fines or penalties, or the paying of restitution or the taking of other remedial action with respect to affected customers. They also could require us to stop offering some of our products, either nationally or in selected states. To the extent that these remedies are imposed on the issuing banks through which we originate credit products, under certain circumstances we are responsible for the remedies as a result of our indemnification obligations with those banks. We also may elect to change practices or products that we believe are compliant with law in order to respond to regulatory concerns. Furthermore, negative publicity relating to any specific inquiry or investigation could hurt our ability to conduct business with various industry participants or to attract new accounts and could negatively affect our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing business. If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator, or if the CFPB, the FDIC, the FTC or any other regulator requires us to change any of our practices, the correction of such deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition, results of operations or business. In addition, whether or not we modify our practices when a regulatory or enforcement authority requests or requires that we do so, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws. Any failure to comply with legal requirements by us or the issuing banks through which we originate credit products in connection with the issuance of those products, or by us or our agents as the servicer of our accounts, could significantly impair our ability to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment against us or any other industry participant in any litigation of this nature, could adversely affect our business and financial condition in a variety of ways. Our rent-to-own operations are regulated by and subject to the requirements of various federal and state laws and regulations. These laws and regulations, which may be amended or supplemented or interpreted by the courts from time to time, could expose us to significant compliance costs or burdens or force us to change our business practices in a manner that may be materially adverse to our operations, prospects or financial condition. Currently, 47 states and the District of Columbia specifically regulate rent-to-own transactions such as those conducted in our rent-to-own programs. At the present time, no federal law specifically regulates the rent-to-own industry, although federal legislation to regulate the industry has been proposed from time to time. Any adverse changes in existing laws, or the passage of new adverse legislation by states or the federal government could materially increase both our costs of complying with laws and the risk that we could be sued or be subject to government sanctions if we are not in compliance. In addition, new burdensome legislation might force us to change our business model and might reduce the economic potential of our rent-to-own product offerings. Most of the states that regulate rent-to-own transactions have enacted disclosure laws that require rent-to-own companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of any item, any other charges that may be imposed by them and miscellaneous other items. The more restrictive state lease purchase laws limit the total amount that a customer may be charged for an item, or regulate the amount of deemed “interest” that rent-to-own companies may charge on rent-to-own transactions, generally defining “interest” as lease fees paid in excess of the “retail” price of the goods. 9 There has been increased attention in the United States, at both the state and federal levels, on consumer debt transactions in general, which may result in an increase in legislative and regulatory efforts directed at the rent-to-own industry. The federal government or states may enact additional or different legislation or regulation that would be disadvantageous or otherwise materially adverse to us. In addition to the risk of lawsuits related to the laws that regulate rent-to-own and consumer lease transactions, we or our rent-to-own partners could be subject to lawsuits alleging violations of federal and state laws and regulations and consumer tort law, including fraud, consumer protection, information security and privacy laws, because of the consumer-oriented nature of the rent-to-own industry. A large judgment against us could adversely affect our financial condition and results of operations. Moreover, an adverse outcome from a lawsuit, even one against one of our competitors, could result in changes in the way we and others in the industry do business, possibly leading to significant costs or decreased revenues or profitability. We are dependent upon banks to issue credit cards and provide certain other credit products. Our credit card and some of our other credit product programs are dependent on our issuing bank relationships, and their regulators could at any time limit their ability to issue some or all products on our behalf, or that we service on their behalf, or to modify those products significantly. Any significant interruption of those relationships would result in our being unable to originate new receivables and other credit products. It is possible that a regulatory position or action taken with respect to any of the issuing banks through which we have originated credit products or for whom we service receivables might result in the bank’s inability or unwillingness to originate future credit products on our behalf or in partnership with us. In the current state, such a disruption of our issuing bank relationships principally would adversely affect our ability to grow our point-of-sale and direct-to-consumer finance products and other consumer credit offerings and underlying receivables. Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans. Many of these laws (and the related regulations) are focused on sub-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard practices. For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Similarly, in 2009 Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the Federal Reserve recently adopted significant changes to a number of practices through its issuance of regulations. Additionally, the CFPB is expected to be an active issuer of credit-related regulations in the near-term, and the scope and nature of those potential regulations are unknown. While our practices are in compliance with these changes, some of the changes (e.g., limitations on the ability to assess up-front fees) have significantly affected the viability of certain of our prior product offerings within the U.S. Changes in the consumer protection laws could result in the following: • receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors; • we may be required to credit or refund previously collected amounts; • certain fees and finance charges could be limited, prohibited or restricted, which would reduce the profitability of certain accounts; certain of our collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices; limitations on the content of marketing materials could be imposed that would result in reduced success for our marketing efforts; limitations on our ability to recover on charged-off receivables regardless of any act or omission on our part; some of our products and services could be banned in certain states or at the federal level; federal or state bankruptcy or debtor relief laws could offer additional protections to customers seeking bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed to us; and a reduction in our ability or willingness to lend to certain individuals, such as military personnel. • • • • • • Material regulatory developments are likely to adversely impact our business and results from operations. Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein Automobile lending exposes us not only to most of the risks described above but also to additional risks, including the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their repossession and liquidation value as collateral. In addition, our most significant active Auto Finance segment operation acquires loans on a wholesale basis from used car dealers, for which we rely upon the legal compliance and credit determinations by those dealers. 10 Funding for automobile lending may become difficult to obtain and expensive. In the event we are unable to renew or replace any Auto Finance segment facilities that bear refunding or refinancing risks when they become due, our Auto Finance segment could experience significant liquidity constraints and diminution in reported asset values as lenders retain significant cash flows within underlying structured financings or otherwise under security arrangements for repayment of their loans. If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective, we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices. Our automobile lending business is dependent upon referrals from dealers. Currently we provide substantially all of our automobile loans only to or through used car dealers. Providers of automobile financing have traditionally competed based on the interest rate charged, the quality of credit accepted and the flexibility of loan terms offered. In order to be successful, we not only need to be competitive in these areas, but also need to establish and maintain good relations with dealers and provide them with a level of service greater than what they can obtain from our competitors. The financial performance of our automobile loan portfolio is in part dependent upon the liquidation of repossessed automobiles. In the event of certain defaults, we may repossess automobiles and sell repossessed automobiles at wholesale auction markets located throughout the U.S. Auction proceeds from these types of sales and other recoveries rarely are sufficient to cover the outstanding balances of the contracts; where we experience these shortfalls, we will experience credit losses. Decreased auction proceeds resulting from depressed prices at which used automobiles may be sold would result in higher credit losses for us. Repossession of automobiles entails the risk of litigation and other claims. Although we have contracted with reputable repossession firms to repossess automobiles on defaulted loans, it is not uncommon for consumers to assert that we were not entitled to repossess an automobile or that the repossession was not conducted in accordance with applicable law. These claims increase the cost of our collection efforts and, if correct, can result in awards against us. We Routinely Explore Various Opportunities to Grow Our Business, to Make Investments and to Purchase and Sell Assets We routinely consider acquisitions of, or investments in, portfolios and other assets as well as the sale of portfolios and portions of our business. There are a number of risks attendant to any acquisition, including the possibility that we will overvalue the assets to be purchased and that we will not be able to produce the expected level of profitability from the acquired business or assets. Similarly, there are a number of risks attendant to sales, including the possibility that we will undervalue the assets to be sold. As a result, the impact of any acquisition or sale on our future performance may not be as favorable as expected and actually may be adverse. Portfolio purchases may cause fluctuations in our reported Credit and Other Investments segment’s managed receivables data, which may reduce the usefulness of this data in evaluating our business. Our reported Credit and Other Investments segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions. Receivables included in purchased portfolios are likely to have been originated using credit criteria different from the criteria of issuing bank partners that have originated accounts on our behalf. Receivables included in any particular purchased portfolio may have significantly different delinquency rates and charge-off rates than the receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as compared to other similar receivables in our receivables portfolio. These variables could cause our reported managed receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult. Any acquisition or investment that we make will involve risks different from and in addition to the risks to which our business is currently exposed. These include the risks that we will not be able to integrate and operate successfully new businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions, that we will be exposed to, and have to comply with, different regulatory regimes and that we will not be able to apply our traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner. Other Risks of Our Business We are a holding company with no operations of our own. As a result, our cash flow and ability to service our debt is dependent upon distributions from our subsidiaries. The distribution of subsidiary earnings, or advances or other distributions of funds by subsidiaries to us, all of which are subject to statutory and could be subject to contractual restrictions, 11 are contingent upon the subsidiaries’ cash flows and earnings and are subject to various business and debt covenant considerations. Although our Fortiva finance offerings are an important part of our strategic plan, we have limited operating history with these offerings. In late 2013, we expanded into our point-of-sale and direct-to-consumer finance offerings, including our rent-to-own offerings. As with many early stage endeavors, these product offerings may experience under- capitalization, delays, lack of funding, and many other problems, delays, and expenses, many of which are beyond our control. These include, but are not limited to: • • • inability to establish profitable strategic relationships with merchants; inability to raise sufficient capital to fund our anticipated growth in this area; and competition from larger and more established competitors, such as banks and finance companies. Unless we obtain a bank charter, we cannot issue credit cards other than through agreements with banks. Because we do not have a bank charter, we currently cannot issue credit cards other than through agreements with banks. Unless we obtain a bank or credit card bank charter, we will continue to rely upon banking relationships to provide for the issuance of credit cards to our customers. Even if we obtain a bank charter, there may be restrictions on the types of credit that the bank may extend. Our various issuing bank agreements have scheduled expiration dates. If we are unable to extend or execute new agreements with our issuing banks at the expirations of our current agreements with them, or if our existing or new agreements with our issuing banks were terminated or otherwise disrupted, there is a risk that we would not be able to enter into agreements with an alternate provider on terms that we consider favorable or in a timely manner without disruption of our business. We are party to litigation. We are defendants in certain legal proceedings which include litigation customary for a business of our nature. In each case we believe that we have meritorious defenses or that the positions we are asserting otherwise are correct. However, adverse outcomes are possible in these matters, and we could decide to settle one or more of our litigation matters in order to avoid the ongoing cost of litigation or to obtain certainty of outcome. Adverse outcomes or settlements of these matters could require us to pay damages, make restitution, change our business practices or take other actions at a level, or in a manner, that would adversely impact our business. We face heightened levels of economic risk associated with new investment activities. We recently have made a number of investments in businesses that are not directly related to our traditional lending activities to, or associated with, the underserved consumer credit market. In addition, some of these investments that we have made and may make in the future are or will be in debt or equity securities of businesses over which we exert little or no control, which likely exposes us to greater risks of loss than investments in activities and operations that we control. We make only those investments we believe have the potential to provide a favorable return. However, because some of the investments are outside of our core areas of expertise, they entail risks beyond those described elsewhere in this Report. As occurred with respect to certain such investments in 2012 and 2011, these risks could result in the loss of part or all of our investments. Because we outsource account-processing functions that are integral to our business, any disruption or termination of that outsourcing relationship could harm our business. We generally outsource account and payment processing, and in 2015, we paid Total System Services, Inc. $7.1 million for these services. If these agreements were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from an alternative provider. There is a risk that we would not be able to enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner without disruption of our business. If we are unable to protect our information systems against service interruption our operations could be disrupted and our reputation may be damaged. We rely heavily on networks and information systems and other technology, that are largely hosted by third-parties to support our business processes and activities, including processes integral to the origination and collection of loans and other financial products, and information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and legal and tax requirements. Because information systems are critical to many of our operating activities, our business may be impacted by hosted system shutdowns, service disruptions or security breaches. These incidents may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, rogue employees or contractors, cyber-attacks by criminal groups, geopolitical events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to collect payments in a timely manner. We also could be required to spend significant financial and other resources to repair or replace networks and information systems. 12 Unauthorized or unintentional disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation, and civil and criminal penalties. To conduct our business, we are required to manage, use, and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial data regarding our customers across all operations areas. We also depend on our IT networks and systems, and those of third parties, to process, store, and transmit this information. As a result, we are subject to numerous U.S. federal and state laws designed to protect this information. Security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information. We take a number of measures to ensure the security of our hardware and software systems and customer information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect data being breached or compromised. In the past, consumer finance companies have been the subject of sophisticated and highly targeted attacks on their information technology. An increasing number of websites have reported breaches of their security. If any person, including our employees or those of third-party vendors, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. We do not maintain cyber-security insurance liability coverage and as such we are exposed to the financial risk and losses associated with such incidents. Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws. Further, under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit card industry security standards, even if there is no compromise of customer information, we could incur significant fines. Security breaches could also harm our reputation with our customers, which could potentially cause decreased revenues, the loss of existing merchant credit partners, or difficulty in adding new merchant credit partners. Internet and data security breaches also could impede us from originating loans over the Internet, cause us to lose customers or otherwise damage our reputation or business. Consumers generally are concerned with security and privacy, particularly on the Internet. As part of our growth strategy, we have originated loans over the Internet. The secure transmission of confidential information over the Internet is essential to maintaining customer confidence in our products and services offered online. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect customer application and transaction data transmitted over the Internet. In addition to the potential for litigation and civil penalties described above, security breaches could damage our reputation and cause customers to become unwilling to do business with us, particularly over the Internet. Any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. Our ability to solicit new loans over the Internet would be severely impeded if consumers become unwilling to transmit confidential information online. Also, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business. Regulation in the areas of privacy and data security could increase our costs. We are subject to various regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations. For example, we are subject to the safeguards guidelines under the Gramm-Leach-Bliley Act. The safeguards guidelines require that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue. Broad-ranging data security laws that affect our business also have been adopted by various states. Compliance with these laws regarding the protection of customer and employee data could result in higher compliance and technology costs for us, as well as potentially significant fines and penalties for non-compliance. Further, there are various other statutes and regulations relevant to the direct email marketing, debt collection and text- messaging industries including the Telephone Consumer Protection Act. The interpretation of many of these statutes and regulations is evolving in the courts and administrative agencies and an inability to comply with them may have an adverse impact on our business. In addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies, and as many as 48 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security regulations and laws requiring varying levels of customer notification in the event of a security breach. 13 Also, federal legislators and regulators are increasingly pursuing new guidelines, laws and regulations that, if adopted, could further restrict how we collect, use, share and secure customer information, which could impact some of our current or planned business initiatives. Unplanned system interruptions or system failures could harm our business and reputation. Any interruption in the availability of our transactional processing services due to hardware and operating system failures will reduce our revenues and profits. Any unscheduled interruption in our services results in an immediate, and possibly substantial, loss of revenues. Frequent or persistent interruptions in our services could cause current or potential customers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our websites or services, and could permanently harm our reputation. Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, computer viruses, computer denial-of-service attacks, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. Our systems also are subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services. Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures. Climate change and related regulatory responses may impact our business. Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatory responses. It is impracticable to predict with any certainty the impact on our business of climate change or the regulatory responses to it, although we recognize that they could be significant. The most direct impact is likely to be an increase in energy costs, which would adversely impact consumers and their ability to incur and repay indebtedness. However, we are uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses on our business. Risks Relating to an Investment in Our Securities The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell your shares of our common stock when you want or at prices you find attractive. The price of our common stock on the NASDAQ Global Select Market constantly changes. We expect that the market price of our common stock will continue to fluctuate. The market price of our common stock may fluctuate in response to numerous factors, many of which are beyond our control. These factors include the following: • • • • • • • • • • • • actual or anticipated fluctuations in our operating results; changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors; the overall financing environment, which is critical to our value; the operating and stock performance of our competitors; announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; changes in interest rates; the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry; changes in GAAP, laws, regulations or the interpretations thereof that affect our various business activities and segments; general domestic or international economic, market and political conditions; changes in ownership by executive officers, directors and parties related to them who control a majority of our common stock; additions or departures of key personnel; and future sales of our common stock and the transfer or cancellation of shares of common stock pursuant to a share lending agreement. In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance. 14 Future sales of our common stock or equity-related securities in the public market, including sales of our common stock pursuant to share lending agreements or short sale transactions by purchasers of convertible senior notes, could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings. Sales of significant amounts of our common stock or equity-related securities in the public market, including sales pursuant to share lending agreements, or the perception that such sales will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. Future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sale transactions by purchasers of our convertible senior notes, may have a material adverse effect on the trading price of our common stock. We have the ability to issue preferred stock, warrants, convertible debt and other securities without shareholder approval. Our common stock may be subordinate to classes of preferred stock issued in the future in the payment of dividends and other distributions made with respect to common stock, including distributions upon liquidation or dissolution. Our articles of incorporation permit our Board of Directors to issue preferred stock without first obtaining shareholder approval. If we issued preferred stock, these additional securities may have dividend or liquidation preferences senior to the common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current common shareholders’ interest. We have similar abilities to issue convertible debt, warrants and other equity securities. Our executive officers, directors and parties related to them, in the aggregate, control a majority of our common stock and may have the ability to control matters requiring shareholder approval. Our executive officers, directors and parties related to them own a large enough share of our common stock to have an influence on, if not control of, the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring shareholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the control of our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock. The right to receive payments on our convertible senior notes is subordinated to the rights of our existing and future secured creditors. Our convertible senior notes are unsecured and are subordinate to existing and future secured obligations to the extent of the value of the assets securing such obligations. As a result, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of our company, our assets generally would be available to satisfy obligations of our secured debt before any payment may be made on the convertible senior notes. To the extent that such assets cannot satisfy in full our secured debt, the holders of such debt would have a claim for any shortfall that would rank equally in right of payment (or effectively senior if the debt were issued by a subsidiary) with the convertible senior notes. In such an event, we may not have sufficient assets remaining to pay amounts on any or all of the convertible senior notes. As of December 31, 2015, Atlanticus Holdings Corporation had outstanding: $61.1 million of secured indebtedness, which would rank senior in right of payment to the convertible senior notes; $38.5 million of senior unsecured indebtedness in addition to the convertible senior notes that would rank equal in right of payment to the convertible senior notes; and no subordinated indebtedness. Included in senior secured indebtedness are certain guarantees we have executed in favor of our subsidiaries. For more information on our outstanding indebtedness, See Note 9, "Notes Payable," to our consolidated financial statements included herein. Our convertible senior notes are junior to the indebtedness of our subsidiaries. Our convertible senior notes are structurally subordinated to the existing and future claims of our subsidiaries’ creditors. Holders of the convertible senior notes are not creditors of our subsidiaries. Any claims of holders of the convertible senior notes to the assets of our subsidiaries derive from our own equity interests in those subsidiaries. Claims of our subsidiaries’ creditors will generally have priority as to the assets of our subsidiaries over our own equity interest claims and will therefore have priority over the holders of the convertible senior notes. Consequently, the convertible senior notes are effectively subordinate to all liabilities, whether or not secured, of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Our subsidiaries’ creditors also may include general creditors and taxing authorities. As of December 31, 2015, our subsidiaries had total liabilities of approximately $138.6 million (including the $61.1 million of senior secured indebtedness mentioned above), excluding intercompany indebtedness. In addition, in the future, we may decide to increase the portion of our activities that we conduct through subsidiaries. 15 Note Regarding Risk Factors The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occurs, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock or other securities could decline, and you could lose part or all of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 16 ITEM 1B. UNRESOLVED STAFF COMMENTS None ITEM 2. PROPERTIES We lease 335,372 square feet of office space in Atlanta, Georgia for our executive offices and the primary operations of our Credit and Other Investments segment. We have sub-leased 255,110 square feet of this office space. Our Auto Finance segment principally operates from 9,600 square feet of leased office space in Lake Mary, Florida, with additional offices and branch locations in various states and territories. Our operations in the U.K., which are within our Credit and Other Investments segment, include approximately 2,140 of aggregate square feet of leased space in Crawley. We believe that our facilities are suitable to our business and that we will be able to lease or purchase additional facilities as our needs, if any, require. ITEM 3. LEGAL PROCEEDINGS We are involved in various legal proceedings that are incidental to the conduct of our business. There are currently no pending material legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES None 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Select Market under the symbol “ATLC.” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market. As of March 15, 2016, there were 51 record holders of our common stock, which does not include persons whose stock is held in nominee or “street name” accounts through brokers, banks and intermediaries. 2014 1st Quarter 2014 2nd Quarter 2014 3rd Quarter 2014 4th Quarter 2014 2015 1st Quarter 2015 2nd Quarter 2015 3rd Quarter 2015 4th Quarter 2015 High $3.59 $3.24 $2.96 $2.77 High $3.10 $3.86 $4.02 $3.64 Low $1.96 $2.24 $1.80 $1.15 Low $2.08 $2.03 $3.40 $2.88 The closing price of our common stock on the NASDAQ Global Select Market on March 22, 2016 was $3.20. Pursuant to a share repurchase plan authorized by our Board of Directors on May 9, 2014, we are authorized to repurchase 5,000,000 shares of our common stock through June 30, 2016, of which 4,892,760 shares remained authorized for repurchase as of December 31, 2015. During the three months ended December 31, 2015, we did not repurchase any shares under our Board-authorized repurchase plan. There were 26,117 shares returned to us during the three months ended December 31, 2015 by employees in satisfaction of withholding tax requirements. These returned shares are permitted outside the scope of our Board-authorized repurchase plan. We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our stock represents an appropriate return of capital, we will repurchase shares of our stock. ITEM 6. SELECTED FINANCIAL DATA As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information. 18 ITEM 7. 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, 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 Item 1A and elsewhere in this Report, that our actual experience will differ materially from these expectations. For more information, see “Cautionary Notice Regarding Forward-Looking Statements" at the beginning of this Report. 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 utilize proprietary analytics and a flexible technology platform to provide various credit and related financial services and products to or associated with the financially underserved consumer credit market. Currently, within our Credit and Other Investments segment, we are applying the experiences gained and infrastructure built from funding over $25 billion in consumer loans over our 19-year operating history to originate a range of consumer loan products through our primary consumer brand, Fortiva. As part of this brand, we market Fortiva Retail Credit, Fortiva Personal Loans and Fortiva Credit Cards through multiple channels, including retail point-of-sale, direct mail solicitation, Internet-based marketing and partnerships with third parties who have relationships with our core customers. In our point-of-sale channel, we partner with retailers and service providers in various industries across the U.S. to offer Fortiva Retail Credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, educational services and home-improvements. Our flexible technology platform allows us to integrate our paperless process and instant decision-making capabilities with our partners' technology infrastructure. 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. Additionally, we are able to market our general purpose Fortiva Personal Loans and Fortiva Credit Cards directly to consumers through additional channels, which enables us to reach consumers through a diverse origination platform that includes direct mail, Internet-based marketing and through partnerships. Our technology platform and proprietary analytics enable us to make instant credit decisions utilizing hundreds of inputs, from multiple sources and thereby offer credit to consumers overlooked by traditional providers of credit. By offering a range of products through a multitude of channels, we seek to provide the right type of credit, whenever and wherever the consumer has a need. 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. 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 lending and other financial technologies. These investments are carried at the lower of cost or market valuation, and the remaining associated book value as of December 31, 2015 is negligible given variations in the ascribed values since acquisition. Some of these investees 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 are no pending liquidity events, and 19 ascribing value to these investments at this time 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 the current asset-backed securitization markets is below pre-2008 levels. 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 providing certain installment 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. 20 CONSOLIDATED RESULTS OF OPERATIONS (In Thousands) Total interest income Interest expense Fees and related income on earning assets: Fees on credit products Changes in fair value of loans and fees receivable recorded at fair value Changes in fair value of notes payable associated with structured financings recorded at fair value Rental revenue Other Other operating income: Servicing income Other income Gain on repurchase of convertible senior notes Equity in income equity-method investees For the Twelve Months Ended December 31, 2015 2014 Income Increases (Decreases) from 2014 to 2015 $ 69,917 $ (18,330) 73,676 $ (24,052) 6,907 6,265 1,262 36,032 2,716 5,004 553 — 2,780 18,662 14,460 (7,418) 58,457 4,669 4,910 2,084 12,068 6,983 Total $ 113,106 $ 164,499 $ (Net recovery of) losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries Provision for losses on loans and fees receivable recorded at net realizable value Other operating expenses: Salaries and benefits Card and loan servicing Marketing and solicitation Depreciation, primarily related to rental merchandise Other Net income Net loss (income) attributable to noncontrolling interests Net income attributable to controlling interests (38,878) 26,608 19,825 37,071 2,235 40,778 21,932 1,706 7 1,713 (4,852) 30,828 19,777 48,599 2,381 69,096 25,975 7,327 (150) 7,177 (3,759) 5,722 (11,755) (8,195) 8,680 (22,425) (1,953) 94 (1,531) (12,068) (4,203) (51,393) 34,026 4,220 (48) 11,528 146 28,318 4,043 (5,621) 157 (5,464) Year Ended December 31, 2015, Compared to Year Ended December 31, 2014 Total interest income. Total interest income consists primarily of finance charges and late fees earned on our point-of- sale and direct-to-consumer finance products, credit card and auto finance receivables. Period-over-period results reflect continued growth in our auto finance receivables and our point-of-sale finance and direct-to-consumer products, offset, however, by continued net liquidations of our historical credit card receivable portfolios over the past year. We are currently experiencing continued growth in our point-of-sale and direct-to-consumer finance products and our CAR receivables—growth which we expect to result in net period over period growth in our total interest income for these operations over the next few quarters. Future periods' growth is also dependent on the addition of new retail partners for our point-of-sale operations as well as continued growth within existing partnerships and continued growth within our direct-to-consumer finance product. This 21 growth was delayed late in the first quarter of 2014 as a significant retail partner underwent a product shift that resulted in the suspension of new account originations with us for both our installment lending product as well as our rent-to-own product. Despite anticipated increases in our point-of-sale and direct-to-consumer finance products, continued net liquidations of our historic credit card receivables will continue to offset expected increases and could continue to result in overall net declines in interest income period over period. Interest expense. Variations in interest expense are due to our debt facilities being repaid commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the facilities offset by new borrowings associated with growth in our point-of-sale and direct-to-consumer finance products and CAR operations as evidenced within Note 9, “Notes Payable,” to our consolidated financial statements. We anticipate additional debt financing over the next few quarters as we continue to grow, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for these operations. Offsetting this growth in interest expense, in addition to the net liquidations of facilities associated with our credit card portfolios, will be reductions in interest costs associated with convertible senior notes that have been repurchased and canceled. In November 2014, we repurchased $46.1 million aggregate principal amount of 5.875% convertible senior notes due 2035 ("5.875% convertible senior notes"). In connection with this repurchase, we borrowed $20.0 million under a secured term loan from a related party. See "Related Party Transactions" below for more information. Fees and related income on earning assets. The significant factors affecting our differing levels of fees and related income on earning assets include: • Declines in rental revenue due to the aforementioned product shift at a significant retail partner that resulted in the suspension of new account originations with us for both our installment lending product as well as our rent-to-own product, and for which rental sales volumes are expected to continue to decline as we plan to significantly limit new originations in 2016; • Reductions in fees on credit products, principally associated with the net liquidations of credit card receivables in the U.K.; • Recoveries of $4.4 million on investments in consumer finance technology platforms in excess of their carrying value in our "Other" category in 2014 with no corresponding recovery in 2015; • The effects of changes in the fair values of credit card receivables recorded at fair value and notes payable associated with structured financings recorded at fair value as described below; and • The above declines were partially offset by the resolution of an outstanding dispute that resulted in the recovery of approximately $2.0 million associated with a receivable that was fully reserved in a prior period. We expect a diminishing level of fee income for 2016 because we do not anticipate additional credit card originations in the U.K. Further, given expected future net liquidations of our credit card receivables for which we use fair value accounting, we expect our change in fair value of credit card receivables recorded at fair value and our change in fair value of notes payable associated with structured financings recorded at fair value amounts to gradually diminish (absent significant changes in the assumptions used to determine these fair values) in the future. These amounts, however, are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. Such volatility will be muted somewhat, however, by the offsetting nature of the receivables and underlying debt being recorded at fair value and with the expected reductions in the face amounts of such outstanding receivables and debt as we experience further credit card receivables liquidations and associated debt amortizing repayments. Further significant declines are expected in our rental revenue as we changed our underwriting and approval criteria surrounding originations within various merchandise categories that comprised a significant component of new originations in the third quarter of 2015 and we expect to significantly limit new originations in 2016. As such, we do not expect our rental revenue to contribute meaningfully to our 2016 revenues. Offsetting these declines is the aforementioned growth we are currently experiencing associated with our point-of-sale, direct-to-consumer finance and credit card products with which we expect continued expansion in 2016. Servicing income. We earn servicing income by servicing loan portfolios for third parties (including our equity- method investees). Unless and/or until we grow the number of contractual servicing relationships we have with third parties or our current relationships grow their loan portfolios, we will not experience significant growth and income within this category, and we currently expect to experience limited growth relative to growth experienced in prior periods. Other income. Historically included within our other income category are ancillary and interchange revenues, which are now relatively insignificant for us due to our historical credit card account closures and net credit card receivables portfolio liquidations. Absent portfolio acquisitions or continued growth with our new credit card offering, we do not expect significant 22 ancillary and interchange revenues in the future. Also included within our other income category are certain reimbursements we receive in respect of one of our portfolios. Gain on repurchase of 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. 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, all notes were retired. As mentioned elsewhere in this Report, we plan to continue to evaluate and pursue a variety of activities, including the repurchase of our remaining 5.875% convertible senior notes, gains on the repurchase of which (if any) would impact this income category. Equity in income of equity-method investees. Because our equity-method investees use the fair value option to account for their financial assets and liabilities, changes in fair value estimates can cause some volatility in the earnings of these investees. Because of continued liquidations in their financial assets (a credit card receivables portfolio held by one equity-method investee and structured financing notes held by the other), absent additional investments in our existing or in new equity-method investees in the future, we expect gradually declining effects from our equity-method investments on our operating results. Further, in December 2014, we consolidated on our financial statements one of our equity-method investees subsequent to our distribution of certain assets to an unrelated third-party partner for their interest in the entity. (Net recovery of) losses upon charge off of loans and fees receivable recorded at fair value. This account reflects charge offs (net of recoveries) of the face amount of credit card receivables we record at fair value on our consolidated balance sheet. We have experienced a general trending decline in, and we expect future trending declines in, these charge offs as we continue to liquidate our historical credit card receivables. Additionally, net losses in both periods reflect the effects of reimbursements received in respect of one of our portfolios. In 2015 and 2014, these reimbursements exceeded the charge-offs experienced within the portfolio as the reimbursements are not directly associated with the timing of actual charge offs. The timing of these reimbursements cannot be reliably determined and as such we may not continue to experience similar positive impacts on future quarters. Provision for losses on loans and fees receivable recorded at net realizable value. Our provision for losses on loans and fees receivable recorded at net realizable value covers, with respect to such receivables, changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees receivable. We have experienced a period-over- period decrease in this category between 2014 and 2015 due to the previously mentioned declines in volumes associated with our installment lending product. Additionally, testing associated with our credit card product in the U.K. resulted in slightly higher provisions through the first quarter of 2014, but, given that we have discontinued new originations with this product in the U.K., we expect declines in provisions associated with this product offering. Offsetting these declines, we expect growth in new product receivables recorded at net realizable value to result in increases in our provisions for losses on loans and fees receivable recorded at net realizable value (as was experienced in the third quarter of 2015) in future quarters—such increases predominantly expected to reflect the effects of volume associated with our point-of-sale, direct-to-consumer and credit card finance product offerings (i.e., growth of new product receivables), rather than credit quality changes or deterioration. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our consolidated financial statements and the discussions of our Credit and Other Investments and Auto Finance segments for further credit quality statistics and analysis. Total other operating expense. Total other operating expense variances for the year ended December 31, 2015, relative to the year ended December 31, 2014, reflect the following: • • • card and loan servicing expenses that were lower in 2015 based on lower originations for our rent-to-own products when compared to the same periods in 2014 as well as continued net liquidations in our credit card portfolios which declined from $93.9 million outstanding to $53.8 million outstanding at December 31, 2014 and 2015, respectively; slight decreases in marketing costs for the year as our new product offerings require less direct-to-consumer marketing expenses than under our historical credit card operations coupled with reduced originations in these programs as discussed above, offset by expansions we have recently made in our marketing efforts that have resulted in increased marketing costs and are expected to result in increases in period over period costs for 2016; decreased depreciation primarily associated with declines in originations under our rent-to-own program, totaling $38.6 million and $63.1 million for the years ended December 31, 2015 and 2014, respectively, as well as 23 • impairments of $2.7 million associated with software development costs in 2014 as planned uses for this software were discontinued with no corresponding impairment in 2015; and decreases in other expenses due to a £3.0 million ($4.7 million) accrual in 2014 related to a provision associated with a review in the U.K. by HM Revenue and Customs ("HMRC") associated with filings by one of our U.K. subsidiaries to reclaim VAT that it paid on its inputs and that it believed were and are eligible to be reclaimed with an additional £0.4 million ($0.6 million) accrual in 2015. In February of 2016, we received correspondence from HMRC stating that it (1) had chosen to discontinue its review of our U.K. subsidiary’s VAT filings with no changes to the returns as filed by our U.K. subsidiary, and (2) would be refunding VAT refund claims made by our U.K. subsidiary that had been suspended during the HMRC review. As of the date of this report, we have received substantially all of such refunds, and we will be reversing in the first quarter of 2016 the £3.4 million ($5.0 million) of VAT review-related liabilities that we had accrued on our December 31, 2015 consolidated balance sheet. Offsetting these declines are: • • general increases in other expenses including customer acquisition, underwriting costs and third party costs associated with ongoing information technology upgrades; and slightly higher 2015 salaries and benefits costs resulting from growth in our new credit product offerings. A portion of our operating costs are variable based on the levels of accounts we market and receivables we service (both for our own account and for others) and the pace and breadth of our search for, acquisition of and introduction of new business lines, products and services. However, a number of our operating costs are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our credit card and auto finance loans and fees receivable levels. This trend is gradually reversing, however, as we continue to grow our earning assets (including loans and fees receivable) based principally on growth of our point-of-sale finance product offerings and to a lesser extent, growth within our CAR operations. We continue to perform extensive reviews of all areas of our businesses for cost savings opportunities to better align our costs with our portfolio of managed receivables. Notwithstanding our cost-control efforts and focus, we expect increased levels of expenditures associated with growth in our point-of-sale, direct-to-consumer and credit card product operations. While we have greater control over our variable expenses, it is difficult (as explained above) for us to appreciably reduce our fixed and other costs associated with an infrastructure (particularly within our Credit and Other Investments segment) that was built to support levels of managed receivables that are significantly higher than both our current levels and the levels that we expect to see in the near future. At this point, our Credit and Other Investments segment cash inflows are sufficient to cover its direct variable costs and a portion, but not all, of its share of overhead costs (including, for example, corporate-level executive and administrative costs and our convertible senior notes interest costs). As such, if we are unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such costs, then, depending upon the earnings generated from our Auto Finance segment and our liquidating credit card portfolios, we may experience continuing pressure on our ability to achieve consistent profitability. Noncontrolling interests. We reflect the ownership interests of noncontrolling holders of equity in our majority- owned subsidiaries as noncontrolling interests in our consolidated statements of operations. Unless we enter into significant new majority-owned subsidiary ventures with noncontrolling interest holders in the future, we expect to have negligible noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling interest holders in future quarters. Income Taxes. We experienced an effective income tax expense rate of 51.7% for the year ended December 31, 2015 compared to an effective income tax benefit rate of 126.8% for the year ended December 31, 2014. Our effective income tax expense rate for the year ended December 31, 2015 reflects in part, the establishment of a valuation allowance against our U.K.-related deferred tax assets. Our effective income tax benefit rate for the year ended December 31, 2014 resulted principally from (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets with the most significant benefits related to the complete release of all federal tax-related valuation allowances and (2) the reversal of excess prior year interest accruals on our then-accrued prior year liabilities for uncertain tax positions, such reversal of excess interest accruals resulting from a favorable settlement (relative to accrued prior year liabilities for uncertain tax positions) reached with the Internal Revenue Service (“IRS”) in December 2014 and the favorable resolution of accrued prior year liabilities for uncertain state tax positions. We report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities 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 24 extent that we resolve our liabilities for uncertain tax positions or our unpaid tax liabilities in a manner favorable to our accruals therefor. Considering both the aforementioned accruals and reversals, we experienced net charges for interest and penalties of $0.3 million in 2015. During the year ended December 31, 2014, the effect of interest and penalties on our income tax benefit was a $8.9 million net increase in our income tax benefit (representing the net of the release of $11.2 million of prior year interest and penalty accruals associated with then-uncertain tax liabilities, $0.3 million of new accruals in 2014 associated with uncertain tax liabilities in 2014, and $2.0 million of accrued interest and penalties related to unpaid tax liabilities). As referenced above, in December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses that we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. The original agreed federal income tax assessment of $9.1 million from the settlement (which excluded interest), now stands at $7.3 million after the effects of (1) the IRS’s application of a $1.0 million overpayment from our 2014 federal income tax return against the assessed balance and (2) a $0.8 million offsetting claim that we made on an amended return in 2015 as permitted under the terms of the settlement and that was approved by the IRS also in 2015. Also as permitted under the settlement, we recently made additional claims on amended returns — claims which, if accepted, would eliminate all of the remaining $7.3 million outstanding assessment and result in a $0.6 million refund to us. The expected effect of our amended return filings is two-fold. First, it is our belief that the IRS will not pursue collections of the amounts for which we have asserted offsetting claims (i.e., all of the remaining $7.3 million assessment) until the final disposition of our amended return filings. Second, should the IRS accept some or all of the additional claims we have made, we would experience reversals of interest and penalty accruals we are currently making associated with the unpaid tax assessment; these accruals totaled $2.8 million as of December 31, 2015. Currently, the IRS is examining our additional amended return claims. Our settlement with the IRS materially enhanced our 2014 reported income tax benefits in two ways as noted above. First, we released into 2014 income tax benefit prior year tax, interest and penalty liability accruals associated with then- uncertain tax positions that were resolved in a significantly favorable manner relative to the liabilities accrued therefor. Second, we reclassified to deferred tax liabilities as of December 31, 2014 significant levels of liabilities that had been classified as current liability accruals for uncertain tax positions as of December 31, 2013, thereby eliminating the need for valuation allowances that existed as of December 31, 2013 against net deferred tax assets at that date. Credit and Other Investments Segment Our Credit and Other Investments segment includes our activities relating to investments in and servicing of our Fortiva Retail Credit ("point-of-sale" operations), Fortiva Personal Loans and Fortiva Credit Cards (collectively our "direct-to-consumer" operations) and our various credit card receivables portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure. The types of revenues we earn from our products and services primarily include finance charges, fees and the accretion of discounts associated with our point-of-sale product offerings. Also, while insignificant currently, revenues also have included credit card fees associated with (1) our sale of ancillary products such as memberships, subscription services and debt waiver, and (2) interchange fees representing a portion of the merchant fee assessed by card associations based on cardholder purchase volumes underlying credit card receivables. 25 We record (i) the finance charges, discount accretion and late fees assessed on our Credit and Other Investments segment credit products in the interest income - consumer loans, including past due fees category on our consolidated statements of operations, (ii) the rental revenue, over-limit, annual, activation, monthly maintenance, returned-check, cash advance and other fees in the fees and related income on earning assets category on our consolidated statements of operations, and (iii) the charge offs (and recoveries thereof) within our provision for losses on loans and fees receivable on our consolidated statements of operations (for all credit product receivables other than those for which we have elected the fair value option) and within losses upon charge off of loans and fees receivable recorded at fair value on our consolidated statements of operations (for all of our other receivables for which we have elected the fair value option). Additionally, we show the effects of fair value changes for those credit card receivables for which we have elected the fair value option as a component of fees and related income on earning assets in our consolidated statements of operations. Depreciation expense associated with rental merchandise (totaling $38.6 million and $63.1 million for the years ended December 31, 2015 and 2014, respectively) for which we receive rental revenue is included as a component of our overall depreciation in our consolidated statements of operations. We expect continued reductions in our depreciation of rental merchandise as we have made changes in our underwriting and approval criteria surrounding originations in various merchandise categories that comprised a significant component of new originations in the third quarter of 2015 and we expect to significantly limit new originations for this product in 2016. This change in underwriting and approval criteria and corresponding reduction in new originations also will result in significant reductions of our rental revenue as current rental contracts expire and are not renewed. We historically have originated and purchased credit portfolios through subsidiary entities. If we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above. If we exert significant influence but do not control the entity, we record our share of its net operating results in the equity in income of equity-method investees category on our consolidated statements of operations. Managed Receivables We make various references within our discussion of the Credit and Other Investments segment to our managed receivables. In calculating managed receivables data, we include within managed receivables those receivables we manage for our consolidated subsidiaries, but we exclude from managed receivables any noncontrolling interest holders’ shares of the receivables. Additionally, we include within managed receivables only our economic share of the receivables that we manage for our equity-method investees. Financial, operating and statistical data based on aggregate managed receivables are important to any evaluation of the performance of our credit portfolios, including our underwriting, servicing and collection activities and our valuing of purchased receivables. In allocating our resources and managing our business, management relies heavily upon financial data and results prepared on this “managed basis.” Analysts, investors and others also consider it important that we provide selected financial, operating and statistical data on a managed basis because this allows a comparison of us to others within the specialty finance industry. Moreover, our management, analysts, investors and others believe it is critical that they understand the credit performance of the entire portfolio of our managed receivables because it reveals information concerning the quality of loan originations and the related credit risks inherent within the portfolios. 26 Reconciliation of the managed receivables data to our GAAP financial statements requires: (1) an understanding that our managed receivables data are based on billings and actual charge offs as they occur, without regard to any changes in our allowance for uncollectible loans and fees receivable or any changes in the fair value of loans and fees receivable and their associated structured financing notes; (2) inclusion of our economic share of (or equity interest in) the receivables we manage for our equity-method investees; (3) removal of any noncontrolling interest holders’ shares of the managed receivables underlying our GAAP consolidated results; (4) treatment of the transaction in which our 50%-owned equity-method investee acquired our structured financing trust notes (a) as a deemed sale of the trust receivables at their face amount, (b) followed by the 50%-owned equity-method investee’s deemed repurchase of such receivables for consideration equal to the discounted purchase price that it paid for the notes, and (c) as though the difference between the deemed face amount and the deemed discounted repurchase price of the receivables is to be treated as credit quality discount to be accreted into managed earnings as a reduction of net charge offs over the remaining life of the receivables; and (5) the exclusion from our managed receivables data of certain reimbursements received in respect of one of our portfolios which resulted in pre-tax income benefits within our total interest income, fees and related income on earning assets, losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries, other income, servicing income, and equity in income of equity-method investees line items on our consolidated statements of operations totaling approximately $10.7 million for the three months ended December 31, 2015, $11.4 million for the three months ended September 30, 2015, $10.7 million for the three months ended June 30, 2015, $12.2 million for the three months ended March 31, 2015, $8.0 million for the three months ended December 31, 2014, $2.7 million for the three months ended September 30, 2014, $3.7 million for the three months ended June 30, 2014, and $3.2 million for the three months ended March 31, 2014. This last category of reconciling items above is excluded because it does not bear on our performance in managing our credit card portfolios, including our underwriting, servicing and collection activities and our valuing of purchased receivables; moreover, it is difficult to determine the future effects of any such reimbursements that may be received. We typically have purchased credit card receivables portfolios at substantial discounts. In our managed basis statistical data, we apply a portion of these discounts against receivables acquired for which charge off is considered likely, including accounts in late stages of delinquency at the date of acquisition; this portion is measured based on our acquisition date estimate of the shortfall of cash flows expected to be collected on the acquired portfolios relative to the face amount of receivables represented within the acquired portfolios. We refer to the balance of the discount for each purchase not needed for credit quality as accretable yield, which we accrete into total yield in our managed basis statistical data using the interest method over the estimated life of each acquired portfolio. As of the close of each financial reporting period, we evaluate the appropriateness of the credit quality discount component and the accretable yield component of our acquisition discount based on actual and projected future cash flows. Asset quality. Our delinquency and charge-off data at any point in time reflect the credit performance of our managed receivables. The average age of the accounts underlying our receivables, the timing of portfolio purchases, the success of our collection and recovery efforts and general economic conditions all affect our delinquency and charge-off rates. The average age of the accounts underlying our receivables portfolio also affects the stability of our delinquency and loss rates. We consider this delinquency and charge-off data in our determination of the fair value of our credit card receivables underlying formerly off-balance-sheet securitization structures, as well as our allowance for uncollectible loans and fees receivable in the case of our other credit product receivables that we report at net realizable value. Our strategy for managing delinquency and receivables losses consists of account management throughout the customer relationship. This strategy includes credit line management and pricing based on the risks. See also our discussion of collection strategies under the “How Do We Collect from Our Customers?” in Item 1, “Business.” 27 The following table presents the delinquency trends of the receivables we manage within our Credit and Other Investments segment, as well as charge-off data and other managed receivables statistics (in thousands; percentages of total): At or for the Three Months Ended 2015 2014 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 $152,528 $151,055 $142,338 $140,660 $157,145 $186,564 $200,147 $215,182 11.5% 10.5% 11.8% 10.1% 13.6% 11.2% 11.2% 12.0% 7.9% 7.2% 8.8% 7.5% 9.8% 8.3% 8.1% 9.2% 5.4% 5.0% 4.9% 5.4% 6.9% 5.8% 5.7% 6.7% $152,983 $143,946 $139,401 $146,792 $173,553 $194,272 $206,657 $227,109 35.2% 41.3% 38.1% 38.3% 63.3% 42.6% 38.4% 45.4% 16.8% 12.9% 21.5% 16.5% 17.4% 13.2% 23.8% 19.2% 21.4% 16.4% 21.4% 17.7% 25.5% 21.3% 23.8% 19.8% Period-end managed receivables Percent 30 or more days past due Percent 60 or more days past due Percent 90 or more days past due Average managed receivables Total yield ratio Combined gross charge- off ratio Adjusted charge-off ratio Managed receivables levels. The 2014 quarterly declines in our period-end and average managed receivables (when compared to the same quarters in prior period) reflect the net liquidating state of our historical credit card receivables portfolios given our closure of substantially all credit card accounts underlying the portfolios. Nevertheless, because of the receivables growth we have experienced and expect to continue to experience over the coming quarters associated with our Fortiva finance offerings, we experienced overall quarterly growth throughout 2015. Managed receivables declines in the fourth quarter of 2014 were exaggerated by our distribution of certain assets to an unrelated third-party partner in a joint venture for its interest. Growth in future periods largely is dependent on the addition of new retail partners for our point-of-sale operations as well as the timing of solicitations within our direct-to-consumer Fortiva operations. Based on this, we expect managed receivables levels to grow modestly from current levels throughout 2016 in conjunction with planned solicitation mailings and the expected addition of U.S. credit card originations which we are currently testing. Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the account management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher delinquency rates that can be expected in a more mature managed portfolio such as ours. These account management strategies include conservative credit line management, purging of inactive accounts and collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories. We measure the success of these efforts by measuring delinquency rates. These rates exclude accounts that have been charged off. Given that the vast majority of credit card accounts related to our historical credit card receivables have been closed and there has been no significant new activity for these accounts in the past several quarters, we have noted declines in our delinquency statistics of our managed credit card receivables (when compared to the same quarters in prior period). The initial trend of increasing delinquency rates noted above is primarily due to growth in our point-of-sale finance operations, which experience higher delinquency rates than those of our liquidating credit card portfolios. Additionally, our historical credit card originations in the U.K. have experienced higher than average delinquency rates. As these U.K. credit card receivables continue to liquidate, the associated higher delinquencies will impact our overall delinquency rates to a lesser degree as evidenced by the slight declines in the third and fourth quarters of 2015. We expect our point-of-sale and direct-to-consumer finance and other new product offerings to become a larger component of our managed receivables base, given the acceleration of growth in these products. Further, we expect our delinquency rates to increase slightly (when compared to periods during which credit cards made up a larger portion of our managed receivables) as the risk profiles (and thus expected returns) for these receivables are higher than that experienced under our current mix of largely mature credit card receivables underlying closed credit card accounts. Additionally, seasonal payment patterns on these receivables are similar to those experienced with our historical credit card originations and we expect those patterns to continue. For example, delinquency rates historically are lower in the first quarter of each year as seen above due to the benefits of seasonally strong payment patterns associated with year-end tax refunds for most of our customers. 28 Total yield ratio. As noted previously, the mix of our managed receivables has shifted away from certain higher- yielding credit card receivables. Those particular originated receivables have higher delinquency rates and late and over-limit fee assessments than do our other portfolios, and thus have higher total yield ratios as well. Additionally, our total yield ratio has been adversely affected over the past several quarters by our Non-U.S. Acquired Portfolio acquisition. Its total yields are below average compared to our other portfolios although the impacts of this portfolio are declining as its receivables continue to liquidate. Offsetting the historical impacts noted above is growth in our newer, higher yielding products, including our point-of- sale finance product. While this growth has contributed to increases in our total yield ratio, we expect this growth will slow or even modestly reverse the trend of our declining charge-off rates as discussed above because we expect these accounts to season, mature, and charge off at higher rates than we currently experience on our liquidating pool of credit card receivables associated with closed credit card accounts. We anticipate continued growth in our higher yielding point-of-sale products over the next few quarters and continued accretive effects of this growth on our total yield ratios. Although we have seen generally improving total yield ratio trend-lines, our first, third and fourth quarter 2014 total yield ratios were also positively impacted by the decline in the managed receivables base discussed above as well as recoveries on investments in securities in excess of their carrying value and our repurchase of convertible senior notes in the fourth quarter of 2014. Similarly, our third quarter 2015 total yield ratio was positively impacted by the recovery of approximately $2.0 million associated with a receivable that was fully reserved in a prior period. Absent these items, our total yield ratio would have been 35.8%, 41.6%, 38.0% and 35.6% in the third quarter of 2015 and the first, third and fourth quarters of 2014, respectively. Combined gross charge-off ratio and Adjusted charge-off ratio. We charge off our Credit and Other Investments segment receivables when they become contractually more than 180 days past due or 120 days past due for the point-of-sale and direct-to-consumer finance products. For our rent-to-own products, we charge off receivables and impair associated rental merchandise if the customer has not made a payment within the previous 90 days. However, if a customer makes a payment greater than or equal to two minimum payments within a month of the charge-off date, we may reconsider whether charge-off status remains appropriate. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full. Certain of our prior originated credit card offerings have higher charge offs relative to their average managed receivables balances, than do our other portfolios. Due to the recent higher rate of decline in these particular originated receivables relative to all of our other outstanding credit card receivables, as well as the longer weighted average age and maturity of our remaining managed receivables portfolio, all things being equal, one would expect reduced charge-off ratios for these receivables. However, this trend has been muted to some degree simply due to a change in the mix of our receivable balances due to growth within our point-of-sale finance operations that have higher charge-off rates than the liquidating credit card portfolios as well as increased charge-offs associated with credit card origination efforts in the U.K. The decline we experienced in the second quarter of 2015 in both our combined and adjusted gross charge-off ratios was largely due to the seasonal beneficial impacts associated with customer payments experienced in the first quarter of 2015. Additionally, negatively impacting the charge-off ratios in the first quarter of 2015 (and thus magnifying the decline in charge-off ratios noted in the second quarter) were higher than anticipated charge-offs associated with one of our retail channels. The continued growth in our point-of-sale and direct-to-consumer finance operations continues to result in higher charge-off ratios than those experienced historically. In the next few quarters, we expect increasing charge off rates on a period-over-period comparison basis. This expectation is based on (1) the age, maturity and stability of our portfolio of generally liquidating receivables associated with closed credit card accounts, (2) higher expected charge off rates on our new product offerings, offset by lower charge offs associated with historical credit card originations in the U.K. due to the cessation of marketing efforts for this product, (3) the low charge-off ratios experienced in the second quarter of 2015 as discussed above and (4) an overall decline in the managed receivables base as discussed above. 29 Rental Merchandise The following table presents certain trends associated with our merchandise leasing activities within our Credit and Other Investments segment (in thousands; percentages of total): At or for the three months ended 2015 2014 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Period-end rental merchandise, net of accumulated amortization Average rental merchandise, net of accumulated amortization $4,666 $9,230 $12,006 $10,357 $14,177 $12,268 $11,082 $22,052 $7,023 $10,789 $11,045 $12,186 $13,292 $11,845 $15,485 $29,047 Other (loss) income ratio 3.3% (28.7)% (17.6)% (78.0)% (50.3)% 37.9% (21.4)% (45.1)% Average rental merchandise. Rental merchandise offerings are a diminishing part of our point-of-sale finance suite of products. Our merchandise leasing activities accelerated late in 2013, and prior to that quarter, we had no significant experience or trends with this particular type of product. As is noted in the table above, our rental merchandise has declined from levels experienced at year end 2013. Key drivers of this decline include: 1) depreciation of existing rental merchandise coupled with a decline in new originations due to the disruption of new account originations discussed above; 2) accelerated depreciation of certain rental merchandise due to early payoffs of outstanding rental contracts related to early payment incentives and seasonally strong payment patterns associated with year-end tax-refunds for most of our customers and 3) accelerated depreciation of certain rental merchandise due to impairments associated with accounts where the customer has not made a payment within the previous 90 days. We expect continued reductions in our outstanding period-end rental merchandise given the third quarter 2015 changes we made in our underwriting and approval criteria surrounding originations within various merchandise categories that comprised a significant component of new originations. While we believe that rental merchandise offerings continue to offer a valuable payment option for our retail partners and their customers, this change in underwriting and approval criteria also will result in significant reductions of our rental revenue as current rental contracts expire and are not renewed and we expect to significantly limit new originations in 2016. Other (loss) income ratio. The numerator of our other (loss) income ratio equals gross revenues associated with our leasing activities less depreciation of our rental merchandise. The denominator of our other (loss) income ratio equals average rental merchandise as disclosed in the table above. The timing of new account originations significantly impacts our quarterly ratios either through rapid growth or a period of slow growth, as occurred during the second quarter of 2014 for the reasons discussed above. The disruption in new account originations and the impact of early payoffs mentioned above resulted in an other loss ratio for the first and second quarters of 2014, as our rental merchandise balance and related payments declined. As a customer's previous rental payments (which are treated as rental revenues and included as a component of our other income ratio in the period they are credited to a customer's account) are applied when determining an early payoff amount, these early payoff amounts are often for less than the remaining book value of the associated depreciable asset, negatively impacting our other (loss) income ratio. This trend reversed in the third quarter of 2014 as our fourth quarter 2013 and first quarter 2014 vintages substantially passed their early payoff and peak charge-off periods. The loss ratios we experienced in the fourth quarter of 2014 and throughout 2015 were similarly due to higher than anticipated early payoffs and charge-offs on accounts originated in prior periods. The lower other (loss) income ratios experienced in the second and third quarters of 2015 were largely attributable to the continued seasoning of larger historic vintages and continued improvements to both our consumer underwriting and retail merchant agreements, both of which impact the amount of receivables originated with any particular merchant. Due to the decline in originations, we experienced a positive other income ratio in the fourth quarter of 2015 as larger historic vintages passed their early payoff and peak charge-off periods. Based on the aforementioned declines in our rental merchandise originations, we expect our other income ratio to continue to improve as existing vintages season and new originations are expected to decline. 30 Auto Finance Segment Our Auto Finance segment historically included a variety of auto sales and lending activities. Our original platform, CAR, acquired in April 2005, principally purchases and/or services loans secured by automobiles from or for, and also provides 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 have expanded these operations to also include certain installment lending products in addition to our traditional loans secured by automobiles. While not currently material, these loans could represent a meaningful investment in the future. Additionally, our ACC platform acquired during 2007 historically purchased retail installment contracts from franchised car dealers. We ceased origination efforts within the ACC platform during 2009 and outsourced the collection of its portfolio of auto finance receivables. In February 2015, we sold our remaining interest in the ACC portfolio of receivables for an immaterial amount. Collectively, as of December 31, 2015, we served more than 590 dealers through our Auto Finance segment in 34 states, the District of Columbia and two U.S. territories. Managed Receivables Background For reasons set forth above within our Credit and Other Investments segment discussion, we also provide managed receivables-based financial, operating and statistical data for our Auto Finance segment. Reconciliation of the auto finance managed receivables data to our GAAP financial statements requires an understanding that our managed receivables data are based on billings and actual charge offs as they occur, without regard to any changes in our allowance for uncollectible loans and fees receivable. Analysis of Statistical Data Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands; percentages of total) in the following table: At or for the Three Months Ended 2015 2014 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 $77,833 $75,428 $78,342 $73,371 $69,832 $68,102 $64,000 $59,440 14.0% 13.3% 13.5% 10.7% 14.5% 14.3% 14.6% 11.0% 5.5% 5.3% 5.6% 4.4% 5.5% 5.7% 5.1% 4.4% 2.5% 2.6% 2.5% 2.1% 2.5% 2.7% 1.8% 1.9% $76,413 $75,987 $77,182 $72,258 $68,418 $66,428 $62,475 $60,949 38.3% 38.2% 37.6% 39.2% 39.1% 39.2% 39.1% 38.5% 3.3% 1.6% 3.0% 1.3% 1.9% 0.6% 0.5% 1.5% 4.7% 3.3% 2.2% 1.5% 0.5% 2.1% 1.0% 2.1% Period-end managed receivables Percent 30 or more days past due Percent 60 or more days past due Percent 90 or more days past due Average managed receivables Total yield ratio Combined gross charge-off ratio Recovery ratio Managed receivables. For all of the periods set forth above, only CAR continues to purchase/originate loans, but until the second quarter of 2014, it had not done so at growth levels significant enough to consistently offset the gradual liquidation of our ACC portfolios’ managed receivables. ACC managed receivables are liquidated at this point, and we are beginning to see and expect stability in the level of our managed receivables, with growth through receivable purchase opportunities in the U.S. and U.S. territories, as occurred during 2014 and which continued through 2015. Although we are expanding our CAR operations, the Auto Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our buy-here, pay-here dealership customers' competition with more traditional franchise dealerships for 31 consumers interested in purchasing automobiles. We expect managed receivable levels to continue to grow slightly from current levels during 2016 as we continue to expand our operations in the U.S. and U.S. territories. Delinquencies. Current delinquency levels we are experiencing represent what we would expect going forward with some marginal increases noted within the overall buy-here pay-here market. Delinquency rates historically are lower in the first quarter of each year as seen above due to the benefits of seasonally strong payment patterns associated with year-end tax refunds for most of our customers. We are not concerned with modest fluctuations in delinquency rates and do not believe they will have a significantly positive or adverse impact on our results of operations; even at slightly elevated rates, we earn significant yields on CAR’s receivables and have significant dealer reserves (i.e., retainages or holdbacks on the amount of funding CAR provides to its dealer customers) to protect against meaningful credit losses. Total yield ratio. We have experienced modest fluctuations in our total yield ratio largely impacted by the relative mix of receivables in our various products offered by CAR as some shorter term product offerings tend to have higher yields. Slightly depressing the overall total yield ratio is the growth we continue to experience in the average managed receivables levels which negatively impacts the ratio ahead of the positive impacts of associated billed yield on this growth. Yields on our CAR products over the last few quarters are consistent with our expectations and we expect our total yield ratio to remain in line with current experience. Excluded from our total yield ratio is the resolution of an outstanding dispute that resulted in the recovery of approximately $2.0 million associated with a receivable that was fully reserved in a prior period. Combined gross charge-off ratio and recovery ratio. We charge off auto finance receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will record a charge off when the proceeds are received. The combined gross charge-off ratio represents an annualized fraction the numerator of which is the aggregate amounts of finance charge, fee and principal losses from customers unwilling or unable to pay their receivables balances, as well as from bankrupt and deceased customers, less current-period recoveries (including recoveries from dealer reserve offsets), and the denominator of which is average managed receivables. Because our ACC receivables have declined and are now largely insignificant relative to our total portfolio of auto finance receivables, our combined gross charge- off ratio declined significantly in the first quarter of 2014. Additionally benefiting the second quarter of 2014 were larger than expected recoveries associated with our ACC receivables that further reduced our combined gross charge-off ratio. The rise in our combined gross charge-off ratio in the fourth quarter of 2014 was due to specific dealer related losses that accounted for substantially all of the increase for the quarter. While we anticipate our charge-offs to be incurred ratably across our portfolio of dealers, specific dealer related losses are difficult to predict and can negatively influence our combined gross charge-off ratio as was seen in the fourth quarter of 2014. We continually re-assess our dealers and will take appropriate action if we believe a particular dealer's risk characteristics adversely change. Significantly all charge offs we experienced in the first and second quarters of 2015 were offset by available dealer reserves resulting in lower charge-off ratios for those periods. While we have appropriate dealer reserves to mitigate losses across the majority of our pool of receivables, the timing of recognition of these reserves as an offset to charge offs is largely dependent on various factors specific to each of our dealer partners including ongoing purchase volumes, outstanding balances of receivables and current performance of outstanding loans. As such, the timing of charge off offsets is difficult to predict, however we believe that these reserves are adequate to offset any loss exposure we may incur. Additionally, the products we issue in the U.S. territories do not have dealer reserves with which we can offset losses. As our investments in these loans grow we expect that gross charge-off rates will climb slightly over existing rates. We expect our recovery rate to fluctuate modestly from quarter to quarter due to the timing of the sale of repossessed autos. LIQUIDITY, FUNDING AND CAPITAL RESOURCES Until the third quarter of 2013, we experienced net liquidations of our managed receivables at faster rates than we were able to reduce our costs. This resulted from the significant level of fixed infrastructure costs that had been designed to support our significant legacy credit card lending operations. Our infrastructure costs are still somewhat elevated, and while we had in the past been focused on cost reduction, our primary focus now is on growing our point-of-sale and direct-to-consumer finance offerings so that our revenues from these product offerings can cover our infrastructure costs and return us to consistent profitability. This growth was delayed late in the first quarter of 2014 as a significant retail partner in our point-of-sale operations underwent a product shift that resulted in the temporary suspension of new account originations with us for our retail installment lending product. This disruption lasted into the second quarter of 2014; however, growth through new and existing retail channels has resulted in quarterly growth of the total managed receivables levels. Accordingly, we will continue to focus in the coming quarters on (i) containing costs (as opposed to our previous focus on reducing expenses) (ii) obtaining new retail partners and channels to continue growth of our point-of-sale finance offerings (iii) continuing growth in our direct-to-consumer operations and (iv) obtaining the funding necessary to meet capital 32 needs required by the growth of our new product offerings and to cover our infrastructure costs until our new product offerings generate enough revenues and cash flows to cover such costs. All of our Credit and Other Investments segment’s structured financing facilities are expected to amortize down with collections on the receivables within their underlying trusts and should not represent significant refunding or refinancing risks to our consolidated balance sheet. Additionally, we do not expect any imminent refunding or financing needs associated with our 5.875% convertible senior notes given their maturity in 2035. In May 2015 we redeemed the remainder of the outstanding 3.625% convertible senior notes. As such, the only facilities that could represent significant refunding or refinancing needs as of December 31, 2015 are those associated with the following notes payable in the amounts indicated (in millions): Revolving credit facility (expiring October 4, 2017) that is secured by the financial and operating assets of our CAR operations Senior secured term loan from related parties (expiring November 22, 2016) that is secured by certain assets of the Company with an annual rate equal to 9.0% Total $ 28.9 20.0 $ 48.9 Further details concerning the above debt facilities are provided in Note 9, “Notes Payable,” and Note 10, “Convertible Senior Notes,” to our consolidated financial statements included herein. Based on the state of the debt capital markets, the performance of our assets that serve as security for the above facilities, and our relationships with lenders, we view imminent refunding or refinancing risks with respect to the above facilities as low in the current environment, and we believe that the quality of our new product offering assets should allow us to raise more capital through increasing the size of our facilities with our existing lenders and attracting new lending relationships. We reached a settlement with the IRS concerning the tax treatment of net operating losses that we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. The original agreed federal income tax assessment of $9.1 million from the settlement (which excluded interest), now stands at $7.3 million after the effects of (1) the IRS’s application of a $1.0 million overpayment from our 2014 federal income tax return against the assessed balance and (2) a $0.8 million offsetting claim that we made on an amended return in 2015 as permitted under the terms of the settlement and that was approved by the IRS. Also as permitted under the settlement, we recently made additional claims on amended returns — claims which, if accepted, would eliminate all of the remaining $7.3 million outstanding assessment and result in a $0.6 million refund to us. The expected effect of our amended return filings is two-fold. First, it is our belief that the IRS will not pursue collections of the amounts for which we have asserted offsetting claims (i.e., all of the remaining $7.3 million assessment) until the final disposition of our amended return filings. Second, should the IRS accept some or all of the additional claims we have made, we would experience reversals of interest and penalty accruals we are currently making associated with the unpaid tax assessment; these accruals totaled $2.8 million as of December 31, 2015. Currently, the IRS is examining our additional amended return claims. At December 31, 2015, we had $51.0 million in unrestricted cash held by our various business subsidiaries. Because the characteristics of our assets and liabilities change, liquidity management has been a dynamic process for us, driven by the pricing and maturity of our assets and liabilities. We historically have financed our business through cash flows from operations, asset-backed structured financings and the issuance of debt and equity. Details concerning our cash flows for the twelve months ended December 31, 2015 are as follows: • During the twelve months ended December 31, 2015, we generated $0.9 million of cash flows from operations compared to the use of $20.7 million of cash flows from operations during the twelve months ended December 31, 2014. The decrease in use was principally related to 1) reductions in purchases of rental merchandise associated with our point-of-sale finance operations, 2) cost reductions we implemented throughout 2014, 3) collections associated with reimbursements received in respect of one of our portfolios, and 4) the receipt of approximately $2.0 million in the third quarter of 2015 as a result of the resolution of an outstanding dispute. These decreases in cash used were offset by decreases in collections associated with our credit card finance charge receivables in the twelve months ended December 31, 2015 relative to the same period in 2014, given diminished receivables levels. • During the twelve months ended December 31, 2015, we generated $14.5 million of cash from our investing activities, compared to generating $29.2 million of cash from investing activities during the twelve months ended December 31, 2014. This decrease is primarily due to increasing levels of investments in our point-of-sale and direct-to-consumer assets relative to the same period in 2014 and the shrinking size of our liquidating credit card portfolios and corresponding payments from customers. Offsetting these declines are the subsequent cash returns on our increasing investments in point-of-sale and direct to consumer receivables as well as reductions in our restricted cash levels, both of which contributed positively to our cash generated from investing activities. 33 • During the twelve months ended December 31, 2015, we used $3.6 million of cash in financing activities, compared to our use of $18.4 million of cash in financing activities during the twelve months ended December 31, 2014. In both periods, the data reflect net repayments of debt facilities corresponding with net declines in our loans and fees receivable that serve as the underlying collateral for the facilities (principally credit card and auto loans and fees receivable). Offsetting our use of cash in financing activities for both years are borrowings associated with our new credit products, net of repayments on those facilities. Beyond our immediate financing efforts discussed throughout this Report, we will continue to evaluate debt and equity issuances as a means to fund our investment opportunities. We expect to take advantage of any opportunities to raise additional capital if terms and pricing are attractive to us. Any proceeds raised under these efforts or additional liquidity available to us could be used to fund (1) the acquisition of additional financial assets associated with our point-of-sale, direct- to-consumer finance and credit card origination activities as well as the acquisition of credit card receivables portfolios, (2) further repurchases of our 5.875% convertible senior notes and common stock, and (3) investments in certain financial and non-financial assets or businesses. Pursuant to a share repurchase plan authorized by our Board of Directors on May 9, 2014, we are authorized as of December 31, 2015 to repurchase an additional 4,892,760 shares of our common stock through June 30, 2016. CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS Commitments and Contingencies We do not currently have any off-balance-sheet arrangements; however, we do have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur, which we refer to as contingent commitments. We do not currently expect that these contingent commitments will result in any material amounts being paid by us. See Note 11, “Commitments and Contingencies,” to our consolidated financial statements included herein for further discussion of these matters. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our consolidated financial statements included herein for a discussion of recent accounting pronouncements. CRITICAL ACCOUNTING ESTIMATES We have prepared our financial statements in accordance with GAAP. These principles are numerous and complex. We have summarized our significant accounting policies in the notes to our consolidated financial statements. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. It is impracticable for us to summarize every accounting principle that requires us to use judgment or estimates in our application. Nevertheless, we describe below the areas for which we believe that the estimations, judgments or interpretations that we have made, if different, would have yielded the most significant differences in our consolidated financial statements. On a quarterly basis, we review our significant accounting policies and the related assumptions, in particular, those mentioned below, with the audit committee of the Board of Directors. Measurements for Loans and Fees Receivable at Fair Value and Notes Payable Associated with Structured Financings at Fair Value Our valuation of loans and fees receivable, at fair value is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of net collected yield, principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. Similarly, our valuation of notes payable associated with structured financings, at fair value is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, 34 including: estimates of net collected yield, principal payment rates and expected principal credit loss rates on the credit card receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees. The estimates for credit losses, payment rates, servicing costs, contractual servicing fees, costs of funds, discount rates and yields earned on credit card receivables significantly affect the reported amount of our loans and fees receivable, at fair value and our notes payable associated with structured financings, at fair value on our consolidated balance sheet, and they 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. Allowance for Uncollectible Loans and Fees Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on our customers, we establish an allowance for uncollectible loans and fees receivable as an estimate of the probable losses inherent within those loans and fees receivable that we do not report at fair value. To the extent that actual results differ from our estimates of uncollectible loans and fees receivable, our results of operations and liquidity could be materially affected. Rental Merchandise Our rental merchandise includes consumer electronics, furniture, jewelry and other consumer goods that we initially record on our consolidated balance sheets at our cost. After our initial recording of the rental merchandise at cost, we reduce its carrying value for depreciation thereof. We depreciate our rental merchandise over contract rental periods, 12 months (monthly agreements) or 26 periods (bi-weekly agreements) under a $-0- salvage value assumption. These assumptions are periodically adjusted based on actual results and impairments as they occur. We follow this method to match, as closely as practicable, the recognition of depreciation expense with revenues associated with our customers' use of the rental merchandise. Currently, we do not maintain any levels of rental merchandise beyond what actually has been rented to our customers under our contracts with them. Revenue Recognition for Rental Merchandise Our rent-to-own terms with our customers typically provide for 26, non-refundable, bi-weekly rental payments over a contract period of 12 months. The customer can take ownership of the merchandise by exercising a purchase option or making all required rental payments. We accrue periodic billed rental amounts (net of allowances for uncollectible billings) into revenues over the rental period to which the billed amounts relate, and we defer recognition in revenues of any advanced customer rental payments until the rental period in which they are properly recognizable under the terms of the contract. Additionally, we do not recognize a receivable for future periods' rental obligations due to us from our customers as our customers can terminate their rental agreements at any time with no further obligation to us, other than the return of rental merchandise. 35 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Financial Statements in Item 15, “Exhibits and Financial Statement Schedules.” ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of December 31, 2015, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Act) was carried out on behalf of Atlanticus Holdings Corporation and our subsidiaries by our management and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer). Based upon the evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of December 31, 2015. Management’s Report on Internal Control over Financial Reporting Management of Atlanticus Holdings Corporation is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Act) for Atlanticus Holdings Corporation and our subsidiaries. Our management conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2015, based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control-Integrated Framework (2013 framework). Based on our evaluation under the COSO 2013 framework, management has concluded that internal control over financial reporting was effective as of December 31, 2015. This Annual Report does not include an attestation report of our independent public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our independent public accounting firm pursuant to SEC rules that permit us to provide only management’s report in this Annual Report. Changes in Internal Control Over Financial Reporting During the quarter ended December 31, 2015, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Limitations on Controls Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ITEM 9B. OTHER INFORMATION None. 36 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders in the sections entitled “Proposal One: Election of Directors,” “Executive Officers of Atlanticus,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” and is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders in the section entitled “Executive and Director Compensation” and is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation Plan Information" and is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders in the sections entitled “Related Party Transactions” and “Corporate Governance” and is incorporated by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders in the section entitled “Auditor Fees” and is incorporated by reference. 37 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV The following documents are filed as part of this Report: 1. Financial Statements INDEX TO FINANCIAL STATEMENTS Report of Independent Public Accounting Firm Consolidated Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Operations for the Years Ended December 31, 2015 and 2014 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015 and 2014 Consolidated Statements of Equity for the Years Ended December 31, 2015 and 2014 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014 Notes to Consolidated Financial Statements as of December 31, 2015 and 2014 Page F-1 F-2 F-3 F-4 F-5 F-6 F-7 2. Financial Statement Schedules None. 38 3. Exhibits Exhibit Number 3.1 Description of Exhibit Articles of Incorporation Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated(1) June 8, 2009, Proxy Statement/Prospectus, Annex B 3.1(a) Articles of Amendment to Articles of Incorporation November 30, 2012, Form 8-K exhibit 3.1 3.2 4.1 4.2 4.3 10.1 10.2† 10.2(a)† 10.2(b)† 10.2(c)† 10.2(d)† 10.2(e)† 10.2(f)† 10.3† 10.4† 10.5† 10.6† 10.7† Amended and Restated Bylaws (as amended through November 30, 2012) November 30, 2012, Form 8-K exhibit 3.2 Form of common stock certificate Filed herewith Indenture dated November 23, 2005 with U.S. Bank National Association, as successor to Wachovia Bank, National Association Supplemental Indenture dated June 30, 2009 with U.S. Bank National Association, as successor to Wachovia Bank, National Association November 28, 2005, Form 8-K, exhibit 4.1 July 7, 2009, Form 8-K, exhibit 4.2 Stockholders Agreement dated as of April 28, 1999 January 18, 2000, Form S-1, exhibit 10.1 2014 Equity Incentive Plan April 15, 2014, Definitive Proxy Statement on Schedule 14A, Appendix A Form of Restricted Stock Agreement–Directors May 15, 2014, Form 8-K, exhibit 10.2 Form of Restricted Stock Agreement–Employees May 15, 2014, Form 8-K, exhibit 10.3 Form of Stock Option Agreement–Directors Form of Stock Option Agreement–Employees May 15, 2014, Form 8-K, exhibit 10.4 May 15, 2014, Form 8-K, exhibit 10.5 Form of Restricted Stock Unit Agreement–Directors May 15, 2014, Form 8-K, exhibit 10.6 Form of Restricted Stock Unit Agreement–Employees May 15, 2014, Form 8-K, exhibit 10.7 Amended and Restated Employee Stock Purchase Plan Amended and Restated Employment Agreement for David G. Hanna Amended and Restated Employment Agreement for Richard W. Gilbert April 16, 2008, Definitive Proxy Statement on Schedule 14A, Appendix B December 29, 2008, Form 8-K, exhibit 10.1 December 29, 2008, Form 8-K, exhibit 10.3 Employment Agreement for Jeffrey A. Howard March 28, 2014, Form 10-K, exhibit 10.7 Employment Agreement for William R. McCamey March 28, 2014, Form 10-K, exhibit 10.8 10.8† Outside Director Compensation Package November 13, 2015, Form 10-Q, exhibit 10.1 10.9 Amended and Restated Note Purchase Agreement, dated March 1, 2010, among Merrill Lynch Mortgage Capital Inc., CCFC Corp. (formerly CompuCredit Funding Corp.), Atlanticus Services Corporation (formerly CompuCredit Corporation), and CompuCredit Credit Card Master Note Business Trust 10.10 Share Lending Agreement 10.10(a) Amendment to Share Lending Agreement 10.11 10.11(a) 10.11(b) 10.11(c) Agreement relating to the Sale and Purchase of Monument Business, dated April 4, 2007 Account Ownership Agreement for Partridge Acquired Portfolio Business Trust, dated April 4, 2007, with R Raphael & Sons PLC Receivables Purchase Agreement for Partridge Acquired Portfolio Business Trust, dated April 4, 2007, with R Raphael & Sons PLC Receivables Purchase Agreement for Partridge Acquired Portfolio Business Trust, dated April 4, 2007, with Partridge Funding Corporation June 25, 2010, Form 8-K/A, exhibit 10.1 November 22, 2005, Form 8-K, exhibit 10.1 March 6, 2012, Form 10-K, exhibit 10.12(a) August 1, 2007, Form 10-Q, exhibit 10.1 August 1, 2007, Form 10-Q, exhibit 10.2 August 1, 2007, Form 10-Q, exhibit 10.3 August 1, 2007, Form 10-Q, exhibit 10.4 39 Exhibit Number 10.11(d) 10.11(e) 10.11(f) 10.12 10.13 10.13(a) 10.13(b) 10.13(c) 10.13(d) 10.13(e) 10.13(f) 10.14 Description of Exhibit Master Indenture for Partridge Acquired Portfolio Business Trust, dated April 4, 2007, among Partridge Acquired Portfolio Business Trust, Deutsche Bank Trust Company Americas, Deutsche Bank AG, London Branch and CIAC Corporation (formerly CompuCredit International Acquisition Corporation) Series 2007-One Indenture Supplement for Partridge Acquired Portfolio Business Trust, dated April 4, 2007 Transfer and Servicing Agreement for Partridge Acquired Portfolio Business Trust, dated April 4, 2007, among Partridge Funding Corporation, CIAC Corporation (formerly CompuCredit International Acquisition Corporation), Partridge Acquired Portfolio Business Trust and Deutsche Bank Trust Company Americas Assumption Agreement dated June 30, 2009 between Atlanticus Holdings Corporation (formerly CompuCredit Holdings Corporation) and Atlanticus Services Corporation (formerly CompuCredit Corporation) Loan and Security Agreement, dated October 4, 2011 among CARS Acquisition LLC, et al and Wells Fargo Preferred Capital, Inc. Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated(1) August 1, 2007, Form 10-Q, exhibit 10.5 August 1, 2007, Form 10-Q, exhibit 10.6 August 1, 2007, Form 10-Q, exhibit 10.7 July 7, 2009, Form 8-K, exhibit 10.1 March 6, 2012, Form 10-K, exhibit 10.16(a) First Amendment to Loan and Security Agreement August 13, 2013, Form 10-Q, exhibit 10.1 Second Amendment and Joinder to Loan and Security Agreement August 13, 2013, Form 10-Q, exhibit 10.2 Third Amendment to Loan and Security Agreement March 28, 2014, Form 10-K, exhibit 10.15(c) Fourth Amendment to Loan and Security Agreement March 28, 2014, Form 10-K, exhibit 10.15(d) Fifth Amendment to Loan and Security Agreement August 14, 2014, Form 10-Q, exhibit 10.1 Agreement by Atlanticus Holdings Corporation (formerly CompuCredit Holdings Corporation) in favor of Wells Fargo Preferred Capital, Inc. Loan and Security Agreement, dated November 26, 2014, by and among Atlanticus Holdings Corporation, Certain Subsidiaries Named Therein, and Dove Ventures, LLC March 6, 2012, Form 10-K, exhibit 10.16(a) March 6, 2015, Form 10-K, exhibit 10.15 10.14(a) First Amendment to Loan and Security Agreement, dated November 23, 2015 21.1 23.1 31.1 31.2 32.1 Subsidiaries of the Registrant Consent of BDO USA, LLP Certification of Principal Executive Officer pursuant to Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Rule 13a-14(a) Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith 40 Exhibit Number 101.INS Description of Exhibit XBRL Instance Document Incorporated by Reference from Atlanticus’ SEC Filings Unless Otherwise Indicated(1) Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document Filed herewith Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith † Management contract, compensatory plan or arrangement. (1) Documents incorporated by reference from SEC filings made prior to June 2009 were filed under CompuCredit Corporation (now Atlanticus Services Corporation) (File No. 000-25751), our predecessor issuer. 41 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on March 30, 2016. SIGNATURES Atlanticus Holdings Corporation By: /s/ David G. Hanna David G. Hanna Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date /s/David G. Hanna David G. Hanna Chief Executive Officer and Chairman of the Board (Principal Executive Officer) March 30, 2016 /s/ William R. McCamey William R. McCamey Chief Financial Officer (Principal Financial Officer) March 30, 2016 /s/ Mitchell C. Saunders Mitchell C. Saunders Chief Accounting Officer (Principal Accounting Officer) /s/ Jeffrey A. Howard Jeffrey A. Howard Director /s/ Deal W. Hudson Deal W. Hudson Director /s/ Mack F. Mattingly Mack F. Mattingly Director /s/ Thomas G. Rosencrants Thomas G. Rosencrants Director March 30, 2016 March 30, 2016 March 30, 2016 March 30, 2016 March 30, 2016 42 Report of Independent Registered Public Accounting Firm The Board of Directors Atlanticus Holdings Corporation We have audited the accompanying consolidated balance sheets of Atlanticus Holdings Corporation (the "Company") as of December 31, 2015 and 2014 and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atlanticus Holdings Corporation at December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ BDO USA, LLP Atlanta, Georgia March 30, 2016 F-1 Atlanticus Holdings Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands) Assets Unrestricted cash and cash equivalents Restricted cash and cash equivalents Loans and fees receivable: Loans and fees receivable, net (of $16,721 and $15,730 in deferred revenue and $21,474 and $19,957 in allowances for uncollectible loans and fees receivable at December 31, 2015 and December 31, 2014, respectively) Loans and fees receivable, at fair value Loans and fees receivable pledged as collateral under structured financings, at fair value Rental merchandise, net of depreciation Property at cost, net of depreciation Investments in equity-method investees Deposits Prepaid expenses and other assets Total assets Liabilities Accounts payable and accrued expenses Notes payable, at face value Notes payable to related parties Notes payable associated with structured financings, at fair value Convertible senior notes Income tax liability Total liabilities Commitments and contingencies (Note 11) Equity Common stock, no par value, 150,000,000 shares authorized: 15,332,041 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 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 Accumulated other comprehensive loss Retained deficit Total shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity December 31, 2015 December 31, 2014 $ 51,033 $ 20,547 39,925 22,741 141,949 6,353 20,353 4,666 5,686 10,123 825 19,194 280,729 51,722 90,000 20,000 20,970 64,783 22,303 $ $ 105,897 18,255 34,905 14,177 7,036 15,833 1,589 7,997 268,355 39,968 78,749 20,000 36,511 64,752 20,933 269,778 260,913 $ $ — 211,083 (600) (199,524) 10,959 (8) 10,951 — 210,519 (1,841) (201,237) 7,441 1 7,442 $ 280,729 $ 268,355 See accompanying notes. F-2 Atlanticus Holdings Corporation and Subsidiaries Consolidated Statements of Operations (Dollars in thousands, except per share data) Interest income: Consumer loans, including past due fees Other Total interest income Interest expense Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable Fees and related income on earning assets Net recovery of (losses upon) charge off of loans and fees receivable recorded at fair value, net of recoveries Provision for losses on loans and fees receivable recorded at net realizable value Net interest income, fees and related income on earning assets Other operating income: Servicing income Other income Gain on repurchase of convertible senior notes Equity in income of equity-method investees Total other operating income Other operating expense: Salaries and benefits Card and loan servicing Marketing and solicitation Depreciation, primarily related to rental merchandise Other Total other operating expense Income (loss) before income taxes Income tax (expense) benefit Net income For the Twelve Months Ended December 31, 2015 2014 $ 69,830 $ 73,330 87 69,917 (18,330) 51,587 53,182 38,878 (26,608) 117,039 5,004 553 — 2,780 8,337 19,825 37,071 2,235 40,778 21,932 121,841 3,535 (1,829) 1,706 346 73,676 (24,052) 49,624 88,830 4,852 (30,828) 112,478 4,910 2,084 12,068 6,983 26,045 19,777 48,599 2,381 69,096 25,975 165,828 (27,305) 34,632 7,327 (150) 7,177 0.51 0.51 Net loss (income) attributable to noncontrolling interests Net income attributable to controlling interests Net income attributable to controlling interests per common share—basic Net income attributable to controlling interests per common share—diluted 7 1,713 0.12 0.12 $ $ $ $ $ $ See accompanying notes. F-3 Atlanticus Holdings Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Dollars in thousands) Net income Other comprehensive income (loss): Foreign currency translation adjustment For the Twelve Months Ended December 31, 2015 2014 $ 1,706 $ 7,327 (50) (1,758) Reclassifications of foreign currency translation adjustment to consolidated statements of operations Income tax (expense) benefit related to other comprehensive income (loss) Comprehensive income Comprehensive loss (income) attributable to noncontrolling interests 1,849 (558) 2,947 7 Comprehensive income attributable to controlling interests $ 2,954 $ — 654 6,223 (150) 6,073 See accompanying notes. F-4 Atlanticus Holdings Corporation and Subsidiaries Consolidated Statements of Equity For the Twelve Months Ended December 31, 2015 and 2014 (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, 2013 15,594,325 $ — $ 210,315 $ (737) $ (208,414) $ (6) $ 1,158 Compensatory stock issuances, net of forfeitures 61,868 Distributions to owners of noncontrolling interests Amortization of deferred stock- based compensation costs Redemption and retirement of shares Tax effects of stock-based compensation costs Other comprehensive loss — — (347,222) — — — — — — — — — — 1,432 (257) (971) — — — — — — — — — — — (1,104) 7,177 — — (143) (143) — — — 150 1,432 (257) (971) 6,223 Balance at December 31, 2014 15,308,971 $ — $ 210,519 $ (1,841) $ (201,237) $ 1 $ 7,442 Stock options exercises and proceeds related thereto Compensatory stock issuances, net of forfeitures Distributions to owners of noncontrolling interests Amortization of deferred stock- based compensation costs Redemption and retirement of shares Tax effects of stock-based compensation plans Other comprehensive income 3,334 106,334 — — (86,598) — — — — — — — — — 8 — — 846 (259) (31) — — — — — — — — — — — — — 1,241 1,713 — — (2) — — — (7) 8 — (2) 846 (259) (31) 2,947 Balance at December 31, 2015 15,332,041 $ — $ 211,083 $ (600) $ (199,524) $ (8) $ 10,951 See accompanying notes. F-5 Atlanticus Holdings Corporation and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) Operating activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of rental merchandise Depreciation, amortization and accretion, net Losses upon charge off of loans and fees receivable recorded at fair value Provision for losses on loans and fees receivable Interest expense from accretion of discount on convertible senior notes Income from accretion of discount associated with receivables purchases Unrealized gain on loans and fees receivable and underlying notes payable held at fair value Income from equity-method investments Gain on repurchase of convertible senior notes Changes in assets and liabilities: (Increase) decrease in uncollected fees on earning assets Increase (decrease) in income tax liability Decrease in deposits Increase (decrease) in accounts payable and accrued expenses Additions to rental merchandise Other Net cash provided by (used in) operating activities Investing activities Decrease (increase) in restricted cash Proceeds from equity-method investees Investments in earning assets Proceeds from earning assets Purchases and development of property, net of disposals Net cash provided by investing activities Financing activities Noncontrolling interests distributions, net Purchase and retirement of outstanding stock Proceeds from borrowings Repayment of borrowings Net cash used in financing activities Effect of exchange rate changes on cash Net increase (decrease) in unrestricted cash Unrestricted cash and cash equivalents at beginning of period Unrestricted cash and cash equivalents at end of period Supplemental cash flow information Cash paid for interest Net cash income tax payments Supplemental non-cash information Issuance of stock options and restricted stock See accompanying notes. F-6 For the Twelve Months Ended December 31, 2015 2014 $ 1,706 $ 7,327 38,565 2,000 7,440 26,608 481 (40,777) (7,527) (2,780) — (2,962) 719 764 12,752 (29,053) (7,072) 864 2,167 8,490 63,148 4,927 14,183 30,828 637 (33,774) (7,042) (6,983) (12,068) 3,132 (34,705) 319 (4,907) (48,473) 2,717 (20,734) (3,892) 12,009 (271,061) (218,656) 275,825 243,807 (884) 14,537 (2) (259) (4,068) 29,200 (143) (257) 164,897 115,545 (168,208) (133,545) (3,572) (721) 11,108 39,925 51,033 17,922 1,117 532 $ $ $ $ (18,400) (1,014) (10,948) 50,873 39,925 24,421 73 931 $ $ $ $ Atlanticus Holdings Corporation and Subsidiaries Notes to Consolidated Financial Statements December 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 consumers who may have been declined under traditional financing options. 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. Within our Credit and Other Investments segment, we originate consumer loans through multiple channels, including retail point-of-sale, direct solicitation and most recently through testing of domestic credit card originations through third-party financial institutions. These products are all offered through our Fortiva brand. In our Fortiva Retail Credit (our "point-of- sale" operations) channel, we partner with retailers and service providers in various industries across the United States ("U.S.") to provide credit to their customers for the purchase of goods and services. These services are often extended to customers who may have been declined under traditional financing options. We specialize in providing this "second look" credit service in various industries across the U.S. Additionally, we are able to market our general purpose Fortiva Personal Loans and Fortiva Credit Cards (collectively, our direct-to-consumer operations) directly to consumers through additional channels enabling us to reach consumers through a diverse origination platform which includes direct mail, Internet-based marketing and through partnerships. Using our infrastructure and technology platform, we also provide loan servicing activities, including underwriting, marketing, customer service and collections operations for third parties. 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 were 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 lending and other financial technologies. These investments are carried at the lower of cost or market valuation, and the remaining associated book value as of December 31, 2015 is negligible given variations in the ascribed values since acquisition. Some of these investees 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 are no pending liquidity events, and ascribing value to these investments at this time 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. 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 providing certain installment lending products in addition to our traditional loans secured by automobiles. 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. F-7 Basis of Presentation and Use of Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“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. Unrestricted Cash and Cash Equivalents Unrestricted cash and cash equivalents consist of cash, money market investments and overnight deposits. We consider all highly liquid cash investments with low interest rate risk and original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market. We maintain unrestricted cash and cash equivalents for general operating purposes and to meet our longer term debt obligations. The majority of these cash balances are not insured. Restricted Cash Restricted cash as of December 31, 2015 and 2014 includes certain collections on loans and fees receivable, the cash balances of which are required to be distributed to noteholders under our debt facilities. Our restricted cash balances also include minimum cash balances held in accounts at the request of certain of our business partners. 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. Loans and Fees Receivable, Net. Our loans and fees receivable, net, currently consist of receivables carried at net realizable value associated with (a) originated United Kingdom ("U.K.") credit cards and U.S. point-of-sale financing and other credit products currently being marketed within our Credit and Other Investments segment and (b) our Auto Finance segment’s operations. Our Credit and Other Investments segment loans and fees receivable generally are unsecured, while our Auto Finance segment loans and fees receivable generally are secured by the underlying automobiles in which we hold the vehicle title. As applicable, we show loans and fees receivable net of both an allowance for uncollectible loans and fees receivable and unearned fees (or “deferred revenue”). For example, our point-of-sale and auto finance loans and fees receivable include principal balances and associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned portion of loan discounts which we recognize over the life of each loan. For our loans and fees receivable carried at net realizable value (i.e., as opposed to those carried at fair value), we determine the necessary allowance for uncollectible loans and fees receivable by analyzing some or all of the following: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on our customers; changes in underwriting criteria; and estimated recoveries. A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans and fees receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary. F-8 Components of our loans and fees receivable, net (in millions) are as follows: Balance at December 31, 2014 Additions Subtractions Balance at December 31, 2015 Loans and fees receivable, gross $ Deferred revenue Allowance for uncollectible loans and fees receivable Loans and fees receivable, net $ 141.6 $ (15.7) (20.0) 105.9 $ 334.9 (41.8) (26.6) 266.5 $ $ (296.4) $ 40.8 25.1 (230.5) $ 180.1 (16.7) (21.5) 141.9 Balance at December 31, 2013 Additions Subtractions Balance at December 31, 2014 Loans and fees receivable, gross $ Deferred revenue Allowance for uncollectible loans and fees receivable Loans and fees receivable, net $ 134.7 $ (13.3) (24.2) 97.2 $ 285.4 (36.2) (30.8) 218.4 $ $ (278.5) $ 33.8 35.0 (209.7) $ 141.6 (15.7) (20.0) 105.9 As of December 31, 2015 and December 31, 2014, the weighted average remaining accretion period for the $16.7 million and $15.7 million, respectively, of deferred revenue reflected in the above tables was 11 months for both periods presented. A roll-forward (in millions) of our allowance for uncollectible loans and fees receivable by class of receivable is as follows: For the Twelve Months Ended December 31, 2015 Allowance for uncollectible loans and fees receivable: Balance at beginning of period Provision for loan losses Charge offs Recoveries Balance at end of period As of December 31, 2015 Allowance for uncollectible loans and fees receivable: Balance at end of period individually evaluated for impairment Balance at end of period collectively evaluated for impairment Loans and fees receivable: Loans and fees receivable, gross Loans and fees receivable individually evaluated for impairment Loans and fees receivable collectively evaluated for impairment Credit Cards Auto Finance Other Unsecured Lending Products Total (2.7) $ (1.7) 3.7 (0.5) (1.2) $ (1.2) $ (2.2) 2.6 (0.9) (1.7) $ (16.1) $ (22.7) 21.5 (1.3) (18.6) $ (20.0) (26.6) 27.8 (2.7) (21.5) Credit Cards Auto Finance Other Unsecured Lending Products Total — $ (0.1) $ (1.3) $ (1.4) (1.2) $ (1.6) $ (17.3) $ (20.1) 5.2 $ 76.0 — $ 0.2 5.2 $ 75.8 $ $ $ 98.9 1.5 97.4 $ $ $ 180.1 1.7 178.4 $ $ $ $ $ $ $ F-9 For the Twelve Months Ended December 31, 2014 Allowance for uncollectible loans and fees receivable: Balance at beginning of period Provision for loan losses Charge offs Recoveries Balance at end of period As of December 31, 2014 Allowance for uncollectible loans and fees receivable: Balance at end of period individually evaluated for impairment Balance at end of period collectively evaluated for impairment Loans and fees receivable: Loans and fees receivable, gross Loans and fees receivable individually evaluated for impairment Loans and fees receivable collectively evaluated for impairment Credit Cards Auto Finance Other Unsecured Lending Products Total (11.6) $ (8.8) 18.1 (0.4) (2.7) $ (1.4) $ (0.9) 2.5 (1.4) (1.2) $ (11.2) $ (21.1) 16.8 (0.6) (16.1) $ (24.2) (30.8) 37.4 (2.4) (20.0) Credit Cards Auto Finance Other Unsecured Lending Products Total — $ (0.1) $ (3.0) $ (3.1) (2.7) $ (1.1) $ (13.1) $ (16.9) 6.7 $ 70.7 — $ 0.2 6.7 $ 70.5 $ $ $ 64.2 5.0 59.2 $ $ $ 141.6 5.2 136.4 $ $ $ $ $ $ $ The components (in millions) of loans and fees receivable, gross as of the date of each of our consolidated balance sheets are as follows: Current loans receivable Current fees receivable Delinquent loans and fees receivable Loans and fees receivable, gross December 31, 2015 December 31, 2014 $ $ 150.0 $ 4.5 25.6 180.1 $ 116.1 3.4 22.1 141.6 Delinquent loans and fees receivable reflect the principal, fee and interest components of loans we did not collect on or prior to 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. We discontinue charging interest and fees for most of our credit products when loans and fees receivable become contractually 90 or more days past due. We charge off our Credit and Other Investments and Auto Finance segment receivables when they become contractually more than 180 days past due or 120 days past due for the point-of-sale finance and direct-to-consumer installment loan product. For our rent-to-own products, we charge off receivables and impair associated rental merchandise if the customer has not made a payment within the previous 90 days. However, if a customer makes a payment greater than or equal to two minimum payments within a month of the charge- off date, we may reconsider whether charge-off status remains appropriate. For all of our products, we charge off receivables within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full. Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans and fees receivable and effectively offset our provision for losses on loans and fees receivable recorded at net realizable value on our consolidated statements of operations. (All of the above discussion relates only to our loans and fees receivable for which we use net realizable value (i.e., as opposed to fair value) accounting. For loans and fees receivable recorded at fair value, recoveries offset losses upon charge off of loans and fees receivable recorded at fair value, net of recoveries on our consolidated statements of operations.) F-10 We consider loan delinquencies a key indicator of credit quality because this measure 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 December 31, 2015 and December 31, 2014 is as follows: Balance at December 31, 2015 30-59 days past due 60-89 days past due 90 or more days past due Delinquent loans and fees receivable, gross Current loans and fees receivable, gross Total loans and fees receivable, gross Balance of loans 90 or more days past due and still accruing interest and fees Balance at December 31, 2014 30-59 days past due 60-89 days past due 90 or more days past due Delinquent loans and fees receivable, gross Current loans and fees receivable, gross Total loans and fees receivable, gross Balance of loans 90 or more days past due and still accruing interest and fees $ $ $ $ $ $ Credit Cards Auto Finance Other Unsecured Lending Products 0.2 0.1 0.4 0.7 4.5 5.2 $ $ 6.9 2.2 1.8 10.9 65.1 76.0 — $ 1.5 $ $ $ 0.4 0.4 1.6 2.4 4.3 6.7 $ $ 6.3 2.1 1.7 10.1 60.6 70.7 — $ 1.6 $ $ $ Total 11.5 5.4 8.7 25.6 154.5 180.1 4.4 3.1 6.5 14.0 84.9 98.9 $ $ — $ 1.5 Total 9.5 4.7 7.9 22.1 119.5 141.6 2.8 2.2 4.6 9.6 54.6 64.2 $ $ — $ 1.6 Credit Cards Auto Finance Other Unsecured Lending Products Loans and Fees Receivable, at Fair Value. Both categories of our loans and fees receivable held at fair value represent receivables underlying credit card securitization trusts that are consolidated onto our consolidated balance sheet, some portfolios of which are unencumbered (those labeled loans and fees receivables, at fair value) and some of which are still encumbered under structured financing facilities (those labeled loans and fees receivable pledged as collateral under structured financings, at fair value). Further details concerning our loans and fees receivable held at fair value are presented within Note 6, “Fair Values of Assets and Liabilities.” Rental Merchandise, Net of Depreciation Our rental merchandise includes consumer electronics, furniture, jewelry and other consumer goods that we initially record on our consolidated balance sheets at our cost. After our initial recording of the rental merchandise at cost, we reduce its carrying value for depreciation thereof. We typically depreciate our rental merchandise over contract rental periods, generally 12 months (monthly agreements) or 26 periods (bi-weekly agreements) under a $-0- salvage value assumption. These assumptions are periodically adjusted based on actual results and impairments as they occur. We follow this method to match, as closely as practicable, the recognition of depreciation expense with revenues associated with our customers' use of the rental merchandise. Currently, we do not maintain any levels of rental merchandise beyond what actually has been rented to our customers under our contracts with them. We include a "Rental revenue" line item within our table below detailing our fees and related income on earning assets category on our consolidated statements of operations. Depreciation associated with our rental merchandise totaled $38.6 million and $63.1 million for the twelve months ended December 31, 2015 and 2014, respectively. F-11 Property at Cost, Net of Depreciation We capitalize costs related to internal development and implementation of software used in our operating activities in accordance with applicable accounting literature. These capitalized costs consist almost exclusively of fees paid to third-party consultants to develop code and install and test software specific to our needs and to customize purchased software to maximize its benefit to us. We record our property at cost less accumulated depreciation or amortization. We compute depreciation expense using the straight-line method over the estimated useful lives of our assets, which are approximately 40 years for buildings, five years for furniture, fixtures and equipment, and three years for software. We amortize leasehold improvements over the shorter of their estimated useful lives or the terms of their respective underlying leases. We periodically review our property to determine if it is impaired. Accordingly we impaired $2.7 million of software costs associated with software development in 2014 as planned uses for this software were discontinued. We incurred no such impairment costs in 2015. 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 record our 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 use the equity method for our 66.7% investment in a limited liability company formed in 2004 to acquire a portfolio of credit card receivables. We account for this investment using the equity method of accounting due to specific voting and veto rights held by each investor, which do not allow us to control this investee. We also used 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 non-U.S. acquired credit card receivables (the “Non-U.S. Acquired Portfolio”) until December 2014 at which point the entity was consolidated. The entity was consolidated as a result of our distribution of certain assets to an unrelated third-party partner in that entity for their interest (the only outstanding minority interest). As such, as of December 31, 2015 and December 31, 2014 only one equity-method investee remained. We evaluate our investments in the equity-method investee for impairment each quarter by comparing the carrying amount of the investment to its fair value. Because no active market exists for the investee's limited liability company membership interest, we evaluate our investments for impairment based on our evaluation of the fair value of the equity- method investee’s net assets relative to its carrying value. If we ever were to determine that the carrying value of our investment in the equity-method investee was greater than its fair value, we would write the investment down to its fair value. Deposits Deposits include various amounts required to be maintained with our landlords, third-party issuing and other banking relationships and retail electronic payment network providers associated with our credit card receivables in the U.K. Prepaid Expenses and Other Assets Prepaid expenses and other assets include amounts paid to third parties for marketing and other services. These prepaid amounts are expensed as the underlying related services are performed. Also included are (1) commissions paid associated with our various office leases which we amortize into expense over the lease terms, (2) deferred loan costs associated with our convertible senior note issuances and certain notes receivable and (3) ongoing deferred costs associated with service contracts. Fees and Related Income on Earning Assets Fees and related income on earning assets primarily include: (1) fees associated with our credit products, including the receivables underlying our U.S. point-of-sale finance and direct-to-consumer activities, and our credit card receivables; (2) F-12 changes in the fair value of loans and fees receivable recorded at fair value; (3) changes in fair value of notes payable associated with structured financings recorded at fair value; (4) revenues associated with rent payments on rental merchandise; and (5) (losses) gains associated with our investments in securities. The following summarizes our revenue recognition policies for the revenue from our rent-to-own program. Our rent- to-own terms with our customers typically provide for 26, non-refundable, bi-weekly rental payments over a contract period of 12 months. Generally, the customer can take ownership of the merchandise by exercising a purchase option or making all required rental payments. We accrue periodic billed rental amounts (net of allowances for uncollectible billings) into revenues over the rental period to which the billed amounts relate, and we defer recognition in revenues of any advanced customer rental payments until the rental period in which they are properly recognizable under the terms of the contract. Additionally, we do not recognize a receivable for future periods' rental obligations due to us from our customers; our customers can terminate their rental agreements at any time with no further obligation to us, other than the return of rental merchandise. We include billed rental receivable amounts (net of allowances for uncollectible billings) within our loans and fees receivable, net consolidated balance sheet category. We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged to the cardholders’ accounts. We accrete annual membership fees associated with our credit card receivables into income on a straight-line basis over the cardholder privilege period. Similarly, fees on our other credit products are recognized when earned, which coincides with the time they are charged to the customer’s account. The components (in thousands) of our fees and related income on earning assets are as follows: Fees on credit products Changes in fair value of loans and fees receivable recorded at fair value Changes in fair value of notes payable associated with structured financings recorded at fair value Rental revenue Other Total fees and related income on earning assets Twelve months ended December 31, 2015 2014 $ $ 6,907 $ 6,265 1,262 36,032 2,716 53,182 $ 18,662 14,460 (7,418) 58,457 4,669 88,830 The above changes in the 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 in Net recovery of (losses upon) charge off of loans and fees receivable recorded at fair value, net of recoveries 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. Card and Loan Servicing Expenses Card and loan servicing costs primarily include collections and customer service expenses. Within this category of expenses are personnel, service bureau, cardholder correspondence and other direct costs associated with our collections and customer service efforts. Card and loan servicing costs also include outsourced collections and customer service expenses. We expense card and loan servicing costs as we incur them, with the exception of prepaid costs, which we expense over respective service periods. Marketing and Solicitation Expenses We expense product solicitation costs, including printing, credit bureaus, list processing, telemarketing, postage and Internet marketing fees, as we incur these costs or expend resources. Recent Accounting Pronouncements In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-07, Simplifying the Transition to the Equity Method of Accounting. The ASU eliminates the requirement that when an investment qualifies for use of the equity F-13 method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively, as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the cost of acquiring the additional interest in the investee should be combined with the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. No retroactive adjustment of the investment is required. The ASU also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The ASU is effective for us January 1, 2017. The impact of adoption of this authoritative guidance is not expected to result in a material impact on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which would require lessees to recognize assets and liabilities for most leases, changing certain aspects of current lessor accounting, among other things. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We have not yet determined the potential effects of adopting ASU 2016-02 on our consolidated financial statements. In April 2015, the FASB issued updated authoritative guidance related to debt issuance costs. The amendment modifies the presentation of unamortized debt issuance costs to present such amounts as a direct deduction from the face amount of the debt, similar to unamortized debt discounts and premiums, rather than as an asset. Amortization of the debt issuance costs continues to be reported as interest expense. The guidance is effective for us beginning January 1, 2016. The impact of adoption of this authoritative guidance is not expected to result in a material impact on our consolidated financial statements. 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. In August 2015, the FASB delayed the effective date by one year and the guidance will now be effective for annual and interim periods beginning January 1, 2018 and early adoption is permitted. We do not plan to early adopt the guidance. We have not yet determined the potential effects of the adoption of ASU 2014-09 on our 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 December 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 other than disclosure related to the completion of a review by U.K. taxing authorities of valued-added tax (“VAT”) filings made by one of our U.K. subsidiaries as noted in Note 11 "Commitments and Contingencies." 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 December 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. F-14 Summary operating segment information (in thousands) is as follows: Twelve months ended December 31, 2015 Interest income: Credit and Other Investments Auto Finance Total Consumer loans, including past due fees $ 42,140 $ 27,690 $ 69,830 Other Total interest income Interest expense Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable Fees and related income on earning assets Servicing income Gain on repurchase of convertible senior notes Depreciation of rental merchandise Equity in income of equity-method investees (Loss) income before income taxes Income tax benefit (expense) Total assets Twelve months ended December 31, 2014 Interest income: 87 42,227 (17,130) — 27,690 (1,200) 87 69,917 (18,330) 25,097 50,817 4,136 $ $ $ — $ (38,565) $ 2,780 $ (4,689) $ $ 500 211,227 $ 26,490 2,365 868 $ $ $ 51,587 53,182 5,004 — $ — $ — $ — (38,565) 2,780 $ 8,224 (2,329) $ 69,502 3,535 (1,829) $ 280,729 $ $ $ $ $ $ $ $ $ Credit and Other Investments Auto Finance Total Consumer loans, including past due fees $ 49,091 $ 24,239 $ 73,330 Other Total interest income Interest expense Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable Fees and related income on earning assets Servicing income Gain on repurchase of convertible senior notes Depreciation of rental merchandise Equity in income of equity-method investees (Loss) income before income taxes Income tax benefit (expense) Total assets 4. Shareholders' Equity Retired Shares 346 49,437 (22,762) — 24,239 (1,290) $ $ $ $ $ $ $ $ $ 26,675 88,555 4,246 $ $ $ 12,068 $ (63,148) $ 6,983 $ (32,107) $ $ 36,062 203,300 $ 22,949 275 664 $ $ $ — $ — $ — $ 4,802 $ (1,430) $ 65,055 346 73,676 (24,052) 49,624 88,830 4,910 12,068 (63,148) 6,983 (27,305) 34,632 $ 268,355 During the years ended December 31, 2015 and 2014, we repurchased and contemporaneously retired 86,598 and 133,799 shares of our common stock at an aggregate cost of $259,000 and $257,000, respectively, pursuant to open market purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. We had 1,459,233 loaned shares outstanding at December 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. F-15 5. Investments in Equity-Method Investees Our equity-method investment outstanding at December 31, 2015 consists 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 its interest. Accordingly, as of December 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: Loans and fees receivable pledged as collateral under structured financings, at fair value Total assets Total liabilities Members’ capital Net interest income, fees and related income on earning assets Total other operating income Net income Net income attributable to our equity investment in investee As of December 31, 2015 December 31, 2014 14,470 15,237 54 15,183 $ $ $ $ 22,571 23,831 82 23,749 Twelve months ended December 31, 2015 2014 4,200 $ — $ 3,447 2,780 $ $ 12,168 117 11,006 6,983 $ $ $ $ $ $ $ $ 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: Investments in non-marketable debt securities, at fair value Total assets Total liabilities Members’ capital Net interest income, fees and related income on earning assets Net income Net income attributable to our equity investment in investee 6. Fair Values of Assets and Liabilities As of December 31, 2014 $ $ $ $ — — — — Twelve Months Ended December 31, 2014 $ $ $ 6,603 6,558 3,279 We elected the fair value option with respect to our investments in equity securities as well as our credit card loans and fees receivable portfolios, the retained interests in which we historically recorded at fair value under securitization structures F-16 that were off balance sheet prior to accounting rules changes requiring their consolidation into our financial statements effective as of the beginning of 2010. With respect to our equity securities, we decided to carry these assets at fair value due to our intent to invest and redeem these investments with expected frequency. For our credit card loans and fees receivable portfolios underlying our formerly off-balance-sheet securitization structures, we elected the fair value option because, in contrast to substantially all of our other assets, we had significant experiences in determining the fair value of these assets in connection with our historic fair value accounting for our retained interests in their associated securitization structures. Because we elected to account for the credit card receivables underlying our formerly off-balance-sheet securitization structures at fair value, accounting rules require that we account for the notes payable issued by such securitization structures at fair value as well. For all of our other credit card receivables that have never been owned by our formerly off-balance-sheet securitization structures, we have not elected the fair value option, and we record such receivables at net realizable value within loans and fees receivable, net on our consolidated balance sheets. For all of our other debt other than the notes payable underlying our formerly off-balance sheet credit card securitization structures, we have not elected the fair value option. Nevertheless, pursuant to applicable requirements, we include disclosures of the fair value of this other debt to the extent practicable within the disclosures below. Additionally, we have other liabilities that we are required to carry at fair value in our consolidated financial statements, and they also are addressed within the disclosures below. Where applicable as noted above, we account for our financial assets and liabilities at fair value based upon a three- tiered valuation system. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety. 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 December 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 December 31, 2015 (1) Loans and fees receivable, net for which it is practicable to estimate fair value Loans and fees receivable, at fair value Loans and fees receivable pledged as collateral, at fair value 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 $ $ $ — $ — $ — $ — $ — $ 161,199 6,353 — $ 20,353 $ $ $ 141,949 6,353 20,353 F-17 Assets – As of December 31, 2014 (1) Loans and fees receivable, net for which it is practicable to estimate fair value Loans and fees receivable, net for which it is not practicable to estimate fair value (2) Loans and fees receivable, at fair value Loans and fees receivable pledged as collateral, at fair value 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 $ $ $ $ — $ — $ — $ — $ — $ 111,010 $ 101,753 — $ — $ — $ 18,255 — $ 34,905 4,144 18,255 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.” For our loans and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk. F-18 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 twelve months ended December 31, 2015 and December 31, 2014: Loans and Fees Receivable Pledged as Collateral under Structured Financings, at Fair Value Loans and Fees Receivable, at Fair Value Total $ 18,255 $ 34,905 $ 53,160 Balance at January 1, 2015 Total gains—realized/unrealized: Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value Net revaluations of loans and fees receivable, at fair value Settlements, net Impact of foreign currency translation Net transfers between categories Net transfers in and/or out of Level 3 Balance at December 31, 2015 Balance at January 1, 2014 Total gains—realized/unrealized: Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value Net revaluations of loans and fees receivable, at fair value Settlements, net Impact of foreign currency translation Net transfers between categories Net transfers in and/or out of Level 3 $ $ $ $ — 3,772 (15,395) (279) — — 6,353 12,080 — 2,469 (7,524) — 11,230 — 2,493 2,493 — (17,045) — — — 20,353 88,132 $ $ 3,772 (32,440) (279) — — 26,706 100,212 11,991 11,991 — (52,748) (1,240) (11,230) — 2,469 (60,272) (1,240) — — 53,160 Balance at December 31, 2014 $ 18,255 $ 34,905 $ 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. The net revaluation of loans and fees receivable is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of net collected yield, principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. F-19 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 December 31, 2015 and December 31, 2014: Quantitative Information about Level 3 Fair Value Measurements Fair Value Measurements Fair Value at December 31, 2015 Loans and fees receivable, at fair value $ 6,353 Valuation Technique Discounted cash flows Unobservable Input Gross yield Principal payment rate Expected credit loss rate Servicing rate Discount rate Loans and fees receivable pledged as collateral under structured financings, at fair value $ 20,353 Discounted cash flows Gross yield Principal payment rate Expected credit loss rate Servicing rate Discount rate Quantitative Information about Level 3 Fair Value Measurements Fair Value Measurements Fair Value at December 31, 2014 Loans and fees receivable, at fair value $ 18,255 Valuation Technique Discounted cash flows Unobservable Input Gross yield Principal payment rate Expected credit loss rate Servicing rate Discount rate Loans and fees receivable pledged as collateral under structured financings, at fair value $ 34,905 Discounted cash flows Gross yield Principal payment rate Expected credit loss rate Servicing rate Discount rate Range (Weighted Average)(1) 15.8% to 22.7% (20.0%) 2.1% to 3.0% (2.7%) 12.9% to 22.7% (16.7%) 8.4% to 12.5% (10.9%) 16.0% to 16.2% (16.1%) 28.5% 2.9% 12.5% 12.9% 16% Range (Weighted Average)(1) 17.9% to 25.6% (21.0%) 1.5% to 3.6% (2.3%) 7.4% to 13.7% (9.9%) 7.4% to 15.1% (10.5%) 15.9% to 16.2% (16.1%) 27.2% 2.7% 13.5% 11.0% 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. F-20 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 December 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 December 31, 2015 Liabilities not carried at fair value CAR revolving credit facility Amortizing debt facilities Senior secured term loan 5.875% convertible senior notes Liabilities carried at fair value Economic sharing arrangement liability Notes payable associated with structured financings, at fair value Liabilities - As of December 31, 2014 Liabilities not carried at fair value CAR revolving credit facility ACC amortizing debt facility Amortizing debt facilities Revolving credit facility U.K. credit card receivables revolving credit facility Senior secured term loan 5.875% convertible senior notes Liabilities carried at fair value Economic sharing arrangement liability Notes payable associated with structured financings, at fair value 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 $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 42,734 $ 28,900 61,100 20,000 $ $ $ — $ — $ 42 — $ 20,970 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ $ $ $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 28,500 125 42,200 4,000 3,924 20,000 37,662 $ — $ — $ 119 — $ 36,511 $ $ 28,900 61,100 20,000 64,783 42 20,970 Carrying Amount of Liabilities 28,500 125 42,200 4,000 3,924 20,000 64,302 119 36,511 $ $ $ $ $ $ $ $ For our material notes payable, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk. 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.” For our 5.875% convertible senior notes due 2035 (“5.875% convertible senior notes”), we assess fair value based upon the most recent trade data available from third-party providers. Additionally, through an agreement with our now-divested Investments in Previously Charged-Off Receivables segment, we are obligated to remit net cash flows associated with certain balance transfer card receivables that we retained subsequent to the sale of the entity. We assess the fair value of this obligation F-21 based on the present value of future cash flows using a valuation model of expected cash flows related to these specific receivables. We have seen no data that would suggest that the fair value of our other Credit and Other Investments segment debt is materially different from its carrying amount. See Note 9, “Notes Payable,” for further discussion on our other notes payable. 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 twelve months ended December 31, 2015 and 2014. Beginning balance, January 1 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 Repayments on outstanding notes payable, net Impact of foreign currency translation Ending balance, December 31 Notes Payable Associated with Structured Financings, at Fair Value 2015 2014 $ $ 36,511 $ — (1,262) (14,279) — 20,970 $ 94,523 (13,288) 7,418 (50,815) (1,327) 36,511 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. The net revaluation of these notes is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market participants would use in determining fair value, including: estimates of net collected yield, principal payment rates and expected principal credit loss rates on the credit card receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees. 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 years ended December 31, 2015 and December 31, 2014: Quantitative Information about Level 3 Fair Value Measurements Fair Value Measurements Notes payable associated with structured financings, at fair value Fair Value at December 31, 2015 (in Thousands) $ 20,970 Valuation Technique Discounted cash flows Unobservable Input Weighted Average Gross yield Principal payment rate Expected credit loss rate Discount rate 28.5% 2.9% 12.5% 16.0% F-22 Quantitative Information about Level 3 Fair Value Measurements Fair Value Measurements Notes payable associated with structured financings, at fair value Fair Value at December 31, 2014 (in Thousands) $ 36,511 Valuation Technique Discounted cash flows Unobservable Input Weighted Average Gross yield Principal payment rate Expected credit loss rate Discount rate 27.2% 2.7% 13.5% 15.9% Other Relevant Data Other relevant data (in thousands) as of December 31, 2015 and December 31, 2014 concerning certain assets and liabilities we carry at fair value are as follows: As of December 31, 2015 Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value Aggregate fair value of loans and fees receivable that are reported at fair value 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) 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 As of December 31, 2014 Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value Aggregate fair value of loans and fees receivable that are reported at fair value 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) 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 Loans and Fees Receivable at Fair Value Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value 8,560 6,353 $ $ 12 $ 374 $ 25,837 20,353 31 889 Loans and Fees Receivable at Fair Value Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value 22,785 18,255 $ $ 41,449 34,905 93 $ 39 647 $ 1,695 $ $ $ $ $ $ $ $ F-23 Notes Payable Aggregate unpaid principal balance of notes payable Aggregate fair value of notes payable 7. Property Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2015 Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2014 $ $ 106,956 20,970 $ $ 121,236 36,511 Details (in thousands) of our property on our consolidated balance sheets are as follows: Software Furniture and fixtures Data processing and telephone equipment Leasehold improvements Total cost Less accumulated depreciation Property, net As of December 31, 2014 2015 $ $ 10,665 6,037 11,064 10,649 38,415 (32,729) 5,686 $ $ 67,974 7,250 39,340 28,061 142,625 (135,589) 7,036 As of December 31, 2015, the weighted-average remaining depreciable life of our depreciable property was 4.9 years. Depreciation expense totaled $2.2 million and $5.9 million for the years ended December 31, 2015 and 2014, respectively. 8. Leases We lease premises and certain equipment under cancelable and non-cancelable leases, some of which contain renewal options under various terms. Total rental expense for continuing operations associated with these operating leases was $2.9 million in 2015 and $3.2 million in 2014. During the fourth quarter of 2006, we entered into a 15-year lease in Atlanta, Georgia for 335,372 square feet (net of space which was surrendered to the landlord through our exercise of a termination option), 255,110 square feet of which we have subleased, and the remainder of which houses our corporate offices. In connection with this lease, we received a $21.2 million construction allowance for the build-out of our new corporate offices. We are amortizing the construction allowance as a reduction of rent expense over the term of the lease. As of December 31, 2015, the future minimum rental commitments (in thousands) for all non-cancelable operating leases with initial or remaining terms of more than one year (both gross and net of any sublease income) are as follows: 2016 2017 2018 2019 2020 Thereafter Total Gross Sublease Income $ $ 7,902 8,251 9,369 9,319 9,468 13,704 58,013 $ $ (6,499) $ (6,684) (6,654) (6,671) (6,858) (10,044) (43,410) $ Net 1,403 1,567 2,715 2,648 2,610 3,660 14,603 In addition, we occasionally lease certain equipment under cancelable and non-cancelable leases, which are accounted for as capital leases in our consolidated financial statements. As of December 31, 2015, we had no material non-cancelable capital leases with initial or remaining terms of more than one year. F-24 9. 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 December 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 December 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 December 31, 2015 and December 31, 2014. Carrying Amounts at Fair Value as of December 31, 2015 December 31, 2014 Amortizing securitization facility issued out of our upper-tier originated portfolio master trust (stated maturity of December 2021), outstanding face amount of $107.0 million bearing interest at a weighted average 5.6% interest rate (4.9% as of December 31, 2014), which is secured by credit card receivables and restricted cash aggregating $21.0 million ($36.5 million as of December 31, 2014) in carrying amount $ 21.0 $ 36.5 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. The structured financing facility in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $21.0 million in fair value of the structured financing note in the above table is $21.0 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at December 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. F-25 Notes Payable, at Face Value and Notes Payable to Related Parties Other notes payable outstanding as of December 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 December 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 $69.4 million ($75.4 million at December 31, 2014) Revolving credit facility (expiring October 4, 2017) (1) (2) $ Revolving credit facility (expired May 17, 2015) (2) Amortizing facilities at a weighted average rate equal to 5.3% (5.4% at December 31, 2014) secured by certain receivables, rental streams and restricted cash with a combined aggregate carrying amount of $69.6 million ($42.2 million as of December 31, 2014) Amortizing debt facility (expired July 15, 2015) (3) Amortizing debt facility (expiring May 14, 2016) (3) (4) Amortizing debt facility (expiring August 21, 2016) (3) (4) Amortizing debt facility (expiring August 1, 2016) (3) (4) Amortizing debt facility (expiring October 29, 2017) (3) (4) Other facilities Senior secured term loan to related parties (expiring November 22, 2016) that is secured by certain assets of the Company with an annual rate equal to 9.0% (5) Amortizing debt facility (repaid in March 2015) Revolving credit facility (repaid in October 2015) 28.9 $ — — 23.0 9.2 4.0 24.9 20.0 — — Total notes payable outstanding $ 110.0 $ 28.5 4.0 0.5 7.8 30.0 3.9 — 20.0 0.1 3.9 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 reflect modifications during the period to either extend the maturity date, increase the loaned amount or both. (5) See below for additional information regarding this note. On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement provides for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding, consisting of (i) an initial term loan of $20.0 million, and (ii) additional term loans available in the sole discretion of Dove and upon our request, provided that the aggregate amount of all outstanding term loans does not exceed $40.0 million. On November 26, 2014, Dove funded the initial term loan of $20.0 million. In November 2015, the agreement was amended to extend the maturity date of the term loan to November 22, 2016. All other terms remained unchanged. Our obligations under the agreement are guaranteed by certain subsidiary guarantors and secured by a pledge of certain assets of ours and the subsidiary guarantors. The loans bear interest at the rate of 9.0% per annum, payable monthly in arrears. The principal amount of these loans is payable in a single installment on November 22, 2016 (as amended). Future F-26 loans under the agreement can be used for additional repurchases of our outstanding notes and other purposes approved by Dove. The agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and events of default. Subject to certain conditions, we can prepay the principal amounts of these loans without premium or penalty. Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts. 10. 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 5.875% convertible senior notes are (and, prior to redemption, the 3.625% convertible senior notes were) 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 May 2015 we redeemed the remainder of the outstanding 3.625% convertible senior notes. Subsequent to this redemption, only our 5.875% convertible senior notes remain outstanding. The following summarizes (in thousands) components of our consolidated balance sheets associated with our convertible senior notes: Face amount of 3.625% convertible senior notes Face amount of 5.875% convertible senior notes Discount Net carrying value Carrying amount of equity component included in additional paid-in capital Excess of instruments’ if-converted values over face principal amounts As of December 31, 2015 December 31, 2014 $ $ $ $ — $ 93,280 (28,497) 64,783 108,714 $ $ 450 93,280 (28,978) 64,752 108,714 — $ — During certain periods and subject to certain conditions, the remaining $93.3 million of outstanding 5.875% convertible senior notes as of December 31, 2015 (as referenced in the table above) are convertible by holders into cash and, if applicable, shares of our common stock at an adjusted effective conversion rate of 40.63 shares of common stock per $1,000 principal amount of notes, subject to further adjustment; the conversion rate is based on an adjusted conversion price of $24.61 per share of common stock. Upon any conversion of the notes, we will deliver to holders of the notes cash of up to $1,000 per $1,000 aggregate principal amount of notes and, at our option, either cash or shares of our common stock in respect of the remainder of the conversion obligation, if any. The maximum number of shares of common stock that any note holder may receive upon conversion is fixed at 40.63 shares per $1,000 aggregate principal amount of notes, and we have a sufficient number of authorized shares of our common stock to satisfy this conversion obligation. Beginning with the six-month period commencing on January 30, 2009, we could pay contingent interest on the notes during a six-month period if the average trading price of the notes is above a specified level. Thus far we have not paid any contingent interest on these notes. In addition, holders of the notes may require us to repurchase the notes upon certain specified events. In conjunction with the offering of the 5.875% convertible senior notes, we entered into a 30 year share lending agreement with Bear, Stearns International Limited (“BSIL”) and Bear, Stearns & Co. Inc, as agent for BSIL, pursuant to which F-27 we lent BSIL 5,677,950 shares of our common stock that we exclude from all earnings per share computations and for which we received a fee of $0.001 per loaned share upon consummation of the agreement . The obligations of Bear Stearns were assumed by JP Morgan in 2008. JP Morgan (as the guarantor of the obligation) is required to return the loaned shares to us at the end of the 30-year term of the share lending agreement or earlier upon the occurrence of specified events. Such events include the bankruptcy of JP Morgan, its failure to make payments when due, its failure to post collateral when required or return loaned shares when due, notice of its inability to perform obligations, or its untrue representations. If an event of default occurs, then the borrower (JP Morgan) may settle the obligation in cash. Further, in the event that JP Morgan’s credit rating drops below A/A2, it would be required to post collateral for the market value of the lent shares ($4.7 million based on the 1,459,233 of shares remaining outstanding under the share lending arrangement as of December 31, 2015). JP Morgan has agreed to use the loaned shares for the purpose of directly or indirectly facilitating the hedging of our convertible senior notes by the holders thereof or for such other purpose as reasonably determined by us. We deem it highly remote that any event of default will occur and therefore cash settlement, while an option, is an unlikely scenario. We analogize the share lending agreement to a prepaid forward contract, which we have evaluated under applicable accounting guidance. We determined that the instrument was not a derivative in its entirety and that the embedded derivative would not require separate accounting. The net effect on shareholders’ equity of the shares lent pursuant to the share lending agreement, which includes our requirement to lend the shares and the counterparties’ requirement to return the shares, is the fee received upon our lending of the shares. Accounting for Convertible Senior Notes Because our convertible senior notes are Instrument C convertible notes, the accounting for the issuance of the notes includes (1) allocation of the issuance proceeds between the notes and additional paid-in capital, (2) establishment of a discount to the face amount of the notes equal to the portion of the issuance proceeds that are allocable to additional paid-in capital, (3) creation of a deferred tax liability related to the discount on the notes, and (4) an allocation of issuance costs between the portion of such costs considered to be associated with the notes and the portion of such costs considered to be associated with the equity component of the notes’ issuances (i.e., additional paid-in capital). We are amortizing the discount to the remaining face amount of the notes into interest expense over the expected life of the notes, which results in a corresponding release of associated deferred tax liability (and which ended May 2012 for our 3.625% convertible senior notes). Amortization for the years ended December 31, 2015 and 2014 totaled $0.5 million and $0.6 million, respectively. Actual incurred interest (based on the contractual interest rates within the two convertible senior notes series) totaled $5.5 million and $8.0 million for the years ended December 31, 2015 and 2014, respectively. We will amortize the discount remaining at December 31, 2015 into interest expense over the expected term of the 5.875% convertible senior notes (currently expected to be October 2035). The weighted average effective interest rate for the 5.875% convertible senior notes was 9.2% for all periods presented. 11. Commitments and Contingencies General Under our point-of-sale and direct-to-consumer 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 $99.1 million at December 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 December 31, 2015, CAR had unfunded outstanding floor-plan financing commitments totaling $9.7 million. Each draw against unused commitments is reviewed for conformity to pre-established guidelines. F-28 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 $7.2 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 December 31, 2015). Those obligations include, among other things, compliance with one of the European payment system’s operating regulations and by-laws. 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 December 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 2022 and April 2017, 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 ($1.3 million and $2.2 million as of December 31, 2015, respectively). At December 31, 2015, we had an accrued liability of £3.4 million ($5.0 million) within our consolidated financial statements associated with a then-ongoing review by U.K. taxing authorities (HM Revenue and Customs or “HMRC”) of VAT filings made by one of our U.K. subsidiaries. In February of 2016, we received correspondence from HMRC stating that it (1) had chosen to discontinue its review of our U.K. subsidiary’s VAT filings with no changes to the returns as filed by our U.K. subsidiary, and (2) would be refunding VAT refund claims made by our U.K. subsidiary that had been suspended during the HMRC review. As of the date of this Report, we have received substantially all of such refunds, and we will be reversing in the first quarter of 2016 the £3.4 million ($5.0 million) of VAT review-related liabilities that we accrued on our December 31, 2015 consolidated balance sheet. 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." Litigation We are involved in various legal proceedings that are incidental to the conduct of our business, none of which are material to us. 12. Income Taxes Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. F-29 The current and deferred portions (in thousands) of federal, foreign and state income tax benefit or expense, as the case may be, are as follows: Federal income tax benefit (expense): Current tax benefit (expense) Deferred tax benefit (expense) Total federal income tax benefit (expense) Foreign income tax benefit (expense): Current tax expense Deferred tax benefit (expense) Total foreign income tax benefit (expense) State and other income tax benefit (expense): Current tax benefit (expense) Deferred tax benefit (expense) Total state and other income tax benefit (expense) Total income tax benefit (expense) For the Year Ended December 31, 2015 2014 $ $ $ $ $ $ $ $ 3,421 (3,824) (403) $ 1,231 33,222 34,453 (53) $ (1,775) (1,828) $ $ 28 374 $ 402 (1,829) $ (87) 977 890 (203) (508) (711) 34,632 We experienced an effective income tax expense rate of 51.7% for the year ended December 31, 2015 compared to an effective income tax benefit rate of 126.8% for the year ended December 31, 2014. Our effective income tax expense rate for the year ended December 31, 2015 reflects in part, the establishment of a valuation allowance against our U.K.-related deferred tax assets. Our effective income tax benefit rate for the year ended December 31, 2014 resulted principally from (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets with the most significant benefits related to the complete release of all federal tax-related valuation allowances and (2) the reversal of excess prior year interest accruals on our then-accrued prior year liabilities for uncertain tax positions, such reversal of excess interest accruals resulting from a favorable settlement (relative to accrued prior year liabilities for uncertain tax positions) reached with the Internal Revenue Service (“IRS”) in December 2014 and the favorable resolution of accrued prior year liabilities for uncertain state tax positions. We report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities 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 or our unpaid tax liabilities in a manner favorable to our accruals therefor. Considering both the aforementioned accruals and reversals, we experienced net charges for interest and penalties of $0.3 million in 2015. During the year ended December 31, 2014, the effect of interest and penalties on our income tax benefit was a $8.9 million net increase in our income tax benefit (representing the net of the release of $11.2 million of prior year interest and penalty accruals associated with then-uncertain tax liabilities, $0.3 million of new accruals in 2014 associated with uncertain tax liabilities in 2014, and $2.0 million of accrued interest and penalties related to unpaid tax liabilities). As referenced above, in December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses that we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. The original agreed federal income tax assessment of $9.1 million from the settlement (which excluded interest), now stands at $7.3 million after the effects of (1) the IRS’s application of a $1.0 million overpayment from our 2014 federal income tax return against the assessed balance and (2) a $0.8 million offsetting claim that we made on an amended return in 2015 as permitted under the terms of the settlement and that was approved by the IRS also in 2015. Also as permitted under the settlement, we recently made additional claims on amended returns — claims which, if accepted, would eliminate all of the remaining $7.3 million outstanding assessment and result in a $0.6 million refund to us. The expected effect of our amended return filings is two-fold. First, it is our belief that the IRS will not pursue collections of the amounts for which we have asserted offsetting claims (i.e., all of the remaining $7.3 million assessment) until the final disposition of our amended return filings. Second, should the IRS accept some or all of the additional claims we have made, we would experience reversals of interest and penalty accruals we are currently making associated with the unpaid tax assessment; these accruals totaled $2.8 million as of December 31, 2015. Currently, the IRS is examining our additional amended return claims. F-30 Our settlement with the IRS materially enhanced our 2014 reported income tax benefits in two ways as noted above. First, we released into 2014 income tax benefit prior year tax, interest and penalty liability accruals associated with then- uncertain tax positions that were resolved in a significantly favorable manner relative to the liabilities accrued therefor. Second, we reclassified to deferred tax liabilities as of December 31, 2014 significant levels of liabilities that had been classified as current liability accruals for uncertain tax positions as of December 31, 2013, thereby eliminating the need for valuation allowances that existed as of December 31, 2013 against net deferred tax assets at that date. The following table reconciles our effective tax expense rate for 2015 and our effective tax benefit rate for 2014 to the federal statutory rate: Statutory (tax) benefit rate (Increase) decrease in statutory tax rate and increase (decrease) in statutory tax benefit rate resulting from: Changes in valuation allowances Interest and penalties related to uncertain tax positions Foreign income taxes Permanent and other differences State and other income taxes, net Effective (tax) benefit rate For the Year Ended December 31, 2015 2014 (35.0)% 35.0% (46.8) 21.2 (1.5) 3.1 7.3 59.3 37.3 (3.3) 0.2 (1.7) (51.7)% 126.8% F-31 As of December 31, 2015 and December 31, 2014, the significant components (in thousands) of our deferred tax assets and liabilities were: Deferred tax assets: Software development costs/fixed assets Goodwill and intangible assets Provision for loan loss Equity-based compensation Other Accruals for state taxes and interest associated with unrecognized tax benefits Federal net operating loss carry-forward Federal credit carry-forward Foreign net operating loss carry-forward State tax benefits Deferred tax assets, gross Valuation allowances Deferred tax assets net of valuation allowance Deferred tax liabilities: Prepaid expenses Equity in income of equity-method investees Mark-to-market Credit card fair value election differences Deferred costs Interest on debentures Convertible senior notes Cancellation of indebtedness income Deferred tax liabilities, gross Deferred tax liabilities, net As of December 31, 2015 2014 $ $ $ 345 3,455 16,107 287 1,537 610 75,687 2,381 637 36,384 137,430 (35,971) 101,459 $ $ $ 3,089 5,824 18,892 452 2,190 1,092 84,909 4,428 689 35,617 157,182 (34,224) 122,958 $ (256) $ (1,347) (11) (44,746) (681) (17,569) (10,585) (36,793) (317) (1,152) (278) (43,438) (535) (15,417) (10,867) (56,162) $ (111,988) $ (128,166) (5,208) $ (10,529) $ Certain of our deferred tax assets relate to federal, foreign and state net operating losses as noted in the above table, and we have no other net operating losses or credit carry-forwards other than those noted herein. We have recorded a deferred tax asset of $75.7 million reflecting the benefit of loss carryforwards, which expire in varying amounts between 2019 and 2033. Our $36.0 million of deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits, principally net operating losses and credits from operations in various states and foreign jurisdictions (including U.S. territories), and it is more likely than not that these recorded tax benefits will not be utilized to reduce future state and foreign tax liabilities in these jurisdictions. We conduct business globally, and as a result, our subsidiaries file federal, state and/or foreign income tax returns. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., the U.K., and various U.S. territories. With a few exceptions of a non-material nature, and with the exception of our 2008 tax-settlement-related claims discussed previously, we are no longer subject to federal, state, local, or foreign income tax examinations for years prior to 2012. F-32 Reconciliation (in thousands) of unrecognized tax benefits from the beginning to the end of 2015 and 2014 is as follows: Balance at January 1, Reductions based on tax positions related to prior years Additions based on tax positions related to prior years Additions based on tax positions related to the current year Interest and penalties accrued Settlement Balance at December 31, 2015 (5,245) $ 2,658 (160) (70) (197) 1,216 (1,798) $ 2014 (54,775) 2,108 (90) (16) (348) 47,876 (5,245) $ $ Unrecognized tax benefits that, if recognized, would affect the effective tax rate totaled $1.8 million and $5.2 million at December 31, 2015 and 2014, respectively. Absent the effects of potential agreements to extend statutes of limitations periods, the total amount of unrecognized tax benefits with respect to certain of our unrecognized tax positions will significantly change as a result of the lapse of applicable limitations periods in the next 12 months. However, it is not reasonably possible to determine which (if any) limitations periods will lapse in the next 12 months due to the effect of existing and new tax audits and tax agency determinations. Moreover, the net amount of such change cannot be reasonably estimated because our operations over the next 12 months may cause other changes to the total amount of unrecognized tax benefits. Due to the complexity of the tax rules underlying our uncertain tax position liabilities, and the unclear timing of tax audits, tax agency determinations, and other events (such as the outcomes of tax controversies involving related issues with unrelated taxpayers), we cannot establish reasonably reliable estimates for the periods in which the cash settlement of our uncertain tax position liabilities will occur. 13. Net Income Attributable to Controlling Interests Per Common Share We compute net income attributable to controlling interests per common share by dividing net income 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 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. F-33 The following table sets forth the computations of net income per common share (in thousands, except per share data): For the Twelve Months Ended December 31, 2015 2014 Numerator: Net income attributable to controlling interests $ 1,713 $ 7,177 Denominator: Basic (including unvested share-based payment awards) (1) Effect of dilutive stock compensation arrangements (2) Diluted (including unvested share-based payment awards) (1) Net income attributable to controlling interests per common share—basic Net income attributable to controlling interests per common share—diluted 13,906 13,983 55 1 13,961 13,984 $ $ 0.12 0.12 $ $ 0.51 0.51 (1) Shares related to unvested share-based payment awards included in our basic and diluted share counts are 385,193 for the year ended December 31, 2015, compared to 517,676 shares for the year ended December 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. For the year ended December 31, 2015 and 2014, there were no shares potentially issuable and thus includible in the diluted net income 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 price 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 10, “Convertible Senior Notes,” for a further discussion of these convertible securities. 14. 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 December 31, 2015, 37,100 shares remained available for issuance under the ESPP and 507,600 shares remained available for issuance under the 2014 Plan. Exercises and vestings under our stock-based compensation plans resulted in $31,000 in income tax-related charges to additional paid-in capital during the year ended December 31, 2015 with $971,000 in such charges for the year ended December 31, 2014. Restricted Stock and Restricted Stock Unit Awards During the twelve months ended December 31, 2015 and 2014, we granted 106,334 and 61,868 shares of restricted stock (net of any forfeitures), respectively, with aggregate grant date fair values of $0.3 million and $0.2 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 December 31, 2015, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $0.2 million with a weighted-average remaining amortization period of 1.0 year. 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 F-34 5 years from the date of grant. The vesting requirements for options could range from 0 to 5 years. We had expense of $247 thousand and $424 thousand related to stock option-related compensation costs during the twelve months ended December 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: December 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 Issued Exercised Cancelled/Forfeited Outstanding at December 31, 2015 Exercisable at December 31, 2015 450,000 112,500 $ $ (3,334) $ (7,500) $ 551,666 204,172 $ $ 2.52 3.91 2.27 2.27 2.80 2.54 3.5 3.2 $ $ 297,974 134,380 We had $0.2 million and $0.2 million of unamortized deferred compensation costs associated with non-vested stock options as of December 31, 2015 and 2014, respectively. 15. Employee Benefit Plans We maintain a defined contribution retirement plan (“401(k) plan”) for our U.S. employees that provides for a matching contribution by us. All full time U.S. employees are eligible to participate in the 401(k) plan. Our U.K. credit card subsidiary offers eligible employees membership in a Group Personal Pension Plan which is set up with Friends Provident. This plan is a defined contribution plan in which all permanent employees who have completed three months of continuous service are eligible to join the plan. Company matching contributions are available to U.K. employees who contribute a minimum of 3% of their salaries under our Group Personal Pension Plan and to U.S. employees who participate in our 401(k) plan. We made matching contributions under our U.S. and U.K. plans of $317,300 and $327,588 in 2015 and 2014, respectively. Also, all employees, excluding executive officers, are eligible to participate in the ESPP to which we referred above. Under the ESPP, employees can elect to have up to 10% of their annual wages withheld to purchase our common stock up to a fair market value of $10,000. The amounts deducted and accumulated by each participant are used to purchase shares of common stock at the end of each one-month offering period. The price of stock purchased under the ESPP is approximately 85% of the fair market value per share of our common stock on the last day of the offering period. Employees contributed $15,305 to purchase 5,763 shares of common stock in 2015 and $17,877 to purchase 8,746 shares of common stock in 2014 under the ESPP. The ESPP covers up to 150,000 shares of common stock. Our charge to expense associated with the ESPP was $17,948 and $18,866 in 2015 and 2014, respectively. 16. Related Party Transactions Under a shareholders’ agreement into which we entered with David G. Hanna, Frank J. Hanna, III, Richard R. House, Jr., Richard W. Gilbert and certain trusts that were Hanna affiliates, following our initial public offering (1) if one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and conditions. In June 2007, we entered into a sublease for 1,000 square feet of excess office space at our Atlanta headquarters with HBR Capital, Ltd. (“HBR”), a company co-owned by David G. Hanna and his brother Frank J. Hanna, III. The sublease rate per square foot is the same as the rate that we pay under the prime lease. Under the sublease, HBR paid us $25,588 and $25,082 for 2015 and 2014, respectively. The aggregate amount of payments required under the sublease from January 1, 2016 to the expiration of the sublease in May 2022 is $176,820. F-35 In January 2013, HBR began leasing four employees from us. HBR reimburses us for the full cost of the employees, based on the amount of time devoted to HBR. In the twelve months ended December 31, 2015 and December 31, 2014, we received $200,234 and $202,169, respectively, of reimbursed costs from HBR associated with these leased employees. On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement provides for a senior secured term loan facility in an amount of up to $40.0 million at any time outstanding, consisting of (i) an initial term loan of $20.0 million, and (ii) additional term loans available in the sole discretion of Dove and upon our request, provided that the aggregate amount of all outstanding term loans does not exceed $40.0 million. On November 26, 2014, Dove funded the initial term loan of $20.0 million. In November 2015, the agreement was amended to extend the maturity date of the term loan to November 22, 2016. All other terms remained unchanged. Our obligations under the agreement are guaranteed by certain subsidiary guarantors and secured by a pledge of certain assets of ours and the subsidiary guarantors. The loans bear interest at the rate of 9.0% per annum, payable monthly in arrears. The principal amount of these loans is payable in a single installment on November 22, 2016 (as amended). Future loans under the agreement can be used for additional repurchases of our outstanding notes and other purposes approved by Dove. The agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and events of default. Subject to certain conditions, we can prepay the principal amounts of these loans without premium or penalty. Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate family are the beneficiaries of these other two trusts. F-36 SHAREHOLDER INFORMATION BOARD OF DIRECTORS David G. Hanna Chairman of the Board and Chief Executive Officer, Atlanticus Holdings Corporation Jeffrey A. Howard President, Atlanticus Holdings Corporation Deal W. Hudson President, The Morley Institute (a religious and educational think tank) Mack F. Mattingly Former U.S. Senator (entrepreneur, speaker and author) Thomas G. Rosencrants Chief Executive Officer, Greystone Capital Group, LLC (an investment management firm) Corporate Office Atlanticus Holdings Corporation Five Concourse Parkway, Suite 300 Atlanta, Georgia 30328 (770) 828-2000 Internet Address www.atlanticus.com Stock Listing Exchange - Nasdaq Ticker - ATLC Notice of Annual Meeting Thursday, May 12, 2016, 9 a.m. ET Atlanticus Holdings Corporation Five Concourse Parkway Suite 300 Atlanta, Georgia 30328 Investor Contact Inquiries from securities analysts and investors should be directed to the Director of Investor Relations, at the Company’s headquarters, at (770) 828-2000. Common Stock Transfer Agent and Registrar American Stock Transfer & Trust Company Operations Center 6201 15th Avenue Brooklyn, NY 11219 Phone: (800) 937-5449 Local/International: (718) 921-8124 Website: www.amstock.com Email: info@amstock.com Availability of Form 10-K and Other Investor Information Shareholders may obtain, at no charge, a copy of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. In order to communicate information to interested individuals in an efficient manner, Atlanticus’ financial results, SEC filings and other important information can be requested through several channels: (770) 828-2000 PHONE WEBSITE www.atlanticus.com under For Investors investors@atlanticus.com Investor Relations at the Corporate Office EMAIL MAIL Corporate Counsel Troutman Sanders LLP 600 Peachtree Street, N.E. Suite 5200 Atlanta, Georgia 30308-2216 Independent Auditors BDO USA, LLP 1100 Peachtree Street, Suite 700 Atlanta, Georgia 30309-4516 Executive Officers David G. Hanna Chief Executive Officer Jeffrey A. Howard President Richard W. Gilbert Chief Operating Officer William R. McCamey Chief Financial Officer Atlanticus Holdings Corporation Five Concourse Parkway Suite 300 Atlanta, GA 30328 (770) 828-2000 www.atlanticus.com 

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