Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting

Segment Reporting

(17)  Segment Reporting

At September 30, 2012 and 2011, the Company was engaged in two major business segments — Portfolio Asset Acquisition and Resolution business and Special Situations Platform business.

In the Portfolio Asset Acquisition and Resolution business, the Company acquires and resolves portfolios of under-performing and non-performing loans, and to a lesser extent, performing loans and other assets (collectively, “Portfolio Assets” or “Portfolios”), which are generally acquired at a discount to their legal principal balance or appraised value. Purchases may be in the form of pools of assets or single assets. The Portfolio Assets are generally aggregated, including loans of varying qualities that are secured or unsecured by diverse collateral types and real estate. Some Portfolio Assets are loans for which resolution is linked primarily to the real estate securing the loan, while others may be collateralized business loans for which resolution may be based either on real estate, business assets or other collateral cash flow. Portfolio Assets are acquired on behalf of the Company or its consolidated subsidiaries, and on behalf of U.S. and foreign investment entities formed with co-investors (“Acquisition Partnerships”). The Company services, manages and ultimately resolves or otherwise disposes of substantially all Portfolio Assets acquired by the Company, its Acquisition Partnerships, or other related entities. The Company services such assets until they are collected or sold.

The Company engages in its Special Situations Platform business through its majority ownership interest in FirstCity Denver Investment Corp. (“FirstCity Denver”). Through its Special Situations Platform business, the Company provides investment capital to privately-held middle-market companies through flexible capital structuring arrangements. The nature of the capital investments primarily takes the form of senior and junior financing arrangements, but also includes direct equity investments and common equity warrants. In addition, our Special Situations Platform business engages in other types of investment activity including distressed debt transactions and leveraged buyouts. FirstCity Denver’s primary investment objective is to generate both current income and capital appreciation through debt and equity investments, and to generally structure the investments to be repaid or exited in 12 to 60 months.

We evaluate the performance of our Portfolio Asset Acquisition and Resolution and Special Situations Platform business segments based primarily on the results of the segments without allocating certain corporate and administrative expenses and other items. “Corporate and Other” in the tables below represent the portions of our expenses (primarily salaries and benefits, accounting fees and legal expenses) and certain other items that are not allocable to our business segments.

The following tables set forth summarized information by segment for the three- and nine-month month periods ended September 30, 2012 and 2011:

	Three Months Ended
	September 30, 2012
	(Dollars in thousands)
	Portfolio Asset			Special
	Acquisition			Situations			Corporate
	and Resolution			Platform			and Other			Total
Revenues	$	14,193		$	4,503		$	118		$	18,814
Costs and expenses	(9,907		)	(4,538		)	(2,526		)	(16,971		)
Equity income from unconsolidated subsidiaries	2,767			1,482			—			4,249
Gain on sale of subsidiaries	746			—			—			746
Income tax (expense) benefit	281			(172		)	(50		)	59
Net income attributable to noncontrolling interests	(1,713		)	(417		)	—			(2,130		)
Net earnings (loss)	$	6,367		$	858		$	(2,458	)	$	4,767

	Three Months Ended
	September 30, 2011
	(Dollars in thousands)
	Portfolio Asset			Special
	Acquisition			Situations			Corporate
	and Resolution			Platform			and Other			Total
Revenues	$	17,287		$	2,905		$	60		$	20,252
Costs and expenses	(12,988		)	(2,432		)	(1,959		)	(17,379		)
Equity income from unconsolidated subsidiaries	1,401			1,376			—			2,777
Gain on business combinations	—			155			—			155
Income tax (expense) benefit	(405		)	(133		)	117			(421		)
Net income attributable to noncontrolling interests	(2,159		)	(495		)	—			(2,654		)
Net earnings (loss)	$	3,136		$	1,376		$	(1,782	)	$	2,730

	Nine Months Ended
	September 30, 2012
	(Dollars in thousands)
	Portfolio Asset			Special
	Acquisition			Situations			Corporate
	and Resolution			Platform			and Other			Total
Revenues	$	43,229		$	9,363		$	303		$	52,895
Costs and expenses	(28,499		)	(8,967		)	(7,706		)	(45,172		)
Equity income from unconsolidated subsidiaries	9,089			1,708			—			10,797
Gain on business combinations	—			935			—			935
Gain on sale of subsidiaries	746			—			—			746
Income tax expense	(427		)	(201		)	(151		)	(779		)
Net income attributable to noncontrolling interests	(3,850		)	(953		)	—			(4,803		)
Net earnings (loss)	$	20,288		$	1,885		$	(7,554	)	$	14,619

	Nine Months Ended
	September 30, 2011
	(Dollars in thousands)
	Portfolio Asset			Special
	Acquisition			Situations			Corporate
	and Resolution			Platform			and Other			Total
Revenues	$	50,383		$	7,424		$	140		$	57,947
Costs and expenses	(34,555		)	(6,063		)	(5,757		)	(46,375		)
Equity income from unconsolidated subsidiaries	4,781			3,150			—			7,931
Gain on business combinations	278			155			—			433
Gain on sale of subsidiaries	5			—			—			5
Income tax (expense) benefit	(2,187		)	(166		)	306			(2,047		)
Net income attributable to noncontrolling interests	(7,980		)	(1,031		)	—			(9,011		)
Net earnings (loss)	$	10,725		$	3,469		$	(5,311	)	$	8,883

Revenues and equity income (loss) from investments in unconsolidated subsidiaries from the Special Situations Platform segment are all attributable to U.S. operations. Revenues and equity income (loss) of unconsolidated subsidiaries from the Portfolio Asset Acquisition and Resolution segment are attributable to U.S. and foreign operations as summarized as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(Dollars in thousands)
Domestic	$	13,297	$	11,538	$	40,817	$	31,826
Latin America	2,608		2,820		6,363		8,535
Europe	1,055		4,330		5,138		14,803
Total	$	16,960	$	18,688	$	52,318	$	55,164

Total assets for each segment and a reconciliation to total assets are as follows:

	September 30,		December 31,
	2012		2011
	(Dollars in thousands)
Cash and cash equivalents	$	41,656	$	34,802
Restricted cash	1,270		1,229
Portfolio acquisition and resolution assets:
Domestic	141,245		199,093
Latin America	8,698		17,048
Europe	32,390		41,447
Special situations platform assets	44,654		51,099
Other non-earning assets, net	12,556		11,628
Total assets	$	282,469	$	356,346