Discover Financial Services Receives NYSE Notice Regarding Filing of Form 10-Q for the Fiscal Quarter Ended September 30, 2024 and Announces Decision to Restate Certain Prior Period Financial Statements
Discover Financial Services (DFS) received an NYSE notice on November 19, 2024, for failing to file its Q3 2024 10-Q report timely. The company announced it will restate financial statements due to card product misclassification issues dating back to 2007. The restatement follows SEC staff disagreement with DFS's accounting approach and will affect financial statements from 2022-2024. The correction involves reallocating approximately $600 million from Q1 2024 expenses to prior period revenue errors, with total liability reaching approximately $1,047 million. DFS expects to complete the restatement filings before year-end, impacting its pending merger with Capital One.
Discover Financial Services (DFS) ha ricevuto una comunicazione dalla NYSE il 19 novembre 2024 per non aver presentato in tempo utile il suo rapporto 10-Q del terzo trimestre del 2024. L'azienda ha annunciato che procederà a riassestare i bilanci finanziari a causa di problemi di classificazione dei prodotti con carta risalenti al 2007. La riassestazione è stata determinata da disaccordi tra il personale della SEC e l'approccio contabile di DFS e influenzerà i bilanci finanziari dal 2022 al 2024. La correzione comporta la riallocazione di circa 600 milioni di dollari dalle spese del primo trimestre del 2024 agli errori di ricavo dei periodi precedenti, con un passivo totale che raggiunge circa 1.047 milioni di dollari. DFS prevede di completare la registrazione delle rettifiche entro la fine dell'anno, impattando così la fusione in sospeso con Capital One.
Discover Financial Services (DFS) recibió un aviso de la NYSE el 19 de noviembre de 2024, por no presentar a tiempo su informe 10-Q del tercer trimestre de 2024. La empresa anunció que corregirá sus estados financieros debido a problemas de clasificación de productos de tarjeta que se remontan a 2007. La corrección sigue un desacuerdo del personal de la SEC con el enfoque contable de DFS y afectará los estados financieros de 2022 a 2024. La corrección implica reasignar aproximadamente 600 millones de dólares de los gastos del primer trimestre de 2024 a errores de ingresos de períodos anteriores, con una obligación total que alcanzará aproximadamente 1.047 millones de dólares. DFS espera completar las presentaciones de corrección antes de fin de año, lo que impactará su fusión pendiente con Capital One.
Discover Financial Services (DFS)는 2024년 11월 19일 NYSE에서 2024년 3분기 10-Q 보고서를 제때 제출하지 못한 것에 대한 통지를 받았습니다. 이 회사는 2007년으로 거슬러 올라가는 카드 제품 재분류 문제로 인해 재무제표를 수정할 것이라고 발표했습니다. 이 수정은 SEC 직원과 DFS의 회계 접근 방식 간의 의견 불일치에 따라 이루어지며, 2022년부터 2024년까지의 재무제표에 영향을 미칠 것입니다. 수정은 2024년 1분기 비용에서 이전 기간 수익 오류에 약 6억 달러를 재배분하는 것을 포함하며, 총 부채는 약 10억 4700만 달러에 달할 것으로 예상됩니다. DFS는 연말 전에 수정 제출을 완료할 것으로 예상하며, 이는 Capital One과의 합병에 영향을 미칠 것입니다.
Discover Financial Services (DFS) a reçu un avis de la NYSE le 19 novembre 2024, pour ne pas avoir soumis en temps utile son rapport 10-Q du troisième trimestre 2024. La société a annoncé qu'elle allait réexaminer ses états financiers en raison de problèmes de classification des produits par carte datant de 2007. Ce réexamen fait suite à un désaccord entre le personnel de la SEC et l'approche comptable de DFS et aura un impact sur les états financiers de 2022 à 2024. La correction implique la réaffectation d'environ 600 millions de dollars des dépenses du premier trimestre 2024 aux erreurs de revenus des périodes antérieures, avec une dette totale atteignant environ 1,047 milliard de dollars. DFS s'attend à finaliser les dépôts de réexamen avant la fin de l'année, ce qui pourrait affecter sa fusion en attente avec Capital One.
Discover Financial Services (DFS) erhielt am 19. November 2024 eine Mitteilung von der NYSE, da das Unternehmen seinen 10-Q-Bericht für das 3. Quartal 2024 nicht rechtzeitig eingereicht hatte. Das Unternehmen gab bekannt, dass es seine Finanzberichte aufgrund von falschen Klassifikationen von Kartenprodukten aus dem Jahr 2007 berichtigen wird. Die Korrektur erfolgt nach Meinungsverschiedenheiten des SEC-Personals mit dem Rechnungslegungsansatz von DFS und wird die Finanzberichte von 2022 bis 2024 beeinflussen. Die Korrektur beinhaltet die Umverteilung von etwa 600 Millionen Dollar von den Ausgaben des 1. Quartals 2024 auf Ertragsfehler aus vorherigen Perioden, wobei die Gesamtschuld auf etwa 1.047 Millionen Dollar steigt. DFS erwartet, die Berichtigungsunterlagen vor Jahresende abzuschließen, was sich auf die ausstehende Fusion mit Capital One auswirken wird.
- Pre-tax income for nine months ended September 30, 2024, will increase by $700 million to $4,462 million after restatement
- The restatement won't affect cumulative historical earnings and capital
- Q3 2024 pre-tax income will decrease by $6 million to $1,282 million
- 2023 pre-tax income will be reduced by $190 million to $3,636 million
- 2022 pre-tax income will be reduced by $77 million to $5,641 million
- Retained earnings will decrease by $593 million as of December 31, 2023
- Additional $60 million in incremental overcharges identified during remediation review
Insights
The restatement of financial statements due to the card product misclassification issue represents a significant development for Discover Financial. The key impacts include:
- A total liability of approximately
$1.047 billion for restitution payments - Reduction in pre-tax income for 2023 by
$190 million to$3.636 billion - Decrease in 2022 pre-tax income by
$77 million to$5.641 billion - As of December 31, 2023, retained earnings will decrease by
$593 million
This restatement carries significant regulatory and compliance implications. The SEC staff's disagreement with Discover's initial accounting approach forced a substantial revision in how the card product misclassification is recorded. The need to restate multiple years of financial statements indicates material control weaknesses, evidenced by the withdrawal of both management's and Deloitte's reports on internal controls. The timing is particularly sensitive given the pending Capital One merger, as it delays the S-4 registration process and could potentially impact merger timeline. The NYSE non-compliance adds regulatory pressure, though the temporary filing extension provides some breathing room.
On July 19, 2023, the Company disclosed that beginning around mid-2007, the Company incorrectly classified certain credit card accounts into its highest merchant and merchant acquirer pricing tier (the “card product misclassification”). Based on information available as of June 30, 2023, the Company recognized a liability of
On February 19, 2024, Discover and Capital One Financial Corporation (“Capital One”) jointly announced that they entered into an agreement and plan of merger pursuant to which the companies will combine in an all-stock transaction (the “Merger”).
In the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, the Company disclosed that it had determined to increase its liability to
As part of the review of the Company’s historical financial statements by the Staff of the SEC (the “Staff”) undertaken in connection with the Staff’s review of the Registration Statement on Form S-4 filed by Capital One in connection with the Merger (and the preliminary joint proxy statement/prospectus contained therein) (the “Registration Statement”), the Staff provided comments to the Company relating to the Company’s accounting approach for the card product misclassification. The Company has responded to these comments and has engaged in several verbal discussions with the Staff. The Staff has indicated that it disagrees with the Company’s application of revenue recognition guidance issued by the Financial Accounting Standards Board in connection with the Company’s recording of the Initial Liability.
The Staff has, however, indicated that it would not object to an approach whereby the Company determined the cumulative revenue error related to the card product misclassification to be the maximum amount agreed to be paid by the Company in restitution in respect of the card product misclassification (excluding interest and legal expenses) (the “Alternative Approach”). This amount is approximately
On November 25, 2024, the Audit Committee of the Board of Directors of the Company (the “Audit Committee”), acting on the recommendation of management, and after discussion with Deloitte & Touche LLP (“Deloitte”), the Company’s independent registered public accounting firm, concluded that (i) the Company’s audited financial statements as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2023 and (ii) the Company’s unaudited condensed consolidated financial statements included in the Company's Quarterly Reports on Form 10-Q previously filed with the SEC for the fiscal quarters ended March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024 and June 30, 2024 (collectively, the “Prior Periods”), should no longer be relied upon and should be restated to reflect the Alternative Approach. In addition, the Audit Committee concluded that management’s report on the effectiveness of internal control over financial reporting as of December 31, 2023 and Deloitte’s report on the consolidated financial statements as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023 as well as Deloitte’s report on the effectiveness of internal control over financial reporting as of December 31, 2023, should no longer be relied upon.
In order to implement the Alternative Approach in the Restated Financial Statements (as defined below), approximately
As a result, the Company expects the Restated Financial Statements to reflect the following approximate impacts: as of December 31, 2023, (i) an increase in assets of
Amendments to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K/A”), and the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2024 and June 30, 2024 (the “Form 10-Q/As” and together with the Form 10-K/A, the “Restated Financial Statements”), are expected to be filed prior to or concurrently with the filing of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024 in order to reflect the Alternative Approach and the other modifications described above to the Prior Periods.
The Company is working expeditiously to file the Restated Financial Statements as soon as reasonably practicable. The Company currently expects to complete the filings prior to year-end, however there can be no assurance of the actual timing.
The Company expects that Capital One will file a pre-effective amendment to the Registration Statement promptly following the Company’s filing of the Restated Financial Statements, and that as soon as practicable following the effectiveness of the Registration Statement and the mailing of the definitive joint proxy statement/prospectus contained therein to each company’s stockholders, each company will hold its respective special meeting of stockholders for purposes of obtaining the requisite stockholder approvals of the Merger.
About Discover
Discover Financial Services (NYSE: DFS) is a digital banking and payment services company with one of the most recognized brands in
Cautionary Note Regarding Forward Looking Statements:
This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as "believe," "expect," "anticipate," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," "forecast," and similar expressions. Other forward-looking statements may include, without limitation, statements with respect to the restatement of the Company’s financial statements. Such statements are based on the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. These forward-looking statements speak only as of the date of this communication and there is no undertaking to update or revise them as more information becomes available. Actual future events could also differ materially due to numerous factors that involve substantial known and unknown risks and uncertainties including, among other things, risks relating to the final impact of the restatements on the Company’s financial statements; the impact of the restatements on the Company’s evaluation of the effectiveness of its internal control over financial reporting and disclosure controls and procedures; delays in the preparation of the consolidated financial statements and/or the declaration of effectiveness of the Registration Statement; the risk that additional information will come to light that alters the scope or magnitude of the restatement; the risks and uncertainties set forth under “Risk Factors” and elsewhere in the Company’s reports on Form 10-K and Form 10-Q; and the other risks and uncertainties discussed in any subsequent reports that the Company files with the SEC from time to time. Although the Company has attempted to identify those material factors that could cause actual results or events to differ from those described in such forward-looking statements, there may be other factors that could cause actual results or events to differ from those anticipated, estimated or intended. Given these uncertainties, investors are cautioned not to place undue reliance on forward-looking statements.
Important Information About the Merger and Where to Find It
Capital One has filed the Registration Statement with the SEC to register the shares of Capital One’s common stock that will be issued to the Company’s stockholders in connection with the Merger. The Registration Statement includes a preliminary joint proxy statement of Capital One and the Company that also constitutes a preliminary prospectus of Capital One. The definitive joint proxy statement/prospectus will be sent to the stockholders of each of the Company and Capital One in connection with the Merger. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS WHEN THEY BECOME AVAILABLE (AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE MERGER OR INCORPORATED BY REFERENCE INTO THE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION REGARDING THE MERGER AND RELATED MATTERS. Investors and security holders may obtain free copies of these documents and other documents filed with the SEC by the Company or Capital One through the website maintained by the SEC at http://www.sec.gov or by contacting the investor relations department of the Company or Capital One at:
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2500 Lake Cook Road |
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1680 Capital One Drive |
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Attention: Investor Relations |
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Attention: Investor Relations |
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(224) 405-4555 |
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(703) 720-1000 |
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Before making any voting or investment decision, investors and security holders of the Company and Capital One are urged to read carefully the entire Registration Statement and joint proxy statement/prospectus, including any amendments thereto, because they contain important information about the Merger. Free copies of these documents may be obtained as described above.
Participants in Solicitation
The Company, Capital One and certain of their directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of each of the Company and Capital One in connection with the Merger. Information regarding the directors and executive officers of the Company and Capital One and other persons who may be deemed participants in the solicitation of the stockholders of the Company or of Capital One in connection with the Merger will be included in the joint proxy statement/prospectus related to the Merger, which will be filed by Capital One with the SEC. Information about the directors and executive officers of the Company and their ownership of the Company common stock can also be found in the Company’s definitive proxy statement in connection with its 2024 annual meeting of stockholders, as filed with the SEC on March 15, 2024, as supplemented by the Company’s proxy statement supplement, as filed with the SEC on April 2, 2024, and other documents subsequently filed by the Company with the SEC. Information about the directors and executive officers of Capital One and their ownership of Capital One common stock can also be found in Capital One’s definitive proxy statement in connection with its 2024 annual meeting of stockholders, as filed with the SEC on March 20, 2024, and other documents subsequently filed by Capital One with the SEC. Additional information regarding the interests of such participants will be included in the joint proxy statement/prospectus and other relevant documents regarding the Merger filed with the SEC when they become available.
View source version on businesswire.com: https://www.businesswire.com/news/home/20241125018559/en/
Investor Contact:
Erin Stieber, 224-405-4555
investorrelations@discover.com
Media Contact:
Matthew Towson, 224-405-5649
matthewtowson@discover.com
Source: Discover Financial Services
FAQ
What is the total liability amount for DFS's card product misclassification issue?
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How will the restatement affect DFS's 2023 financial position?
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