Capital One 2000 Annual Report Download - page 52

50 notes
Premises and Equipment
Premises and equipment are stated at cost less accumulated depre-
ciation and amortization. Depreciation and amortization expenses are
computed generally by the straight-line method over the estimated
useful lives of the assets. Useful lives for premises and equipment are
as follows: buildings and improvements — 5–39 years; furniture and
equipment — 3–10 years; computers and software — 3 years.
Marketing
The Company expenses marketing costs as incurred.
Credit Card Fraud Losses
The Company experiences fraud losses from the unauthorized use of
credit cards. Transactions suspected of being fraudulent are charged
to non-interest expense after a sixty-day investigation period.
Income Taxes
Deferred tax assets and liabilities are determined based on differ-
ences between the financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Comprehensive Income
As of December 31, 2000 and 1999, cumulative other comprehen-
sive income, net of tax, consisted of $777 and $32,608 in net
unrealized losses on securities and $3,695 and $1,346 in foreign
currency translation adjustments, respectively. As of December 31,
1998, cumulative other comprehensive income, net of tax, consisted
of $63,260 in net unrealized gains on securities and $(2,605) in for-
eign currency translation adjustments. As of December 31, 2000, the
net unrealized loss on securities was comprised of $18,332 of gross
unrealized losses and $17,075 of gross unrealized gains. As of
December 31, 1999, substantially all of the net unrealized loss on
securities was comprised of gross unrealized losses.
Segments
The Company maintains three distinct business segments: lending,
telecommunications and "other." The lending segment is comprised
primarily of credit card lending activities. The telecommunications
segment consists primarily of direct marketing wireless service.
"Other" consists of various non-lending new business initiatives, none
of which exceed the quantitative thresholds for reportable segments
in SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131").
The accounting policies of these reportable segments are the
same as those described above. Management measures the per-
formance of its business segments and makes resource allocation
decisions based upon several factors, including income before taxes,
less indirect expenses. Lending is the Company’s only reportable busi-
ness segment, based on the definitions provided in SFAS 131.
Substantially all of the Company’s reported assets, revenues and
income are derived from the lending segment in all periods presented.
All revenue is generated from external customers and is pre-
dominantly derived in the United States. Revenues and operating
losses from international operations comprised less than 6% and 9%,
and 6% and 7%, of total managed revenues and operating income for
the years ended December 31, 2000 and 1999, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities." SFAS No. 133 was subsequently
amended in June 1999 by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities – Deferral of the Effective Date of
FASB Statement No. 133," and in June 2000 by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities – an amendment of FASB Statement No. 133." SFAS No. 133,
SFAS No. 137 and SFAS No. 138 (all together "SFAS 133 as amended")
will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through earnings. If the derivative qualifies as a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative’s
change in fair value will be immediately recognized in earnings. SFAS
133 as amended is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Adoption of SFAS 133 as amended on
January 1, 2001 will result in an increase in cumulative other com-
prehensive income of $27,222, net of taxes of $16,685.
In September 2000, the FASB issued SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a replacement of SFAS No. 125" ("SFAS 140"). SFAS 140
revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain addi-
tional disclosures. The disclosure requirements and collateral
provisions of SFAS 140 are effective for fiscal years ending after
December 15, 2000, while the other provisions of the new standard
apply prospectively to transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
adoption of SFAS 140 is not expected to have a material effect on the
Company's financial position or the results of operations.