Capital One 2001 Annual Report Download - page 59

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Note I
Cumulative Other Comprehensive Income and
Earnings Per Share
The following table presents the cumulative balances of the
components of other comprehensive income, net of tax:
Unrealized gains (losses) on securities included gross unrealized gains
of $44,568 and $17,075, and gross unrealized losses of $30,224 and
$18,332, as of December 31, 2001 and 2000, respectively.
The following table sets forth the computation of basic and diluted
earnings per share:
Securities of approximately 5,217,000, 5,496,000 and 5,200,000 during
2001, 2000 and 1999, respectively, were not included in the
computation of diluted earnings per share because their inclusion
would be antidilutive.
Note J
Purchase of PeopleFirst, Inc. and
AmeriFee Corporation
In October 2001, the Company acquired PeopleFirst Inc.
(“PeopleFirst”). Based in San Diego, California, PeopleFirst is the
largest online provider of direct motor vehicle loans. The acquisition
price for PeopleFirst was approximately $174,000, paid primarily
through the issuance of approximately 3,746,000 shares of the
Company’s common stock. This purchase combination created
approximately $166,000 in goodwill, as approximately $763,000 of
assets was acquired and $755,000 of liabilities was assumed. The
Company will perform impairment tests on the goodwill purchased
each year in accordance with SFAS No. 142.
In May 2001, the Company acquired AmeriFee Corporation
(“AmeriFee”). AmeriFee is a financial services firm based in
Southborough, Massachusetts that provides financing solutions for
consumers seeking elective medical and dental procedures. The
acquisition was accounted for as a purchase business combination. The
initial acquisition price for AmeriFee was $81,500, paid through
approximately $64,500 of cash and approximately 257,000 shares of the
Company’s common stock. This purchase combination created
approximately $80,000 in goodwill. The goodwill prior to December 31,
2001 was amortized on a straight-line basis over 20 years. After
December 31, 2001, the Company will cease amortization and perform
impairment tests on the book value of the remaining goodwill in
accordance with SFAS No. 142. The terms of the acquisition agreement
provide for additional consideration to be paid annually if AmeriFee’s
results of operations exceed certain targeted levels over the next three
years. The additional consideration, up to a maximum of $454,500, may
be paid either in cash or with shares of the Company’s common stock.
Note K
Regulatory Matters
The Bank and the Savings Bank are subject to capital adequacy
guidelines adopted by the Federal Reserve Board (the “Federal
Reserve”) and the Office of Thrift Supervision (the “OTS”)
(collectively, the “regulators”), respectively. The capital adequacy
guidelines and the regulatory framework for prompt corrective action
require the Bank and the Savings Bank to maintain specific capital
levels based upon quantitative measures of their assets, liabilities and
off-balance sheet items. The inability to meet and maintain minimum
capital adequacy levels could result in the regulators taking actions that
notes 57
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rate to income tax expense was:
Year Ended December 31 2001 2000 1999
Income tax at statutory
federal tax rate 35.00% 35.00% 35.00%
Other, primarily state taxes 3.00 3.00 2.07
Income taxes 38.00% 38.00% 37.07%
As of December 31 2001 2000 1999
Unrealized gains (losses)
on securities $8,894 $(777) $ (32,608)
Foreign currency translation
adjustments (19,466) 3,695 1,346
Unrealized losses on cash flow
hedging instruments (74,026)
Total cumulative other
comprehensive income (loss) $(84,598) $2,918 $ (31,262)
Year Ended December 31
(Shares in Thousands) 2001 2000 1999
Numerator:
Net income $641,965 $ 469,634 $ 363,091
Denominator:
Denominator for basic
earnings per share —
Weighted average shares 209,867 196,478 197,594
Effect of dilutive securities:
Stock options 10,709 12,971 13,089
Dilutive potential
common shares 10,709 12,971 13,089
Denominator for diluted
earnings per share —
Adjusted weighted
average shares 220,576 209,449 210,683
Basic earnings per share $3.06 $ 2.39 $ 1.84
Diluted earnings per share $2.91 $ 2.24 $ 1.72