Capital One 2004 Annual Report Download - page 103
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Note 11
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s deferred tax assets and liabilities as of December 31, 2004 and 2003 were as
follows:
December 31
2004 2003
Deferred tax assets:
Allowance for loan losses $324,308 $337,715
Unearned income 161,682 260,324
Stock incentive plan 64,493 64,585
Foreign 6,013 25,890
Net operating losses 11,258 15,212
State taxes, net of federal benefit 35,134 42,140
Derivative instruments 168 32,228
Other 271,982 204,505
Subtotal 875,038 982,599
Valuation allowance (29,125) (52,083)
Total deferred tax assets 845,913 930,516
Deferred tax liabilities:
Securitizations 21,851 27,042
Deferred revenue 686,579 760,021
Securities available for sale (8,536) 20,511
Other 107,688 73,756
Total deferred tax liabilities 807,582 881,330
Net deferred tax (liabilities) assets $ 38,331 $ 49,186
During 2004, the valuation allowance for certain loss and tax credit carryforwards decreased by a net $23.0
million. The valuation allowance decreased because of a $30.2 million reduction associated with the reversal of
timing differences for state purposes and a $9.0 million reduction associated with international loss
carryforwards utilized during the year. The valuation allowance increased because of the establishment of a $16.2
million allowance for capital loss and tax credit carryforwards.
At December 31, 2004, the Company had net operating losses available for federal income taxes purposes of
$32.4 million which are subject to certain annual limitations under the Internal Revenue Code, and expire on
various dates from 2018 to 2020. Also, foreign net operating losses of $1.8 million are available and expire in
2012. The Company also had capital loss carryovers in the amount of $54.2 million, which expire on various
dates from 2006 to 2008 and foreign tax credit carryovers in the amount of $9.6 million which expire in 2014.
The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent
that such earnings are indefinitely invested outside the United States. At December 31, 2004, all of the
accumulated undistributed earnings of non-U.S. subsidiaries were insignificant and have been indefinitely
invested. In addition, the Company has evaluated the effect of the Foreign Earnings Repatriation Provision of the
American Jobs Creation Act of 2004. Based upon this evaluation, the Company has determined that there is no
effect on income tax expense or benefit.
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