Capital One 2006 Annual Report Download - page 115

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Included in Other deferred tax assets at December 31, 2006, the Company has a $12.1 million net operating loss carryforward
for U.S. federal income taxes purposes with a tax value of $4.2 million that expires in 2020. The Company has capital loss
carryforwards of $4.2 million with a tax value of $1.5 million that expire in 2007 and 2008. The Company has net operating
loss carryforwards for state purposes with a tax value of $5.4 million that expire from 2006 to 2025. The Company has
foreign tax credit carryforwards of $12.1 million that expire in 2014 and 2015.
During 2006, the valuation allowance for certain loss and tax credits carryforwards decreased by a net $26.9 million. The
valuation allowance decreased due to an $18.5 million reduction to the allowance for capital loss carryforwards, of which
$7.8 million was applied to goodwill. The valuation allowance was further decreased by an $11.9 million reduction for
timing differences for state tax purposes and a $1.1 million reduction for state net operating loss carryforwards. The state
valuation allowance was increased by $4.6 million acquired through the purchase of North Fork Bancorporation, Inc. for
which subsequently recognized tax benefits will reduce goodwill.
The deferred tax liability for deferred revenue represents late fees, interchange, cash advance fees and overlimit fees. These
items are treated as original issue discount (OID) for tax purposes and recognized over the life of the related credit card
receivables. These items are recognized in the income statement as income in the year earned. For income statement
purposes, late fees are reported as interest income, and interchange, cash advance fees and overlimit fees are reported as non-
interest income.
December 31
2006 2005
Deferred revenue:
OID $ 1,769,466 $ 1,854,753
OIDcash advance fees 94,974 79,153
OIDaccretion adjustment 
(43)
Gross deferred tax liability $ 1,864,440 $ 1,933,863
Net federal deferred tax liability $ 652,554 $ 676,852
As of December 31, 2006, U.S. income taxes and foreign withholding taxes have not been provided on approximately $275.0
million of unremitted earnings of subsidiaries operating outside the U.S., in accordance with APB Opinion No. 23,
Accounting for Income TaxesSpecial Areas. These earnings are considered by management to be invested indefinitely.
Upon repatriation of these earnings, the Company could be subject to both U.S. income taxes (subject to possible adjustment
for foreign tax credits) and withholding taxes payable to various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability and foreign withholding tax on these unremitted earnings is not practicable at
this time because such liability is dependent upon circumstances existing if and when remittance occurs.
As of December 31, 2006, U.S. income taxes have not provided for approximately $276.0 million of previously acquired
thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts, acquired as a result of the merger
with North Fork Bancorporation, Inc., are subject to recapture in the unlikely event that North Fork Bank makes distributions
in excess of earnings and profits, redeems its stock, or liquidates.
Note 15
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31
(Shares in Thousands) 2006 2005 2004
Numerator:
Net income $ 2,414,493 $ 1,809,147 $ 1,543,482
Denominator:
Denominator for basic earnings per share-Weighted-average shares 309,584 259,159 235,613
Effect of dilutive securities:
Stock options 6,171 7,367 10,594
Restricted stock and units 1,268 2,382 2,560
Dilutive potential common shares 7,439 9,749 13,154
Denominator for diluted earnings per share-Adjusted weighted-average
shares 317,023 268,908 248,767
Basic earnings per share $ 7.80 $ 6.98 $ 6.55
Diluted earnings per share $ 7.62 $ 6.73 $ 6.21