Capital One 2014 Annual Report Download - page 172

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credit card program and partnership agreement are reported on a net basis in our consolidated financial statements.
Revenue sharing amounts attributable to the partner are recorded as an offset against total net revenue in our
consolidated statements of income. Interest income was reduced by $1.0 billion, $965 million and $885 million in
2014, 2013, and 2012, respectively, for amounts earned by the partner, as part of the revenue sharing agreement.
The financial statement impact of all of our loss sharing arrangements that qualify for net accounting treatment is
disclosed in the Card Partnership Agreements section above.
Stock-Based Compensation
We reserve common shares for issuance to employees, directors and third-party service providers, in various forms,
including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards and
units and performance share awards and units. In addition, we also issue cash equity units and cash-settled restricted
stock units which are not counted against the common shares reserved for issuance or available for issuance because
they are settled in cash. For awards settled in shares, we generally recognize compensation expense on a straight-
line basis over the award’s service period. If an award settled in shares contains a performance condition with graded
vesting, we recognize compensation expense using the accelerated attribution method. Cash-settled equity units and
restricted stock units are accounted for as liability awards which results in quarterly expense fluctuations based on
changes in our stock price through the date that the awards are settled. Awards that continue to vest after retirement are
expensed over the shorter of the period of time between the grant date and the final vesting period or between the
grant date and when the participant becomes retirement eligible; awards to participants who are retirement eligible
at the grant date are subject to immediate expense recognition upon grant. Stock-based compensation expense is
included in salaries and associate benefits in the consolidated statements of income.
Stock-based compensation expense for stock options is based on the grant date fair value, which is estimated using a
Black-Scholes option pricing model. Significant judgment is required when determining the inputs into the fair
value model and the expected forfeiture rate of stock options. Aside from stock options, the fair value of stock-based
compensation used in determining compensation expense will generally equal the fair market value of our common
stock on the date of grant. Certain share-settled awards with discretionary vesting conditions are subject to variable
accounting, pursuant to which compensation expense fluctuates with changes in our stock price.
Marketing Expenses
We expense marketing costs as incurred. Television advertising costs are expensed during the period in which the
advertisements are aired.
Fraud Losses
We experience fraud losses primarily from the unauthorized use of credit cards, debit cards and customer bank
accounts. Additional fraud losses may be incurred when loans are obtained through fraudulent means. Fraud-related
losses and recoveries are recorded in our consolidated statements of income as a component of non-interest expense
after the investigation period has been completed. See “Note 14—Other Non-Interest Expense” for additional
information.
Income Taxes
We account for income taxes in accordance with the relevant accounting guidance, recognizing the current and deferred
tax consequences of all transactions that have been recognized in the financial statements using the provisions of the
enacted tax laws. Deferred tax assets and liabilities are determined based on differences between the financial reporting
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)