Discover 2015 Annual Report Download - page 146

-130-
Deferred income taxes reflect the net tax effects of temporary differences 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 such
differences are expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that
is more likely than not to be realized. The Company evaluates the likelihood of realizing its deferred tax assets by
estimating sources of future taxable income and the impact of tax planning strategies. Significant components of the
Company’s net deferred income taxes, which are included in other assets in the consolidated statements of financial
condition, were as follows (dollars in millions):
December 31,
2015 2014
Deferred tax assets
Allowance for loan losses ........................................................................................................................... $ 702 $ 659
Compensation and benefits ........................................................................................................................ 116 123
State income taxes .................................................................................................................................... 81 75
Customer fees and rewards ........................................................................................................................ — 212
Other ....................................................................................................................................................... 59 77
Total deferred tax assets before valuation allowance ................................................................................. 958 1,146
Valuation allowance .................................................................................................................................. (2) (41)
Total deferred tax assets, net of valuation allowance ................................................................................. 956 1,105
Deferred tax liabilities
Depreciation and software amortization ...................................................................................................... (120) (116)
Customer fees and rewards ........................................................................................................................ (107) —
Debt exchange premium ............................................................................................................................ (83)(91)
Intangibles ................................................................................................................................................ (31)(15)
Unearned income ...................................................................................................................................... (22)(31)
Deferred loan acquisition costs ................................................................................................................... (18)(23)
Partnership investments .............................................................................................................................. (17)(19)
Other ....................................................................................................................................................... (2) (6)
Total deferred tax liabilities .................................................................................................................... (400) (301)
Net deferred tax assets ....................................................................................................................... $ 556 $ 804
The valuation allowance decreased by $39 million as a result of the sale of Diners Club Italy and Dinit d.o.