Discover 2011 Annual Report Download - page 148

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136
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income
tax expense, consistent with its policy prior to the adoption of FASB Interpretation No. 48, codified as ASC 740-10-25. Interest
and penalties related to unrecognized tax benefits increased by $10.6 million to $78.9 million for the year ended November 30,
2011 as compared to the year ended November 30, 2010 and increased by $29.8 million to $68.3 million for the year ended
November 30, 2010 as compared to the year ended November 30, 2009. The changes primarily relate to the revaluation of
existing federal and state taxes.
The Company is under continuous examination by the IRS and the tax authorities for various states. The tax years under
examination vary by jurisdiction; for example, the current IRS examination covers 1999 through the short period June 30, 2007
when Discover was a subsidiary of Morgan Stanley. The Company has been notified by the IRS that the years 2008 through
2010, which are after Discover spun off from Morgan Stanley, are going to be audited. The Company regularly assesses the
likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years' examinations.
As part of its audit of 1999 through 2005, the IRS has proposed additional tax assessments. In August 2010, the Company filed
an appeal with the IRS to protest the proposed adjustments. The Company does not anticipate that a resolution of this matter
will occur within the next twelve months as it is in the preliminary stage. Due to uncertainty of the outcome of the appeal, the
Company is unable to determine if the total amount of unrecognized tax benefits will significantly increase or decrease within
the next twelve months. However, the Company believes that its reserve is sufficient to cover any penalties and interest that
would result in an increase in federal taxes due.
18. Earnings Per Share
The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
Numerator:
Net income
Preferred stock dividends
Preferred stock accretion
Net income available to common stockholders
Income allocated to participating securities
Net income allocated to common stockholders
Denominator:
Weighted average shares of common stock outstanding
Effect of dilutive common stock equivalents
Weighted average shares of common stock outstanding and common stock
equivalents
Basic earnings per share
Diluted earnings per share
For the Year Ended November 30,
2011
$ 2,226,708
—
—
2,226,708
(24,949)
$ 2,201,759
541,813
813
542,626
$ 4.06
$ 4.06
2010
$ 764,788
(23,811)
(66,492)
674,485
(6,547)
$ 667,938
544,058
4,702
548,760
$ 1.23
$ 1.22
2009
$ 1,276,185
(43,880)
(9,375)
1,222,930
(15,965)
$ 1,206,965
504,550
3,357
507,907
$ 2.39
$ 2.38
The following securities were considered anti-dilutive and therefore were excluded from the denominator in the
computation of diluted EPS (shares in thousands):
Unexercised stock options
Unexercised restricted stock units
For the Year Ended November 30,
2011
367
—
2010
3,398
—
2009
4,385
32
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