Discover 2010 Annual Report Download - page 138

Company used a binomial lattice model to determine the fair value of the warrant, which included the following key
assumptions: (i) volatility of 50%, (ii) an exercise price of $8.96, (iii) a dividend yield of 2.57% and (iv) the ten-year
risk-free rate of 3.5%. The resulting fair values of the preferred stock and stock warrants were used to allocate the
aggregate purchase price of $1.225 billion on a pro rata basis. The Company used the effective interest rate method to
amortize the discount and the senior preferred stock.
On April 21, 2010, the Company completed the repurchase of all the outstanding shares of the senior preferred stock
for $1.2 billion, at which time the Company also accelerated the accretion of the remaining discount on the senior
preferred stock of $61 million. On July 7, 2010, the Company repurchased the warrant from the U.S Treasury for $172
million.
During the year ended November 30, 2009, the Company raised approximately $534 million in capital through the
issuance of 60,054,055 shares of common stock, par value of $0.01, at a public offering price of $9.25 per share
($8.89 per share net of underwriter discounts and commissions). This included 6,000,000 shares sold pursuant to the
over-allotment option granted to the underwriters.
15. Changes in Accumulated Other Comprehensive Income (Loss)
Changes in each component of accumulated other comprehensive income (loss) were as follows (dollars in thousands):
Net
Unrealized
Gains
(Losses)
on
Securities
Foreign
Currency
Translation
Adjustment
Adjustments
Related to
Pension and
Other Post
Retirement
Benefits Derivatives
Accumulated
Other
Comprehensive
Income (Loss)
Balance at November 30, 2007 ................................................................. $ (3,061) $ 48,358 $(13,265) $ 0 $ 32,032
Net unrealized losses on investment securities, net of tax benefit of
$29,124(1) ........................................................................................ (50,158) 0 0 0 (50,158)
Foreign currency translation, net of tax(2) ................................................... 0 (21,282) 0 0 (21,282)
Realization of foreign currency translation upon sale of Goldfish business....... 0 (27,076) 0 0 (27,076)
Amortization of losses related to pension and postretirement benefits, net of
tax(3) ................................................................................................ 0 0 146 0 146
Balance at November 30, 2008 ................................................................. (53,219) 0 (13,119) 0 (66,338)
Net unrealized losses on investment securities, net of tax benefit of
$5,594(1) .......................................................................................... (8,527) 0 0 0 (8,527)
Amortization of losses related to pension and postretirement benefits, net of
tax benefit of $46,335(3)...................................................................... 0 0 (79,953) 0 (79,953)
Balance at November 30, 2009 ................................................................. (61,746) 0 (93,072) 0 (154,818)
Adoption of ASC 810 (FASB Statement No. 167), net of tax expense of
$46,470........................................................................................... 78,561 0 0 0 78,561
Net unrealized losses on investment securities, net of tax benefit of
$2,493(1) .......................................................................................... (4,213) 0 0 0 (4,213)
Net unrealized gain reversed upon the liquidation of an investment security,
net of tax benefit of $2,774(1) ............................................................... (4,681) 0 0 0 (4,681)
Amortization of gains related to pension and postretirement benefits, net of
tax(3) ................................................................................................ 0 0 78 0 78
Unrealized gains on cash flow hedges, net of tax expense of $1,497(4) .......... 0 0 0 2,525 2,525
Balance at November 30, 2010 ................................................................. $ 7,921 $ 0 $(92,994) $2,525 $ (82,548)
(1) Represents the difference between the fair value and amortized cost of available-for-sale investment securities.
(2) Represents translation gains and losses relating to the Company’s Goldfish business resulting from the change in exchange rates, primarily of the British pound, and the related tax effects.
(3) Represents amortization of losses related to pension and postretirement benefits in accordance with ASC 715-30-25.
(4) Represents unrealized gains (losses) related to effective portion of cash flow hedges.
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