Discover 2010 Annual Report Download - page 142

The following table presents the calculation of basic and diluted EPS (dollars in thousands, except per share amounts):
For the Years Ended November 30,
2010 2009 2008
Numerator:
Income from continuing operations ................................................................................................................. $764,788 $1,276,185 $1,062,913
Preferred stock dividends............................................................................................................................... (23,811) (43,880) 0
Preferred stock discount accretion ................................................................................................................... (66,492) (9,375) 0
Loss from discontinued operations, net of tax .................................................................................................... 0 0 (135,163)
Net income available to common stockholders .................................................................................................. 674,485 1,222,930 927,750
Income allocated to participating securities....................................................................................................... (6,547) (15,965) (17,240)
Net income allocated to common stockholders .................................................................................................. $667,938 $1,206,965 $ 910,510
Denominator:
Weighted average shares of common stock outstanding ..................................................................................... 544,058 504,550 479,335
Effect of dilutive common stock equivalents ....................................................................................................... 4,702 3,357 22
Weighted average shares of common stock outstanding and common stock equivalents .......................................... 548,760 507,907 479,357
Basic earnings per share:
Income from continuing operations ................................................................................................................. $ 1.23 $ 2.39 $ 2.18
Loss from discontinued operations, net of tax .................................................................................................... 0 0 (0.28)
Net income available to common stockholders .................................................................................................. $ 1.23 $ 2.39 $ 1.90
Diluted earnings per share:
Income from continuing operations ................................................................................................................. $ 1.22 $ 2.38 $ 2.18
Loss from discontinued operations, net of tax .................................................................................................... 0 0 (0.28)
Net income available to common stockholders .................................................................................................. $ 1.22 $ 2.38 $ 1.90
The following securities were considered anti-dilutive and therefore were excluded from the computation of diluted EPS
(shares in thousands):
For the Years Ended, November, 30,
2010 2009 2008
Unexercised stock options................................................................................................................................ 3,398 4,385 4,241
19. Capital Adequacy
The Company is subject to capital adequacy guidelines of the Federal Reserve, and Discover Bank (the “Bank”), the
Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by the Federal
Deposit Insurance Corporation (the “FDIC”). Failure to meet minimum capital requirements can result in the initiation of
certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial position and results of the Company and the Bank. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, as calculated under regulatory
accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (as defined in the regulations) of total risk-based capital and Tier 1 capital to risk-
weighted assets, and of Tier 1 capital to average assets. As of November 30, 2010, the Company and the Bank met all
capital adequacy requirements to which they were subject.
Under regulatory capital requirements, the Company and the Bank must maintain minimum levels of capital that are
dependent upon the risk-weighted amount or average level of the financial institution’s assets, specifically (a) 8% to 10%
of total risk-based capital to risk-weighted assets (“total risk-based capital ratio”), (b) 4% to 6% of Tier 1 capital to
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