Discover 2015 Annual Report Download - page 113

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Stock-based Compensation
The Company measures the cost of employee services received in exchange for an award of stock-based
compensation based on the grant-date fair value of the award. The cost is recognized over the requisite service period,
except for awards granted to retirement-eligible employees, which are fully expensed on the grant date. No
compensation cost is recognized for awards that are subsequently forfeited.
Advertising Costs
The Company expenses television advertising costs in the period in which the advertising is first aired and all
other advertising costs as incurred. Advertising costs are recorded in marketing and business development and were
$198 million, $194 million and $208 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Income Taxes
Income tax expense is provided for using the asset and liability method, under which deferred tax assets and
liabilities are determined based on the temporary differences between the financial statement and income tax bases of
assets and liabilities using currently enacted tax rates. Deferred tax assets are recognized when their realization is
determined to be more likely than not. Uncertain tax positions are measured at the highest amount of tax benefit for
which realization is judged to be more likely than not. Tax benefits that do not meet these criteria are unrecognized tax
benefits. See Note 16: Income Taxes for more information about the Company's income taxes.
Financial Instruments Used for Asset and Liability Management
The Company utilizes derivative financial instruments to manage its various exposures to changes in fair value of
certain assets and liabilities, variability in future cash flows arising from changes in interest rates, or other types of
forecasted transactions, and changes in foreign exchange rates. All derivatives are carried at their estimated fair values
on the Company’s consolidated statements of financial condition. Derivatives having gross positive fair values, inclusive
of net accrued interest receipts or payments, are recorded in other assets. Derivatives with gross negative fair values,
inclusive of net accrued interest payments or receipts, are recorded in accrued expenses and other liabilities. The
methodologies used to estimate the fair values of these derivative financial instruments are described in Note 21: Fair
Value Measurements and Disclosures. Collateral receivable or payable amounts associated with derivatives are not
offset against the fair value of these derivatives, but are recorded separately in other assets or deposits, respectively.
Certain of these instruments are designated and qualify for hedge accounting. A hedge is deemed effective to the
extent that the change in fair value, cash flow, or net investment of the hedged item is offset by changes in the hedging
instrument. If the change in the hedging instrument is more or less than the change in fair value, cash flow, or net
investment of the hedged item, the difference is referred to as the ineffective portion of the hedge. Under cash flow
hedge accounting, the effective portion of the change in the fair value of these derivative instruments is recognized in
other comprehensive income. The change in fair value of these derivative instruments relating to the ineffective portion is
recognized immediately in other income. Amounts accumulated in other comprehensive income are reclassified to
earnings in the period during which the hedged items affect income. The ineffective portion of the change in fair value
of the derivatives, if any, is recognized directly in earnings. Amounts are reclassified out of accumulated other
comprehensive income into earnings when the hedged net investment is either sold or substantially liquidated. Under
fair value hedge accounting, changes in both (i) the fair values of the derivative instruments and (ii) the fair values of
the hedged items relating to the risks being hedged, including net differences, if any (i.e., ineffectiveness), are recorded
in interest expense. Certain other derivatives are not designated as hedges or do not qualify for hedge accounting;
changes in the fair value of these derivatives are recorded in other income. These transactions are discussed in more
detail in Note 22: Derivatives and Hedging Activities.
Accumulated Other Comprehensive Income
The Company records unrealized gains and losses on available-for-sale securities, changes in the fair value of
cash flow hedges, and certain pension and foreign currency translation adjustments in other comprehensive income
("OCI") on an after-tax basis where applicable. Details of other comprehensive income, net of tax, are presented in the
statement of comprehensive income, and a rollforward of accumulated other comprehensive income ("AOCI") is
presented in the statement of changes in stockholders' equity and Note 14: Accumulated Other Comprehensive Income.