Discover 2015 Annual Report Download - page 138

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Stock Options
Option awards are granted with an exercise price equal to the fair market value of one share of the Company's
common stock at the date of grant; these types of awards expire ten years from the grant date and may be subject to
restrictions on transfer, vesting requirements, which are set at the discretion of the Compensation and Leadership
Development Committee of the Company's board of directors, or cancellation under specified circumstances. Stock
awards also may be subject to similar restrictions determined at the time of grant under this plan. Certain option awards
provide for accelerated vesting if there is a change in control or upon certain terminations (as defined in the Omnibus
Plan or the award certificate).
The following table sets forth the activity concerning stock option activity:
Number of
Units
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in millions)
Options outstanding at December 31, 2014 .................................................. 115,505 $ 26.40 1.90 years $ 5
Granted(1) ............................................................................................... — $ —
Exercised ............................................................................................... (21,793) $ 25.18
Expired .................................................................................................. — $ —
Options outstanding at December 31, 2015 .................................................. 93,712 $ 26.68 0.95 years $ 3
Vested and exercisable at December 31, 2015 .............................................. 93,712 $ 26.68 0.95 years $ 3
(1) No stock options have been granted by the Company since its spin-off from Morgan Stanley.
Cash received from the exercise of stock options was $1 million for both the years ended December 31, 2015
and 2014, and the income tax benefit realized from the exercise of stock options was not material for either year.
The following table summarizes the total intrinsic value of options exercised and total fair value of options vested
(dollars in millions):
For the Years Ended December 31,
2015 2014 2013
Intrinsic value of options exercised ......................................................................................... $ 1 $ 2 $ 11
As of December 31, 2015 and 2014 there was no unrecognized compensation cost related to non-vested stock
options granted under the Company's Omnibus Plan, as all these options have vested.
The Company utilized the Black-Scholes pricing model to estimate the fair value of each option at its date of
grant. The fair value was amortized on a straight-line basis, net of estimated forfeitures, over the requisite service
periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make
certain assumptions with respect to selected model inputs. Since all options were granted prior to the Company's spin-
off from Morgan Stanley, the expected option life of stock options and the expected dividend yield of stock were
determined based upon Morgan Stanley's historical experience. The expected stock price volatility was determined
based upon Morgan Stanley's historical stock price data over a time period similar to the expected option life. The risk-
free interest rate was based on U.S. Treasury Strips with a remaining term equal to the expected life assumed at the
date of grant.
12. Employee Benefit Plans
The Company sponsors the Discover Financial Services Pension Plan (the "Discover Pension Plan"), which is a
non-contributory defined benefit plan that is qualified under Section 401(a) of the Internal Revenue Code, for eligible
employees in the U.S. Effective December 31, 2008, the Discover Pension Plan was amended to discontinue the accrual
of future benefits. The Company also sponsors the Discover Financial Services 401(k) Plan (the “Discover 401(k) Plan”),
which is a defined contribution plan that is qualified under Section 401(a) of the Internal Revenue Code, for its eligible
U.S. employees.