HR Block 2006 Annual Report Download - page 119

based upon the contractual percentages of franchise revenues, are value accounting method prescribed under SFAS 123, our net income
recorded in the period in which the franchise provides the service. RAL and earnings per share would have been as follows:
(in 000s, except per share amounts)
participation revenue is recorded when we purchase our participation
interest in the RAL. Software revenues consist mainly of tax preparation Year Ended April 30, 2006 2005 2004
software and other personal productivity software. Sales of software are
Net income $ 490,408 $ 623,910 $ 694,093
recognized when the product is sold to the end user. Add: Stock-based compensation
expense included in reported net
Revenue recognition is evaluated separately for each unit in multiple-
income, net of taxes 37,254 28,819 18,029
deliverable arrangements.
Deduct: Total stock-based
ADVERTISING EXPENSE –Advertising costs are expensed the first
compensation expense determined
time the advertisement is run. Total advertising costs recorded in fiscal
under fair value method for all
year 2006, 2005 and 2004 totaled $239.2 million, $195.4 million and
awards, net of taxes (47,428) (39,544) (30,662)
$188.3 million, respectively.
Pro forma net income $ 480,234 $ 613,185 $ 681,460
FOREIGN CURRENCY TRANSLATION –Assets and liabilities of
Basic earnings per share:
foreign subsidiaries are translated into U.S. dollars at exchange rates
As presented $1.49$1.88$1.96
prevailing at the end of the year. Translation adjustments are recorded
Pro forma 1.46 1.85 1.92
as a separate component of other comprehensive income in
Diluted earnings per share:
As presented $1.47$ 1.85 $ 1.92
stockholders’ equity. Revenue and expense transactions are translated
Pro forma 1.44 1.82 1.89
at the average of exchange rates in effect during the period.
COMPREHENSIVE INCOME –Our comprehensive income is DERIVATIVE ACTIVITIES –We use forward loan sale commitments,
comprised of net income, foreign currency translation adjustments and interest rate swaps and other financial instruments to manage our
the change in net unrealized gains or losses on available-for-sale interest rate risk related to commitments to fund mortgage loans and
marketable securities. Included in stockholders’ equity at April 30, 2006 mortgage loans underlying our beneficial interest in Trusts. We do not
and 2005, the net unrealized holding gain on available-for-sale securities enter into derivative transactions for speculative or trading purposes.
was $27.4 million and $71.6 million, respectively, and the foreign We record derivative instruments as assets or liabilities, measured at
currency translation adjustment was $(5.5) million and $(2.8) million, fair value. None of our derivative instruments qualify for hedge
respectively. The net unrealized holding gain on available-for-sale accounting treatment as of April 30, 2006 or 2005. Gains or losses on
securities relates primarily to available-for-sale residual interests derivative instruments are presented in our consolidated statements of
in securitizations. income and statements of cash flows in a manner consistent with the
STOCK-BASED COMPENSATION PLANS –Effective May 1, 2003, we earnings effect of the hedged item.
adopted the fair value recognition provisions of Statement of Financial DISCLOSURE REGARDING CERTAIN FINANCIAL INSTRUMENTS –The
Accounting Standards No. 123, ‘‘Accounting for Stock-Based carrying values reported in the balance sheet for cash equivalents,
Compensation’’ (SFAS 123), under the prospective transition method as receivables, accounts payable, accrued liabilities and the current
described in Statement of Financial Accounting Standards No. 148, portion of long-term debt approximate fair market value due to the
‘‘Accounting for Stock-Based Compensation – Transition and relative short-term nature of the respective instruments. Residual
Disclosure.’’ We recognize stock-based compensation expense for the interests and beneficial interests in Trusts are recorded at estimated fair
issuance of stock options, restricted shares and options granted value as discussed above. See note 5 for the fair value of MSRs and
pursuant to our employee stock purchase plan (ESPP) on a straight-line note 9 for fair value of long-term debt.
basis over the vesting period. Had compensation cost for all stock-based NEW ACCOUNTING STANDARDS –In February 2006, Statement of
compensation plan awards been determined in accordance with the fair Financial Accounting Standards No. 155, ‘‘Accounting for Certain
Hybrid Instruments – An Amendment of FASB Statements No. 133 and
140’’ (SFAS 155), was issued. The provisions of this standard establish a
requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring
bifurcation. The standard permits a hybrid financial instrument to be
accounted for in its entirety if the holder irrevocably elects to measure
the hybrid financial instrument at fair value, with changes in fair value
H&R BLOCK 2006 Form 10K
49