HR Block 2005 Annual Report Download - page 116

instruments qualify for hedge accounting treatment as of April 30, guarantee period in proportion to POM claims paid. As a result of
2005 and 2004. the adoption of EITF 00-21, we recorded a cumulative effect of a
DISCLOSURE REGARDING CERTAIN FINANCIAL change in accounting principle of $6.4 million, net of a tax benefit
INSTRUMENTS ⬎⬎⬎ The carrying values reported in the balance of $4.0 million, as of May 1, 2003.
sheet for cash equivalents, receivables, accounts payable, Revenues recognized during fiscal year 2004, which were
accrued liabilities and the current portion of long-term debt initially recognized in prior periods and recorded as part of the
approximate fair market value due to the relative short-term cumulative effect of a change in accounting principle, totaled
nature of the respective instruments. Residual interests and $36.3 million.
beneficial interests in Trusts are recorded at estimated fair value Pro forma results, as if EITF 00-21 had been applied during
as discussed above. See note 6 for the fair value of MSRs and fiscal year 2003, are as follows:
(in 000s, except per share amounts)
note 10 for fair value of long-term debt.
NEW ACCOUNTING STANDARDS ⬎⬎⬎ In December 2004, As Presented Pro Forma
Statement of Financial Accounting Standards No. 123 (revised Net income $ 477,615 $ 475,969
2004), ‘‘Share-Based Payment,’’ (‘‘SFAS 123R’’) was issued. Earnings per share:
Basic $ 1.33 $ 1.32
SFAS 123R requires all entities to recognize the cost of employee
Diluted 1.30 1.29
services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards. Compensation The Financial Accounting Standards Board (‘‘FASB’’) intends to
expense must be recognized for the unvested portions of all reissue the exposure draft, ‘‘Qualifying Special Purpose Entities
awards outstanding as of the date of adoption. The provisions of and Isolation of Transferred Assets, an Amendment of FASB
this standard were delayed by the SEC and will be effective as of Statement No. 140,’’ during the third quarter of calendar year
the beginning of our fiscal year 2007. We are currently evaluating 2005. The purpose of the proposal is to provide more specific
what effect the adoption of SFAS 123R will have on our guidance on the accounting for transfers of financial assets to
consolidated financial statements. a QSPE.
In August 2003, we adopted Emerging Issues Task Force Issue Provisions in the first exposure draft, as well as tentative
No. 00-21, ‘‘Revenue Arrangements with Multiple Deliverables’’ decisions reached by the FASB during its deliberations, may
(‘‘EITF 00-21’’). EITF 00-21 requires consideration received in require us to consolidate our current QSPEs (the Trusts)
connection with arrangements involving multiple revenue established in our Mortgage Services segment. As of April 30,
generating activities be measured and allocated to each separate 2005, the Trusts had both assets and liabilities of $6.7 billion. The
unit of accounting. Revenue recognition is determined separately provisions of the exposure draft are subject to FASB due process
for each unit of accounting within the arrangement. EITF 00-21 and are subject to change. We will continue to monitor the status
impacts revenue recognition related to tax preparation in our of the exposure draft, and consider changes, if any, to current
premium tax offices where POM guarantees are included in the structures as a result of the proposed rules.
price of a completed tax return. Prior to the adoption of The estimated impact of these new accounting standards
EITF 00-21, revenues related to POM guarantees at premium reflects current views. There may be material differences between
offices were recorded in the same period as tax preparation these estimates and the actual impact of these standards.
revenues. Beginning May 1, 2003, revenues related to POM
guarantees are now initially deferred and recognized over the
NOTE 2: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On June 7, 2005, management and the Audit Committee of the financial covenant under our lines of credit or other debt
Board of Directors determined that restatement of our previously instruments.
issued consolidated financial statements, including financial The restatement is a result of the following items. All amounts
statements for the nine months ended January 31, 2005 and for listed are pretax, unless otherwise noted.
the fiscal years ended April 30, 2004 and 2003 and all related 쐍An error in calculating the gain on sale of residual interests
interim periods, was appropriate as a result of the errors noted in fiscal year 2003, resulting in an overstatement in gain on
below. sales of mortgage assets for that year of $37.6 million. This
The restatements did not have any impact on our previously error was corrected by deferring a portion of the gain on sale
reported service revenues or on our compliance with any of residual interests as of the transaction date in fiscal year
H&R BLOCK 2005 Form 10K
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