HR Block 2008 Annual Report Download - page 54

The goodwill balance in our continuing operations was $1.0 billion as of April 30, 2008, and $993.9 million as of
April 30, 2007. During fiscal year 2008, we recorded $5.7 million of goodwill impairments within our Tax Services
segment. There were no goodwill impairments in our continuing operations during fiscal years 2007 or 2006. In
fiscal year 2007, we recorded $154.9 million in goodwill impairments related to the sale or wind-down of
businesses reported as discontinued operations.
INCOME TAXES – We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes,” as further interpreted by FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes.”
We calculate our current and deferred tax provision for the fiscal year based on estimates and assumptions that
could differ from the actual results reflected in income tax returns filed during the applicable calendar year.
Adjustments based on filed returns are recorded in the appropriate periods when identified. We file a consolidated
federal tax return on a calendar year basis, generally in the second fiscal quarter of the subsequent year.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to
be realized. Our gross deferred tax asset at April 30, 2008 was $523.8 million and was reduced by a valuation
allowance totaling $36.9 million. We have considered taxable income in carry-back periods, historical and
forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and
tax planning strategies in determining the need for a valuation allowance against our deferred tax assets. In the
event we were to determine we would not be able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to earnings in the period in which we make such
determination. Likewise, if we later determine it is more likely than not that the deferred tax assets would be
realized, we would reverse the applicable portion of the previously provided valuation allowance.
The income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by
the taxpayer and applicable government taxing authorities. Income tax returns filed by us are based on our
interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by federal, state and
foreign tax authorities, which may result in proposed assessments, including assessments of interest and/or
penalties. Our estimate for the potential outcome for any uncertain tax issue is highly subjective and based on our
best judgments. We believe we have adequately provided for any reasonably foreseeable outcome related to these
matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax
liabilities in the period the assessments are made or resolved, or when statutes of limitation on potential
assessments expire. As a result, our effective tax rate may fluctuate on a quarterly basis. Net unrecognized
tax benefits that would impact our effective tax rate totaled $119.6 million at April 30, 2008.
REVENUE RECOGNITION – We have many different revenue sources, each governed by specific revenue
recognition policies. Our revenue recognition policies can be found in Item 8, note 1 to our consolidated financial
statements.
OTHER SIGNIFICANT ACCOUNTING POLICIES – Other significant accounting policies, not involving the same level
of judgment or uncertainty as those discussed above are nevertheless important to an understanding of the financial
statements. These policies may require judgments on complex matters that are often subject to multiple sources of
authoritative guidance. Certain of these matters are among topics currently under reexamination by accounting
standard setters and regulators. Although specific conclusions reached by these standard setters may cause a material
change in our accounting policies, outcomes cannot be predicted with confidence. Also see Item 8, note 1 to our
consolidated financial statements, which discusses accounting policies we have selected when there are acceptable
alternatives, and new or proposed accounting standards that may affect our financial reporting in the future.
FINANCIAL CONDITION
CAPITAL RESOURCES & LIQUIDITY – Our sources of capital include cash from operations, issuances of common
stock and debt. We use capital primarily to fund working capital, pay dividends, repurchase treasury shares and
acquire businesses.
Given the likely availability of a number of liquidity options, we believe, that in the absence of any unexpected
developments, our existing sources of capital at April 30, 2008 are sufficient to meet our operating needs.
CASH FROM OPERATIONS – Cash provided by operations totaled $215.8 million for fiscal year 2008, compared
to cash used in operations of $584.7 million in 2007 and cash provided of $594.1 million in 2006. Operating cash
flows in fiscal year 2008 increased from fiscal year 2007 primarily due to lower net losses and lower income tax
payments. We received net refunds of income tax payments of $238.8 million in the current year, compared to
income tax payments made of $405.4 million in fiscal year 2007.
ISSUANCES OF COMMON STOCK – We issue shares of our common stock in accordance with our stock-based
compensation plans out of our treasury shares. Proceeds from the exercise of stock options totaled $23.3 million,
$25.7 million and $98.5 million in fiscal years 2008, 2007 and 2006, respectively.
34 H&R BLOCK 2008 Form 10K