HR Block 2008 Annual Report Download - page 78

Download and view the complete annual report

Please find page 78 of the 2008 HR Block annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

assets and liabilities at fair value, the effect of fair value measurements on earnings and establish a fair value
hierarchy that prioritizes the information used in developing assumptions used when valuing an asset or liability.
The provisions of this standard are effective as of the beginning of our fiscal year 2009. The adoption of SFAS 157
will not have a material effect on our consolidated financial statements.
In March 2006, Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial
Assets — An Amendment of FASB Statement No. 140,” (SFAS 156), was issued. The provisions of this standard
require mortgage servicing rights (MSRs) to be initially valued at fair value. SFAS 156 allows servicers to choose to
subsequently measure their servicing rights at fair value or to continue using the “amortization method” under
SFAS 140. We adopted SFAS 156 on May 1, 2007. Upon adoption we identified MSRs relating to all existing residential
mortgage loans as a class of servicing rights and elected to continue to use the “amortization method” for these MSRs.
We sold all of our MSRs as of April 30, 2008. The adoption of SFAS 156 did not have a material impact on our
consolidated financial statements.
In February 2006, Statement of 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 established a requirement to evaluate all newly acquired 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 required to be
bifurcated 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 recognized currently in earnings. We adopted SFAS 155 on
May 1, 2007. Our residual interests typically have interests in derivative instruments embedded within the
securitization trusts, which were previously excluded from evaluation. Concurrent with the adoption of
SFAS 155, we elected to account for all newly-acquired residual interests on a fair value basis as trading
securities, with changes in fair value recorded in earnings in the period in which the change occurs. Prior to
adoption, we accounted for our residual interests as AFS securities with unrealized gains recorded in other
comprehensive income. For residual interests recorded prior to the adoption of SFAS 155, we continue to record
unrealized gains as a component of other comprehensive income. The adoption of SFAS 155 did not have a
material impact on our consolidated financial statements.
As discussed in note 14, we adopted the provisions of FIN 48 effective May 1, 2007.
NOTE 2: BUSINESS COMBINATIONS
During fiscal year 2007, we acquired TaxWorks LLC, a provider of commercial tax preparation software targeting
the independent tax preparer market. The initial cash purchase price was $24.8 million, including the present value
of a $10.0 million payment made in April 2007 and a payment of $23.6 million due in May 2012. An additional
payment of up to $8.0 million, contingent on meeting certain performance targets, could be paid in April 2012 and
would typically be recorded as additional purchase price, generally goodwill.
Goodwill recognized in this transaction is included in the Tax Services segment and is deductible for tax
purposes.
During fiscal year 2006, we acquired all outstanding common stock of American Express Tax and Business
Services, Inc. (AmexTBS) for an aggregate purchase price of $190.7 million. The customer relationships and non-
compete agreements are amortized on a straight-line basis and have a weighted average life of 11 years and 6 years,
respectively. Goodwill recognized in this transaction is included in the Business Services segment and is not
deductible for tax purposes. The purchase price was subject to certain contractual post-closing adjustments,
which were finalized during fiscal year 2007. As a result, we adjusted deferred tax balances initially recorded in
connection with this acquisition resulting in an increase of $16.6 million to goodwill and received cash of
$10.1 million, which was recorded as a reduction of goodwill.
During fiscal years 2008, 2007 and 2006, we made other acquisitions, which were accounted for as purchases
with cash payments totaling $21.4 million, $32.8 million and $19.7 million, respectively. Their operations, which are
not material, are included in the consolidated income statements since the date of acquisition. During fiscal years
2008, 2007 and 2006 we also paid $3.6 million, $5.4 million and $2.1 million, respectively for contingent payments
on prior acquisitions.
58 H&R BLOCK 2008 Form 10K