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tax expense. We adopted the provisions of this guidance as of May 1, 2009. The adoption did not have a material
impact on our consolidated financial statements.
In June 2008, the FASB issued guidance, under Topic 260 – Earnings Per Share, addressing whether instruments
granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be
included in the process of allocating earnings for purposes of computing earnings per share (EPS). We adopted the
provisions of this guidance as of May 1, 2009. The adoption and retrospective application of this guidance reduced
basic EPS as previously reported for fiscal year 2009 by $0.01 and increased diluted EPS by $0.01 for fiscal
year 2008. See additional discussion in note 3.
NOTE 2: BUSINESS COMBINATIONS AND DISPOSALS
We periodically acquire the businesses of franchisees and account for the transaction as a business combination.
We also periodically sell company-owned offices to franchisees and record a gain if the sale qualifies as a
divestiture for accounting purposes and upon determination that collection of the sales proceeds is reasonably
assured. Gains are reported in operating income because the transactions are considered a recurring part of our
business, and are included as a reduction of selling, general and administrative expenses in our consolidated
income statements. During fiscal years 2010 and 2009, we sold certain offices to existing franchisees for cash
proceeds of $65.7 million and $16.9 million, respectively, and recorded gains on these sales of $49.0 million and
$14.9 million, respectively.
Effective November 3, 2008, we acquired the assets and franchise rights of our last major independent franchise
operator for an aggregate purchase price of $279.2 million. Goodwill recognized on this transaction is included in
the Tax Services segment and is deductible for tax purposes.
During fiscal years 2010, 2009 and 2008, we made other acquisitions, which were accounted for as purchases
with cash payments totaling $10.3 million, $12.6 million and $21.4 million, respectively. Operating results of the
acquired businesses, which are not material, are included in the consolidated income statements since the date of
acquisition. During fiscal years 2010, 2009 and 2008 we also paid $0.2 million, $1.9 million and $3.6 million,
respectively, for contingent payments on prior acquisitions.
NOTE 3: EARNINGS PER SHARE
Basic and diluted earnings per share is computed using the two-class method. See note 1 for additional information
on our adoption of the two-class method. The two-class method is an earnings allocation formula that determines
net income per share for each class of common stock and participating security according to dividends declared
and participation rights in undistributed earnings. Per share amounts are computed by dividing net income from
continuing operations attributable to common shareholders by the weighted average shares outstanding during
each period. The computations of basic and diluted earnings per share from continuing operations are as follows:
Year Ended April 30, 2010 2009 2008
(in 000s, except per share amounts)
Net income from continuing operations attributable to shareholders $ 488,946 $ 513,055 $ 445,947
Amounts allocated to participating securities (nonvested shares) (1,888) (2,042) (2,453)
Net income from continuing operations
attributable to common shareholders $ 487,058 $ 511,013 $ 443,494
Basic weighted average common shares 332,283 332,787 324,810
Potential dilutive shares 953 1,752 2,658
Dilutive weighted average common shares 333,236 334,539 327,468
Earnings per share from continuing operations attributable to
common shareholders:
Basic $ 1.47 $ 1.53 $ 1.37
Diluted 1.46 1.53 1.35
Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain
restrictions or the exercise of options to purchase 13.7 million, 15.7 million and 18.2 million shares of stock for
fiscal years 2010, 2009 and 2008, respectively, as the effect would be antidilutive.
H&R BLOCK 2010 Form 10K 47