HR Block 2011 Annual Report Download - page 58

쐍Loan commitment fees, net of related expenses, are initially deferred and recognized as revenue over the
commitment period.
Revenue recognition is evaluated separately for each unit in multiple-deliverable arrangements. Sales tax we
collect and remit to taxing authorities is recorded net in our consolidated income statements.
ADVERTISING EXPENSE –Advertising costs for radio and television ads are expensed the first time the
advertisement takes place, with print and mailing advertising expensed as incurred. Total advertising costs of
continuing operations for fiscal years 2011, 2010 and 2009 totaled $264.2 million, $254.8 million and $249.2 million,
respectively.
GAINS ON SALES OF TAX OFFICES –We periodically sell company-owned tax offices to franchisees. These
sales can be financed by franchisees through loans offered by an affiliated company, which we consolidate. Gains
are recorded upon determination that collection of the sales proceeds is reasonably assured. Gains are initially
deferred when they are financed with these loans and are recognized after minimum payments and equity
thresholds are met. Gains are reported in operating income due to their recurring nature, and are included as a
reduction of selling, general and administrative expenses in our consolidated income statements.
EMPLOYEE BENEFIT PLANS –We have 401(k) defined contribution plans covering all full-time and seasonal
employees following the completion of an eligibility period. Contributions of our continuing operations to these
plans are discretionary and totaled $22.3 million, $24.0 million and $26.7 million for fiscal years 2011, 2010 and
2009, respectively.
We have a severance policy covering all regular full-time or part-time active employees for involuntary
separation from the company. In May 2010 we announced plans to realign field and support organizations.
The realignment included approximately 400 staff reductions. Associated severance benefits were recorded
primarily during the first fiscal quarter of 2011 and totaled $29.6 million.
FOREIGN CURRENCY TRANSLATION –Assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at exchange rates prevailing at the end of the year. Revenues and expenses of our foreign
operations are translated at the average exchanges rates in effect during the fiscal year. Translation
adjustments are recorded as a separate component of other comprehensive income in stockholders’ equity.
COMPREHENSIVE INCOME –Our comprehensive income is comprised of net income, foreign currency
translation adjustments and the change in net unrealized gains or losses on AFS marketable securities.
Included in stockholders’ equity at April 30, 2011 and 2010, the net unrealized holding gain on AFS securities
was $0.5 million and $0.3 million, respectively, and the foreign currency translation adjustment was $10.8 million
and $1.3 million, respectively.
NEW ACCOUNTING STANDARDS –In April 2011, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update 2011-02, “Receivables (Topic 310) — A Creditor’s Determination of Whether a
Restructuring is a Troubled Debt Restructuring.” This guidance assists in determining if a loan modification
qualifies as a TDR and requires that creditors must determine that a concession has been made and the borrower is
having financial difficulties. This guidance is effective beginning with our fiscal year 2012. As a result of applying
this guidance, we may identify loans that are newly considered impaired, however we believe this guidance will
not have a material effect on our consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605) —
Multiple-Deliverable Revenue Arrangements.” This guidance amends the criteria for separating consideration in
multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately
rather than as a combined unit. This guidance establishes a selling price hierarchy for determining the selling price
of a deliverable, which is based on: (1) vendor-specific objective evidence; (2) third-party evidence; or
(3) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-
deliverable revenue arrangements. This guidance is effective prospectively for revenue arrangements entered into
or materially modified beginning with our fiscal year 2012. We believe this guidance will not have a material effect
on our consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update 2010-28, “Intangibles — Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts.” The amendments affect reporting units whose carrying amount is zero or negative, and require
performance of Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment
exists. In determining whether it is more likely than not that a goodwill impairment exists, a reporting unit would
consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative
factors are consistent with existing guidance. The reporting unit would evaluate if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its
46 H&R BLOCK 2011 Form 10K