HR Block 2012 Annual Report Download - page 61

TaxWorks
®
software is deferred and recognized over the period for which upgrades and support are
provided to the customer.
Interest income consists primarily of interest earned on mortgage loans held for investment and EAs and is
recognized as follows:
䡲Interest income on mortgage loans held for investment includes deferred origination fees and costs and
purchase discounts and premiums, which are amortized to income over the life of the loan using the interest
method.
䡲Interest income on EAs is calculated using the average daily balance method and is recognized based on the
principal amount outstanding until the outstanding balance is paid or becomes delinquent.
䡲Loan 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 the 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 2012, 2011 and 2010 totaled $278.8 million, $243.3 million and $235.9
million, respectively.
GAINS ON SALES OF TAX OFFICES – We periodically sell company-owned tax offices to franchisees. We
offer loans to our franchisees to finance these sales. 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 the consolidated income statements.
During fiscal years 2012, 2011 and 2010, we sold certain retail tax offices to existing franchisees for cash
proceeds of $17.3 million, $65.6 million and $65.7 million, respectively, and recorded gains on these sales of
$16.6 million, $45.1 million and $49.1 million, respectively.
EMPLOYEE BENEFIT PLANS – We have a 401(k) defined contribution plan covering all full-time and seasonal
employees following the completion of an eligibility period. Contributions of our continuing operations to this
plan are discretionary and totaled $12.8 million, $12.1 million and $13.2 million for fiscal years 2012, 2011 and
2010, respectively.
We have severance plans covering executives and all regular full-time or part-time active employees for
involuntary separation from the company. Expenses related to severance benefits totaled $32.5 million and
$29.6 million in fiscal years 2012 and 2011, respectively.
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, 2012 and 2011, the net unrealized holding gain on AFS securities was $3.6
million and $0.5 million, respectively, and the foreign currency translation adjustment was $8.6 million and
$10.8 million, respectively.
NEW ACCOUNTING STANDARDS – In September 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill
for Impairment.” Under the amendments in this guidance, an entity may consider qualitative factors before
applying Step 1 of the goodwill impairment assessment, but may no longer be permitted to carry forward
estimates of a reporting unit’s fair value from a prior year when specific criteria are met. These amendments are
effective for our fiscal year 2013. We believe this guidance will not have a material effect on our consolidated
financial statements.
STANDARDS IMPLEMENTED – In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair
Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.” Under the amendments in this guidance, an entity is required to provide
additional disclosures about the valuation processes and sensitivities of Level 3 assets and the categorization by
level of the fair value hierarchy for items that are not measured at fair value in the statement of financial
position, but for which the fair value is required to be disclosed. These amendments are effective for interim
H&R BLOCK 2012 Form 10K 47