HR Block 2013 Annual Report Download - page 61

54 H&R Block 2013 Form 10-K
bypass this qualitative assessment and perform a detailed quantitative test of impairment. If the qualitative assessment
indicates impairment, or if we elect to bypass the qualitative analysis, we then perform a two-step quantitative
assessment. In the first step, we compare the fair value of a reporting unit with our carrying amount including goodwill
using an income approach and a market approach. Discounted cash flow (DCF) analyses are based on current revenue
and expense forecasts and estimated long-term growth estimates for each reporting unit. Projected cash flows are
discounted based on a market comparable weighted average cost of capital rate for each reporting unit, adjusted for
market and other risks where appropriate. The market approach involves analyzing market multiples of key metrics.
In addition, we analyze any difference between the sum of the fair values of the reporting units and our total market
capitalization for reasonableness.
If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not
impaired. If the fair value of the reporting unit is less than the carrying value, a second step is performed in which the
implied fair value of the reporting unit’s goodwill is compared to the carrying value of the goodwill. The implied fair
value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair
value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than
the carrying value, the difference is recognized as an impairment charge.
A qualitative assessment of goodwill was performed for certain reporting units during the fourth quarter of fiscal
year 2013. We assessed economic conditions and industry and market considerations, in addition to the overall financial
performance of these reporting units. Based on the results of our assessment, we determined that it was not more likely
than not that these reporting units had a carrying value in excess of its fair value. Accordingly, no further goodwill
testing was completed.
Based on the quantitative assessment performed on all other reporting units during the fourth quarter of fiscal year
2013, the fair value of the goodwill within our reporting units substantially exceeded its carrying value. We did not
recognize any impairment charges related to our annual impairment test of goodwill during fiscal year 2013.
In addition, long-lived assets, including intangible assets with finite lives, are assessed for impairment whenever
events or circumstances indicate the carrying value may not be fully recoverable by comparing the carrying value to
future undiscounted cash flows. Impairment is recorded for long-lived assets determined not to be fully recoverable
equal to the excess of the carrying amount of the asset over its estimated fair value.
See note 7 for discussion of the impairment of goodwill and intangible assets during fiscal years 2013, 2012 and
2011.
We capitalize certain allowable costs associated with software developed for internal use. These costs are typically
amortized over 36 months using the straight-line method.
The weighted-average life of intangible assets with finite lives is 28 years. Intangible assets are typically amortized
over the estimated useful life of the assets using the straight-line method.
COMMERCIAL PAPER – During fiscal years 2013 and 2012, we issued commercial paper to finance seasonal
liquidity needs. We had no commercial paper outstanding at April 30, 2013 or 2012.
LITIGATION AND RELATED CONTINGENCIES – It is our policy to routinely assess the likelihood of any
adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the
amount of the liability required to be accrued, if any, for these contingencies is made after analysis of each known issue
and an analysis of historical experience. We accrue liabilities related to legal matters for which we believe it is probable
that a loss will be incurred and the amount of the loss can be reasonably estimated. With respect to other matters,
management has concluded that a loss is only reasonably possible or remote, or not reasonably estimable and, therefore,
we do not accrue a liability. Management discloses the facts regarding material matters, and a range of potential exposure
if estimable, for losses assessed as reasonably possible to occur. Costs incurred with defending claims are expensed as
incurred. Any receivable for insurance recoveries is recorded separately from the corresponding litigation liability, and
only if recovery is determined to be probable.
INCOME TAXES – We account for income taxes under the asset and liability method, which requires us to record
deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial
statement carrying value of existing assets and liabilities and their respective tax basis. Deferred taxes are determined
separately for each tax-paying component within each tax jurisdiction based on provisions of enacted tax law. Deferred