HR Block 2013 Annual Report Download - page 62

H&R Block 2013 Form 10-K 55
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Our deferred tax assets include capital loss and
state and foreign tax loss carry-forwards and are reduced by a valuation allowance if, based on available evidence, it
is more likely than not that some portion or all of the deferred tax assets will not be realized. Our current deferred tax
assets are included in prepaid expenses and other current assets in the consolidated balance sheets. Noncurrent deferred
tax assets are included in other assets on the consolidated balance sheets. Noncurrent deferred tax liabilities are included
in other noncurrent liabilities on the consolidated balance sheets.
We evaluate the sustainability of each uncertain tax position based on its technical merits. If we determine it is more
likely than not a tax position will be sustained based on its technical merits, we record the impact of the position in our
consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon
ultimate settlement. We do not record a tax benefit for tax positions where we have concluded it is not more likely than
not to be sustained. Differences between a tax position taken or expected to be taken in our tax returns and the amount
of benefit recognized and measured in the financial statements result in unrecognized tax benefits, which are recorded
in the balance sheet as either a liability for unrecognized tax benefits or reductions to recorded tax assets, as applicable.
We file a consolidated federal tax return on a calendar year basis and state tax returns on a consolidated or combined
basis, as permitted by authorities. We report interest and penalties as a component of income tax expense.
TREASURY SHARES – We record shares of common stock repurchased by us as treasury shares, at cost, resulting
in a reduction of stockholders’ equity. Periodically, we may retire shares held in treasury as determined by our Board
of Directors. We reissue treasury shares as part of our stock-based compensation programs or for acquisitions. When
shares are reissued, we determine the cost using the average cost method.
REVENUE RECOGNITION – Service revenues consist primarily of fees for preparation and filing of tax returns,
both in offices and through our online programs, fees associated with our Peace of Mind® (POM) guarantee program
and interchange income associated with our H&R Block Prepaid Emerald MasterCard® program. Service revenues are
recognized in the period in which the service is performed as follows:
Assisted and online tax preparation revenues are recorded when a completed return is electronically filed or accepted
by the customer.
POM revenues are deferred and recognized over the term of the guarantee, based on actual and projected claims.
Revenues associated with our H&R Block Prepaid Emerald MasterCard® program consist of interchange income
from the use of debit cards and fees from the use of ATM networks. Interchange income is a fee paid by a merchant
bank to the card-issuing bank through the interchange network, and is based on cardholder purchase volumes.
Interchange income is recognized as earned.
Product and other revenues in the current year include royalties from franchisees and sales of software products,
and are recognized as follows:
Upon granting of a franchise, franchisees pay a refundable deposit generally in the amount of $2,500, but pay no
initial franchise fee. We record the payment as a deposit liability and recognize no revenue in connection with the
initial granting of a franchise. Franchise royalties, which are based on contractual percentages of franchise revenues,
are recorded in the period in which the franchise provides the service.
Revenue from the sale of software such as H&R Block At Home® is recognized when the product is sold to the
end user, either through assisted, online or other channels. Rebates, slotting fees and other incentives paid in
connection with these sales are recorded as a reduction of revenue. Revenue from the sale of 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, EAs and credit cards
and is recognized as follows:
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.
Interest income on EAs and loans to franchisees 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.