HR Block 2013 Annual Report Download - page 63

56 H&R Block 2013 Form 10-K
Interest income on credit cards is calculated in accordance with the terms of the applicable cardholder agreements
until the date of charge-off.
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 statements of income.
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 2013, 2012 and 2011 totaled $270.8 million, $278.8 million and $243.3 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 statements
of income.
During fiscal years 2013, 2012 and 2011, we sold certain retail tax offices to existing franchisees for cash proceeds
of $3.8 million, $17.3 million and $65.6 million, respectively, and recorded gains on these sales of $1.3 million, $16.6
million and $45.1 million, respectively.
EMPLOYEE BENEFIT PLANS – We have a 401(k) defined contribution plan covering eligible full-time and
seasonal employees following the completion of an eligibility period. Contributions to this plan are discretionary and
totaled $11.3 million, $12.8 million and $12.1 million for fiscal years 2013, 2012 and 2011, respectively.
We have severance plans covering executives and eligible regular full-time or part-time active employees of a
participating employer who incur a qualifying termination. Expenses related to severance benefits totaled $4.8 million,
$32.5 million and $29.6 million in fiscal years 2013, 2012 and 2011, respectively.
FOREIGN CURRENCY TRANSLATION – Our international subsidiaries generally consider their local currency
to be their functional currency. 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, 2013 and 2012, the net unrealized holding gain on AFS securities was $3.7 million
and $3.6 million, respectively, and the foreign currency translation adjustment was $6.8 million and $8.6 million,
respectively.
NOTE 2: EARNINGS PER SHARE
Basic and diluted earnings per share is computed using 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.