HR Block 2014 Annual Report Download - page 61

H&R Block, Inc. | 2014 Form 10-K 53
Sales tax we collect and remit to taxing authorities is recorded net in the consolidated statements of income and
is included in other cost of revenues.
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.
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
$11.8 million, $11.3 million and $12.8 million for continuing operations in fiscal years 2014, 2013 and 2012, 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 of continuing
operations totaled $5.2 million, $4.8 million and $32.5 million in fiscal years 2014, 2013 and 2012, respectively.
FOREIGN CURRENCY TRANSLATION – Our international subsidiaries generally consider their local currency to be
their functional currency. Revenues and expenses of our foreign operations are translated at the average exchange
rates in effect during the fiscal year. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at
exchange rates prevailing at the end of the year and the differences from historical exchange rates are reflected as a
separate component of other comprehensive income in stockholders' equity.
Translation adjustments on amounts outstanding under intercompany borrowings, resulted in foreign currency
losses of $18.2 million in fiscal year 2014, compared to gains of $0.2 million and losses of $0.4 million in fiscal years
2013 and 2012, respectively, for continuing operations.
NEW ACCOUNTING PRONOUNCEMENTS – In May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," (ASU 2014-09) which requires
an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it
becomes effective. The new standard is effective for us on May 1, 2017. Early application is not permitted. The standard
permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that
ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a
transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, "Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income" (ASU 2013-02). This update requires disclosure of amounts
reclassified out of accumulated other comprehensive income by component. We adopted ASU 2013-02 on May 1,
2013 and the required disclosures are included in note 12.
NOTE 2: H&R BLOCK BANK
In April 2014, our subsidiaries, HRB Bank and Block Financial LLC, the sole shareholder of HRB Bank (Block Financial),
entered into a definitive Purchase and Assumption Agreement (P&A Agreement) with BofI Federal Bank, a federal
savings bank (BofI). The P&A Agreement is subject to various closing conditions, including the receipt of certain required
approvals, entry into certain additional agreements, and the fulfillment of various other customary conditions. If
closing conditions (including regulatory approvals) are satisfied, we will complete a closing of the P&A Transaction,
including the sale of certain assets and transfer of certain liabilities (principally deposit liabilities) to BofI. Due to the
seasonality of our business, the timing of any closing will impact the amount deposit liabilities transferred.
If a closing had occurred as of April 30, 2014, we would have made a cash payment to BofI for the difference in the
carrying value of assets sold and the carrying value of liabilities transferred of approximately $745 million. The amount
of the cash payment made at closing will primarily be equal to the carrying value of the liabilities to be transferred
since the carrying value of the assets to be transferred is immaterial. Actual amounts at closing will differ from amounts
as of April 30, 2014. We expect to fund any closing date cash payment due to BofI through liquidation of our AFS
securities (carrying value of $423 million at April 30, 2014), with any remaining balance expected to be funded through
available cash balances. As a result of our intent to liquidate our AFS securities, we recorded an other-than-temporary
impairment in our fourth quarter of fiscal year 2014 of $12.4 million.
In connection with the additional agreements being entered into upon the closing of the P&A Transaction, BofI
will offer H&R Block-branded financial products distributed by the Company to the Company's clients. An operating