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54 2015 Form 10-K | H&R Block, Inc.
Revenues associated with our H&R Block Emerald Prepaid 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 recognized based on cardholder
transactions.
POM revenues are deferred and recognized over the term of the plan, based on actual claims paid in relation to
projected claims.
Royalty, product and other revenues include royalties from franchisees and sales of desktop 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 services are provided to the customer.
Revenue from the sale of desktop software is recognized when the product is sold to the end user. Rebates,
slotting fees and other incentives paid in connection with these sales are recorded as a reduction of revenue.
Interest income consists primarily of interest earned on EAs, loans to franchisees and mortgage loans held for
investment and is recognized as follows:
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.
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.
Loan commitment fees, net of related expenses, are initially deferred and recognized as revenue over the
commitment period.
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 over the course of the tax
season, 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
$14.8 million, $11.8 million and $11.3 million for continuing operations in fiscal years 2015, 2014 and 2013, 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 $6.7 million, $5.2 million and $4.8 million in fiscal years 2015, 2014 and 2013, respectively.
FOREIGN CURRENCY TRANSLATION – Translation adjustments on amounts outstanding under intercompany
borrowings, resulted in foreign currency losses of $5.9 million and $18.2 million in fiscal years 2015 and 2014,
respectively, compared to gains of $0.2 million in fiscal year 2013 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, although a FASB proposal could delay the
effective date for us to May 1, 2018. 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.