HR Block 2016 Annual Report Download - page 53

H&R Block, Inc. | 2016 Form 10-K 45
GOODWILL AND INTANGIBLE ASSETS – Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired businesses. Goodwill is not amortized, but rather is tested for impairment annually, or more
frequently if indications of potential impairment exist.
Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The
weighted-average life of intangible assets with finite lives is 19 years. Intangible assets, except customer relationships,
are typically amortized over the estimated useful life of the assets using the straight-line method. Customer
relationships are typically amortized over a five-year period using an accelerated method which takes into
consideration expected customer attrition rates.
We capitalize certain allowable costs associated with software developed for internal use. These costs are typically
amortized over three to five years using the straight-line method.
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 typically reissue treasury shares as part of our stock-based compensation programs. When shares
are reissued, we determine the cost using the average cost method.
REVENUE RECOGNITION – We recognize revenue for our services when each of the following four criteria is met:
persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the selling price
is fixed or determinable; and collectibility is reasonably assured.
Service revenues consist primarily of fees for preparation and filing of tax returns, both in offices and through our
online programs, fees earned on refund transfers (RTs), interchange income associated with our H&R Block Emerald
Prepaid MasterCard® program and fees associated with our Peace of Mind® Extended Service Plan (POM). 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.
Fees related to RTs are recognized when Internal Revenue Service (IRS) acknowledgment is received and the bank
account is established at BofI.
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, net of volume-based amounts retained by
BofI in connection with the PMA. Interchange income is a fee paid by a merchant bank to BofI through the
interchange network. Net revenue associated with our H&R Block Prepaid Mastercard® 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:
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.
Participation revenue on EAs is recorded over the life of the underlying loan.
Interest on 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.
Sales tax we collect and remit to taxing authorities is recorded net in the consolidated statements of income.
In connection with the deregistration of H&R Block, Inc., H&R Block Group, Inc. and Block Financial, LLC as savings
and loan holding companies (SLHCs), as discussed further in note 2, we no longer present interest income on mortgage