HR Block 2007 Annual Report Download - page 108

The major classes of assets and liabilities included as held for sale in entities (QSPEs) and are therefore not consolidated. The sale is
our consolidated balance sheets are as follows: recorded in accordance with Statement of Financial Accounting
(in 000s)
Standards No. 140, ‘‘Accounting for Transfers and Servicing of Financial
April 30, 2007 2006 Assets and Extinguishments of Liabilities’’ (SFAS 140). The Trusts
purchase the loans from us using eight warehouse facilities. As a result
Cash and cash equivalents $108,773 $29,161
Residual interests in securitizations —trading 72,691 – of the loan sales to the Trusts, we remove the mortgage loans from our
Mortgage loans held for sale 222,810 236,399
balance sheet and record the gain or loss on the sale, cash proceeds,
Prepaid expenses and other current assets, net 620,193 339,269
MSRs, repurchase reserves and a beneficial interest in Trusts, which
Current assets held for sale $1,024,467 $604,829
represents our residual interest in the ultimate expected outcome from
Beneficial interest in Trusts $41,057 $188,014 the disposition of the loans by the Trusts. The beneficial interest in
Residual interests in securitizations —AFS 90,283 159,058
Trusts was $41.1 million and $188.0 million at April 30, 2007 and 2006,
Mortgage servicing rights 253,067 272,472
respectively.
Mortgage loans held for investment –407,538
The Trusts, in response to the exercise of a put option by the third-
Goodwill, net –159,128
party beneficial interest holders, either sell the loans directly to third-
Other assets 338,085 151,214
party investors or back to us to pool the loans for securitization. The
Noncurrent assets held for sale $722,492 $1,337,424
decision of the beneficial interest holders to complete a loan sale or a
Accounts payable, accrued expenses and deposits $370,226 $158,476
securitization is dependent on market conditions. If the Trusts execute
Other liabilities 245,147 61,795
loan sales, we receive cash for our beneficial interest in Trusts. In a
Current liabilities directly associated with
securitization transaction, the Trusts transfer the loans to one of our
assets held for sale $615,373 $220,271
consolidated bankruptcy remote subsidiaries, and we transfer our
Assets held for sale include deferred tax assets of $393.6, net of the beneficial interest in Trusts and the loans to a securitization trust. The
related valuation allowance, and deferred tax liabilities of $94.0 million securitization trust meets the definition of a QSPE and is therefore not
as of April 30, 2007. Deferred taxes represent the tax consequences consolidated. The securitization trust issues bonds, which are
attributable to differences between the financial statement carrying supported by the cash flows from the pooled loans, to third-party
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amount of assets and liabilities expected to be transferred and their investors. We retain an interest in the loans in the form of a trading
respective tax bases. These differences will become currently residual interest and usually assume the first risk of loss for credit
deductible or taxable to us upon closing of the transaction. losses in the loan pool. As the cash flows of the underlying loans and
The financial results included in discontinued operations are as market conditions change, the value of these residual interests may also
follows: change, resulting in either additional gains or impairment of the value of
(in 000s)
the residual interests. These residual interests are classified as trading
Year Ended April 30, 2007 2006 2005 securities. We held $72.7 million in trading residual interests as of
April 30, 2007 and none as of April 30, 2006.
Revenue:
Gains on sales of mortgage Activity related to trading residual interests in securitizations consists
assets, net $(459,635) $713,710 $822,075
of the following:
Interest income 55,024 133,703 149,581 (in 000s)
Loan servicing revenue 433,438 398,992 273,056 April 30, 2007 2006
Other 45,747 51,643 28,938Balance, beginning of year $– $–
$74,574 $1,298,048 $1,273,650 Additions (resulting from securitization of mortgage
Income (loss) from operations loans) 487,773 353,882
before income tax (benefit)$(882,130) $316,911 $490,102 Cash received (14,845) (12,858)
Impairment of assets (350,878) ––
Accretion 3,391 5,950
Change of fair value 23,091 9,837
Pretax income (loss) (1,233,008) 316,911 490,102
Residuals securitized in NIM transactions (426,719) (356,811)
Income tax (benefit)(425,018) 124,044 185,941
Balance, end of year $72,691 $–
Net income (loss) from
discontinued operations $(807,990) $192,867 $304,161
To accelerate the cash flows from our trading residual interests, we
MORTGAGE BANKING ACTIVITIES –We originate mortgage loans securitize the majority of these residual interests in NIM transactions. In
and sell most non-prime loans the same day the loans are funded to a NIM transaction, the trading residual interests are transferred to
Trusts. These Trusts meet the criteria of qualifying special purpose another QSPE (NIM trust), which then issues bonds to third-party
H&R BLOCK 2007 Form 10K