HR Block 2009 Annual Report Download - page 50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS –Our operating subsidiaries provide a variety of services to the general public,
principally in the United States (U.S.). Specifically, we offer: tax return preparation; accounting, tax and consulting
services to business clients; certain retail banking services; tax preparation and related software; and refund
anticipation loans (RALs) offered by third-party lending institutions. Tax preparation services are also provided in
Canada and Australia. Our Tax Services segment comprised 74.3% of our consolidated revenues from continuing
operations for fiscal year 2009.
Our discontinued operations were primarily engaged in the origination, sale and servicing of non-prime and
prime mortgage loans and investment services through a registered broker-dealer. See additional information on
our discontinued operations in note 19.
PRINCIPLES OF CONSOLIDATION –The consolidated financial statements include the accounts of the Company
and our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated.
Some of our subsidiaries operate in regulated industries and their underlying accounting records reflect the
policies and requirements of these industries.
RECLASSIFICATIONS –Certain reclassifications have been made to prior year amounts to conform to the
current year presentation. These reclassifications had no effect on our results of operations or stockholders’
equity as previously reported. Effective November 1, 2008, we sold H&R Block Financial Advisors, Inc. (HRBFA)
to Ameriprise Financial, Inc. (Ameriprise). As of April 30, 2009, HRBFA and its direct corporate parent are
presented as discontinued operations in the consolidated financial statements. Operating results of this business
for all periods presented have been reclassified in the consolidated statements of operations to discontinued
operations. We elected to present assets and liabilities of the business as held for sale as of April 30, 2008, both
classified as current. See additional discussion in note 19.
MANAGEMENT ESTIMATES –The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Significant estimates, assumptions
and judgments are applied in the determination of our allowance for loan losses, potential losses from loan
repurchase and indemnity obligations associated with our discontinued mortgage business, contingent losses
associated with pending litigation, fair value of reporting units, reserves for uncertain tax positions and related
matters. We seek to change our estimates when facts and circumstances dictate, however, future events and their
effects cannot be determined with absolute certainty. As such, actual results could differ materially from those
estimates.
CONCENTRATIONS OF RISK –Cash deposits in bank accounts in excess of insured or guaranteed limits are
exposed to loss in the event of nonperformance by the financial institution. We had cash deposits in excess of these
limits of less than $70 million at April 30, 2009. We have not historically experienced any losses on bank deposits. In
addition to cash deposits with financial institutions, we had investments totaling approximately $1.3 billion and
$157.3 million in money market funds and federal funds sold, respectively, at April 30, 2009.
The overall credit quality of our mortgage loans held for investment is impacted by the strength of the
U.S. economy and local economies. Our mortgage loans held for investment include concentrations of loans to
borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate
values and underlying economic or market conditions related to a particular geographical location. Approximately
50.1% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California and
New York.
CASH AND CASH EQUIVALENTS –Cash and cash equivalents include cash on hand, cash due from banks and
federal funds sold. For purposes of the consolidated balance sheets and consolidated statements of cash flows, all
non-restricted highly liquid instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. We present cash flow activities utilizing the indirect method. Book
overdrafts included in accounts payable totaled $48.0 million and $42.2 million at April 30, 2009 and 2008,
respectively.
CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of
cash held by our captive insurance subsidiary that will be used to pay claims.
RECEIVABLES –Receivables consist primarily of accounts receivable from customers of our Business Services
segment, receivables from tax clients for tax return preparation, refund anticipation loan participations and
receivables of our franchise financing subsidiary. The allowance for doubtful accounts requires management’s
46 H&R BLOCK 2009 Form 10K