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or (2) the appraised value of the underlying collateral less estimated selling costs. These loans are classified
as Level 3.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE – The following table presents for each hierarchy level
the financial assets of our continuing operations that are measured at fair value on both a recurring and non-
recurring basis at April 30, 2009:
Total Level 1 Level 2 Level 3
(dollars in 000s)
Recurring:
Available-for-sale securities $ 43,863 $ –$ 43,863 $ –
Residual interests in securitizations 5,793 ––5,793
Non-recurring:
Impaired mortgage loans held for investment 238,568 ––238,568
$ 288,224 $ –$ 43,863 $ 244,361
As a percentage of total assets 5.4% –% 0.8% 4.6%
The following table presents changes in residual interests in securitizations, our only Level 3 financial assets
measured at fair value on a recurring basis, at April 30, 2009:
(in 000s)
Fair value, beginning of period $ 16,678
Losses:
Included in earnings (5,830)
Included in other comprehensive income (loss) (1,707)
Cash received (3,348)
Fair value, end of period $ 5,793
Available-for-sale securities and residual interests in securitizations are included in other assets on our
consolidated balance sheets. Losses included in earnings are reported in results from operations, except for
losses from residual interests in securitizations which are reported in other non-operating income (expense) of our
continuing operations.
The following methods were used to determine the fair values of our other financial instruments:
쐍Cash equivalents, accounts receivable, demand deposits, accounts payable, accrued liabilities and the current
portion of long-term debt – The carrying values reported in the balance sheet for these items approximate fair
market value due to the relative short-term nature of the respective instruments.
쐍Mortgage loans held for investment – The fair value of mortgage loans held for investment is generally
determined using a pricing model based on current market information obtained from origination data, and
bids received from time to time. The fair value of certain impaired loans held for investment is primarily based
on the appraised value of the underlying collateral less estimated selling costs.
쐍IRAs and other time deposits – The fair value is calculated based on the discounted value of contractual cash
flows.
쐍Long-term debt – The fair value of borrowings is based on rates currently available to us for obligations with
similar terms and maturities, including current market rates on our Senior Notes.
The carrying amounts and estimated fair values of our financial instruments at April 30, 2009 are as follows:
Carrying
Amount
Estimated
Fair Value
(in 000s)
Mortgage loans held for investment $ 744,899 $ 568,920
IRAs and other time deposits 495,379 494,795
Long-term debt 1,040,904 1,000,483
FAIR VALUE OPTION – We adopted Statement of Financial Accounting Standards No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (SFAS 159) on May 1, 2008. SFAS 159 permits an instrument
by instrument irrevocable election to account for selected financial assets and financial liabilities at fair value. We
did not elect to apply the fair value option to any eligible financial assets or financial liabilities on May 1, 2008 or
during the fiscal year ended April 30, 2009. Subsequent to the initial adoption, we may elect to account for selected
financial assets and financial liabilities at fair value. Such an election could be made at the time an eligible financial
asset, financial liability or firm commitment is recognized or when certain specified reconsideration events occur.
H&R BLOCK 2009 Form 10K 63