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28 2014 Form 10-K | H&R Block, Inc.
FISCAL YEAR 2014 COMPARED TO FISCAL YEAR 2013 – Interest expense declined $20.0 million, or 27.2%, due to lower
interest rates on our long-term debt, coupled with lower principal balances outstanding. Other expenses decreased
$9.7 million, or 22.2%, primarily due to a gain of $18.3 million recognized on the sale of residual interests in mortgage
securitizations.
FISCAL YEAR 2013 COMPARED TO FISCAL YEAR 2012 – Interest expense declined $10.0 million, or 12.0%, due to lower
interest rates on our Senior Notes, coupled with lower principal balances outstanding. Other expenses decreased $8.3
million, or 15.9%, primarily due to a $10.8 million decline in our provision for loan losses, partially offset by the $5.8
million loss on extinguishment of debt we incurred on the redemption of our $600.0 million Senior Notes.
DISCONTINUED OPERATIONS
Discontinued operations include our previously reported Business Services segment and discontinued mortgage
operations.
FISCAL YEAR 2014 COMPARED TO FISCAL YEAR 2013 – The net loss from our discontinued operations totaled $24.9
million for the current year, compared to a net loss of $31.2 million in the prior year.
Pretax losses of mortgage operations totaled $38.5 million, compared to $52.1 million in the prior year, and resulted
primarily from incremental loss provisions related to SCC's estimated contingent losses for representation and warranty
claims of $25.0 million and $40.0 million for fiscal years 2014 and 2013, respectively.
FISCAL YEAR 2013 COMPARED TO FISCAL YEAR 2012 – The net loss from our discontinued operations totaled $31.2
million for fiscal year 2013, compared to a net loss of $80.0 million in fiscal year 2012.
Fiscal year 2012 losses included a $99.7 million pretax goodwill impairment related to the sales of RSM McGladrey,
Inc. (RSM) and McGladrey Capital Markets LLC (MCM), as well as operating income of $14.4 million earned by those
businesses prior to the sale.
Pretax losses of mortgage operations totaled $52.1 million for fiscal year 2013 and resulted primarily from
incremental loss provisions of $40.0 million related to SCC's estimated contingent losses for representation and
warranty claims. Pretax losses of mortgage operations totaled $59.7 million in fiscal year 2012 and resulted primarily
from loss provisions relating to representation and warranty claims totaling $20.0 million and settlement charges
totaling $28.0 million.
CONTINGENT LOSSES – SCC has accrued a liability as of April 30, 2014 for estimated contingent losses arising from
representation and warranty claims of $183.8 million. The estimate of accrued loss is based on the best information
currently available, significant management judgment, and a number of factors that are subject to change, including
developments in case law and the factors, mentioned in "Critical Accounting Estimates" below. Changes in any one
of these factors could significantly impact the estimate.
Losses may also be incurred with respect to various indemnification claims by underwriters and depositors in
securitization transactions in which SCC participated. SCC has not concluded that a loss is probable or reasonably
estimable related to these indemnification claims, therefore there is no accrued liability for these contingent losses
as of April 30, 2014.
See additional discussion in Item 1A, "Risk Factors," "Critical Accounting Estimates" below and in Item 8, note 18
to the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
We consider the estimates discussed below to be critical to understanding our financial statements, as they require
the use of significant judgment and estimation in order to measure, at a specific point in time, matters that are
inherently uncertain. Specific methods and assumptions for these critical accounting estimates are described in the
following paragraphs. We have reviewed and discussed each of these estimates with the Audit Committee of our
Board of Directors. For all of these estimates, we caution that future events rarely develop precisely as forecasted and
estimates routinely require adjustment and may require material adjustment.
See Item 8, note 1 to the consolidated financial statements, which discusses accounting policies we have selected
when there are acceptable alternatives and new or proposed accounting standards that may affect our financial
reporting in the future.