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underlying the residual interests and MSRs, thereby generally reducing earnings through impairment charges based on individual risk stratas.
their fair value. The fair value of MSRs generally increases in a rising See Item 7, ‘‘Critical Accounting Policies’’ and Item 8, note 20 to our
rate environment, although MSRs are recorded at the lower of cost or consolidated financial statements for further sensitivity analysis of
market value. Reductions in the fair value of these assets impact other MSR valuation assumptions.
The sensitivities of certain financial instruments to changes in interest rates as of April 30, 2007 and 2006 are presented below. The following
table represents hypothetical instantaneous and sustained parallel shifts in interest rates and should not be relied on as an indicator of future
expected results.
(in 000s)
Basis Point Change
Carrying Value at
April 30, 2007–300 –200 –100 +100 +200 +300
Mortgage loans held for investment $1,358,222 $39,634 $ 32,444 $22,129 $(29,013) $(60,262) $(98,526)
Mortgage loans held for sale 222,810 13,414 8,883 4,399 (4,277) (8,207) (10,977)
Residual interests in securitizations –AFS 90,283 4,460 434 (516) 1,488 2,248 681
Residual interests in securitizations –trading 72,691 (5,572) (3,697) (1,759) 1,277 1,865 1,676
Beneficial interest in Trusts –trading 41,057 61,97739,922 18,411 (16,898) (32,325) (49,512)
Mortgage-backed securities 35,084 (45) (62) (35)(5) (829) (2,303)
Fixed-income –trading (net) 10,924 3,003 1,763 871 (805) (1,522) (2,129)
Interest rate swaps 10,774 (169,120) (111,369) (55,007) 53,688 106,090 157,240
Investments at captive insurance subsidiary 9,568 1,328 859 417 (394) (766) (1,118)
Put options on Eurodollar futures 1,212 (1,212) (1,211) (1,136) 5,015 13,283 21,989
Basis Point Change
Carrying Value at
April 30, 2006–300 –200 –100 +100 +200 +300
Mortgage loans held for investment $407,538 $16,285 $10,885 $5,485 $(5,301) $ (9,592) $ (15,020)
Mortgage loans held for sale 236,399 9,253 6,113 3,057 (3,146) (6,356) (8,866)
Beneficial interest in Trusts –trading 188,014 298,013 199,029 100,039 (103,365) (189,389) (270,970) 49 m
Residual interests in securitizations –AFS159,058 32,692 13,543 4,795 (8,798) (17,931) (21,232)
Fixed-income –trading (net) 15,609 4,323 2,617 1,174(1,359) (2,368) (3,274)
Interest rate swaps 8,831 (523,639) (344,606) (170,090) 165,791 327,397 484,929
Investments at captive insurance subsidiary 8,508 1,260 814 395 (372) (723) (1,054)
Put options on Eurodollar futures 3,282 (3,282) (3,273) (2,935) 12,389 28,256 44,673
Forward loan sale commitments 1,961 (158,345) (105,563) (52,782) 52,782 105,563 158,345
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA
DISCUSSION OF FINANCIAL RESPONSIBILITY –
We at H&R Block are guided by our core values of client focus, integrity, Conduct program designed to encourage and assist all employees and
excellence, respect and teamwork. These values govern the manner in directors in living up to high standards of integrity.
which we serve clients and each other, and are embedded in the The Audit Committee of the Board of Directors, composed solely of
execution and delivery of our responsibilities to our shareholders. H&R outside and independent directors, meets periodically with
Block’s Management is responsible for the integrity and objectivity of management, the independent auditors and the chief internal auditor to
the information contained in this document. Management is responsible review matters relating to our financial statements, internal audit
for the consistency of reporting this information and for ensuring that activities, internal accounting controls and non-audit services provided
accounting principles generally accepted in the United States are used. by the independent auditors. The independent auditors and the chief
In discharging this responsibility, Management maintains an extensive internal auditor have full access to the Audit Committee and meet, both
program of internal audits and requires the management teams of our with and without management present, to discuss the scope and results
individual subsidiaries to certify their respective financial information. of their audits, including internal control, audit and financial matters.
Our system of internal control over financial reporting also includes KPMG LLP audited our consolidated financial statements. Their
formal policies and procedures, including a Code of Business Ethics and audits were conducted in accordance with the standards of the Public
Company Accounting Oversight Board (United States).
H&R BLOCK 2007 Form 10K