HR Block 2010 Annual Report Download - page 39

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Detail of our mortgage loans held for investment and the related allowance, excluding unamortized deferred
fees and costs of $5.3 million and $7.1 million at April 30, 2010 and 2009, respectively, is as follows:
Outstanding
Principal Balance Amount % of Principal
% 30+ Days
Past Due
Loan Loss Allowance
(dollars in 000s)
As of April 30, 2010:
Purchased from SCC $434,644 $82,793 19.1% 37.8%
All other 249,040 10,742 4.3% 8.9%
$683,684 $93,535 13.7% 27.3%
As of April 30, 2009:
Purchased from SCC $531,233 $78,067 14.7% 28.7%
All other 290,604 6,006 2.1% 4.4%
$821,837 $84,073 10.2% 20.2%
We recorded a provision for loan loss of $47.8 million during fiscal year 2010, compared to $63.9 million in the
prior year. Our allowance for loan losses as a percent of mortgage loans was 13.7%, or $93.5 million, at April 30,
2010, compared to 10.2%, or $84.1 million, at April 30, 2009. This allowance represents our best estimate of credit
losses inherent in the loan portfolio as of the balance sheet dates.
FISCAL YEAR 2009 COMPARED TO FISCAL YEAR 2008
Interest income earned on mortgage loans held for investment for the fiscal year ended April 30, 2009 decreased
$28.5 million, or 38.1%, from fiscal year 2008, primarily as a result of non-performing loans. Our provision for loan
losses increased $21.9 million from fiscal year 2008 primarily due to declines in residential home prices and higher
projected delinquencies.
Compensation and benefits decreased $66.5 million, or 57.6%, primarily due to severance-related costs recorded
in fiscal year 2008, coupled with benefits in fiscal year 2009 resulting from the staff reductions.
Other expenses increased $18.3 million primarily due to an $11.9 million write-down of REO property during
fiscal year 2009.
Income Taxes on Continuing Operations
Our effective tax rate for continuing operations was 38.9% for the fiscal year ended April 30, 2009, compared to
39.3% in fiscal year 2008.
DISCONTINUED OPERATIONS
Effective November 1, 2008, we sold H&R Block Financial Advisors, Inc. (HRBFA) to Ameriprise Financial, Inc.
HRBFA and its direct corporate parent are presented as discontinued operations in the consolidated financial
statements for all periods presented. Our discontinued operations also include our former mortgage loan
origination and servicing business, as well as three smaller lines of business previously reported in our
Business Services segment.
FISCAL 2010 COMPARED TO FISCAL 2009 –The net loss from discontinued operations for fiscal year 2010 was
$9.7 million compared to a net loss of $27.4 million in the prior year. The decline in losses was due to a loss on the
disposition of HRBFA totaling $12.2 million in fiscal year 2009 compared with a gain of $6.2 million in fiscal year
2010 relating to post-disposition purchase price adjustments.
FISCAL 2009 COMPARED TO FISCAL 2008 –The pretax loss of our discontinued operations for fiscal year 2009
was $47.6 million compared to a loss of $1.2 billion in the prior year. The loss from discontinued operations for
fiscal year 2008 included significant losses from our former mortgage loan businesses, including losses relating to
loan repurchase obligations of $582.4 million and impairments of residual interests of $137.8 million. Net of
applicable tax benefits, the loss from discontinued operations for fiscal year 2009 was $27.4 million compared to a
loss of $754.6 million in fiscal year 2008.
Our effective tax rate for discontinued operations was 42.5% and 35.3% for the fiscal years 2009 and 2008, respectively.
Our effective tax rate increased primarily due to a tax benefit recorded in conjunction with the sale of HRBFA.
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 risks 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
H&R BLOCK 2010 Form 10K 23