HR Block 2010 Annual Report Download - page 75

NOTE 15: INTEREST INCOME AND INTEREST EXPENSE
The following table shows the components of interest income and expense of our continuing operations. Interest
expense is included in cost of other revenues on our consolidated statements of operations.
Year Ended April 30, 2010 2009 2008
(in 000s)
Interest income:
Mortgage loans, net $ 31,877 $ 46,396 $ 74,895
Emerald Advance lines of credit 77,891 91,019 45,339
Investment securities 2,318 4,896 12,143
Other 10,319 12,205 19,181
$ 122,405 $ 154,516 $ 151,558
Interest expense:
Borrowings $ 78,398 $ 83,193 $ 56,482
Deposits 10,174 14,069 42,878
FHLB advances 1,997 5,113 6,008
$ 90,569 $ 102,375 $ 105,368
NOTE 16: COMMITMENTS AND CONTINGENCIES
We offer guarantees under our POM program to tax clients whereby we will assume the cost of additional tax
assessments, up to a cumulative per client limit of $5,000, attributable to tax return preparation error for which we
are responsible. We defer all revenues and direct costs associated with these guarantees, recognizing these
amounts over the term of the guarantee based on historical and actual payment of claims. The related current asset
is included in prepaid expenses and other current assets. The related liability is included in accounts payable,
accrued expenses and other current liabilities in the consolidated balance sheets. The related noncurrent asset
and liability are included in other assets and other noncurrent liabilities, respectively, in the consolidated balance
sheets. A loss on these POM guarantees would be recognized if the sum of expected costs for services exceeded
unearned revenue. The changes in the deferred revenue liability for fiscal years 2010 and 2009 are as follows:
Year Ended April 30, 2010 2009
(in 000s)
Balance, beginning of the year $ 146,807 $ 140,583
Amounts deferred for new guarantees issued 74,889 84,429
Revenue recognized on previous deferrals (80,154) (78,205)
Balance, end of the year $ 141,542 $ 146,807
During fiscal year 2009, we entered into an agreement to purchase $45.8 million in media advertising between
July 1, 2009 and June 30, 2013. At April 30, 2010, our remaining obligation totaled $26.5 million. We expect to make
payments totaling $13.3 million during fiscal years 2011 and 2012.
We have various contingent purchase price obligations in connection with prior acquisitions. In many cases,
contingent payments to be made in connection with these acquisitions are not subject to a stated limit. We estimate
the potential payments (undiscounted) total $20.7 million as of April 30, 2010. Our estimate is based on current
financial conditions. Should actual results differ materially from our assumptions, the potential payments will
differ from the above estimate.
We have contractual commitments to fund certain franchises requesting Franchise Equity Lines of Credit
(FELCs). Our total obligation under these lines of credit was $82.4 million at April 30, 2010, and net of amounts
drawn and outstanding, our remaining commitment to fund totaled $36.8 million.
We are self-insured for certain risks, including, workers’ compensation, property and casualty, professional
liability and claims related to our POM program. These programs maintain various self-insured retentions. In all
but POM, commercial insurance is purchased in excess of the self-insured retentions. We accrue estimated losses
for self-insured retentions using actuarial models and assumptions based on historical loss experience. The nature
of our business may subject us to error and omissions, casualty and professional liability lawsuits. To the extent
that we are subject to claims exceeding our insurance coverage, such suits could have a material adverse effect on
our financial position, results of operations or liquidity.
We issued three standby letters of credit to servicers paying claims related to our POM, errors and omissions,
and property and casualty insurance policies. These letters of credit are for amounts not to exceed $6.7 million in
the aggregate. At April 30, 2010, there were no balances outstanding on these letters of credit.
H&R BLOCK 2010 Form 10K 59