HR Block 2012 Annual Report Download - page 72

NOTE 10: OTHER NONCURRENT ASSETS AND LIABILITIES
We have deferred compensation plans that permit certain employees to defer portions of their compensation
and accrue income on the deferred amounts. Included in other noncurrent liabilities is $48.0 million and $142.0
million at April 30, 2012 and 2011, respectively, reflecting our obligation under these plans. The decline in the
liability from the prior year is primarily due to amounts paid to former employees in connection with the sale of
RSM. We purchased whole-life insurance contracts on certain participants to recover distributions made or to
be made under these plans. The cash surrender value of the policies and other assets totaled $99.0 million and
$105.0 million at April 30, 2012 and 2011, respectively. These assets are restricted, as they are only available to
fund the related liabilities. Due to our plan to liquidate certain of these investments, at April 30, 2012, $81.4
million of these assets were classified as current and included in prepaid and other current assets on the
consolidated balance sheet. The remaining balance as of April 30, 2012, and the entire balance as of April 30,
2011, was included in other noncurrent assets on the consolidated balance sheets.
NOTE 11: FAIR VALUE MEASUREMENT
We use the following classification of financial instruments pursuant to the fair value hierarchy methodologies
for assets measured at fair value:
䡲Level 1 – inputs to the valuation are quoted prices in an active market for identical assets.
䡲Level 2 – inputs to the valuation include quoted prices for similar assets in active markets utilizing a
third-party pricing service to determine fair value.
䡲Level 3 – valuation is based on significant inputs that are unobservable in the market and our own
estimates of assumptions that we believe market participants would use in pricing the asset.
Financial instruments are broken down in the tables that follow by recurring or nonrecurring measurement
status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the
financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result
of an event or circumstance, were required to be remeasured at fair value after initial recognition in the
financial statements at some time during the reporting period.
The following table presents the assets that were remeasured at fair value on a recurring basis during the
fiscal year ended April 30, 2012 and 2011 and the gains on those remeasurements:
(dollars in 000s)
Total Level 1 Level 2 Level 3 Gains
As of April 30, 2012:
Mortgage–backed securities $ 366,683 $ – $ 366,683 $ – $ 5,499
Municipal bonds 5,669 – 5,669 – 425
$ 372,352 $ – $ 372,352 $ – $ 5,924
As a percentage of total assets 8.0% –% 8.0% –%
As of April 30, 2011:
Mortgage–backed securities $ 158,177 $ – $ 158,177 $ – $ 207
Municipal bonds 8,740 – 8,740 – 405
$ 166,917 $ – $ 166,917 $ – $ 612
As a percentage of total assets 3.2% –% 3.2% –%
Our AFS securities are carried at fair value on a recurring basis. These include certain agency and agency-
sponsored mortgage-backed securities and municipal bonds. Quoted market prices are not available for these
securities. As a result, we use a third-party pricing service to determine fair value and classify the securities as
Level 2. The service’s pricing model is based on market data and utilizes available trade, bid and other market
information for similar securities. The fair values provided by third-party pricing service are reviewed and
validated by management of HRB Bank. There were no transfers of AFS securities between hierarchy levels
during the fiscal years ended April 30, 2012 and 2011.
58 H&R BLOCK 2012 Form 10K