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NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of our financial instruments are as follows:
(in 000s)
As of April 30, 2012 2011
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
Assets:
Cash and cash equivalents $ 1,944,334 $ 1,944,334 $ 1,677,844 $ 1,677,844 Level 1
Cash and cash equivalents – restricted 48,100 48,100 48,383 48,383 Level 1
Receivables, net – short–term 193,858 193,858 230,172 230,172 Level 1
Mortgage loans held for investment, net 406,201 248,535 485,008 295,154 Level 3
Investments in available–for–sale securities 372,352 372,352 166,917 166,917 Level 2
Receivables, net – long–term 127,468 127,468 137,894 137,894 Level 1 and 3
Note receivable (including interest) 55,444 55,444 – – Level 3
Liabilities:
Deposits 833,047 831,251 863,898 865,318 Level 1 and 3
Long–term borrowings 1,040,549 1,077,223 1,040,084 1,099,780 Level 3
FHLB advances ––25,000 24,998 Level 3
Fair value estimates, methods and assumptions are set forth below. The fair value was not estimated for
assets and liabilities that are not considered financial instruments.
䡲Cash and cash equivalents, including restricted – Fair value approximates the carrying amount.
䡲Receivables—short-term – For short-term balances, the carrying values reported in the balance sheet
approximate fair market value due to the relative short-term nature of the respective instruments.
䡲Mortgage loans held for investment, net – The fair value of mortgage loans held for investment is
determined using market pricing sources based on projected future cash flows of each individual asset,
and loan characteristics including channel and performance characteristics.
䡲Investments in available-for-sale securities – We use a third-party pricing service to determine fair value.
The service’s pricing model is based on market data and utilizes available trade, bid and other market
information for similar securities.
䡲Receivables—long-term – The carrying values for the long-term portion of loans to franchisees
approximate fair market value due to the variable interest rates (Level 1). Long-term EA and tax client
receivables related to RALs are carried at net realizable value which approximates fair value (Level 3). Net
realizable value is determined based on historical collection rates.
䡲Note receivable – The long-term note receivable from M&P bears interest at a rate similar to available
market rates and has only been outstanding for five months, and therefore carrying value approximates fair
market value.
䡲Deposits – The fair value of deposits with no stated maturity such as non-interest-bearing demand deposits,
checking, money market and savings accounts was equal to the amount payable on demand (Level 1). The
fair value of IRAs and other time deposits is estimated by discounting the future cash flows using the rates
currently offered by HRB Bank for products with similar remaining maturities (Level 3).
䡲Long-term debt and FHLB borrowings – The fair value of borrowings is based on rates currently available
to us for obligations with similar terms and maturities, including current market yields on our Senior
Notes.
60
H&R BLOCK 2012 Form 10K