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70 H&R Block 2013 Form 10-K
the underlying collateral for all other loans. Impaired and TDR loans are required to be evaluated at least
annually, based on HRB Bank's Loan Policy. Impaired loans are typically remeasured every nine months,
while TDRs are evaluated quarterly. These loans are classified as Level 3.
We have established various controls and procedures to ensure that the unobservable inputs used in the fair value
measurement of these instruments are appropriate. Appraisals are obtained from certified appraisers and reviewed
internally by HRB Bank’s asset management group. The inputs and assumptions used in our discounted cash flow
model for TDRs are reviewed and approved by HRB Bank's management team each time the balances are remeasured.
Significant changes in fair value from the previous measurement are presented to HRB Bank management for approval.
There were no changes to the unobservable inputs used in determining the fair values of our Level 3 financial assets.
The following table presents the quantitative information about our Level 3 fair value measurements:
(in 000s)
Fair Value at
April 30, 2013
Valuation
Technique Unobservable Input
Range
(Weighted Average)
REO $ 13,968 Third party
pricing Cost to list/sell
Loss severity
5% – 57%(6%)
0% – 100%(49%)
Impaired mortgage loans held
for investment – non TDRs
$ 84,093 Collateral-
based Cost to list/sell
Time to sell (months)
Collateral depreciation
Loss severity
0% – 45%(7%)
24(24)
(24%) – 100%(47%)
0% – 100%(58%)
Impaired mortgage loans held
for investment – TDRs
$ 50,137 Discounted
cash flow Aged default performance
Loss severity
29% – 50%(39%)
0% – 21%(5%)
ESTIMATED 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, 2013 2012
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
Assets:
Cash and cash equivalents $ 1,747,584 $ 1,747,584 $1,944,334 $1,944,334 Level 1
Cash and cash equivalents – restricted 117,837 117,837 48,100 48,100 Level 1
Receivables, net – short–term 206,835 206,810 193,858 193,858 Level 1 and 3
Mortgage loans held for investment, net 338,789 210,858 406,201 248,535 Level 3
Investments in available–for–sale securities 486,876 486,876 372,352 372,352 Level 2
Receivables, net – long–term 125,048 134,283 127,468 127,468 Level 1 and 3
Note receivable (including interest) 60,352 69,472 55,444 55,444 Level 3
Liabilities:
Deposits 938,331 934,019 833,047 831,251 Level 1 and 3
Long–term borrowings 906,680 964,630 1,040,549 1,077,223 Level 3
Contingent consideration payments 11,277 11,277 6,838 6,838 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.
Cash and cash equivalents, including restricted - Fair value approximates the carrying amount.
Receivables - short-term - For short-term balances with the exception of credit card receivables, the carrying
values reported in the balance sheet approximate fair market value due to the relative short-term nature of the
respective instruments (Level 1). The fair value of credit card balances is determined using market pricing
sources based on projected future cash flows of the pooled assets and performance characteristics (Level 3).