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78 H&R Block 2013 Form 10-K
are currently under examination. We anticipate the IRS exam of tax years 2008 through 2010 as well as the open refund
claims for tax years 2002 through 2007 will be resolved within the next twelve months. Federal tax returns for calendar
years 2011 through 2013 are open to examination.
The expected federal tax refund has been classified as current as of April 30, 2013. Of the $136.1 million expected
federal refund, a $151.3 million asset is recorded in prepaid expenses and other current assets offset by a $15.2 million
liability recorded in accrued income taxes.
NOTE 15: INTEREST INCOME AND INTEREST EXPENSE
The following table shows the components of interest income and expense:
(in 000s)
Year ended April 30, 2013 2012 2011
Interest income:
Emerald Advance lines of credit $59,657 $59,660 $94,300
Mortgage loans, net 16,556 20,322 24,693
Loans to franchisees 10,023 10,234 9,013
AFS securities 7,000 4,463 1,609
Credit cards 3,311 — —
Other 2,282 5,121 4,045
$98,829 $99,800 $133,660
Interest expense:
Borrowings $74,297 $84,782 $84,169
Deposits 5,660 6,735 8,488
FHLB advances —572 1,526
$79,957 $92,089 $94,183
NOTE 16: VARIABLE INTERESTS
SCC holds an interest in and is the sponsor (issuer) of 56 Real Estate Mortgage Investment Conduit (REMIC) Trusts
and 14 Net Interest Margin (NIM) Trusts (collectively, “Trusts”) related to previously originated mortgage loans that
were securitized. These Trusts are variable interest entities. The REMIC Trusts hold static pools of sub-prime residential
mortgage loans. The NIM Trusts hold beneficial interests in certain REMIC Trusts. The Trusts were designed to collect
and pass through to the beneficial interest holders the cash flows of the underlying mortgage loans. The REMIC Trusts
were financed with bonds and equity. The NIM Trusts were financed with notes and equity. All bonds and notes are
held by third-party investors.
Our identification of the primary beneficiary of the Trusts was based on a determination that the servicer of the
underlying mortgage loans has the power to direct the most significant activities of the Trusts because the servicer
handles all of the loss mitigation activities for the mortgage loans. We have determined that we are not the primary
beneficiary and, therefore have not consolidated the variable interest entity (VIE).
SCC is not the servicer of the mortgage loans underlying the REMIC Trusts, and therefore, does not have the power
to direct the most significant activities of the REMIC Trusts, which is the servicing of the underlying mortgage loans.
SCC does have the exclusive right to appoint a servicer when certain conditions have been met for specific loans
related to two of the NIM Trusts. As of April 30, 2013, those conditions have been met for a minority portion of the
loans underlying those Trusts. As this right pertains only to a minority of the loans, we have concluded that SCC does
not have the power to direct the most significant activities of these two NIM Trusts, as the servicer has the power to
direct significant activities over the majority of the mortgage loans. In the remaining NIM Trusts, SCC has a shared
right to appoint a servicer under certain conditions. For these NIM Trusts, we have concluded that SCC is not the
primary beneficiary because the power to direct the most significant activities, which is the servicing of the underlying
mortgage loans, is shared with other unrelated parties.