HR Block 2013 Annual Report Download - page 86

H&R Block 2013 Form 10-K 79
At April 30, 2013, we had no significant assets or liabilities included in the consolidated balance sheets related to
SCC’s variable interests in the Trusts. We have a liability, as discussed in note 19, and a deferred tax asset recorded in
the consolidated balance sheets related to representations and warranties SCC made in connection with the transfer of
mortgage loans, including mortgage loans held by the securitization trusts. We have no remaining exposure to economic
loss arising from impairment of SCC’s beneficial interest in the Trusts. If SCC receives cash flows in the future as a
holder of beneficial interests we would record gains as other income in our income statement.
NOTE 17: 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 $5,500, resulting from errors attributable to H&R Block. We defer all revenues
and direct costs associated with these guarantees, recognizing these amounts over the term of the guarantee based on
projected 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. Changes in the related balance of deferred revenue are
as follows:
(in 000s)
Year ended April 30, 2013 2012
Balance, beginning of the year $ 141,080 $140,603
Amounts deferred for new guarantees issued 76,561 76,080
Revenue recognized on previous deferrals (71,355) (75,603)
Balance, end of the year $ 146,286 $141,080
In addition to amounts accrued for our POM guarantee, we had accrued $18.0 million and $16.3 million at April 30,
2013 and 2012, respectively, related to estimated losses under our standard guarantee which is included with our standard
tax preparation services.
We have accrued estimated contingent consideration payments totaling $11.3 million and $6.8 million as of April 30,
2013 and 2012, respectively, related to recent acquisitions, with the short-term amount recorded in accounts payable,
accrued expenses and deposits and the long-term portion included in other noncurrent liabilities. Estimates of contingent
payments are typically based on expected financial performance of the acquired business and economic conditions at
the time of acquisition. Should actual results differ materially from our assumptions, future payments made will differ
from the above estimate and any differences will be recorded in our results from continuing operations.
We have contractual commitments to fund certain franchises requesting revolving lines of credit. Our total obligation
under these lines of credit was $90.9 million at April 30, 2013, and net of amounts drawn and outstanding, our remaining
commitment to fund totaled $43.6 million.
We have contractual commitments to fund our credit card customers on their approved revolving lines of credit. Our
total obligation under the credit card agreements was $30.4 million at April 30, 2013, and net of amounts outstanding,
our remaining commitment to fund totaled $5.2 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 effect on our financial position, results of operations
or liquidity.