HR Block 2016 Annual Report Download - page 51

H&R Block, Inc. | 2016 Form 10-K 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS – Our operating subsidiaries provide assisted and do-it-yourself (DIY) tax return preparation
through multiple channels (including in-person, online and mobile applications, and desktop software) and related
services and products to the general public primarily in the United States, Canada, Australia, and their respective
territories.
PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of the Company
and our 100% owned subsidiaries. Intercompany transactions and balances have been eliminated.
DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon
Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC),
which exited its mortgage business in fiscal year 2008. See notes 15 and 16 for additional information on litigation,
claims and other loss contingencies related to our discontinued operations.
MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with accounting principles
generally accepted in the U. S. (GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates,
assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage
business, contingent losses associated with pending claims and litigation, valuation allowances on deferred tax assets,
reserves for uncertain tax positions and related matters. Estimates have been prepared based on the best information
available as of each balance sheet date. As such, actual results could differ materially from those estimates.
CASH AND CASH EQUIVALENTS – All non-restricted highly liquid instruments purchased with an original maturity
of three months or less are considered to be cash equivalents.
Outstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $43.1
million and $34.0 million as of April 30, 2016 and 2015, respectively.
CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of cash
held by our captive insurance subsidiary and for the benefit of our discontinued mortgage operations.
RECEIVABLES AND RELATED ALLOWANCES – Our trade receivables consist primarily of accounts receivable from
tax clients for tax return preparation. The allowance for doubtful accounts for these receivables requires management's
judgment regarding collectibility and current economic conditions to establish an amount considered by management
to be adequate to cover estimated losses as of the balance sheet date. Credit losses from tax clients for tax return
preparation are not specifically identified and charged off; instead they are evaluated on a pooled basis. At the end
of each tax season the outstanding balances on these receivables are evaluated based on collections received and
expected collections over subsequent tax seasons.
Our financing receivables consist primarily of mortgage loans held for investment, participations in H&R Block
Emerald Advance® lines of Credit (EAs), loans made to franchisees, and amounts due under our refund discount
program in Canada (Cash Back®).
H&R Block Emerald Advance® lines of credit. EAs are typically offered to clients in our offices from late November
through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed
in the loan terms, the line of credit can be increased and utilized year-round. EA balances require an annual paydown
on February 15th, and any amounts unpaid are placed on non-accrual status as of March 1st. Payments on past due
amounts are applied to principal. Beginning in fiscal year 2016, we no longer originate EAs. These lines of credit are
offered by BofI Federal Bank, a federal savings bank (BofI). We purchase participation interests in their loans, as
discussed further in note 14.
Credit losses from EAs are not specifically identified; instead we review the credit quality of these receivables on
a pooled basis, segregated by the year of origination and whether the credit was extended to a new or returning tax
client. Credit losses are based on an analysis of collections received and expected collections over subsequent tax
seasons. We charge-off receivables to an amount we believe represents the net realizable value.