8. CANCELLATION RESERVES

We recognize commission revenue for ESPs and GAP products at the time of sale, net of a reserve for estimated contract cancellations. Cancellations of these services may result from early termination by the customer, or default or prepayment on the finance contract. The reserve for cancellations is evaluated for each product, and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base.

Cancellation Reserves


	As of February 28
(In millions)		2014		2013
Balance as of beginning of year	$	32.7	$	28.5
Cancellations		(36.9)		(27.5)
Provision for future cancellations		76.7		31.7
Balance as of end of year	$	72.5	$	32.7

Cancellations fluctuate depending on the volume of ESP and GAP sales, customer financing default or prepayment rates, and shifts in customer behavior related to changes in the coverage or term of the product. The current portion of estimated cancellation reserves is recognized as a component of other accrued expenses with the remaining amount recognized in other liabilities.

Correction of Error

In the fourth quarter of fiscal 2014, the company reviewed the assumptions used in developing its cancellation reserves for ESP and GAP products and incorporated additional data into a more sophisticated model as part of our evaluation of the cancellation rates. This additional data included changes in the product and administration of the product by the company and changes in the credit mix of the customer base. The data was previously available, but had not been considered in our evaluation of the reserve balances. Based on our evaluation using a more sophisticated model, we determined that this additional data should have been considered in our previous assessments of cancellation reserves. We corrected this accounting error by increasing the cancellation reserves and reducing other sales and revenue. Fiscal 2014 net earnings were reduced by $11.9 million (net of tax of $7.6 million), or $0.05 per share, pertaining to fiscal 2013 and fiscal 2012. The out of period error was not material to fiscal 2014 or any previously reported interim or annual period.