HR Block 2005 Annual Report Download - page 134

customers, to purchase identical securities in the open market. $0.9 million, respectively. At April 30, 2005 there were no
Such purchases could result in losses not reflected in the balances outstanding on these letters of credit.
accompanying consolidated financial statements. HRBFA has letters of credit with a financial institution with a
As of April 30, 2005, we had pledged securities totaling credit limit of $125.0 million. There were no borrowings on these
$44.6 million, which satisfied margin deposit requirements of letters of credit during fiscal years 2005 or 2004 and no
$36.7 million. outstanding balance at April 30, 2005 or 2004.
We monitor the credit standing of brokers and dealers and During fiscal year 2004, we announced plans to construct a
customers with whom we do business. In addition, we monitor new world headquarters facility in downtown Kansas City,
the market value of collateral held and the market value of Missouri. We are in negotiations to enter into contractual
securities receivable from others, and seek to obtain additional commitments with the City of Kansas City and a general
collateral if insufficient protection against loss exists. contractor for the construction of the building. As of April 30,
We have various contingent purchase price obligations in 2005, no commitment for the total cost of the building had been
connection with prior acquisitions. In many cases, contingent negotiated. We expect the remaining expenditure associated with
payments to be made in connection with these acquisitions are this building to be approximately $143.1 million, which will be
not subject to a stated limit. We estimate the potential payments paid over the next two fiscal years.
(undiscounted) total approximately $5.1 million as of April 30, We routinely enter into contracts that include embedded
2005. Our estimate is based on current financial conditions. indemnifications that have characteristics similar to guarantees.
Should actual results differ materially from the assumptions, the Other guarantees and indemnifications of the Company and its
potential payments will differ from the above estimate. Such subsidiaries include obligations to protect counter parties from
payments, if and when paid, would be recorded as additional losses arising from the following: (1) tax, legal and other risks
goodwill. related to the purchase or disposition of businesses; (2) penalties
At April 30, 2005, we had a receivable from M&P of and interest assessed by federal and state taxing authorities in
$13.8 million. This amount is included in receivables in the connection with tax returns prepared for clients;
consolidated balance sheet. Commitments exist to loan M&P the (3) indemnification of our directors and officers; and (4) third-
lower of the value of their accounts receivable, work-in-process party claims relating to various arrangements in the normal
and fixed assets or $75.0 million, on a revolving basis through course of business. Typically, there is no stated maximum
August 30, 2005, subject to certain termination clauses. This payment related to these indemnifications, and the term of
revolving facility bears interest at prime rate plus four and one- indemnities may vary and in many cases is limited only by the
half percent on the outstanding amount and a commitment fee of applicable statute of limitations. The likelihood of any claims
one-half percent per annum on the unused portion of the being asserted against us and the ultimate liability related to any
commitment. The loan is fully secured by the accounts such claims, if any, is difficult to predict. While we cannot
receivable, work-in-process and fixed assets of M&P. We provide assurance we will ultimately prevail in the event any such
anticipate entering into a new revolving facility, which will claims are asserted, we believe the fair value of these guarantees
extend the loan past August 30, 2005. and indemnifications is not material as of April 30, 2005.
We have contractual commitments to fund certain franchises Substantially all of the operations of our subsidiaries are
requesting Franchise Equity Lines of Credit (‘‘FELCs’’). The conducted in leased premises. Most of the operating leases are
commitment to fund FELCs as of April 30, 2005 totaled for periods ranging from 3 years to 5 years, with renewal options
$68.9 million, with a related receivable balance of $39.0 million and provide for fixed monthly rentals.
included in the consolidated balance sheets. The receivable Future minimum lease commitments at April 30, 2005 are as
represents the amount drawn on the FELCs as of April 30, 2005. follows:
We are self-insured for certain risks, including certain (in 000s)
employee health and benefit, workers’ compensation, property 2006 $ 229,768
and general liability claims, and claims related to our POM 2007 186,111
program. We issued three standby letters of credit to servicers 2008 127,153
paying claims related to our POM, errors and omissions and 2009 81,608
worker’s compensation insurance policies. These letters of credit 2010 43,337
2011 and beyond 40,634
are for amounts not to exceed $10.7 million, $3.0 million and
$ 708,611
H&R BLOCK 2005 Form 10K
72