HR Block 2005 Annual Report Download - page 104

from adverse changes in the value of the trading portfolio. We
these short-term assets with short-term variable rate liabilities
value the trading portfolio at quoted market prices and the
from customers, brokers and dealers, including stock loan
market value of our trading portfolio at April 30, 2005 was
activity. Although there may be differences in the timing of the re- approximately $6.3 million, net of $4.8 million in securities sold
pricing related to these assets and liabilities, we believe we are short. See table below for sensitivities to changes in interest
not significantly exposed to interest rate risk in this area. As a rates. With respect to our fixed-income securities portfolio, we
result, any change in interest rates would not materially impact manage our market price risk exposure by limiting concentration
our consolidated earnings. risk, maintaining minimum credit quality and limiting inventory to
Our fixed-income trading portfolio is affected by changes in anticipated retail demand and current market conditions.
market rates and prices. The risk is the loss of income arising
The sensitivities of certain financial instruments to changes in interest rates as of April 30, 2005 and 2004 are presented below. The
following table represents hypothetical instantaneous and sustained parallel shifts in interest rates and should not be relied on as an
indicator of future expected results.
(in 000s)
Basis Point Change
Fair Value at
April 30, 2005 – 200 – 100 – 50 + 50 + 100 + 200 + 300
Residual interests in
securitizations –
available-for-sale $ 205,936 $ 84,845 $ 30,417 $ 13,637 $ (13,520) $ (28,174) $ (51,466) $ (75,296)
Interest rate caps 12,458 – 205 4,580 20,746 29,262 46,751 64,195
Investments at captive
insurance subsidiary 9,968 1,079 522 256 (248) (487) (942) (1,368)
Fixed income – trading (net) 6,252 1,958 893 426 (390) (749) (1,383) (1,921)
Interest rate swaps (1,325) (84,723) (43,024) (19,524) 19,524 43,024 84,723 123,771
Basis Point Change
Fair Value at
April 30, 2004 – 50 + 50 + 100 + 200 + 300
Residual interests in
securitizations –
available-for-sale $ 210,973 $ 45,449 $ (18,563) $ (32,709) $ (46,527) $ (48,090)
Investments at captive insurance
subsidiary 44,667 1,079 (1,069) (1,591) (3,146) (4,667)
Fixed income – trading (net) 13,639 677 (637) (1,228) (2,271) (3,164)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DISCUSSION OF FINANCIAL RESPONSIBILITY ⬎⬎⬎
We at H&R Block are guided by our core values of client focus, teams of our individual subsidiaries to certify their respective
integrity, excellence, respect and teamwork. These values govern financial information. Our system of internal control over
the manner in which we serve clients and each other, and are financial reporting also includes formal policies and procedures,
embedded in the execution and delivery of our responsibilities to including a Code of Business Ethics and Conduct program
our shareholders. H&R Block’s Management is responsible for designed to encourage and assist all employees and directors in
the integrity and objectivity of the information contained in this living up to high standards of integrity.
document. Management is responsible for the consistency of The Audit Committee of the Board of Directors, composed
reporting this information and for ensuring that accounting solely of outside and independent directors, meets periodically
principles generally accepted in the United States are used. In with management, the independent auditors and the chief
discharging this responsibility, Management maintains an internal auditor to review matters relating to our financial
extensive program of internal audits and require the management statements, internal audit activities, internal accounting controls
H&R BLOCK 2005 Form 10K
42