HR Block 2005 Annual Report Download - page 96

nature of Tax Services generally results in a large positive were $31.0 billion compared with $23.2 billion in fiscal year
operating cash flow in the fourth quarter. Tax Services generated 2004. Additionally, Block Financial Corporation (‘‘BFC’’)
$529.0 million in operating cash flows primarily related to net provides a line of credit of at least $150 million for working
income, as cash is generally collected from clients at the time capital needs. At the end of fiscal year 2005 there was no
services are rendered. Prior year cash requirements for investing outstanding balance on this facility.
activities included $243.2 million paid to acquire former major GAINS ON SALES ⬎⬎⬎ Gains on sales of mortgage assets
franchisees. totaled $822.1 million, which was primarily recorded as operating
HSBC and its designated bank provide funding of all RALs activities. The percentage of cash proceeds we receive from our
offered pursuant to a contract that expires in June 2006. If HSBC capital market transactions is calculated as follows:
(in 000s)
and its designated bank do not continue to provide funding for
RALs, we could seek other RAL lenders to continue offering RALs Restated Restated
Year Ended April 30, 2005 2004 2003
to our clients or consider alternative funding strategies. We
Cash proceeds:
believe that a number of suitable lenders would be available to Whole loans sold by the
replace HSBC should the need arise. Trusts $ 737,417 $ 741,233 $ 368,305
Residual cash flows from
We also believe that the RAL program is productive for the Beneficial interest in
Company and a useful service for our customers. The RAL Trusts 193,639 167,705 103,294
program is regularly reviewed both from a business perspective Loans securitized 69,665 198,226 389,449
Sale of previously
and to ensure compliance with applicable state and federal laws. securitized residuals 15,396 40,689 93,307
It is our intention to continue to offer the RAL program in the Gain (loss) on derivative
instruments 45,298 (2,578) (2,056)
foreseeable future.
1,061,415 1,145,275 952,299
Loss of the RAL program could adversely affect our operating Non-cash:
results. In addition to the loss of revenues and income directly Retained mortgage
attributable to the RAL program, the inability to offer RALs could servicing rights 137,510 84,274 60,078
Additions (reductions) to
indirectly result in the loss of retail tax clients and associated tax balance sheet (1) 15,885 11,490 (10,829)
preparation revenues, unless we were able to take mitigating 153,395 95,764 49,249
actions. Total revenues related to the RAL program (including Portion of gain on sale from
revenues from participation interests) were $182.6 million for the capital market
transactions $ 1,214,810 $ 1,241,039 $ 1,001,548
year ended April 30, 2005, representing 4.1% of consolidated
Other items included in gain
revenues and contributed $101.3 million to the segment’s pretax on sale:
results. Revenues related to the RAL program totaled Changes in beneficial
interest in Trusts 36,281 37,918 74,987
$174.2 million for the year ended April 30, 2004, representing 4.1% Impairments to fair value
of consolidated revenues. of residual interests (12,235) (26,063) (54,111)
Net change in fair value
Our international operations are generally self-funded. Cash of derivative
balances are held in Canada, Australia and the United Kingdom instruments 1,555 (9,379) (2,085)
independently in local currencies. H&R Block Canada, Inc. Direct origination and
acquisition expenses, net (378,674) (278,785) (182,216)
(‘‘Block Canada’’) has a commercial paper program for up to Loan sale repurchase
$125.0 million (Canadian). At April 30, 2005, there was no reserves (39,662) (46,820) (21,295)
Other –387 10,299
commercial paper outstanding. The peak borrowing during fiscal
(392,735) (322,742) (174,421)
year 2005 was $124.0 million (Canadian). Reported gains on sales of
MORTGAGE SERVICES ⬎⬎⬎ This segment primarily mortgage assets $ 822,075 $ 918,297 $ 827,127
generates cash as a result of the sale and securitization of % of gain on sale from
mortgage loans and residual interests and as its residual capital market
transactions received as
interests mature. Mortgage Services provided $98.3 million in cash (2) 87% 92% 95%
cash from operating activities primarily due to the sale of (1) Includes residual interests and interest rate caps.
mortgage loans. This segment also generated $99.9 million in (2) Cash proceeds divided by portion of gain on sale related to capital market
cash from investing activities primarily related to cash received transactions.
from the maturity and sales of residual interests. We regularly
sell loans as a source of liquidity. Loan sales in fiscal year 2005
H&R BLOCK 2005 Form 10K
34