HR Block 2008 Annual Report Download - page 58

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of our obligations to make future payments as of April 30, 2008, is as follows:
Total
Less Than
1 Year 1 – 3 Years 4 – 5 Years After 5 Years
(in 000s)
Long-term debt (including interest) $ 1,457,877 $ 171,795 $ 135,591 $ 721,224 $ 429,267
Customer deposits 785,624 630,060 9,074 6,557 139,933
Acquisition payments 28,398 6,728 3,246 18,424 –
Short-term borrowings 25,000 25,000 – – –
Media advertising purchase obligation 19,043 19,043 – – –
Capital lease obligations 12,514 513 1,052 1,247 9,702
Operating leases 854,956 265,130 364,333 144,022 81,471
Total contractual cash obligations $ 3,183,412 $ 1,118,269 $ 513,296 $ 891,474 $ 660,373
We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48) on May 1, 2007. At April 30, 2008, the liability recorded for uncertain tax positions, excluding related
interest and penalties, totaled $137.6 million. This liability represents an estimate of tax positions we have taken in
our tax returns that may ultimately not be sustained upon examination by the tax authorities. Amounts we expect
to pay in the next twelve months of $11.5 million are included in accounts payable, accrued expenses and other
current liabilities on our consolidated balance sheet. The remaining amount is included in other noncurrent
liabilities on our consolidated balance sheet. Because the ultimate amount and timing of any future cash
settlements cannot be predicted with reasonable certainty, the estimated FIN 48 liability has been excluded
from the table above. See Item 8, note 14 to the consolidated financial statements for additional information.
A summary of our commitments as of April 30, 2008, which may or may not require future payments, expire as
follows:
Total
Less Than
1 Year 1 – 3 Years 4 – 5 Years After 5 Years
(in 000s)
Franchise Equity Lines of Credit $ 79,134 $ 33,859 $ 26,488 $ 18,787 $ –
Commitment to fund M&P 125,000 125,000 – – –
Pledged securities 47,225 47,225 – – –
Contingent acquisition payments 24,288 4,454 8,205 11,215 414
Other commercial commitments 4,070 1,865 2,205 – –
Total commercial commitments $ 279,717 $ 212,403 $ 36,898 $ 30,002 $ 414
See discussion of contractual obligations and commitments in Item 8, within the notes to our consolidated
financial statements.
REGULATORY ENVIRONMENT
In March 2006, the OTS approved the federal savings bank charter of HRB Bank. HRB Bank commenced operations on
May 1, 2006, at which time H&R Block, Inc. became a savings and loan holding company. As a savings and loan holding
company, H&R Block, Inc. is subject to regulation by the OTS. Federal savings banks are subject to extensive regulation
and examination by the OTS, their primary federal regulator, as well as the FDIC. In conjunction with H&R Block, Inc.’s
application with the OTS for HRB Bank, H&R Block, Inc. made commitments as part of our charter approval order
(Master Commitment) which included, but were not limited to: (1) H&R Block, Inc. to maintain a three percent
minimum ratio of adjusted tangible capital to adjusted total assets, as defined by the OTS; (2) maintain all HRB Bank
capital within HRB Bank in accordance with the submitted three-year business plan; and (3) follow federal regulations
surrounding intercompany transactions and approvals. Effective April 30, 2008, the three percent minimum ratio of
adjusted tangible capital to adjusted total assets requirement was eliminated, and a Supervisory Directive relating to
prior non-compliance with this requirement was rescinded.
All savings associations are subject to the capital adequacy guidelines and the regulatory framework for prompt
corrective action. HRB Bank must meet specific capital guidelines that involve quantitative measures of HRB
Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.
HRB Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk-weightings and other factors. As of March 31, 2008, our most recent Thrift Financial Report
(TFR) filing with the OTS, HRB bank was a “well capitalized” institution under the prompt corrective action
38 H&R BLOCK 2008 Form 10K