HR Block 2012 Annual Report Download - page 43

BORROWINGS
We continually monitor our funding requirements and execute strategies to manage our overall asset and liability
profile. The following chart provides the ratings for debt issued by Block Financial as of April 30, 2012 and 2011:
As of April 30, 2012 April 30, 2011
Short-term Long-term Outlook Short-term Long-term Outlook
Moody’s P-2 Baa2 Stable P-2 Baa2 Negative
S&P A-2 BBB Negative A-2 BBB Negative
DBRS R-2 (high) BBB (high) Stable R-2 (high) BBB (high) Stable
At April 30, 2012, we maintained a CLOC agreement to support commercial paper issuances, general corporate
purposes or for working capital needs. This facility provides funding up to $1.7 billion and matures July 31, 2013.
This facility bears interest at an annual rate of LIBOR plus 1.30% to 2.80% or PRIME plus 0.30% to 1.80%, depending
on the type of borrowing, and includes an annual facility fee of 0.20% to 0.70% of the committed amounts, based on
our credit ratings. Covenants in this facility include: (1) maintenance of a minimum equity of $500.0 million on the
last day of any fiscal quarter; and (2) reduction of the aggregate outstanding principal amount of short-term debt,
as defined in the CLOC agreement, to $200.0 million or less for thirty consecutive days during the period March 1
to June 30 of each year. At April 30, 2012, we were in compliance with these covenants and had net worth of $1.3
billion. We had no balance outstanding under the CLOC at April 30, 2012.
During fiscal years 2012, 2011 and 2010, borrowing needs in our Canadian operations were funded by our U.S.
operations. To mitigate the foreign currency exchange rate risk, we used foreign exchange forward contracts.
We do not enter into forward contracts for speculative purposes. In estimating the fair value of derivative
positions, we utilize quoted market prices, if available, or quotes obtained from external sources. There were no
forward contracts outstanding as of April 30, 2012.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of our obligations to make future payments as of April 30, 2012, is as follows:
(in 000s)
Total
Less Than
1 Year 1 - 3 Years 4 - 5 Years After 5 Years
Long-term debt (including interest) $1,084,044 $ 653,882 $ 430,162 $ – $ –
Customer deposits (including interest) 838,272 832,474 5,710 88 –
Acquisition payments 30,831 30,831 – – –
Contingent acquisition payments 6,838 5,572 1,266 – –
Media advertising purchase obligation 2,779 2,779 – – –
Capital lease obligations 10,393 690 1,476 1,616 6,611
Operating leases 468,194 181,800 230,044 48,450 7,900
Total contractual cash obligations $2,441,351 $1,708,028 $ 668,658 $ 50,154 $ 14,511
The table above does not reflect unrecognized tax benefits of approximately $206 million due to the high
degree of uncertainty regarding the future cash outflows associated with these amounts.
See discussion of contractual obligations and commitments in Item 8, within the notes to the consolidated
financial statements.
REGULATORY ENVIRONMENT
H&R Block, Inc. is a SLHC and HRB Bank is a federal savings bank. Prior to July 21, 2011, both entities were subject
to supervision and regulation by the OTS. The Dodd-Frank Act eliminated the OTS effective July 21, 2011. As a result,
the Federal Reserve became H&R Block, Inc.’s primary federal regulator and the OCC became HRB Bank’s primary
federal regulator. The OTS did not historically subject savings and loan holding companies to consolidated regulatory
capital requirements. However, under the Dodd-Frank Act, H&R Block, Inc. will be subject to capital requirements
that will be set by the Federal Reserve. See discussion in Item 1, ‘‘Regulation and Supervision – Bank and Holding
Companies,’’ and in Item 1A, “Risk Factors,” for additional information on regulatory capital requirements for SLHCs,
including the new capital requirements for SLHCs proposed by the Federal Reserve in June 2012.
The Federal Reserve has indicated that its supervision and oversight of SLHCs and their non-bank
subsidiaries will be more rigorous than what was previously exercised by the OTS. See Item 1, “Regulation and
Supervision – Bank and Holding Companies,” for more detailed information on Federal Reserve regulations.
All savings associations are subject to regulatory capital requirements. As of March 31, 2012, our most recent
Call Report filing with the OCC, HRB Bank was a “well capitalized” institution. See Item 1, “Regulation and
H&R BLOCK 2012 Form 10K 29