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The company, still afoul of federal thrift requirements for capital-to-assets ratio, expects to miss its latest compliance deadline and may have to borrow capital.
Stephen Taub, CFO.com | US
December 13, 2007
H&R Block warned that it does not expect to be in compliance with a capital plan required by the Office of Thrift Supervision by its deadline next spring and said it may have to issue additional debt or equity.
The company is subject to a 3 percent minimum ratio of adjusted tangible capital to adjusted total assets, as defined by the OTS. It fell below the minimum ratio on April 30 of this year, and in July it submitted a revised plan to meet the stipulated ratio by April 30, 2008, which the OTS accepted.
However, the tax-preparation company noted in a new regulatory filing that operating losses of discontinued operations for the first half of fiscal 2008 were higher than projected in its July revised capital plan. As a result, capital levels are lower than those projections. Earlier this year the company said it would need to raise its adjusted tangible capital from negative $644.4 million to positive $177.5 million to be in compliance by Oct. 31.
"Achievement of the capital plan depends on future events and circumstances, the outcome of which cannot be assured," Block said.
The company noted that if operating results continue to lag, it could be unable to repurchase shares of common stock, acquire businesses, or pay dividends. As a result, the OTS could take further regulatory actions, such as a supervisory agreement, cease-and-desist orders, and civil monetary penalties. "The OTS could also require us to sell assets, which could negatively impact our financial statements," it added.
Block also warned in its regulatory filing that market conditions and recent credit-rating downgrades have thwarted its ability to issue commercial paper; it had none outstanding as of October 31.
As an alternative, it has been borrowing under its unsecured revolving committed lines of credit (CLOCs) to support working capital requirements. "It is possible that the borrowing capacity under our CLOCs may not be sufficient to meet our financing needs," Block said. "To meet our future financing needs we may be required to issue additional debt or equity securities."