NOTE 8—CONTINGENCIES AND COMMITMENTS
From time to time during the normal course of business, we are a party to litigation and/or other claims. At December 31, 2011, none of these matters was expected to have a material impact on our financial position, results of operations or cash flows. At December 31, 2011 and September 30, 2011, we had legal accruals of $0.8 million and $0.8 million, respectively, based upon estimates of key legal matters.
Settlements payable on our Consolidated Balance Sheets consists of payments due primarily to utility companies and other public sector clients. As individuals and businesses settle their obligations to our various clients, we generate a receivable from the credit or debit card company and a payable to the client. Once we receive confirmation the funds have been received by the card company, we settle the liabilities to the client. This process may take several business days to complete and can result in unsettled funds at the end of a reporting period. We had $31.4 million and $9.8 million, respectively, of settlements payable at December 31, 2011 and September 30, 2011.
We maintain our cash in bank deposit accounts and money market accounts. Typically, the balance in a number of these accounts significantly exceeds federally insured limits. We have not experienced any losses in such accounts and believe that any associated credit risk is de minimis. At December 31, 2011, our investment portfolio was comprised of money market funds. Our investment portfolio and cash and cash equivalents approximate fair value.
PERFORMANCE, BID AND GUARANTEE PAYMENT BONDS
Pursuant to the terms of money transmitter licenses we obtain with individual states, we are required to provide guarantee payment bonds from a licensed surety. At December 31, 2011, we had $9.5 million of bonds posted with 43 jurisdictions. There were no claims pending against any of these bonds.
Under certain contracts or bids, we are required to obtain performance or bid bonds from a licensed surety and to post the performance bonds with our customers. Fees for obtaining the bonds are expensed over the life of each bond. At December 31, 2011, we had $5.1 million of bonds posted with clients. There were no claims pending against any of these bonds.
In February 2009, we completed the sale of our Unemployment Insurance, or UI, business to RKV Technologies, Inc., or RKV. The sale was completed pursuant to an Asset Purchase Agreement dated February 6, 2009. As part of the agreement, we are required to leave in place a $2.4 million performance bond on the continuing contract with the State of Indiana, or the State. Subsequent to the sale of the UI business to RKV, the prime contractor, Haverstick Corporation, or Haverstick, the State, and RKV determined that the contract completion will be delayed and additional funding is needed to complete the contract. In November 2009 Haverstick cancelled its contract with RKV and directly rehired various RKV resources and RKV contractors. We retain certain liabilities for completion of the project and continue as the indemnitor under the performance bond.
Since the sale of the UI business in February 2009, we have had limited access to information about the project status and scope and have not received an accounting of the additional project tasks and their related costs to complete the contract. In 2009, we offered $420,000 as a contribution towards project completion. The project is scheduled to be completed in August 2012 and mediation is expected to take place after the completion of the project, to discuss the allocation of the cost of project completion.
As of December 31, 2011, we had employment and change of control agreements with six executives and three other key employees. If certain termination or change of control events were to occur under the nine contracts as of December 31, 2011, we would have been required to pay up to $4.4 million. We are also obligated to reimburse five employees for expenses incurred in moving their immediate family from their respective homes to the Atlanta, Georgia area. Under these obligations, we could be required to pay up to $106,000 in total.
OPERATING AND CAPITAL LEASE OBLIGATIONS
As of December 31, 2011, our principal lease commitments consisted of obligations outstanding under operating leases. We lease most of our facilities under operating leases that expire at various dates through 2018. There have been no material changes in our principal lease commitments compared to those discussed in the Form 10-K for the year ended September 30, 2011.
Our Certificate of Incorporation obligates us to indemnify our directors and officers against all expenses, judgments, fines and amounts paid in settlement for which such persons become liable as a result of acting in any capacity on behalf of Official Payments, if the director or officer met the standard of conduct specified in the Certificate, and subject to the limitations specified in the Certificate. In addition, we have indemnification agreements with certain of our directors and officers, which supplement the indemnification obligations in our Certificate. These agreements generally obligate us to indemnify the indemnitees against expenses incurred because of their status as a director or officer, if the indemnitee met the standard of conduct specified in the agreement, and subject to the limitations specified in the agreement.