SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number 1-6089
H&R BLOCK, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 44-0607856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4410 Main Street
Kansas City, Missouri 64111
(Address of principal executive offices, including zip code)
(816) 753-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock, without par
value, at September 8, 1994 was 104,285,210 shares.
TABLE OF CONTENTS
PART I Financial Information
Consolidated Balance Sheets
July 31, 1994 and April 30, 1994
Consolidated Statements of Operations
Three Months Ended July 31, 1994 and 1993
Consolidated Statements of Cash Flows
Three Months Ended July 31, 1994 and 1993
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
SIGNATURES
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited, amounts in thousands, except share amounts
July 31, April 30,
1994 1994
ASSETS ------------- -------------
CURRENT ASSETS
Cash (including certificates of deposit of $7,540 and $23,519) $ 32,054 $ 41,343
Marketable securities 339,573 473,043
Receivables, less allowance for doubtful accounts of $12,709 and
$12,744 141,459 165,858
Prepaid expenses 26,400 19,551
------------- -------------
TOTAL CURRENT ASSETS 539,486 699,795
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 107,015 105,705
Excess of cost over fair value of net tangible assets acquired,
net of amortization 65,056 67,679
Other 37,940 36,301
------------- -------------
210,011 209,685
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 167,937 165,224
------------- -------------
$ 917,434 $ 1,074,704
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 47,132 $ -
Accounts payable, accrued expenses and deposits 119,951 160,592
Accrued salaries, wages and payroll taxes 16,186 55,195
Accrued taxes on income 80,538 120,425
------------- -------------
TOTAL CURRENT LIABILITIES 263,807 336,212
OTHER NONCURRENT LIABILITIES 34,382 30,617
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Additional paid-in capital 91,318 90,552
Retained earnings 691,272 719,724
------------- -------------
783,679 811,365
Less cost of 4,313,539 and 2,823,605 shares of common stock
in treasury 164,434 103,490
------------- -------------
619,245 707,875
------------- -------------
$ 917,434 $ 1,074,704
============= =============
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Three Months Ended
July 31,
1994 1993
------------ ------------
REVENUES
Service revenues $ 135,719 $ 97,591
Franchise royalties 1,187 1,071
Investment income 5,151 4,067
Other income 3,343 585
------------ ------------
145,400 103,314
------------ ------------
EXPENSES
Employee compensation and benefits 44,994 36,896
Occupancy and equipment 60,910 48,269
Marketing and advertising 6,443 4,389
Supplies, freight and postage 6,680 5,314
Other 31,170 22,821
------------ ------------
150,197 117,689
------------ ------------
Loss from continuing operations before income tax benefit (4,797) (14,375)
Income tax benefit (1,837) (6,132)
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (2,960) (8,243)
Net earnings from discontinued operations (less applicable
income taxes of $2,682) - 2,802
------------ ------------
NET LOSS $ (2,960) $ (5,441)
============ ============
Weighted average number of common shares outstanding 105,126 105,898
======= =======
LOSS PER SHARE
From continuing operations $ (.03) $ (.08)
============ ============
Net loss $ (.03) $ (.05)
============ ============
Dividends per share $ .28 $ .25
============ ============
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Three Months Ended
July 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES ------------ ------------
Net loss $ (2,960) $ (5,441)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 15,137 14,672
Gain on sale of subsidiaries (2,796) -
Other noncurrent liabilities 3,765 2,018
Changes in:
Receivables 24,399 87,560
Prepaid expenses (6,849) (8,309)
Accounts payable, accrued expenses and deposits (40,641) (40,473)
Accrued salaries, wages and payroll taxes (39,009) (25,390)
Accrued taxes on income (42,357) (33,629)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (91,311) (8,992)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (488,748) (193,658)
Maturities of marketable securities 627,356 333,635
Purchases of property and equipment (16,835) (19,080)
Excess of cost over fair value of net tangible assets acquired, net
of cash acquired (682) (1,767)
Other, net 3,527 (9,507)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 124,618 109,623
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (419,562) (80,661)
Proceeds from issuance of notes payable 466,694 43,494
Dividends paid (29,550) (26,512)
Payments to acquire treasury shares (63,610) (40,207)
Proceeds from stock options exercised 3,432 1,637
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (42,596) (102,249)
------------ ------------
Net decrease in cash (9,289) (1,618)
Cash at beginning of period 41,343 43,417
------------ ------------
Cash at end of period $ 32,054 $ 41,799
============ ============
Supplemental disclosures of cash flow information
Income taxes paid $ 38,050 $ 30,217
Interest paid 449 326
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. The Consolidated Balance Sheet as of July 31, 1994, the
Consolidated Statements of Operations for the three months
ended July 31, 1994 and 1993 and the Consolidated Statements
of Cash Flows for the three months ended July 31, 1994 and
1993 have been prepared by the Company, without audit. In
the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash
flows at July 31, 1994 and for all periods presented have
been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and
notes thereto included in the Company's April 30, 1994 Annual
Report to Shareholders.
Operating revenues are seasonal in nature with peak revenues
occurring in the months January through April. Thus, the
three months results are not indicative of results to be
expected for the year.
2. During the third quarter of fiscal 1994, the Company sold
100% of the common stock of its wholly-owned subsidiary,
Interim Services Inc. Prior year amounts include Interim's
results, reported as discontinued operations. The Company
acquired MECA Software, Inc. in November 1993. The
acquisition was accounted for as a purchase and, accordingly,
the Consolidated Statements of Operations include MECA's
results since the date of acquisition.
3. In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." This Standard addresses the reporting for debt
and equity securities by requiring such investments to be
classified in held-to-maturity, available-for-sale or trading
categories. The Company adopted this Standard on May 1,
1994. All marketable debt and equity securities have been
classified as current or noncurrent available-for-sale
securities, and are carried at market value with unrealized
gains and losses included in stockholders' equity. The
adoption of this Standard resulted in an increase to
stockholders' equity of $5,526,000 (net of taxes of
$3,431,000), representing the aggregate excess market value
over carrying value of the Company's securities on the date
of adoption. During the quarter ended July 31, 1994, the net
unrealized holding gain on available-for-sale securities
decreased $1,548,000 to $3,978,000. Net earnings for the
period were not affected by the accounting change.
4. The Company files its Federal and state income tax returns on
a calendar year basis. The Consolidated Statements of
Operations reflect the effective tax rates expected to be
applicable for the respective full fiscal years.
5. Net loss per common share is based on the weighted average
number of shares outstanding during each period. The
weighted average shares outstanding for the first quarter of
fiscal 1995 declined to 105,126,000 from 105,898,000 last
year, due to repurchase of outstanding shares in the first
three months of this year, offset by treasury shares issued
for stock option exercises.
6. During the three months ended July 31, 1994 and 1993, the
Company issued 71,566 and 69,349 shares, respectively,
pursuant to provisions for exercise of its stock option
plans; during the same period, the Company acquired 1,561,500
and 1,145,816 shares of its common stock at an aggregate cost
of $63,610,000 and $40,207,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the
Consolidated Balance Sheets and Consolidated Statements of Cash
Flows found on pages 3 and 5, respectively.
Working capital decreased from $363.6 million at April 30, 1994
to $275.7 million at July 31, 1994. The working capital ratio at
July 31, 1994 was 2.0 to 1 compared to 2.1 to 1 at April 30,
1994. The decrease in working capital and working capital ratio
must be viewed in the context of the Company's business which is
seasonal, with peak activity in the fourth quarter, due to the
nature of the Company's largest segment, Tax Services. Tax
return preparation occurs almost entirely in the fourth quarter
and has the effect of increasing certain assets and liabilities
during this time.
The Company has no long-term debt. However, the Company
maintains seasonal lines of credit to support short-term
borrowing facilities in the United States and Canada. During the
months of January through April, the Company's Canadian Tax
Services regularly incurs short-term borrowings to purchase
refunds due its clients. Additionally, Block Financial
Corporation (BFC), a wholly-owned subsidiary of the Company,
incurs short-term borrowings during the months of January through
April to purchase interests in a trust to which certain Refund
Anticipation Loans made by Mellon Bank are sold. BFC also incurs
short-term borrowings throughout the year to fund receivables
associated with its credit card program. At July 31, 1994,
short-term borrowings used to fund credit card receivables
totaled $47.1 million. There were no borrowings outstanding at
April 30, 1994. The Company also maintains a year-round $100
million line of credit to support various financial activities
conducted by BFC.
The Company's acquisition of treasury shares, capital
expenditures and dividend payments during the first three months
were funded through internally-generated funds.
RESULTS OF OPERATIONS
During the third quarter of fiscal 1994, the Company sold 100% of
the common stock of its wholly-owned subsidiary, Interim Services
Inc. Prior year amounts include Interim's results, reported as
discontinued operations. The results of Interim Services Inc.
were previously reflected as the Temporary Help Services segment.
The Company acquired MECA Software, Inc. in November 1993. The
transaction was accounted for as a purchase and, accordingly,
results include MECA's operations subsequent to the date of
acquisition. The personal finance software operations of MECA
Software, Inc. are included in the Financial Services segment;
the personal tax software operations are included as Other
Services.
The analysis of operations that follows should be read in
conjunction with the table below and the Consolidated Statements
of Operations found on page 4.
Three Months Ended July 31, 1994 Compared to
Three Months Ended July 31, 1993
(amounts in thousands)
Revenues Earnings (loss)
1994 1993 1994 1993
------------ ------------ ------------ -------------
Tax services $ 9,563 $ 9,672 $ (39,998) $ (37,164)
Computer services 127,896 91,888 33,912 21,588
Financial services 5,989 537 211 (118)
Other services 78 - (2,039) -
Inter-segment sales (3,277) (2,850) - -
------------ ------------ ------------ -------------
140,249 99,247 (7,914) (15,694)
Investment income 5,151 4,067 5,151 4,067
Unallocated corporate - - (2,034) (2,748)
------------ ------------ ------------ -------------
$ 145,400 $ 103,314 (4,797) (14,375)
============ ============
Income tax benefit (1,837) (6,132)
------------ -------------
Net loss from
continuing operations (8,243)
(2,960)
Net earnings from
discontinued operations - 2,802
------------ -------------
Net loss $ (2,960) $ (5,441)
============ =============
Consolidated revenues for the three months ended July 31, 1994 increased 40.7%
to $145.400 million from $103.314 million reported last year. The increase is
due to greater revenues reported by the Computer Services and Financial
Services segments.
The consolidated pretax loss for the first quarter of fiscal 1995 improved
66.6% to $4.797 million from a loss from continuing operations of $14.375
million in the first quarter of last year. The significant improvement in the
first quarter loss is due to the improved operating results of the Computer
Services segment, which include a pretax gain of $2.796 million from the sales
of two subsidiaries, offset by increased losses reported by the Tax Services
segment and Other Services.
The net loss was $2.960 million, or $.03 per share, compared to a net loss
from continuing operations of $8.243 million, or $.08 per share, for the same
period last year. Discontinued operations which were sold in January 1994
contributed earnings of $.03 per share in the first quarter of fiscal 1994.
An analysis of operations by segment follows.
TAX SERVICES
Revenues decreased 1.1% to $9.563 million from $9.672 million last year, due
primarily to lower sales of supplies to franchises in the United States and
lower discounted return fees in Canada. Due to the seasonality of this
segment's business, the decline in first quarter revenues is not indicative of
expected results for the entire fiscal year.
The pretax loss increased 7.6% to $39.998 million from $37.164 million in the
first quarter of last year, due to increased office rent and employee-related
expenses and the slight decrease in revenues.
COMPUTER SERVICES
Revenues increased 39.2% to $127.896 million from $91.888 million in the
comparable period last year due to increases in both consumer and network
revenues. Consumer Services revenues were 49.6% better than last year,
despite a price decrease in February 1994. The growth in consumer revenues is
due to the significant increase in new customers in the United States and
further expansion into Europe. Network Services revenues were 33.2% better
than last year, due to increasing usage and new customers. Computer Services
revenues include a pretax gain of $2.796 million on the sale of two software
subsidiaries. Exclusive of the gain on the sale and the operating revenues of
these subsidiaries, Computer Services revenues increased 41.5% as compared to
the first quarter of fiscal 1994.
Pretax earnings increased 57.1% to $33.912 million from $21.588 million in the
first quarter of fiscal 1994. The increase in pretax earnings is attributable
to the continued strong performances of the Consumer and Network divisions, in
addition to the gains recorded on the sale of two subsidiaries. Excluding the
gain and operating results of the software subsidiaries sold, pretax earnings
increased 44.5% from the comparable period last year. Pretax earnings as a
percentage of revenues, excluding the gains on sales of subsidiaries, was
24.9% for the first quarter of fiscal 1995, compared to 23.5% for the same
period last year. The increase in the pretax margin resulted primarily from
the exceptional increases in revenues which outpaced expenses, a significant
portion of which are fixed.
FINANCIAL SERVICES
Revenues increased to $5.989 million compared to $537 thousand for the same
period last year. The increase in revenues was due to increases in credit
card fees and refund loan participation fees, and the revenues of the personal
finance software operations of MECA Software, Inc.
Pretax operating results improved from a loss of $118 thousand in the first
quarter of fiscal 1994 to earnings of $211 thousand in the first quarter of
fiscal 1995. The improved results were primarily due to refund anticipation
loan activity, partially offset by a loss reported by the personal finance
software operations and corporate overhead.
OTHER SERVICES
Other Services represent the operations of the personal tax software business
of MECA Software, Inc., which was acquired in November of 1993. The first
quarter loss of $2.039 million resulted from the seasonality of tax
preparation software sales, which normally peak during the third and fourth
quarters of the fiscal year. The loss includes goodwill amortization expense
of $247 thousand.
INVESTMENT INCOME
Investment income increased 26.7% to $5.151 million from $4.067 million last
year. The increase resulted primarily from greater funds available for
investment, largely due to the proceeds from the sale of Interim Services Inc.
received in the fourth quarter of fiscal 1994.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss for the first quarter decreased
26.0% to $2.034 million from $2.748 million in the comparable period last
year. The improvement is the result of the first-time allocation to operating
segments of certain employee benefit expenses paid at the corporate level, in
addition to management's efforts to control corporate overhead expenses.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10) The H&R Block Deferred Compensation Plan for Directors, as amended.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended July 31, 1994, the registrant filed a current
report on Form 8-K dated May 10, 1994, pertaining to the disposition of
the registrant's entire interest in its indirect wholly-owned
subsidiary, Interim Services Inc.
No other current reports on Form 8-K were filed during the quarter ended
July 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H&R BLOCK, INC.
(Registrant)
DATE 09/14/94 BY /s/ William P. Anderson
--------------------------
William P. Anderson
Senior Vice President and
Chief Financial Officer
DATE 09/14/94 BY /s/ Ozzie Wenich
--------------------------
Ozzie Wenich
Vice President, Corporate
Controller and Treasurer
Exhibit 10
H&R BLOCK
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
(As Amended Through March 9, 1994)
TABLE OF CONTENTS
H&R BLOCK
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
ARTICLE 1 DEFERRED COMPENSATION ACCOUNT
Section 1.1 Establishment of Account
Section 1.2 Property of Company
ARTICLE 2 DEFINITIONS, GENDER AND NUMBER
Section 2.1 Definitions
Section 2.2 Gender and Number
ARTICLE 3 PARTICIPATION
Section 3.1 Who May Participate
Section 3.2 Time and Conditions of Participation
Section 3.3 Termination of Participation
Section 3.4 Missing Persons
Section 3.5 Relationship to Other Plans
ARTICLE 4 ENTRIES TO THE ACCOUNT
Section 4.1 Deferrals
Section 4.2 Crediting Rate
ARTICLE 5 VESTING
ARTICLE 6 DISTRIBUTION OF BENEFITS
Section 6.1 Time of Payment
Section 6.2 Form of Benefits Upon Retirement or
Attainment of Age 75
Section 6.3 Deferral of Payment
Section 6.4 Death Benefits
Section 6.5 Claims Procedure
Section 6.6 Alternate Forms of Benefit Distribution
Section 6.7 Distributions on Plan Termination
ARTICLE 7 FUNDING
Section 7.1 Source of Benefits
Section 7.2 No Claim on Specific Assets
ARTICLE 8 ADMINISTRATION AND FINANCES
Section 8.1 Administration
Section 8.2 Powers of the Committee
Section 8.3 Actions of the Committee
Section 8.4 Delegation
Section 8.5 Reports and Records
ARTICLE 9 AMENDMENTS AND TERMINATION
Section 9.1 Amendments
Section 9.2 Termination
ARTICLE 10 MISCELLANEOUS
Section 10.1 No Guarantee of Membership
Section 10.2 Individual Account Plan
Section 10.3 Release
Section 10.4 Notices
Section 10.5 Non-Alienation
Section 10.6 Tax Liability
Section 10.7 Captions
Section 10.8 Applicable Law
SCHEDULE A - ANNUAL ADMINISTRATIVE CHARGES
H&R BLOCK
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
H&R Block, Inc. (the "Company") hereby establishes,
effective September 1, 1987, a nonqualified deferred compensation
plan for the benefit of specified Directors of the Company, and
of the following affiliates of the Company: CompuServe
Incorporated, Personnel Pool of America, Inc., Path Management
Industries, Inc. and such other entities as may be designated by
the Company from time to time. This plan shall be known as the
H&R Block Deferred Compensation Plan for Directors (the "Plan").
The Plan is intended to be an unfunded plan maintained primarily
for the purpose of providing deferred compensation for a select
group of management or highly compensated employees as described
in Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA").
ARTICLE 1. DEFERRED COMPENSATION ACCOUNT.
Section 1.1. Establishment of Account. The Company shall
establish an account ("Account") for each Participant which shall
be utilized solely as a device to measure and determine the
amount of deferred director's fees to be paid under the Plan.
Section 1.2. Property of Company and Participating
Affiliates. Any amounts so set aside for benefits payable under
the Plan are the property of the Company and its participating
affiliates ("Participating Affiliates"), except, and to the
extent, of any assignment of such assets to an irrevocable trust.
ARTICLE 2. DEFINITIONS, GENDER, AND NUMBER.
Section 2.1. Definitions. Whenever used in the Plan, the
following words and phrases shall have the meanings set forth
below unless the context plainly requires a different meaning,
and when a defined meaning is intended, the term is capitalized.
2.1.1. "Account" means the device used to measure
and determine the amount of deferred director's fees to
be paid to a Participant or Beneficiary under the Plan,
and may refer to the separate Accounts that represent
amounts deferred by a Participant under separate
Permissible Deferral elections.
2.1.2. "Affiliates" or "Affiliate" means a group
of entities, including the Company, which constitutes a
controlled group of corporations (as defined in section
414(b) of the Code), a group of trades or businesses
(whether or not incorporated) under common control (as
defined in section 414(c) of the Code), and members of
an affiliated service group (within the meaning of
section 414(m) of the Code.)
2.1.3. "Age" of a Participant means the number of
whole calendar years that have elapsed since the date
of the Participant's birth.
2.1.4. "Beneficiary" or "Beneficiaries" means the
persons or trusts designated by a Participant in
writing pursuant to Section 6.4.4 of the Plan as being
entitled to receive any benefit payable under the Plan
by reason of the death of a Participant, or, in the
absence of such designation, the persons specified in
Section 6.4.5 of the Plan.
2.1.5. "Board" means the Board of Directors of
the Company as constituted at the relevant time.
2.1.5a. "Closing Price" means the closing price
of the Company's Common Stock on the New York Stock
Exchange as of the applicable date; provided, however,
that if no closing price is available for such date,
"Closing Price" means the closing price of the
Company's Common Stock as of the next most recent date
for which a price is available.
2.1.6. "Code" means the Internal Revenue Code of
1986, as amended from time to time and any successor
statute. References to a Code section shall be deemed
to be to that section or to any successor to that
section.
2.1.7. "Committee" means the Compensation
Committee of the Company's Board.
2.1.7a. "Common Stock" means the common stock of
the Company.
2.1.8. "Company" means H&R Block, Inc.
2.1.8a. "Deferred Compensation Unit" means a unit
equal in value to one share of Common Stock and posted
to a Participant's Account for the purpose of measuring
the benefits payable under the Plan.
2.1.9. "Director" or "Directors" means a Non-
Employee serving as a member on the Board of Directors
of a Participating Affiliate.
2.1.10. "Director's Fees" of a Director for any
Plan Year means that individual's total Retainer and
Meeting Fees for that Plan Year.
2.1.11. "Effective Date" means the date on which
this Plan became effective, i.e., September 1, 1987.
2.1.12. "Enrollment Period" means the period of
February 15 through April 15 prior to the Plan Year to
which a Permissible Deferral election first applies.
However, for the first Plan Year, the Enrollment Period
shall be August 1, 1987 through August 31, 1987.
2.1.13. "Non-Employee" means any person who is
not employed as a common-law employee by an Affiliate.
2.1.14. "Participant" means a Non-Employee
Director who elects to participate in the Plan and who
is eligible to participate in the Plan.
2.1.15. "Participating Affiliate" or
"Participating Affiliates" means the Company and the
following indirect subsidiaries of the Company: HRB
Management, Inc., H&R Block Tax Services, Inc.,
CompuServe Incorporated, Block Financial Corporation,
and MECA Software, Inc., and the U.S. subsidiaries of
such indirect subsidiaries; and such other entities as
may be designated as such by the Company from time to
time.
2.1.16. "Permissible Deferral" means a deferral
in each of the next four (4) consecutive Plan Years of
an amount or percentage of Director's Fees that is not
less nor more than one hundred percent (100%) of
Director's Fees.
Director's Fees deferrals shall be made in single
sum deferrals at the time that the Director's Fees
would otherwise be paid to the Director. All deferrals
must be completed by the later of (a) the Plan Year in
which the Participant attains Age 68 or (b) April 30,
1991.
2.1.17. "Plan" means the "H&R Block Deferred
Compensation Plan for Directors" as set forth herein
and as amended or restated from time to time.
2.1.18. "Plan Year" means May 1 through April 30,
except that the first Plan Year shall be from September
1, 1987 through April 30, 1988.
2.1.19. "Smoker" or "Smokers" with respect to any
Permissible Deferral election means any individual who
has smoked at least one cigarette with a twelve (12)
month period ending on the date on which such
individual makes the Permissible Deferral election.
2.1.20. "Standard Form of Benefit" as to any
Participant means monthly payments for a ten (10) year
period.
2.1.21. "Trust" means the H&R Block Inc.,
Deferred Compensation Trust Agreement.
Section 2.2. Gender and Number. Except as otherwise
indicated by context, masculine terminology used herein also
includes the feminine and neuter, and terms used in the singular
may also include the plural.
ARTICLE 3. PARTICIPATION.
Section 3.1. Who May Participate. Participation in the
Plan is limited to Directors.
Section 3.2. Time and Conditions of Participation. An
eligible Director shall become a Participant only upon (a) the
individual's completion of a Permissible Deferral election for
the succeeding Plan Years during an Enrollment Period, in
accordance with a form established by the Company from time to
time, and (b) compliance with such terms and conditions as the
Committee may from time to time establish for the implementation
of the Plan, including, but not limited to, any condition the
Committee may deem necessary or appropriate for the Company to
meet its obligations under the Plan.
Section 3.3. Termination of Participation. Once a Director
has become a Participant in the Plan, participation shall
continue until the first to occur of (a) payment in full of all
benefits to which the Participant or Beneficiary is entitled
under the Plan, or (b) the occurrence of an event specified in
Section 3.4 which results in loss of benefits. Except as
otherwise specified in the Plan, the Company may not terminate an
individual's participation in the Plan.
Section 3.4. Missing Persons. If the Company is unable to
locate the Participant or his Beneficiary for purposes of making
a distribution, the amount of a Participant's benefits under this
Plan that would otherwise be considered as non-forfeitable shall
be forfeited effective four (4) years after (a) the last date a
payment of said benefit was made, if at least one such payment
was made, or (b) the first date a payment of said benefit was
directed to be made by the Company pursuant to the terms of the
Plan, if no payments had been made. If such person is located
after the date of such forfeiture, the benefits for such
Participant or Beneficiary shall not be reinstated hereunder.
Section 3.5. Relationship to Other Plans. Participation in
the Plan shall not preclude participation of the Participant in
any other fringe benefit program or plan sponsored by an
Affiliate for which such Participant would otherwise be eligible.
ARTICLE 4. ENTRIES TO THE ACCOUNT.
Section 4.1. Deferrals. If the Participant elects the
fixed or variable crediting rate option for measuring the
performance of the Account under Section 4.2, the Company shall
post to the Account of each Participant on the date the
Director's Fees would otherwise be paid the amount of Director's
Fees to be deferred as designated by the Participant's
Permissible Deferral election in effect for that Plan Year. If
the Participant elects the Common Stock crediting rate option for
measuring the performance of the Account under Section 4.2, (a)
the Company shall post to the Account of such Participant a
number of Deferred Compensation Units equivalent to the amount of
Director's Fees to be deferred as designated by the Participant's
Permissible Deferral election in effect for than Plan Year; (b)
deferrals of Director's Fees (and the corresponding number of
Deferred Compensation Units) shall be posted as of the date the
Director's Fees would otherwise be paid the amount of Director's
Fees to be deferred; and (c) the number of Deferred Compensation
Units posted for each calendar month in which Director's Fees
would otherwise be paid the amount of Director's Fees to be
deferred shall be calculated by dividing: (i) the dollar amount
deferred during that month; by (ii) the Closing Price on the
first business day of the following calendar month.
Section 4.2. Crediting Rate. Gains or losses shall be
posted to the Account in accordance with the Participant's
irrevocable election of an investment option which will be a
reference for measuring the performance of the Account. The
Company intends to measure the performance of the Account in
accordance with the Participant's election but reserves the right
to do otherwise. The election shall be made concurrently with
the Permissible Deferral election. The Participant shall elect
one of the following investment options: (i) a fixed rate as
described in 4.2.1, (ii) a variable rate as described in 4.2.2,
or (iii) a Common Stock crediting rate as described in 4.2.3. A
separate irrevocable election shall be made for each Permissible
Deferral election.
Section 4.2.1. Fixed Rate. Except as specified
in Section 4.2.4, if a Participant elects a fixed rate,
the interest will be compounded on a daily basis and
posted to the Participant's Account per each pay period
at an effective annual yield equal to the rate of ten-
year United States Treasury notes. The rate will be
determined once each Plan Year and will be the rate in
effect as of April 30 of the year prior to the Plan
Year to which it applies, as published by Salomon
Brothers Inc., or any successor thereto, or as
determined by the Chief Financial Officer of the
Company.
Section 4.2.2. Variable Rate. Except as
specified in Section 4.2.4, if a Participant elects a
variable rate, the Participant's Account will be
credited or debited as if the Account balance were
invested in one or more funds selected by the Company
in the proportions elected by the Participant.
Statements will be provided on a quarterly basis.
Initially the funds will be from the Pruco Variable
Appreciable Life Insurance Contracts and include the
Common Stock Portfolio, the Aggressively Managed
Flexible Portfolio, the Conservatively Managed Flexible
Portfolio, the Money Market Portfolio, the Bond
Portfolio, the High Yield Bond Portfolio and the Real
Property Account. Participants may elect to have their
Accounts treated as if they were invested in one or
more of the funds selected, provided the election is in
at least ten percent (10%) increments of the Account.
Participants may change their measuring fund elections
up to four (4) times in any calendar year by giving the
Committee written notice of such change on a form
provided by the Company for that purpose. Upon receipt
of such notice, the Committee will effect the change
within two (2) business weeks. The Participant's
Account will be reduced by the annual administrative
charge set forth on Schedule A attached hereto, which
may be amended from time to time by the Committee.
Section 4.2.3. Common Stock Crediting Rate. If a
Participant elects the Common Stock crediting rate, the
Participant's Account will be valued as if his or her
Account were invested in shares of Common Stock equal
to the number of Deferred Compensation Units posted to
his or her Account. The value of a Participant's
Account will vary with the value of the Company's
Common Stock. The Participant's Account will be
credited, as of the applicable dividend payment date,
with additional Deferred Compensation Units equal in
value to any dividends declared on the Company's Common
Stock based on the number of Deferred Compensation
Units posted to the Participant's Account as of the
record date with respect to the declaration of such
dividend. As of any date of valuation, the value of a
Participant's Account will be equal to the value (at
the Closing Price on such date) of the number of shares
of Common Stock represented by the Deferred
Compensation Units credited to the Account as of that
date.
Section 4.2.4. Crediting for Smokers. The
crediting rate under Sections 4.2.1 and 4.2.2 for
Smokers shall be reduced by four tenths of one percent
(.4%) annually. The Committee may, in its discretion,
waive the reduction required by this Section 4.2.4 for
an individual classified as a Smoker with respect to a
Permissible Deferral election if the Committee receives
a request for such a waiver, on a form provided by the
Company for that purpose, from such individual which
certifies that he or she has not smoked a cigarette
within a twelve (12) month period ending on the date
such request is submitted. Such a request may be
submitted no sooner than twelve (12) months following
the date on which the Permissible Deferral was made.
ARTICLE 5. VESTING.
Participant deferrals are fully vested immediately.
ARTICLE 6. DISTRIBUTION OF BENEFITS.
Section 6.1. Time of Payment. Payments of benefits shall
be made by the Company upon the earliest to occur of the
following:
(a) the termination, voluntary or involuntary, of
the Participant as a Director;
(b) the Participant's death; or
(c) for Participants Age sixty-eight (68) or
older on the date on which they first become eligible
to participate in the Plan, Age 75.
Except as otherwise provided, benefit payments shall begin no
later that six (6) months after the occurrence of the event
described in the preceding sentence which results in benefit
distribution.
Section 6.2. Form of Benefits Upon Retirement or Attainment
of Age 75. For distributions made for reasons other than the
death of the Participant, payments from the Account shall be made
in accordance with the Standard Form of Benefit. However, the
Participant in the Plan Year prior to payment of benefits may
petition the Committee for, and the Committee may approve at such
time, one of the following forms of benefit:
(a) monthly payment over a five (5) year period; or
(b) a single distribution.
Except for single distributions, benefit payments shall be a
level amount for each twelve (12) month period calculated using
the balance in the Account at the beginning of the twelve (12)
month period and dividing it by the total periods remaining in
the entire payment period. The benefit payment shall be adjusted
each subsequent twelve (12) month period to reflect the Account
as of that time. The Account shall continue to be credited
during the payment period with gains and losses as provided in
Section 4.2.
Section 6.3. Deferral of Payment. A Participant may elect
at the time of each Permissible Deferral election to defer
commencement of the payment of benefits with respect to each
such Permissible Deferral election as follows:
(a) for Participants Age 65 or older on the date
on which they first become eligible to participate in
the Plan, commencement of benefits may be deferred
until the earlier of (i) five (5) years from the date
on which they retire or (ii) Age 75;
(b) for all other Participants, commencement of
benefits may be deferred until the earlier of (i) five
(5) years from the date on which they retire or (ii)
Age 70.
Notwithstanding the preceding sentence, if a Participant elects
to defer commencement of benefits pursuant to this Section 6.3,
but dies prior to the date on which benefits would commence under
such election, benefits shall begin no later than six (6) months
after the Participant's death.
Section 6.4. Death Benefits.
6.4.1. Death After Benefit Commencement. In the
event a Participant dies after commencement of
benefits, the remaining benefit payments, if any, shall
be paid to the Participant's Beneficiary in the same
manner such benefits would have been paid to the
Participant had the Participant survived. A
Beneficiary may petition the Committee for an
alternative method of payment. The Account shall be
credited from the date of the Participant's death at an
interest rate set by the Chief Financial Officer of the
Company in his discretion, which shall not be less than
the rate then payable on Investment Savings Accounts of
$1,000 or less at Commerce Bank of Kansas City,
Missouri, N.A., or any successor thereto.
6.4.2. Death Prior to Benefit Commencement. In
the event a Participant dies prior to the time benefits
commence, the Company shall pay a pre-retirement death
benefit to the Participant's Beneficiary equal to the
Participant's Account as of the date of the
Participant's death annuitized over a ten-year period
at an interest rate set by the Chief Financial Officer
of the Company in his discretion. The pre-retirement
death benefit shall be paid monthly for a ten-year
period. The Beneficiary may petition the Committee to
make a single sum distribution as an alternative
method of payment.
6.4.3. Marital Deduction. Any benefits which
become payable under this Article 6 to the surviving
spouse of a Participant shall be paid in a manner which
will qualify such benefits for a marital deduction in
the estate of a deceased Participant under the terms of
Section 2056 of the Code, and unless specifically
directed by a Participant to the contrary pursuant to
an effective beneficiary designation, any portion of a
Participant's death benefit payable to a surviving
spouse which remains unpaid at the death of such spouse
shall be paid to the spouse's estate.
6.4.4. Designation by Participant. Each Partici-
pant has the right to designate primary and contingent
Beneficiaries for death benefits payable under the
Plan. Such Beneficiaries may be individuals or trusts
for the benefit of individuals. A beneficiary
designation by a Participant shall be in writing on a
form acceptable to the Committee and shall only be
effective upon delivery to the Company. A beneficiary
designation may be revoked by a Participant at any time
by delivering to the Company either written notice of
revocation or a new beneficiary designation form. The
beneficiary designation form last delivered to the
Company prior to the death of a Participant shall
control.
6.4.5. Failure to Designate Beneficiary. In the
event there is no beneficiary designation on file with
the Company, or all Beneficiaries designated by a
Participant have predeceased the Participant, the
benefits payable by reason of the death of the
Participant shall be paid to the Participant's spouse,
if living; if the Participant does not leave a
surviving spouse, to the Participant's issue by right
of representation; or, if there are no such issue then
living, to the Participant's estate. In the event
there are benefits remaining unpaid at the death of a
sole Beneficiary and no successor Beneficiary has been
designated, either by the Participant or the
Participant's spouse pursuant to 6.4.3, the remaining
balance of such benefit shall be paid to the deceased
Beneficiary's estate; or, if the deceased Beneficiary
is one of multiple concurrent Beneficiaries, such
remaining benefits shall be paid proportionally to the
surviving Beneficiaries.
Section 6.5. Claims Procedure. The Committee shall notify
a Participant in writing within ninety (90) days of the
Participant's written application for benefits of his eligibility
or non-eligibility for benefits under the Plan. If the
Committee determines that a Participant is not eligible for
benefits or full benefits, the notice shall set forth (a) the
specific reasons for such denial, (b) a specific reference to the
provision of the Plan on which the denial is based, (c) a
description of any additional information or material necessary
for the claimant to perfect his claim, and a description of why
it is needed, and (d) an explanation of the Plan's claims review
procedure and other appropriate information as to the steps to be
taken if the Participant wishes to have his claim reviewed. If
the Committee determines that there are special circumstances
requiring additional time to make a decision, the Committee shall
notify the Participant of the special circumstances and the date
by which a decision is expected to be made, and may extend the
time for up to an additional 90-day period. If a Participant is
determined by the Committee to be not eligible for benefits, or
if the Participant believes that he is entitled to greater or
different benefits, he shall have the opportunity to have his
claim reviewed by the Committee by filing a petition for review
with the Committee within sixty (60) days after receipt by him of
the notice issued by the Committee. Said petition shall state
the specific reasons the Participant believes he is entitled to
benefits or greater or difference benefits. Within sixty (60)
days after receipt by the Committee of said petition, the
Committee shall afford the Participant (and his counsel, if any)
an opportunity to present his position to the Committee orally or
in writing, and said Participant (or his counsel) shall have the
right to review the pertinent documents, and the Committee shall
notify the Participant of its decision in writing within said
sixty (60) day period, stating specifically the basis of said
decision written in a manner calculated to be understood by the
Participant and the specific provisions of the Plan on which the
decision is based. If, because of the need for a hearing, the
sixty (60) day period is not sufficient, the decision may be
deferred for up to another sixty (60) day period at the election
of the Committee, but notice of this deferral shall be given to
the Participant.
Section 6.6. Alternate Forms of Benefit Distribution. Par-
ticipants, in the Plan Year prior to payment of benefits may
petition the Committee to request methods of benefit distribution
other than those provided pursuant to this Article 6.
Section 6.7. Distributions on Plan Termination. Notwith-
standing anything in this Article 6 to the contrary, if the Plan
is terminated, distributions shall be made in accordance with
Section 9.2.
ARTICLE 7. FUNDING
Section 7.1. Sources of Benefits. All benefits under the
Plan shall be paid when due by the Company out of its assets or
from an irrevocable trust established by the Company for that
purpose. The Company may, but shall have no obligations to, make
such advance provision for the payment of such benefit as the
Board may from time to time consider appropriate.
Section 7.2. No Claim on Specific Assets. No Participant
shall be deemed to have, by virtue of being a Participant in the
Plan, any claim on any specific assets of the Company such that
the Participant would be subject to income taxation on his
benefits under the Plan prior to distribution and the rights of
Participants and Beneficiaries to benefits to which they are
otherwise entitled under the Plan shall be those of an unsecured
general creditor of the Company.
ARTICLE 8. ADMINISTRATION AND FINANCES
Section 8.1. Administration. The Plan shall be
administered by the Committee. The Company shall bear all
administrative costs of the Plan other than those specifically
charged to a Participant or Beneficiary.
Section 8.2. Powers of Committee. In addition to the other
powers granted under the Plan, the Committee shall have all
powers necessary to administer the Plan, including, without
limitation, powers:
(a) to interpret the provisions of the Plan;
(b) to establish and revise the method of
accounting for the Plan and to maintain the Accounts;
and
(c) to establish rules for the administration of
the Plan and to prescribe any forms required to
administer the Plan.
Not in limitation, but in amplification of the foregoing and of
the authority conferred upon the Committee in Section 8.1, the
Company specifically intends that the Committee have the greatest
permissible discretion to construe the terms of the Plan and to
determine all questions concerning eligibility, participation and
benefits. Any such decision made by the Committee is intended to
be subject to the most deferential standard of judicial review.
Such standard of review is not to be effected by any real or
alleged conflict of interest on the part of the Company or any
member of the Committee.
Section 8.3. Actions of the Committee. Except as modified
by the Company, all determinations, interpretations, rules, and
decisions of the Committee shall be conclusive and binding upon
all persons having or claiming to have any interest or right
under the Plan.
Section 8.4. Delegation. The Committee, or any officer
designated by the Committee, shall have the power to delegate
specific duties and responsibilities to officers or other
employees of the Company or other individuals or entities. Any
delegation may be rescinded by the Committee at any time. Each
person or entity to whom a duty or responsibility has been
delegated shall be responsible for the exercise of such duty or
responsibility and shall not be responsible for any act or
failure to act of any other person or entity.
Section 8.5. Reports and Records. The Committee and those
to whom the Committee has delegated duties under the Plan shall
keep records of all their proceedings and actions and shall
maintain books of account, records, and other data as shall be
necessary for the proper administration of the Plan and for
compliance with applicable law.
ARTICLE 9. AMENDMENTS AND TERMINATION
Section 9.1. Amendments. The Company, by action of the
Board, may amend the Plan, in whole or in part, at any time and
from time to time. Any such amendment shall be filed with the
Plan documents. No amendment, however, may be effective to
eliminate or reduce the benefits of any retired Participant or
the Beneficiary of any deceased Participant then eligible for
benefits or the benefits, if any, in any active Participant's
Account immediately before the effective date of such amendment,
and each such Account will be credited to the date of such
amendment in accordance with Section 4.2. Notwithstanding
anything in this Section 9.1 to the contrary, the Committee may,
in its discretion, amend the Plan to reduce the rates set forth
in Section 4.2 for crediting the Accounts of active Participants
effective for crediting from the date of any such amendment.
Section 9.2. Termination. The Company expects the Plan to
be permanent, but necessarily must, and hereby does, reserve the
right to terminate the Plan at any time by written action of the
Board. In all events, the Plan will be terminated if the
existence of a trust causes a federal court to hold that the Plan
is "funded" for ERISA purposes, as defined in Section 2.02-4 of
the Trust, and appeals from that holding are no longer timely or
have been exhausted, and the trust is therefore terminated with
respect to the Plan. Upon termination of the Plan, all deferrals
will cease and no future deferrals will be made. Termination of
the Plan shall not operate to eliminate or reduce benefits of any
retired Participant or the Beneficiary of any deceased
Participant then eligible for benefits or the benefits, if any,
in any active Participant's Account immediately before the
effective date of such termination, and each such Account will be
credited, to the date of distribution of all benefits in such
Account, in accordance with Section 4.2, as it may be amended
from time to time pursuant to Section 9.1.
If the Plan shall at any time be terminated, payments from
the Accounts of all Participants and Beneficiaries shall be made
as soon as administratively convenient in the form of monthly
payments over a five (5) year period; however, the Committee in
its sole discretion may pay the benefits in a lump sum.
Notwithstanding the preceding sentence, if the termination occurs
because the Plan is held to be "funded" as described in the first
paragraph of this Section 9.2, the distribution will be paid in a
lump sum not later than ninety (90) days after such termination.
ARTICLE 10. MISCELLANEOUS
Section 10.1 No Guarantee of Membership. Neither the
adoption and maintenance of the Plan nor the execution by the
Company of a Permissible Deferral agreement with any Director
shall be deemed to be a contract between the Company and any
Participant to retain his or her position as a Director.
Section 10.2. Individual Account Plan. If it is determined
that the Plan is not an unfunded plan maintained primarily for a
select group of management or highly compensated employees as
described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA,
then the Plan is intended to be an individual account plan (other
than a money purchase plan) as described in Section 301(a)(8) of
ERISA.
Section 10.3. Release. Any payment of benefits to or for
the benefit of a Participant or a Participant's Beneficiaries
that is made in good faith by the Company in accordance with the
Company's interpretation of its obligations hereunder, shall be
in full satisfaction of all claims against the Company for
benefits under this Plan to the extent of such payment.
Section 10.4. Notices. Any notice permitted or required
under the Plan shall be in writing and shall be hand delivered or
sent, postage prepaid, certified or registered mail with return
receipt requested, to the principal office of the Company, if to
the Company, or to the address last shown on the records of the
Company, if to a Participant or Beneficiary. Any such notice
shall be effective as of the date of hand delivery or mailing.
Section 10.5. Non-Alienation. No benefit payable at any
time under this Plan shall be subject in any manner to
alienation, sale, transfer, assignment, pledge, levy, attachment,
or encumbrance of any kind.
Section 10.6. Tax Liability. The Company may direct the
trustee of the Trust to withhold from any payment of benefits
under the Plan such amounts as the Company determines are
reasonably necessary to pay any taxes (and interest thereon)
required to be withheld or for which the trustee of the Trust may
become liable under applicable law. The Company may also direct
the trustee of the Trust to forward to the appropriate taxing
authority any amounts required to be paid by the Company or the
Trust under the preceding sentence. Any amounts withheld
pursuant to this Section 10.6 in excess of the amount of taxes
due (and interest thereon) shall be paid to the Participant or
Beneficiary upon final determination, as determined by the
Company, of such amount. No interest shall be payable by the
Company to any Participant or Beneficiary by reason of any
amounts withheld pursuant to this Section 10.6.
Section 10.7. Captions. Article and section headings and
captions are provided for purposes of reference and convenience
only and shall not be relied upon in any way to construe, define,
modify, limit, or extend the scope of any provision of the Plan.
Section 10.8. Applicable Law. The Plan and all rights
hereunder shall be governed by and construed according to the
laws of the State of Missouri, except to the extent such laws are
preempted by the laws of the United States of America.
Schedule A - Annual Administrative Charges
Annual Administrative
Portfolio Gross Crediting Rate Charge
Up to 9.99% 1.40%
10.00% to 11.99% 1.00%
12.00% and above 0.00%
5
1000
3-MOS
APR-30-1995
JUL-31-1994
32054
339573
141459
12709
0
539486
167937
208090
917434
263807
0
1089
0
0
618156
917434
0
145400
0
150197
0
1168
461
(4797)
(1837)
(2960)
0
0
0
(2960)
(.03)
0
RECEIVABLES BALANCE IS NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
PP&E BALANCE IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
