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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 6, 2007
H&R BLOCK, INC.
(Exact name of registrant as specified in charter)
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Missouri
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1-6089
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44-0607856 |
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(State of Incorporation)
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(Commission File Number)
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(I.R.S. Employer
Identification Number) |
One H&R Block Way, Kansas City, MO 64105
(Address of Principal Executive Offices) (Zip Code)
(816) 854-3000
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 7.01. Regulation FD Disclosure
On September 6, 2007, H&R Block, Inc. (the Company) held its Annual Meeting of Shareholders (the
Annual Meeting) in Kansas City, Missouri. During the Annual Meeting, Mark Ernst, Chairman of the
Board, President and Chief Executive Officer of the Company, made a presentation. The prepared
remarks and related slides are furnished as Exhibit 99.1.
After the Annual Meeting, the Company issued the press release furnished as Exhibit 99.2.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
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Exhibit Number |
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Description |
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99.1
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Prepared Remarks and Slides for use at Annual Meeting on September 6, 2007. |
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99.2
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Press Release issued by the Company on September 6, 2007. |
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 hereunto duly authorized.
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H&R BLOCK, INC.
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Date: September 6, 2007 |
By: |
/s/ Bret G. Wilson
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Bret G. Wilson |
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Vice President and Secretary |
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EXHIBIT INDEX
99.1 |
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Prepared Remarks and Slides for use at Annual Meeting on September 6, 2007. |
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99.2 |
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Press Release issued by the Company on September 6, 2007. |
exv99w1
Exhibit 99.1
The
following are the remarks and related slides prepared for Mr. Ernst
for use at the Annual Meeting on September 6, 2007:
Forward Looking Statements:
This presentation and various comments made in connection with it include certain estimates,
projections and other forward-looking statements. The words will, plan, estimate,
approximate, project, intend, remain, expect, believe, and variations thereof and
similar expressions are intended to identify forward-looking statements. These statements speak
only as of the date on which they are made and are not guarantees of future performance. Actual
results may differ materially from those expressed, implied or forecast in the forward-looking
statements. Some factors that could cause actual results to differ include:
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The uncertainty that the company will achieve its revenue, earnings and earnings per
share expectations for the fiscal year 2008, or subsequent fiscal years, or any quarter
thereof, and that actual financial results for fiscal year 2008, or subsequent fiscal
years, or any quarter thereof, will fall within the guidance provided by the company |
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The uncertainty of the impact and effect of changes in the non-prime mortgage market
including changes in interest rates, loan origination volumes, levels of early payment
defaults, and secondary market pricing and liquidity |
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Uncertainties pertaining to the commercial paper market |
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Changes in economic, political, regulatory or competitive environments |
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Litigation involving H&R Block, Inc. and its affiliates |
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The uncertainty regarding the closing of the sale of Option One |
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The uncertainty of the companys ability to purchase shares of its common stock
pursuant to its Board of Directors repurchase authorization |
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Other risks described from time to time in H&R Blocks press releases and Forms 10-K,
Forms 10-Q, Forms 8-K and other filings with the Securities and Exchange Commission |
H&R Block undertakes no obligation to publicly release any revisions to forward-looking statements
to reflect events or expectations after the date of the presentation. H&R Block provides a detailed
discussion of risk factors in periodic SEC filings and you are encouraged to review these filings.
Remarks:
I want to take a couple of minutes to review our progress and the significant activities that
are affecting our company today.
[Slide 1 Business Priorities]
Much has been said about different views regarding the future for H&R Block. But frankly, I
believe that while there may be differences as to the best way to accomplish it, the goal that our
shareholders, our Board and our associates have is the same to ensure that H&R Block:
1. Focuses our resources on those parts of the market where we have and can maintain a clear
competitive advantage;
2. Competes in a responsible manner that helps build the quality of our brands;
3. Serves our target clients better than anyone else in the market; and
4. Does all this with an eye toward the efficient and disciplined creation of value for our
shareholders.
[Slide 2 Agenda]
As I will discuss momentarily, we have taken key actions in the past year including initiating
the sale of our mortgage operations, driving profitability in our financial advisory business and
narrowing our focus while seizing growth opportunities within Business Services that is, RSM
McGladrey.
Our core Tax Services business regained client growth momentum and experienced strong revenues
this past year. This was significantly aided by the successful debut of H&R Block Bank, which has
also allowed us to begin reforming the refund lending industry.
In considering the Companys performance, it is helpful to look at shareholder returns in the
right perspective.
[Slide 3 Option One Mortgage]
I really cant start without talking first about where we are with the sale process for Option
One. As you know, we entered into an agreement to sell this business back in April and have been
working toward the closing of that transaction. In that time, the U.S. subprime mortgage business
has become front page news across the United States and around the world. What was once the fastest
growing and most profitable part of the mortgage industry has given way to the most shunned and
feared part of the market. Our business consists of both an origination business and a loan
servicing business. This balance gives us value in Option One that many others dont have and we
continue to move toward a successful resolution of this sale.
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[Slide 4 Focus for H&R Block]
The disposition of Option One is part of a plan that we have been executing on for more than a
year to narrow the focus of H&R Block on our tax and accounting businesses and those related
financial services that give us a competitive advantage.
[Slide 5 RSM McGladrey]
In our accounting business, RSM McGladrey has clearly emerged as the leading firm serving
middle market clients in the United States. Today we are the fifth largest accounting firm in the
U.S. and have sustained strong double digit organic growth rates for a number of years. Our
combination of middle market client focus and growth culture have come together to position us for
success while our primary competitors fight for larger target clients.
This past year we took the additional steps to narrow our focus at McGladrey to those
businesses where we have a clear competitive advantage and the ability to realize strong operating
margins. Our focus is now on realizing strong returns on the capital invested into this business.
[Slide 6 U. S. Tax Market Segmentation]
Our tax business is really multiple businesses inside of our tax segment. While we are most
often associated with the retail tax offices, H&R Block has broadened its approach to the market
and now serves clients in multiple ways meeting distinctly different needs that the different
consumers have at tax time.
While there are various ways to see the market, our segmentation approach yields four distinct
types of consumers who we serve.
The Control segment includes those consumers who want to maintain control over their
financial matters personally. Our expanding software and online services under the TaxCut brand
meet their needs.
Expertise clients the largest segment of clients both in absolute terms and in the
revenues available represent a significant market and business opportunity for H&R Block. The
capabilities of our tax professionals position us to address this market.
What we describe as the Hybrid market are consumers whose needs arent well met by
either do-it-yourself or professionally assisted services. In todays market there isnt the right
blend of a little professional help with personal control over an individuals tax return
preparation and advice. While we already serve many of these consumers, we believe that the unique
capabilities of H&R Block leading digital consumer access through our TaxCut products linked with
H&R Blocks tax professionals can permit the creation and growth of a new generation of tax
service offerings from which our company can expand.
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If those represent the future growth in our digital business, expanded reach to
expertise-oriented clients and the blending of our capabilities to lead the market growth then
our service to early season clients represents an important part of our past, our present
and can be a solid part of our future. But, more on that later.
[Slide 7 H&R Block Tax Clients]
Focusing on all the segments of the market, we have seen the expansion of our brand the H&R
Block name attract more clients than ever before. Last tax season we served 22.9 million clients
worldwide, up a million from the prior year and an all-time high. The changing mix of our client
base is a story of a company changing to serve new segments while fighting to hold on to those
parts of the market in which we have long been the leader.
[Slide 8 Early-Filer Segment]
The part of the market that we have been fighting the most to hold onto is the early-season
filer and, in particular, clients seeking fast access to their tax refund amount, often through
Refund Anticipation Loans. This part of the tax market which represents 45% of those clients in
our retail office network is notably less loyal and driven by products and convenience more so
than the capabilities of our tax professionals.
Long the leader in the refund lending business, H&R Block has also had the most to lose in
this market. As refund lending has increased in cost and products have become commoditized, H&R
Block as the market leader has garnered the lions share of scrutiny around pricing and practices
in this part of the industry.
[Slide 9 Impact of Early Season Clients]
And we have worked diligently to move our company to a stronger position in the industry.
Starting in 2003 and 2004, we brought down the price of refund loans through the elimination of
certain add-on fees that remain a common industry practice for others today. We reduced our
promotional emphasis on this market segment as we sought to make the brand work for us more broadly
across other consumer segments.
In 2006, as we were settling long-standing litigation over this product line, our competitors
were actually introducing new high cost variations of loan products that we had refused to bring
into the market. Coming into this past year, we were clearly at a cross-roads when it came to this
important but highly competitive part of our business. We could follow the new forms of pricing and
product practices that were finding traction in the market, or we could act as the market leader
and set a standard for others to live up to. We chose the latter.
With proliferation of new early season loans, H&R Block set a standard with low-cost product
alternatives that others chose not to meet. We brought down the cost of refund anticipation loans
with our industry-leading 36% APR product and brought value
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to our clients with the introduction of the Emerald Card, a new way for clients to receive
their loan and refund proceeds.
By all metrics, these efforts were successful. We reversed the declines we had been
experiencing in our retail office business while continuing the growth in our other client
segments. Two million clients benefited from our Emerald Card. Our success with the Emerald Card
last year clearly demonstrated that, through H&R Block Bank, we can provide valuable new products
to our clients products which not only evidence our continuing innovative leadership, but also
are very difficult for our competitors to replicate
[Slide 10 Refund Lending Leadership 2008]
This brings us to the future. We have recently announced that for the coming tax season we
will extend the industry-leading 36% APR for classic refund anticipation loans to all our products.
We will expand on the successful launch of the Emerald Card to broaden its appeal and make it into
the competitive advantage that we know it can be for us. And, we have launched what we believe will
be an industry-shaping expansion of these products to make them available through our new
commercial markets group, allowing non-H&R Block members of the professional tax services industry
to bring these lower costs to their clients as well.
[Slide 11 2001 to 2006]
Which brings me to the creation of value from these efforts for our shareholders.
A year ago, our 5-year stock price performance chart looked like this, with H&R Block leading
both our industry peers and the overall market. But, starting points for these types of
measurements are important in determining how the comparisons look.
[Slide 12 2002 to 2007]
Fiscal 2002 was a very good year and since that time we have managed to simply keep even with
our peer group and, in the past two years, have under-performed the broader market. There is no
question that our participation in the subprime mortgage industry has been a drag on our relative
performance. The decision by your Board to pursue a disposition of Option One, while challenging in
todays environment, was the right judgment.
[Slide 13 Summary and Outlook]
The past year has seen the greatest amount of change in many years for H&R Block. We are
focusing the company on our tax, accounting, and related financial services businesses where we can
create clear competitive advantage in the market.
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We remain focused on managing through current volatile and fluid market conditions in mortgage
while reducing exposure to operating losses, as we work toward closing the sale of Option One.
We believe we are positioned for a very good season in retail tax fueled by solid execution
and industry-leading settlement products enabled by H&R Block Bank, complemented by further gains
on the digital side.
We expect our Consumer Financial Services profitability to more than double in fiscal 2008
versus last year as the bank continues to expand and build on its success and as Financial Advisors
further progresses against its business plan and strengthens profitability.
We look for continued strong performance in RSM McGladreys core accounting, tax, and
consulting services as our investment in brand drives new business opportunities.
[Slide 14 Conclusion]
In the coming year, we have several critically important things to get done. We have to:
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Finalize our exit from our Option One mortgage business; |
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Focus our resources on the ways that we can uniquely create real value for our
clients; and |
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Ensure that we are using our shareholders capital as effectively as possible. |
Slides:
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Business Priorities
Focus where we have clear competitive
advantage
Compete responsibly - build our brands
Deliver superior client service
Maintain disciplined capital allocation
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Agenda
Mortgage update
Seizing growth opportunities at RSM McGladrey
Tax Services
Continuing client growth momentum
Reforming the refund lending industry
A look at shareholder returns
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Option One Mortgage
April agreement to sell
Subprime mortgage market challenges
Working toward successful resolution
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Focus for H&R Block
Tax, Accounting
and Related
Financial Services
bank
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RSM McGladrey
Leading firm serving middle-market clients in
United States
Focus on tax, accounting and consulting
practices
FY08 focus: operating margin expansion
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U.S. Tax Market Segmentation
133 million total U.S. tax filers
H&R Block retail share
H&R Block digital share
Hybrid
10%
3%
27% of U.S. Tax Filers
Dispersed across
retail, CPAs,
digital and other
service platforms
13%
1%
9%
Expertise
32% of U.S. Tax Filers
Later-season
clients who have
more complex tax
situations
10%
5%
Control
22% of U.S. Tax Filers
6%
In the market
from late
November
throughout the
tax season
11%
Early Filer
29%
1%
19% of U.S. Tax Filers
Early-season
clients who
demand their
money fast
30%
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H&R Block Tax Clients
FY03 FY04 FY05 FY06 FY07
Retail 16.6 16.1 16 15.7 15.9
Digital 2.9 3.2 3 3.7 4.4
Int'l 2.2 2.3 2.3 2.5 2.6
21.7
21.6
21.4
21.9
22.9
In Millions
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Early-Filer Segment
Product innovation and
convenience drive
segment dynamics
Refund products have
become commoditized
Performance in early-
filer segment drives
Tax Services success
H&R Block retail share
H&R Block digital share
Early Filer
30%
29%
1%
19% of U.S. Tax
Filers
Early-filer clients represent 45% of H&R
Block retail office clients and are the least
loyal and hardest to retain
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Tax Clients In Millions
2003 2004 2005 2006 2007
Total Retail 16.6 16.1 16 15.7 15.9
Digital 2.9 3.2 3 3.7 4.4
International 2.2 2.3 2.3 2.5 2.6
21.7
21.6
21.4
21.9
22.9
Competitors
introduce high-
cost, early-
season loans
H&R Block
doesn't match
System administration
fees eliminated
Introduction of
H&R Block
Emerald Card
36% APR loans
and low-cost early
season loans
Impact of Early Season Clients
Loan Clients
4.6
4.2
4.2
4.1
4.2
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Refund Lending Leadership - 2008
Tax Season '08 Highlights
36% APR on RAL products for all
clients
Expansion of Emerald Card
features to broaden its appeal
Extension of H&R Block industry
leadership to independent tax
firms
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Summary and Outlook
We are focused on tax, accounting and related
financial services where we can create
competitive advantage
Managing through volatile mortgage market
while working toward closing the sale of Option
One
Tax Services is well positioned for a very good
season
Consumer Financial Services profitability
expected to double in FY08
Expect continued strong performance from
RSM McGladrey
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Conclusion
We have to:
Finalize our exit from Option One
Focus our resources on ways we can
uniquely create value for our clients
Ensure we are using shareholder capital as
effectively as possible
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exv99w2
Exhibit 99.2
News Release
For Further Information
Media Relations: Ron Iori, (816) 854-7502 ron.iori@hrblock.com
Investor Relations: Scott Dudley, (816) 854-4505, scott.dudley@hrblock.com
H&R BLOCK ANNOUNCES PRELIMINARY RESULTS
OF SHAREHOLDER VOTE
FOR IMMEDIATE RELEASE Sept. 6, 2007
KANSAS CITY, Mo. H&R Block Inc. (NYSE: HRB) announced that, based on preliminary
results from todays annual shareholder meeting, Richard C. Breeden, Robert A. Gerard and L. Edward
Shaw, Jr., have been elected to the companys board of directors.
If shareholders approve the boards previously announced proposal to eliminate its staggered
board structure, all directors will stand for re-election every year starting with the 2008 annual
meeting.
We look forward to the commitment and experience of our new directors to help achieve our
common goal of enhancing value for all H&R Block shareholders, said Mark Ernst, chairman and CEO
of H&R Block.
The company also said that preliminary results indicate that shareholders have voted to ratify
the appointment of KPMG LLP as the companys independent accountants for the fiscal year ending
April 30, 2008.
The company noted that its audit committee is in the process of determining the impact of the
election of the Breeden Partners nominees on KPMGs independence under the rules of the Securities
and Exchange Commission and the Public Company Accounting Oversight Board. The determination is
expected to be made as soon as possible.
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H&R Block/page 2
Finally, the company said preliminary results show the non-binding proposal made by the
AFL-CIO Reserve Fund asking the board to adopt a policy that an independent director serve as
chairman of the board has also passed. The board is expected to take this vote under advisement.
The company expects final vote results will be certified by IVS Associates, Inc., the
independent inspectors of election, within the next several weeks. The company will announce final
results when they are available.
About H&R Block
H&R Block Inc. (NYSE: HRB) is a leading provider of tax, accounting and related financial products
and services. H&R Block is the worlds largest tax services provider, having prepared more than 400
million tax returns since 1955. The company and its subsidiaries reported revenues of $4.0 billion
and net income from continuing operations of $374.3 million in fiscal year 2007. The company has
continuing operations in three principal business segments: Tax Services (income tax return
preparation and related services and products via in-office, online and software solutions);
Business Services (accounting, tax and business consulting services primarily for midsized
companies); and Consumer Financial Services (tax-related banking services along with brokerage
services, investment planning and related financial advice). Headquartered in Kansas City, Mo., H&R
Block markets its continuing services and products under two leading brands H&R Block and RSM
McGladrey. For more information visit our Online Press Center at www.hrblock.com.
Forward Looking Statements
This release may contain forward-looking statements, which are any statements that are not
historical facts. These forward-looking statements are based upon the current expectations of the
company, and there can be no assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties and speak only as of the date on which
they are made, the companys actual results could differ materially from these statements. These
risks and uncertainties relate to, among other things, the companys pending sale of Option One
Mortgage Corp. and uncertainty regarding its closing; the uncertainty of the impact and effect of
changes in the non-prime mortgage market including changes in interest rates, loan origination
volumes, levels of early payment defaults and secondary market pricing and liquidity; competitive
factors; regulatory capital requirements; uncertainties pertaining to the commercial paper market;
litigation; and changes in market, economic, political or regulatory conditions. Information
concerning these risks and uncertainties is contained in Item 1A of the companys 2007 annual
report on Form 10-K and in other filings by the company with the Securities and Exchange
Commission.
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