e10vq
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 31, 2009
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number 1-6089
H&R
Block, Inc.
(Exact name of registrant as
specified in its charter)
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MISSOURI
(State or other jurisdiction
of
incorporation or organization)
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44-0607856
(I.R.S. Employer
Identification No.)
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One
H&R Block Way
Kansas
City, Missouri 64105
(Address of principal executive
offices, including zip code)
(816) 854-3000
(Registrants 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 √
Ö No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes √
Ö No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer √
Ö
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes No √
Ö
The number of shares outstanding of the registrants Common
Stock, without par value, at the close of business on
August 31, 2009 was 335,306,120 shares.
Form 10-Q
for the Period Ended July 31, 2009
Table of
Contents
CONDENSED
CONSOLIDATED BALANCE
SHEETS (amounts
in 000s, except share and per share amounts)
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July 31,
2009
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April 30,
2009
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(Unaudited)
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ASSETS
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Cash and cash equivalents
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$
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1,006,303
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$
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1,654,663
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Cash and cash equivalents restricted
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46,639
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51,656
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Receivables, less allowance for doubtful accounts of $129,433
and $128,541
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379,177
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512,814
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Prepaid expenses and other current assets
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396,027
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351,947
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Total current assets
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1,828,146
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2,571,080
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Mortgage loans held for investment, less allowance for loan
losses of $91,691 and $84,073
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707,712
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744,899
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Property and equipment, at cost, less accumulated depreciation
and amortization of $643,978 and $625,075
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359,408
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368,289
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Intangible assets, net
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379,622
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385,998
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Goodwill
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852,018
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850,230
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Other assets
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418,856
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439,226
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Total assets
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$
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4,545,762
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$
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5,359,722
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities:
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Customer banking deposits
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$
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712,008
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$
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854,888
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Accounts payable, accrued expenses and other current liabilities
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648,470
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705,945
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Accrued salaries, wages and payroll taxes
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101,410
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259,698
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Accrued income taxes
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330,145
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543,967
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Current portion of long-term debt
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6,093
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8,782
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Federal Home Loan Bank borrowings
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25,000
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25,000
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Total current liabilities
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1,823,126
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2,398,280
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Long-term debt
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1,032,395
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1,032,122
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Federal Home Loan Bank borrowings
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75,000
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75,000
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Other noncurrent liabilities
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424,527
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448,461
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Total liabilities
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3,355,048
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3,953,863
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Commitments and contingencies
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Stockholders equity:
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Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, shares issued of 444,176,510
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4,442
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4,442
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Additional paid-in capital
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824,212
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836,477
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Accumulated other comprehensive income (loss)
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(2,849
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)
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(11,639
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)
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Retained earnings
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2,437,017
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2,671,437
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Less treasury shares, at cost
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(2,072,108
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)
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(2,094,858
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)
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Total stockholders equity
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1,190,714
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1,405,859
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Total liabilities and stockholders equity
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$
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4,545,762
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$
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5,359,722
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See Notes to
Condensed Consolidated Financial Statements
1
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CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
(Unaudited,
amounts in 000s,
except per share amounts)
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Three
Months Ended July 31,
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2009
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2008
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Revenues:
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Service revenues
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$
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247,985
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$
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240,720
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Interest income
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12,287
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17,847
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Product and other revenues
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15,233
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13,342
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275,505
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271,909
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Operating expenses:
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Cost of revenues
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386,450
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360,138
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Selling, general and administrative
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103,217
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123,386
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489,667
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483,524
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Operating loss
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(214,162
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(211,615
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Other income (expense), net
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3,289
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(1,355
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)
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Loss from continuing operations before tax benefit
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(210,873
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(212,970
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Income tax benefit
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(80,256
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(84,547
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Net loss from continuing operations
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(130,617
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(128,423
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Net loss from discontinued operations
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(3,017
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(4,296
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Net loss
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$
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(133,634
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$
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(132,719
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Basic and diluted loss per share:
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Net loss from continuing operations
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$
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(0.39
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)
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$
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(0.39
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)
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Net loss from discontinued operations
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(0.01
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)
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(0.02
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)
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Net loss
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$
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(0.40
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$
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(0.41
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)
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Basic and diluted shares
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334,533
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327,141
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Dividends paid per share
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$
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0.15
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$
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0.14
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Comprehensive income (loss):
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Net loss
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$
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(133,634
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)
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$
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(132,719
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)
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Change in unrealized gain on
available-for-sale
securities, net
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(747
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)
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(1,967
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)
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Change in foreign currency translation adjustments
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9,537
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314
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Comprehensive loss
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$
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(124,844
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)
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$
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(134,372
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)
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See Notes to
Condensed Consolidated Financial Statements
2
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(unaudited,
amounts in 000s)
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Three
Months Ended July 31,
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2009
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2008
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Net cash used in operating activities
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$
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(454,577
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)
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$
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(364,923
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)
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Cash flows from investing activities:
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Principal repayments on mortgage loans held for investment, net
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19,264
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31,619
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Purchases of property and equipment, net
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(8,760
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)
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(14,648
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)
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Other, net
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4,856
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(901
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)
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Net cash provided by investing activities
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15,360
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16,070
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Cash flows from financing activities:
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Repayments of Federal Home Loan Bank borrowings
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-
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(40,000
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)
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Proceeds from Federal Home Loan Bank borrowings
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-
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15,000
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Customer banking deposits, net
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(143,199
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)
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(8,795
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)
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Dividends paid
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(50,287
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)
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(46,790
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)
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Acquisition of treasury shares
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(3,483
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)
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(4,116
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)
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Proceeds from issuance of common stock, net
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6,651
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28,507
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Other, net
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(25,888
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)
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(14,387
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)
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Net cash used in financing activities
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(216,206
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)
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(70,581
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)
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|
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|
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Effects of exchange rates on cash
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7,063
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-
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Net decrease in cash and cash equivalents
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(648,360
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)
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|
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(419,434
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)
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Cash and cash equivalents at beginning of the period
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1,654,663
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664,897
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Cash and cash equivalents at end of the period
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$
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1,006,303
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$
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245,463
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Supplementary cash flow data:
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Income taxes paid
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$
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155,804
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$
|
83,111
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Interest paid on borrowings
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26,168
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27,258
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Interest paid on deposits
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1,318
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4,048
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Transfers of loans to foreclosed assets
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3,797
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53,469
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See Notes to
Condensed Consolidated Financial Statements
3
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NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(unaudited)
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1.
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Summary of
Significant Accounting Policies
|
Basis of
Presentation
The condensed consolidated balance sheet as of July 31,
2009, the condensed consolidated statements of operations and
comprehensive income (loss) for the three months ended
July 31, 2009 and 2008, and the condensed consolidated
statements of cash flows for the three months ended
July 31, 2009 and 2008 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, 2009 and for all periods presented
have been made.
H&R Block, the Company,
we, our and us are used
interchangeably to refer to H&R Block, Inc. or to H&R
Block, Inc. and its subsidiaries, as appropriate to the context.
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation. In addition, we
realigned our segments as discussed in note 12, and
accordingly restated segment disclosures in prior periods. These
changes had no effect on our results of operations or
stockholders equity as previously reported.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial
statements and notes thereto included in our April 30, 2009
Annual Report to Shareholders on
Form 10-K.
All amounts presented herein as of April 30, 2009 or for
the year then ended, are derived from our April 30, 2009
Annual Report to Shareholders on
Form 10-K.
We have evaluated subsequent events through September 4,
2009, the date of issuance of our condensed consolidated
financial statements.
Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
periods. Significant estimates, assumptions and judgments are
applied in the determination of our allowance for loan losses,
potential losses from loan repurchase and indemnity obligations
associated with our discontinued mortgage business, contingent
losses associated with pending litigation, fair value of
reporting units, reserves for uncertain tax positions and
related matters. We revise our estimates when facts and
circumstances dictate. However, future events and their effects
cannot be determined with absolute certainty. As such, actual
results could differ materially from those estimates.
Seasonality of
Business
Our operating revenues are seasonal in nature with peak revenues
occurring in the months of January through April. Therefore,
results for interim periods are not indicative of results to be
expected for the full year.
Concentrations of
Risk
Our mortgage loans held for investment include concentrations of
loans to borrowers in certain states, which may result in
increased exposure to loss as a result of changes in real estate
values and underlying economic or market conditions related to a
particular geographical location. Approximately 51% of our
mortgage loan portfolio consists of loans to borrowers located
in the states of Florida, California and New York.
RSM McGladrey, Inc. (RSM) and McGladrey & Pullen LLP
(M&P), an independent registered public accounting firm,
collaborate to provide accounting, tax and consulting services
to clients under an alternative practice structure. RSM and
M&P also share in certain common overhead costs through an
4
administrative services agreement. These services are provided
by, and coordinated through, RSM, for which RSM receives a
management fee. On July 21, 2009, M&P provided
210 days notice of its intent to terminate the
administrative services agreement. The effect of the notice will
be to terminate the alternative practice structure on
February 16, 2010, unless revoked or modified prior to that
time. RSM and M&P are engaged in arbitration to determine
several of their rights and responsibilities under their
contractual obligations to each other. An arbitration hearing is
scheduled for November 2009. RSM and M&P are also engaged
in negotiations to determine if there are mutually agreeable
changes to the current arrangements that would allow our
collaboration to continue. There are no assurances as to the
outcome.
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3.
|
Earnings (Loss)
Per Share and Stockholders Equity
|
Basic and diluted loss per share is computed using the two-class
method per FASB Staff Position
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP 03-6-1).
See note 13 for additional information. The two-class
method is an earnings allocation formula that determines net
income per share for each class of common stock and
participating security according to dividends declared and
participation rights in undistributed earnings. Per share
amounts are computed by dividing net income from continuing
operations attributable to common shareholders by the weighted
average shares outstanding during each period. The dilutive
effect of potential common shares is included in diluted
earnings per share except in those periods with a loss from
continuing operations. Diluted earnings per share excludes the
impact of shares of common stock issuable upon the lapse of
certain restrictions or the exercise of options to purchase
19.4 million shares and 25.7 million shares for the
three months ended July 31, 2009 and 2008, respectively, as
the effect would be antidilutive due to the net loss from
continuing operations during each period.
The computations of basic and diluted loss per share from
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
Net loss from continuing operations attributable to shareholders
|
|
$
|
(130,617
|
)
|
|
$
|
(128,423
|
)
|
Income allocated to participating securities (nonvested shares)
|
|
|
(367
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to common
shareholders
|
|
$
|
(130,984
|
)
|
|
$
|
(128,622
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
334,533
|
|
|
|
327,141
|
|
Potential dilutive shares from stock options and nonvested shares
|
|
|
-
|
|
|
|
-
|
|
Convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
|
|
|
334,533
|
|
|
|
327,141
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.39
|
)
|
|
$
|
(0.39
|
)
|
Diluted
|
|
|
(0.39
|
)
|
|
|
(0.39
|
)
|
|
|
The weighted average shares outstanding for the three months
ended July 31, 2009 increased to 334.5 million from
327.1 million for the three months ended July 31,
2008, primarily due to the issuance of shares of our common
stock in October 2008.
During the three months ended July 31, 2009 and 2008, we
issued 1.4 million and 2.3 million shares of common
stock, respectively, due to the exercise of stock options,
employee stock purchases and vesting of nonvested shares.
During the three months ended July 31, 2009, we acquired
0.2 million shares of our common stock at an aggregate cost
of $3.5 million, and during the three months ended
July 31, 2008, we acquired 0.2 million shares at an
aggregate cost of $4.1 million. Shares acquired during
these periods represented shares swapped or surrendered to us in
connection with the vesting of nonvested shares and the exercise
of stock options.
At July 31, 2009, we had accrued but unpaid dividends
totaling $50.5 million. This amount is included in accounts
payable, accrued expenses and other current liabilities on the
condensed consolidated balance sheet.
During the three months ended July 31, 2009, we granted
4.0 million stock options and 0.8 million nonvested
shares and units in accordance with our stock-based compensation
plans. The weighted average fair value of options granted was
$3.14 for management options and $2.70 for options granted to
5
our seasonal associates. Stock-based compensation expense of our
continuing operations totaled $7.3 million and
$4.5 million for the three months ended July 31, 2009
and 2008, respectively. At July 31, 2009, unrecognized
compensation cost for options totaled $17.0 million, and
for nonvested shares and units totaled $26.4 million.
|
|
4.
|
Mortgage Loans
Held for Investment and Related Assets
|
The composition of our mortgage loan portfolio as of
July 31, 2009 and April 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
July 31, 2009
|
|
|
April 30, 2009
|
|
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
|
|
Adjustable-rate loans
|
|
$
|
501,112
|
|
|
|
63
|
%
|
|
$
|
534,943
|
|
|
|
65
|
%
|
Fixed-rate loans
|
|
|
292,014
|
|
|
|
37
|
%
|
|
|
286,894
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
793,126
|
|
|
|
100
|
%
|
|
|
821,837
|
|
|
|
100
|
%
|
Unamortized deferred fees and costs
|
|
|
6,277
|
|
|
|
|
|
|
|
7,135
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(91,691
|
)
|
|
|
|
|
|
|
(84,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
707,712
|
|
|
|
|
|
|
$
|
744,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses for the three months
ended July 31, 2009 and 2008 is as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
|
Provision
|
|
|
13,600
|
|
|
|
14,991
|
|
|
|
Recoveries
|
|
|
28
|
|
|
|
-
|
|
|
|
Charge-offs
|
|
|
(6,010
|
)
|
|
|
(13,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
91,691
|
|
|
$
|
46,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our loan loss reserve as a percent of mortgage loans was 11.56%
at July 31, 2009, compared to 10.23% at April 30, 2009.
In cases where we modify a loan and in so doing grant a
concession to a borrower experiencing financial difficulty, the
modification is considered a troubled debt restructuring (TDR).
TDR loans totaled $161.6 million and $160.7 million at
July 31, 2009 and April 30, 2009, respectively. The
principal balance of impaired loans as of July 31, 2009 and
April 30, 2009 is as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2009
|
|
|
April 30,
2009
|
|
|
|
|
|
60 89 days
|
|
$
|
14,519
|
|
|
$
|
21,415
|
|
|
|
90+ days, non-accrual
|
|
|
148,603
|
|
|
|
121,685
|
|
|
|
TDR loans, accrual
|
|
|
90,275
|
|
|
|
60,044
|
|
|
|
TDR loans, non-accrual
|
|
|
71,295
|
|
|
|
100,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
324,692
|
|
|
$
|
303,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to our real estate owned is as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
44,533
|
|
|
$
|
350
|
|
|
|
Additions
|
|
|
3,797
|
|
|
|
53,469
|
|
|
|
Sales
|
|
|
(4,348
|
)
|
|
|
-
|
|
|
|
Writedowns
|
|
|
(1,241
|
)
|
|
|
(5,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
42,741
|
|
|
$
|
48,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
5.
|
Goodwill and
Intangible Assets
|
Changes in the carrying amount of goodwill for the three months
ended July 31, 2009 consist of the following:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2009
|
|
|
Additions
|
|
|
Impairment
|
|
|
Other
|
|
|
July 31,
2009
|
|
|
|
|
Tax Services
|
|
$
|
447,591
|
|
|
$
|
1,004
|
|
|
$
|
-
|
|
|
$
|
1,483
|
|
|
$
|
450,078
|
|
Business Services
|
|
|
402,639
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(699
|
)
|
|
|
401,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
850,230
|
|
|
$
|
1,004
|
|
|
$
|
-
|
|
|
$
|
784
|
|
|
$
|
852,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We test goodwill for impairment annually at the beginning of our
fourth quarter, or more frequently if events occur which could,
more likely than not, reduce the fair value of a reporting
units net assets below its carrying value.
We considered the July 21, 2009 notice by M&P of its
intent to terminate the administrative services agreement with
RSM to represent a significant change in circumstances requiring
an interim evaluation of the fair value of our RSM reporting
unit. Goodwill of this reporting unit totaled
$372.7 million at July 31, 2009. The net carrying
value of other intangible assets of RSM totaled
$96.0 million at July 31, 2009, including
$50.8 million for an indefinite-lived trade name asset. We
have concluded that, as of July 31, 2009, the fair value of
this reporting unit exceeds its carrying value and also that the
net carrying value of other intangible assets is recoverable.
Our conclusion is based on our current assumptions, including,
but not limited to, those listed below.
|
|
|
|
|
We have assumed that our noncompete rights are enforceable.
|
|
|
We have assumed that, more likely than not, RSM and M&P
will continue to collaborate; or, in the event of a separation,
RSM will successfully establish an alliance with other attest
firms.
|
|
|
We have assumed that ongoing negotiations between RSM and
M&P will not result in modifications of their relationship
that would be materially adverse to the financial interests of
RSM.
|
|
|
In the event of a separation, we have made various assumptions
concerning client retention and post-separation operating
margins.
|
|
|
In the event of a separation, we have assumed M&P would be
able to repay its indebtedness to RSM.
|
It is difficult to predict the outcome of the above matters,
including the outcome of mitigating factors that we are
currently pursuing. However, it is possible that changes in our
assumptions, based on future events or circumstances, could
result in changes in our fair value estimates and corresponding
impairment charges.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
July 31, 2009
|
|
|
April 30, 2009
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
Tax Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
54,907
|
|
|
$
|
(26,938
|
)
|
|
$
|
27,969
|
|
|
$
|
54,655
|
|
|
$
|
(25,267
|
)
|
|
$
|
29,388
|
|
Noncompete agreements
|
|
|
23,271
|
|
|
|
(21,272
|
)
|
|
|
1,999
|
|
|
|
23,263
|
|
|
|
(20,941
|
)
|
|
|
2,322
|
|
Reacquired franchise rights
|
|
|
229,438
|
|
|
|
(2,942
|
)
|
|
|
226,496
|
|
|
|
229,438
|
|
|
|
(1,838
|
)
|
|
|
227,600
|
|
Franchise agreements
|
|
|
19,201
|
|
|
|
(853
|
)
|
|
|
18,348
|
|
|
|
19,201
|
|
|
|
(533
|
)
|
|
|
18,668
|
|
Purchased technology
|
|
|
12,500
|
|
|
|
(4,730
|
)
|
|
|
7,770
|
|
|
|
12,500
|
|
|
|
(4,240
|
)
|
|
|
8,260
|
|
Trade name
|
|
|
1,325
|
|
|
|
(250
|
)
|
|
|
1,075
|
|
|
|
1,025
|
|
|
|
(217
|
)
|
|
|
808
|
|
Business Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
146,011
|
|
|
|
(113,408
|
)
|
|
|
32,603
|
|
|
|
146,040
|
|
|
|
(111,017
|
)
|
|
|
35,023
|
|
Noncompete agreements
|
|
|
33,061
|
|
|
|
(20,468
|
)
|
|
|
12,593
|
|
|
|
33,068
|
|
|
|
(19,908
|
)
|
|
|
13,160
|
|
Trade name amortizing
|
|
|
2,600
|
|
|
|
(2,600
|
)
|
|
|
-
|
|
|
|
2,600
|
|
|
|
(2,600
|
)
|
|
|
-
|
|
Trade name
non-amortizing
|
|
|
55,637
|
|
|
|
(4,868
|
)
|
|
|
50,769
|
|
|
|
55,637
|
|
|
|
(4,868
|
)
|
|
|
50,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
577,951
|
|
|
$
|
(198,329
|
)
|
|
$
|
379,622
|
|
|
$
|
577,427
|
|
|
$
|
(191,429
|
)
|
|
$
|
385,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets for the three months ended
July 31, 2009 and 2008 was $6.9 million and
$5.6 million, respectively. Estimated amortization of
intangible assets for fiscal years 2010 through 2014 is
$28.8 million, $26.5 million, $23.5 million,
$19.2 million and $15.8 million, respectively.
7
We file a consolidated federal income tax return in the United
States and file tax returns in various state and foreign
jurisdictions. Consolidated tax returns for the years 1999
through 2007 are currently under examination by the Internal
Revenue Service (IRS). Tax years prior to 1999 are closed by
statute. Historically, tax returns in various foreign and state
jurisdictions are examined and settled upon completion of the
exam.
During the three months ended July 31, 2009, we accrued an
additional $1.2 million of interest and penalties related
to our uncertain tax positions. We had unrecognized tax benefits
of $126.0 million and $124.6 million at July 31,
2009 and April 30, 2009, respectively. The unrecognized tax
benefits increased $1.4 million in the current year, due
primarily to positions related to prior years. We have
classified the liability for unrecognized tax benefits,
including corresponding accrued interest, as long-term at
July 31, 2009, which is included in other noncurrent
liabilities on the condensed consolidated balance sheet. Amounts
that we expect to pay, or for which statutes expire, within the
next twelve months have been included in accounts payable,
accrued expenses and other current liabilities on the condensed
consolidated balance sheet.
Based upon the expiration of statutes of limitations, payments
of tax and other factors in several jurisdictions, we believe it
is reasonably possible that the total amount of previously
unrecognized tax benefits may decrease by approximately
$18 million within twelve months of July 31, 2009.
|
|
7.
|
Interest Income
and Expense
|
The following table shows the components of interest income and
expense of our continuing operations:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
7,896
|
|
|
$
|
13,265
|
|
Other
|
|
|
4,391
|
|
|
|
4,582
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,287
|
|
|
$
|
17,847
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
18,957
|
|
|
$
|
18,172
|
|
Deposits
|
|
|
2,049
|
|
|
|
4,043
|
|
FHLB advances
|
|
|
509
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,515
|
|
|
$
|
23,543
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents for each hierarchy level the
financial assets that are measured at fair value on both a
recurring and non-recurring basis at July 31, 2009:
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
42,430
|
|
|
$
|
-
|
|
|
$
|
42,430
|
|
|
$
|
-
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired mortgage loans held for investment
|
|
|
248,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
290,959
|
|
|
$
|
-
|
|
|
$
|
42,430
|
|
|
$
|
248,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
6.4%
|
|
|
|
-%
|
|
|
|
0.9%
|
|
|
|
5.5%
|
|
|
|
There were no significant changes to the unobservable inputs
used in determining the fair values of our level 2 and
level 3 financial assets.
The carrying amounts and estimated fair values of our financial
instruments at July 31, 2009 are as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
707,712
|
|
|
$
|
549,497
|
|
|
|
IRAs and other time deposits
|
|
|
479,758
|
|
|
|
479,375
|
|
|
|
Long-term debt
|
|
|
1,038,488
|
|
|
|
1,064,855
|
|
|
|
|
|
8
|
|
9.
|
Regulatory
Requirements
|
H&R Block Bank (HRB Bank) files its regulatory Thrift
Financial Report (TFR) on a calendar quarter basis with the
Office of Thrift Supervision (OTS). The following table sets
forth HRB Banks regulatory capital requirements at
June 30, 2009, as calculated in the most recently filed TFR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
Capitalized
|
|
|
|
|
|
|
For Capital
Adequacy
|
|
|
Under Prompt
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Corrective Action
Provisions
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
Total risk-based capital
ratio(1)
|
|
$
|
142,490
|
|
|
|
21.9%
|
|
|
$
|
52,020
|
|
|
|
8.0%
|
|
|
$
|
65,025
|
|
|
|
10.0%
|
|
Tier 1 risk-based capital
ratio(2)
|
|
$
|
133,811
|
|
|
|
20.6%
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
39,015
|
|
|
|
6.0%
|
|
Tier 1 capital ratio
(leverage)(3)
|
|
$
|
133,811
|
|
|
|
13.6%
|
|
|
$
|
118,381
|
|
|
|
12.0%
|
|
|
$
|
49,325
|
|
|
|
5.0%
|
|
Tangible equity
ratio(4)
|
|
$
|
133,811
|
|
|
|
13.6%
|
|
|
$
|
14,798
|
|
|
|
1.5%
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
(1) |
|
Total
risk-based capital divided by risk-weighted assets.
|
(2) |
|
Tier 1
(core) capital less deduction for low-level recourse and
residual interest divided by risk-weighted assets.
|
(3) |
|
Tier 1
(core) capital divided by adjusted total assets.
|
(4) |
|
Tangible
capital divided by tangible assets.
|
As of July 31, 2009, HRB Banks leverage ratio was
13.8%.
|
|
10.
|
Commitments and
Contingencies
|
Changes in deferred revenue balances related to our Peace of
Mind (POM) program, the current portion of which is included in
accounts payable, accrued expenses and other current liabilities
and the long-term portion of which is included in other
noncurrent liabilities in the condensed consolidated balance
sheets, are as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
146,807
|
|
|
$
|
140,583
|
|
|
|
Amounts deferred for new guarantees issued
|
|
|
583
|
|
|
|
513
|
|
|
|
Revenue recognized on previous deferrals
|
|
|
(27,913
|
)
|
|
|
(27,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
119,477
|
|
|
$
|
113,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes certain of our other contractual
obligations and commitments:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
July 31,
2009
|
|
|
April 30,
2009
|
|
|
|
|
|
Franchise Equity Lines of Credit undrawn commitment
|
|
$
|
35,976
|
|
|
$
|
38,055
|
|
|
|
Contingent business acquisition obligations
|
|
|
24,504
|
|
|
|
24,165
|
|
|
|
Media advertising purchase obligation
|
|
|
45,768
|
|
|
|
45,768
|
|
|
|
|
|
We routinely enter into contracts that include embedded
indemnifications that have characteristics similar to
guarantees. Guarantees and indemnifications of the Company and
its subsidiaries include obligations to protect counterparties
from losses arising from the following: (1) tax, legal and
other risks related to the purchase or disposition of
businesses; (2) penalties and interest assessed by federal
and state taxing authorities in connection with tax returns
prepared for clients; (3) indemnification of our directors
and officers; and (4) third-party claims relating to
various arrangements in the normal course of business.
Typically, there is no stated maximum payment related to these
indemnifications, and the terms of the indemnities may vary and
in many cases are limited only by the applicable statute of
limitations. The likelihood of any claims being asserted against
us and the ultimate liability related to any such claims, if
any, is difficult to predict. While we cannot provide assurance
we will ultimately prevail in the event any such claims are
asserted, we believe the fair value of guarantees and
indemnifications relating to our continuing operations is not
material as of July 31, 2009.
9
Discontinued
Operations
Sand Canyon Corporation (SCC), formerly Option One Mortgage
Corporation, maintains recourse with respect to loans previously
sold or securitized under indemnification of loss provisions
relating to breach of representations and warranties made to
purchasers or insurers.
At July 31, 2009 and April 30, 2009, our loan
repurchase liability totaled $202.4 million and
$206.6 million, respectively. This liability is included in
accounts payable, accrued expenses and other current liabilities
on our consolidated balance sheets.
|
|
11.
|
Litigation and
Related Contingencies
|
We are party to investigations, legal claims and lawsuits
arising out of our business operations. We accrue our best
estimate of the probable loss upon resolution of such matters.
Amounts accrued, including obligations under indemnifications,
totaled $25.3 million and $27.9 million at
July 31, 2009 and April 30, 2009, respectively.
RAL Litigation
We have been named as a defendant in numerous lawsuits
throughout the country regarding our refund anticipation loan
programs (collectively, RAL Cases). The RAL Cases
have involved a variety of legal theories asserted by
plaintiffs. These theories include allegations that, among other
things: disclosures in the RAL applications were inadequate,
misleading and untimely; the RAL interest rates were usurious
and unconscionable; we did not disclose that we would receive
part of the finance charges paid by the customer for such loans;
untrue, misleading or deceptive statements in marketing RALs;
breach of state laws on credit service organizations; breach of
contract, unjust enrichment, unfair and deceptive acts or
practices; violations of the federal Racketeer Influenced and
Corrupt Organizations Act; violations of the federal Fair Debt
Collection Practices Act and unfair competition regarding debt
collection activities; and that we owe, and breached, a
fiduciary duty to our customers in connection with the RAL
program.
The amounts claimed in the RAL Cases have been very substantial
in some instances, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 (the
Texas RAL Settlement) and other settlements
resulting in a combined pretax expense in fiscal year 2006 of
$70.2 million.
We have settled all but one of the RAL Cases. The sole remaining
RAL Case is a putative class action entitled Sandra J.
Basile, et al. v. H&R Block, Inc., et al., April
Term 1992 Civil Action No. 3246 in the Court of Common
Pleas, First Judicial District Court of Pennsylvania,
Philadelphia County, instituted on April 23, 1993. In
Basile, the court decertified the class in December 2003,
and the Pennsylvania appellate court subsequently reversed the
trial courts decertification decision. In September 2006,
the Pennsylvania Supreme Court reversed the appellate
courts reversal of the trial courts decertification
decision. In June 2007, the appellate court affirmed its earlier
decision to reverse the trial courts decertification
decision. In June 2009, the Pennsylvania Supreme Court again
reversed the appellate courts reversal of the trial
courts decertification decision and remanded the case to
the appellate court for additional review. We believe we have
meritorious defenses to this case and we intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of this case or its impact on our financial statements.
Peace of Mind
Litigation
We are defendants in lawsuits regarding our Peace of Mind
program (collectively, the POM Cases), under which
our applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax
return preparation error. The POM Cases are described below.
Lorie J. Marshall, et al. v. H&R Block Tax
Services, Inc., et al., Case
No. 08-CV-591
in the U.S. District Court for the Southern District of
Illinois, is a class action case originally filed in the Circuit
Court of Madison County, Illinois on January 18, 2002, in
which class certification was granted in August 2003. The
plaintiffs allege that the sale of POM guarantees constitutes
(1) statutory fraud by selling insurance without a license,
(2) an unfair trade practice, by omission and by
cramming (i.e., charging customers for the guarantee
even though they did not request it or want it), and (3) a
breach of fiduciary duty. A class was certified consisting of
all persons residing in 13 states who from January 1,
1997 to final judgment (1) were charged a separate fee for
POM by H&R Block; (2) were charged a
separate fee for POM by an H&R Block entity not
licensed to sell insurance; or (3) had an unsolicited
charge for POM posted to their bills by H&R
Block. Persons who received the POM guarantee through an
H&R Block
10
Premium office were excluded from the plaintiff class. In August
2008, we removed the case from state court in Madison County,
Illinois to the U.S. District Court for the Southern
District of Illinois. In December 2008, the U.S. District
Court remanded the case back to state court. On April 3,
2009, the United States Court of Appeals for the Seventh Circuit
reversed the decision to remand the case back to state court,
ruling that the case had been properly removed to federal court.
The plaintiffs filed a petition for rehearing of this decision
with the Seventh Circuit, which was denied in August 2009.
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case is pending
before the same judge that presided over the Texas RAL
Settlement, involves the same plaintiffs attorneys that
are involved in the Marshall litigation in Illinois, and
contains allegations similar to those in the Marshall
case. No class has been certified in this case.
We believe we have meritorious defenses to the claims in the POM
Cases, and we intend to defend them vigorously. The amounts
claimed in the POM Cases are substantial, however, and there can
be no assurances as to the outcome of these pending actions
individually or in the aggregate.
Express IRA
Litigation
On March 15, 2006, the New York Attorney General filed a
lawsuit in the Supreme Court of the State of New York, County of
New York (Index No. 06/401110) entitled The People of
New York v. H&R Block, Inc. and H&R Block
Financial Advisors, Inc. et al. The complaint alleges
fraudulent business practices, deceptive acts and practices,
common law fraud and breach of fiduciary duty with respect to
the Express IRA product and seeks equitable relief, disgorgement
of profits, damages and restitution, civil penalties and
punitive damages. In July 2007, the Supreme Court of the State
of New York issued a ruling that dismissed all defendants other
than H&R Block Financial Advisors, Inc. (HRBFA) and the
claims of common law fraud. The intermediate appellate court
reversed this ruling in January 2009. We believe we have
meritorious defenses to the claims in this case and intend to
defend this case vigorously, but there are no assurances as to
its outcome.
On January 2, 2008, the Mississippi Attorney General filed
a lawsuit in the Chancery Court of Hinds County, Mississippi
First Judicial District (Case No. G 2008 6 S
2) entitled Jim Hood, Attorney for the State of
Mississippi v. H&R Block, Inc., et al. The
complaint alleges fraudulent business practices, deceptive acts
and practices, common law fraud and breach of fiduciary duty
with respect to the Express IRA product and seeks equitable
relief, disgorgement of profits, damages and restitution, civil
penalties and punitive damages. The defendants have filed a
motion to dismiss. We believe we have meritorious defenses to
the claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
In addition to the New York and Mississippi Attorney General
actions, a number of civil actions were filed against HRBFA and
us concerning the Express IRA product, the first of which was
filed on March 15, 2006. Except for two cases pending in
state court, all of the civil actions have been consolidated by
the panel for Multi-District Litigation into a single action
styled In re H&R Block, Inc. Express IRA Marketing
Litigation (Case
No. 06-1786-MD-RED)
in the United States District Court for the Western District of
Missouri. The amounts claimed in these cases are substantial. We
believe we have meritorious defenses to the claims in these
cases and intend to defend these cases vigorously, but there are
no assurances as to their outcome.
Although we sold HRBFA effective November 1, 2008, we
remain responsible for any liabilities relating to the Express
IRA litigation through an indemnification agreement.
Securities Litigation
On April 6, 2007, a putative class action styled In re
H&R Block Securities Litigation (Case
No. 06-0236-CV-W-ODS)
was filed against the Company and certain of its officers in the
United States District Court for the Western District of
Missouri. The complaint alleged, among other things, deceptive,
material and misleading financial statements and failure to
prepare financial statements in accordance with generally
accepted accounting principles. The complaint sought unspecified
damages and equitable relief. The court dismissed the complaint
in February 2008, and the plaintiffs appealed the dismissal in
March 2008. In addition, plaintiffs in a shareholder derivative
action that was consolidated into the securities litigation
filed a separate appeal in March 2008, contending that the
derivative action was improperly consolidated. The derivative
action is Iron Workers Local 16 Pension Fund v. H&R
Block, et al., in the United States
11
District Court for the Western District of Missouri, Case
No. 06-cv-00466-ODS
(instituted on June 8, 2006) and was brought against
certain of our directors and officers purportedly on behalf of
the Company. The derivative action alleged breach of fiduciary
duty, abuse of control, gross mismanagement, waste, and unjust
enrichment pertaining to (1) our restatement of financial
results in fiscal year 2006 due to errors in determining our
state effective income tax rate and (2) certain of our
products and business activities. We believe we have meritorious
defenses to the claims in these cases and intend to defend this
litigation vigorously. We currently do not believe that we will
incur a material loss with respect to this litigation.
RSM McGladrey
Litigation
RSM McGladrey Business Services, Inc. and certain of its
subsidiaries are parties to a class action filed on
July 11, 2006 and entitled Do Rights Plant
Growers, et al. v. RSM EquiCo, Inc., et al. Case
No. 06 CC00137, in the California Superior Court, Orange
County. The complaint contains allegations relating to business
valuation services provided by RSM EquiCo, Inc., including
allegations of fraud, negligent misrepresentation, breach of
contract, breach of implied covenant of good faith and fair
dealing, breach of fiduciary duty and unfair competition and
seeks unspecified damages, restitution and equitable relief. On
March 17, 2009, the court granted plaintiffs motion
for class certification on all claims. The class consists of all
RSM EquiCo U.S. clients who signed platform agreements and
for whom RSM EquiCo did not ultimately market their business for
sale. RSM EquiCo filed a writ petition for interlocutory appeal
of this certification ruling, which was denied. We intend to
defend this case vigorously. The amount claimed in this action
is substantial and could have a material adverse impact on our
consolidated results of operations. There can be no assurance
regarding the outcome of this matter.
RSM McGladrey, Inc. (RSM) has a relationship with certain public
accounting firms (collectively, the Attest Firms)
pursuant to which (1) some RSM employees are also partners
or employees of the Attest Firms, (2) many clients of the
Attest Firms are also RSM clients, and (3) our RSM
McGladrey brand is closely linked to the Attest Firms. The
Attest Firms are parties to claims and lawsuits (collectively,
Attest Firm Claims) arising in the normal course of
business. Judgments or settlements arising from Attest Firm
Claims exceeding the Attest Firms insurance coverage could
have a direct adverse effect on Attest Firm operations and could
impair RSMs ability to attract and retain clients and
quality professionals. For example, accounting and auditing
firms (including one of the Attest Firms) have become subject to
claims based on losses their clients suffered from investments
in investment funds managed by third-parties. Although RSM may
not have a direct liability for significant Attest Firm Claims,
such Attest Firm Claims could have a material adverse effect on
RSMs operations and impair the value of our investment in
RSM. There is no assurance regarding the outcome of the Attest
Firm Claims.
Litigation and
Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated
and the loan servicing business was sold during fiscal year
2008, SCC remains subject to investigations, claims and lawsuits
pertaining to its loan origination and servicing activities that
occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state
attorneys general, other state regulators, municipalities,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others alleged to be similarly situated.
Among other things, these investigations, claims and lawsuits
allege discriminatory or unfair and deceptive loan origination
and servicing practices, public nuisance, fraud, and violations
of the Truth in Lending Act, Equal Credit Opportunity Act and
the Fair Housing Act. In the current non-prime mortgage
environment, the number of these investigations, claims and
lawsuits has increased over historical experience and is likely
to continue at increased levels. The amounts claimed in these
investigations, claims and lawsuits are substantial in some
instances, and the ultimate resulting liability is difficult to
predict. In the event of unfavorable outcomes, the amounts SCC
may be required to pay in the discharge of liabilities or
settlements could be substantial and, because SCCs
operating results are included in our consolidated financial
statements, could have a material adverse impact on our
consolidated results of operations.
On June 3, 2008, the Massachusetts Attorney General filed a
lawsuit in the Superior Court of Suffolk County, Massachusetts
(Case
No. 08-2474-BLS)
entitled Commonwealth of Massachusetts v. H&R
Block, Inc., et al., alleging unfair, deceptive and
discriminatory origination and servicing of mortgage loans and
seeking equitable relief, disgorgement of profits, restitution
and statutory penalties. In November
12
2008, the court granted a preliminary injunction limiting the
ability of the owner of SCCs former loan servicing
business to initiate or advance foreclosure actions against
certain loans originated by SCC or its subsidiaries without
(1) advance notice to the Massachusetts Attorney General
and (2) if the Attorney General objects to foreclosure,
approval by the court. The preliminary injunction generally
applies to loans meeting all of the following four
characteristics: (1) adjustable rate mortgages with an
introductory period of three years or less; (2) the
borrower has a debt-to-income ratio generally exceeding
50 percent; (3) an introductory interest rate at least
2 percent lower than the fully indexed rate (unless the
debt-to-income ratio is 55% or greater); and
(4) loan-to-value ratio of 97 percent or certain
prepayment penalties. We have appealed this preliminary
injunction. We believe the claims in this case are without
merit, and we intend to defend this case vigorously, but there
are no assurances as to its outcome.
SCC also remains subject to potential claims for indemnification
and loan repurchases pertaining to loans previously sold. In the
current non-prime mortgage environment, it is likely that the
frequency of repurchase and indemnification claims may increase
over historical experience and give rise to additional
litigation. In some instances, H&R Block, Inc. was required
to guarantee SCCs obligations. The amounts involved in
these potential claims may be substantial, and the ultimate
resulting liability is difficult to predict. Because SCCs
operating results are included in our consolidated financial
statements, the amounts SCC may be required to pay in the
discharge or settlement of these claims in the event of
unfavorable outcomes could have a material adverse impact on our
consolidated results of operations.
Other Claims and
Litigation
We are from time to time party to investigations, claims and
lawsuits not discussed herein arising out of our business
operations. These investigations, claims and lawsuits include
actions by state attorneys general, other state regulators,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others similarly situated. Some of these
investigations, claims and lawsuits pertain to RALs, the
electronic filing of customers income tax returns, the POM
guarantee program, wage and hour claims and investment products.
We believe we have meritorious defenses to each of these
investigations, claims and lawsuits, and we are defending or
intend to defend them vigorously. The amounts claimed in these
matters are substantial in some instances, however the ultimate
liability with respect to such matters is difficult to predict.
In the event of an unfavorable outcome, the amounts we may be
required to pay in the discharge of liabilities or settlements
could be material.
In addition to the aforementioned types of matters, we are party
to claims and lawsuits that we consider to be ordinary, routine
litigation incidental to our business, including claims and
lawsuits (collectively, Other Claims) concerning the
preparation of customers income tax returns, the fees
charged customers for various products and services,
relationships with franchisees, intellectual property disputes,
employment matters and contract disputes. While we cannot
provide assurance that we will ultimately prevail in each
instance, we believe the amount, if any, we are required to pay
in the discharge of liabilities or settlements in these Other
Claims will not have a material adverse effect on our
consolidated operating results, financial position or cash flows.
13
Results of our continuing operations by reportable operating
segment are as follows:
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
87,963
|
|
|
$
|
81,700
|
|
Business Services
|
|
|
177,618
|
|
|
|
174,651
|
|
Corporate
|
|
|
9,924
|
|
|
|
15,558
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
275,505
|
|
|
$
|
271,909
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
(171,974
|
)
|
|
$
|
(163,657
|
)
|
Business Services
|
|
|
1,321
|
|
|
|
(295
|
)
|
Corporate
|
|
|
(40,220
|
)
|
|
|
(49,018
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
$
|
(210,873
|
)
|
|
$
|
(212,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effective May 1, 2009, we realigned certain segments of our
business to reflect a new management reporting structure. The
operations of HRB Bank, which was previously reported as the
Consumer Financial Services segment, have now been reclassified,
with activities that support our retail tax network included in
the Tax Services segment, and the net interest margin and gains
and losses relating to our portfolio of mortgage loans held for
investment and related assets included in corporate.
Presentation of prior period results reflects the new segment
reporting structure.
These segment changes also resulted in the shifting of assets
between segments. Identifiable assets by reportable segment at
July 31, 2009 were as follows:
|
|
|
|
|
(in
000s)
|
|
|
|
|
Tax Services
|
|
$
|
1,794,754
|
|
Business Services
|
|
|
829,772
|
|
Corporate
|
|
|
1,921,236
|
|
|
|
|
|
|
|
|
$
|
4,545,762
|
|
|
|
|
|
|
|
|
|
|
13.
|
Accounting
Pronouncements
|
In June 2009, Statement of Financial Accounting Standards
No. 167, Amendments to FASB Interpretation
No. 46(R) (SFAS 167) was issued.
SFAS 167 changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled
through voting, or similar rights, should be consolidated. The
determination of whether a reporting entity is required to
consolidate another entity is based on, among other things, the
other entitys purpose and design and the reporting
entitys ability to direct the activities of the other
entity that most significantly impact the other entitys
economic performance. SFAS 167 will require a reporting
entity to provide additional disclosures about its involvement
with variable interest entities and any significant changes in
risk exposure due to that involvement. SFAS 167 will be
effective for our fiscal year 2011. We are currently evaluating
the effect of this statement on our consolidated financial
statements.
In June 2009, Statement of Financial Accounting Standards
No. 166, Accounting for Transfers of Financial
Assets (SFAS 166), was issued. SFAS 166 is a
revision to FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and will require more disclosure about
transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the
concept of a qualifying special purpose entity, changes the
requirements for derecognizing financial assets. SFAS 166
will be effective at the start of our fiscal year 2011. We are
currently evaluating the effect of this statement on its
consolidated financial statements.
In May 2009, Statement of Financial Accounting Standards
No. 165, Subsequent Events
(SFAS 165) was issued. SFAS 165 establishes
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued.
SFAS 165 is effective for fiscal years and interim periods
ending after June 15, 2009 and is
14
applied prospectively. We adopted the new disclosure
requirements in the condensed consolidated financial statements
effective July 31, 2009. See note 1 for the related
disclosure.
In December 2007, Statement of Financial Accounting Standards
No. 141(R), Business Combinations,
(SFAS 141R), and Statement of Financial Accounting
Standards No. 160, Non-Controlling Interests in
Consolidated Financial Statements An Amendment of
ARB No. 51 (SFAS 160) were issued. These
standards require an acquiring entity to recognize all the
assets acquired and liabilities assumed in a transaction,
including non-controlling interests, at the acquisition-date
fair value with limited exceptions. SFAS 141R will require
acquisition-related expenses to be expensed and will generally
require contingent consideration to be recorded as a liability
at the time of acquisition. Under SFAS 141R, subsequent
changes to deferred tax valuation allowances relating to
acquired businesses and acquired liabilities for uncertain tax
positions will no longer be applied to goodwill but will instead
be typically recognized as an adjustment to income tax expense.
We adopted the provisions of these standards as of May 1,
2009. The adoption of SFAS 141R and SFAS 160 did not
have a material impact on our consolidated financial statements.
In June 2008,
FSP 03-6-1
was
issued. FSP 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, should be included in the process of allocating
earnings for purposes of computing earnings per share. We
adopted the provisions of
FSP 03-6-1
as of May 1, 2009. The adoption and retrospective
application of the provisions of
FSP 03-6-1
did not change the current year or prior period earnings per
share amounts for the fiscal quarter. The adoption of this
standard will reduce earnings per share as previously reported
for fiscal year 2009 by $0.01. See additional discussion in
note 3.
|
|
14.
|
Condensed
Consolidating Financial Statements
|
Block Financial LLC (BFC) is an indirect, wholly-owned
consolidated subsidiary of the Company. BFC is the Issuer and
the Company is the Guarantor of the Senior Notes issued on
January 11, 2008 and October 26, 2004, our unsecured
committed lines of credit (CLOCs) and other indebtedness issued
from time to time. These condensed consolidating financial
statements have been prepared using the equity method of
accounting. Earnings of subsidiaries are, therefore, reflected
in the Companys investment in subsidiaries account. The
elimination entries eliminate investments in subsidiaries,
related stockholders equity and other intercompany
balances and transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Income Statements
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
23,196
|
|
|
$
|
252,365
|
|
|
$
|
(56
|
)
|
|
$
|
275,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
45,560
|
|
|
|
340,890
|
|
|
|
-
|
|
|
|
386,450
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
2,498
|
|
|
|
100,775
|
|
|
|
(56
|
)
|
|
|
103,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
48,058
|
|
|
|
441,665
|
|
|
|
(56
|
)
|
|
|
489,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
-
|
|
|
|
(24,862
|
)
|
|
|
(189,300
|
)
|
|
|
-
|
|
|
|
(214,162
|
)
|
Other income (expense), net
|
|
|
(210,873
|
)
|
|
|
(1,233
|
)
|
|
|
4,522
|
|
|
|
210,873
|
|
|
|
3,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
(210,873
|
)
|
|
|
(26,095
|
)
|
|
|
(184,778
|
)
|
|
|
210,873
|
|
|
|
(210,873
|
)
|
Income taxes (benefit)
|
|
|
(80,256
|
)
|
|
|
(10,692
|
)
|
|
|
(69,564
|
)
|
|
|
80,256
|
|
|
|
(80,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(130,617
|
)
|
|
|
(15,403
|
)
|
|
|
(115,214
|
)
|
|
|
130,617
|
|
|
|
(130,617
|
)
|
Net loss from discontinued operations
|
|
|
(3,017
|
)
|
|
|
(3,017
|
)
|
|
|
-
|
|
|
|
3,017
|
|
|
|
(3,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(133,634
|
)
|
|
$
|
(18,420
|
)
|
|
$
|
(115,214
|
)
|
|
$
|
133,634
|
|
|
$
|
(133,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
20,775
|
|
|
$
|
252,572
|
|
|
$
|
(1,438
|
)
|
|
$
|
271,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
39,362
|
|
|
|
320,772
|
|
|
|
4
|
|
|
|
360,138
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
19,396
|
|
|
|
104,083
|
|
|
|
(93
|
)
|
|
|
123,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
58,758
|
|
|
|
424,855
|
|
|
|
(89
|
)
|
|
|
483,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
-
|
|
|
|
(37,983
|
)
|
|
|
(172,283
|
)
|
|
|
(1,349
|
)
|
|
|
(211,615
|
)
|
Other income, net
|
|
|
(212,970
|
)
|
|
|
(4,350
|
)
|
|
|
2,995
|
|
|
|
212,970
|
|
|
|
(1,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
|
(212,970
|
)
|
|
|
(42,333
|
)
|
|
|
(169,288
|
)
|
|
|
211,621
|
|
|
|
(212,970
|
)
|
Income tax benefit
|
|
|
(84,547
|
)
|
|
|
(16,438
|
)
|
|
|
(67,535
|
)
|
|
|
83,973
|
|
|
|
(84,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(128,423
|
)
|
|
|
(25,895
|
)
|
|
|
(101,753
|
)
|
|
|
127,648
|
|
|
|
(128,423
|
)
|
Net loss from discontinued operations
|
|
|
(4,296
|
)
|
|
|
(5,071
|
)
|
|
|
-
|
|
|
|
5,071
|
|
|
|
(4,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(132,719
|
)
|
|
$
|
(30,966
|
)
|
|
$
|
(101,753
|
)
|
|
$
|
132,719
|
|
|
$
|
(132,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Balance Sheets
|
|
|
(in 000s)
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31,
2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R
Block
|
|
|
|
Cash & cash equivalents
|
|
$
|
-
|
|
|
$
|
122,895
|
|
|
$
|
883,968
|
|
|
$
|
(560
|
)
|
|
$
|
1,006,303
|
|
Cash & cash equivalents restricted
|
|
|
-
|
|
|
|
355
|
|
|
|
46,284
|
|
|
|
-
|
|
|
|
46,639
|
|
Receivables, net
|
|
|
1,110
|
|
|
|
109,803
|
|
|
|
268,264
|
|
|
|
-
|
|
|
|
379,177
|
|
Mortgage loans held for investment
|
|
|
-
|
|
|
|
707,712
|
|
|
|
-
|
|
|
|
-
|
|
|
|
707,712
|
|
Intangible assets and goodwill, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,231,640
|
|
|
|
-
|
|
|
|
1,231,640
|
|
Investments in subsidiaries
|
|
|
3,055,015
|
|
|
|
-
|
|
|
|
185
|
|
|
|
(3,055,015
|
)
|
|
|
185
|
|
Other assets
|
|
|
-
|
|
|
|
317,877
|
|
|
|
856,229
|
|
|
|
-
|
|
|
|
1,174,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,056,125
|
|
|
$
|
1,258,642
|
|
|
$
|
3,286,570
|
|
|
$
|
(3,055,575
|
)
|
|
$
|
4,545,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
-
|
|
|
$
|
712,568
|
|
|
$
|
-
|
|
|
$
|
(560
|
)
|
|
$
|
712,008
|
|
Long-term debt
|
|
|
-
|
|
|
|
998,335
|
|
|
|
34,060
|
|
|
|
-
|
|
|
|
1,032,395
|
|
FHLB borrowings
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Other liabilities
|
|
|
50,500
|
|
|
|
124,914
|
|
|
|
1,335,231
|
|
|
|
-
|
|
|
|
1,510,645
|
|
Net intercompany advances
|
|
|
1,814,911
|
|
|
|
(811,975
|
)
|
|
|
(1,002,936
|
)
|
|
|
-
|
|
|
|
-
|
|
Stockholders equity
|
|
|
1,190,714
|
|
|
|
134,800
|
|
|
|
2,920,215
|
|
|
|
(3,055,015
|
)
|
|
|
1,190,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,056,125
|
|
|
$
|
1,258,642
|
|
|
$
|
3,286,570
|
|
|
$
|
(3,055,575
|
)
|
|
$
|
4,545,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
April 30, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Cash & cash equivalents
|
|
$
|
-
|
|
|
$
|
241,350
|
|
|
$
|
1,419,535
|
|
|
$
|
(6,222
|
)
|
|
$
|
1,654,663
|
|
Cash & cash equivalents restricted
|
|
|
-
|
|
|
|
4,303
|
|
|
|
47,353
|
|
|
|
-
|
|
|
|
51,656
|
|
Receivables, net
|
|
|
38
|
|
|
|
114,442
|
|
|
|
398,334
|
|
|
|
-
|
|
|
|
512,814
|
|
Mortgage loans held for investment
|
|
|
-
|
|
|
|
744,899
|
|
|
|
-
|
|
|
|
-
|
|
|
|
744,899
|
|
Intangible assets and goodwill, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,236,228
|
|
|
|
-
|
|
|
|
1,236,228
|
|
Investments in subsidiaries
|
|
|
3,289,435
|
|
|
|
-
|
|
|
|
194
|
|
|
|
(3,289,435
|
)
|
|
|
194
|
|
Other assets
|
|
|
-
|
|
|
|
308,481
|
|
|
|
850,787
|
|
|
|
-
|
|
|
|
1,159,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,289,473
|
|
|
$
|
1,413,475
|
|
|
$
|
3,952,431
|
|
|
$
|
(3,295,657
|
)
|
|
$
|
5,359,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
-
|
|
|
$
|
861,110
|
|
|
$
|
-
|
|
|
$
|
(6,222
|
)
|
|
$
|
854,888
|
|
Long-term debt
|
|
|
-
|
|
|
|
998,245
|
|
|
|
33,877
|
|
|
|
-
|
|
|
|
1,032,122
|
|
FHLB borrowings
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Other liabilities
|
|
|
2
|
|
|
|
130,362
|
|
|
|
1,836,477
|
|
|
|
12
|
|
|
|
1,966,853
|
|
Net intercompany advances
|
|
|
1,883,612
|
|
|
|
(827,453
|
)
|
|
|
(1,056,147
|
)
|
|
|
(12
|
)
|
|
|
-
|
|
Stockholders equity
|
|
|
1,405,859
|
|
|
|
151,211
|
|
|
|
3,138,224
|
|
|
|
(3,289,435
|
)
|
|
|
1,405,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,289,473
|
|
|
$
|
1,413,475
|
|
|
$
|
3,952,431
|
|
|
$
|
(3,295,657
|
)
|
|
$
|
5,359,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statements of Cash Flows
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Net cash used in operating activities:
|
|
$
|
868
|
|
|
$
|
(4,881
|
)
|
|
$
|
(450,564
|
)
|
|
$
|
-
|
|
|
$
|
(454,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for investment, net
|
|
|
-
|
|
|
|
19,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,264
|
|
Purchase property & equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,760
|
)
|
|
|
-
|
|
|
|
(8,760
|
)
|
Net intercompany advances
|
|
|
45,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,536
|
)
|
|
|
-
|
|
Other, net
|
|
|
-
|
|
|
|
6,803
|
|
|
|
(1,947
|
)
|
|
|
-
|
|
|
|
4,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
45,536
|
|
|
|
26,067
|
|
|
|
(10,707
|
)
|
|
|
(45,536
|
)
|
|
|
15,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer banking deposits
|
|
|
-
|
|
|
|
(148,861
|
)
|
|
|
-
|
|
|
|
5,662
|
|
|
|
(143,199
|
)
|
Dividends paid
|
|
|
(50,287
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,287
|
)
|
Acquisition of treasury shares
|
|
|
(3,483
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,483
|
)
|
Proceeds from issuance of common stock, net
|
|
|
6,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,651
|
|
Net intercompany advances
|
|
|
-
|
|
|
|
18,058
|
|
|
|
(63,594
|
)
|
|
|
45,536
|
|
|
|
-
|
|
Other, net
|
|
|
715
|
|
|
|
(8,838
|
)
|
|
|
(17,765
|
)
|
|
|
-
|
|
|
|
(25,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
(46,404
|
)
|
|
|
(139,641
|
)
|
|
|
(81,359
|
)
|
|
|
51,198
|
|
|
|
(216,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
-
|
|
|
|
-
|
|
|
|
7,063
|
|
|
|
-
|
|
|
|
7,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
-
|
|
|
|
(118,455
|
)
|
|
|
(535,567
|
)
|
|
|
5,662
|
|
|
|
(648,360
|
)
|
Cash beginning of period
|
|
|
-
|
|
|
|
241,350
|
|
|
|
1,419,535
|
|
|
|
(6,222
|
)
|
|
|
1,654,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
-
|
|
|
$
|
122,895
|
|
|
$
|
883,968
|
|
|
$
|
(560
|
)
|
|
$
|
1,006,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
(11,615
|
)
|
|
$
|
58,425
|
|
|
$
|
(411,733
|
)
|
|
$
|
-
|
|
|
$
|
(364,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for investment, net
|
|
|
-
|
|
|
|
31,619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,619
|
|
Purchase property & equipment
|
|
|
-
|
|
|
|
(186
|
)
|
|
|
(14,462
|
)
|
|
|
-
|
|
|
|
(14,648
|
)
|
Net intercompany advances
|
|
|
29,630
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(29,630
|
)
|
|
|
-
|
|
Other, net
|
|
|
-
|
|
|
|
1,365
|
|
|
|
(2,266
|
)
|
|
|
-
|
|
|
|
(901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
29,630
|
|
|
|
32,798
|
|
|
|
(16,728
|
)
|
|
|
(29,630
|
)
|
|
|
16,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of FHLB borrowings
|
|
|
-
|
|
|
|
(40,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,000
|
)
|
Proceeds from FHLB borrowings
|
|
|
-
|
|
|
|
15,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
Customer banking deposits
|
|
|
-
|
|
|
|
(8,964
|
)
|
|
|
-
|
|
|
|
169
|
|
|
|
(8,795
|
)
|
Dividends paid
|
|
|
(46,790
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(46,790
|
)
|
Acquisition of treasury shares
|
|
|
(4,116
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,116
|
)
|
Proceeds from issuance of common stock, net
|
|
|
28,507
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,507
|
|
Net intercompany advances
|
|
|
-
|
|
|
|
(50,203
|
)
|
|
|
20,573
|
|
|
|
29,630
|
|
|
|
-
|
|
Other, net
|
|
|
4,384
|
|
|
|
(3,828
|
)
|
|
|
(14,943
|
)
|
|
|
-
|
|
|
|
(14,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(18,015
|
)
|
|
|
(87,995
|
)
|
|
|
5,630
|
|
|
|
29,799
|
|
|
|
(70,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
-
|
|
|
|
3,228
|
|
|
|
(422,831
|
)
|
|
|
169
|
|
|
|
(419,434
|
)
|
Cash beginning of period
|
|
|
-
|
|
|
|
34,611
|
|
|
|
630,933
|
|
|
|
(647
|
)
|
|
|
664,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
-
|
|
|
$
|
37,839
|
|
|
$
|
208,102
|
|
|
$
|
(478
|
)
|
|
$
|
245,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
ITEM 2. |
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
RESULTS OF
OPERATIONS
H&R Block provides tax services, banking services and
business and consulting services. Our Tax Services segment
provides income tax return preparation services, electronic
filing services and other services and products related to
income tax return preparation to the general public primarily in
the United States, Canada and Australia. This segment also
offers The H&R Block Prepaid Emerald
MasterCard®
and Emerald Advance lines of credit through H&R Block Bank
(HRB Bank), which was previously reported in our Consumer
Financial Services segment. Our Business Services segment
consists of RSM McGladrey, Inc. (RSM), a national accounting,
tax and business consulting firm primarily serving mid-sized
businesses. Corporate operating losses include interest income
from U.S. passive investments, interest expense on
borrowings, net interest margin and gains or losses relating to
mortgage loans held for investment, real estate owned, residual
interests in securitizations and other corporate expenses,
principally related to finance, legal and other support
departments. All periods presented reflect our new segment
reporting structure.
Recent
Events. RSM and McGladrey & Pullen LLP
(M&P), an independent registered public accounting firm,
collaborate to provide accounting, tax and consulting services
to clients under an alternative practice structure. RSM and
M&P also share in certain common overhead costs through an
administrative services agreement. These services are provided
by, and coordinated through, RSM, for which RSM receives a
management fee. On July 21, 2009, M&P provided
210 days notice of its intent to terminate the
administrative services agreement. The effect of the notice will
be to terminate the alternative practice structure on
February 16, 2010, unless revoked or modified prior to that
time. RSM and M&P are engaged in arbitration to determine
several of their rights and responsibilities under their
contractual obligations to each other. An arbitration hearing is
scheduled for November 2009. RSM and M&P are also engaged
in negotiations to determine if there are mutually agreeable
changes to the current arrangements that would allow our
collaboration to continue. There are no assurances as to the
outcome.
TAX
SERVICES
This segment primarily consists of our income tax preparation
businesses retail, online and software.
Additionally, this segment includes the product offerings and
activities of HRB Bank that primarily support the tax network,
our participations in refund anticipation loans, and our
commercial tax businesses, which provide tax preparation
software to CPAs and other tax preparers.
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
Three Months Ended
July 31,
|
|
2009
|
|
|
2008
|
|
|
|
Tax preparation fees
|
|
$
|
33,625
|
|
|
$
|
29,432
|
|
Fees from Peace of Mind guarantees
|
|
|
27,913
|
|
|
|
27,241
|
|
Fees from Emerald Card activities
|
|
|
11,691
|
|
|
|
10,893
|
|
Royalties
|
|
|
3,607
|
|
|
|
3,684
|
|
Other
|
|
|
11,127
|
|
|
|
10,450
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
87,963
|
|
|
|
81,700
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits:
|
|
|
|
|
|
|
|
|
Field wages
|
|
|
39,379
|
|
|
|
39,819
|
|
Corporate wages
|
|
|
29,880
|
|
|
|
28,810
|
|
Benefits and other compensation
|
|
|
21,316
|
|
|
|
13,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,575
|
|
|
|
82,532
|
|
Occupancy and equipment
|
|
|
87,920
|
|
|
|
86,056
|
|
Depreciation and amortization
|
|
|
22,316
|
|
|
|
17,110
|
|
Marketing and advertising
|
|
|
6,839
|
|
|
|
5,544
|
|
Other
|
|
|
52,287
|
|
|
|
54,115
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
259,937
|
|
|
|
245,357
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(171,974
|
)
|
|
$
|
(163,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
18
Three months
ended July 31, 2009 compared to July 31,
2008
Tax Services revenues increased $6.3 million, or
7.7%, for the three months ended July 31, 2009 compared to
the prior year. Tax preparation fees increased
$4.2 million, or 14.2%, primarily due to favorable results
in our Australian tax operations.
Total expenses increased $14.6 million, or 5.9%, for the
three months ended July 31, 2009. Approximately
$9 million of this increase was the result of the November
2008 acquisition of our last major independent franchise
operator, which includes approximately $2 million of
amortization due to higher intangible asset balances and
additional pre-season expenses. Benefits and other compensation
increased $7.4 million, or 53.3%, primarily as a result of
severance costs and related payroll taxes in the current year.
The pretax loss for the three months ended July 31, 2009
and 2008 was $172.0 million and $163.7 million,
respectively.
BUSINESS
SERVICES
This segment offers accounting, tax and consulting services to
middle-market companies.
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
Three Months Ended
July 31,
|
|
2009
|
|
|
2008
|
|
|
|
Tax services
|
|
$
|
77,584
|
|
|
$
|
76,301
|
|
Business consulting
|
|
|
61,921
|
|
|
|
53,508
|
|
Accounting services
|
|
|
11,529
|
|
|
|
12,960
|
|
Capital markets
|
|
|
1,517
|
|
|
|
5,818
|
|
Reimbursed expenses
|
|
|
4,149
|
|
|
|
4,205
|
|
Other
|
|
|
20,918
|
|
|
|
21,859
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
177,618
|
|
|
|
174,651
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
134,380
|
|
|
|
122,908
|
|
Occupancy
|
|
|
19,449
|
|
|
|
19,834
|
|
Amortization of intangible assets
|
|
|
2,965
|
|
|
|
3,419
|
|
Other
|
|
|
19,503
|
|
|
|
28,785
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
176,297
|
|
|
|
174,946
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
1,321
|
|
|
$
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended July 31, 2009 compared to July 31,
2008
Business Services revenues for the three months ended
July 31, 2009 increased $3.0 million, or 1.7% from the
prior year. Revenues from core tax, consulting and accounting
services increased $8.3 million, or 5.8%, over the prior
year primarily due to revenues from consulting engagements
related to financial institutions.
Capital markets revenues decreased $4.3 million, or 73.9%,
primarily due to a 72.7% decline in the number of transactions
closed in the current year due to the continued weak economic
conditions. Given the continued limited availability of
financing for acquisitions in the middle-market, our capital
markets revenues may continue to fall below our expectations,
which could lead us to consider impairment of the
$29.3 million carrying value of goodwill related to our
capital markets business.
Total expenses increased $1.4 million, or 0.8%, from the
prior year. Compensation and benefits increased
$11.5 million, or 9.3%, primarily due to increases in
managing director compensation and outside contractor costs
related to consulting engagements. Other expenses decreased
$9.3 million primarily as a result of our cost reduction
program.
Pretax income for the three months ended July 31, 2009 was
$1.3 million compared to a loss of $0.3 million in the
prior year.
CORPORATE,
ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
Corporate operating losses include interest income from
U.S. passive investments, interest expense on borrowings,
net interest margin and gains or losses relating to mortgage
loans held for investment, real estate
19
owned, residual interests in securitizations and other corporate
expenses, principally related to finance, legal and other
support departments.
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operating Results
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2009
|
|
|
2008
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
$
|
7,896
|
|
|
$
|
13,265
|
|
Other investments
|
|
|
824
|
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,720
|
|
|
|
14,359
|
|
Other
|
|
|
1,204
|
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
9,924
|
|
|
|
15,558
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Borrowings HRB Bank
|
|
|
2,011
|
|
|
|
5,125
|
|
Borrowings Corporate
|
|
|
17,647
|
|
|
|
17,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,658
|
|
|
|
22,742
|
|
Provision for loan losses
|
|
|
13,600
|
|
|
|
14,991
|
|
Compensation and benefits
|
|
|
13,301
|
|
|
|
12,748
|
|
Other
|
|
|
3,585
|
|
|
|
14,095
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
50,144
|
|
|
|
64,576
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(40,220
|
)
|
|
$
|
(49,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended July 31, 2009 compared to July 31,
2008
Interest income earned on mortgage loans held for investment
decreased $5.4 million from the prior year, primarily as a
result of declining rates and non-performing loans. Other
expenses declined $10.5 million due to impairments of
residual interests totaling $5.0 million recorded in the
prior year, coupled with a $4.2 million decline in
impairments of real estate owned.
Income Taxes
Our effective tax rate for continuing operations was 38.1% and
39.7% for the three months ended July 31, 2009 and 2008,
respectively. Our effective tax rate declined from the prior
year due to non-deductible losses from investments in
company-owned life insurance assets recorded in the first fiscal
quarter of last year. We expect our effective tax rate for full
fiscal year 2010 to be approximately 40%.
Mortgage Loans Held
for Investment
Mortgage loans held for investment include loans originated by
our affiliate, Sand Canyon Corporation (SCC), and purchased by
HRB Bank totaling $514.3 million, or approximately 65% of
the total loan portfolio at July 31, 2009. We have
experienced higher rates of delinquency and have greater
exposure to loss with respect to this segment of our loan
portfolio. Our remaining loan portfolio totaled
$278.9 million and is characteristic of a prime loan
portfolio, and we believe subject to a lower loss exposure.
Detail of our mortgage loans held for investment and the related
allowance at July 31, 2009 and April 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
Outstanding
|
|
|
Loan Loss
|
|
|
%30+Days
|
|
|
|
Principal
Balance
|
|
|
Allowance
|
|
|
Past
Due
|
|
|
|
As of July 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
514,267
|
|
|
$
|
85,644
|
|
|
|
32.55
|
%
|
All other
|
|
|
278,859
|
|
|
|
6,047
|
|
|
|
6.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
793,126
|
|
|
$
|
91,691
|
|
|
|
23.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
531,233
|
|
|
$
|
78,067
|
|
|
|
28.74
|
%
|
All other
|
|
|
290,604
|
|
|
|
6,006
|
|
|
|
4.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
821,837
|
|
|
$
|
84,073
|
|
|
|
20.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
We recorded a provision for loan losses of $13.6 million
during the current quarter, compared to $15.0 million in
the prior year. Our allowance for loan losses as a percent of
mortgage loans was 11.56%, or $91.7 million, at
July 31, 2009, compared to 10.23%, or $84.1 million, at
April 30, 2009. This allowance represents our best estimate
of credit losses inherent in the loan portfolio as of the
balance sheet dates.
Our non-performing assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of
|
|
July 31,
2009
|
|
|
April 30,
2009
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
60 89 days
|
|
$
|
14,519
|
|
|
$
|
21,415
|
|
90+ days, non-accrual
|
|
|
148,603
|
|
|
|
121,685
|
|
TDR loans, accrual
|
|
|
90,275
|
|
|
|
60,044
|
|
TDR loans, non-accrual
|
|
|
71,295
|
|
|
|
100,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,692
|
|
|
|
303,841
|
|
Real estate
owned(1)
|
|
|
42,741
|
|
|
|
44,533
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
367,433
|
|
|
$
|
348,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes
loans accounted for as in-substance foreclosures of
$23.5 million and $27.4 million at July 31, 2009
and April 30, 2009, respectively.
|
FINANCIAL
CONDITION
These comments should be read in conjunction with the condensed
consolidated balance sheets and condensed consolidated
statements of cash flows found on pages 1 and 3, respectively.
CAPITAL RESOURCES
AND LIQUIDITY Our sources of capital
include cash from operations, issuances of common stock and
debt. We use capital primarily to fund working capital, pay
dividends, repurchase treasury shares and acquire businesses.
Our operations are highly seasonal and therefore generally
require the use of cash to fund operating losses during the
period May through mid-January.
Given the likely availability of a number of liquidity options
discussed herein, including borrowing capacity under our
unsecured committed lines of credit (CLOCs), we believe, that in
the absence of any unexpected developments, our existing sources
of capital at July 31, 2009 are sufficient to meet our
operating needs.
CASH FROM
OPERATING ACTIVITIES Cash used by
operations totaled $454.6 million for the first three
months of fiscal year 2010, compared with $364.9 million
for the same period last year. The increase was primarily due to
increases in income tax payments made during the quarter.
CASH FROM
INVESTING ACTIVITIES Cash provided by
investing activities totaled $15.4 million for the first
three months of fiscal year 2010, compared to $16.1 million
for the same period last year.
Mortgage Loans
Held for Investment. We received net payments of
$19.3 million and $31.6 million on our mortgage loans
held for investment for the first three months of fiscal years
2010 and 2009, respectively. Cash payments declined due
primarily due to non-performing loans and continued run-off of
our portfolio.
Purchases of
Property and Equipment. Total cash paid for property
and equipment was $8.8 million and $14.6 million for
the first three months of fiscal years 2010 and 2009,
respectively.
CASH FROM
FINANCING ACTIVITIES Cash used in
financing activities totaled $216.2 million for the first
three months of fiscal year 2010, compared to $70.6 million
for the same period last year.
Customer Banking
Deposits. Customer banking deposits used cash of
$143.2 million for the three months ended July 31,
2009 compared to $8.8 million in the prior year, due to
declines in prepaid debit card deposits.
Dividends.
We have consistently paid quarterly dividends. Dividends paid
totaled $50.3 million and $46.8 million for the three
months ended July 31, 2009 and 2008, respectively.
Issuances of
Common Stock. Proceeds from the issuance of common
stock resulting from stock compensation plans totaled
$6.7 million and $28.5 million for the three months
ended July 31, 2009 and 2008, respectively. This decline is
due to a reduction in stock option exercises and the related tax
benefits.
BORROWINGS
At July 31, 2009, we maintained $2.0 billion in
revolving credit facilities to support commercial paper issuance
and for general corporate purposes. These CLOCs, and outstanding
borrowings thereunder, have a maturity date of August 2010 and
an annual facility fee in a range of six to fifteen basis points
per annum, based on our
21
credit ratings. We had no balance outstanding as of
July 31, 2009. The CLOCs, among other things, require we
maintain at least $650.0 million of net worth on the last
day of any fiscal quarter. We had net worth of $1.2 billion
at July 31, 2009.
Aurora Bank, FSB (Aurora), formerly known as Lehman Brothers
Bank, FSB, is a participating lender in our $2.0 billion
CLOCs, with a $50.0 million credit commitment. In September
2008, Auroras parent company declared bankruptcy. Since
then, Aurora has not honored any funding requests under these
facilities, thereby effectively reducing our available liquidity
under our CLOCs to $1.95 billion. We do not expect this
change to have a material impact on our liquidity.
There have been no material changes in our borrowings or debt
ratings from those reported at April 30, 2009 in our Annual
Report on
Form 10-K.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual
obligations and commercial commitments from those reported at
April 30, 2009 in our Annual Report on
Form 10-K.
REGULATORY
ENVIRONMENT
There have been no material changes in our regulatory
environment from those reported at April 30, 2009 in our
Annual Report on
Form 10-K.
FORWARD-LOOKING
INFORMATION
This report and other documents filed with the Securities and
Exchange Commission (SEC) may contain forward-looking
statements. In addition, our senior management may make
forward-looking statements orally to analysts, investors, the
media and others. Forward-looking statements can be identified
by the fact that they do not relate strictly to historical or
current facts. They often include words such as
expects, anticipates,
intends, plans, believes,
seeks, estimates, will,
would, should, could or
may. Forward-looking statements provide
managements current expectations or predictions of future
conditions, events or results. They may include projections of
revenues, income, earnings per share, capital expenditures,
dividends, liquidity, capital structure or other financial
items, descriptions of managements plans or objectives for
future operations, products or services, or descriptions of
assumptions underlying any of the above. They are not guarantees
of future performance. By their nature, forward-looking
statements are subject to risks and uncertainties. These
statements speak only as of the date made and management does
not undertake to update them to reflect changes or events
occurring after that date except as required by federal
securities laws.
There have been no material changes in our market risks from
those reported at April 30, 2009 in our Annual Report on
Form 10-K.
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this
Form 10-Q,
we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures. The controls evaluation
was done under the supervision and with the participation of
management, including our Chief Executive Officer and Chief
Financial Officer. Based on this evaluation, we have concluded
that our disclosure controls and procedures were effective as of
the end of the period covered by this Quarterly Report on
Form 10-Q.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes that materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
22
The information below should be read in conjunction with the
information included in note 11 to our condensed
consolidated financial statements.
RAL Litigation
We have been named as a defendant in numerous lawsuits
throughout the country regarding our refund anticipation loan
programs (collectively, RAL Cases). The RAL Cases
have involved a variety of legal theories asserted by
plaintiffs. These theories include allegations that, among other
things: disclosures in the RAL applications were inadequate,
misleading and untimely; the RAL interest rates were usurious
and unconscionable; we did not disclose that we would receive
part of the finance charges paid by the customer for such loans;
untrue, misleading or deceptive statements in marketing RALs;
breach of state laws on credit service organizations; breach of
contract, unjust enrichment, unfair and deceptive acts or
practices; violations of the federal Racketeer Influenced and
Corrupt Organizations Act; violations of the federal Fair Debt
Collection Practices Act and unfair competition regarding debt
collection activities; and that we owe, and breached, a
fiduciary duty to our customers in connection with the RAL
program.
The amounts claimed in the RAL Cases have been very substantial
in some instances, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 (the
Texas RAL Settlement) and other settlements
resulting in a combined pretax expense in fiscal year 2006 of
$70.2 million.
We have settled all but one of the RAL Cases. The sole remaining
RAL Case is a putative class action entitled Sandra J.
Basile, et al. v. H&R Block, Inc., et al., April
Term 1992 Civil Action No. 3246 in the Court of Common
Pleas, First Judicial District Court of Pennsylvania,
Philadelphia County, instituted on April 23, 1993. In
Basile, the court decertified the class in December 2003,
and the Pennsylvania appellate court subsequently reversed the
trial courts decertification decision. In September 2006,
the Pennsylvania Supreme Court reversed the appellate
courts reversal of the trial courts decertification
decision. In June 2007, the appellate court affirmed its earlier
decision to reverse the trial courts decertification
decision. In June 2009, the Pennsylvania Supreme Court again
reversed the appellate courts reversal of the trial
courts decertification decision and remanded the case to
the appellate court for additional review. We believe we have
meritorious defenses to this case and we intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of this case or its impact on our financial statements.
Peace of Mind
Litigation
We are defendants in lawsuits regarding our Peace of Mind
program (collectively, the POM Cases), under which
our applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax
return preparation error. The POM Cases are described below.
Lorie J. Marshall, et al. v. H&R Block Tax
Services, Inc., et al., Case
No. 08-CV-591
in the U.S. District Court for the Southern District of
Illinois, is a class action case originally filed in the Circuit
Court of Madison County, Illinois on January 18, 2002, in
which class certification was granted in August 2003. The
plaintiffs allege that the sale of POM guarantees constitutes
(1) statutory fraud by selling insurance without a license,
(2) an unfair trade practice, by omission and by
cramming (i.e., charging customers for the guarantee
even though they did not request it or want it), and (3) a
breach of fiduciary duty. A class was certified consisting of
all persons residing in 13 states who from January 1,
1997 to final judgment (1) were charged a separate fee for
POM by H&R Block; (2) were charged a
separate fee for POM by an H&R Block entity not
licensed to sell insurance; or (3) had an unsolicited
charge for POM posted to their bills by H&R
Block. Persons who received the POM guarantee through an
H&R Block Premium office were excluded from the plaintiff
class. In August 2008, we removed the case from state court in
Madison County, Illinois to the U.S. District Court for the
Southern District of Illinois. In December 2008, the
U.S. District Court remanded the case back to state court.
On April 3, 2009, the United States Court of Appeals for
the Seventh Circuit reversed the decision to remand the case
back to state court, ruling that the case had been properly
removed to federal court. The plaintiffs filed a petition for
rehearing of this decision with the Seventh Circuit, which was
denied in August 2009.
23
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case is pending
before the same judge that presided over the Texas RAL
Settlement, involves the same plaintiffs attorneys that
are involved in the Marshall litigation in Illinois, and
contains allegations similar to those in the Marshall
case. No class has been certified in this case.
We believe we have meritorious defenses to the claims in the POM
Cases, and we intend to defend them vigorously. The amounts
claimed in the POM Cases are substantial, however, and there can
be no assurances as to the outcome of these pending actions
individually or in the aggregate.
Express IRA
Litigation
On March 15, 2006, the New York Attorney General filed a
lawsuit in the Supreme Court of the State of New York, County of
New York (Index No. 06/401110) entitled The People of
New York v. H&R Block, Inc. and H&R Block
Financial Advisors, Inc. et al. The complaint alleges
fraudulent business practices, deceptive acts and practices,
common law fraud and breach of fiduciary duty with respect to
the Express IRA product and seeks equitable relief, disgorgement
of profits, damages and restitution, civil penalties and
punitive damages. In July 2007, the Supreme Court of the State
of New York issued a ruling that dismissed all defendants other
than H&R Block Financial Advisors, Inc. (HRBFA) and the
claims of common law fraud. The intermediate appellate court
reversed this ruling in January 2009. We believe we have
meritorious defenses to the claims in this case and intend to
defend this case vigorously, but there are no assurances as to
its outcome.
On January 2, 2008, the Mississippi Attorney General filed
a lawsuit in the Chancery Court of Hinds County, Mississippi
First Judicial District (Case No. G 2008 6 S
2) entitled Jim Hood, Attorney for the State of
Mississippi v. H&R Block, Inc., et al. The
complaint alleges fraudulent business practices, deceptive acts
and practices, common law fraud and breach of fiduciary duty
with respect to the Express IRA product and seeks equitable
relief, disgorgement of profits, damages and restitution, civil
penalties and punitive damages. The defendants have filed a
motion to dismiss. We believe we have meritorious defenses to
the claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
In addition to the New York and Mississippi Attorney General
actions, a number of civil actions were filed against HRBFA and
us concerning the Express IRA product, the first of which was
filed on March 15, 2006. Except for two cases pending in
state court, all of the civil actions have been consolidated by
the panel for Multi-District Litigation into a single action
styled In re H&R Block, Inc. Express IRA Marketing
Litigation (Case
No. 06-1786-MD-RED)
in the United States District Court for the Western District of
Missouri. The amounts claimed in these cases are substantial. We
believe we have meritorious defenses to the claims in these
cases and intend to defend these cases vigorously, but there are
no assurances as to their outcome.
Although we sold HRBFA effective November 1, 2008, we
remain responsible for any liabilities relating to the Express
IRA litigation through an indemnification agreement.
Securities Litigation
On April 6, 2007, a putative class action styled In re
H&R Block Securities Litigation (Case
No. 06-0236-CV-W-ODS)
was filed against the Company and certain of its officers in the
United States District Court for the Western District of
Missouri. The complaint alleged, among other things, deceptive,
material and misleading financial statements and failure to
prepare financial statements in accordance with generally
accepted accounting principles. The complaint sought unspecified
damages and equitable relief. The court dismissed the complaint
in February 2008, and the plaintiffs appealed the dismissal in
March 2008. In addition, plaintiffs in a shareholder derivative
action that was consolidated into the securities litigation
filed a separate appeal in March 2008, contending that the
derivative action was improperly consolidated. The derivative
action is Iron Workers Local 16 Pension Fund v. H&R
Block, et al., in the United States District Court for the
Western District of Missouri, Case
No. 06-cv-00466-ODS
(instituted on June 8, 2006) and was brought against
certain of our directors and officers purportedly on behalf of
the Company. The derivative action alleged breach of fiduciary
duty, abuse of control, gross mismanagement, waste, and unjust
enrichment pertaining to (1) our restatement of financial
results in fiscal year 2006 due to errors in determining our
state effective income tax rate and (2) certain of our
products and business activities. We believe we have meritorious
defenses to the claims in these cases and intend to defend this
litigation vigorously. We currently do not believe that we will
incur a material loss with respect to this litigation.
24
RSM McGladrey
Litigation
RSM McGladrey Business Services, Inc. and certain of its
subsidiaries are parties to a class action filed on
July 11, 2006 and entitled Do Rights Plant
Growers, et al. v. RSM EquiCo, Inc., et al. Case
No. 06 CC00137, in the California Superior Court, Orange
County. The complaint contains allegations relating to business
valuation services provided by RSM EquiCo, Inc., including
allegations of fraud, negligent misrepresentation, breach of
contract, breach of implied covenant of good faith and fair
dealing, breach of fiduciary duty and unfair competition and
seeks unspecified damages, restitution and equitable relief. On
March 17, 2009, the court granted plaintiffs motion
for class certification on all claims. The class consists of all
RSM EquiCo U.S. clients who signed platform agreements and
for whom RSM EquiCo did not ultimately market their business for
sale. RSM EquiCo filed a writ petition for interlocutory appeal
of this certification ruling, which was denied. We intend to
defend this case vigorously. The amount claimed in this action
is substantial and could have a material adverse impact on our
consolidated results of operations. There can be no assurance
regarding the outcome of this matter.
RSM McGladrey, Inc. (RSM) has a relationship with certain public
accounting firms (collectively, the Attest Firms)
pursuant to which (1) some RSM employees are also partners
or employees of the Attest Firms, (2) many clients of the
Attest Firms are also RSM clients, and (3) our RSM
McGladrey brand is closely linked to the Attest Firms. The
Attest Firms are parties to claims and lawsuits (collectively,
Attest Firm Claims) arising in the normal course of
business. Judgments or settlements arising from Attest Firm
Claims exceeding the Attest Firms insurance coverage could
have a direct adverse effect on Attest Firm operations and could
impair RSMs ability to attract and retain clients and
quality professionals. For example, accounting and auditing
firms (including one of the Attest Firms) have become subject to
claims based on losses their clients suffered from investments
in investment funds managed by third-parties. Although RSM may
not have a direct liability for significant Attest Firm Claims,
such Attest Firm Claims could have a material adverse effect on
RSMs operations and impair the value of our investment in
RSM. There is no assurance regarding the outcome of the Attest
Firm Claims.
Litigation and
Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated
and the loan servicing business was sold during fiscal year
2008, SCC remains subject to investigations, claims and lawsuits
pertaining to its loan origination and servicing activities that
occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state
attorneys general, other state regulators, municipalities,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others alleged to be similarly situated.
Among other things, these investigations, claims and lawsuits
allege discriminatory or unfair and deceptive loan origination
and servicing practices, public nuisance, fraud, and violations
of the Truth in Lending Act, Equal Credit Opportunity Act and
the Fair Housing Act. In the current non-prime mortgage
environment, the number of these investigations, claims and
lawsuits has increased over historical experience and is likely
to continue at increased levels. The amounts claimed in these
investigations, claims and lawsuits are substantial in some
instances, and the ultimate resulting liability is difficult to
predict. In the event of unfavorable outcomes, the amounts SCC
may be required to pay in the discharge of liabilities or
settlements could be substantial and, because SCCs
operating results are included in our consolidated financial
statements, could have a material adverse impact on our
consolidated results of operations.
On June 3, 2008, the Massachusetts Attorney General filed a
lawsuit in the Superior Court of Suffolk County, Massachusetts
(Case
No. 08-2474-BLS)
entitled Commonwealth of Massachusetts v. H&R
Block, Inc., et al., alleging unfair, deceptive and
discriminatory origination and servicing of mortgage loans and
seeking equitable relief, disgorgement of profits, restitution
and statutory penalties. In November 2008, the court granted a
preliminary injunction limiting the ability of the owner of
SCCs former loan servicing business to initiate or advance
foreclosure actions against certain loans originated by SCC or
its subsidiaries without (1) advance notice to the
Massachusetts Attorney General and (2) if the Attorney
General objects to foreclosure, approval by the court. The
preliminary injunction generally applies to loans meeting all of
the following four characteristics: (1) adjustable rate
mortgages with an introductory period of three years or less;
(2) the borrower has a
debt-to-income
ratio generally exceeding 50 percent; (3) an
introductory interest rate at least 2 percent lower than
the fully indexed rate (unless the
debt-to-income
ratio is 55% or greater); and
(4) loan-to-value
ratio of 97 percent or certain prepayment penalties. We
have appealed this preliminary injunction. We believe
25
the claims in this case are without merit, and we intend to
defend this case vigorously, but there are no assurances as to
its outcome.
SCC also remains subject to potential claims for indemnification
and loan repurchases pertaining to loans previously sold. In the
current non-prime mortgage environment, it is likely that the
frequency of repurchase and indemnification claims may increase
over historical experience and give rise to additional
litigation. In some instances, H&R Block, Inc. was required
to guarantee SCCs obligations. The amounts involved in
these potential claims may be substantial, and the ultimate
resulting liability is difficult to predict. Because SCCs
operating results are included in our consolidated financial
statements, the amounts SCC may be required to pay in the
discharge or settlement of these claims in the event of
unfavorable outcomes could have a material adverse impact on our
consolidated results of operations.
Other Claims and
Litigation
We are from time to time party to investigations, claims and
lawsuits not discussed herein arising out of our business
operations. These investigations, claims and lawsuits include
actions by state attorneys general, other state regulators,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others similarly situated. Some of these
investigations, claims and lawsuits pertain to RALs, the
electronic filing of customers income tax returns, the POM
guarantee program, wage and hour claims and investment products.
We believe we have meritorious defenses to each of these
investigations, claims and lawsuits, and we are defending or
intend to defend them vigorously. The amounts claimed in these
matters are substantial in some instances, however the ultimate
liability with respect to such matters is difficult to predict.
In the event of an unfavorable outcome, the amounts we may be
required to pay in the discharge of liabilities or settlements
could be material.
In addition to the aforementioned types of matters, we are party
to claims and lawsuits that we consider to be ordinary, routine
litigation incidental to our business, including claims and
lawsuits (collectively, Other Claims) concerning the
preparation of customers income tax returns, the fees
charged customers for various products and services,
relationships with franchisees, intellectual property disputes,
employment matters and contract disputes. While we cannot
provide assurance that we will ultimately prevail in each
instance, we believe the amount, if any, we are required to pay
in the discharge of liabilities or settlements in these Other
Claims will not have a material adverse effect on our
consolidated operating results, financial position or cash flows.
Alternative Practice Structure with Public Accounting
Firms. As previously disclosed, under an
alternative practice structure arrangement, RSM and M&P and
other public accounting firms (collectively, the Attest
Firms) market their services jointly and provide services
to a significant number of common clients. Through an
administrative services agreement, RSM also provides operational
and administrative support services to the Attest Firms,
including accounting, payroll, human resources, marketing,
administrative services and personnel, and office space and
equipment. In return for these services, RSM receives a
management fee and reimbursement of certain costs, mainly for
the use of RSM-owned or leased real estate, property and
equipment. If the RSM/Attest Firms relationship under the
alternative practice structure were to be terminated, RSM could
lose key employees and clients and may not be able to recoup its
costs associated with the infrastructure used to provide the
operational and administrative support services to the Attest
Firms. A separation from M&P could result in reduced
revenue, increased costs and reduced earnings and, if
sufficiently significant, impairment of our investment in RSM.
On July 21, 2009, M&P provided notice of its intent to
terminate the administrative services agreement between RSM and
M&P. The effect of the notice will be to terminate the
alternative practice structure on February 16, 2010, unless
revoked or modified prior to that time. RSM and M&P are
engaged in arbitration to determine several of their rights and
responsibilities under their contracts, including rights of RSM
relating to noncompete provisions of the contracts. In addition,
the parties have held a series of meetings and discussions
regarding several aspects of the relationship between RSM and
M&P. If the parties do not reach an agreement to continue
their relationship, RSM intends to seek alternative attest firms
with which to affiliate and to continue to directly provide a
full range of tax and business consulting services. The extent
of the impact of a separation by M&P cannot be determined
at this time, although it could be material to RSMs
financial condition and results of operations.
26
There have been no other material changes in our risk factors
from those reported at April 30, 2009 in our Annual Report
on
Form 10-K.
A summary of our purchases of H&R Block common stock during
the first quarter of fiscal year 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
Total Number of
Shares
|
|
Maximum $Value
|
|
|
Total
|
|
Average
|
|
Purchased as Part
of
|
|
of Shares that
May
|
|
|
Number of Shares
|
|
Price Paid
|
|
Publicly
Announced
|
|
Be Purchased
Under
|
|
|
Purchased(1)
|
|
per
Share
|
|
Plans
or Programs
|
|
the
Plans or Programs
|
|
|
May 1 May 31
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
1,901,419
|
June 1 June 30
|
|
|
134
|
|
$
|
17.13
|
|
|
-
|
|
$
|
1,901,419
|
July 1 July 31
|
|
|
70
|
|
$
|
16.89
|
|
|
-
|
|
$
|
1,901,419
|
|
|
|
|
|
(1) |
|
We
purchased 204,373 shares in connection with the funding of
employee income tax withholding obligations arising upon the
exercise of stock options or the lapse of restrictions on
nonvested shares.
|
|
|
|
|
|
|
10
|
.1
|
|
Separation and Release Agreement dated July 28, 2009, by
and between HRB Tax Group, Inc. and Timothy C. Gokey.*
|
|
10
|
.2
|
|
H&R Block, Inc. Executive Severance Plan*
|
|
31
|
.1
|
|
Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification by Chief Executive Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification by Chief Financial Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101
|
.CAL
|
|
XBRL Extension Calculation Linkbase
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
101
|
.REF
|
|
XBRL Taxonomy Extension Reference Linkbase
|
|
|
|
|
|
*
|
|
Indicates
management contracts, compensatory plans or arrangements.
|
27
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.
Russell
P. Smyth
President and Chief
Executive Officer
September 4,
2009
Becky
S. Shulman
Senior Vice
President, Treasurer and
Chief Financial
Officer
September 4,
2009
Jeffrey
T. Brown
Vice President and
Corporate Controller
September 4,
2009
28
exv10w1
Exhibit 10.1
SEPARATION AND RELEASE AGREEMENT
This SEPARATION AND RELEASE AGREEMENT (the Agreement) is entered into
as of the day of July, 2009, by and between, HRB Tax Group, Inc., a Missouri corporation
(Block), and Timothy C. Gokey (Executive).
WHEREAS, Executive and Block are parties to an Employment Agreement dated June 28,
2004 (the Employment Agreement),
WHEREAS, Executive and Block agree to end Executives employment,
WHEREAS, Executive and Block intend the terms and conditions of this Agreement to
govern all issues related to Executives employment and separation,
NOW, THEREFORE, in consideration of the covenants and mutual promises contained in
this Agreement, Executive and Block agree as follows:
1. Termination of Employment. The parties agree that Executives employment
with Block will end on August 31, 2009 (Separation Date). Until the Separation
Date, the
Executive will remain on active payroll and be paid his current salary in accordance
with Blocks
regular payroll practices. Until the Separation Date, Executive agrees that he will
only perform
transition work as specifically agreed by Block Chief Executive Officer (CEO) Russ
Smyth
and Executive. Executive further agrees that he will timely respond to questions
and provide
guidance as requested by Block CEO Russ Smyth. On or after the Separation Date,
Executive
acknowledges and agrees that he will not represent himself as being an employee,
officer,
director, trustee, member, partner, agent, or representative of Block for any
purpose, and will not
make any public statements on behalf of Block. Executive further acknowledges and
agrees that
he has received proper notice under Section 1.07(b) of his Employment Agreement to
terminate
it.
2. Resignation. Executive agrees that as of the Separation Date, he resigns
from all
offices, directorships, trusteeships, committee memberships, and fiduciary capacities
held with,
or on behalf of, Block or its parents, subsidiaries, or affiliates (collectively as
Affiliates), or
any benefit plans of Block or its Affiliates. Executive will execute the
resignations attached as
Exhibit A on minute book paper contemporaneously with his execution of this
Agreement.
3. Severance Benefits. The parties agree to treat Executives separation of
employment as a termination without cause and a Qualifying Termination (as defined in
Section 1.07 of the Employment Agreement) for purposes of Executives eligibility for
severance compensation and benefits as set forth in this Section. Subject to the terms
and conditions of this Agreement, including Executives executing this Agreement and the
Supplemental General Release, Executive acknowledges and agrees that he will not be
eligible
for any compensation or benefits after the Separation Date except for the following:
a. Severance Pay. Subject to the terms of the H&R Block Severance
Plan (Severance Plan), Block will pay to Executive $833,340.00, less required
tax
1
withholdings, in a lump sum payment within 30 days from the later of the Separation
Date or the Effective Date of this Agreement.
b. Employee Benefits. Executive will remain eligible to participate in
the various
health and welfare benefit plans maintained by Block until the
Separation Date.
After the
Separation Date, Block will pay Executive a lump sum payment of $10,008, lass
applicable tax withholdings, which represents Executives monthly
post-employment
premium for health and welfare benefits under COBRA for twelve (12) months less
the
amount Executive paid for such benefits as an active employee. To be eligible
for the
payment described in this subsection, Executive must be enrolled in Blocks
health and
welfare plans on the Terminate Date. If Executive qualifies for this payment,
Block will
pay Executive this payment within 30 days from the later of the Separation Date
or the
Effective Date of this Agreement. Conversion privileges may also be available
for other
benefit plans.
c. Stock Options. Those portions of any outstanding incentive
stock options
(ISO Stock Options) and nonqualified stock options (NQ Stock Options) to
purchase shares of Blocks common stock Block granted to Executive that are scheduled to
vest
between the Separation Date and 18 months thereafter (based solely on the
time-specific
vesting schedule included in the applicable stock option agreement) shall vest
and
become exercisable as of the Separation Date. A list of the stock options
vested as of the
date of this Agreement and to become vested pursuant to this Section is
attached as
Exhibit B. Any stock options unaffected by the operation of this Section
shall be
forfeited to Block on the Separation Date. No later than the
Separation Date,
Executive
will complete an election form on which he will elect the time period during
which he
may exercise his ISO and NQ Stock Options. Executive acknowledges and agrees
that he
is solely responsible for the income tax treatment of his ISO and NQ Stock
Options
election, and that Block has not provided him any personal tax advice about
this election.
Block encourages Executive to seek independent tax advice regarding this
election.
d. Restricted Shares, All restrictions on any shares of Blocks
common stock
Block awarded to Executive (Restricted Shares) that would have lapsed absent
a
termination of employment in accordance with their terms by reason of time
between the
Separation Date and 18 months thereafter shall terminate (and shall be fully
vested) as of
the Separation Date. Executive shall forfeit on the Separation Date any shares
unaffected
by the operation of this Section. A list of the Restricted Shares outstanding
as of the date
of this Agreement and to become vested pursuant to this Section is attached as
Exhibit C.
e. Performance Shares. The number of performance shares Executive
will
receive at the end of each applicable performance period will be determined
based upon
(1) Executives pro-rata length of service during the performance period, and
(2) the
achievement of the performance goals at the end of the performance period.
Block will
pay any performance shares due Executive to him at the time payments are
generally
made to other individuals who received a similar award of performance shares.
On the
Separation Date, Executive shall forfeit to Block any Performance Shares Block
awarded
him pursuant to a cycle which is less than one year old. A list of the
Performance Shares
eligible to become payable pursuant to this subsection is attached as Exhibit
D.
2
f. Outplacement Services. Block will pay directly to Right Management
Services
for twelve (12) months of outplacement services to be provided to Executive.
Executive
must elect these outplacement services on or before August 31, 2009 in writing
to the
Block Senior Vice-President, Human Resources. Executive waives these
outplacement
services if he fails to provide such written notification on or before August
31, 2009.
g. Deferred Compensation. Executive will receive his vested account
balance
and payment in accordance with Executives payment elections under the H&R
Block
Deferred Compensation Plan for Executives, as amended.
h. Forfeiture. Executive agrees that the compensation and benefits
described in this Section will cease, and no further compensation and benefits will
be provided to him if he violates any of the post-employment obligations under
Section 7 of this Agreement, or Articles Two and Three of the Employment Agreement.
4. Vacation. Block will pay Executive for his accrued, unused paid time off
which
includes vacation, floating holidays, and personal days (but excludes sick leave as
set forth in the
Companys policies) within 30 days of the Separation Date (the PTO Payout).
Executive
agrees that his PTO Payout will be $60,332.31, less applicable withholdings.
Executive will not
receive any other payment for vacation or holidays.
5. Executives Representations. Executive represents and acknowledges to Block
that
(a) Block has advised him to consult with an attorney of his choosing; (b) he has had
twenty-one
(21) days to consider the waiver of his rights under the Age Discrimination in
Employment Act of
1967, as amended (ADEA) prior to signing this Agreement; (c) he has disclosed to
Block any
information in his possession concerning any conduct involving Block or its Affiliates
that he has
any reason to believe involves any false claims to any governmental agency, or is or
may be
unlawful, or violates Block policy in any respect; (d) the consideration provided him
under this
Agreement is sufficient to support the releases provided by him under this Agreement;
and (e) he
has not filed any charges, claims or lawsuits against Block involving any aspect of
his employment
which have not been terminated as of the date of this Agreement. Executive understands
that Block
regards the representations made by him as material and that Block is relying on these
representations in entering into this Agreement.
6. Effective Date of this Agreement. Executive shall have seven (7) days
from the
date he signs this Agreement to revoke his consent to the waiver of his rights under
the ADEA in
writing addressed and delivered to CEO Russ Smyth which action shall revoke this
Agreement. If
Executive revokes this Agreement, all of its provisions shall be void and
unenforceable. If
Executive does not revoke his consent, this Agreement will take effect on the day
after the end of
this revocation period (the Effective Date).
7. Surviving Employment Agreement Obligations. Executive and Block agree that
the termination of Executives employment will not affect the following provisions of
the
Employment Agreement which, by their express terms, impose continuing obligations on
one or
more of the parties following termination of the Employment Agreement: (a) Article
Two,
Confidentiality Sections 2.01, 2.02; (b) Article Three, Non-Hiring;
Non-Solicitation; No
Conflicts; Non-Competition Sections 3.01, 3.02, 3.03, 3.05, 3.07; and (c) Article
Four,
Specific Performance Section 4.03. Executive acknowledges and agrees that he will
fully
3
comply with these obligations. Block may agree to waive any of Executives surviving
post-employment obligations under the Employment Agreement. Any such waiver must be in
writing and signed by Executive and the Block CEO. Unless otherwise agreed by the parties
in writing, any payments made to Executive under this Agreement will immediately cease
upon any such waiver.
8.Indemnification. Block and Executive agree that Executive will
receive, as applicable, the indemnification set forth in Paragraph 4.06 of the Employment
Agreement.
9. Business Expenses and Commitments. As of the Separation Date, Executive
agrees that he will have submitted required documentation for all outstanding expenses
on his
corporate credit card and he will have fully paid off all such outstanding expenses.
As of the
Effective Date, Executive further agrees that he will not initiate, make, renew,
confirm or ratify
any contracts or commitments for or on behalf of Block or any Affiliate, nor will he
incur any
expenses on behalf of Block or any Affiliate without Blocks prior written consent.
10. Release. Executive and his heirs, assigns, and agents forever release,
waive, and
discharge Block, Affiliates, and Released Parties as defined below from each and every
claim,
action, or right of any sort, known or unknown, arising on or before the Effective
Date.
a. The foregoing release includes, but is not limited to, (1) any claim of
retaliation
or discrimination on the basis of race, sex, pregnancy, religion, marital
status, sexual
orientation, national origin, handicap or disability, age, veteran status,
special disabled
veteran status, or citizenship status or any other category protected by law;
(2) any other
claim based on a statutory prohibition or requirement such as the Age
Discrimination in
Employment Act, Title VII of the Civil Rights Act, the Americans With
Disabilities Act, the
Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974,
the
Missouri Human Rights Act, the Missouri Service Letter Statute, and the Civil
Rights
Ordinance of Kansas City, Missouri; (3) any claim arising out of or related to
an express or
implied employment contract, any other contract affecting terms and conditions
of
employment, or a covenant of good faith and fair dealing; (4) any tort claims
such as
wrongful discharge, detrimental reliance, defamation, emotional distress, or
compensatory
or punitive damages; (5) any personal gain with respect to any claim arising
under the qui
tam provisions of the False Claims Act, 31 U.S.C. 3730, and (6) any claims to
attorney fees,
expenses, costs, disbursements, and the like.
b. Executive represents that he understands the foregoing release, that rights
and
claims under the Age Discrimination in Employment Act of 1967, as amended, are
among
the rights and claims against the Released Parties he is releasing, and that he
understands
that he is not releasing any rights or claims arising after the Effective Date.
c. Executive further agrees never to sue the Released Parties or cause the
Released
Parties to be sued regarding any matter within the scope of the above release.
If Executive
violates this release by suing the Released Parties or causing the Released
Parties to be sued,
Executive agrees to pay all costs and expenses of defending against the suit
incurred by the
Released Parties, including reasonable attorneys fees except to the
extent that paying such
costs and expenses is prohibited by law or would result in the invalidation of
the
foregoing release.
4
d. Released Parties for purposes of this Agreement are Block, all current
and former parents, subsidiaries, related companies, partnerships or joint
ventures, and, with respect to each of them, their predecessors and successors;
and, with respect to each such entity, all of its past, present, and future
employees, officers, directors, stockholders, owners, representatives, assigns,
attorneys, agents, insurers, employee benefit programs (and the trustees,
administrators, fiduciaries and insurers of such programs), and any other person
acting by, through, under or in concert with any of the persons or entities listed
in this paragraph, and their successors.
11. Breach by Executive. Blocks obligations to Executive after the Effective
Date are contingent on his obligations under this Agreement. Any material breach of this
Agreement by Executive will result in the immediate cancellation of Blocks obligations
under this Agreement and of any benefits that have been granted to Executive by the terms
of this Agreement except to the extent that such cancellation is prohibited by law or
would result in the invalidation of the foregoing release.
12. Executive Availability. Executive agrees to make himself reasonably
available to Block and/or Affiliates to respond to requests for
information pertaining to
or relating to Block and/or its Affiliates, agents, officers, directors, or employees.
Executive will cooperate fully with Block and/or Affiliates in connection with any and all
existing or future litigation or investigations brought by or against Block or any of its
Affiliates, agents, officers, directors or employees, whether administrative, civil or
criminal in nature, in which and to the extent Block and/or Affiliates deem Executives
cooperation necessary. Block will reimburse Executive for reasonable out-of pocket
expenses incurred as a result of such cooperation. Nothing herein shall prevent Executive
from communicating with or participating in any government investigation.
13. Non-Disparagement. Executive agrees, subject to any obligations
he may have under applicable law, that he will not make or cause to be made any statements
that disparage, are inimical to, or damage the reputation of Block or any of its
Affiliates, agents, officers, directors, or employees. In the event such a communication
is made to anyone, including but not limited to the media, public interest groups and
publishing companies, it will be considered a material breach of the terms of this
Agreement and Executive will be required to reimburse Block for any and all compensation
and benefits (other than those already vested) paid under the terms of this Agreement and
all commitments to make additional payments to Executive will be null and void. Block
likewise agrees, subject to any obligations that it may have under applicable law, that
the following individuals during their Block employment will not make or cause to be made
any statements that disparage, are inimical to, or damage the reputation of Executive:
Russ Smyth, Becky Shulman, Tammy Serati, Sabrina Wiewel, Phil Mazzini, and Ken Treat.
14. Return of Company Property. Executive agrees that as of the Separation
Date he
will have returned to Block any and all Block and/or Affiliates property or equipment
in his
possession, including but not limited to, any computer, printer, fax, phone, credit
card, badge,
Blackberry, and telephone card assigned to him.
15. Severability
of Provisions. In the event that any provision in
this Agreement is
determined to be legally invalid or unenforceable by any court of competent
jurisdiction, and
5
cannot be modified to be enforceable, the affected provision shall be stricken from the
Agreement, and the remaining terms of the Agreement and its enforceability shall remain
unaffected.
16. Entire Agreement. This Agreement sets forth the entire
agreement and
understanding between the parties and may be changed only with the written consent of
both
parties and only if both parties make express reference to this
Agreement. The
parties have not
relied on any oral statements that are not included in this Agreement. This Agreement
supersedes
all prior agreements and understandings concerning the subject matter of this
Agreement. Any
modifications to this Agreement must be in writing and signed by Executive and the
Block CEO.
Failure of Block to insist upon strict compliance with any of the terms, covenants, or
conditions
of this Agreement will not be deemed a waiver of such terms, covenants, or conditions.
17. Applicable Law. This Agreement shall be construed, interpreted, and
applied in
accordance with the law of the State of Missouri.
18. Successors
and Assigns. This Agreement and each of its provisions will be
binding upon Executive and his executors, successors, and administrators, and will
inure to the
benefit of Block and its successors and assigns. Executive may not assign or transfer
to others
the obligation to perform his duties hereunder.
19. Specific Performance by Executive. The parties acknowledge that money
damages alone will not adequately compensate Block for Executive breach of any of the
covenants and agreements herein and, therefore, in the event of the breach or
threatened breach
of any such covenant or agreement by Executive, in addition to all other remedies
available at
law, in equity or otherwise, Block will be entitled to injunctive relief compelling
Executives
specific performance of (or other compliance with) the terms hereof.
20. Counterparts. This Agreement may be signed in counterparts and delivered
by
facsimile transmission confirmed promptly thereafter by actual delivery
of executed
counterparts.
21. Supplemental Release. Executive agrees that within 21 days after the
Separation
Date, he will execute an additional release covering the period from the Effective
Date to the
Separation Date. Executive agrees that all Block covenants that relate to its
obligations beyond
the last day of employment will be contingent on Executives execution of the
supplemental
release. The supplemental release will be in the form of Exhibit E to this Agreement.
22. 409A Representations. Because the requirements of Section 409A of
the Internal
Revenue Code are still being developed and interpreted by government agencies, certain
issues
under Section 409A remain unclear as of the Effective Date. Block has made a good
faith effort
to comply with current guidance under Section 409A. Notwithstanding the foregoing or
any
provision in this Agreement to the contrary, Block does not warrant or promise
compliance with
Section 409A, and Executive understands and agrees that he shall not have any claim
against
Block or any Affiliate for any good faith effort taken by them to comply with Section
409A.
EXECUTIVE:
6
|
|
|
|
|
|
|
|
/s/ Timothy C. Gokey
|
|
|
Timothy C. Gokey |
|
|
Dated: 7-26-09
Accepted and Agreed:
|
|
|
|
|
HRB Tax Group, Inc.
|
|
|
By: |
/s/ Russell P. Smyth
|
|
|
|
Russell P. Smyth
President and Director |
|
|
Dated: 7/28/09
7
EXHIBIT A
RESIGNATION
To Whom It May Concern:
Effective May 8, 2009, I hereby resign from the following director and officer positions:
|
|
|
Business Entity |
|
Title |
Financial Stop Inc.
|
|
Director |
H&R Block (Nova Scotia), Incorporated
|
|
Director |
H&R Block Canada Financial Services, Inc.
|
|
Director |
H&R Block Canada Financial Services, Inc.
|
|
Chairman of the Board |
H&R Block Canada, Inc.
|
|
Director |
H&R Block Canada, Inc.
|
|
President |
H&R Block Eastern Enterprises, Inc.
|
|
Director |
H&R Block Eastern Enterprises, Inc.
|
|
President |
H&R Block Enterprises LLC
|
|
President |
H&R Block Global Solutions (Hong Kong) Limited
|
|
Director |
H&R Block Limited
|
|
Director |
H&R Block Tax and Business Services, Inc.
|
|
Director |
H&R Block Tax Services LLC
|
|
President |
HRB Tax Group, Inc.
|
|
Director |
HRB Tax Group, Inc.
|
|
President |
Vantive Partners LLC
|
|
President |
|
|
|
|
|
|
|
|
Dated: 7-26-09 |
/s/ Timothy C. Gokey
|
|
|
Timothy C. Gokey |
|
|
|
|
A-1
EXHIBIT B
STOCK OPTION SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant |
|
Shares |
|
|
|
|
Grant Date |
|
Price |
|
Granted |
|
Vested |
|
Accelerated |
6/28/2004 |
|
$ |
24.235 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
6/30/2005 |
|
$ |
29.175 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
6/30/2006 |
|
$ |
23.86 |
|
|
|
125,000 |
|
|
|
125,000 |
|
|
|
0 |
|
6/30/2007 |
|
$ |
23.37 |
|
|
|
125,000 |
|
|
|
83,333 |
|
|
|
41,667 |
|
7/3/2008 |
|
$ |
21.81 |
|
|
|
173,522 |
|
|
|
57,840 |
|
|
|
57,840 |
* |
10/1/2008 |
|
$ |
23.76 |
|
|
|
179,855 |
|
|
|
0 |
|
|
|
179,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
466,173 |
|
|
|
279,362 |
|
|
|
|
* |
|
Executive forfeits 57,842 stock options from the July 3, 2008 grant. |
A-2
EXHIBIT C
RESTRICTED SHARES SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant |
|
Shares |
|
|
|
|
Grant Date |
|
Price |
|
Granted |
|
Vested |
|
Accelerated |
7/3/2008 |
|
$ |
21.81 |
|
|
|
290 |
|
|
|
96 |
|
|
|
97 |
* |
10/1/2008 |
|
$ |
23.76 |
|
|
|
10,520 |
|
|
|
0 |
|
|
|
10,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
10,617 |
|
|
|
|
* |
|
Executive forfeits 97 shares from the July 3, 2008 grant. |
A-3
EXHIBIT D
PERFORMANCE SHARES SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant |
|
Shares |
|
|
|
|
Grant Date |
|
Price |
|
Granted |
|
Vested |
|
Accelerated |
6/30/2006 |
|
$ |
0.00 |
|
|
|
15,000 |
|
|
|
|
|
|
|
* |
|
6/30/2007 |
|
$ |
0.00 |
|
|
|
15,000 |
|
|
|
|
|
|
|
* |
|
7/3/2008 |
|
$ |
0.00 |
|
|
|
9,834 |
|
|
|
|
|
|
|
* |
|
|
|
|
* |
|
The number of shares actually awarded will be determined at the end of the applicable
3-year performance cycle based upon actual performance results. |
Award will be prorated based upon the number of days worked by Executive during the
applicable three year performance cycle.
A-4
exv10w2
Exhibit 10.2
H&R BLOCK, INC. EXECUTIVE SEVERANCE PLAN
This Plan document is adopted by H&R Block, Inc., a Missouri corporation (HRB) effective as
of May 12, 2009.
Section 1. Purpose
The Company considers the establishment and maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of the Company and its shareholders. This
Plan provides severance pay to compensate management for the involuntary loss of employment and a
period of readjustment. The Company also recognizes that a Change in Control of HRB may arise in
the future and that such event may result in the departure or distraction of management to the
detriment of the Company and its shareholders. Accordingly, the Board has determined it is in the
best interests of the Company and its shareholders to secure the continued services and dedication
of such management in the event of any threat or occurrence of a Change in Control of HRB by
providing such management the benefits set forth this Plan.
This Plan supersedes all prior agreements, arrangements or plans of the Company related to
separation pay in the event of a Qualifying Termination or Change in Control Termination.
Notwithstanding the foregoing, nothing under this Plan supersedes or replaces any rights to
acceleration of vesting granted to a Participant under the H&R Block, Inc. 2003 Long-Term Executive
Compensation Plan for grants prior to participation in the Plan. Any benefits under this Plan will
be provided to eligible employees in lieu of benefits under any other severance plan.
Section 2. Definitions
For purposes of this Plan, the following terms shall have the meanings specified below unless
the context clearly requires otherwise:
(a) Affiliate shall have the meaning ascribed to such term in Rule 12b-2 of Regulation 12B
under the Securities Exchange Act of 1934, as amended.
(b) Board means the Board of Directors of HRB.
(c) Cause means any of the following unless, if capable of cure, such events are fully
corrected in all material respects by Participant within ten (10) days after the Company provides
notice of the occurrence of such event:
(i) A Participants misconduct that materially interferes with or materially
prejudices the proper conduct of the business of the Company;
(ii) A Participants commission of an act materially and demonstrably detrimental to
the good will of the Company;
(iii) A Participants commission of any act of dishonesty or breach of trust resulting
or intending to result in material personal gain or enrichment of the Participant at the
expense of the Company;
(iv) A Participants violation of any non-competition, non-solicitation,
confidentiality or similar restrictive covenant under any employment-related agreement,
plan or policy with respect to which the Participant is a party or is bound; or
(v) A Participants conviction of, or plea of nolo contendere to, a misdemeanor
involving an act of moral turpitude or a felony.
If the Company does not give the Participant a termination notice within sixty (60) days after
the Board or the Chairman of the Board has knowledge that an event constituting Cause has occurred,
the event will no longer constitute Cause. The Company may place a Participant on unpaid leave for
up to 30 consecutive days while it is determining whether there is a basis to terminate the
Participants employment for Cause. Such unpaid leave will not constitute Good Reason.
For purposes of this definition, (a) no act or omission by the Participant will be willful
unless it is made by the Participant in bad faith or without a reasonable belief that the
Participants act or omission furthered the interests of the Company and (b) any act or omission by
the Participant based on authority given pursuant to a resolution duly adopted by the Board will be
deemed made in good faith and in the best interests of the Company.
(d) Change in Control means the occurrence of one or more of the following events:
(i) Any one person, or more than one person acting as a group, acquires ownership of
stock of HRB that, together with stock held by such person or group, constitutes more than
50 percent of the total fair market value or total voting power of the stock of HRB. If
any one person, or more than one person acting as a group, is considered to own more than
50 percent of the total fair market value or total voting power of the stock of HRB, the
acquisition of additional stock by the same person or persons shall not be considered to
cause a change in the ownership of the corporation. An increase in the percentage of stock
owned by any one person, or persons acting as a group, as a result of a transaction in
which HRB acquires its stock in exchange for property will be treated as an acquisition of
stock for purposes of this Section 2(d)(i).
(ii) Any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition by
such person or persons) ownership of stock of HRB possessing 35 percent or more of the
total voting power of the stock of HRB. If any one person, or more than one person acting
as a group, is considered to effectively control a corporation within the meaning of
Treasury Regulation §1.409A-3(i)(5)(vi), the acquisition of additional control of the
corporation by the same person or persons is not considered to cause a change in the
effective control of the corporation.
(iii) A majority of members of the Board is replaced during any 12-month period by
directors whose appointment or election is not endorsed by two-thirds (2/3) of the members
of the Board before the date of such appointment or election.
(iv) Any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition by
such person or persons) assets from HRB that have a total gross fair market value equal to
or more than 50 percent of the total gross fair market value of all of the assets of
-2-
HRB immediately before such acquisition or acquisitions. For this purpose, gross fair
market value means the value of the assets of HRB, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such assets.
Notwithstanding the foregoing, there is no Change in Control event under this Section
2(d)(iv) when there is a transfer to an entity that is controlled by the shareholders of
HRB immediately after the transfer. A transfer of assets by HRB is not treated as a change
in the ownership of such assets if the assets are transferred to: (a) a shareholder of HRB
(immediately before the asset transfer) in exchange for or with respect to its stock; (b)
an entity, 50 percent or more of the total value or voting power of which is owned,
directly or indirectly, by HRB; (c) a person, or more than one person acting as a group,
that owns, directly or indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of HRB; or (d) an entity, at least 50 percent of the total value
or voting power of which is owned, directly or indirectly, by a person described in (c)
above.
For purposes of the foregoing, persons will be considered acting as a group in accordance with
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, and Section 409A
of the Code.
(e) Change in Control Termination means a Participants Qualifying Termination or Good
Reason Termination, in either event within 24 months immediately following a Change in Control.
(f) COBRA Subsidy means an amount equal to the Participants monthly post-employment premium
for health and welfare benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA) less the amount paid from time to time by active employees for similar coverage. To be
eligible for the COBRA Subsidy, the Participant must be enrolled in the Participating Employers
health and welfare plans on the date of Separation from Service.
(g) Code means the Internal Revenue Code of 1986, as amended.
(h) Company means HRB and its Affiliates.
(i) Comparable Position means a position where:
(i) the primary work location is within 50 miles of the Participants primary work
location prior to the Qualifying Termination, and,
(ii) the compensation rate (salary and target bonus) is not more than 10% below the
Participants compensation rate at the time of the Qualifying Termination.
(j) Effective Date means May 12, 2009.
(k) ERISA means the Employee Retirement Income Security Act of 1974, as amended.
(l) Good Reason Termination means a Separation from Service within 24 months immediately
following a Change in Control which is initiated by the Participant upon one or more of the
following occurrences:
-3-
(i) A material diminution in the Participants base compensation;
(ii) A material diminution in the Participants authority, duties, or
responsibilities;
(iii) A material change in the geographic location at which the Participant must
perform the services; or
(iv) Any other action or inaction that constitutes a material breach by the Company of
any written employment-related agreement between the Participant and the Company.
A Participant must provide notice to the Company of the existence of any of the foregoing
conditions within 10 days of the initial existence of the condition, upon the notice of which the
Company must be provided a period of at least 30 days during which it may substantially remedy the
condition and not be required to pay the amount.
(m) HRB means H&R Block, Inc., a Missouri corporation.
(n) Monthly Compensation means a Participants highest annual salary as of the Change in
Control or during the 12-month period immediately preceding his Separation Date divided by 12.
(o) Participant means an associate of the Company who is nominated by HRBs Chief Executive
Officer and approved by the Compensation Committee of the Board.
(p) Payment Date means the date which is thirty (30) days after the later of: (i) a
Participants Separation Date or (ii) the Release Date.
(q) Plan means this H&R Block, Inc. Executive Severance Plan, as amended from time to time.
This document serves as both the legal plan document and summary plan description.
(r) Plan Administrator and Plan Sponsor means H&R Block Management, LLC. The address and
telephone number of H&R Block Management, LLC is One H&R Block Way, Kansas City, Missouri 64105,
(816)854-3000. The Employer Identification Number assigned to H&R Block Management, LLC by the
Internal Revenue Service is 43-1632589.
(s) Qualifying Termination means the involuntary Separation from Service by the Company
under circumstances not constituting Cause but does not include:
(i) the elimination of the Participants position where the Participant was offered a
Comparable Position with the Company or with a party that acquires any asset from the
Company (or a subsidiary or an affiliate of such a party), or
(ii) the redefinition of a Participants position to a lower compensation rate or
grade.
(t) Release Agreement means the release agreement, substantially in the form set forth as
Exhibit A to this Plan, which a Participant shall be required to execute as a condition to
receiving payments and benefits under this Plan.
-4-
(u) Release Date means 60 days after a Participants Separation Date.
(v) Separation Date means the effective date of a Participants Separation from Service.
(w) Separation from Service means the date that a Participant separates from service within
the meaning of Section 409A of the Code and Treasury Regulation §1.409A-1(h).
(x) Year of Service means each period of 12 consecutive months of employment measured from
the Participants employment commencement date. In determining a Participants Years of Service,
the Participant will be credited with a partial Year of Service for his or her final period of
employment commencing on his or her most recent employment anniversary date equal to a fraction
calculated in accordance with the following formula:
(Number of days since most recent employment anniversary date ÷ 365)
Notwithstanding the foregoing, in no event will a Participant be credited with less than 12
Years of Service or more than 18 Years of Service.
Section 3. Severance Benefits.
(a) If a Participant (1) incurs a Qualifying Termination or a Change in Control Termination
and (2) executes his Release Agreement and returns it to the Company by the deadline set forth in
the Release Agreement, then the Participant shall be entitled to the following compensation and
benefits:
(i) The Company shall pay the Participant, on the Payment Date, a lump sum severance
amount equal to:
(A) the Participants Monthly Compensation multiplied by the Participants
Years of Service; plus
(B) a specified percentage of the Participants Monthly Compensation as set
forth in the Appendix to this Plan multiplied by the Participants Years of
Service; plus
(C) an amount equal to the Participants COBRA Subsidy multiplied by 12. To
be eligible for a payment under this Section 3(a)(i)(C), the Participant must be
enrolled in the Companys applicable health, dental, and vision benefits on the
date of the Separation from Service.
(ii) Subject to Section 13, the Company, at its expense, shall provide reasonable
outplacement assistance to the Participant, for a period not to exceed fifteen (15) months
following the Participants Separation Date, from a professional outplacement assistance
firm which is reasonably suitable to the Participant and commensurate with the
Participants position and responsibilities. In no event shall the amount expended for
outplacement assistance for the Participant exceed One Thousand Dollars ($1,000) per month.
-5-
(iii) The Participant shall be entitled to a pro-rata award of any award payable under
the Companys Short Term Incentive Plan (Incentive Plan) based upon the Participants
actual performance and the attainment of goals established under the Plan as determined by
the Board in its sole discretion. Such pro-rata award shall be payable at the time such
awards are payable under the Incentive Plan. The pro-rata portion shall be based on the
number of days preceding the Separation Date in the performance period during which the
Separation Date occurs, divided by 365.
(iv) The Participant shall be entitled to a pro-rata award of any outstanding
performance shares granted under HRBs 2003 Long-Term Executive Compensation Plan (or any
predecessor or successor plan) as of his Separation Date based on the achievement of the
performance goals at the end of the then applicable performance period. Payment of such
performance shares shall be made in a single lump sum upon the later of: (a) ten (10) days
following the expiration of the applicable performance period or (ii) the date which is six
(6) months following the Participants Separation from Service.
(b) A Participant who receives any payments and other benefits under this Section 3 shall not
be eligible for any severance-related payments or benefits under any employment-related agreement
or plan, policy or program of the Company. The payments and other benefits under this Section 3
shall offset any amounts due under the Worker Adjustment Retraining Notification Act of 1988 or any
similar statute or regulation.
Section 4. Equity Awards.
(a) Qualifying Termination
(i) In the event a Participant incurs a Qualifying Termination, such Participant shall
become vested in any outstanding stock options that would have vested during the 12-month
period following the Participants Separation Date had the Participant remained an employee
with the Company. This Section 4(a)(i) applies to stock options granted under HRBs 2003
Long-Term Executive Compensation Plan or any predecessor or successor plan. The
Participant may exercise such options until the earlier of: (a) fifteen (15) months
following the Participants Separation Date or (b) the last day the options would have been
exercisable if the Participant had not incurred a Separation from Service.
(ii) In the event a Participant incurs a Qualifying Termination, such Participant
shall become vested in any portion of any outstanding restricted stock/stock unit awards
(other than performance shares) that would have lapsed during the 12-month period
following the Participants Separation Date had the Participant remained an employee with
the Company. This Section 4(a)(ii) applies to restricted shares/units granted under HRBs
2003 Long-Term Executive Compensation Plan or any predecessor or successor plan.
(b) Change in Control
(i) In the event a Participant incurs a Change in Control Termination, such
Participant shall become 100% vested in all outstanding stock options granted under HRBs
2003 Long-Term Executive Compensation Plan or any predecessor or successor plan. The
Participant may exercise such options until the earlier of: (a) fifteen (15)
-6-
months following the Participants Separation Date or (b) the last day the options
would have been exercisable if the Participant had not incurred a Separation from Service.
(ii) In the event a Participant incurs a Change in Control Termination, such
Participant shall become 100% vested in all outstanding restricted stock awards (other than
performance shares) granted under HRBs 2003 Long-Term Executive Compensation Plan or any
predecessor or successor plan.
Section 5. Repayment; Clawback.
Notwithstanding any provision in this Plan to the contrary, if (x) the Company is required to
restate any of its financial statements filed with the Securities and Exchange Commission, other
than restatements due solely to factors external to the Company such as a change in accounting
principles or a change in securities laws or regulations with retroactive effect or (y) the
Participant violates the provisions of any confidentiality, non-competition, non-solicitation or
similar agreement or policy, then the Board may recover or require reimbursement of all severance,
equity compensation awards (including profits from the sale of Company stock acquired pursuant to
such awards) and/or other payments or benefits made to the Participant under this Plan. In
exercising its discretion to recover or require reimbursement of any amounts as a result of any
restatement pursuant to clause (x) above, the Board will give reasonable and due consideration to,
among other relevant factors, the level of the Participants responsibility or influence, as well
as the level of others responsibility or influence, over the judgments or actions that gave rise
to the restatement.
Section 6. Other Payments.
Upon any Separation from Service entitling the Participant to payments under this Plan, the
Participant shall receive all accrued but unpaid salary and all benefits accrued and payable under
any plans, policies and programs of the Company, except for benefits payable under any severance
plan, policy or arrangement of the Company.
Section 7. Enforcement.
If a Participant incurs any expenses associated with the successful enforcement of his rights
under this Plan by arbitration, litigation or other legal action, then the Company shall pay the
Participant on demand of all reasonable expenses (including all attorneys fees and legal expenses)
incurred by the Participant in enforcing such rights under this Plan. The Participant shall notify
the Company of the expenses for which the Participant demands reimbursement within sixty (60) days
after the Participant receives an invoice for such expenses, and the Company shall pay the
reimbursement amount within fifteen (15) days after receipt of such notice, subject to Section 13.
For purposes of clarity, the Company shall have no obligation to reimburse the Participant for any
expenses incurred by such Participant if any court, arbitrator, mediator or other judicial panel
rules in favor of the Company with respect to the dispute giving rise to such expenses.
Section 8. No Mitigation.
A Participant shall not be required to mitigate the amount of any payment or benefit provided
for in this Plan by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for herein be reduced by any compensation earned by other employment or otherwise.
-7-
Section 9. Nonexclusivity of Rights.
Nothing in this Plan shall prevent or limit a Participants continued or future participation
in or rights under any benefit, bonus, incentive or other plan or program provided by the Company
and for which the Participant may qualify, except as provided in this Plan.
Section 10. No Set Off.
The Companys obligation to make the payments provided for in this Plan and otherwise to
perform its obligations hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may
have against the Participant or others.
Section 11. Taxation.
(a) To the extent applicable, this Plan shall be construed and administered consistently with
Section 409A and the regulations and guidance issued thereunder. If the Participant is a
specified employee as described in Section 409A, on his Separation Date, then any amount to which
the Participant would otherwise be entitled during the first six months following his Separation
from Service that constitutes nonqualified deferred compensation within the meaning of Section 409A
and therefore is not exempt from 409A shall be accumulated and paid in a single lump sum (without
interest) on the date which is six (6) months following the Participants Separation from Service,
but only to the extent required by Section 409A(a)(2)(B)(i). Because the requirements of Section
409A are still being developed and interpreted by government agencies, certain issues under Section
409A remain unclear as of the Effective Date of this Plan, and the Company has made a good faith
effort to comply with current guidance under Section 409A. Notwithstanding the foregoing or any
provision in this Plan to the contrary, the Company does not warrant or promise compliance with
Section 409A of the Code and no Participant or other person shall have any claim against the
Company for any good faith effort taken by the Company to comply with Section 409A.
(b) All payments and other benefits received by the Participant under this Plan shall be
subject to all requirements of the law with regard to tax withholding and reporting and filing
requirements, and the Company shall use its best efforts to satisfy promptly all such requirements.
Section 12. Golden Parachute Payment.
(a) In the event that it is determined that any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of a
Participant, whether paid or payable or distributed or distributable pursuant to the terms of this
Plan or otherwise (the Change in Control Payment), would constitute an excess parachute payment
within the meaning of Section 280G of the Code, then the Company shall pay to the Participant
whichever of the following gives the Participant the highest net after-tax amount (after taking
into account all applicable federal, state, local and security taxes): (1) the Change in Control
Payment, or (2) the amount that would not result in the imposition of excise tax on the Participant
under Code Section 4999. Any required reduction in the Change in Control Payment pursuant to the
foregoing shall be accomplished solely by reducing the lump sum severance payment payable pursuant
to Section 3(a)(i) of this Plan.
-8-
(b) All determinations to be made under this Section 12 shall be made by an independent
registered public accounting firm selected by the Company immediately prior to the Change in
Control (the Accounting Firm), which shall provide its determinations and any supporting
calculations both to the Company and the Participant within ten (10) days of the Change in Control.
Any such determination by the Accounting Firm shall be binding upon the Company and the
Participant. All of the fees and expenses of the Accounting Firm in performing the determinations
referred to in this Section 12 shall be borne solely by the Company.
Section 13. Reimbursements.
Any reimbursements or in-kind benefits to be provided pursuant to this Plan (including, but
not limited to under Section 3(a)(ii)) that are taxable to the Participant shall be subject to the
following restrictions: (a) each reimbursement must be paid no later than the last day of the
calendar year following the calendar year during which the expense was incurred or tax was
remitted, as the case may be; (b) the amount of expenses or taxes eligible for reimbursement, or in
kind benefits provided, during a calendar year may not affect the expenses or taxes eligible for
reimbursement, or in-kind benefits to be provided, in any other calendar year; and (c) the period
during which any reimbursement may be paid or in-kind benefit may be provided shall end ten years
after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit.
Section 14. Term.
This Plan is effective as of the Effective Date and shall continue with respect to a
Participant until the earliest of: (a) the Participants Separation from Service, or (b) the date
the Participant enters into a written separation agreement with the Company.
Section 15. Successor Company.
The Company shall require any successor or successors (whether direct or indirect, by
purchase, merger or otherwise) to all or substantially all of the business or assets of the Company
to acknowledge expressly that this Plan is binding upon and enforceable against the Company in
accordance with the terms hereof, and to become jointly and severally obligated with the Company to
perform this Plan in the same manner and to the same extent that the Company would be required to
perform if no such succession or successions had taken place.
Section 16. Notice.
All notices and other communications required or permitted hereunder or necessary or
convenient in connection herewith shall be in writing and shall be delivered personally or mailed
by registered or certified mail, return receipt requested, or by overnight express courier service,
as follows:
If to the Company, to:
H&R Block, Inc.
One H&R Block Way
Kansas City MO 64105
Attention: Corporate Secretary
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If to the Participant, to the most recent address provided by the Participant to the Company
for payroll purposes, or to such other address as the Company or the Participant, as the case may
be, shall designate by notice to the other party hereto in the manner specified in this Section 17;
provided, however, that if no such notice is given by the Company following a Change in Control,
notice at the last address of the Company or any successor shall be deemed sufficient for the
purposes hereof. Any such notice shall be deemed delivered and effective when received in the case
of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in
the case of registered or certified mail, or on the next business day in the case of overnight
express courier service.
Section 17. Amendment.
This Plan may be amended at anytime by the Board with respect to all or some of the
Participants, provided that any such amendment may not decrease or restrict a Participants rights
under this Plan without his consent.
Section 18. Administration.
The Plan shall be administered by the Board which shall have the exclusive discretion and
authority to make, amend, interpret and enforce all appropriate rules and regulations for the
administration of this Plan and to decide or resolve any and all questions that may arise in
connection with the Plan. Any decision or action of the Board with respect to any question arising
out of or in connection with the administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Plan. In the administration of this Plan, the Board may employ
agents and delegate to them such administrative duties as the Board deems appropriate (including
acting through a duly appointed representative) and may from time to time consult with counsel who
may be counsel to the Company.
Section 19. No Right to Continued Employment.
Nothing in this Plan shall be construed as giving the Participant any right to be retained in
the employ of the Company.
Section 20. Claims Procedure
Any Participant may deliver to the Board a written claim for a determination with respect to
the amounts distributable to such Participant from the Plan. If such a claim relates to the
contents of a notice received by the Participant, the claim must be made within 60 days after such
notice was received by the Participant. The claim must state with particularity the determination
desired by the Participant. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred.
The Board shall consider a Participants claim within 90 days (unless special circumstances
require additional time), and shall notify the Participant in writing: (i) that the Participants
requested determination has been made, and that the claim has been allowed in full; or (ii) that
the Board has reached a conclusion contrary, in whole or in part, to the Participants requested
determination. Such notice must set forth in a manner calculated to be understood by the
Participant and include the following information:
(a) the specific reason(s) for the denial of the claim, or any part of it;
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(b) specific reference(s) to pertinent provisions of the Plan upon which such denial
was based;
(c) a description of any additional material or information necessary for the
Participant to perfect the claim, and an explanation of why such material or information is
necessary; and
(d) an explanation of the claim review procedure set forth below.
Within 60 days after receiving a notice from the Board that a claim has been denied,
in whole or in part, a Participant (or the Participants duly authorized representative)
may file with the Board a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began, the Participant
(or the Participants duly authorized representative):
(i) may review pertinent documents;
(ii) may submit written comments or other documents; and/or
(iii) may request a hearing, which the Board, in its sole discretion, may grant.
The Board shall render its decision on review promptly, and not later than 60 days
after the filing of a written request for review of the denial, unless a hearing is held or
other special circumstances require additional time, in which case the Boards decision
must be rendered within 120 days after such date. Such decision must be written in a
manner calculated to be understood by the Participant, and it must contain:
(x) specific reasons for the decision;
(y) specific reference(s) to the pertinent Plan provisions upon which the decision was
based; and
(z) such other matters as the Board deems relevant.
A Participants compliance with the foregoing provisions of this Section 21 is a
mandatory prerequisite to a Participants right to commence any legal action with respect
to any claim for benefits under this Plan. Service of legal process shall be made to: H&R
Block Management, LLC, Attention: General Counsel, One H&R Block Way, Kansas City,
Missouri 64105.
Section 21. Governing Law.
This Plan shall be governed by and interpreted under the laws of the State of Missouri without
giving effect to any conflict of laws provisions. Any legal action or proceeding with respect with
this Plan shall be brought exclusively in the courts of the State of Missouri without regard to any
conflicts of law.
Section 22. Successors and Assigns.
All of the terms and provisions of this Plan shall be binding upon and inure to the benefit of
and be enforceable by the respective heirs, representatives, successors and assigns of the
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parties hereto, except that the duties and responsibilities of the Participant and the Company
hereunder shall not be assignable in whole or in part.
Section 23. Severability.
If any provision of this Plan or application thereof to anyone or under any circumstances
shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Plan which can be given effect without the
invalid or unenforceable provision or application.
Section 24. Remedies Cumulative; No Waiver.
No right conferred upon the Participant by this Plan is intended to be exclusive of any other
right or remedy, and each and every such right or remedy shall be cumulative and shall be in
addition to any other right or remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission by the Participant in exercising any right, remedy or power hereunder
or existing at law or in equity shall be construed as a waiver thereof.
Section 25. Headings.
The captions of the articles, sections and paragraphs of this Plan are for convenience only
and shall not control or affect the meaning or construction of any of its provisions.
Section 26. Statement of ERISA Rights.
In accordance with ERISA, each Participant shall be entitled to:
(a) Examine, without charge (by contacting the Plan Administrator) all Plan documents
and copies of all documents governing the Plan and a copy of the latest annual report (Form
5500 series) filed by the Plan with the U.S. Department of Labor and available at the
Public Disclosure Room of the Employee Benefits Security Administration;
(b) Obtain copies of all Plan documents and other Plan information upon written
request to the Plan Administrator. A reasonable fee may be charged for these copies;
(c) Receive a summary of the Plans annual financial report. The Plan Administrator
is required to furnish each Participant with a copy of this summary annual report; and
(d) Obtain a statement showing the Participants account balance (if any).
In addition to creating rights for Plan Participants, ERISA imposes duties upon the persons
who are responsible for the operation of the Plan. The persons who operate the Plan are called
fiduciaries and have a duty to operate the Plan prudently and in the interest of Plan
Participants and beneficiaries. No one, including the employer, may fire a Participant or
otherwise discriminate against the Participant in any way to prevent him from obtaining a benefit
or exercising his rights under ERISA. If a claim for a benefit is denied in whole or in part the
Participant must receive a written explanation of the reason for the denial. The Participant has
the right to have the Plan Administrator review and reconsider the claim.
-12-
Under ERISA, there are steps a Participant can take to enforce the above rights. For
instance, if a Participant may request any of the materials listed above from the Plan
Administrator and do not receive them within 30 days, the Participant may file suit in a federal
court. In such a case, the court may require the Plan Administrator to provide the materials and
pay up to $110 a day until the Participant receives the materials, unless the materials were not
provided because of reasons beyond the control of the Plan Administrator.
If a claim for benefits is denied or ignored, either in whole or in part, the Participant may
file suit in a state or federal court. In the event that Plan fiduciaries misuse the Plans funds,
or if the Participant is discriminated against for asserting his rights, he may seek assistance
from the U.S. Department of Labor, or file suit in a federal court. The court will decide who
should pay court costs and legal fees. If a Participant is successful the court may order the
person have sued to pay these costs and fees. But if the Participant loses, the court may order
the Participant to pay these costs and fees if, for example, it finds the claim is frivolous.
Any questions concerning the Plan should be directed to the Plan Administrator. Additional
information about this statement or a Participants rights under ERISA may be obtained from the
nearest Office of the Employee Benefits Security Administration, U.S. Department of Labor, listed
in the telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits
Security Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210. A Participant may also obtain certain publications about his rights and responsibilities
under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
[The remainder of this page is intentionally left blank]
-13-
IN WITNESS WHEREOF, the Company has executed this Plan this 12th day of May 2009, but
effective as of the Effective Date.
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H&R BLOCK, INC.
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Title: |
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EXHIBIT A
SEVERANCE AND RELEASE AGREEMENT
(Employee) and (Company) enter into this Severance
and Release Agreement (Release Agreement) under the terms and conditions recited below:
I. Recitations
A. Due to changing business needs, Employee has been notified that his/her employment with
Company will end on (the Termination Date).
B. Employee and Company want to enter into a full and final settlement of all issues and
matters between them, occurring on or before the date Employee signs this Release Agreement. These
include, but are not limited to, any issues and matters that may have arisen out of Employees
employment with or separation from Company.
C. Employee specifically acknowledges that Company has told him/her to consult with a lawyer
prior to signing this Release Agreement.
D. Employee specifically agrees that he/she will not sign this Release Agreement until after
the Termination Date.
E. In exchange for the mutual promises of Employee and Company set forth in this Release
Agreement, Employee and Company agree to the terms and conditions set out below.
II. Basic Terms of the Release Agreement
A. Upon receipt of a fully executed copy of this Release Agreement and after the expiration of
the period defined in paragraph III(A) below, Company agrees to provide Employee with the payments
and benefits to which Employee is entitled under the H&R Block, Inc. Executive Change in Control
and Severance Plan (the Plan). A copy of the Plan is attached to this Release Agreement as
Exhibit A. Employee is not entitled to any payments or benefits under the Plan unless Employee
signs and returns this Release Agreement within twenty-one (21) calendar days of being presented
with it. Employee may sign this Release Agreement at any time prior to conclusion of the
twenty-one (21) day period. Assuming Employee chooses to sign this Release Agreement and that such
signature becomes binding because Employee has not revoked his/her signature within seven (7)
calendar days after signing, the terms of the Plan govern the payments and benefits to which
Employee is entitled.
B. Employee agrees to the following:
1. Release of Claims. Employee agrees to release and discharge Company, and any of its
related companies, present and former officers, agents, successors, assigns, other employees and
attorneys from any and all claims arising before the date Employee signs the Release Agreement
including, without limitation, any claims that may have arisen from
-15-
Employees employment with or separation from Company, all as more fully set forth in
paragraphs IV(A) through (E) below.
2. Confidential Information. Employee agrees, during and after the term of this Release
Agreement he/she will not, without the prior written consent of Company, directly or indirectly use
for the benefit of any person or entity other than Company, or make known, divulge or communicate
to any person, firm, corporation or other entity, any confidential or proprietary information,
knowledge or trade secrets acquired, developed or learned of by Employee during his/her employment
with Company. Employee shall not retain after the Termination Date, any document, record, paper,
disk, tape or compilation of information relating to any such confidential information.
3. Return of Company Property. Employee shall return to Company by the Termination Date, any
and all things in his/her possession or control relating to Company and its related entities,
including but not limited to any equipment issued to Employee, all correspondence, reports,
contracts, financial or budget information, personnel or labor relations files, office keys,
manuals, and all similar materials not specifically listed here. Employee further agrees that as
of the Termination Date he/she will have no outstanding balance on his/her corporate credit card
for which appropriate travel and expense accounting has not been submitted.
4. Non-Solicitation of Employees. For a period of two years after Employees Termination
Date, Employee agrees that he/she will not directly or indirectly recruit, solicit, or hire any
employee of the Company or of its parents, subsidiaries or related-companies (collectively
Affiliates) or otherwise induce any Company or Affiliate employee to leave the employment of the
Company or Affiliate to become an employee of or otherwise be associated with any other party or
with Employee or any company or business with which Employee is or may become associated. The
running of the two-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.
5. Non-Solicitation of Customers. For a period of two years after Employees Termination
Date, Employee agrees that he/she will not directly or indirectly solicit or enter into any
arrangement with any person or entity which is, at the time of the solicitation, a significant
customer of the Company or an Affiliate for the purpose of engaging in any business transaction of
the nature performed by the Company or such Affiliate, or contemplated to be performed by the
Company or such Affiliate, for such customer, provided that this Section will only apply to
customers for whom Employee personally provided services while employed by the Company or customers
about whom or which Employee acquired material information while employed by the Company. The
running of the two-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.
6. Non-Competition. For two years after Employees Termination Date, Employee agrees that
he/she will not engage in, or own or control any interest in (except as a passive investor in less
than one percent of the outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant or advisor to, any firm, corporation, partnership, limited
liability company, institution, business, government agency, or entity that engages in any line of
business that is competitive with any Line of Business of Block (as defined below). The definition
of Line of Business of Block shall be determined as of the Termination Date and shall mean any
line of business (including lines of business under substantial evaluation
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or substantial development) of the Company as of such date, as well as any one or more lines
of business (including lines of business under substantial evaluation or substantial development)
of any Affiliate as of such date, if Employee was employed during the two-year period preceding the
Termination Date by such Affiliate, provided that, Line of Business of Block will in all events
include, but not be limited to, the income tax return preparation business, and provided further
that if Employees employment was, as of the Termination Date or during the two-year period
immediately prior to the Termination Date, with the Company or any successor entity thereto, Line
of Business of Block means any line of business (including lines of business under substantial
evaluation or substantial development) of Block and all of the Affiliates as of the date of
Employees termination. The running of the two-year period will be suspended during any period of
violation and/or any period of time required to enforce this covenant by litigation or threat of
litigation.
7. Non-disparagement. Employee agrees he/she will not disparage Company or make or solicit
any comments to the media or others that may be considered derogatory or detrimental to the good
business name or reputation of Company. This clause has no application to any communications with
the Equal Employment Opportunity Commission or any state or local agency responsible for
investigation and enforcement of discrimination laws.
8. Employee Availability/Cooperation. Employee agrees to reasonably assist and cooperate with
the Company and/or any Affiliate (and their outside counsel) in connection with the defense or
prosecution of any claim that may be made or threatened against or by the Company or any Affiliate,
or in connection with any ongoing or future investigation or dispute or claim of any kind involving
the Company or any Affiliate, including any proceeding before any arbitral, administrative,
judicial, legislative, or other body or agency, including preparing for and testifying in any
proceeding to the extent such claims, investigations or proceedings relate to services performed or
required to be performed by Employee, pertinent knowledge possessed by Employee, or any act or
omission by Employee. Employee will perform all acts and execute and deliver any documents that
may be reasonably necessary to carry out the provisions of this Section. Upon presentment to the
Company of appropriate documentation, the Company will pay directly or reimburse Employee for the
reasonable out-of pocket expenses incurred as a result of such cooperation.
III. Acknowledgments and Additional Terms
A. Revocation Period. Employee acknowledges that if he/she accepts the terms of this Release
Agreement he/she will have seven (7) calendar days after the date he/she signs this Release
Agreement to revoke his/her acceptance of its terms. Such revocation, to be effective, must be
delivered by written notice, in a manner so the notice is received on or before the seventh day by:
Human Resources, Compensation Department, H&R Block, Inc., One H&R Block Way, Kansas City, MO
64105.
B. Opportunity to Consult Attorney. Employee acknowledges he/she has consulted or has had the
opportunity to consult with her/his attorney prior to executing the Release Agreement.
C. No Admission of Liability. Employee and Company agree nothing in this Release Agreement is
an admission by either of any wrongdoing, and that nothing in this Release Agreement is to be
construed as such by anyone.
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D. Consideration. Employee agrees provision of the payments and benefits set forth in
paragraphs II(A)(1) and (2) are valuable consideration to which Employee would not otherwise be
entitled.
E. Choice of Law. All disputes which arise out of the interpretation and enforcement of this
Release Agreement shall be governed by the laws of the State of Missouri without giving effect to
its choice of law provisions.
F. Entire Agreement. This Release Agreement including Exhibit A is the entire agreement
between the parties. The parties acknowledge the terms of the Plan can be terminated or changed
according to the terms set forth in the Plan. The parties acknowledge the terms of this Release
Agreement can only be changed by a written amendment to the Release Agreement signed by both
parties.
G. No Reliance. The parties have not relied on any representations, promises, or agreements
of any kind made to them in connection with this Release Agreement, except for those set forth in
writing in this Release Agreement or in the Plan.
H. Separate Signatures. Separate copies of this Release Agreement shall constitute originals
which may be signed separately but which together will constitute one single agreement.
I. Effective Date. This Release Agreement becomes effective and binding on the eighth
calendar day following Employees execution of the Release Agreement.
J. Severability. If any provision of this Release Agreement, including the Plan, is held to
be invalid, the remaining provisions shall remain in full force and effect.
K. Continuing Obligations. Any continuing obligations Employee has after separation of
employment pursuant to any employment agreement with Company, the Plan, or by operation of law
survive this Release Agreement. The terms of this Release Agreement add to any such obligations
and are not intended to otherwise modify them in any way.
IV. Release
A. In consideration of the recitations and agreements listed above, Employee releases, and
forever discharges Company and each and every one of its parent, affiliate, subsidiary, component,
predecessor, and successor companies, and their respective past and present agents, officers,
executives, employees, attorneys, directors, and assigns (collectively the Released Parties),
from any and all matters, claims, charges, demands, damages, causes of action, debts, liabilities,
controversies, claims for attorneys fees, judgments, and suits of every kind and nature
whatsoever, foreseen or unforeseen, known or unknown, which have arisen between Employee and the
Released Parties up to the date Employee signs this Release Agreement.
B. This release of claims includes, but is not limited to: (1) any claims he/she may have
relating to any aspect of her/his employment with the Released Parties and/or the separation of
that employment, (2) any breach of an actual or implied contract of employment between Employee and
the Released Parties, (3) any claim of unjust or tortuous discharge, (4) any common-law claim
(including but not limited to fraud, negligence, intentional or negligent infliction of emotional
distress, negligent hiring/retention/supervision, or defamation), and (5)(i)
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any claims arising under the Civil Rights Act of 1866, 42 U.S.C. § 1981, (ii) the Civil Rights
Act of 1964, 42 U.S.C. §§ 2000e, et seq., as amended by the Civil Rights Act of 1991, (iii) the Age
Discrimination in Employment Act, 29 U.S.C. §§ 621, et seq. (including but not limited to the Older
Worker Benefit Protection Act), (iv) the Employee Retirement Income Security Act, 29 U.S.C. §§
1001, et seq., (v) the Rehabilitation Act of 1973, 29 U.S.C. §§ 701, et seq., (vi) the American
with Disabilities Act, 42 U.S.C. §§ 12101, et seq., (vii) the Occupational Safety and Health Act,
29 U.S.C. §§ 651, et. seq., (viii) the National Labor Relations Act, 29 U.S.C. §§ 151, et. seq.,
(ix) the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq., (6) any
applicable state employment discrimination statute, (7) any applicable state workers compensation
statute, and (8) any other federal, state, or local statutes or ordinances.
C. Employee further agrees in the event any person or entity should bring such a charge,
claim, complaint, or action on her/his behalf, he/she hereby waives and forfeits any right to
recovery under said claim and will exercise every good faith effort to have such claim dismissed.
This Release Agreement does not affect, however, the Equal Employment Opportunity Commissions
(EEOCs) rights and responsibilities to investigate or enforce applicable employment
discrimination statutes.
D. For purposes of the Age Discrimination in Employment Act (ADEA) only, this Release
Agreement does not affect the EEOCs rights and responsibilities to enforce the ADEA, nor does this
Release Agreement prohibit Employee from filing a charge under the ADEA (including a challenge to
the validity of the waiver of claims in this Release Agreement) with the EEOC, or participating in
any investigation or proceeding conducted by the EEOC. Nevertheless, Employee agrees that the
Released Parties will be shielded against any recovery by Employee, provided this Release Agreement
is valid under applicable law.
E. Employee agrees he/she waives any right to participate in any settlement, verdict or
judgment in any class action against the Released Parties arising from conduct occurring on or
before the date Employee signs this Release Agreement, and that he/she waives any right to accept
anything of value or any injunctive relief associated with any such pending or threatened class
action against the Released Parties.
THIS IS A RELEASE OF CLAIMS READ CAREFULLY BEFORE SIGNING
I have read this Severance and Release Agreement. I have had the opportunity to obtain the
advice of legal counsel concerning the meaning and effect of this Release Agreement. Company
advised me to seek the advice of counsel on this issue. I fully understand the terms of this
Release Agreement and I understand it is a complete and final release of any of my claims against
Company. I sign the Release Agreement as my own free act and deed.
-19-
exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell P. Smyth, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: September 4, 2009 |
/s/ Russell P. Smyth
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Russell P. Smyth |
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Chief Executive Officer
H&R Block, Inc. |
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exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Becky S. Shulman, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: September 4, 2009 |
/s/ Becky S. Shulman
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Becky S. Shulman |
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Executive Vice President and Chief Financial Officer
H&R Block, Inc. |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the fiscal quarter ending July 31, 2009 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Russell P. Smyth, Chief Executive Officer of the Company, certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Russell P. Smyth
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Russell P. Smyth |
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Chief Executive Officer
H&R Block, Inc. September 4, 2009 |
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exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the fiscal quarter ending July 31, 2009 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Becky S. Shulman, Senior Vice President and Chief Financial Officer
of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Becky S. Shulman
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Becky S. Shulman |
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Executive Vice President and Chief
Financial Officer
H&R Block, Inc. September 4, 2009 |
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