e10vk
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
|
|
For the fiscal year ended April 30,
2010
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file
number 1-6089
H&R Block,
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
MISSOURI
|
|
44-0607856
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
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)
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Title of each
class
|
|
Name of each
exchange on which registered
|
Common Stock, without par value
|
|
New York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the registrant is a well-known
seasoned issuer as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
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
þ
No
o
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):
|
|
|
|
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
(Do
not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act). Yes
o
No
þ
The aggregate market value of the registrants Common Stock
(all voting stock) held by non-affiliates of the registrant,
computed by reference to the price at which the stock was sold
on October 31, 2009, was $6,250,540,705.
Number of shares of the registrants Common Stock, without
par value, outstanding on May 31, 2010: 323,306,058.
Documents
incorporated by reference
The definitive proxy statement for the registrants Annual
Meeting of Shareholders, to be held September 30, 2010, is
incorporated by reference in Part III to the extent
described therein.
2010
FORM 10-K
AND ANNUAL REPORT
TABLE
OF CONTENTS
Specified portions of our proxy statement are listed as
incorporated by reference in response to certain
items. Our proxy statement will be made available to
shareholders in August 2010, and will also be available on our
website at www.hrblock.com.
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 they are 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.
PART I
GENERAL
DEVELOPMENT OF BUSINESS
H&R Block has subsidiaries that provide tax, banking and
business and consulting services. Our Tax Services segment
provides income tax return preparation, electronic filing and
other services and products related to income tax return
preparation to the general public primarily in the United
States, and also in 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), along with other retail banking services. Our
Business Services segment consists of RSM McGladrey, Inc. (RSM),
a national tax and consulting firm primarily serving mid-sized
businesses. Corporate operations 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.
H&R Block, Inc. was organized as a corporation in 1955
under the laws of the State of Missouri. 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. A complete list of
our subsidiaries can be found in Exhibit 21.
NEW
DEVELOPMENTS
In May 2010 we announced plans to realign field and
support organizations. The realignment included approximately
400 staff reductions and 400 office closures. Associated
severance benefits were recorded primarily during the first
fiscal quarter of 2011 and totaled approximately
$19 million. There were no significant costs incurred in
connection with announced office closures.
During fiscal year 2010, we entered into a new unsecured
committed line of credit (CLOC) agreement to support commercial
paper issuances, general corporate purposes and for working
capital needs. The new facility provides funding up to
$1.7 billion and matures July 31, 2013. This facility
replaced our existing CLOCs, which were set to mature in August
2010. See additional discussion in Item 8, note 10 to
the consolidated financial statements.
RSM and McGladrey & Pullen LLP (M&P), an
independent registered public accounting firm, collaborate to
provide tax and consulting services to clients under an
alternative practice structure (APS). 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.
Effective February 3, 2010, RSM and M&P entered into
new agreements related to the operation of the APS. See
additional discussion of the new agreements in Item 8,
note 17.
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 the corporate segment.
Presentation of prior period results reflects the new segment
reporting structure.
H&R
BLOCK 2010
Form 10K 1
FINANCIAL
INFORMATION ABOUT INDUSTRY SEGMENTS
See discussion below and in Item 8, note 21 to our
consolidated financial statements.
DESCRIPTION OF
BUSINESS
TAX
SERVICES
GENERAL
Our Tax Services segment is primarily engaged in
providing tax return preparation and related services and
products in the U.S. and its territories, Canada and
Australia. Major revenue sources include fees earned for tax
preparation services performed at company-owned retail tax
offices, royalties from franchise retail tax offices, fees for
tax-related services, sales of tax preparation and other
software, online tax preparation fees, participation in refund
anticipation loans (RALs), refund anticipation checks (RACs),
fees from activities related to H&R Block Prepaid Emerald
MasterCard®,
and interest and fees from Emerald Advance lines of credit. HRB
Bank also offers traditional banking services including checking
and savings accounts, individual retirement accounts and
certificates of deposit. Segment revenues constituted 76.8% of
our consolidated revenues from continuing operations for fiscal
year 2010, 76.7% for 2009 and 74.9% for 2008.
Retail income tax return preparation and related services are
provided by tax professionals via a system of retail offices
operated directly by us or by franchisees. We also offer our
services through seasonal offices located inside major retailers.
TAX RETURNS
PREPARED
We, together with our franchisees, prepared approximately
23.2 million tax returns worldwide during fiscal year 2010,
compared to 23.9 million in 2009 and 24.6 million in
2008. We prepared 20.1 million tax returns in the
U.S. during fiscal year 2010, down from 21.0 million
in 2009 and 21.8 million in 2008. Our U.S. tax returns
prepared, including those prepared by our franchisees and those
prepared and filed at no charge, for the 2010 tax season
constituted 15.6% of an Internal Revenue Service (IRS) estimate
of total individual income tax returns filed during the fiscal
year 2010 tax season. This compares to 15.8% in the 2009 tax
season and 16.2% in the 2008 tax season, excluding tax returns
filed as a result of the Economic Stimulus Act of 2008 (Stimulus
Act). See Item 7 for further discussion of changes in the
number of tax returns prepared.
FRANCHISES
We offer franchises as a way to expand our presence in
certain markets. Our franchise arrangements provide us with
certain rights designed to protect our brand. Most of our
franchisees receive use of our software, access to product
offerings and expertise, signs, specialized forms, local
advertising, initial training and supervisory services, and pay
us a percentage, typically approximately 30%, of gross tax
return preparation and related service revenues as a franchise
royalty.
During fiscal years 2010 and 2009 we sold certain offices to
existing franchisees for sales proceeds totaling
$65.7 million and $16.9 million, respectively. The net
gain on these transactions totaled $49.0 million and
$14.9 million in fiscal years 2010 and 2009, respectively.
The extent to which we sell company-owned offices will depend
upon ongoing analysis regarding the optimal mix of offices for
our network, including geographic location, as well as our
ability to identify qualified franchisees.
From time to time, we have also acquired the territories of
existing franchisees and other tax return preparation
businesses, and may continue to do so if future conditions
warrant and satisfactory terms can be negotiated. During fiscal
year 2009, we acquired the assets and franchise rights of our
last major independent franchise operator for an aggregate
purchase price of $279.2 million.
OFFICES
A summary of our company-owned and franchise offices is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
U.S. OFFICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned offices
|
|
|
6,431
|
|
|
|
7,029
|
|
|
|
6,835
|
|
Company-owned shared
locations(1)
|
|
|
760
|
|
|
|
1,542
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company-owned offices
|
|
|
7,191
|
|
|
|
8,571
|
|
|
|
8,313
|
|
|
|
|
Franchise offices
|
|
|
3,909
|
|
|
|
3,565
|
|
|
|
3,812
|
|
Franchise shared
locations(1)
|
|
|
406
|
|
|
|
787
|
|
|
|
913
|
|
|
|
|
Total franchise offices
|
|
|
4,315
|
|
|
|
4,352
|
|
|
|
4,725
|
|
|
|
|
|
|
|
11,506
|
|
|
|
12,923
|
|
|
|
13,038
|
|
|
|
|
INTERNATIONAL OFFICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
1,269
|
|
|
|
1,193
|
|
|
|
1,143
|
|
Australia
|
|
|
374
|
|
|
|
378
|
|
|
|
366
|
|
|
|
|
|
|
|
1,643
|
|
|
|
1,571
|
|
|
|
1,509
|
|
|
|
|
|
2 H&R
BLOCK 2010 Form 10K
|
|
(1)
|
Shared locations
include offices located within Sears or other third-party
businesses. In 2009 and 2008, these locations also included
offices within Wal-Mart stores.
|
We sold 267 company-owned offices to franchisees in fiscal
year 2010 and 76 offices in fiscal year 2009. Additionally, we
closed more than 1,700 offices in fiscal year 2010, including
over 1,000 offices in Wal-Mart stores.
The acquisition of our last major independent franchise operator
in fiscal year 2009 included a network of over 600 tax offices,
nearly two-thirds of which converted to company-owned offices
upon the closing of the transaction, as reflected in the table
above.
Offices in shared locations at April 30, 2010 consist
primarily of offices in Sears stores operated as H&R
Block at Sears. The Sears license agreement expires in
July 2010. Offices in shared locations at April 30, 2009
and 2008 included offices in Wal-Mart stores. The Wal-Mart
agreement expired in May 2009.
SERVICE AND
PRODUCT
OFFERINGS
In addition to our retail offices, we offer a number of
digital tax preparation alternatives. By offering professional
and do-it-yourself tax preparation options through multiple
channels, we seek to serve our clients in the manner they choose
to be served.
We also offer clients a number of options for receiving their
income tax refund, including a check directly from the IRS, an
electronic deposit directly to their bank account, a prepaid
debit card, a RAC or a RAL.
Software
Products. We
develop and market H&R Block At
Hometm
income tax preparation software. H&R Block At
Hometm
offers a simple
step-by-step
tax preparation interview, data imports from money management
software and tax preparation software, calculations, completion
of the appropriate tax forms, error checking and electronic
filing. Our software products may be purchased through
third-party retail stores, direct mail or online.
Online Tax
Preparation. We
offer a comprehensive range of online tax services, from tax
advice to complete professional and do-it-yourself tax return
preparation and electronic filing, through our website at
www.hrblock.com. This website allows clients to prepare
their federal and state income tax returns using the H&R
Block At
Hometm
Online Tax Program, access tax tips, advice and tax-related news
and use calculators for tax planning.
We participate in the Free File Alliance (FFA). This alliance
was created by the tax return preparation industry and the IRS,
and allows qualified filers with adjusted gross incomes less
than $57,000 to prepare and file their federal return online at
no charge. We feel this program provides a valuable public
service and increases our visibility with new clients, while
also providing an opportunity to offer our state return
preparation and other services to these clients.
RALs. RALs
are offered to our U.S. clients by a designated bank
primarily through a contractual relationship with HSBC Holdings
plc (HSBC). An eligible, electronic filing client may apply for
a RAL at one of our offices. After meeting certain eligibility
criteria, clients are offered the opportunity to apply for a
loan from HSBC in amounts up to $9,999 based on their
anticipated federal income tax refund. We simultaneously
transmit the income tax return information to the IRS and the
lending bank. Within a few days after the filing date, the
client receives a check, direct deposit or prepaid debit card in
the amount of the loan, less the banks transaction fee,
our tax return preparation fee and other fees for
client-selected services. Additionally, qualifying electronic
filing clients are eligible to receive their RAL proceeds, less
applicable fees, in approximately one hour after electronic
filing using the Instant Money service. A RAL is repaid
when the IRS directly deposits the participating clients
federal income tax refund into a designated account at the
lending bank. See related discussion in Loan
Participations below.
RACs. Refund
Anticipation Checks are offered to U.S. clients who would
like to either: (1) receive their refund faster and do not
have a bank account for the IRS to direct deposit their refund;
(2) have their tax preparation fees paid directly out of
their refund; or (3) receive their refund faster but do not
qualify for a RAL under the existing credit criteria. A RAC is
not a loan and is provided through a contractual relationship
with HSBC.
Peace of Mind
(POM)
Guarantee. The
POM guarantee is offered to U.S. clients, in addition to
our standard guarantee, whereby we (1) represent our
clients if audited by the IRS, and (2) assume the cost,
subject to certain limits, of additional taxes owed by a client
resulting from errors attributable to one of our tax
professionals work. The POM program has a per client
cumulative limit of $5,000 in additional taxes assessed with
respect to the federal, state and local tax returns we prepared
for the taxable year covered by the program.
Emerald Advance
Lines of
Credit. Emerald
Advance lines of credit are offered to clients in tax offices
from late November through early January, currently in an amount
not to exceed $1,000. If the borrower meets certain criteria as
agreed in the loan terms, the line of credit can be increased
and utilized year-round. These lines of credit are offered by
HRB Bank.
H&R Block
Prepaid Emerald
Mastercard®. The
H&R Block Prepaid Emerald
MasterCard®
allows a client to receive a tax refund from the IRS directly on
a prepaid debit card, or to direct RAL or RAC proceeds to the
card to avoid high-cost check-cashing fees. The card can be used
for everyday purchases, bill payments and ATM withdrawals
anywhere
MasterCard®
is accepted. Additional funds can be added to the card account
year-round
H&R
BLOCK 2010
Form 10K 3
through direct deposit or at participating retail locations. The
H&R Block Prepaid Emerald
MasterCard®
is issued by HRB Bank.
Tax Return
Preparation
Courses. We
offer income tax return preparation courses to the public, which
teach students how to prepare income tax returns and provide us
with a source of trained tax professionals.
CashBack
Program. We
offer a refund discount (CashBack) program to our customers in
Canada. In accordance with current Canadian regulations, if a
customers tax return indicates the customer is entitled to
a tax refund, we issue a check to the client in the amount of
the refund, less a discount. The client assigns to us the full
amount of the tax refund to be issued by the Canada Revenue
Agency (CRA) and the refund check is then sent by the CRA
directly to us. In accordance with the law, the discount is
deemed to include both the tax return preparation fee and the
fee for tax refund discounting. This program is financed by
short-term borrowings. The number of returns discounted under
the CashBack program in fiscal year 2010 was approximately
797,000, compared to 782,000 in 2009 and 749,000 in 2008.
LOAN
PARTICIPATIONS
Since July 1996, we have been a party to agreements with
HSBC and its predecessors to participate in RALs provided by a
lending bank to H&R Block tax clients. During fiscal year
2006, we signed new agreements with HSBC in which we obtained
the right to purchase a 49.9% participation interest in all RALs
obtained through our retail offices. We received a signing bonus
from HSBC during fiscal year 2006 in connection with these
agreements, which was recorded as deferred revenue and is earned
over the contract term. These agreements are effective through
June 2011 and we have the right to extend through 2013. Our
purchases of the participation interests are financed through
short-term borrowings and we bear all of the credit risk
associated with our participation interests. Revenue from our
participation is calculated as the rate of participation
multiplied by the fee paid by the borrower to the lending bank.
Our RAL participation revenue was $146.2 million,
$139.8 million and $190.2 million in fiscal years
2010, 2009 and 2008, respectively.
SEASONALITY OF
BUSINESS
Because most of our clients file their tax returns during
the period from January through April of each year,
substantially all of our revenues from income tax return
preparation and related services and products are received
during this period. As a result, this segment generally operates
at a loss through the first eight months of the fiscal year.
Peak revenues occur during the applicable tax season, as follows:
|
|
|
|
|
|
|
|
United States and Canada
Australia
|
|
January April
July October
|
|
HRB Banks operating results are subject to seasonal
fluctuations primarily related to the offering of the H&R
Block Prepaid Emerald
MasterCard®
and Emerald Advance lines of credit, and therefore peak in
January and February and taper off through the remainder of the
tax season.
COMPETITIVE
CONDITIONS
The retail tax services business is highly competitive.
There are a substantial number of tax return preparation firms
and accounting firms offering tax return preparation services.
Many tax return preparation firms and many firms not otherwise
in the tax return preparation business are involved in providing
electronic filing and RAL services to the public. Commercial tax
return preparers and electronic filers are highly competitive
with regard to price and service. In terms of the number of
offices and personal tax returns prepared and electronically
filed in offices, online and via our software, we are one of the
largest providers of direct tax return preparation and
electronic filing services in the U.S. We also believe we
operate the largest tax return preparation businesses in Canada
and Australia.
Our digital tax solutions businesses compete with a number of
companies. Intuit, Inc. is the largest supplier of tax
preparation software and online tax preparation services. There
are many smaller competitors in the online market, as well as
free state-sponsored online filing programs. Price and marketing
competition for digital tax preparation services is increasing,
including offers of free tax preparation services.
HRB Bank provides banking services primarily to our tax clients,
both retail and digital, and for many of these clients, HRB Bank
is the only provider of banking services. HRB Bank does not seek
to compete broadly with regional or national retail banks.
GOVERNMENT
REGULATION
Federal legislation requires income tax return preparers
to, among other things, set forth their signatures and
identification numbers on all tax returns prepared by them and
retain all tax returns prepared by them for three years. Federal
laws also subject income tax return preparers to
accuracy-related penalties in connection with the preparation of
income tax returns. Preparers may be prohibited from further
acting as income tax return preparers if they continuously and
repeatedly engage in specified misconduct.
The federal government regulates the electronic filing of income
tax returns in part by requiring electronic filers to comply
with all publications and notices of the IRS applicable to
electronic filing. We are required to provide certain electronic
filing information to the taxpayer and comply with advertising
standards for electronic filers. We are also subject to possible
monitoring by the IRS, penalties for improper disclosure or use
of income tax return preparation, other preparer penalties and
suspension from the electronic filing program.
4 H&R
BLOCK 2010 Form 10K
The Gramm-Leach-Bliley Act and related Federal Trade Commission
(FTC) regulations require income tax preparers to adopt and
disclose consumer privacy policies, and provide consumers a
reasonable opportunity to opt-out of having personal
information disclosed to unaffiliated third-parties for
marketing purposes. Some states have adopted or proposed strict
opt-in requirements in connection with use or
disclosure of consumer information. In addition, the IRS
generally prohibits the use or disclosure by tax return
preparers of taxpayer information without the prior written
consent of the taxpayer.
Federal statutes and regulations also regulate an electronic
filers involvement in RALs. Electronic filers must clearly
explain the RAL is a loan and not a substitute for or a quicker
way of receiving an income tax refund. Federal laws place
restrictions on the fees an electronic filer may charge in
connection with RALs. In addition, some states and localities
have enacted laws and adopted regulations for RAL facilitators
and/or the
advertising of RALs.
Certain states have regulations and requirements relating to
offering income tax courses. These requirements include
licensing, bonding and certain restrictions on advertising.
The IRS published proposed amendments on March 26, 2010
that, if finalized, would: (1) require all tax return
preparers to use a Preparer Tax Identification Number (PTIN) as
their identifying number on federal tax returns filed after
December 31, 2010; (2) require all tax return
preparers to be authorized to practice before the IRS as a
prerequisite to obtaining or renewing a PTIN; (3) cause all
currently issued PTINs to expire on December 31, 2010
unless properly renewed; (4) allow the IRS to conduct tax
compliance checks on tax return preparers; and (5) define
the individuals who are considered tax return
preparers for the PTIN requirement. Additionally, it is
expected that five other proposed regulations will be released
in calendar year 2010. These would propose to:
(1) establish instructions for tax return preparers related
to legislative
e-file
mandate requirements; (2) set the amount of the PTIN user
registration fee; (3) establish a new class of
practitioners who are authorized to practice before the IRS
under Circular 230 called registered tax return
preparers and require them to pass a competency
examination as a prerequisite to becoming a registered tax
return preparer, complete annual continuing professional
education requirements, and comply with ethical standards;
(4) set the amount of a sponsor fee for qualified
continuing professional education sponsors; and (5) set the
amount of a competency examination user fee.
As noted above under Offices, many of the income tax
return preparation offices operating in the U.S. under the
name H&R Block are operated by franchisees. Our
franchising activities are subject to the rules and regulations
of the FTC and various state laws regulating the offer and sale
of franchises. The FTC and various state laws require us to
furnish to prospective franchisees a franchise offering circular
containing prescribed information. A number of states in which
we are currently franchising regulate the sale of franchises and
require registration of the franchise offering circular with
state authorities and the delivery of a franchise offering
circular to prospective franchisees. We are currently operating
under exemptions from registration in several of these states
based on our net worth and experience. Substantive state laws
regulating the franchisor/franchisee relationship presently
exist in a substantial number of states, and bills have been
introduced in Congress from time to time that would provide for
federal regulation of the franchisor/franchisee relationship in
certain respects. The state laws often limit, among other
things, the duration and scope of non-competition provisions,
the ability of a franchisor to terminate or refuse to renew a
franchise and the ability of a franchisor to designate sources
of supply. From time to time, we may make appropriate amendments
to our franchise offering circular to comply with our disclosure
obligations under federal and state law.
We also seek to determine the applicability of all government
and self-regulatory organization statutes, ordinances, rules and
regulations in the other countries in which we operate
(collectively, Foreign Laws) and to comply with these Foreign
Laws. In addition, the Canadian government regulates the
refund-discounting program in Canada. These laws have not
materially affected our international operations.
HRB Bank is subject to regulation, supervision and examination
by the Office of Thrift Supervision (OTS), the Federal Reserve
and the Federal Deposit Insurance Corporation (FDIC). All
savings associations are subject to the capital adequacy
guidelines and the regulatory framework for prompt corrective
action. HRB Bank must meet specific capital guidelines involving
quantitative measures of HRB Banks assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. HRB Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.
As a savings and loan holding company, H&R Block, Inc. is
also subject to regulation by the OTS.
See Item 7, Regulatory Environment and
Item 8, note 19 to the consolidated financial
statements for additional discussion of regulatory requirements.
See discussion in Item 1A, Risk Factors for
additional information.
H&R
BLOCK 2010
Form 10K 5
BUSINESS
SERVICES
GENERAL Our
Business Services segment offers tax and consulting services,
wealth management and capital markets services to middle-market
companies. Segment revenues constituted 22.2% of our
consolidated revenues from continuing operations for fiscal year
2010, 22.0% for fiscal year 2009 and 23.0% for fiscal year
2008.
This segment consists primarily of RSM, which provides tax and
consulting services in 88 cities and 26 states and
offers services in 20 of the 25 top U.S. markets.
From time to time, we have acquired related businesses and may
continue to do so if future conditions warrant and satisfactory
terms can be negotiated.
ALTERNATIVE
PRACTICE STRUCTURE WITH McGLADREY & PULLEN
LLP M&P is a limited liability
partnership, owned 100% by certified public accountants (CPAs),
which provides attest services to middle-market clients.
Under state accountancy regulations, a firm cannot provide
attest services unless it is majority-owned and controlled by
licensed CPAs. As such, RSM is unable to provide attest
services. Since 1999, RSM and M&P have operated in what is
known as an alternative practice structure (APS).
Through the APS, RSM and M&P are able to offer clients a
full-range of attest and non-attest services in full compliance
with applicable accountancy regulations.
An administrative services agreement between RSM and M&P
obligates RSM to provide M&P with administrative services,
information technology, office space, non-professional staff,
and other infrastructure in exchange for market rate fees from
M&P.
On July 21, 2009, M&P provided 210 days notice of
its intent to terminate the administrative services agreement,
resulting in termination of the APS unless revoked or modified
prior to the expiration of the notice period. As a protective
measure, on September 15, 2009, RSM also provided notice of
its intent to terminate the administrative services agreement.
Effective February 3, 2010, RSM and M&P entered into
new agreements related to the operation of the APS, withdrawing
their prior notices of termination.
Pursuant to a Governance and Operations Agreement effective
February 3, 2010, RSM and M&P agreed to be bound by
the final award of an arbitration panel, dated as of
November 24, 2009, regarding the applicability and
enforceability of certain restrictive covenants between the
parties. In the event the APS were ever terminated, M&P
would generally be prohibited as a result of these restrictive
covenants, from (1) engaging in businesses in which RSM
operates in for 17 months, (2) soliciting any business
with clients or potential clients of RSM or any of its
subsidiaries or affiliates for 29 months, and
(3) soliciting employees of RSM or any of its subsidiaries
or affiliates for 24 months.
Although not required by the Governance and Operations
Agreement, all partners of M&P, with the exception of
M&Ps Managing Partner, are also managing directors
employed by RSM. Approximately 86% of RSMs managing
directors are also partners in M&P. Certain other personnel
are also employed by both M&P and RSM. M&P partners
receive distributions from M&P in their capacity as
partners, as well as compensation from RSM in their capacity as
managing directors. Distributions to M&P partners are based
on the profitability of M&P and are not capped by this
arrangement. Pursuant to the Governance and Operations
Agreement, effective May 1, 2010, the aggregate
compensation payable to RSM managing directors by RSM in any
given year shall generally equal 67 percent of the combined
profits of M&P and RSM less any amounts paid in their
capacity as M&P partners. RSM followed a similar practice
historically, except that the compensation pool for managing
directors was based on 65 percent of combined profits. In
practice, this means that variability in the amounts paid to RSM
managing directors under these contracts can cause variability
in RSMs operating results. RSM is not entitled to any
profits or residual interests of M&P, nor is it obligated
to fund losses or capital deficiencies of M&P. Managing
directors of RSM have historically participated in stock-based
compensation plans of H&R Block. Beginning in fiscal 2011,
participation in those plans will cease and be replaced by a
non-qualified retirement plan.
See additional discussion in Item 8, note 17 to the
consolidated financial statements.
SEASONALITY OF
BUSINESS Revenues
for this segment are largely seasonal in nature, with peak
revenues occurring during January through April.
COMPETITIVE
CONDITIONS The
tax and consulting business is highly competitive. The principal
methods of competition are price, service and reputation for
quality. There are a substantial number of accounting firms
offering similar services at the international, national,
regional and local levels. As our focus is on middle-market
businesses, our principal competition is with national and
regional accounting firms.
GOVERNMENT
REGULATION Many
of the same federal and state regulations relating to tax
preparers and the information concerning tax reform and tax
preparer registration discussed previously in Tax Services apply
to the Business Services segment as well. RSM is not, and is not
eligible to be, a licensed public accounting firm and takes
measures to ensure that it does not provide services prohibited
by regulation, such as attest services. RSM, through
6 H&R
BLOCK 2010 Form 10K
its subsidiaries, provides capital
markets and wealth management services and is subject to state
and federal regulations governing investment advisors and
securities brokers and dealers.
M&P and other accounting firms (collectively, the
Attest Firms) operate in an alternative practice
structure with RSM. Auditor independence rules of the SEC, the
Public Company Accounting Oversight Board (PCAOB) and various
states apply to the Attest Firms as public accounting firms. In
applying its auditor independence rules, the SEC views us and
the Attest Firms as a single entity and requires that the SEC
independence rules for the Attest Firms apply to us and requires
us to be independent of any SEC audit client of the Attest
Firms. The SEC regards any financial interest or prohibited
business relationship we have with a client of the Attest Firms
as a financial interest or prohibited business relationship
between the Attest Firms and the client for purposes of applying
its auditor independence rules.
We and the Attest Firms have jointly developed and implemented
policies, procedures and controls designed to ensure the Attest
Firms independence as audit firms complying with
applicable SEC regulations and professional responsibilities.
These policies, procedures and controls are designed to monitor
and prevent violations of applicable independence rules and
include, among other things: (1) informing our officers,
directors and other members of senior management concerning
auditor independence matters; (2) procedures for monitoring
securities ownership; (3) communicating with SEC audit
clients regarding the SECs interpretation and application
of relevant independence rules and guidelines; and
(4) requiring RSM employees to comply with the Attest
Firms independence and relationship policies (including
the Attest Firms independence compliance questionnaire
procedures).
See discussion in Item 1A, Risk Factors for
additional information.
SERVICE MARKS,
TRADEMARKS AND PATENTS
We have made a practice of selling our services and products
under service marks and trademarks and of obtaining protection
for these by all available means. Our service marks and
trademarks are protected by registration in the U.S. and
other countries where our services and products are marketed. We
consider these service marks and trademarks, in the aggregate,
to be of material importance to our business, particularly our
business segments providing services and products under the
H&R Block brand.
We have no registered patents material to our business.
EMPLOYEES
We have approximately 7,700 regular full-time employees as of
April 30, 2010. The highest number of persons we employed
during the fiscal year ended April 30, 2010, including
seasonal employees, was approximately 110,400.
AVAILABILITY OF
REPORTS AND OTHER INFORMATION
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed with or furnished to
the SEC are available, free of charge, through our website at
www.hrblock.com as soon as reasonably practicable after
such reports are electronically filed with or furnished to the
SEC. The public may read and copy any materials we file with the
SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website at www.sec.gov containing
reports, proxy and information statements and other information
regarding issuers who file electronically with the SEC.
Copies of the following corporate governance documents are
posted on our website:
|
|
|
|
§
|
The Amended and Restated Articles of Incorporation of H&R
Block, Inc.;
|
|
§
|
The Amended and Restated Bylaws of H&R Block, Inc.;
|
|
§
|
The H&R Block, Inc. Corporate Governance Guidelines;
|
|
§
|
The H&R Block, Inc. Code of Business Ethics and Conduct;
|
|
§
|
The H&R Block, Inc. Board of Directors Independence
Standards;
|
|
§
|
The H&R Block, Inc. Audit Committee Charter;
|
|
§
|
The H&R Block, Inc. Governance and Nominating Committee
Charter; and
|
|
§
|
The H&R Block, Inc. Compensation Committee Charter.
|
If you would like a printed copy of any of these corporate
governance documents, please send your request to the Office of
the Secretary, H&R Block, Inc., One H&R Block Way,
Kansas City, Missouri 64105.
Information contained on our website does not constitute any
part of this report.
H&R
BLOCK 2010
Form 10K 7
An investment in our common stock involves risk, including the
risk that the value of an investment may decline or that returns
on that investment may fall below expectations. There are a
number of significant factors which could cause actual
conditions, events or results to differ materially from those
described in forward-looking statements, many of which are
beyond managements control or its ability to accurately
forecast or predict, or could adversely affect our operating
results and the value of any investment in our stock. Other
factors besides those listed below or discussed in reports filed
with the SEC could adversely affect our results.
Our businesses
may be adversely affected by economic conditions generally,
including the current economic recession and lower employment
levels.
Due in part to poor economic conditions and high unemployment,
U.S. tax returns prepared by us declined 1.0 million
and 0.7 million in fiscal years 2010 and 2009, respectively.
An economic recession as we are currently experiencing, is
frequently characterized by lower employment and declining
consumer and business spending. Poor economic conditions may
negatively affect demand and pricing for our services. Lower
employment levels, especially within client segments we serve,
may result in clients no longer being required to file tax
returns, electing not to file tax returns, or clients seeking
lower cost preparation and filing alternatives. Continued lower
employment levels may negatively impact our ability to increase
tax preparation clients.
In addition, the downturn in the residential housing market and
increase in mortgage defaults has negatively impacted our
operating results and may continue to do so. An economic
recession will likely reduce the ability of our borrowers to
repay mortgage loans, and declining home values could increase
the severity of loss we may incur in the event of default. In
addition to mortgage loans, we also extend secured and unsecured
credit to other customers, including RALs and Emerald Advance
lines of credit to our tax clients. We may incur significant
losses on credit we extend, which in turn could reduce our
profitability.
Our access to
liquidity may be negatively impacted if disruptions in credit
markets occur, if credit rating downgrades occur or if we fail
to meet certain covenants. Funding costs may increase, leading
to reduced earnings.
We need liquidity to meet our off-season working capital
requirements, to service debt obligations including refinancing
of maturing obligations, to purchase RAL participations and for
other related activities. Although we believe we have sufficient
liquidity to meet our current needs, our access to and the cost
of liquidity could be negatively impacted in the event of
credit-rating downgrades or if we fail to meet existing debt
covenants. In addition, events could occur which could increase
our need for liquidity above current levels.
If rating agencies downgrade our credit rating, the cost of debt
would likely increase and capital market access could decrease
or become unavailable. Our CLOC is subject to various covenants,
including a covenant requiring that we maintain minimum net
worth equal to $650.0 million and a requirement that we
reduce the aggregate outstanding principal amount of short-term
debt (as defined) to $200.0 million or less for a minimum
period of thirty consecutive days during the period from March 1
to June 30 of each year. Violation of a covenant could impair
our access to liquidity currently available through the CLOC. If
current sources of liquidity were to become unavailable, we
would need to obtain additional sources of funding, which may
not be possible or may be available under less favorable terms.
The lines of
business in which we operate face substantial litigation, and
such litigation may damage our reputation or result in material
liabilities and losses.
We have been named, from time to time, as a defendant in various
legal actions, including arbitrations, class actions and other
litigation arising in connection with our various business
activities. Adverse outcomes related to litigation could result
in substantial damages and could cause our earnings to decline.
Negative public opinion can also result from our actual or
alleged conduct in such claims, possibly damaging our reputation
and could cause the market price of our stock to decline. See
Item 3, Legal Proceedings for additional
information.
Failure to comply
with laws and regulations that protect our customers
personal and financial information could result in significant
fines, penalties and damages and could harm our brand and
reputation.
Privacy concerns relating to the disclosure of consumer
financial information have drawn increased attention from
federal and state governments. The IRS generally prohibits the
use or disclosure by tax return preparers of taxpayers
information without the prior written consent of the taxpayer.
In addition, other regulations require financial service
providers to adopt and disclose consumer privacy policies and
provide consumers with a reasonable opportunity to
opt-out of having personal information disclosed to
unaffiliated third-parties for
8 H&R
BLOCK 2010 Form 10K
marketing purposes. Although we have established security
procedures to protect against identity theft, breaches of our
clients privacy may occur. To the extent the measures we
have taken prove to be insufficient or inadequate, we may become
subject to litigation or administrative sanctions, which could
result in significant fines, penalties or damages and harm to
our brand and reputation.
In addition, changes in these federal and state regulatory
requirements could result in more stringent requirements and
could result in a need to change business practices, including
how information is disclosed. Establishing systems and processes
to achieve compliance with these new requirements may increase
costs and/or
limit our ability to pursue certain business opportunities.
We are subject to
operational risk and risks associated with our controls and
procedures, which may result in incurring financial and
reputational losses.
There is a risk of loss resulting from inadequate or failed
processes or systems, theft or fraud. These can occur in many
forms including, among others, errors, business interruptions
arising from natural disasters or other events, inadequate
design and development of products and services, inappropriate
behavior of or misconduct by our employees or those contracted
to perform services for us, and vendors that do not perform in
accordance with their contractual agreements. These events could
potentially result in financial losses or other damages. We
utilize internally developed processes, internal and external
information and technological systems to manage our operations.
We are exposed to risk of loss resulting from breaches in the
security or other failures of these processes and systems. Our
ability to recover or replace our major operational systems and
processes could have a significant impact on our core business
operations and increase our risk of loss due to disruptions of
normal operating processes and procedures that may occur while
re-establishing or implementing information and transaction
systems and processes. As our businesses are seasonal, our
systems must be capable of processing high volumes during peak
season. Therefore, service interruptions resulting from system
failures could negatively impact our ability to serve our
customers, which in turn could damage our brand and reputation,
or adversely impact our profitability.
We also face the risk that the design of our controls and
procedures may prove to be inadequate or that our controls and
procedures may be circumvented, thereby causing delays in
detection of errors or inaccuracies in data and information. It
is possible that any lapses in the effective operations of
controls and procedures could materially affect earnings or harm
our reputation. Lapses or deficiencies in internal control over
financial reporting could also be material to us.
TAX
SERVICES
Government
initiatives that simplify tax return preparation could reduce
the need for our services as a third-party tax return preparer.
In addition, changes in government regulations or processes
regarding the preparation and filing of tax returns may increase
our operating costs or reduce our revenues.
Many taxpayers seek assistance from paid tax return preparers
such as us because of the level of complexity involved in the
tax return preparation and filing process. From time to time,
government officials propose measures seeking to simplify the
preparation and filing of tax returns or to provide additional
assistance with respect to preparing and filing such tax
returns. The adoption of any measures that significantly
simplify tax return preparation or otherwise reduce the need for
a third-party tax return preparer could reduce demand for our
services, causing our revenues or results of operations to
decline.
Governmental regulations and processes affect how we provide
services to our clients. Changes in these regulations and
processes may require us to make corresponding changes to our
client service systems and procedures. The degree and timing of
changes in governmental regulations and processes may impair our
ability to serve our clients in an effective and cost-efficient
manner or reduce demand for our services, causing our revenues
or results of operations to decline.
Federal and state
legislators and regulators have increasingly taken an active
role in regulating financial products such as RALs. In addition,
we are dependent on third-party financial institutions to
provide certain of these financial products to our clients and
these institutions could cease or significantly reduce the
offering of such products. These trends or potential
developments could impede our ability to facilitate these
financial products, reduce demand for our services and harm our
business.
Changes in government regulation related to RALs could prohibit
or limit the offering of RALs to our clients or our ability to
purchase participation interests. In addition, third-party
financial institutions currently originating RALs and similar
products could decide to cease or significantly limit such
offerings and related collection practices. Changes in IRS
practices, including limitations on the availability of the IRS
debt indicator, could impair our ability to limit our bad debt
exposure. Changes in any of these, as well as possible
litigation related to financial products offered through our
distribution channels, may cause our revenues or profitability
to decline. See discussion of RAL litigation in Item 3,
Legal Proceedings. In addition to the loss of
revenues and income directly attributable to
H&R
BLOCK 2010
Form 10K 9
the RAL program, the inability to
offer RALs could indirectly result in the loss of significant
retail tax clients and associated tax preparation revenues,
unless we were able to take mitigating actions.
RAL participation and related revenues totaled
$146.2 million for the year ended April 30, 2010,
representing 3.8% of consolidated revenues and contributed
$89.5 million to the Tax Services segments pretax
results. We prepared 20.1 million U.S. returns in
fiscal year 2010, and of those clients 16.8% also purchased a
RAL.
Increased
competition for tax preparation clients in our retail offices
and our online and software channels could adversely affect our
current market share and profitability, and could limit our
ability to grow our client base. Offers of free tax preparation
services could adversely affect our revenues and
profitability.
The retail tax services business is highly competitive. There
are a substantial number of tax return preparation firms and
accounting firms offering tax return preparation services. Many
tax return preparation firms and many firms not otherwise in the
tax return preparation business are involved in providing
electronic filing, RALs and other related services to the
public. Commercial tax return preparers and electronic filers
are highly competitive with regard to price and service. Our
digital tax solutions businesses also compete with in-office tax
preparation services and a number of online and software
companies, primarily on the basis of price and functionality.
Federal and certain state taxing authorities currently offer, or
facilitate the offer of, tax return preparation and electronic
filing options to taxpayers at no charge. In addition, many of
our direct competitors offer certain free online tax preparation
and electronic filing options. We have free offerings as well
and prepared approximately 810,000 federal income tax returns in
fiscal year 2010 and 788,000 in fiscal year 2009 at no charge as
part of the FFA. Government tax authorities and direct
competitors may elect to expand free offerings in the future.
Intense price competition, including offers of free service,
could result in a loss of market share, lower revenues or lower
margins.
See tax returns prepared statistics included in Item 7,
under Tax Services.
We are subject to
extensive government regulation, including banking rules and
regulations. If we fail to comply with applicable banking laws,
rules and regulations, we could be subject to disciplinary
actions, damages, penalties or restrictions that could
significantly harm our business.
The OTS can, among other things, censure, fine, issue
cease-and-desist
orders or suspend or expel a bank or any of its officers or
employees with respect to banking activities. Similarly, the
attorneys general of each state could bring legal action on
behalf of the citizens of the various states to ensure
compliance with local laws.
HRB Bank is subject to various regulatory capital requirements
administered by the OTS. Failure to meet minimum capital
requirements may trigger actions by regulators that, if
undertaken, could have a direct material effect on HRB Bank. HRB
Bank must meet specific capital guidelines involving
quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory
accounting practices. A banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about the strength of components of its capital,
risk-weightings of assets, off-balance sheet transactions and
other factors. Quantitative measures established by regulation
to ensure capital adequacy require HRB Bank to maintain minimum
amounts and ratios of tangible equity, total risk-based capital
and Tier 1 capital. In addition to these minimum ratio
requirements, HRB Bank is required to continually maintain a
12.0% minimum leverage ratio.
See Item 8, note 19 to the consolidated financial
statements for additional discussion of regulatory capital
requirements and classifications.
Significant
changes have been proposed relating to the regulation of
financial institutions. Although the ultimate impact of pending
proposals is uncertain at this time, increased regulation could
impact operating activities of our bank.
Various legislative proposals have been made regarding changes
in the regulation of financial institutions, including the
Financial Regulatory Reform Plan. Prior proposals included
legislation which would have empowered courts to modify the
terms of mortgage loans including a reduction in the principal
amount to reflect lower underlying property values.
Future changes in regulation could increase compliance
requirements and operating costs of HRB Bank, and could
potentially limit operating activities of the bank. Should
proposals be enacted into law allowing government modification
of mortgage loans, we could report losses on mortgage loans in
excess of current levels. The availability of principal
reductions or other mortgage loan modifications could make
bankruptcy a more attractive option for troubled borrowers,
leading to increased bankruptcy filings and accelerated defaults.
10 H&R
BLOCK 2010 Form 10K
BUSINESS
SERVICES
The RSM
alternative practice structure involves relationships with
Attest Firms that are subject to regulatory restrictions and
other constraints. Failure to comply with these restrictions, or
operational difficulties involving the Attest Firms, could
damage our brand reputation, lead to reduced earnings and impair
our investment in RSM.
RSMs relationship with the Attest Firms requires
compliance with applicable regulations regarding the practice of
public accounting and auditor independence rules and
requirements. Many of RSMs clients are also clients of the
Attest Firms. In addition, the relationship with the Attest
Firms closely links our RSM McGladrey brand with the Attest
Firms. If the Attest Firms were to encounter regulatory or
independence issues pertaining to the alternative practice
structure or if significant litigation arose involving the
Attest Firms or their services, such developments could have an
adverse effect on our brand reputation and our ability to
realize the mutual benefits of our relationship. In addition, a
significant judgment or settlement of a claim against an Attest
Firm could (1) impair the Attest Firms, particularly
M&Ps, ability to meet its payment obligations under
various service arrangements with RSM, (2) impair the
profitability of the APS, (3) impact RSMs ability to
attract and retain clients and quality professionals,
(4) have a significant indirect adverse effect on RSM, as
the Attest Firm partners are also RSM employees and
(5) result in significant management distraction. This in
turn could result in reduced revenue and earnings and, if
sufficiently significant, impairment of our investment in RSM.
RSM receives a
significant portion of its revenues from clients that are also
clients of the Attest Firms. A termination of the alternative
practice structure between RSM and the Attest Firms could result
in a material loss of revenue to RSM and an impairment of our
investment in RSM.
Under the alternative practice structure, RSM and the Attest
Firms market their services and provide services to a
significant number of common clients. RSM also provides
operational and administrative support services to the Attest
Firms, including information technology, office space,
non-professional staff, and other infrastructure in exchange for
market rate fees from M&P. If the RSM/Attest Firms
relationship under the alternative practice structure were to be
terminated, RSM could lose key employees and clients. In
addition, RSM 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. This in
turn could result in reduced revenue, increased costs and
reduced earnings and, if sufficiently significant, impairment of
our investment in RSM.
OTHER
Economic
conditions that negatively affect housing prices and the job
market may result in deterioration in credit quality of our loan
portfolio, and such deterioration could have a negative impact
on our business and profitability.
The overall credit quality of mortgage loans held for investment
is impacted by the strength of the U.S. economy and local
economic conditions, including residential housing prices.
Economic trends that negatively affect housing prices and the
job market could result in deterioration in credit quality of
our mortgage loan portfolio and a decline in the value of
associated collateral. Future interest rate resets could also
lead to increased delinquencies in our mortgage loans held for
investment. Recent trends in the residential mortgage loan
market reflect an increase in loan delinquencies and declining
collateral values. As a result of similar trends in our loan
portfolio, we recorded loan loss provisions totaling
$47.8 million and $63.9 million during fiscal years
2010 and 2009, respectively.
Our loan portfolio is concentrated in the states of Florida,
California, New York and Wisconsin, which represented 20%, 16%,
15% and 8%, respectively, of our total mortgage loans held for
investment at April 30, 2010. No other state held more than
5% of our loan balances. If adverse trends in the residential
mortgage loan market continue, particularly in geographic areas
in which we own a greater concentration of mortgage loans, we
could incur additional significant loan loss provisions.
Mortgage loans purchased from Sand Canyon Corporation (SCC)
represent approximately 64% of total loans held for investment
at April 30, 2010. These loans have experienced higher
delinquency rates than other loans in our portfolio, and may
expose us to greater risk of credit loss.
SCC is subject to
potential litigation stemming from discontinued mortgage
operations, which may result in significant financial
losses.
Although SCC terminated its mortgage loan origination activities
and sold its loan servicing business during fiscal year 2008, it
remains subject to investigations, claims and lawsuits
pertaining to its loan origination and servicing activities
prior to such termination and sale. The costs involved in
defending against
and/or
resolving these investigations, claims and lawsuits may be
substantial in some instances and the ultimate resulting
liability is difficult to predict. In the current non-prime
mortgage environment, the number and frequency of
investigations,
H&R
BLOCK 2010
Form 10K 11
claims and lawsuits has increased over historical experience and
is likely to continue at increased levels. In the event of
unfavorable outcomes, the amount 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.
We are subject to
potential contingent liabilities related to loan repurchase
obligations, which may result in significant financial
losses.
SCC remains exposed to losses relating to mortgage loans it
previously originated. Non-prime mortgage loans originated by
SCC were sold either as whole-loan sales to single third-party
buyers or in the form of a securitization.
SCC entered into indemnification agreements with third-parties
relating to the mortgage loans transferred through such
whole-loan sales or securitizations. In some instances, H&R
Block, Inc. was required to guarantee SCCs obligations.
Obligations to repurchase loans or indemnify a third-party up to
an agreed upon amount may arise from breaches of various
representations and warranties SCC made under such
indemnification agreements. These representations and warranties
vary based on the nature of the transaction and the buyers
requirements but generally pertain to the ownership of the loan,
the property securing the loan and compliance with applicable
laws and SCC underwriting guidelines. These representations and
warranties and corresponding repurchase obligations generally
are not subject to stated limits or a stated term.
SCC records a liability for contingent losses relating to
representation and warranty claims by estimating loan repurchase
volumes and indemnification obligations for both known claims
and projections of expected future claims. To the extent that
future valid claim volumes exceed current estimates, or the
value of mortgage loans and residential home prices decline,
future losses may be greater than these estimates and those
differences may be significant.
None.
Most of our tax offices, except those in shared locations, are
operated under leases throughout the U.S. Our Canadian
executive offices are located in a leased office in Calgary,
Alberta. Our Canadian tax offices are operated under leases
throughout Canada. HRB Bank is headquartered and its single
branch location is located in our corporate headquarters.
RSMs executive offices are located in leased offices in
Bloomington, Minnesota. Its administrative offices are located
in leased offices in Davenport, Iowa. RSM also leases office
space throughout the U.S.
We own our corporate headquarters, which is located in Kansas
City, Missouri. All current leased and owned facilities are in
good repair and adequate to meet our needs.
The information below should be read in conjunction with the
information included in Item 8, note 18 to our
consolidated financial statements.
RAL
LITIGATION
We have been named in multiple lawsuits as defendants in
litigation regarding our refund anticipation loan program in
past years. All of those lawsuits have been settled or otherwise
resolved, except for one.
The sole remaining case is a putative class action styled
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. The
plaintiffs allege inadequate disclosures with respect to the RAL
product and assert claims for violation of consumer protection
statutes, negligent misrepresentation, breach of fiduciary duty,
common law fraud, usury, and violation of the Truth In Lending
Act. Plaintiffs seek unspecified actual and punitive damages,
injunctive relief, attorneys fees and costs. A
Pennsylvania class was certified, but later decertified by the
trial court in December 2003. The trial courts
decertification decision is currently on appeal. We believe we
have meritorious defenses to this case and intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of this case or its impact on our consolidated results
of operations.
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.
12 H&R
BLOCK 2010 Form 10K
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 putative class action case originally filed in
the Circuit Court of Madison County, Illinois on
January 18, 2002. 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. The
plaintiffs seek unspecified damages, injunctive relief,
attorneys fees and costs. The Madison County court
ultimately certified a class consisting of all persons residing
in 13 states who paid a separate fee for POM from
January 1, 1997 to the date of a final judgment from the
court. We subsequently removed the case to federal court in the
Southern District of Illinois, where it is now pending. In
November 2009, the federal court issued an order effectively
vacating the state courts class certification ruling and
allowing plaintiffs time to file a renewed motion for class
certification under the federal rules. Plaintiffs filed a new
motion for class certification seeking certification of an
11-state class. Oral argument on plaintiffs motion
occurred in April 2010 and the parties are awaiting a ruling. A
trial date has been set for November 2010.
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case, styled
Desiri L. Soliz v. H&R Block, et al. (Cause
No. 03-032-D),
was filed on January 23, 2003 in the District Court of
Kleberg County, Texas. This case involves the same
plaintiffs attorneys that are involved in the Marshall
litigation in Illinois and contains allegations similar to
those in the Marshall litigation. The plaintiff seeks
actual and treble damages, equitable relief, attorneys
fees and costs. 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 or
their impact on our consolidated results of operations,
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) styled The
People of New York v. H&R Block, Inc. and H&R
Block Financial Advisors, Inc. et al. The complaint asserts
nationwide jurisdiction and 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. To avoid the
cost and inherent risk associated with litigation, we reached an
agreement to settle this case and the civil actions described
below. Details regarding the settlement are below.
Subsequent to the filing of the New York Attorney General
action, 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 were 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. To avoid the cost and inherent risk associated with
litigation, we reached an agreement to settle these cases and
the New York Attorney General action. The federal court
presiding over the Multi-District Litigation approved the
settlement in a final fairness hearing and dismissed its
underlying actions with prejudice on May 17, 2010.
Stipulations of dismissal were subsequently filed in the two
cases pending in state court. The settlement requires a minimum
payment of $11.4 million and a maximum payment of
$25.4 million. The actual cost of the settlement will
depend on the number of claims submitted by class members, which
are due no later than July 30, 2010. We previously recorded
a liability for our best estimate of the expected loss.
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) styled
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 sale of the Express IRA product in Mississippi 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 can be no assurances
as to its outcome or its impact on our consolidated results of
operations.
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 AND
SHAREHOLDER
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.
H&R
BLOCK 2010
Form 10K 13
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. In September 2009, the appellate court affirmed the
dismissal of the securities fraud class action, but reversed the
dismissal of the shareholder derivative action. The plaintiffs
in the shareholder derivative action subsequently agreed to
voluntarily dismiss their complaint; an order dismissing their
complaint was entered on April 19, 2010, thereby ending
this litigation.
RSM McGLADREY
LITIGATION
RSM EquiCo, its parent and certain of its subsidiaries
and affiliates, are parties to a class action filed on
July 11, 2006 and styled 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, 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. Plaintiffs seek
unspecified actual and punitive damages, in addition to
pre-judgment interest and attorneys fees. On
March 17, 2009, the court granted plaintiffs motion
for class certification on all claims. The defendants filed two
requests for interlocutory review of the decision, the last of
which was denied by the Supreme Court of California on
September 30, 2009. A trial date has been set for January
2011.
The certified class consists of RSM EquiCos
U.S. clients who signed platform agreements and for whom
RSM EquiCo did not ultimately market their business for sale.
The fees paid to RSM EquiCo in connection with these agreements
total approximately $185 million, a number which
substantially exceeds the equity of RSM EquiCo. 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.
As more fully described in Item 8, note 17, RSM and
M&P operate in an alternative practice structure.
Accordingly, certain claims and lawsuits against M&P could
have an impact on RSM. More specifically, any judgments or
settlements arising from claims and lawsuits against M&P
which exceed its insurance coverage could have a direct adverse
effect on M&Ps operations. Although RSM is not
responsible for the liabilities of M&P, significant
M&P litigation and claims could impair the profitability of
the APS and impair the ability to attract and retain clients and
quality professionals. This could, in turn, 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 any claims or litigation involving M&P.
On December 7, 2009, a lawsuit was filed in the Circuit
Court of Cook County, Illinois (2009-L-014920) against M&P,
RSM and H&R Block styled Ronald R. Peterson ex rel.
Lancelot Investors Fund, L.P., et al. v.
McGladrey & Pullen LLP, et al. The case was
removed to the United States District Court for the Northern
District of Illinois on December 28, 2009, where it remains
pending (Case
No. 08-28225).
The complaint, which was filed by the trustee for certain
bankrupt investment funds, seeks unspecified damages and asserts
claims against RSM for vicarious liability and alter ego
liability and against H&R Block for equitable restitution
relating to audit work performed by M&P. The amount claimed
in this case is substantial. We believe we have meritorious
defenses to the claims against RSM and H&R Block in this
case and intend to defend it vigorously, but there can be no
assurances as to its outcome or its impact on our consolidated
results of operations.
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.
14 H&R
BLOCK 2010 Form 10K
On June 3, 2008, the Massachusetts Attorney General filed a
lawsuit in the Superior Court of Suffolk County, Massachusetts
(Case
No. 08-2474-BLS)
styled 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. An appeal
of the preliminary injunction was denied. A trial date has been
set for June 2011. We believe the claims in this case are
without merit, and we intend to defend this case vigorously.
There can be no assurances, however, as to its outcome or its
impact on our consolidated results of operations.
OTHER CLAIMS AND
LITIGATION
We have been named in several wage and hour class action
lawsuits throughout the country, respectively styled Alice
Williams v. H&R Block Enterprises LLC, Case
No.RG08366506 (Superior Court of California, County of Alameda,
filed January 17, 2008); Arabella Lemus v. H&R
Block Enterprises LLC, et al., Case
No. CGC-09-489251
(United States District Court, Northern District of California,
filed June 9, 2009); Delana Ugas v. H&R Block
Enterprises LLC, et al., Case No. BC417700 (United
States District Court, Central District of California, filed
July 13, 2009); Joaquin Llano v. H&R Block
Eastern Enterprises, Inc., Case
No. 09-CV-22531
(United States District Court, Southern District of Florida,
filed August 27, 2009); Barbara Petroski v.
H&R Block Eastern Enterprises, Inc., et al., Case
No. 10-CV-00075
(United States District Court, Western District of
Missouri, filed January 25, 2010); Lance Hom v.
H&R Block Enterprises LLC, et al., Case
No. 10CV0476 H (United States District Court, Southern
District of California, filed March 4, 2010); Stacy
Oyer v. H&R Block Eastern Enterprises, Inc., et al.,
Case
No. 10-CV-00387-WMS
(United States District Court, Western District of New York,
filed May, 10 2010); Rita Greene v. H&R Block
Eastern Enterprises, Inc., et al., Case
No. 10-CV-21663-FAM
(United States District Court, Southern District of Florida,
filed May 21, 2010); and Li Dong Ma v. RSM
McGladrey TBS, LLC, et al., Case
No. C-08-01729
JF (United States District Court, Northern District of
California, filed February 28, 2008). These cases involve a
variety of legal theories and allegations including, among other
things, failure to compensate employees for all hours worked;
failure to provide employees with meal periods; failure to
provide itemized wage statements; failure to pay wages due upon
termination; failure to compensate for mandatory off-season
training;
and/or
misclassification of non-exempt employees. The plaintiffs seek
actual damages, in addition to statutory penalties, pre-judgment
interest and attorneys fees. The Company has moved to
consolidate certain of these cases into a single action because
they allege substantially identical claims. We believe we have
meritorious defenses to the claims in these cases and intend to
defend them vigorously. The amounts claimed in these matters are
substantial in some instances, however, and the ultimate
liability with respect to these matters is difficult to predict.
There can be no assurances as to the outcome of these cases or
their impact on our consolidated results of operations,
individually or in the aggregate.
In addition, 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, and other products and services. 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 have
a material adverse impact on our consolidated results of
operations.
We are also 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 impact on our consolidated results of operations.
H&R
BLOCK 2010
Form 10K 15
|
|
ITEM 5. |
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
H&R Blocks common stock is traded on the New York
Stock Exchange (NYSE) under the symbol HRB. On May 31,
2010, there were 24,000 shareholders of record and the
closing stock price on the NYSE was $16.08 per share.
The quarterly information regarding H&R Blocks common
stock prices and dividends appears in Item 8, note 22
to our consolidated financial statements.
A summary of our securities authorized for issuance under equity
compensation plans as of April 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
Number of
securities
|
|
|
Weighted-average
|
|
|
Number of securities
remaining
|
|
|
|
|
|
to be issued upon
|
|
|
exercise price of
|
|
|
available for future
issuance under
|
|
|
|
|
|
exercise of
options
|
|
|
outstanding
options
|
|
|
equity compensation
plans (excluding
|
|
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
securities reflected
in the first column)
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
14,866
|
|
|
$
|
20.60
|
|
|
|
816
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,866
|
|
|
$
|
20.60
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The remaining information called for by this item relating to
Securities Authorized for Issuance under Equity
Compensation Plans is reported in Item 8,
note 13 to our consolidated financial statements.
A summary of our purchases of H&R Block common stock during
the fourth quarter of fiscal year 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
Average
|
|
|
Total Number of
Shares
|
|
|
Maximum Dollar Value
of
|
|
|
|
|
|
Total Number of
|
|
|
Price Paid
|
|
|
Purchased as Part of
Publicly
|
|
|
Shares that May be
Purchased
|
|
|
|
|
|
Shares
Purchased(1)
|
|
|
per Share
|
|
|
Announced Plans or
Programs(2)
|
|
|
Under the Plans or
Programs(2)
|
|
|
|
|
|
February 1 February 28
|
|
|
1
|
|
|
$
|
22.22
|
|
|
|
|
|
|
$
|
1,751,530
|
|
|
|
March 1 March 31
|
|
|
5,962
|
|
|
$
|
16.77
|
|
|
|
5,962
|
|
|
$
|
1,651,619
|
|
|
|
April 1 April 30
|
|
|
2
|
|
|
$
|
18.26
|
|
|
|
|
|
|
$
|
1,651,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Of the shares listed
above, approximately 2,457 shares were purchased in
connection with funding employee income tax withholding
obligations arising upon the exercise of stock options or the
lapse of restrictions on restricted shares.
|
(2)
|
In June 2008, our
Board of Directors rescinded the previous authorizations to
repurchase shares of our common stock, and approved an
authorization to purchase up to $2.0 billion of our common
stock through June 2012.
|
16 H&R
BLOCK 2010 Form 10K
PERFORMANCE
GRAPH
The following graph compares the cumulative five-year
total return provided shareholders on H&R Block,
Inc.s common stock relative to the cumulative total
returns of the S&P 500 index and the S&P Diversified
Commercial & Professional Services index. An
investment of $100, with reinvestment of all dividends, is
assumed to have been made in our common stock and in each of the
indexes on April 30, 2005, and its relative performance is
tracked through April 30, 2010.
|
|
ITEM 6. |
SELECTED
FINANCIAL DATA
|
We derived the selected consolidated financial data presented
below as of and for each of the five years in the period ended
April 30, 2010, from our audited consolidated financial
statements. The data set forth below should be read in
conjunction with Item 7 and our consolidated financial
statements in Item 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Revenues
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
$
|
4,086,630
|
|
|
$
|
3,710,362
|
|
|
$
|
3,286,798
|
|
|
|
Net income from continuing operations
|
|
|
488,946
|
|
|
|
513,055
|
|
|
|
445,947
|
|
|
|
369,460
|
|
|
|
310,811
|
|
|
|
Net income (loss)
|
|
|
479,242
|
|
|
|
485,673
|
|
|
|
(308,647
|
)
|
|
|
(433,653
|
)
|
|
|
490,408
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
$
|
1.37
|
|
|
$
|
1.14
|
|
|
$
|
0.94
|
|
|
|
Net income (loss)
|
|
|
1.44
|
|
|
|
1.45
|
|
|
|
(0.95
|
)
|
|
|
(1.35
|
)
|
|
|
1.49
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
|
$
|
1.35
|
|
|
$
|
1.13
|
|
|
$
|
0.92
|
|
|
|
Net income (loss)
|
|
|
1.43
|
|
|
|
1.45
|
|
|
|
(0.95
|
)
|
|
|
(1.33
|
)
|
|
|
1.46
|
|
|
|
Total assets
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
$
|
5,623,425
|
|
|
$
|
7,544,050
|
|
|
$
|
5,989,135
|
|
|
|
Long-term debt
|
|
|
1,035,144
|
|
|
|
1,032,122
|
|
|
|
1,031,784
|
|
|
|
537,134
|
|
|
|
417,262
|
|
|
|
Dividends per
share(1)
|
|
$
|
0.75
|
|
|
$
|
0.59
|
|
|
$
|
0.56
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
|
|
|
|
(1)
|
Amounts represent
dividends declared. In fiscal year 2010, the dividend payable in
July 2010 was declared in April.
|
|
|
ITEM 7. |
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Our subsidiaries provide tax preparation, retail banking and
various business advisory and consulting services. We are the
only major company offering a full range of software, online and
in-office tax preparation solutions to individual tax clients.
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 the corporate segment.
Presentation of prior period results reflects the new segment
reporting structure.
H&R
BLOCK 2010
Form 10K 17
OVERVIEW
A summary of our fiscal year 2010 results is as follows:
|
|
|
|
§
|
Revenues for the fiscal year were $3.9 billion, down 5.1%
from prior year results.
|
|
§
|
Diluted earnings per share from continuing operations decreased
4.6% from the prior year to $1.46.
|
|
§
|
U.S. tax returns prepared by us declined 4.3% from the
prior year primarily due to a decline in overall IRS filings and
lower employment levels. Lower employment levels
disproportionately impacted our key client segments where fourth
quarter 2009 unemployment levels ranged from
15-30%, far
in excess of national unemployment levels.
|
|
§
|
Revenues in our Tax Services segment decreased 5.0% from the
prior year. Pretax income for this segment decreased
$59.7 million, or 6.4%, due primarily to the decline in tax
returns prepared.
|
|
§
|
Pretax income for the Business Services segment decreased 38.9%
from the prior year, due to lower than expected revenues, a
$15.0 million goodwill impairment charge, and a
$14.5 million increase in expenses related to arbitration
proceedings and other litigation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Results of Operations Data
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,975,252
|
|
|
$
|
3,132,077
|
|
|
$
|
3,060,661
|
|
|
|
Business Services
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
941,686
|
|
|
|
Corporate and eliminations
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
84,283
|
|
|
|
|
|
|
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
$
|
4,086,630
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES:
|
Tax Services
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
$
|
825,721
|
|
|
|
Business Services
|
|
|
58,714
|
|
|
|
96,097
|
|
|
|
88,797
|
|
|
|
Corporate and eliminations
|
|
|
(141,941
|
)
|
|
|
(183,775
|
)
|
|
|
(179,447
|
)
|
|
|
|
|
|
|
|
|
784,135
|
|
|
|
839,370
|
|
|
|
735,071
|
|
|
|
Income taxes
|
|
|
295,189
|
|
|
|
326,315
|
|
|
|
289,124
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
488,946
|
|
|
|
513,055
|
|
|
|
445,947
|
|
|
|
Net loss of discontinued operations
|
|
|
(9,704
|
)
|
|
|
(27,382
|
)
|
|
|
(754,594
|
)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
$
|
(308,647
|
)
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
$
|
1.37
|
|
|
|
Net loss of discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
(2.32
|
)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.44
|
|
|
$
|
1.45
|
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
|
$
|
1.35
|
|
|
|
Net loss of discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
(2.30
|
)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.43
|
|
|
$
|
1.45
|
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
|
18 H&R
BLOCK 2010 Form 10K
RESULTS OF
OPERATIONS
TAX
SERVICES
This segment primarily consists of our income tax preparation
businesses retail, online and software. This segment
includes our tax operations in the U.S., Canada and Australia.
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 Statistics
|
|
|
|
|
|
|
|
|
|
(in 000s, except
average fee)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
TAX RETURNS PREPARED :
|
|
|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
|
9,182
|
|
|
|
10,231
|
|
|
|
10,530
|
|
Franchise operations
|
|
|
5,064
|
|
|
|
4,936
|
|
|
|
5,577
|
|
|
|
|
Total retail operations
|
|
|
14,246
|
|
|
|
15,167
|
|
|
|
16,107
|
|
|
|
|
Software
|
|
|
2,193
|
|
|
|
2,309
|
|
|
|
2,378
|
|
Online
|
|
|
2,893
|
|
|
|
2,775
|
|
|
|
1,911
|
|
Free File Alliance
|
|
|
810
|
|
|
|
788
|
|
|
|
1,453
|
|
|
|
|
Total digital tax solutions
|
|
|
5,896
|
|
|
|
5,872
|
|
|
|
5,742
|
|
|
|
|
Total U.S operations
|
|
|
20,142
|
|
|
|
21,039
|
|
|
|
21,849
|
|
International operations
|
|
|
3,019
|
|
|
|
2,864
|
|
|
|
2,725
|
|
|
|
|
|
|
|
23,161
|
|
|
|
23,903
|
|
|
|
24,574
|
|
|
|
|
NET AVERAGE FEE PER U.S. TAX RETURN PREPARED
(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
$
|
197.42
|
|
|
$
|
196.16
|
|
|
$
|
183.68
|
|
Franchise operations
|
|
|
174.32
|
|
|
|
169.04
|
|
|
|
157.72
|
|
|
|
|
|
|
$
|
189.21
|
|
|
$
|
187.36
|
|
|
$
|
174.70
|
|
|
|
|
|
|
(1)
|
Calculated as net
tax preparation fees divided by retail tax returns prepared.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Financial Results
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Tax preparation fees
|
|
$
|
1,991,989
|
|
|
$
|
2,154,822
|
|
|
$
|
2,096,236
|
|
Royalties
|
|
|
275,559
|
|
|
|
255,536
|
|
|
|
237,986
|
|
Loan participation fees and related revenue
|
|
|
146,160
|
|
|
|
139,770
|
|
|
|
190,201
|
|
Fees from Emerald Card activities
|
|
|
99,822
|
|
|
|
98,031
|
|
|
|
78,385
|
|
Interest income on Emerald Advance
|
|
|
77,882
|
|
|
|
91,010
|
|
|
|
45,339
|
|
Fees from Peace of Mind guarantees
|
|
|
79,888
|
|
|
|
78,205
|
|
|
|
80,503
|
|
Other
|
|
|
303,952
|
|
|
|
314,703
|
|
|
|
332,011
|
|
|
|
|
Total revenueS
|
|
|
2,975,252
|
|
|
|
3,132,077
|
|
|
|
3,060,661
|
|
|
|
|
Compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Field wages
|
|
|
713,792
|
|
|
|
757,835
|
|
|
|
771,598
|
|
Other wages
|
|
|
111,326
|
|
|
|
117,291
|
|
|
|
137,457
|
|
Benefits and other compensation
|
|
|
175,904
|
|
|
|
167,005
|
|
|
|
172,728
|
|
|
|
|
|
|
|
1,001,022
|
|
|
|
1,042,131
|
|
|
|
1,081,783
|
|
Occupancy and equipment
|
|
|
410,709
|
|
|
|
412,335
|
|
|
|
409,214
|
|
Marketing and advertising
|
|
|
233,748
|
|
|
|
226,483
|
|
|
|
179,853
|
|
Bad debt
|
|
|
104,716
|
|
|
|
112,032
|
|
|
|
129,595
|
|
Depreciation and amortization
|
|
|
93,424
|
|
|
|
79,543
|
|
|
|
74,916
|
|
Supplies
|
|
|
49,781
|
|
|
|
52,438
|
|
|
|
63,107
|
|
Other
|
|
|
263,556
|
|
|
|
294,983
|
|
|
|
296,472
|
|
Gains on sale of tax offices
|
|
|
(49,066
|
)
|
|
|
(14,916
|
)
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,107,890
|
|
|
|
2,205,029
|
|
|
|
2,234,940
|
|
|
|
|
Pretax income
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
$
|
825,721
|
|
|
|
|
Pretax margin
|
|
|
29.2%
|
|
|
|
29.6%
|
|
|
|
27.0%
|
|
FISCAL 2010
COMPARED TO FISCAL
2009 Tax
Services revenues decreased $156.8 million, or 5.0%,
compared to the prior year. Tax preparation fees decreased
$162.8 million, or 7.6%, due to a 10.3% decrease in
U.S. retail tax returns prepared in company-owned offices,
partially offset by a 0.6% increase in the net average fee per
U.S. retail tax return. Adjusting for the effect of
company-owned offices sold to franchisees during fiscal year
2010, the
H&R
BLOCK 2010
Form 10K 19
decline in tax returns prepared in
company-owned offices was 6.7% from fiscal 2009 to 2010. The
6.7% decrease in U.S. retail tax returns prepared in
company-owned offices is primarily due to the following factors:
|
|
|
|
§
|
Tax returns filed with the IRS declined 1.7%.
|
|
§
|
Lower employment levels disproportionately impacted our key
client segments. Fourth quarter 2009 unemployment levels ranged
from 15-30%,
far in excess of national unemployment levels for key client
segments.
|
|
§
|
We closed certain under-performing offices and exited offices
serving clients in Wal-Mart locations. We believe that tax
returns prepared declined by approximately 1% (net of client
retention through other office locations) as a result of these
office closures.
|
Royalties increased $20.0 million, or 7.8%, due to the
conversion of 267 company-owned offices into franchises,
partially offset by a decline in tax returns prepared in
existing franchise offices.
Interest income on Emerald Advance lines of credit decreased
$13.1 million, or 14.4%. This decline was primarily a
result of lower loan volumes due to these lines of credit only
being offered to prior year tax clients in fiscal year 2010,
while being offered to both prior and new clients in fiscal year
2009.
Other revenue decreased $10.8 million, or 3.4%, primarily
due to a $12.5 million decline in license fees earned from
bank products, mainly RACs, and a decrease in software revenues.
Total expenses decreased $97.1 million, or 4.4%, compared
to the prior year. Total compensation and benefits decreased
$41.1 million, or 3.9%, primarily as a result of lower
commission-based wages due to the decline in the number of tax
returns prepared. Bad debt expense decreased $7.3 million,
or 6.5%, primarily as a result of lower Emerald Advance lines of
credit and RAL volumes, and more restrictive underwriting
criteria. Depreciation and amortization expenses increased
$13.9 million, or 17.5%, primarily as a result of
amortization of intangible assets, related to the November 2008
acquisition of our last major independent franchise operator.
Other expenses decreased $31.4 million, or 10.7%, primarily
as a result of lower legal expenses. During fiscal year 2010 we
recognized gains of $49.1 million on the sale of certain
company-owned offices to franchisees, compared to
$14.9 million in the prior year. We do not expect these
gains to continue at a similar level during fiscal year 2011.
Pretax income for fiscal year 2010 decreased $59.7 million,
or 6.4%, from 2009. As a result of the declines in revenues,
pretax margin for the segment decreased from 29.6% in fiscal
year 2009, to 29.2% in fiscal year 2010.
FISCAL 2009
COMPARED TO FISCAL 2008 Tax
Services revenues increased $71.4 million, or 2.3%,
compared to fiscal year 2008.
Tax preparation fees from our retail offices increased
$58.6 million, or 2.8%, for fiscal year 2009. This increase
is primarily due to an increase of 6.8% in the net average fee
per U.S. tax return prepared in company-owned offices,
offset by a 2.8% decrease in the number of U.S. tax returns
prepared in those offices. Tax return volume was positively
affected by the November 2008 acquisition of our last major
independent franchise operator, which resulted in an increase of
470,000 tax returns prepared in company-owned offices. See
Item 8, note 2 to the consolidated financial
statements for additional information on this acquisition.
Excluding operating results attributable to the acquired
franchise operator, tax returns prepared in company-owned
offices decreased 7.3% from fiscal year 2008 and tax preparation
fees decreased $32.9 million.
Increases in our net average fee were due primarily to increased
tax return complexity. In addition, planned pricing increases of
approximately 1% and lower discounts contributed to an increase
in net average fee. We believe that declines during the year in
tax return volume were attributable to a decline of
approximately 6% in IRS tax filings overall, and difficult
economic conditions which resulted in clients seeking lower-cost
tax preparation alternatives.
Tax returns prepared in our international operations grew 5.1%,
and the related tax preparation revenues increased 8.9% in local
currencies. However, unfavorable exchange rates caused these
revenues in U.S. dollars to decline $9.5 million, or
5.6%, from fiscal year 2008.
Royalty revenue increased $17.6 million, or 7.4%, primarily
due to a 7.2% increase in the net average fee and an increase in
royalty rates at
sub-franchises
of the acquired franchise operator.
Loan participation fees and related revenues decreased
$50.4 million, or 26.5%, from fiscal year 2008. This
decrease is primarily due to a 24.6% decline in RAL volume,
mainly as a result of many clients choosing lower cost
alternatives such as RACs rather than a loan. In addition,
stricter credit criteria were required by our third-party loan
originator.
Fees from Emerald Card activities and interest income on Emerald
Advance increased $19.6 million and $45.7 million,
respectively, both primarily as a result of higher volumes.
Other revenues decreased $17.3 million, or 5.2%, primarily
due to a $10.6 million decline in
e-filing
revenues, as a result of the elimination of separate
e-filing
fees related to our tax preparation software and a decline in
software revenues. These declines were partially offset by
$10.7 million in additional license fees earned from bank
products, mainly RACs.
20 H&R
BLOCK 2010 Form 10K
Total expenses decreased $29.9 million, or 1.3%, compared
with fiscal year 2008, due primarily to lower tax return
volumes, lower bad debt on loan products and planned cost
reduction initiatives. Compensation and benefits decreased
$39.7 million, or 3.7%, from fiscal year 2008 as a result
of a decrease in commission-based wages resulting from a
corresponding decrease in tax returns prepared. Marketing and
advertising increased $46.6 million, or 25.9%, primarily
due to a planned increase in marketing costs. Bad debt expense
decreased $17.6 million, or 13.6%, primarily due to lower
RAL volumes and the impact of loss provisions in fiscal year
2008 which did not repeat in fiscal year 2009. During fiscal
year 2009 we sold certain company-owned offices to franchisees,
recognizing a net gain of $14.9 million.
Pretax income for fiscal year 2009 increased
$101.3 million, or 12.3%, from 2008. As a result of cost
reduction initiatives and the acquisition of our last major
franchise operator, pretax margin for the segment increased from
27.0% in fiscal year 2008, to 29.6% in fiscal year 2009.
BUSINESS
SERVICES
This segment offers tax and consulting services, wealth
management and capital market services to middle-market
companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Results
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Tax services
|
|
$
|
429,102
|
|
|
$
|
458,439
|
|
|
$
|
442,521
|
|
Business consulting
|
|
|
262,590
|
|
|
|
249,346
|
|
|
|
237,113
|
|
Accounting services
|
|
|
48,987
|
|
|
|
54,217
|
|
|
|
57,399
|
|
Capital markets
|
|
|
11,855
|
|
|
|
18,220
|
|
|
|
51,144
|
|
Leased employee revenue
|
|
|
|
|
|
|
55
|
|
|
|
25,100
|
|
Reimbursed expenses
|
|
|
22,929
|
|
|
|
19,863
|
|
|
|
18,654
|
|
Other
|
|
|
84,886
|
|
|
|
97,669
|
|
|
|
109,755
|
|
|
|
|
Total revenues
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
941,686
|
|
|
|
|
Compensation and benefits
|
|
|
574,901
|
|
|
|
588,866
|
|
|
|
587,972
|
|
Occupancy
|
|
|
49,154
|
|
|
|
49,070
|
|
|
|
53,946
|
|
Depreciation
|
|
|
21,122
|
|
|
|
22,626
|
|
|
|
21,400
|
|
Marketing and advertising
|
|
|
18,960
|
|
|
|
23,803
|
|
|
|
25,623
|
|
Amortization of intangible assets
|
|
|
11,639
|
|
|
|
13,018
|
|
|
|
14,439
|
|
Other
|
|
|
125,859
|
|
|
|
104,329
|
|
|
|
149,509
|
|
|
|
|
Total expenses
|
|
|
801,635
|
|
|
|
801,712
|
|
|
|
852,889
|
|
|
|
|
Pretax income
|
|
$
|
58,714
|
|
|
$
|
96,097
|
|
|
$
|
88,797
|
|
|
|
|
Pretax margin
|
|
|
6.8%
|
|
|
|
10.7%
|
|
|
|
9.4%
|
|
|
FISCAL 2010
COMPARED TO FISCAL 2009 Business
Services revenues for fiscal year 2010 decreased
$37.5 million, or 4.2%, from the prior year. Revenues from
core tax, consulting and accounting services decreased
$21.3 million, or 2.8%, from the prior year. Tax and
accounting services revenues decreased $29.3 million and
$5.2 million, respectively, primarily due to decreases in
chargeable hours and pressures on billable rates. Business
consulting revenues increased $13.2 million, or 5.3%, over
the prior year primarily due to a large engagement in our
operational consulting practice.
Continued weak economic conditions in recent years have severely
reduced investment and transaction activity. As a result,
revenues from our capital markets business have been declining
severely, including a decline in revenues of $6.4 million,
or 34.9%, from fiscal year 2009. As noted below, we recorded an
impairment of goodwill associated with this business during
fiscal year 2010.
Other revenue declined $12.8 million, or 13.1%, primarily
due to lower management fee revenues and interest income
received from M&P.
Total expenses were essentially flat compared to the prior year.
Compensation and benefits decreased $14.0 million, or 2.4%,
primarily due to headcount reductions driven by reduced client
demand. Marketing and advertising costs decreased
$4.8 million, or 20.3%, primarily due to fewer sponsorships
and lower advertising costs. Other expenses increased
$21.5 million primarily due to a $15.0 million
impairment of goodwill at RSM EquiCo, Inc. (RSM EquiCo), as
discussed in Item 8, note 8 to the consolidated
financial statements, and increased legal expenses.
Pretax income for the year ended April 30, 2010 of
$58.7 million compares to $96.1 million in the prior
year. Pretax margin for the segment decreased from 10.7% in
fiscal year 2009, to 6.8% in fiscal year 2010, primarily due to
poor results in our capital markets business and a reduction of
revenue in our core businesses.
FISCAL 2009
COMPARED TO FISCAL
2008 Business
Services revenues for fiscal year 2009 decreased
$43.9 million, or 4.7%, from fiscal year 2008, primarily
due to declines in capital markets, leased employee revenues and
outside contractor services.
H&R
BLOCK 2010
Form 10K 21
Revenues from core tax, consulting and accounting services
increased $25.0 million, or 3.4%, over fiscal year 2008.
Tax services revenues increased $15.9 million, or 3.6%, due
to increases in net billed rate per hour. Business consulting
revenues increased $12.2 million, or 5.2%, primarily due to
a large one-time financial institutions engagement.
Weak economic conditions in fiscal year 2009 severely reduced
investment and transaction activity. As a result, capital
markets revenues decreased $32.9 million, or 64.4%, from
fiscal year 2008 primarily due to a 57.4% decline in the number
of transactions closed.
Leased employee revenue decreased due to a change in
organizational structure between the businesses we acquired from
American Express Tax and Business Services, Inc. (AmexTBS) and
the Attest Firms that, while not affiliates of our company, also
serve our clients. Employees we previously leased to the Attest
Firms were transferred to the separate attest practices in
fiscal years 2008 and 2007. As a result, we no longer record the
revenues and expenses associated with leasing these employees,
which resulted in a reduction of $25.0 million to fiscal
year 2009 revenues, and a similar reduction in compensation and
benefits.
Other revenue declined $12.0 million, or 11.0%, primarily
due to a decrease in outside contractor services provided to our
clients.
Total expenses decreased $51.2 million, or 6.0%, compared
to fiscal year 2008. Other expenses decreased
$45.2 million, or 30.2%, primarily due to declines in
external consulting fees, allocated corporate and support
department costs and travel and entertainment expenses.
Pretax income for the year ended April 30, 2009 of
$96.1 million compares to $88.8 million in fiscal year
2008. Pretax margin for the segment increased from 9.4% in
fiscal year 2008, to 10.7% in fiscal year 2009.
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 owned, residual interests
in securitizations and other corporate expenses, principally
related to finance, legal and other support departments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operating Results
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Interest income on mortgage loans held for investment
|
|
$
|
31,877
|
|
|
$
|
46,396
|
|
|
$
|
74,895
|
|
|
|
|
|
Other
|
|
|
6,854
|
|
|
|
7,295
|
|
|
|
9,388
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
84,283
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
79,929
|
|
|
|
92,945
|
|
|
|
92,923
|
|
|
|
|
|
Provision for loan losses
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
42,004
|
|
|
|
|
|
Compensation and benefits
|
|
|
53,607
|
|
|
|
48,973
|
|
|
|
115,479
|
|
|
|
|
|
Other, net
|
|
|
(614
|
)
|
|
|
31,651
|
|
|
|
13,324
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
180,672
|
|
|
|
237,466
|
|
|
|
263,730
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(141,941
|
)
|
|
$
|
(183,775
|
)
|
|
$
|
(179,447
|
)
|
|
|
|
|
|
|
|
FISCAL YEAR 2010
COMPARED TO FISCAL YEAR 2009
Interest income earned on mortgage loans held for investment for
the fiscal year ended April 30, 2010 decreased
$14.5 million, or 31.3%, from the prior year, primarily as
a result of non-performing loans. Interest expense decreased
$13.0 million, or 14.0%, due to lower funding costs related
to our mortgage loan portfolio and lower corporate borrowings.
Our provision for loan losses decreased $16.1 million from
the prior year. See related discussion below under
Mortgage Loans Held for Investment.
Other expenses declined $32.3 million primarily due to
gains of $9.0 million on residual interests in the current
year, compared to impairments of $3.1 million recorded in
the prior year. Additionally, we transferred liabilities
relating to previously retained insurance risk to a third-party,
and recorded a gain of $9.5 million in fiscal year 2010.
Income Taxes on
Continuing Operations
Our effective tax rate for continuing operations was 37.6% for
the fiscal year ended April 30, 2010, compared to 38.9% in
the prior year. Our effective tax rates declined from the prior
year due to a reduction in our valuation allowance related to
tax-planning strategies and favorable tax benefits related to
investment gains on our corporate owned life insurance
investments.
Mortgage Loans
Held for Investment
Mortgage loans held for investment at April 30, 2010
totaled $595.4 million. The portfolio includes loans
originated by SCC, and purchased by HRB Bank which constituted
approximately 64% of the total loan portfolio at April 30,
2010. 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
$249.0 million and is more characteristic of a prime loan
portfolio, and we believe subject to a lower loss exposure.
22 H&R
BLOCK 2010 Form 10K
Detail of our mortgage loans held for investment and the related
allowance, excluding unamortized deferred fees and costs of
$5.3 million and $7.1 million at April 30, 2010
and 2009, respectively, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in
000s)
|
|
|
|
Outstanding
|
|
Loan Loss Allowance
|
|
% 30+ Days
|
|
|
|
|
Principal Balance
|
|
Amount
|
|
% of Principal
|
|
Past Due
|
|
|
|
|
As of April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
434,644
|
|
$
|
82,793
|
|
|
19.1%
|
|
|
37.8%
|
|
|
|
All other
|
|
|
249,040
|
|
|
10,742
|
|
|
4.3%
|
|
|
8.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
683,684
|
|
$
|
93,535
|
|
|
13.7%
|
|
|
27.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
531,233
|
|
$
|
78,067
|
|
|
14.7%
|
|
|
28.7%
|
|
|
|
All other
|
|
|
290,604
|
|
|
6,006
|
|
|
2.1%
|
|
|
4.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
821,837
|
|
$
|
84,073
|
|
|
10.2%
|
|
|
20.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a provision for loan loss of $47.8 million
during fiscal year 2010, compared to $63.9 million in the
prior year. Our allowance for loan losses as a percent of
mortgage loans was 13.7%, or $93.5 million, at
April 30, 2010, compared to 10.2%, 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.
FISCAL YEAR 2009
COMPARED TO FISCAL YEAR 2008
Interest income earned on mortgage loans held for investment for
the fiscal year ended April 30, 2009 decreased
$28.5 million, or 38.1%, from fiscal year 2008, primarily
as a result of non-performing loans. Our provision for loan
losses increased $21.9 million from fiscal year 2008
primarily due to declines in residential home prices and higher
projected delinquencies.
Compensation and benefits decreased $66.5 million, or
57.6%, primarily due to severance-related costs recorded in
fiscal year 2008, coupled with benefits in fiscal year 2009
resulting from the staff reductions.
Other expenses increased $18.3 million primarily due to an
$11.9 million write-down of REO property during fiscal year
2009.
Income Taxes on
Continuing Operations
Our effective tax rate for continuing operations was 38.9% for
the fiscal year ended April 30, 2009, compared to 39.3% in
fiscal year 2008.
DISCONTINUED
OPERATIONS
Effective November 1, 2008, we sold H&R Block
Financial Advisors, Inc. (HRBFA) to Ameriprise Financial, Inc.
HRBFA and its direct corporate parent are presented as
discontinued operations in the consolidated financial statements
for all periods presented. Our discontinued operations also
include our former mortgage loan origination and servicing
business, as well as three smaller lines of business previously
reported in our Business Services segment.
FISCAL 2010
COMPARED TO FISCAL
2009 The
net loss from discontinued operations for fiscal year 2010 was
$9.7 million compared to a net loss of $27.4 million
in the prior year. The decline in losses was due to a loss on
the disposition of HRBFA totaling $12.2 million in fiscal
year 2009 compared with a gain of $6.2 million in fiscal
year 2010 relating to post-disposition purchase price
adjustments.
FISCAL 2009
COMPARED TO FISCAL
2008 The
pretax loss of our discontinued operations for fiscal year 2009
was $47.6 million compared to a loss of $1.2 billion
in the prior year. The loss from discontinued operations for
fiscal year 2008 included significant losses from our former
mortgage loan businesses, including losses relating to loan
repurchase obligations of $582.4 million and impairments of
residual interests of $137.8 million. Net of applicable tax
benefits, the loss from discontinued operations for fiscal year
2009 was $27.4 million compared to a loss of
$754.6 million in fiscal year 2008.
Our effective tax rate for discontinued operations was 42.5% and
35.3% for the fiscal years 2009 and 2008, respectively. Our
effective tax rate increased primarily due to a tax benefit
recorded in conjunction with the sale of HRBFA.
CRITICAL
ACCOUNTING ESTIMATES
We consider the estimates discussed below to be critical to
understanding our financial statements, as they require the use
of significant judgment and estimation in order to measure, at a
specific point in time, matters that are inherently uncertain.
Specific risks for these critical accounting estimates are
described in the following paragraphs. We have reviewed and
discussed each of these estimates with the Audit Committee of
our Board
H&R
BLOCK 2010
Form 10K 23
of Directors. For all of these estimates, we caution that future
events rarely develop precisely as forecasted and estimates
routinely require adjustment and may require material adjustment.
ALLOWANCE FOR
LOAN LOSSES The principal amount of
mortgage loans held for investment totaled $683.7 million
at April 30, 2010. We are exposed to the risk that
borrowers may not repay amounts owed to us when they become
contractually due. We record an allowance representing our
estimate of credit losses inherent in the portfolio of loans
held for investment at the balance sheet date. Determination of
our allowance for loan losses is considered a critical
accounting estimate because loss provisions can be material to
our operating results, projections of loan delinquencies and
related matters are inherently subjective, and actual losses are
impacted by factors outside of our control including economic
conditions, unemployment rates and residential home prices.
We record a loan loss allowance for loans less than 60 days
past due on a pooled basis. The aggregate principal balance of
these loans totaled $372.7 million at April 30, 2010,
and the portion of our allowance for loan losses allocated to
these loans totaled $16.2 million. In estimating our loan
loss allowance for these loans, we stratify the loan portfolio
based on our view of risk associated with various elements of
the pool and assign estimated loss rates based on those risks.
Loss rates are based primarily on historical experience and our
assessment of economic and market conditions. Loss rates
consider both the rate at which loans will become delinquent
(frequency) and the amount of loss that will ultimately be
realized upon occurrence of a liquidation of collateral
(severity). Frequency rates are based primarily on historical
migration analysis of loans to delinquent status. Severity rates
are based primarily on recent broker quotes or appraisals of
collateral. Because of imprecision and uncertainty inherent in
developing estimates of future credit losses, in particular
during periods of rapidly declining collateral values or
increasing delinquency rates, our estimation process includes
development of ranges of possible outcomes. Ranges were
developed by stressing initial estimates of both frequency and
severity rates. Stressing of frequency and severity assumptions
is intended to model deterioration in credit quality that is
difficult to predict during declining economic conditions.
Future deterioration in credit quality may exceed our modeled
assumptions.
Mortgage loans held for investment include loans originated by
our affiliate, SCC, and purchased by HRB Bank. We have greater
exposure to loss with respect to this segment of our loan
portfolio as a result of historically higher delinquency rates.
Therefore, we assign higher frequency rate assumptions to
SCC-originated loans compared with loans originated by other
third-party banks as we consider estimates of future losses. At
April 30, 2010 our weighted-average frequency assumption
was 15% for SCC-originated loans compared to 4% for remaining
loans in the portfolio.
Loans 60 days past due are considered impaired and are
reviewed individually. We record loss estimates typically based
on the value of the underlying collateral. Our specific loan
loss allowance for these impaired loans reflected an average
loss severity of approximately 41% at April 30, 2010. The
aggregate principal balance of impaired loans totaled
$165.9 million at April 30, 2010, and the portion of
our allowance for loan losses allocated to these loans totaled
$68.7 million.
Modified loans that meet the definition of a troubled debt
restructuring (TDR) are also considered impaired and are
reviewed individually. We record impairment equal to the
difference between the principal balance of the loan and the
present value of expected future cash flows discounted at the
loans effective interest rate. However, if we assess that
foreclosure of a modified loan is probable, we record impairment
based on the estimated fair value of the underlying collateral.
The aggregate principal balance of TDR loans totaled
$145.0 million at April 30, 2010, and the portion of
our allowance for loan losses allocated to these loans totaled
$8.9 million.
The loan loss allowance as a percent of mortgage loans held for
investment was 13.7% at April 30, 2010, compared to 10.2%
at April 30, 2009. The percentage increased significantly
during the current year primarily as a result of declining
collateral values due to lower residential home prices and
modeled expectations for future loan delinquencies in the
portfolio. The residential mortgage industry has experienced
significant adverse trends for an extended period. If adverse
trends continue for a sustained period or at rates worse than
modeled by us, we may be required to record additional loan loss
provisions, and those losses may be significant.
Determining the allowance for loan losses for loans held for
investment requires us to make estimates of losses that are
highly uncertain and requires a high degree of judgment. If our
underlying assumptions prove to be inaccurate, the allowance for
loan losses could be insufficient to cover actual losses. Our
mortgage loan portfolio is a static pool, as we are no longer
originating or purchasing new mortgage loans, and we believe
that factor, over time, will limit variability in our loss
estimates.
MORTGAGE LOAN
REPURCHASE OBLIGATION SCC is
obligated to repurchase loans sold or securitized in the event
of a breach of representations and warranties it made to
purchasers or insurers of such loans, or otherwise indemnify
certain third-parties for losses incurred by them. SCC records a
liability for contingent losses relating to representation and
warranty claims by estimating loan repurchase volumes and
indemnification obligations for both known claims and
projections of expected future claims. Projections of future
claims are
24 H&R
BLOCK 2010 Form 10K
based on an analysis that includes a combination of reviewing
historical repurchase trends, developing loss expectations on
loans sold or securitized, and predicting the level at which
previously originated loans may be subject to valid claims
regarding representation and warranty breaches.
Based on an analysis as of April 30, 2010, SCC estimated
its liability for loan repurchase and indemnification
obligations pertaining to claims of breach of representation and
warranties to be $188.2 million. Actual losses charged
against this reserve during fiscal year 2010 totaled
$18.4 million. To the extent that valid claim volumes in
the future exceed current estimates, or the value of mortgage
loans and residential home prices decline, future losses may be
greater than our current estimates and those differences may be
significant. See Item 8, note 16 to our consolidated
financial statements.
LITIGATION It
is our policy to routinely assess the likelihood of any adverse
judgments or outcomes related to legal matters, as well as
ranges of probable losses. A determination of the amount of the
reserves required, if any, for these contingencies is made after
analysis of each known issue and an analysis of historical
experience. Therefore, we have recorded reserves related to
certain legal matters for which we believe it is probable that a
loss will be incurred and the range of such loss can be
estimated. With respect to other matters, we have concluded that
a loss is only reasonably possible or remote, or is not
estimable and, therefore, no liability is recorded.
Assessing the likely outcome of pending litigation, including
the amount of potential loss, if any, is highly subjective. Our
judgments regarding likelihood of loss and our estimates of
probable loss amounts may differ from actual results due to
difficulties in predicting the outcome of jury trials,
arbitration hearings, settlement discussions and related
activity, predicting the outcome of class certification actions
and various other uncertainties. Due to the number of claims
which are periodically asserted against us, and the magnitude of
damages sought in those claims, actual losses in the future may
significantly exceed our current estimates.
VALUATION OF
GOODWILL The evaluation of goodwill
for impairment is a critical accounting estimate due both to the
magnitude of our goodwill balances, and the judgment involved in
determining the fair value of our reporting units. Goodwill
balances totaled $840.4 million as of April 30, 2010
and $850.2 million as of April 30, 2009.
We test goodwill and other indefinite-life intangible assets for
impairment annually or more frequently if events occur or
circumstances change which would, more likely than not, reduce
the fair value of a reporting unit below its carrying value. Our
goodwill impairment analysis is based on a discounted cash flow
approach and market comparables. This analysis, at the reporting
unit level, requires significant management judgment with
respect to revenue and expense forecasts, anticipated changes in
working capital and the selection and application of an
appropriate discount rate. Changes in projections or assumptions
could materially affect our estimate of reporting unit fair
values. The use of different assumptions would increase or
decrease estimated discounted future operating cash flows and
could affect our conclusions regarding the existence or amount
of potential impairment. Finally, strategic changes in our
outlook regarding reporting units or intangible assets may alter
our valuation approach and could result in changes to our
conclusions regarding impairment.
Estimates of fair value for certain of our reporting units
exceed the corresponding carrying value by a significant margin.
In certain instances, however, the excess of estimated fair
value over carrying value is not significant. Future estimates
of fair value may be adversely impacted by declining economic
conditions. In addition, if future operating results of our
reporting units are below our current modeled expectations, fair
value estimates may decline. Any of these factors could result
in future impairments, and those impairments could be
significant.
In assessing potential goodwill impairment of our RSM reporting
unit, we estimate fair value based on an assumption that the
collaboration between RSM and M&P under their alternative
practice structure arrangement will continue. Were M&P to
exit the alternative practice structure, or the collaboration
between these two businesses otherwise cease, we believe our
fair value estimates could be lower than presently assumed. In
addition, adverse business results for M&P could also
negatively impact our fair value estimates for RSM. Goodwill
balances for RSM totaled $374.5 million at April 30,
2010. In fiscal year 2010, the estimated fair value of our RSM
reporting unit exceeded its carrying value by approximately 30%.
We recorded a goodwill impairment of $15.0 million related
to our RSM EquiCo reporting unit within our Business Services
segment in the third quarter of fiscal year 2010, leaving a
remaining goodwill balance of $14.3 million. Operating
results for this reporting unit have been declining and
continued poor results could result in further impairment.
We have a separate reporting unit within our Tax Services
segment with a goodwill balance totaling $28.6 million at
April 30, 2010. Operating activities of the business
consist principally of the development and sale of commercial
tax preparation software. The estimated fair value of this
reporting unit exceeded its carrying value by approximately 8%
at April 30, 2010.
See Item 8, note 8 to our consolidated financial
statements.
INCOME
TAXES Income taxes are accounted for
using the asset and liability approach under U.S. GAAP.
H&R
BLOCK 2010
Form 10K 25
We calculate our current and deferred tax provision for the
fiscal year based on estimates and assumptions that could differ
from the actual results reflected in income tax returns filed
during the applicable calendar year. Adjustments based on filed
returns are recorded in the appropriate periods when identified.
We file a consolidated federal tax return on a calendar year
basis, generally in the second fiscal quarter of the subsequent
year.
We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be
realized. We have considered taxable income in carry-back
periods, historical and forecasted earnings, future taxable
income, the mix of earnings in the jurisdictions in which we
operate, and tax planning strategies in determining the need for
a valuation allowance against our deferred tax assets.
Determination of a valuation allowance for deferred tax assets
requires that we make judgments about future matters that are
not certain, including projections of future taxable income and
evaluating potential tax-planning strategies. To the extent that
actual results differ from our current assumptions, the
valuation allowance will increase or decrease. In the event we
were to determine we would not be able to realize all or part of
our deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to earnings in the period
in which we make such determination. Likewise, if we later
determine it is more likely than not that the deferred tax
assets would be realized, we would reverse the applicable
portion of the previously provided valuation allowance.
The income tax laws of jurisdictions in which we operate are
complex and subject to different interpretations by the taxpayer
and applicable government taxing authorities. Income tax returns
filed by us are based on our interpretation of these rules. The
amount of income taxes we pay is subject to ongoing audits by
federal, state and foreign tax authorities, which may result in
proposed assessments, including assessments of interest
and/or
penalties. Our estimate for the potential outcome for any
uncertain tax issue is highly subjective and based on our best
judgments. Actual results may differ from our current judgments
due to a variety of factors, including changes in law,
interpretations of law by taxing authorities that differ from
our assessments, changes in the jurisdictions in which we
operate and results of routine tax examinations. We believe we
have adequately provided for any reasonably foreseeable outcome
related to these matters. However, our future results may
include favorable or unfavorable adjustments to our estimated
tax liabilities in the period the assessments are made or
resolved, or when statutes of limitation on potential
assessments expire. As a result, our effective tax rate may
fluctuate on a quarterly basis.
REVENUE
RECOGNITION We have many different
revenue sources, each governed by specific revenue recognition
policies. Our revenue recognition policies can be found in
Item 8, note 1 to our consolidated financial
statements.
OTHER SIGNIFICANT
ACCOUNTING ESTIMATES Other
significant accounting estimates, not involving the same level
of judgment or uncertainty as those discussed above are
nevertheless important to an understanding of the financial
statements. These estimates may require judgments on complex
matters that are often subject to multiple sources of
authoritative guidance. Certain of these matters are among
topics currently under reexamination by accounting standard
setters and regulators. Although specific conclusions reached by
these standard setters may cause a material change in our
accounting estimates, outcomes cannot be predicted with
confidence. See Item 8, note 1 to our consolidated
financial statements, which discusses accounting estimates we
have selected when there are acceptable alternatives and new or
proposed accounting standards that may affect our financial
reporting in the future.
FINANCIAL
CONDITION
CAPITAL RESOURCES
AND LIQUIDITY Our sources of capital
include cash from operations, cash from customer deposits,
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 CLOC,
we believe, that in the absence of any unexpected developments,
our existing sources of capital at April 30, 2010 are
sufficient to meet our operating needs.
These comments should be read in conjunction with the
consolidated balance sheets and consolidated statements of cash
flows included in Item 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
587,469
|
|
|
$
|
1,024,439
|
|
|
$
|
258,760
|
|
|
|
|
|
Investing activities
|
|
|
31,353
|
|
|
|
5,560
|
|
|
|
1,147,289
|
|
|
|
|
|
Financing activities
|
|
|
(481,118
|
)
|
|
|
(40,233
|
)
|
|
|
(1,558,069
|
)
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
11,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
149,382
|
|
|
$
|
989,766
|
|
|
$
|
(152,020
|
)
|
|
|
|
|
|
|
|
26 H&R
BLOCK 2010 Form 10K
CASH FROM
OPERATING ACTIVITIES Cash provided
by operations decreased $437.0 million from fiscal year
2009 primarily due to income tax payments of $359.6 million
in the current year, compared to refunds received in the prior
year.
Restricted
Cash. We hold certain cash balances that are
restricted as to use. Cash and cash equivalents
restricted totaled $34.4 million at April 30, 2010,
and primarily consisted of cash held by our captive insurance
subsidiary that will be used to pay claims.
CASH FROM
INVESTING ACTIVITIES Changes in cash
provided by investing activities primarily relate to the
following:
Mortgage Loans
Held for Investment. We received net proceeds of
$72.8 million, $91.3 million and $207.6 million
on our mortgage loans held for investment in fiscal years 2010,
2009 and 2008, respectively.
Purchases of
Property and Equipment. Total cash paid for
property and equipment was $90.5 million,
$97.9 million and $101.6 million for fiscal years
2010, 2009 and 2008, respectively.
Business
Acquisitions. Total cash paid for acquisitions
was $10.5 million, $293.8 million and
$24.9 million during fiscal years 2010, 2009 and 2008,
respectively. In November 2008, we acquired our last major
independent franchise operator for an aggregate purchase price
of $279.2 million.
Sales of
Businesses. In fiscal year 2010, we sold 267 tax
offices to franchisees for proceeds of $65.7 million. In
fiscal year 2009, we sold certain tax offices to franchisees for
proceeds of $16.9 million. The majority of these sales were
financed through Franchise Equity Lines of Credit (FELCs). The
increase in the lines of credit is also included in investing
activities.
Discontinued
Operations. In fiscal year 2009, we sold our
financial advisor business for proceeds of $304.0 million.
In fiscal year 2008, we sold our former mortgage loan
origination and servicing business, as well as three smaller
lines of business previously reported in our Business Services
segment, for cash proceeds of $1.1 billion.
CASH FROM
FINANCING ACTIVITIES Changes in cash
used in financing activities primarily relate to the following:
Short-Term
Borrowings. We had no short-term borrowings
outstanding at April 30, 2010.
Customer Banking
Deposits. Customer banking deposits provided
$17.5 million in the current year compared to
$64.4 million provided in fiscal year 2009 and
$345.4 million used in fiscal year 2008. These deposits are
held by HRB Bank
Dividends. We
have consistently paid quarterly dividends. Dividends paid
totaled $200.9 million, $198.7 million and
$183.6 million in fiscal years 2010, 2009 and 2008,
respectively.
Repurchase and
Retirement of Common Stock. During fiscal year
2010, we purchased and immediately retired 12.8 million
shares of our common stock at a cost of $250.0 million. We
may continue to repurchase and retire common stock or retire
treasury stock in the future.
In June 2008, our Board of Directors rescinded the previous
authorizations to repurchase shares of our common stock and
approved an authorization to purchase up to $2.0 billion of
our common stock through June 2012. There was $1.7 billion
remaining under this authorization at April 30, 2010.
Issuances of
Common Stock. In October 2008, we sold
8.3 million shares of our common stock, without par value,
at a price of $17.50 per share in a registered direct offering
through subscription agreements with selected institutional
investors. We received net proceeds of $141.4 million,
after deducting placement agent fees and other offering
expenses. The purpose of the equity offering was to ensure we
maintained adequate equity levels, as a condition of our CLOC,
during our off-season. Proceeds were used for general corporate
purposes.
Proceeds from the issuance of common stock in accordance with
our stock-based compensation plans totaled $16.7 million,
$71.6 million, and $23.3 million in fiscal years 2010,
2009 and 2008, respectively.
HRB
BANK Block Financial LLC (BFC)
typically makes capital contributions to HRB Bank to help it
meet its capital requirements. BFC made capital contributions to
HRB Bank of $235.0 million during fiscal year 2010 and
$245.0 million during fiscal year 2009.
Historically, capital contributions by BFC have been repaid as a
return of capital by HRB Bank as capital requirements decline. A
return of capital or dividend paid by HRB Bank must be approved
by the Office of Thrift Supervision (OTS). Although the OTS has
approved such payments in the past, there is no assurance that
they will continue to do so in the future, in particular if they
determine that higher capital levels at HRB Bank are necessary
due to non-performing asset levels. In addition, BFC may elect
to maintain higher capital levels at HRB Bank. At April 30,
2010, HRB Bank had cash balances of $701.0 million.
Distribution of those cash balances would be subject to OTS
approval and are therefore not currently available for general
corporate purposes.
HRB Bank received approval from the OTS on May 17, 2010 to
pay a non-cash dividend by June 30, 2010 to BFC of REO.
See additional discussion of regulatory and capital requirements
of HRB Bank in Regulatory Environment.
H&R
BLOCK 2010
Form 10K 27
BORROWINGS
We continually monitor our funding requirements and execute
strategies to manage our overall asset and liability profile.
The following chart provides the debt ratings for BFC as of
April 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
|
|
Moodys
|
|
|
P-2
|
|
|
|
Baa1
|
|
|
|
Stable
|
|
S&P
|
|
|
A-2
|
|
|
|
BBB
|
|
|
|
Positive
|
|
DBRS
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Positive
|
|
|
On March 4, 2010, we entered into a new CLOC agreement to
support commercial paper issuances, general corporate purposes
or for working capital needs, and terminated the previous CLOCs.
The new facility provides funding up to $1.7 billion and
matures July 31, 2013. The new facility bears interest at
an annual rate of LIBOR plus 1.30% to 2.80% or PRIME plus .30%
to 1.80% (depending on the type of borrowing) and includes an
annual facility fee of .20% to .70% of the committed amounts,
based on our credit ratings. Covenants in the new facility are
substantially similar to those in the previous CLOCs including:
(1) maintenance of a minimum net worth of
$650.0 million on the last day of any fiscal quarter; and
(2) reduction of the aggregate outstanding principal amount
of short-term debt, as defined in the agreement, to
$200.0 million or less for thirty consecutive days during
the period March 1 to June 30 of each year (Clean- down
requirement). At April 30, 2010, we were in
compliance with these covenants and had net worth of
$1.4 billion. There was no balance outstanding on this
facility at April 30, 2010.
As of April 30, 2010, we had $250.0 million remaining
under our shelf registration for additional debt issuances.
Effective January 12, 2010, we entered into a
$2.5 billion committed line of credit agreement with HSBC
Bank USA, National Association (HSBC) for the purchase of RAL
participations. This line was available up to its facility limit
through March 30, 2010 and then only up to
$120.0 million thereafter through June 30, 2010. The
line is subject to covenants similar to those in the CLOC, but
secured by the RAL participation interests. All borrowings on
this facility were repaid as of April 30, 2010 and the
facility is now closed.
During fiscal year 2010, borrowing needs in our Canadian
operations were funded by corporate borrowings in the
U.S. To mitigate the foreign currency exchange rate risk,
we used foreign exchange forward contracts. We do not enter into
forward contracts for speculative purposes. In estimating the
fair value of derivative positions, we utilize quoted market
prices, if available, or quotes obtained from external sources.
There were no forward contracts outstanding as of April 30,
2010.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of our obligations to make future payments as of
April 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
After 5 Years
|
|
|
|
|
|
Long-term debt (including interest)
|
|
$
|
1,218,824
|
|
|
$
|
67,750
|
|
|
$
|
721,383
|
|
|
$
|
429,691
|
|
|
$
|
|
|
|
|
Customer deposits
|
|
|
874,218
|
|
|
|
492,313
|
|
|
|
18,558
|
|
|
|
3,106
|
|
|
|
360,241
|
|
|
|
FHLB borrowings
|
|
|
75,000
|
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
Retirement plan contribution
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition payments
|
|
|
28,701
|
|
|
|
3,157
|
|
|
|
25,455
|
|
|
|
89
|
|
|
|
|
|
|
|
Media advertising purchase obligation
|
|
|
26,548
|
|
|
|
13,274
|
|
|
|
13,274
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
11,526
|
|
|
|
531
|
|
|
|
1,293
|
|
|
|
1,477
|
|
|
|
8,225
|
|
|
|
Operating leases
|
|
|
791,206
|
|
|
|
246,061
|
|
|
|
332,119
|
|
|
|
144,278
|
|
|
|
68,748
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
3,086,023
|
|
|
$
|
933,086
|
|
|
$
|
1,137,082
|
|
|
$
|
578,641
|
|
|
$
|
437,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of liabilities recorded in connection with
unrecognized tax positions that we reasonably expect to pay
within twelve months is $74.5 million at April 30,
2010 and is included in accrued income taxes on our consolidated
balance sheet. The remaining amount is included in other
noncurrent liabilities on our consolidated balance sheet.
Because the ultimate amount and timing of any future cash
settlements cannot be predicted with reasonable certainty, the
estimated unrecognized tax position liability has been excluded
from the table above. See Item 8, note 14 to the
consolidated financial statements for additional information.
28 H&R
BLOCK 2010 Form 10K
A summary of our commitments as of April 30, 2010, which
may or may not require future payments, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
After 5 Years
|
|
|
|
|
|
Franchise Equity Lines of Credit
|
|
$
|
36,806
|
|
|
$
|
21,819
|
|
|
$
|
9,242
|
|
|
$
|
5,745
|
|
|
$
|
|
|
|
|
Contingent acquisition payments
|
|
|
20,697
|
|
|
|
5,365
|
|
|
|
14,391
|
|
|
|
941
|
|
|
|
|
|
|
|
Other commercial commitments
|
|
|
482
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
57,985
|
|
|
$
|
27,666
|
|
|
$
|
23,633
|
|
|
$
|
6,686
|
|
|
$
|
|
|
|
|
|
|
|
|
See discussion of contractual obligations and commitments in
Item 8, within the notes to our consolidated financial
statements.
REGULATORY
ENVIRONMENT
HRB Bank is a federal savings bank and H&R Block, Inc. is a
savings and loan holding company. As a result, each is subject
to regulation by the OTS. Federal savings banks are subject to
extensive regulation and examination by the OTS, their primary
federal regulator, as well as the FDIC.
All savings associations are subject to the capital adequacy
guidelines and the regulatory framework for prompt corrective
action. HRB Bank must meet specific capital guidelines involving
quantitative measures of HRB Banks assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. HRB Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.
As of March 31, 2010, our most recent Thrift Financial
Report (TFR) filing with the OTS, HRB bank was a well
capitalized institution under the prompt corrective action
provisions of the FDIC. See Item 8, note 19 to the
consolidated financial statements for additional discussion of
regulatory capital requirements and classifications.
HRB Bank is an indirect wholly-owned subsidiary of H&R
Block, Inc. and its customer deposits are insured by the FDIC.
If an insured institution fails, claims for administrative
expenses of the receiver and for deposits in U.S. branches
(including claims of the FDIC as subrogee of the failed
institution) have priority over the claims of general unsecured
creditors. In addition, the FDIC has authority to require
H&R Block, Inc. to reimburse it for losses it incurs in
connection with the failure of HRB Bank or with the FDICs
provision of assistance to a banking subsidiary that is in
danger of failure.
H&R Block, Inc. is a legal entity separate and distinct
from its subsidiary, HRB Bank. Various federal and state
statutory provisions and regulations limit the amount of
dividends HRB Bank may pay without regulatory approval. The OTS
has authority to prohibit HRB Bank from engaging in unsafe or
unsound practices in conducting their business. The payment of
dividends, depending on the financial condition of the bank,
could be deemed an unsafe or unsound practice. The ability of
HRB Bank to pay dividends in the future is currently, and could
be further, influenced by bank regulatory policies and capital
guidelines.
The U.S., various state, local, provincial and foreign
governments and some self-regulatory organizations have enacted
statutes and ordinances,
and/or
adopted rules and regulations, regulating aspects of our
business. These aspects include, but are not limited to,
commercial income tax return preparers, income tax courses, the
electronic filing of income tax returns, the facilitation of
RALs, loan originations and assistance in loan originations,
mortgage lending, privacy, consumer protection, franchising,
sales methods, banking, accountants and the accounting practice.
We seek to determine the applicability of such statutes,
ordinances, rules and regulations (collectively,
Laws) and comply with those Laws.
From time to time in the ordinary course of business, we receive
inquiries from governmental and self-regulatory agencies
regarding the applicability of Laws to our services and
products. In response to past inquiries, we have agreed to
comply with such Laws, convinced the authorities that such Laws
were not applicable or that compliance already exists
and/or
modified our activities in the applicable jurisdiction to avoid
the application of all or certain parts of such Laws. We believe
the past resolution of such inquiries and our ongoing compliance
with Laws has not had a material adverse effect on our
consolidated financial statements. We cannot predict what effect
future Laws, changes in interpretations of existing Laws or the
results of future regulator inquiries with respect to the
applicability of Laws may have on our consolidated financial
statements. See additional discussion of legal matters in
Item 3, Legal Proceedings and Item 8,
note 18 to our consolidated financial statements.
FUTURE
LEGISLATION In light of current
conditions in the U.S. and global financial markets and the
U.S. and global economy, regulators have increased their
focus on the regulation of the financial services industry.
Proposals that could substantially intensify the regulation of
the financial services industry are expected to be introduced in
the U.S. Congress, in state legislatures and from
applicable regulatory authorities. These proposals may change
banking statutes and regulation and our operating environment in
substantial and unpredictable ways. If enacted, these proposals
could increase or decrease the cost of doing business, limit or
expand permissible
H&R
BLOCK 2010
Form 10K 29
activities or affect the
competitive balance among banks, savings associations, credit
unions and other financial institutions. We cannot predict
whether any of these proposals will be enacted and, if enacted,
the effect that it, or any impending regulations, would have on
our business, results of operations or financial condition.
STATISTICAL
DISCLOSURE BY BANK HOLDING COMPANIES
This section presents information required by the SECs
Industry Guide 3, Statistical Disclosure by Bank Holding
Companies. The tables in this section include HRB Bank
information only.
DISTRIBUTION OF
ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL The
following table presents average balance data and interest
income and expense data for our banking operations, as well as
the related interest yields and rates for fiscal years 2010,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Cost
|
|
|
Balance
|
|
|
Expense
|
|
|
Cost
|
|
|
Balance
|
|
|
Expense
|
|
|
Cost
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
677,115
|
|
|
$
|
31,877
|
|
|
|
4.12
|
%
|
|
$
|
839,253
|
|
|
$
|
46,396
|
|
|
|
5.14
|
%
|
|
$
|
1,157,360
|
|
|
$
|
74,895
|
|
|
|
6.40
|
%
|
Federal funds sold
|
|
|
9,471
|
|
|
|
9
|
|
|
|
0.09
|
%
|
|
|
311,138
|
|
|
|
801
|
|
|
|
0.26
|
%
|
|
|
153,332
|
|
|
|
4,981
|
|
|
|
3.25
|
%
|
Emerald Advance
(1)
|
|
|
106,093
|
|
|
|
77,891
|
|
|
|
35.21
|
%
|
|
|
133,252
|
|
|
|
91,019
|
|
|
|
35.31
|
%
|
|
|
68,932
|
|
|
|
45,339
|
|
|
|
32.31
|
%
|
Available-for-sale
investment securities
|
|
|
25,144
|
|
|
|
181
|
|
|
|
0.71
|
%
|
|
|
29,500
|
|
|
|
791
|
|
|
|
2.68
|
%
|
|
|
36,055
|
|
|
|
1,847
|
|
|
|
5.12
|
%
|
FHLB stock
|
|
|
6,703
|
|
|
|
119
|
|
|
|
1.77
|
%
|
|
|
6,557
|
|
|
|
127
|
|
|
|
1.93
|
%
|
|
|
6,876
|
|
|
|
322
|
|
|
|
4.70
|
%
|
Cash and due from banks
|
|
|
747,504
|
|
|
|
1,976
|
|
|
|
0.26
|
%
|
|
|
12,474
|
|
|
|
123
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,572,030
|
|
|
$
|
112,053
|
|
|
|
7.00
|
%
|
|
|
1,332,174
|
|
|
$
|
139,257
|
|
|
|
10.45
|
%
|
|
|
1,422,555
|
|
|
$
|
127,384
|
|
|
|
8.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
94,499
|
|
|
|
|
|
|
|
|
|
|
|
71,759
|
|
|
|
|
|
|
|
|
|
|
|
20,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HRB Bank assets
|
|
$
|
1,666,529
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,933
|
|
|
|
|
|
|
|
|
|
|
$
|
1,442,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
1,019,664
|
|
|
$
|
10,174
|
|
|
|
1.00
|
%
|
|
$
|
863,072
|
|
|
$
|
14,069
|
|
|
|
1.63
|
%
|
|
$
|
904,836
|
|
|
$
|
42,878
|
|
|
|
4.74
|
%
|
FHLB borrowing
|
|
|
98,767
|
|
|
|
1,997
|
|
|
|
2.02
|
%
|
|
|
103,885
|
|
|
|
5,113
|
|
|
|
4.92
|
%
|
|
|
117,743
|
|
|
|
6,008
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118,431
|
|
|
$
|
12,171
|
|
|
|
1.09
|
%
|
|
|
966,957
|
|
|
$
|
19,182
|
|
|
|
1.98
|
%
|
|
|
1,022,579
|
|
|
$
|
48,886
|
|
|
|
4.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
267,159
|
|
|
|
|
|
|
|
|
|
|
|
230,271
|
|
|
|
|
|
|
|
|
|
|
|
210,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,385,590
|
|
|
|
|
|
|
|
|
|
|
|
1,197,228
|
|
|
|
|
|
|
|
|
|
|
|
1,233,346
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
280,939
|
|
|
|
|
|
|
|
|
|
|
|
206,705
|
|
|
|
|
|
|
|
|
|
|
|
209,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,666,529
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,933
|
|
|
|
|
|
|
|
|
|
|
$
|
1,442,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
(1)
|
|
|
|
|
|
$
|
99,882
|
|
|
|
6.23
|
%
|
|
|
|
|
|
$
|
120,075
|
|
|
|
9.06
|
%
|
|
|
|
|
|
$
|
78,498
|
|
|
|
5.54
|
%
|
|
|
|
|
(1)
|
Includes all
interest income related to Emerald Advance activities. Amounts
recognized as interest income also include certain fees, which
are amortized into interest income over the life of the loan, of
$39.2 million, $44.0 million and $23.1 million
for fiscal years 2010, 2009 and 2008, respectively.
|
The following table presents the rate/volume variance in
interest income and expense for the last two fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Total Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Total Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
in Interest
|
|
|
Due to
|
|
|
Due to
|
|
|
Due to
|
|
|
in Interest
|
|
|
Due to
|
|
|
Due to
|
|
|
Due to
|
|
|
|
|
|
|
Income/Expense
|
|
|
Rate/Volume
|
|
|
Rate
|
|
|
Volume
|
|
|
Income/Expense
|
|
|
Rate/Volume
|
|
|
Rate
|
|
|
Volume
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net(1)
|
|
$
|
(27,646
|
)
|
|
$
|
1,233
|
|
|
$
|
(8,192
|
)
|
|
$
|
(20,687
|
)
|
|
$
|
17,182
|
|
|
$
|
(11,253
|
)
|
|
$
|
53,654
|
|
|
$
|
(25,219
|
)
|
|
|
|
|
Available-for-sale
investment securities
|
|
|
(611
|
)
|
|
|
86
|
|
|
|
(580
|
)
|
|
|
(117
|
)
|
|
|
(1,056
|
)
|
|
|
160
|
|
|
|
(881
|
)
|
|
|
(335
|
)
|
|
|
|
|
Federal funds sold
|
|
|
(792
|
)
|
|
|
500
|
|
|
|
(515
|
)
|
|
|
(777
|
)
|
|
|
(4,180
|
)
|
|
|
(4,720
|
)
|
|
|
(4,586
|
)
|
|
|
5,126
|
|
|
|
|
|
FHLB stock
|
|
|
(8
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
(196
|
)
|
|
|
9
|
|
|
|
(190
|
)
|
|
|
(15
|
)
|
|
|
|
|
Cash & due from banks
|
|
|
1,853
|
|
|
|
(5,305
|
)
|
|
|
(90
|
)
|
|
|
7,248
|
|
|
|
123
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(27,204
|
)
|
|
$
|
(3,486
|
)
|
|
$
|
(9,388
|
)
|
|
$
|
(14,330
|
)
|
|
$
|
11,873
|
|
|
$
|
(15,681
|
)
|
|
$
|
47,997
|
|
|
$
|
(20,443
|
)
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
(3,895
|
)
|
|
$
|
(573
|
)
|
|
$
|
(5,457
|
)
|
|
$
|
2,135
|
|
|
$
|
(28,809
|
)
|
|
$
|
1,298
|
|
|
$
|
(28,128
|
)
|
|
$
|
(1,979
|
)
|
|
|
|
|
FHLB borrowings
|
|
|
(3,116
|
)
|
|
|
149
|
|
|
|
(3,013
|
)
|
|
|
(252
|
)
|
|
|
(895
|
)
|
|
|
25
|
|
|
|
(213
|
)
|
|
|
(707
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(7,011
|
)
|
|
$
|
(424
|
)
|
|
$
|
(8,470
|
)
|
|
$
|
1,883
|
|
|
$
|
(29,704
|
)
|
|
$
|
1,323
|
|
|
$
|
(28,341
|
)
|
|
$
|
(2,686
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Non-accruing loans
have been excluded.
|
30 H&R
BLOCK 2010 Form 10K
INVESTMENT
PORTFOLIO
The following table presents the cost basis and fair
value of HRB Banks investment portfolio at April 30,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
23,026
|
|
|
$
|
23,016
|
|
|
$
|
27,466
|
|
|
$
|
26,793
|
|
|
$
|
30,809
|
|
|
$
|
29,401
|
|
|
|
|
|
Federal funds sold
|
|
|
2,338
|
|
|
|
2,338
|
|
|
|
157,326
|
|
|
|
157,326
|
|
|
|
9,938
|
|
|
|
9,938
|
|
|
|
|
|
FHLB stock
|
|
|
6,033
|
|
|
|
6,033
|
|
|
|
6,730
|
|
|
|
6,730
|
|
|
|
7,536
|
|
|
|
7,536
|
|
|
|
|
|
Trust preferred security
|
|
|
1,854
|
|
|
|
31
|
|
|
|
3,454
|
|
|
|
292
|
|
|
|
3,500
|
|
|
|
2,809
|
|
|
|
|
|
|
|
|
|
|
$
|
33,251
|
|
|
$
|
31,418
|
|
|
$
|
194,976
|
|
|
$
|
191,141
|
|
|
$
|
51,783
|
|
|
$
|
49,684
|
|
|
|
|
|
|
|
|
|
The following table shows the cost basis, scheduled maturities
and average yields for HRB Banks investment portfolio at
April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in
000s)
|
|
|
|
|
|
Less Than One Year
|
|
|
After Ten Years
|
|
|
Total
|
|
|
|
|
|
Cost
|
|
|
Balance
|
|
|
Average
|
|
|
Balance
|
|
|
Average
|
|
|
Balance
|
|
|
Average
|
|
|
|
|
|
Basis
|
|
|
Due
|
|
|
Yield
|
|
|
Due
|
|
|
Yield
|
|
|
Due
|
|
|
Yield
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
23,026
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
23,026
|
|
|
|
0.7
|
%
|
|
$
|
23,026
|
|
|
|
0.7
|
%
|
|
|
Federal funds sold
|
|
|
2,338
|
|
|
|
2,338
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
%
|
|
|
2,338
|
|
|
|
0.1
|
%
|
|
|
FHLB stock
|
|
|
6,033
|
|
|
|
|
|
|
|
|
%
|
|
|
6,033
|
|
|
|
1.8
|
%
|
|
|
6,033
|
|
|
|
1.8
|
%
|
|
|
Trust preferred security
|
|
|
1,854
|
|
|
|
|
|
|
|
|
%
|
|
|
1,854
|
|
|
|
1.3
|
%
|
|
|
1,854
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,251
|
|
|
$
|
2,338
|
|
|
|
|
|
|
$
|
30,913
|
|
|
|
|
|
|
$
|
33,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN PORTFOLIO
AND SUMMARY OF LOAN LOSS
EXPERIENCE
The following table shows the composition of HRB
Banks mortgage loan portfolio as of April 30, 2010,
2009, 2008 and 2007, and information on delinquent loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Residential real estate mortgages
|
|
$
|
683,452
|
|
|
$
|
821,583
|
|
|
$
|
1,004,283
|
|
|
$
|
1,350,612
|
|
|
|
|
|
Home equity lines of credit
|
|
|
232
|
|
|
|
254
|
|
|
|
357
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
683,684
|
|
|
$
|
821,837
|
|
|
$
|
1,004,640
|
|
|
$
|
1,350,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and TDRs on non-accrual
|
|
$
|
185,209
|
|
|
$
|
222,382
|
|
|
$
|
110,759
|
|
|
$
|
22,909
|
|
|
|
|
|
Loans past due 90 days or more
|
|
|
153,703
|
|
|
|
121,685
|
|
|
|
73,600
|
|
|
|
22,909
|
|
|
|
|
|
Total TDRs
|
|
|
144,977
|
|
|
|
160,741
|
|
|
|
37,159
|
|
|
|
|
|
|
|
|
|
|
|
Of total loans outstanding at April 30, 2010, 60% were
adjustable-rate loans and 40% were fixed-rate loans.
Concentrations of loans to borrowers located in a single state
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. The
table below presents outstanding loans by state for our
portfolio of mortgage loans held for investment as of
April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
from Other
|
|
|
|
|
|
Percent
|
|
|
Delinquency
|
|
|
|
from SCC
|
|
|
Parties
|
|
|
Total
|
|
|
of Total
|
|
|
Rate (30+ Days)
|
|
|
|
|
Florida
|
|
$
|
57,396
|
|
|
$
|
78,999
|
|
|
$
|
136,395
|
|
|
|
20
|
%
|
|
|
30.3
|
%
|
California
|
|
|
96,830
|
|
|
|
14,546
|
|
|
|
111,376
|
|
|
|
16
|
%
|
|
|
35.3
|
%
|
New York
|
|
|
94,626
|
|
|
|
10,305
|
|
|
|
104,931
|
|
|
|
15
|
%
|
|
|
34.9
|
%
|
Wisconsin
|
|
|
2,214
|
|
|
|
51,947
|
|
|
|
54,161
|
|
|
|
8
|
%
|
|
|
4.3
|
%
|
All others
|
|
|
183,578
|
|
|
|
93,243
|
|
|
|
276,821
|
|
|
|
41
|
%
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
434,644
|
|
|
$
|
249,040
|
|
|
$
|
683,684
|
|
|
|
100
|
%
|
|
|
27.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2010
Form 10K 31
A rollforward of HRB Banks allowance for loss on mortgage
loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
$
|
|
|
Provision
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
42,004
|
|
|
|
3,622
|
|
Recoveries
|
|
|
88
|
|
|
|
54
|
|
|
|
999
|
|
|
|
|
|
Charge-offs
|
|
|
(38,376
|
)
|
|
|
(25,279
|
)
|
|
|
(1,050
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans outstanding during the
year
|
|
|
4.95%
|
|
|
|
2.80%
|
|
|
|
0.09%
|
|
|
|
0.02%
|
|
|
|
DEPOSITS
The following table shows HRB Banks average deposit
balances and the average rate paid on those deposits for fiscal
years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
|
|
Money market and savings
|
|
$
|
400,920
|
|
|
|
0.50
|
%
|
|
$
|
467,864
|
|
|
|
1.37
|
%
|
|
$
|
653,126
|
|
|
|
4.92
|
%
|
Interest-bearing checking accounts
|
|
|
13,677
|
|
|
|
0.61
|
%
|
|
|
13,579
|
|
|
|
2.25
|
%
|
|
|
141,328
|
|
|
|
4.31
|
%
|
IRAs
|
|
|
377,973
|
|
|
|
1.02
|
%
|
|
|
289,814
|
|
|
|
1.27
|
%
|
|
|
101,085
|
|
|
|
4.12
|
%
|
Certificates of deposit
|
|
|
227,094
|
|
|
|
1.86
|
%
|
|
|
91,815
|
|
|
|
3.98
|
%
|
|
|
9,297
|
|
|
|
5.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,019,664
|
|
|
|
1.00
|
%
|
|
|
863,072
|
|
|
|
1.63
|
%
|
|
|
904,836
|
|
|
|
4.74
|
%
|
Non-interest-bearing deposits
|
|
|
233,717
|
|
|
|
|
|
|
|
212,607
|
|
|
|
|
|
|
|
189,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,253,381
|
|
|
|
|
|
|
$
|
1,075,679
|
|
|
|
|
|
|
$
|
1,094,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS
The following table shows certain of HRB Banks key
ratios for fiscal years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
2009
|
|
|
2008
|
|
|
|
|
Pretax return on assets
|
|
|
2.12%
|
|
|
(1.03
|
)%
|
|
|
0.80%
|
|
Net return on equity
|
|
|
21.04%
|
|
|
(6.67
|
)%
|
|
|
3.32%
|
|
Equity to assets ratio
|
|
|
28.83%
|
|
|
12.44
|
%
|
|
|
12.80%
|
|
|
|
During fiscal year 2009, HRB Bank shared the revenues and
expenses of the H&R Block Prepaid Emerald
MasterCard®
program with an affiliate, and as a result, transferred revenues
and expenses of $49.4 million and $13.4 million,
respectively, to this affiliate. During fiscal year 2010, the
agreement with the affiliate was terminated and HRB Bank now
retains the revenues and expenses of the program.
SHORT-TERM
BORROWINGS
The following table shows HRB Banks short-term
borrowings for fiscal years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended
April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
|
|
Ending balance of FHLB advances
|
|
$
|
50,000
|
|
|
|
1.92%
|
|
|
$
|
25,000
|
|
|
|
1.76%
|
|
|
$
|
25,000
|
|
|
|
2.64%
|
|
Average balance of FHLB advances
|
|
|
98,767
|
|
|
|
2.07%
|
|
|
|
103,885
|
|
|
|
4.92%
|
|
|
|
13,743
|
|
|
|
5.32%
|
|
|
|
The maximum amount of FHLB advances outstanding during fiscal
years 2010, 2009 and 2008 was $100.0 million,
$129.0 million and $179.0 million, respectively.
NEW ACCOUNTING
PRONOUNCEMENTS
See Item 8, note 1 to our consolidated financial
statements for a discussion of recently issued accounting
pronouncements.
32 H&R
BLOCK 2010 Form 10K
INTEREST RATE
RISK
GENERAL We
have a formal investment policy that strives to minimize the
market risk exposure of our cash equivalents and
available-for-sale
(AFS) securities, which are primarily affected by credit quality
and movements in interest rates. These guidelines focus on
managing liquidity and preserving principal and earnings.
Our cash equivalents are primarily held for liquidity purposes
and are comprised of high quality, short-term investments,
including qualified money market funds. Because our cash and
cash equivalents have a relatively short maturity, our
portfolios market value is relatively insensitive to
interest rate changes.
As our short-term borrowings are generally seasonal, interest
rate risk typically increases through our third fiscal quarter
and declines to zero by fiscal year-end. While the market value
of short-term borrowings is relatively insensitive to interest
rate changes, interest expense on short-term borrowings will
increase and decrease with changes in the underlying short-term
interest rates.
Our long-term debt at April 30, 2010, consists primarily of
fixed-rate Senior Notes; therefore, a change in interest rates
would have no impact on consolidated pretax earnings. See
Item 8, note 10 to our consolidated financial
statements.
HRB
BANK At
April 30, 2010, approximately 42% of HRB Banks total
assets were residential mortgage loans with 40% of these
fixed-rate loans and 60% adjustable-rate loans. These loans are
sensitive to changes in interest rates as well as expected
prepayment levels. As interest rates increase, fixed-rate
residential mortgages tend to exhibit lower prepayments. The
opposite is true in a falling rate environment. When mortgage
loans prepay, mortgage origination costs are written off.
Depending on the timing of the prepayment, the write-offs of
mortgage origination costs may result in lower than anticipated
yields.
At April 30, 2010, HRB Banks other investments
consisted primarily of mortgage-backed securities and FHLB
stock. See table below for sensitivity analysis of our
mortgage-backed securities.
HRB Banks liabilities consist primarily of transactional
deposit relationships, such as prepaid debit card accounts and
checking accounts. Other liabilities include money market
accounts, certificates of deposit and collateralized borrowings
from the FHLB. Money market accounts re-price as interest rates
change. Certificates of deposit re-price over time depending on
maturities. FHLB advances generally have fixed rates ranging
from one day through multiple years.
Under criteria published by the OTS, HRB Banks overall
interest rate risk exposure at March 31, 2010, the most
recent date an evaluation was completed, was characterized as
minimal. We actively manage our interest rate risk
positions. As interest rates change, we will adjust our strategy
and mix of assets and liabilities to optimize our position.
EQUITY PRICE
RISK
We have limited exposure to the equity markets. Our primary
exposure is through our deferred compensation plans. Within the
deferred compensation plans, we have mismatches in asset and
liability amounts and investment choices (both fixed-income and
equity). At April 30, 2010 and 2009, the impact of a 10%
market value change in the combined equity assets held by our
deferred compensation plans and other equity investments would
be approximately $9.7 million and $7.3 million,
respectively, assuming no offset for the liabilities.
FOREIGN EXCHANGE
RATE RISK
Our operations in international markets are exposed to movements
in currency exchange rates. The currencies involved are the
Canadian dollar and the Australian dollar. We translate revenues
and expenses related to these operations at the average of
exchange rates in effect during the period. Assets and
liabilities of foreign subsidiaries are translated into
U.S. dollars at exchange rates prevailing at the end of the
year. Translation adjustments are recorded as a separate
component of other comprehensive income in stockholders
equity. Translation of financial results into U.S. dollars
does not presently materially affect and has not historically
materially affected our consolidated financial results, although
such changes do affect the
year-to-year
comparability of the operating results in U.S. dollars of
our international businesses. We estimate a 10% change in
foreign exchange rates by itself would impact consolidated net
income in fiscal years 2010 and 2009 by approximately
$5.1 million and $3.0 million, respectively, and cash
balances at April 30, 2010 and 2009 by $7.1 million
and $5.4 million, respectively.
During fiscal year 2010, borrowing needs in our Canadian
operations were funded by corporate borrowings in the
U.S. To mitigate the foreign currency exchange rate risk,
we used forward foreign exchange contracts. We do not enter into
forward contracts for speculative purposes. In estimating the
fair value of derivative positions, we utilized quoted market
prices, if available, or quotes obtained from external sources.
When foreign currency financial instruments are outstanding,
exposure to market risk on these instruments results from
fluctuations in
H&R
BLOCK 2010
Form 10K 33
currency rates during the periods
in which the contracts are outstanding. The counterparties to
our currency exchange contracts consist of major financial
institutions, each of which is rated investment grade. We are
exposed to credit risk to the extent of potential
non-performance by counterparties on financial instruments. Any
potential credit exposure does not exceed the fair value. We
believe the risk of incurring losses due to credit risk is
remote. At April 30, 2010 we had no forward exchange
contracts outstanding.
SENSITIVITY
ANALYSIS
The sensitivities of certain financial instruments to changes in
interest rates as of April 30, 2010 and 2009 are presented
below. The following table represents hypothetical instantaneous
and sustained parallel shifts in interest rates and should not
be relied on as an indicator of future expected results. The
impact of a change in interest rates on other factors, such as
delinquency and prepayment rates, is not included in the
analysis below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Basis Point
Change
|
|
|
Carrying Value at
|
|
|
|
|
April 30, 2010
|
|
−300
|
|
−200
|
|
−100
|
|
+100
|
|
+200
|
|
+300
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
595,405
|
|
$
|
60,251
|
|
$
|
43,363
|
|
$
|
20,780
|
|
$
|
(7,906)
|
|
$
|
(12,525)
|
|
$
|
(14,664)
|
|
|
|
Mortgage-backed securities
|
|
|
23,016
|
|
|
123
|
|
|
125
|
|
|
134
|
|
|
(272)
|
|
|
(411)
|
|
|
(510)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis Point
Change
|
|
|
|
|
Carrying Value at
|
|
|
|
|
|
|
April 30, 2009
|
|
−300
|
|
−200
|
|
−100
|
|
+100
|
|
+200
|
|
+300
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
744,899
|
|
$
|
115,319
|
|
$
|
76,202
|
|
$
|
33,253
|
|
$
|
(28,847)
|
|
$
|
(58,293)
|
|
$
|
(85,922)
|
|
|
|
Mortgage-backed securities
|
|
|
26,793
|
|
|
803
|
|
|
727
|
|
|
398
|
|
|
(1,188)
|
|
|
(1,675)
|
|
|
(1,906)
|
|
|
|
|
|
ITEM 8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
DISCUSSION OF
FINANCIAL RESPONSIBILITY
We at H&R Block are guided by our core values of client
focus, teamwork and responsibility. These values govern the
manner in which we serve clients and each other and are embedded
in the execution and delivery of our responsibilities to our
shareholders. H&R Blocks management is responsible
for the integrity and objectivity of the information contained
in this document. Management is responsible for the consistency
of reporting this information and for ensuring that accounting
principles generally accepted in the United States are used. In
discharging this responsibility, management maintains an
extensive program of internal audits and requires the management
teams of our individual subsidiaries to certify their respective
financial information. Our system of internal control over
financial reporting also includes formal policies and
procedures, including a Code of Business Ethics and Conduct
program designed to encourage and assist all employees and
directors in living up to high standards of integrity.
The Audit Committee of the Board of Directors, composed solely
of outside and independent directors, meets periodically with
management, the independent auditors and the chief internal
auditor to review matters relating to our financial statements,
internal audit activities, internal accounting controls and
non-audit services provided by the independent auditors. The
independent auditors and the chief internal auditor have full
access to the Audit Committee and meet, both with and without
management present, to discuss the scope and results of their
audits, including internal control, audit and financial matters.
Deloitte & Touche LLP audited our consolidated
financial statements for fiscal years 2010, 2009 and 2008. Their
audits were conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
34 H&R
BLOCK 2010 Form 10K
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 12a-15(f).
Under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as of April 30, 2010.
Based on our assessment, management concluded that as of
April 30, 2010, the Companys internal control over
financial reporting was effective based on the criteria set
forth by COSO. The Companys external auditors,
Deloitte & Touche LLP, an independent registered
public accounting firm, have issued an audit report on the
effectiveness of the Companys internal control over
financial reporting.
|
|
|
Russell P. Smyth
President and Chief Executive Officer
|
|
Jeffrey T. Brown
Vice President, Interim Chief Financial
Officer and Corporate Controller
|
H&R
BLOCK 2010
Form 10K 35
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
H&R Block, Inc.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of
H&R Block, Inc. and subsidiaries (the Company)
as of April 30, 2010 and 2009, and the related consolidated
statements of operations and comprehensive income (loss),
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2010. Our audits also
included the financial statement schedule listed in the Index at
Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
H&R Block, Inc. and subsidiaries as of April 30, 2010
and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended
April 30, 2010, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 14 to the consolidated financial
statements, the Company adopted an accounting standard for
uncertainty in income taxes on May 1, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
April 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 28, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
June 28, 2010
36 H&R
BLOCK 2010 Form 10K
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
H&R Block, Inc.
Kansas City, Missouri
We have audited the internal control over financial reporting of
H&R Block, Inc. and subsidiaries (the Company)
as of April 30, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel 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 principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of April 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended April 30, 2010 of the
Company and our report dated June 28, 2010 expressed an
unqualified opinion on those financial statements and financial
statement schedule and included an explanatory paragraph
regarding the Companys adoption of an accounting standard
for uncertainty in income taxes on May 1, 2007.
June 28, 2010
H&R
BLOCK 2010
Form 10K 37
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
AND
COMPREHENSIVE INCOME (LOSS) |
(in
000s, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
3,231,487
|
|
|
$
|
3,437,906
|
|
|
$
|
3,393,906
|
|
Product and other revenues
|
|
|
520,440
|
|
|
|
491,155
|
|
|
|
541,166
|
|
Interest income
|
|
|
122,405
|
|
|
|
154,516
|
|
|
|
151,558
|
|
|
|
|
|
|
|
3,874,332
|
|
|
|
4,083,577
|
|
|
|
4,086,630
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
2,467,996
|
|
|
|
2,596,218
|
|
|
|
2,588,193
|
|
Selling, general and administrative
|
|
|
631,499
|
|
|
|
648,490
|
|
|
|
788,898
|
|
|
|
|
|
|
|
3,099,495
|
|
|
|
3,244,708
|
|
|
|
3,377,091
|
|
|
|
|
Operating income
|
|
|
774,837
|
|
|
|
838,869
|
|
|
|
709,539
|
|
Other income, net
|
|
|
9,298
|
|
|
|
501
|
|
|
|
25,532
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
784,135
|
|
|
|
839,370
|
|
|
|
735,071
|
|
Income taxes
|
|
|
295,189
|
|
|
|
326,315
|
|
|
|
289,124
|
|
|
|
|
Net income from continuing operations
|
|
|
488,946
|
|
|
|
513,055
|
|
|
|
445,947
|
|
Net loss from discontinued operations
|
|
|
(9,704
|
)
|
|
|
(27,382
|
)
|
|
|
(754,594
|
)
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
$
|
(308,647
|
)
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
$
|
1.37
|
|
Net loss from discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
(2.32
|
)
|
|
|
|
Net income (loss)
|
|
$
|
1.44
|
|
|
$
|
1.45
|
|
|
$
|
(0.95
|
)
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
|
$
|
1.35
|
|
Net loss from discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
(2.30
|
)
|
|
|
|
Net income (loss)
|
|
$
|
1.43
|
|
|
$
|
1.45
|
|
|
$
|
(0.95
|
)
|
|
|
|
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
$
|
(308,647
|
)
|
Unrealized gains (losses) on securities, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the year,
net of taxes of $188, $(1,736) and $2,683
|
|
|
274
|
|
|
|
(2,836
|
)
|
|
|
4,402
|
|
Reclassification adjustment for gains included in income,
net of taxes of $811, $762 and $130
|
|
|
(1,399
|
)
|
|
|
(1,164
|
)
|
|
|
(205
|
)
|
Change in foreign currency translation adjustments
|
|
|
14,442
|
|
|
|
(10,125
|
)
|
|
|
(391
|
)
|
|
|
|
Comprehensive income (loss)
|
|
$
|
492,559
|
|
|
$
|
471,548
|
|
|
$
|
(304,841
|
)
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
38 H&R
BLOCK 2010 Form 10K
|
|
CONSOLIDATED
BALANCE SHEETS |
(in
000s, except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2010
|
|
|
April 30, 2009
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,804,045
|
|
|
$
|
1,654,663
|
|
Cash and cash equivalents restricted
|
|
|
34,350
|
|
|
|
51,656
|
|
Receivables, less allowance for doubtful accounts of $112,475
and $128,541
|
|
|
517,986
|
|
|
|
512,814
|
|
Prepaid expenses and other current assets
|
|
|
292,655
|
|
|
|
351,947
|
|
|
|
|
Total current assets
|
|
|
2,649,036
|
|
|
|
2,571,080
|
|
Mortgage loans held for investment, less allowance for loan
losses of $93,535 and $84,073
|
|
|
595,405
|
|
|
|
744,899
|
|
Property and equipment, at cost less accumulated depreciation
and amortization of $657,008 and $625,075
|
|
|
345,470
|
|
|
|
368,289
|
|
Intangible assets, net
|
|
|
367,432
|
|
|
|
385,998
|
|
Goodwill
|
|
|
840,447
|
|
|
|
850,230
|
|
Other assets
|
|
|
436,528
|
|
|
|
439,226
|
|
|
|
|
Total assets
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Customer banking deposits
|
|
$
|
852,555
|
|
|
$
|
854,888
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
756,577
|
|
|
|
705,945
|
|
Accrued salaries, wages and payroll taxes
|
|
|
199,496
|
|
|
|
259,698
|
|
Accrued income taxes
|
|
|
459,175
|
|
|
|
543,967
|
|
Current portion of long-term debt
|
|
|
3,688
|
|
|
|
8,782
|
|
Current Federal Home Loan Bank borrowings
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
|
Total current liabilities
|
|
|
2,321,491
|
|
|
|
2,398,280
|
|
Long-term debt
|
|
|
1,035,144
|
|
|
|
1,032,122
|
|
Long-term Federal Home Loan Bank borrowings
|
|
|
25,000
|
|
|
|
75,000
|
|
Other noncurrent liabilities
|
|
|
412,053
|
|
|
|
448,461
|
|
|
|
|
Total liabilities
|
|
|
3,793,688
|
|
|
|
3,953,863
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, shares issued of 431,390,599
and 444,176,510
|
|
|
4,314
|
|
|
|
4,442
|
|
Convertible preferred stock, no par, stated value $0.01 per
share, 500,000 shares authorized
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
832,604
|
|
|
|
836,477
|
|
Accumulated other comprehensive income (loss)
|
|
|
1,678
|
|
|
|
(11,639
|
)
|
Retained earnings
|
|
|
2,658,586
|
|
|
|
2,671,437
|
|
Less treasury shares, at cost
|
|
|
(2,056,552
|
)
|
|
|
(2,094,858
|
)
|
|
|
|
Total stockholders equity
|
|
|
1,440,630
|
|
|
|
1,405,859
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
H&R
BLOCK 2010
Form 10K 39
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
$
|
(308,647
|
)
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
126,901
|
|
|
|
123,631
|
|
|
|
119,514
|
|
|
|
|
|
Provision for bad debts and loan losses
|
|
|
161,296
|
|
|
|
181,829
|
|
|
|
174,813
|
|
|
|
|
|
Provision for deferred taxes
|
|
|
170,566
|
|
|
|
73,213
|
|
|
|
(51,695
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
29,369
|
|
|
|
26,557
|
|
|
|
40,373
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
97,578
|
|
|
|
213,045
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents restricted
|
|
|
2,497
|
|
|
|
(44,625
|
)
|
|
|
(3,168
|
)
|
|
|
|
|
Receivables
|
|
|
(87,889
|
)
|
|
|
(77,447
|
)
|
|
|
(120,676
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(2,320
|
)
|
|
|
84,279
|
|
|
|
6,796
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
(305
|
)
|
|
|
(36,024
|
)
|
|
|
16,215
|
|
|
|
|
|
Accrued salaries, wages and payroll taxes
|
|
|
(59,617
|
)
|
|
|
(106,014
|
)
|
|
|
65,845
|
|
|
|
|
|
Accrued income taxes
|
|
|
(77,254
|
)
|
|
|
126,594
|
|
|
|
204,472
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
(65,261
|
)
|
|
|
(56,001
|
)
|
|
|
(34,738
|
)
|
|
|
|
|
Other, net
|
|
|
(89,756
|
)
|
|
|
145,196
|
|
|
|
(63,389
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
587,469
|
|
|
|
1,024,439
|
|
|
|
258,760
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(5,365
|
)
|
|
|
(5,092
|
)
|
|
|
(11,794
|
)
|
|
|
|
|
Sales of and payments received on
available-for-sale
securities
|
|
|
15,758
|
|
|
|
15,075
|
|
|
|
18,175
|
|
|
|
|
|
Principal payments on mortgage loans held for investment, net
|
|
|
72,832
|
|
|
|
91,329
|
|
|
|
207,606
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(90,515
|
)
|
|
|
(97,880
|
)
|
|
|
(101,554
|
)
|
|
|
|
|
Payments made for business acquisitions, net of cash acquired
|
|
|
(10,539
|
)
|
|
|
(293,805
|
)
|
|
|
(24,872
|
)
|
|
|
|
|
Net cash provided by investing activities of discontinued
operations
|
|
|
|
|
|
|
255,066
|
|
|
|
1,044,990
|
|
|
|
|
|
Other, net
|
|
|
49,182
|
|
|
|
40,867
|
|
|
|
14,738
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
31,353
|
|
|
|
5,560
|
|
|
|
1,147,289
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
(1,406,013
|
)
|
|
|
|
|
|
|
(5,125,279
|
)
|
|
|
|
|
Proceeds from issuance of commercial paper
|
|
|
1,406,013
|
|
|
|
|
|
|
|
4,133,197
|
|
|
|
|
|
Proceeds from issuance of Senior Notes
|
|
|
|
|
|
|
|
|
|
|
599,376
|
|
|
|
|
|
Repayments of other borrowings
|
|
|
(4,267,773
|
)
|
|
|
(4,762,294
|
)
|
|
|
(9,055,426
|
)
|
|
|
|
|
Proceeds from other borrowings
|
|
|
4,242,727
|
|
|
|
4,733,294
|
|
|
|
8,505,426
|
|
|
|
|
|
Customer banking deposits, net
|
|
|
17,539
|
|
|
|
64,357
|
|
|
|
(345,391
|
)
|
|
|
|
|
Dividends paid
|
|
|
(200,899
|
)
|
|
|
(198,685
|
)
|
|
|
(183,628
|
)
|
|
|
|
|
Repurchase of common stock, including shares surrendered
|
|
|
(254,250
|
)
|
|
|
(106,189
|
)
|
|
|
(7,280
|
)
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
141,415
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
16,682
|
|
|
|
71,594
|
|
|
|
23,322
|
|
|
|
|
|
Net cash provided by (used in) financing activities of
discontinued operations
|
|
|
|
|
|
|
4,783
|
|
|
|
(64,439
|
)
|
|
|
|
|
Other, net
|
|
|
(35,144
|
)
|
|
|
11,492
|
|
|
|
(37,947
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(481,118
|
)
|
|
|
(40,233
|
)
|
|
|
(1,558,069
|
)
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
11,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
149,382
|
|
|
|
989,766
|
|
|
|
(152,020
|
)
|
|
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
1,654,663
|
|
|
|
664,897
|
|
|
|
816,917
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
1,804,045
|
|
|
$
|
1,654,663
|
|
|
$
|
664,897
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds received of $12,587, $158,862
and $317,849
|
|
$
|
359,559
|
|
|
$
|
(1,593
|
)
|
|
$
|
(238,803
|
)
|
|
|
|
|
Interest paid on borrowings
|
|
|
78,305
|
|
|
|
89,541
|
|
|
|
173,181
|
|
|
|
|
|
Interest paid on deposits
|
|
|
10,156
|
|
|
|
14,004
|
|
|
|
44,501
|
|
|
|
|
|
Transfers of loans to foreclosed assets
|
|
|
19,341
|
|
|
|
65,171
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
40 H&R
BLOCK 2010 Form 10K
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(amounts
in 000s, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
|
Balances at May 1, 2007
|
|
|
435,891
|
|
|
$
|
4,359
|
|
|
|
|
|
|
$
|
|
|
|
$
|
676,766
|
|
|
$
|
(1,320
|
)
|
|
$
|
2,886,440
|
|
|
|
(112,672
|
)
|
|
$
|
(2,151,746
|
)
|
|
$
|
1,414,499
|
|
Remeasurement of uncertain tax positions upon adoption of new
accounting standard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,716
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,716
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308,647
|
)
|
|
|
|
|
|
|
|
|
|
|
(308,647
|
)
|
Unrealized translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
Change in net unrealized gain (loss) on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,197
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,410
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,090
|
)
|
|
|
|
|
|
|
|
|
|
|
1,736
|
|
|
|
33,174
|
|
|
|
22,084
|
|
Nonvested shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,097
|
)
|
|
|
|
|
|
|
|
|
|
|
963
|
|
|
|
18,387
|
|
|
|
(1,710
|
)
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
413
|
|
|
|
7,872
|
|
|
|
7,807
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
158
|
|
|
|
193
|
|
Acquisition of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
(7,280
|
)
|
|
|
(7,280
|
)
|
Cash dividends paid $0.56 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,628
|
)
|
|
|
|
|
|
|
|
|
|
|
(183,628
|
)
|
|
|
|
Balances at April 30, 2008
|
|
|
435,891
|
|
|
|
4,359
|
|
|
|
|
|
|
|
|
|
|
|
695,959
|
|
|
|
2,486
|
|
|
|
2,384,449
|
|
|
|
(109,880
|
)
|
|
|
(2,099,435
|
)
|
|
|
987,818
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485,673
|
|
|
|
|
|
|
|
|
|
|
|
485,673
|
|
Unrealized translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,125
|
)
|
Change in net unrealized gain (loss) on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
Proceeds from common stock Issuance, net of expenses
|
|
|
8,286
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
141,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,415
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,600
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,624
|
)
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
|
|
85,624
|
|
|
|
73,000
|
|
Nonvested shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,392
|
)
|
|
|
|
|
|
|
|
|
|
|
1,015
|
|
|
|
19,402
|
|
|
|
(990
|
)
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
5,577
|
|
|
|
5,154
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
163
|
|
|
|
188
|
|
Acquisition of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,991
|
)
|
|
|
(106,189
|
)
|
|
|
(106,189
|
)
|
Cash dividends paid $0.59 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,685
|
)
|
|
|
|
|
|
|
|
|
|
|
(198,685
|
)
|
|
|
|
Balances at April 30, 2009
|
|
|
444,177
|
|
|
|
4,442
|
|
|
|
|
|
|
|
|
|
|
|
836,477
|
|
|
|
(11,639
|
)
|
|
|
2,671,437
|
|
|
|
(110,075
|
)
|
|
|
(2,094,858
|
)
|
|
|
1,405,859
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
479,242
|
|
|
|
|
|
|
|
|
|
|
|
479,242
|
|
Unrealized translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,442
|
|
Change in net unrealized gain (loss) on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,369
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,840
|
)
|
|
|
|
|
|
|
|
|
|
|
1,293
|
|
|
|
24,616
|
|
|
|
13,776
|
|
Nonvested shares/units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,806
|
)
|
|
|
|
|
|
|
(300
|
)
|
|
|
677
|
|
|
|
12,879
|
|
|
|
(1,227
|
)
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(924
|
)
|
|
|
|
|
|
|
|
|
|
|
266
|
|
|
|
5,058
|
|
|
|
4,134
|
|
Acquisition of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
(4,247
|
)
|
|
|
(4,247
|
)
|
Retirement of common shares
|
|
|
(12,786
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,672
|
)
|
|
|
|
|
|
|
(242,203
|
)
|
|
|
|
|
|
|
|
|
|
|
(250,003
|
)
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,691
|
)
|
|
|
|
|
|
|
|
|
|
|
(48,691
|
)
|
Cash dividends paid $0.60 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,899
|
)
|
|
|
|
|
|
|
|
|
|
|
(200,899
|
)
|
|
|
|
Balances at April 30, 2010
|
|
|
431,391
|
|
|
$
|
4,314
|
|
|
|
|
|
|
$
|
|
|
|
$
|
832,604
|
|
|
$
|
1,678
|
|
|
$
|
2,658,586
|
|
|
|
(108,085
|
)
|
|
$
|
(2,056,552
|
)
|
|
$
|
1,440,630
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
H&R
BLOCK 2010
Form 10K 41
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1: |
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
NATURE OF
OPERATIONS Our
operating subsidiaries provide a variety of services to the
general public, principally in the United States (U.S.).
Specifically, we offer: tax return preparation; tax and
consulting services to business clients; certain retail banking
services; tax preparation and related software; and refund
anticipation loans (RALs) offered by third-party lending
institutions. Tax preparation services are also provided in
Canada and Australia. Our Tax Services segment comprised 76.8%
of our consolidated revenues from continuing operations for
fiscal year 2010.
PRINCIPLES OF
CONSOLIDATION The
consolidated financial statements include the accounts of the
Company and our wholly-owned subsidiaries. Intercompany
transactions and balances have been eliminated.
Some of our subsidiaries operate in regulated industries and
their underlying accounting records reflect the policies and
requirements of these industries.
RECLASSIFICATIONS Certain
reclassifications have been made to prior year amounts to
conform to the current year presentation. We realigned our
segments as discussed in note 21, and accordingly restated
segment disclosures for prior periods. These changes had no
effect on our results of operations or stockholders equity
as previously reported.
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, valuation allowances based on future taxable
income, reserves for uncertain tax positions and related
matters. We seek to change 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.
CONCENTRATIONS OF
RISK The
overall credit quality of our mortgage loans held for investment
is impacted by the strength of the U.S. economy and local
economies. 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.
CASH AND CASH
EQUIVALENTS Cash
and cash equivalents include cash on hand, cash due from banks
and federal funds sold. For purposes of the consolidated balance
sheets and consolidated statements of cash flows, all
non-restricted highly liquid instruments purchased with an
original maturity of three months or less are considered to be
cash equivalents. We present cash flow activities utilizing the
indirect method. Book overdrafts included in accounts payable
totaled $35.9 million and $48.0 million at
April 30, 2010 and 2009, respectively.
CASH AND CASH
EQUIVALENTS RESTRICTED
Cash and cash equivalents restricted
consists primarily of cash held by our captive insurance
subsidiary that will be used to pay claims.
RECEIVABLES Receivables
consist primarily of accounts receivable from customers of our
Business Services segment, receivables from tax clients for tax
return preparation, refund anticipation loan participations and
receivables of our franchise financing subsidiary. The allowance
for doubtful accounts requires managements judgment
regarding collectibility and current economic conditions to
establish an amount considered by management to be adequate to
cover estimated losses as of the balance sheet date.
MARKETABLE
SECURITIES AVAILABLE-FOR-SALE Marketable
securities we hold are classified as
available-for-sale
(AFS) and are reported at fair value. Unrealized gains and
losses are calculated using the specific identification method
and reported, net of applicable taxes, as a component of
accumulated other comprehensive income. Realized gains and
losses on the sale of these securities are determined using the
specific identification method. These securities are included in
other assets in the consolidated balance sheets.
We monitor our AFS investment portfolio for impairment and
consider many factors in determining whether the impairment is
deemed to be
other-than-temporary.
These factors include, but are not limited to, the length of
time the security has had a market value less than the cost
basis, the severity of loss, our intent to sell, including
regulatory or contractual requirements to sell, recent events
specific to the issuer or industry, external credit ratings and
recent downgrades in such ratings.
42 H&R
BLOCK 2010 Form 10K
For investments in mortgage-backed securities, amortization of
premiums and accretion of discounts are recognized in interest
income using the interest method, adjusted for anticipated
prepayments where applicable. We update our estimates of
expected cash flows periodically and recognize changes in
calculated effective yields as appropriate.
Our investment in the stock of the Federal Home Loan Bank (FHLB)
is carried at cost, as it is a restricted security, which is
required to be maintained by H&R Block Bank (HRB Bank) for
borrowing availability. The cost of the stock represents its
redemption value, as there is no ready market value.
REAL ESTATE
OWNED Real
estate owned (REO) includes foreclosed properties securing
mortgage loans. Foreclosed assets are adjusted to fair value
less costs to sell upon transfer of the loans to REO.
Subsequently, REO is carried at the lower of carrying value or
fair value less costs to sell. Fair value is generally based on
independent market prices or appraised values of the collateral.
Subsequent holding period losses and losses arising from the
sale of REO are expensed as incurred. REO is included in prepaid
expenses and other current assets in the consolidated balance
sheets.
MORTGAGE LOANS
HELD FOR
INVESTMENT Mortgage
loans held for investment represent loans originated or acquired
with the ability and current intent to hold to maturity. Loans
held for investment are carried at amortized cost adjusted for
charge-offs, net allowance for loan losses, deferred fees or
costs on originated loans and unamortized premiums or discounts
on purchased loans. Loan fees and certain direct loan
origination costs are deferred and the net fee or cost is
recognized in interest income over the lives of the related
loans. Unearned income, premiums and discounts on purchased
loans are amortized or accreted into income over the estimated
life of the loan using methods that approximate the interest
method based on assumptions regarding the loan portfolio,
including prepayments adjusted to reflect actual experience.
We record an allowance representing our estimate of credit
losses inherent in the loan portfolio at the balance sheet date.
Loan recoveries and the provision for credit losses increase the
allowance, while loan charge-offs decrease the allowance. A
current assessment of the value of the loan is made when the
loan is no later than 60 days past due and any loan balance
in excess of the value less costs to sell the property is
charged off.
We evaluate mortgage loans less than 60 days past due on a
pooled basis and record a loan loss allowance for those loans in
the aggregate. We stratify these loans based on our view of risk
associated with various elements of the pool and assign
estimated loss rates based on those risks. Loss rates consider
both the rate at which loans will become delinquent (frequency)
and the amount of loss that will ultimately be realized upon
occurrence of a liquidation of collateral (severity), and are
primarily based on historical experience and our assessment of
economic and market conditions.
Loans are considered impaired when we believe it is probable we
will be unable to collect all principal and interest due
according to the contractual terms of the note, or when the loan
is 60 days past due. Impaired loans are reviewed
individually and a specific loan loss allowance is recorded
based on the fair value of the underlying collateral.
We classify loans as non-accrual when full and timely collection
of interest or principal becomes uncertain, or when they are
90 days past due. Interest previously accrued, but not
collected, is reversed against current interest income when a
loan is placed on non-accrual status. Accretion of deferred fees
is discontinued for non-accrual loans. Payments received on
non-accrual loans are recognized as interest income when the
loan is considered collectible and applied to principal when it
is doubtful that full payment will be collected. Loans are not
placed back on accrual status until collection of principal and
interest is reasonably assured as a result of the borrower
bringing the loan into compliance with the contractual terms of
the loan. Prior to restoring a loan to accrual status,
management considers a borrowers prospects for continuing
future contractual payments.
From time to time, as part of our loss mitigation process, we
may agree to modify the contractual terms of a borrowers
loan. We have developed loan modification programs designed to
help borrowers refinance adjustable-rate mortgage loans prior to
rate reset. 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). We may consider the borrowers payment
status and history, the borrowers ability to pay upon a
rate reset on an adjustable-rate mortgage, the size of the
payment increase upon a rate reset, the period of time remaining
prior to the rate reset and other relevant factors in
determining whether a borrower is experiencing financial
difficulty. A borrower who is current may be deemed to be
experiencing financial difficulty in instances where the
evidence suggests an inability to pay based on the original
terms of the loan after the interest rate reset and, in the
absence of a modification, may default on the loan. We evaluate
whether the modification represents a concession we would not
otherwise consider, such as a lower interest rate than what a
new borrower of similar credit risk would be offered. A loan
modified in a troubled debt restructuring, including a loan that
was current at the time of modification, is placed on
non-accrual status until we determine future collection of
principal and interest is reasonably assured, which generally
requires the borrower to demonstrate a period of performance
according to
H&R
BLOCK 2010
Form 10K 43
the restructured terms. TDR loans totaled $145.0 million
and $160.7 million at April 30, 2010 and 2009,
respectively. At the time of the modification, we record
impairment for TDR loans equal to the difference between the
principal balance of the loan and the present value of expected
future cash flows discounted at the loans effective
interest rate. However, if we later assess that foreclosure of a
modified loan is probable, we record impairment based on the
estimated fair value of the underlying collateral.
PROPERTY AND
EQUIPMENT Buildings
and equipment are initially recorded at cost and are depreciated
over the estimated useful life of the assets using the
straight-line method. Leasehold improvements are initially
recorded at cost and are amortized over the lesser of the term
of the respective lease or the estimated useful life, using the
straight-line method. Estimated useful lives are 15 to
40 years for buildings, 3 to 5 years for computers and
other equipment and up to 8 years for leasehold
improvements.
We capitalize certain allowable costs associated with software
developed or purchased for internal use. These costs are
typically amortized over 36 months using the straight-line
method.
Substantially all of the operations of our subsidiaries are
conducted in leased premises. For all lease agreements,
including those with escalating rent payments or rent holidays,
we recognize rent expense on a straight-line basis.
INTANGIBLE ASSETS
AND
GOODWILL We
test goodwill and other indefinite-life intangible assets for
impairment annually or more frequently, whenever events occur or
circumstances change which would, more likely than not, reduce
the fair value of a reporting unit below its carrying value. The
first step of the impairment test is to compare the estimated
fair value of the reporting unit to its carrying value. If the
carrying value is less than fair value, no impairment exists. If
the carrying value is greater than fair value, a second step is
performed to determine the fair value of goodwill and the amount
of impairment loss, if any.
In addition, long-lived assets, including intangible assets with
finite lives, are assessed for impairment whenever events or
circumstances indicate the carrying value may not be fully
recoverable by comparing the carrying value to future
undiscounted cash flows. Impairment is recorded for long-lived
assets determined not to be fully recoverable equal to the
excess of the carrying amount of the asset over its estimated
fair value.
We recorded a $15.0 million goodwill impairment related to
our RSM EquiCo, Inc. (RSM EquiCo) reporting unit within our
Business Services segment in fiscal year 2010 and a
$2.2 million goodwill impairment for a reporting unit
within our Tax Services segment in fiscal year 2009. No material
impairment adjustments to other intangible assets or other
long-lived assets of continuing operations were made during the
three-year period ended April 30, 2010.
The weighted-average life of intangible assets with finite lives
is 27 years. Intangible assets are typically amortized over
the estimated useful life of the assets using the straight-line
method.
COMMERCIAL
PAPER We
resumed issuing commercial paper during fiscal year 2010 to
finance temporary liquidity needs and various financial
activities. There was no commercial paper outstanding at
April 30, 2010.
MORTGAGE LOAN
REPURCHASE
LIABILITY Sand
Canyon Corporation (SCC) is obligated to repurchase loans sold
or securitized in the event of a breach of representations and
warranties it made to purchasers or insurers of such loans, or
otherwise indemnify certain third-parties for losses incurred by
them.
The amount of expected losses depends primarily on the frequency
of valid claims and the severity of loss incurred on loans. To
the extent actual losses related to repurchase and
indemnification activity are different from estimates, the
repurchase reserve may increase or decrease. See note 16
for additional information.
LITIGATION It
is our policy to routinely assess the likelihood of any adverse
judgments or outcomes related to legal matters, as well as
ranges of probable losses. A determination of the amount of the
reserves required, if any, for these contingencies is made after
analysis of each known issue and an analysis of historical
experience. We record reserves related to certain legal matters
for which we believe it is probable that a loss will be incurred
and the range of such loss can be estimated. With respect to
other matters, management has concluded that a loss is only
reasonably possible or remote, or not estimable and, therefore,
no liability is recorded. Management discloses the facts
regarding material matters, and potential exposure if
determinable, for losses assessed as reasonably possible to
occur. Costs incurred with defending claims are expensed as
incurred. Any receivable for insurance recoveries is recorded
separately from the corresponding litigation reserve, and only
if recovery is determined to be probable.
INCOME
TAXES We
account for income taxes under the asset and liability method,
which requires us to record deferred income tax assets and
liabilities for future tax consequences attributable to
differences between the financial statement carrying value of
existing assets and liabilities and their respective tax basis.
Deferred taxes are determined separately for each tax-paying
component within each tax jurisdiction based on provisions of
enacted tax law. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Our deferred tax assets
include capital loss and state and foreign tax loss
carry-forwards and are reduced by a
44 H&R
BLOCK 2010 Form 10K
valuation allowance if, based on available evidence, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Our current deferred tax assets are
included in prepaid expenses and other current assets in the
consolidated balance sheets. Noncurrent deferred tax assets are
included in other assets on our consolidated balance sheets.
Noncurrent deferred tax liabilities are included in other
noncurrent liabilities on our consolidated balance sheets.
We evaluate the sustainability of each uncertain tax position
based on its technical merits. If we determine it is more likely
than not a tax position will be sustained based on its technical
merits, we record the impact of the position in our consolidated
financial statements at the largest amount that is greater than
fifty percent likely of being realized upon ultimate settlement.
We record no tax benefit for tax positions where we have
concluded it is not more likely than not to be sustained.
Differences between a tax position taken or expected to be taken
in our tax returns and the amount of benefit recognized and
measured in the financial statements result in unrecognized tax
benefits, which are recorded in the balance sheet as either a
liability for unrecognized tax benefits or reductions to
recorded tax assets, as applicable.
We file a consolidated federal tax return on a calendar year
basis and state tax returns on a consolidated or combined basis,
as permitted by authorities. We report interest and penalties as
a component of income tax expense.
TREASURY
SHARES Shares
of common stock repurchased by us are recorded, at cost, as
treasury shares and result in a reduction of stockholders
equity. We reissue treasury shares as part of our stock-based
compensation programs or for acquisitions. When shares are
reissued, we determine the cost using the average cost method.
Periodically, we may permanently retire shares held in treasury
as determined by our Board of Directors.
REVENUE
RECOGNITION Service
revenues consist primarily of fees for preparation and filing of
tax returns, both in offices and through our online programs,
fees associated with our Peace of Mind (POM) guarantee program
and fees for consulting services. Service revenues are
recognized in the period in which the service is performed as
follows:
|
|
|
|
§
|
Retail and online tax preparation revenues are recorded when a
completed return is filed or accepted by the customer.
|
|
§
|
POM revenues are deferred and recognized over the term of the
guarantee, based on historical and actual payment of claims.
|
|
§
|
Revenues for services rendered in connection with the Business
Services segment include fees based on time and materials, which
are recognized as the services are performed and amounts are
earned.
|
|
§
|
Revenues associated with our H&R Block Prepaid Emerald
MasterCard®
program consist of interchange income from the use of debit
cards and fees from the use of ATM networks. Interchange income
is a fee paid by a merchant bank to the card-issuing bank
through the interchange network, and is based on cardholder
purchase volumes. Interchange income is recognized as earned.
|
Product and other revenues include royalties from franchisees,
refund anticipation loan (RAL) participation revenues and sales
of software products, and are recognized as follows:
|
|
|
|
§
|
Upon granting of a franchise, franchisees pay a refundable
deposit generally in the amount of $2,500, but pay no initial
franchise fee. We record the payment as a deposit liability and
recognize no revenue in connection with the initial granting of
a franchise. Franchise royalties, which are based on contractual
percentages of franchise revenues, are recorded in the period in
which the franchise provides the service.
|
|
§
|
Loan participation revenue is recognized over the life of the
loan.
|
|
§
|
Software revenues consist mainly of tax preparation software and
other personal productivity software. Revenue from the sale of
software such as H&R Block At
Hometm
is recognized when the product is sold to the end user, either
through retail, online or other channels. Rebates, slotting fees
and other incentives paid in connection with these sales are
recorded as a reduction of revenue. Revenue from the sale of
TaxWorks®
software is deferred and recognized over the period for which
upgrades and support are provided to the customer.
|
Interest income consists primarily of interest earned on
mortgage loans held for investment and Emerald Advance lines of
credit and is recognized as follows:
|
|
|
|
§
|
Interest income on mortgage loans held for investment includes
deferred origination fees and costs and purchase discounts and
premiums, which are amortized to income over the life of the
loan using the interest method.
|
|
§
|
Interest income on Emerald Advance lines of credit is calculated
using the average daily balance method and is recognized based
on the principal amount outstanding until the outstanding
balance is paid or written-off.
|
|
§
|
Loan commitment fees, net of related expenses, are initially
deferred and recognized as revenue over the commitment period.
|
H&R
BLOCK 2010
Form 10K 45
Revenue recognition is evaluated separately for each unit in
multiple-deliverable arrangements. Sales tax we collect and
remit to taxing authorities is recorded net in our consolidated
income statements.
ADVERTISING
EXPENSE Advertising
costs are primarily expensed as incurred, or the first time the
advertisement takes place. Total advertising costs of continuing
operations for fiscal years 2010, 2009 and 2008 totaled
$254.8 million, $249.2 million and
$204.8 million, respectively.
EMPLOYEE BENEFIT
PLANS We
have 401(k) defined contribution plans covering all full-time
and seasonal employees following the completion of an
eligibility period. Contributions of our continuing operations
to these plans are discretionary and totaled $24.0 million,
$26.7 million and $27.3 million for fiscal years 2010,
2009 and 2008, respectively.
We have a severance policy covering all regular full-time or
part-time active employees for involuntary separation from the
company. In May 2010 we announced plans to realign field and
support organizations. The realignment included approximately
400 staff reductions. Associated severance benefits were
recorded primarily during the first fiscal quarter of 2011 and
totaled approximately $19 million.
FOREIGN CURRENCY
TRANSLATION Assets
and liabilities of foreign subsidiaries are translated into
U.S. dollars at exchange rates prevailing at the end of the
year. Revenues and expenses of our foreign operations are
translated at the average exchanges rates in effect during the
fiscal year. Translation adjustments are recorded as a separate
component of other comprehensive income in stockholders
equity.
COMPREHENSIVE
INCOME Our
comprehensive income (loss) is comprised of net income (loss),
foreign currency translation adjustments and the change in net
unrealized gains or losses on AFS marketable securities.
Included in stockholders equity at April 30, 2010 and
2009, the net unrealized holding gain on AFS securities was
$0.3 million and $1.5 million, respectively, and the
foreign currency translation adjustment was $1.3 million
and $(13.1) million, respectively.
NEW ACCOUNTING
STANDARDS In
October 2009, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
This guidance amends the criteria for separating consideration
in multiple-deliverable arrangements to enable vendors to
account for products or services (deliverables) separately
rather than as a combined unit. This guidance establishes a
selling price hierarchy for determining the selling price of a
deliverable, which is based on: (1) vendor-specific
objective evidence; (2) third-party evidence; or
(3) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration
be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In
addition, this guidance significantly expands required
disclosures related to a vendors multiple-deliverable
revenue arrangements. This guidance is effective prospectively
for revenue arrangements entered into or materially modified
beginning with our fiscal year 2012. We are currently evaluating
the effect of this guidance on our consolidated financial
statements.
In June 2009, the FASB issued guidance, under Topic
810 Consolidation. This guidance 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. This guidance 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, and will be effective for our
fiscal year 2011. The adoption of this guidance will not have a
material effect on our consolidated financial statements, but
will require additional disclosures in our quarterly and annual
filings.
In June 2009, the FASB issued guidance, under Topic
860 Transfers and Servicing. This guidance 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 and changes the requirements for
derecognizing financial assets. This guidance will be effective
at the beginning of our fiscal year 2011. The adoption of this
guidance will not have a material effect on our consolidated
financial statements.
STANDARDS
IMPLEMENTED In
December 2007, the FASB issued guidance, under Topic
805 Business Combinations, requiring 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. This
guidance 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
this guidance, 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
46 H&R
BLOCK 2010 Form 10K
tax expense. We adopted the
provisions of this guidance as of May 1, 2009. The adoption
did not have a material impact on our consolidated financial
statements.
In June 2008, the FASB issued guidance, under Topic
260 Earnings Per Share, addressing 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 (EPS). We adopted the provisions
of this guidance as of May 1, 2009. The adoption and
retrospective application of this guidance reduced basic EPS as
previously reported for fiscal year 2009 by $0.01 and increased
diluted EPS by $0.01 for fiscal year 2008. See additional
discussion in note 3.
NOTE 2:
BUSINESS COMBINATIONS AND DISPOSALS
We periodically acquire the businesses of franchisees and
account for the transaction as a business combination. We also
periodically sell company-owned offices to franchisees and
record a gain if the sale qualifies as a divestiture for
accounting purposes and upon determination that collection of
the sales proceeds is reasonably assured. Gains are reported in
operating income because the transactions are considered a
recurring part of our business, and are included as a reduction
of selling, general and administrative expenses in our
consolidated income statements. During fiscal years 2010 and
2009, we sold certain offices to existing franchisees for cash
proceeds of $65.7 million and $16.9 million,
respectively, and recorded gains on these sales of
$49.0 million and $14.9 million, respectively.
Effective November 3, 2008, we acquired the assets and
franchise rights of our last major independent franchise
operator for an aggregate purchase price of $279.2 million.
Goodwill recognized on this transaction is included in the Tax
Services segment and is deductible for tax purposes.
During fiscal years 2010, 2009 and 2008, we made other
acquisitions, which were accounted for as purchases with cash
payments totaling $10.3 million, $12.6 million and
$21.4 million, respectively. Operating results of the
acquired businesses, which are not material, are included in the
consolidated income statements since the date of acquisition.
During fiscal years 2010, 2009 and 2008 we also paid
$0.2 million, $1.9 million and $3.6 million,
respectively, for contingent payments on prior acquisitions.
NOTE 3:
EARNINGS PER SHARE
Basic and diluted earnings per share is computed using the
two-class method. See note 1 for additional information on
our adoption of the two-class method. 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 computations of basic and diluted
earnings per share from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to
shareholders
|
|
$
|
488,946
|
|
|
$
|
513,055
|
|
|
$
|
445,947
|
|
|
|
|
|
Amounts allocated to participating securities (nonvested shares)
|
|
|
(1,888
|
)
|
|
|
(2,042
|
)
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to common
shareholders
|
|
$
|
487,058
|
|
|
$
|
511,013
|
|
|
$
|
443,494
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
332,283
|
|
|
|
332,787
|
|
|
|
324,810
|
|
|
|
|
|
Potential dilutive shares
|
|
|
953
|
|
|
|
1,752
|
|
|
|
2,658
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
|
|
|
333,236
|
|
|
|
334,539
|
|
|
|
327,468
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations attributable to
common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
$
|
1.37
|
|
|
|
|
|
Diluted
|
|
|
1.46
|
|
|
|
1.53
|
|
|
|
1.35
|
|
|
|
|
|
|
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 13.7 million,
15.7 million and 18.2 million shares of stock for
fiscal years 2010, 2009 and 2008, respectively, as the effect
would be antidilutive.
H&R
BLOCK 2010
Form 10K 47
NOTE 4:
MARKETABLE SECURITIES
AVAILABLE-FOR-SALE
The amortized cost and fair value of securities classified as
available-for-sale
held at April 30, 2010 and 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses(1)
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses(1)
|
|
|
Value
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
23,026
|
|
|
$
|
39
|
|
|
$
|
(49
|
)
|
|
$
|
23,016
|
|
|
$
|
27,466
|
|
|
$
|
25
|
|
|
$
|
(698
|
)
|
|
$
|
26,793
|
|
|
|
|
|
Municipal bonds
|
|
|
8,442
|
|
|
|
459
|
|
|
|
|
|
|
|
8,901
|
|
|
|
9,560
|
|
|
|
491
|
|
|
|
(4
|
)
|
|
|
10,047
|
|
|
|
|
|
Trust preferred security
|
|
|
1,854
|
|
|
|
|
|
|
|
(1,823
|
)
|
|
|
31
|
|
|
|
3,454
|
|
|
|
|
|
|
|
(3,162
|
)
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
$
|
33,322
|
|
|
$
|
498
|
|
|
$
|
(1,872
|
)
|
|
$
|
31,948
|
|
|
$
|
40,480
|
|
|
$
|
516
|
|
|
$
|
(3,864
|
)
|
|
$
|
37,132
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At April 30,
2010, investments with a cost of $15.7 million and gross
unrealized losses of $1.9 million had been in continuous
loss position for more than twelve months. At April 30,
2009, investments with a cost of $30.3 million and gross
unrealized losses of $3.9 million had been in continuous
loss position for more than twelve months.
|
Proceeds from the sales of AFS securities were
$2.1 million, $8.3 million and $13.9 million
during fiscal years 2010, 2009 and 2008, respectively. We
recorded no gross realized gains or losses on those sales during
fiscal year 2010. Gross realized gains on those sales during
fiscal years 2009 and 2008 were $0.7 million and
$0.4 million, respectively; gross realized losses were
$1.3 million and $0.1 million, respectively. During
fiscal years 2010, 2009 and 2008, we recorded
other-than-temporary
impairments of AFS securities totaling $1.6 million,
$1.5 million and $0.4 million, respectively, as a
result of an assessment that it was probable we would not
collect all amounts due or an assessment that we would not be
able to hold the investments until potential recovery of market
value.
Contractual maturities of AFS debt securities at April 30,
2010, occur at varying dates over the next two to 27 years,
and are set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Maturing in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Two to five years
|
|
$
|
4,091
|
|
|
$
|
4,311
|
|
|
|
|
|
Five to ten years
|
|
|
4,351
|
|
|
|
4,590
|
|
|
|
|
|
Beyond
|
|
|
24,880
|
|
|
|
23,047
|
|
|
|
|
|
|
|
|
|
|
$
|
33,322
|
|
|
$
|
31,948
|
|
|
|
|
|
|
|
|
|
HRB Bank is required to maintain a restricted investment in FHLB
stock for borrowing availability. The cost of this investment,
$6.0 million, represents its redemption value, as these
investments do not have a ready market.
NOTE 5:
MORTGAGE LOANS HELD FOR INVESTMENT AND RELATED ASSETS
The composition of our mortgage loan portfolio as of
April 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
As of April 30,
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
|
|
|
|
|
Adjustable-rate loans
|
|
$
|
411,122
|
|
|
|
60
|
%
|
|
$
|
534,943
|
|
|
|
65
|
%
|
|
|
|
|
Fixed-rate loans
|
|
|
272,562
|
|
|
|
40
|
%
|
|
|
286,894
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
683,684
|
|
|
|
100
|
%
|
|
|
821,837
|
|
|
|
100
|
%
|
|
|
|
|
Unamortized deferred fees and costs
|
|
|
5,256
|
|
|
|
|
|
|
|
7,135
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(93,535
|
)
|
|
|
|
|
|
|
(84,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
595,405
|
|
|
|
|
|
|
$
|
744,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses for the years ended
April 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
|
|
|
Provision
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
42,004
|
|
|
|
|
|
Recoveries
|
|
|
88
|
|
|
|
54
|
|
|
|
999
|
|
|
|
|
|
Charge-offs
|
|
|
(38,376
|
)
|
|
|
(25,279
|
)
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
|
|
|
|
|
|
|
48 H&R
BLOCK 2010 Form 10K
Our loan loss reserve as a percent of mortgage loans was 13.7%
at April 30, 2010, compared to 10.2% at April 30,
2009. The loan loss provision as a percent of mortgage loans
increased during the current year as a result of declining
collateral values due to declining residential home prices and
increasing delinquencies occurring in our portfolio.
Mortgage loans held for investment include loans originated by
SCC, which were purchased by HRB Bank. Those loans have
experienced higher rates of delinquency than other loans in our
portfolio and expose us to a higher risk of potential credit
loss. Residential real estate markets have experienced
significant declines in property values and mortgage default
rates have been severe. If adverse market trends continue,
including trends within our portfolio specifically, we may be
required to record additional loan loss provisions, and those
losses may be significant.
Information related to our non-performing assets as of
April 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
30 59 days
|
|
$
|
330
|
|
|
$
|
|
|
|
|
|
|
60 89 days
|
|
|
11,851
|
|
|
|
21,415
|
|
|
|
|
|
90+ days, non-accrual
|
|
|
153,703
|
|
|
|
121,685
|
|
|
|
|
|
TDR loans, accrual
|
|
|
113,471
|
|
|
|
60,044
|
|
|
|
|
|
TDR loans, non-accrual
|
|
|
31,506
|
|
|
|
100,697
|
|
|
|
|
|
|
|
|
|
|
|
310,861
|
|
|
|
303,841
|
|
|
|
|
|
Real estate
owned(1)
|
|
|
29,252
|
|
|
|
44,533
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
340,113
|
|
|
$
|
348,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average impaired loans
|
|
$
|
307,351
|
|
|
$
|
216,391
|
|
|
|
|
|
Interest income on impaired loans
|
|
$
|
8,548
|
|
|
$
|
5,964
|
|
|
|
|
|
Interest income on impaired loans recognized on a cash basis on
non-accrual status
|
|
$
|
7,452
|
|
|
$
|
4,927
|
|
|
|
|
|
Portion of total allowance for loan losses allocated to impaired
loans and TDR loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on collateral value method
|
|
$
|
68,696
|
|
|
$
|
55,134
|
|
|
|
|
|
Based on discounted cash flow method
|
|
|
8,915
|
|
|
|
10,139
|
|
|
|
|
|
|
|
|
|
|
$
|
77,611
|
|
|
$
|
65,273
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes loans
accounted for as in-substance foreclosures of $12.5 million
and $27.4 million at April 30, 2010 and 2009,
respectively.
|
As of April 30, 2010 and 2009, accrued interest receivable
on mortgage loans held for investment totaled $2.6 million
and $3.5 million, respectively. At April 30, 2010, HRB
Bank had interest-only mortgage loans in its investment
portfolio totaling $4.7 million.
Activity related to our real estate owned is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
44,533
|
|
|
$
|
350
|
|
|
|
|
|
Additions
|
|
|
19,341
|
|
|
|
65,171
|
|
|
|
|
|
Sales
|
|
|
(24,308
|
)
|
|
|
(9,072
|
)
|
|
|
|
|
Impairments
|
|
|
(10,314
|
)
|
|
|
(11,916
|
)
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
29,252
|
|
|
$
|
44,533
|
|
|
|
|
|
|
|
|
NOTE 6:
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
We use the following valuation methodologies for assets and
liabilities measured at fair value and the general
classification of these instruments pursuant to the fair value
hierarchy.
|
|
|
|
§
|
Available-for-sale
securities
Available-for-sale
securities are carried at fair value on a recurring basis. When
available, fair value is based on quoted prices in an active
market and as such, would be classified as Level 1. If
quoted market prices are not available, fair values are
estimated using quoted prices of securities with similar
characteristics, discounted cash flows or other pricing models.
Available-for-sale
securities that we classify as Level 2 include certain
agency and non-agency mortgage-backed securities,
U.S. states and political subdivisions debt securities and
other debt and equity securities.
|
|
§
|
Impaired mortgage loans held for investment The fair
value of impaired mortgage loans held for investment are
generally based on the net present value of discounted cash
flows for TDR loans or the appraised value of the underlying
collateral for all other loans. These loans are classified as
Level 3.
|
H&R
BLOCK 2010
Form 10K 49
The following methods were used to determine the fair values of
our other financial instruments:
|
|
|
|
§
|
Cash equivalents, accounts receivable, demand deposits, accounts
payable, accrued liabilities and the current portion of
long-term debt The carrying values reported in the
balance sheet for these items approximate fair market value due
to the relative short-term nature of the respective instruments.
|
|
§
|
Mortgage loans held for investment The fair value of
mortgage loans held for investment is generally determined using
a pricing model based on current market information obtained
from origination data, and bids received from time to time. The
fair value of certain impaired loans held for investment is
primarily based on the appraised value of the underlying
collateral less estimated selling costs.
|
|
§
|
IRAs and other time deposits The fair value is
calculated based on the discounted value of contractual cash
flows.
|
|
§
|
Long-term debt The fair value of borrowings is based
on rates currently available to us for obligations with similar
terms and maturities, including current market rates on our
Senior Notes.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
As of April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
31,948
|
|
|
$
|
|
|
|
$
|
31,948
|
|
|
$
|
|
|
|
|
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired mortgage loans held for investment
|
|
|
249,549
|
|
|
|
|
|
|
|
|
|
|
|
249,549
|
|
|
|
|
|
|
|
|
|
|
$
|
281,497
|
|
|
$
|
|
|
|
$
|
31,948
|
|
|
$
|
249,549
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
5.4
|
%
|
|
|
|
%
|
|
|
0.6
|
%
|
|
|
4.8
|
%
|
|
|
|
|
As of April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
43,863
|
|
|
$
|
|
|
|
$
|
43,863
|
|
|
$
|
|
|
|
|
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired mortgage loans held for investment
|
|
|
238,568
|
|
|
|
|
|
|
|
|
|
|
|
238,568
|
|
|
|
|
|
|
|
|
|
|
$
|
282,431
|
|
|
$
|
|
|
|
$
|
43,863
|
|
|
$
|
238,568
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
5.3
|
%
|
|
|
|
%
|
|
|
0.8
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
Available-for-sale
securities are included in other assets on our consolidated
balance sheets. Losses included in earnings are reported in
results from operations.
The carrying amounts and estimated fair values of our financial
instruments at April 30, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
595,405
|
|
|
$
|
356,389
|
|
|
|
|
|
IRAs and other time deposits
|
|
|
442,252
|
|
|
|
441,910
|
|
|
|
|
|
Long-term debt
|
|
|
1,038,832
|
|
|
|
1,132,577
|
|
|
|
|
|
FHLB advances
|
|
|
75,000
|
|
|
|
75,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7: |
PROPERTY AND
EQUIPMENT
|
The components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Land and other non-depreciable assets
|
|
$
|
2,482
|
|
|
$
|
5,353
|
|
|
|
|
|
Buildings
|
|
|
161,460
|
|
|
|
171,785
|
|
|
|
|
|
Computers and other equipment
|
|
|
488,160
|
|
|
|
469,066
|
|
|
|
|
|
Capitalized software
|
|
|
147,104
|
|
|
|
153,771
|
|
|
|
|
|
Leasehold improvements
|
|
|
199,370
|
|
|
|
187,180
|
|
|
|
|
|
Construction in process
|
|
|
3,902
|
|
|
|
6,209
|
|
|
|
|
|
|
|
|
|
|
|
1,002,478
|
|
|
|
993,364
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(657,008
|
)
|
|
|
(625,075
|
)
|
|
|
|
|
|
|
|
|
|
$
|
345,470
|
|
|
$
|
368,289
|
|
|
|
|
|
|
|
|
|
During fiscal year 2010, we received $10.3 million for tax
incentives from certain government agencies related to our
corporate headquarters building, which was recorded as a
reduction of original cost.
50 H&R
BLOCK 2010 Form 10K
Property and equipment included above and subject to capital
lease arrangements included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Property and equipment under capital lease
|
|
$
|
47,844
|
|
|
$
|
47,913
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(31,418
|
)
|
|
|
(25,368
|
)
|
|
|
|
|
|
|
|
|
|
$
|
16,426
|
|
|
$
|
22,545
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of continuing operations
for fiscal years 2010, 2009 and 2008 was $96.9 million,
$96.6 million and $90.1 million, respectively.
Included in depreciation and amortization expense of continuing
operations is amortization of capitalized software of
$21.8 million, $23.4 million and $19.9 million,
respectively.
|
|
NOTE 8: |
GOODWILL AND
INTANGIBLE ASSETS
|
Changes in the carrying amount of goodwill by segment for the
years ended April 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Tax Services
|
|
|
Business Services
|
|
|
Total
|
|
|
|
|
|
|
|
Balance at May 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
431,981
|
|
|
$
|
399,333
|
|
|
$
|
831,314
|
|
|
|
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431,981
|
|
|
|
399,333
|
|
|
|
831,314
|
|
|
|
|
|
|
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
22,692
|
|
|
|
3,306
|
|
|
|
25,998
|
|
|
|
|
|
Disposals and foreign currency changes
|
|
|
(4,894
|
)
|
|
|
|
|
|
|
(4,894
|
)
|
|
|
|
|
Impairments
|
|
|
(2,188
|
)
|
|
|
|
|
|
|
(2,188
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
449,779
|
|
|
|
402,639
|
|
|
|
852,418
|
|
|
|
|
|
Accumulated impairment losses
|
|
|
(2,188
|
)
|
|
|
|
|
|
|
(2,188
|
)
|
|
|
|
|
|
|
|
|
|
|
447,591
|
|
|
|
402,639
|
|
|
|
850,230
|
|
|
|
|
|
|
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
5,136
|
|
|
|
1,112
|
|
|
|
6,248
|
|
|
|
|
|
Disposals and foreign currency changes
|
|
|
(1,031
|
)
|
|
|
|
|
|
|
(1,031
|
)
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
(15,000
|
)
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
453,884
|
|
|
|
403,751
|
|
|
|
857,635
|
|
|
|
|
|
Accumulated impairment losses
|
|
|
(2,188
|
)
|
|
|
(15,000
|
)
|
|
|
(17,188
|
)
|
|
|
|
|
|
|
|
|
|
$
|
451,696
|
|
|
$
|
388,751
|
|
|
$
|
840,447
|
|
|
|
|
|
|
|
|
|
Goodwill and other indefinite-life intangible assets were tested
for impairment in the fourth quarter of fiscal year 2010.
RSM EquiCo is a separate reporting unit within our Business
Services segment with goodwill totaling $29.3 million. RSM
EquiCo assists clients with capital markets transactions and has
experienced declining revenues and profitability in the current
economic environment. Accordingly, we evaluated RSM
EquiCos goodwill for impairment at January 31, 2010.
The measurement of impairment of goodwill consists of two steps.
In the first step, we compared the fair value of RSM EquiCo,
determined using discounted cash flows, to its carrying value.
As the results of the first test indicated that the fair value
of RSM EquiCo was less than its carrying value, we then
performed the second step, which was to determine the implied
fair value of RSM EquiCos goodwill, and to compare that to
its carrying value. The second step included hypothetically
valuing all of the tangible and intangible assets of RSM EquiCo.
As a result, we recorded an impairment of the reporting
units goodwill of $15.0 million, leaving a remaining
goodwill balance of $14.3 million. The impairment is
included in selling, general and administrative expenses on the
consolidated statements of operations.
We have a separate reporting unit within our Tax Services
segment with a goodwill balance totaling $28.6 million at
April 30, 2010. Operating activities of the business
consist principally of the development and sale of commercial
tax preparation software. The estimated fair value of this
reporting unit exceeded its carrying value by approximately 8%
at April 30, 2010. If revenues or pretax results of this
reporting unit fall below our expectations, we may be required
to consider impairment of the carrying value of its goodwill.
We recorded a $2.2 million goodwill impairment in our Tax
Services segment in fiscal year 2009, which was a result of the
closure of a previously acquired business.
H&R
BLOCK 2010
Form 10K 51
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As
of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
Tax Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
67,705
|
|
|
$
|
(33,096
|
)
|
|
$
|
34,609
|
|
|
$
|
54,655
|
|
|
$
|
(25,267
|
)
|
|
$
|
29,388
|
|
|
|
|
|
Noncompete agreements
|
|
|
23,062
|
|
|
|
(21,278
|
)
|
|
|
1,784
|
|
|
|
23,263
|
|
|
|
(20,941
|
)
|
|
|
2,322
|
|
|
|
|
|
Reacquired franchise rights
|
|
|
223,773
|
|
|
|
(6,096
|
)
|
|
|
217,677
|
|
|
|
229,438
|
|
|
|
(1,838
|
)
|
|
|
227,600
|
|
|
|
|
|
Franchise agreements
|
|
|
19,201
|
|
|
|
(1,813
|
)
|
|
|
17,388
|
|
|
|
19,201
|
|
|
|
(533
|
)
|
|
|
18,668
|
|
|
|
|
|
Purchased technology
|
|
|
14,500
|
|
|
|
(6,266
|
)
|
|
|
8,234
|
|
|
|
12,500
|
|
|
|
(4,240
|
)
|
|
|
8,260
|
|
|
|
|
|
Trade name
|
|
|
1,325
|
|
|
|
(400
|
)
|
|
|
925
|
|
|
|
1,025
|
|
|
|
(217
|
)
|
|
|
808
|
|
|
|
|
|
Business Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
145,149
|
|
|
|
(120,037
|
)
|
|
|
25,112
|
|
|
|
146,040
|
|
|
|
(111,017
|
)
|
|
|
35,023
|
|
|
|
|
|
Noncompete agreements
|
|
|
33,052
|
|
|
|
(22,118
|
)
|
|
|
10,934
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
586,004
|
|
|
$
|
(218,572
|
)
|
|
$
|
367,432
|
|
|
$
|
577,427
|
|
|
$
|
(191,429
|
)
|
|
$
|
385,998
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets of continuing operations for
the years ended April 30, 2010, 2009 and 2008 was
$30.0 million, $24.9 million and $23.7 million,
respectively. Estimated amortization of intangible assets for
fiscal years 2011, 2012, 2013, 2014 and 2015 is
$28.4 million, $25.4 million, $21.0 million,
$17.5 million and $12.3 million, respectively.
|
|
NOTE 9: |
CUSTOMER BANKING
DEPOSITS
|
The components of customer banking deposits at April 30,
2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
April
30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Interest
|
|
|
Outstanding
|
|
|
Interest
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Balance
|
|
|
Expense
|
|
|
|
|
|
|
|
Money-market deposits
|
|
$
|
195,220
|
|
|
$
|
1,871
|
|
|
$
|
144,617
|
|
|
$
|
6,148
|
|
|
|
|
|
Savings deposits
|
|
|
12,460
|
|
|
|
128
|
|
|
|
16,943
|
|
|
|
270
|
|
|
|
|
|
Checking deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
24,190
|
|
|
|
83
|
|
|
|
1,728
|
|
|
|
306
|
|
|
|
|
|
Non-interest-bearing
|
|
|
200,096
|
|
|
|
|
|
|
|
196,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,286
|
|
|
|
83
|
|
|
|
197,949
|
|
|
|
306
|
|
|
|
|
|
|
|
|
IRAs and other time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year
|
|
|
60,348
|
|
|
|
|
|
|
|
83,164
|
|
|
|
|
|
|
|
|
|
Due in two years
|
|
|
12,479
|
|
|
|
|
|
|
|
7,207
|
|
|
|
|
|
|
|
|
|
Due in three years
|
|
|
6,079
|
|
|
|
|
|
|
|
10,442
|
|
|
|
|
|
|
|
|
|
Due in four years
|
|
|
3,105
|
|
|
|
|
|
|
|
5,670
|
|
|
|
|
|
|
|
|
|
Due in five years
|
|
|
1
|
|
|
|
|
|
|
|
3,028
|
|
|
|
|
|
|
|
|
|
IRAs
|
|
|
360,240
|
|
|
|
|
|
|
|
385,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442,252
|
|
|
|
8,092
|
|
|
|
495,379
|
|
|
|
7,345
|
|
|
|
|
|
|
|
|
|
|
$
|
874,218
|
|
|
$
|
10,174
|
|
|
$
|
854,888
|
|
|
$
|
14,069
|
|
|
|
|
|
|
|
|
|
52 H&R
BLOCK 2010 Form 10K
At April 30, 2010, customer banking deposits totaling
$21.7 million have a maturity of greater than one year and
are included in other noncurrent liabilities on our consolidated
balance sheet.
Accrued but unpaid interest on deposits totaled
$0.2 million at April 30, 2010 and 2009.
Time deposit accounts totaling $9.0 million were in excess
of Federal Deposit Insurance Corporation (FDIC) insured limits
at April 30, 2010, and mature as follows:
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
Three months or less
|
|
$
|
509
|
|
Three to six months
|
|
|
1,140
|
|
Six to twelve months
|
|
|
5,275
|
|
Over twelve months
|
|
|
2,087
|
|
|
|
|
|
|
|
|
$
|
9,011
|
|
|
|
|
|
|
NOTE 10:
LONG-TERM DEBT
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Senior Notes, 7.875%, due January 2013
|
|
$
|
599,664
|
|
|
$
|
599,539
|
|
|
|
|
|
Senior Notes, 5.125%, due October 2014
|
|
|
398,941
|
|
|
|
398,706
|
|
|
|
|
|
Acquisition obligations, due from May 2010 to May 2015
|
|
|
28,701
|
|
|
|
30,658
|
|
|
|
|
|
Capital lease obligations
|
|
|
11,526
|
|
|
|
12,001
|
|
|
|
|
|
|
|
|
|
|
|
1,038,832
|
|
|
|
1,040,904
|
|
|
|
|
|
Less: Current portion
|
|
|
(3,688
|
)
|
|
|
(8,782
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,035,144
|
|
|
$
|
1,032,122
|
|
|
|
|
|
|
|
|
|
On March 4, 2010, we entered into a new committed line of
credit (CLOC) agreement to support commercial paper issuances,
general corporate purposes or for working capital needs, and
terminated the previous CLOCs. The new facility provides funding
up to $1.7 billion and matures July 31, 2013. The new
facility bears interest at an annual rate of LIBOR plus 1.30% to
2.80% or PRIME plus .30% to 1.80% (depending on the type of
borrowing) and includes an annual facility fee of .20% to .70%
of the committed amounts, based on our credit ratings. Covenants
in the new facility are substantially similar to those in the
previous CLOCs including: (1) maintenance of a minimum net
worth of $650.0 million on the last day of any fiscal
quarter; and (2) reduction of the aggregate outstanding
principal amount of short-term debt, as defined in the
agreement, to $200.0 million or less for thirty consecutive
days during the period March 1 to June 30 of each year
(Clean-down requirement). At April 30, 2010, we
were in compliance with these covenants and had net worth of
$1.4 billion. We had no balance outstanding under the CLOCs
at April 30, 2010 or 2009.
On January 11, 2008, we issued $600.0 million of
7.875% Senior Notes under our shelf registration. The
Senior Notes are due January 15, 2013 and are not
redeemable by the bondholders prior to maturity. The net
proceeds of this transaction were used to repay a
$500.0 million facility, with the remaining proceeds used
for working capital and general corporate purposes.
On October 26, 2004, we issued $400.0 million of
5.125% Senior Notes under our shelf registration. The
Senior Notes are due October 30, 2014 and are not
redeemable by the bondholders prior to maturity. The net
proceeds of this transaction were used to repay
$250.0 million in
63/4% Senior
Notes that were due in November 2004. The remaining proceeds
were used for working capital, capital expenditures, repayment
of other debt and other general corporate purposes.
As of April 30, 2010, we had $250.0 million remaining
under our shelf registration for additional debt issuances.
We have obligations related to various acquisitions of
$28.7 million and $30.7 million at April 30, 2010
and 2009, respectively, which are due from May 2010 to May 2015.
We have a capitalized lease obligation of $11.5 million at
April 30, 2010, that is collateralized by land and
buildings. The obligation is due in 11 years.
Effective January 12, 2010, we entered into a
$2.5 billion committed line of credit agreement with HSBC
Bank USA, National Association (HSBC) for the purchase of RAL
participations. This line was available up to its facility limit
through March 30, 2010 and then only up to
$120.0 million thereafter through June 30, 2010. The
line is subject to covenants similar to those in the CLOC, but
secured by RAL participation interests. All borrowings on this
facility were repaid as of April 30, 2010 and the facility
is now closed.
The aggregate payments required to retire long-term debt are
$3.7 million, $26.0 million, $0.7 million,
$600.4 million, $399.8 million and $8.2 million
in fiscal years 2011, 2012, 2013, 2014, 2015 and beyond,
respectively.
H&R
BLOCK 2010
Form 10K 53
HRB Bank is a member of the FHLB of Des Moines, which extends
credit to member banks based on eligible collateral. At
April 30, 2010, HRB Bank had FHLB advance capacity of
$266.4 million. At April 30, 2010, we had
$75.0 million outstanding on this facility, leaving
remaining availability of $191.4 million. Mortgage loans
held for investment of $461.1 million serve as eligible
collateral and are used to determine total capacity. The
maturities and related interest rates related to this borrowing
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
Amount Due
|
|
|
Interest Rate
|
|
|
|
|
Fiscal year:
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
50,000
|
|
|
|
1.92%
|
|
2012
|
|
|
25,000
|
|
|
|
2.36%
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11:
OTHER NONCURRENT ASSETS AND LIABILITIES
We have deferred compensation plans that permit certain
employees to defer portions of their compensation and accrue
income on the deferred amounts. Included in other noncurrent
liabilities is $135.5 million and $112.6 million at
April 30, 2010 and 2009, respectively, reflecting our
obligation under these plans. We may purchase whole-life
insurance contracts on certain employee participants to recover
distributions made or to be made under the plans. The cash
surrender value of the policies and other assets held by the
Deferred Compensation Trust is recorded in other noncurrent
assets and totaled $112.4 million and $104.0 million
at April 30, 2010 and 2009, respectively. These assets are
restricted, as they are only available to fund the related
liability.
NOTE 12:
STOCKHOLDERS EQUITY
During fiscal year 2010, we purchased and immediately retired
12.8 million shares of our common stock at a cost of
$250.0 million. We may continue to repurchase and retire
common stock or retire shares held in treasury in the future.
On October 27, 2008, we sold 8.3 million shares of our
common stock, without par value, at a price of $17.50 per share
in a registered direct offering through subscription agreements
with selected institutional investors. We received net proceeds
of $141.4 million, after deducting placement agent fees and
other offering expenses. Proceeds were used for general
corporate purposes.
We are authorized to issue 6.0 million shares of Preferred
Stock without par value. At April 30, 2010, we had
5.6 million shares of authorized but unissued Preferred
Stock. Of the unissued shares, 0.6 million shares have been
designated as Participating Preferred Stock.
On March 8, 1995, our Board of Directors authorized the
issuance of a series of 0.5 million shares of non-voting
Preferred Stock designated as Convertible Preferred Stock
without par value. At April 30, 2010, we had
0.5 million shares of authorized but unissued Convertible
Preferred Stock. The holders of the Convertible Preferred Stock
are not entitled to receive dividends paid in cash, property or
securities and, in the event of any dissolution, liquidation or
wind-up of
the Company, will share ratably with the holders of Common Stock
then outstanding in the assets of the Company after any
distribution or payments are made to the holders of
Participating Preferred stock or the holders of any other class
or series of stock of the Company with preference over the
Common Stock.
NOTE 13:
STOCK-BASED COMPENSATION
We utilize the fair value method to account for stock-based
awards. Stock-based compensation expense of $29.4 million,
$32.6 million and $50.4 million was recorded in fiscal
years 2010, 2009 and 2008, respectively, net of related tax
benefits of $10.5 million, $12.2 million and
$17.3 million, respectively. Stock-based compensation
expense of our continuing operations totaled $29.3 million,
$26.6 million and $40.4 million in fiscal years 2010,
2009 and 2008, respectively.
Accounting standards require excess tax benefits from
stock-based compensation to be included as a financing activity
in the statements of cash flows. As a result, we classified
$1.6 million, $8.6 million and $3.2 million as
cash inflows from financing activities for fiscal years 2010,
2009 and 2008, respectively. We realized tax benefits of
$6.6 million, $20.2 million and $12.6 million in
fiscal years 2010, 2009 and 2008, respectively.
We have four stock-based compensation plans which have been
approved by our shareholders. As of April 30, 2010, we had
0.8 million shares reserved for future awards under
stock-based compensation plans. We issue shares from our
treasury stock to satisfy the exercise or release of stock-based
awards. We believe we have adequate treasury stock to issue for
the exercise or release of stock-based awards.
Our 2003 Long-Term Executive Compensation Plan provides for
awards of options (both incentive and nonqualified), nonvested
shares, performance nonvested share units and other stock-based
awards to
54 H&R
BLOCK 2010 Form 10K
employees. These awards entitle the
holder to shares or the right to purchase shares of common stock
as the award vests, typically over a three-year period with
one-third vesting each year. Nonvested shares receive dividends
during the vesting period and performance nonvested share units
receive cumulative dividends at the end of the vesting period.
We measure the fair value of options on the grant date or
modification date using the Black-Scholes option valuation
model. We measure the fair value of nonvested shares and
performance nonvested share units based on the closing price of
our common stock on the grant date. Generally, we expense the
grant-date fair value, net of estimated forfeitures, over the
vesting period on a straight-line basis. Awards granted to
employees who are of retirement age or reach retirement age at
least one year after the grant date, but prior to the end of the
service period of the awards, are expensed over the shorter of
the two periods. Options are generally granted at a price equal
to the fair market value of our common stock on the grant date
and have a contractual term of ten years.
Our 1999 Stock Option Plan for Seasonal Employees, which
provided for awards of nonqualified options to certain
employees, was terminated effective December 31, 2009,
except for outstanding awards thereunder. These awards were
granted to seasonal employees in our Tax Services segment and
entitled the holder to the right to purchase shares of common
stock as the award vests, typically over a two-year period. We
measure the fair value of options on the grant date using the
Black-Scholes option valuation model. We expense the grant-date
fair value, net of estimated forfeitures, over the seasonal
service period. Options were granted at a price equal to the
fair market value of our common stock on the grant date, are
exercisable during September through November in each of the two
years following the calendar year of the grant, and have a
contractual term of 29 months.
Our 1989 Stock Option Plan for Outside Directors, which provided
for awards of nonqualified options to outside directors, was
terminated effective June 11, 2008, except for outstanding
awards thereunder. The plan was replaced by the 2008 Deferred
Stock Unit Plan for Outside Directors. The number of deferred
stock units credited to an outside directors account
pursuant to an award is determined by dividing the dollar amount
of the award by the average current market value per share of
common stock for the ten consecutive trading dates ending on the
date the deferred stock units are granted to the outside
directors. Each deferred stock unit granted is vested upon award
and the settlement of shares occurs six months after separation
of service from the Board of Directors. The vested shares
receive dividends prior to settlement, which are reinvested and
settled in shares at the time of settlement.
Our 2000 Employee Stock Purchase Plan (ESPP) provides employees
the option to purchase shares of our common stock through
payroll deductions. The purchase price of the stock is 90% of
the lower of either the fair market value of our common stock on
the first trading day within the Option Period or on the last
trading day of the Option Period. The Option Periods are
six-month periods beginning on January 1 and July 1 each year.
We measure the fair value of options on the grant date utilizing
the Black-Scholes option valuation model. The fair value of the
option includes the value of the 10% discount and the look-back
feature. We expense the grant-date fair value over the six-month
vesting period.
A summary of options for the year ended April 30, 2010, is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
Outstanding, beginning of the year
|
|
|
16,401
|
|
|
$
|
21.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,634
|
|
|
|
17.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,293
|
)
|
|
|
14.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(4,660
|
)
|
|
|
23.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
15,082
|
|
|
$
|
20.58
|
|
|
|
4 years
|
|
|
$
|
9,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of the year
|
|
|
8,973
|
|
|
$
|
21.60
|
|
|
|
3 years
|
|
|
$
|
4,647
|
|
|
|
|
|
Exercisable and expected to vest
|
|
|
14,866
|
|
|
|
20.60
|
|
|
|
4 years
|
|
|
|
9,205
|
|
|
|
|
|
|
The total intrinsic value of options exercised during fiscal
years 2010, 2009 and 2008 was $5.4 milllion, $33.0 million
and $12.9 million, respectively. As of April 30, 2010,
we had $7.5 million of total unrecognized compensation cost
related to these options. The cost is expected to be recognized
over a weighted-average period of two years.
We utilize the Black-Scholes option valuation model to value our
options on the grant date. We typically estimate the expected
volatility using our historical stock price data, unless
historical volatility is not representative of expected
volatility. We also use historical exercise and forfeiture
behaviors to estimate the options expected term and our
forfeiture rate. The dividend yield is calculated based on the
current dividend and the market price of our common stock on the
grant date. The risk-free interest rate is based on the U.S.
Treasury zero-coupon yield curve
H&R
BLOCK 2010
Form 10K 55
in effect on the grant date. Both
expected volatility and the risk-free interest rate are based on
a period that approximates the expected term.
The following assumptions were used to value options during the
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Options management and director:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
27.11% - 27.27%
|
|
|
|
23.41% - 25.20%
|
|
|
|
21.92% - 25.74%
|
|
|
|
|
|
Expected term
|
|
|
5 years
|
|
|
|
4 years
|
|
|
|
4-7 years
|
|
|
|
|
|
Dividend yield
|
|
|
3.24% - 3.55%
|
|
|
|
2.35% - 3.04%
|
|
|
|
2.36% - 3.12%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.38% - 2.75%
|
|
|
|
2.54% - 3.26%
|
|
|
|
2.35% - 5.01%
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
3.27
|
|
|
$
|
3.80
|
|
|
$
|
4.44
|
|
|
|
|
|
Options seasonal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
33.81%
|
|
|
|
25.35%
|
|
|
|
20.75%
|
|
|
|
|
|
Expected term
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
|
|
Dividend yield
|
|
|
3.48%
|
|
|
|
2.80%
|
|
|
|
2.44%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.85%
|
|
|
|
2.54%
|
|
|
|
4.81%
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
2.70
|
|
|
$
|
2.83
|
|
|
$
|
3.07
|
|
|
|
|
|
ESPP options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
23.68% - 43.20%
|
|
|
|
29.13% - 43.82%
|
|
|
|
29.96% - 31.10%
|
|
|
|
|
|
Expected term
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
|
|
|
|
Dividend yield
|
|
|
2.65% - 3.46%
|
|
|
|
2.67% - 2.78%
|
|
|
|
2.46% - 3.06%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.20% - 0.33%
|
|
|
|
0.27% - 2.13%
|
|
|
|
3.32% - 4.98%
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
3.66
|
|
|
$
|
4.38
|
|
|
$
|
3.87
|
|
|
|
|
|
|
A summary of nonvested shares and performance nonvested share
units for the year ended April 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Outstanding, beginning of the year
|
|
|
1,457
|
|
|
$
|
22.73
|
|
|
|
|
|
Granted
|
|
|
953
|
|
|
|
17.04
|
|
|
|
|
|
Released
|
|
|
(677
|
)
|
|
|
22.94
|
|
|
|
|
|
Forfeited
|
|
|
(114
|
)
|
|
|
20.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
1,619
|
|
|
$
|
19.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vesting during fiscal years 2010,
2009 and 2008 was $15.5 million, $21.1 million and
$21.4 million, respectively. Upon the grant of nonvested
shares and performance nonvested share units, unearned
compensation cost is recorded as an offset to additional paid-in
capital and is amortized as compensation expense over the
vesting period. As of April 30, 2010, we had
$16.4 million of total unrecognized compensation cost
related to these shares. This cost is expected to be recognized
over a weighted-average period of two years.
NOTE 14:
INCOME TAXES
The components of income from continuing operations upon which
domestic and foreign income taxes have been provided are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
745,912
|
|
|
$
|
815,614
|
|
|
$
|
700,162
|
|
|
|
|
|
Foreign
|
|
|
38,223
|
|
|
|
23,756
|
|
|
|
34,909
|
|
|
|
|
|
|
|
|
|
|
$
|
784,135
|
|
|
$
|
839,370
|
|
|
$
|
735,071
|
|
|
|
|
|
|
|
|
|
56 H&R
BLOCK 2010 Form 10K
The components of income tax expense (benefit) for continuing
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
92,992
|
|
|
$
|
243,085
|
|
|
$
|
196,676
|
|
State
|
|
|
23,625
|
|
|
|
38,418
|
|
|
|
54,096
|
|
Foreign
|
|
|
16,052
|
|
|
|
1,393
|
|
|
|
16,901
|
|
|
|
|
|
|
|
132,669
|
|
|
|
282,896
|
|
|
|
267,673
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
128,900
|
|
|
|
36,739
|
|
|
|
48,788
|
|
State
|
|
|
33,448
|
|
|
|
6,582
|
|
|
|
(27,471
|
)
|
Foreign
|
|
|
172
|
|
|
|
98
|
|
|
|
134
|
|
|
|
|
|
|
|
162,520
|
|
|
|
43,419
|
|
|
|
21,451
|
|
|
|
|
Total income taxes for continuing operations
|
|
$
|
295,189
|
|
|
$
|
326,315
|
|
|
$
|
289,124
|
|
|
|
|
|
The reconciliation between the income tax provision and the
amount computed by applying the statutory federal tax rate of
35% to income taxes of continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
U.S. statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
|
|
Change in tax rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
|
|
5.0
|
%
|
|
|
|
|
Permanent differences
|
|
|
(0.5
|
)%
|
|
|
1.6
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Uncertain tax position liabilities
|
|
|
0.9
|
%
|
|
|
0.5
|
%
|
|
|
2.9
|
%
|
|
|
|
|
Net decrease in valuation allowance
|
|
|
(1.0
|
)%
|
|
|
(1.2
|
)%
|
|
|
(3.7
|
)%
|
|
|
|
|
Other
|
|
|
(0.6
|
)%
|
|
|
(1.2
|
)%
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.6
|
%
|
|
|
38.9
|
%
|
|
|
39.3
|
%
|
|
|
|
|
|
|
|
|
The significant components of deferred tax assets and
liabilities of continuing operations are reflected in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Gross deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
17,554
|
|
|
$
|
49,239
|
|
|
|
|
|
Allowance for credit losses and related reserves
|
|
|
164,783
|
|
|
|
179,508
|
|
|
|
|
|
Net operating loss carryovers
|
|
|
200
|
|
|
|
5,495
|
|
|
|
|
|
Other
|
|
|
237
|
|
|
|
2,119
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,745
|
)
|
|
|
(4,773
|
)
|
|
|
|
|
|
|
|
Current
|
|
|
181,029
|
|
|
|
231,588
|
|
|
|
|
|
|
|
|
Deferred and stock-based compensation
|
|
|
71,970
|
|
|
|
65,493
|
|
|
|
|
|
Property and equipment
|
|
|
9,071
|
|
|
|
5,743
|
|
|
|
|
|
Deferred revenue
|
|
|
25,595
|
|
|
|
39,489
|
|
|
|
|
|
Net operating loss carryovers
|
|
|
26,292
|
|
|
|
27,315
|
|
|
|
|
|
Accrued expenses
|
|
|
31,892
|
|
|
|
42,291
|
|
|
|
|
|
Capital loss carryover
|
|
|
144,507
|
|
|
|
145,572
|
|
|
|
|
|
Other
|
|
|
15,991
|
|
|
|
6,480
|
|
|
|
|
|
Valuation allowance
|
|
|
(151,838
|
)
|
|
|
(160,642
|
)
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
173,480
|
|
|
|
171,741
|
|
|
|
|
|
|
|
|
|
|
|
354,509
|
|
|
|
403,329
|
|
|
|
|
|
Gross deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(6,337
|
)
|
|
|
(5,607
|
)
|
|
|
|
|
|
|
|
Current
|
|
|
(6,337
|
)
|
|
|
(5,607
|
)
|
|
|
|
|
|
|
|
Basis difference in mortgage-related investment
|
|
|
(81,118
|
)
|
|
|
18,288
|
|
|
|
|
|
Intangibles
|
|
|
(124,918
|
)
|
|
|
(105,366
|
)
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
(206,036
|
)
|
|
|
(87,078
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
142,136
|
|
|
$
|
310,644
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2010
Form 10K 57
The loss from discontinued operations for fiscal years 2010,
2009 and 2008 of $9.7 million, $27.4 million and
$754.6 million, respectively are net of tax benefits of
$8.0 million, $20.3 million and $411.1 million,
respectively. Our effective tax rate for discontinued operations
was 45.1%, 42.5% and 35.3% for fiscal years 2010, 2009 and 2008,
respectively.
As of April 30, 2010, we have recorded a deferred tax asset
of $142.1 million, representing the tax effects of the
difference between the tax and book basis in the stock of our
brokerage business sold to Ameriprise in November 2008. For tax
purposes, we incurred a capital loss upon disposition of that
business, which generally can only be utilized to the extent we
realize capital gains within five years subsequent to the date
of the loss. We do not currently expect to be able to realize a
tax benefit for substantially all of this loss and, therefore,
recorded a valuation allowance of $122.6 million. We have
capital loss carryover of approximately $362 million which
will expire if not used to offset future capital gains before
December 31, 2013.
Our current tax expense has been reduced and our deferred tax
expense increased by offsetting amounts due to the tax effects
of a tax accounting change impacting the timing of taxable
income from certain mortgage related assets. Because of this
treatment we have recorded a noncurrent deferred tax liability
of $81.1 million and a long term receivable of the same
amount as a result of this change.
Certain of our subsidiaries file stand-alone returns in various
states and foreign jurisdictions, and others join in filing
consolidated or combined returns in such jurisdictions. At
April 30, 2010, we had net operating losses (NOLs) in
various states and foreign jurisdictions. The amount of state
NOLs vary by taxing jurisdiction. We recorded deferred tax
assets of $26.5 million for the tax effects of such losses
and a valuation allowance of $19.8 million for the portion
of such losses that, more likely than not, will not be realized.
If not used, the NOLs will expire in varying amounts during
fiscal years 2011 through 2030.
We intend to indefinitely reinvest foreign earnings, therefore,
a provision has not been made for income taxes that might be
payable upon remittance of such earnings. Determination of the
amount of unrecognized deferred tax liability on unremitted
foreign earnings is not practicable.
As a result of the initial adoption of accounting guidance
effective fiscal year 2008, we recognized an additional reserve
for uncertain tax positions of $9.7 million and a
corresponding decrease to retained earnings.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits for fiscal years 2010 and 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
124,605
|
|
|
$
|
137,608
|
|
|
$
|
133,263
|
|
|
|
|
|
Additions based on tax positions related to prior years
|
|
|
12,957
|
|
|
|
14,541
|
|
|
|
26,283
|
|
|
|
|
|
Reductions based on tax positions related to prior years
|
|
|
(2,427
|
)
|
|
|
(6,096
|
)
|
|
|
(16,500
|
)
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
|
3,314
|
|
|
|
4,110
|
|
|
|
17,736
|
|
|
|
|
|
Reductions related to settlements with tax authorities
|
|
|
(8,545
|
)
|
|
|
(18,189
|
)
|
|
|
(18,633
|
)
|
|
|
|
|
Expiration of statute of limitations
|
|
|
(1,061
|
)
|
|
|
(5,007
|
)
|
|
|
(5,692
|
)
|
|
|
|
|
Foreign currency translation
|
|
|
924
|
|
|
|
(2,362
|
)
|
|
|
1,151
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
129,767
|
|
|
$
|
124,605
|
|
|
$
|
137,608
|
|
|
|
|
|
|
|
|
|
Of the $129.8 million, $124.6 million and
$137.6 million ending gross unrecognized tax benefit
balance, as of April 30, 2010, 2009 and 2008, respectively,
$106.8 million, $107.0 million and
$119.6 million, respectively, if recognized, would impact
the effective rate. This difference results from adjusting the
gross balances for such items as federal, state and foreign
deferred items, interest and deductible taxes. We believe it is
reasonably possible that the balance of unrecognized tax
benefits could decrease by approximately $74.5 million
within the next twelve months due to anticipated settlements of
audit issues and expiring statutes of limitations. This amount
is included in accrued income taxes in our consolidated balance
sheet. The remaining amount is classified as long-term and is
included in other noncurrent liabilities in the consolidated
balance sheet.
Interest and penalties, if any, accrued on the unrecognized tax
benefits are reflected in income tax expense. The amount of
gross interest and penalties accrued on uncertain tax positions
during fiscal years 2010, 2009 and 2008 totaled
$4.1 million, $15.4 million and $18.6 million,
respectively. The total gross interest and penalties accrued as
of April 30, 2010, 2009 and 2008 totaled
$39.7 million, $42.4 million and $47.5 million,
respectively.
We file a consolidated federal income tax return in the
U.S. and file tax returns in various state and foreign
jurisdictions. The consolidated tax returns for the years 2006
and 2007 are currently under examination by the IRS. The
consolidated tax returns for the years 1999 2005 are
at the appellate level. 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
examination.
58 H&R
BLOCK 2010 Form 10K
|
|
NOTE 15:
|
INTEREST INCOME
AND INTEREST EXPENSE
|
The following table shows the components of interest income and
expense of our continuing operations. Interest expense is
included in cost of other revenues on our consolidated
statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
31,877
|
|
|
$
|
46,396
|
|
|
$
|
74,895
|
|
|
|
|
|
Emerald Advance lines of credit
|
|
|
77,891
|
|
|
|
91,019
|
|
|
|
45,339
|
|
|
|
|
|
Investment securities
|
|
|
2,318
|
|
|
|
4,896
|
|
|
|
12,143
|
|
|
|
|
|
Other
|
|
|
10,319
|
|
|
|
12,205
|
|
|
|
19,181
|
|
|
|
|
|
|
|
|
|
|
$
|
122,405
|
|
|
$
|
154,516
|
|
|
$
|
151,558
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
78,398
|
|
|
$
|
83,193
|
|
|
$
|
56,482
|
|
|
|
|
|
Deposits
|
|
|
10,174
|
|
|
|
14,069
|
|
|
|
42,878
|
|
|
|
|
|
FHLB advances
|
|
|
1,997
|
|
|
|
5,113
|
|
|
|
6,008
|
|
|
|
|
|
|
|
|
|
|
$
|
90,569
|
|
|
$
|
102,375
|
|
|
$
|
105,368
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16: |
COMMITMENTS AND
CONTINGENCIES
|
We offer guarantees under our POM program to tax clients whereby
we will assume the cost of additional tax assessments, up to a
cumulative per client limit of $5,000, attributable to tax
return preparation error for which we are responsible. We defer
all revenues and direct costs associated with these guarantees,
recognizing these amounts over the term of the guarantee based
on historical and actual payment of claims. The related current
asset is included in prepaid expenses and other current assets.
The related liability is included in accounts payable, accrued
expenses and other current liabilities in the consolidated
balance sheets. The related noncurrent asset and liability are
included in other assets and other noncurrent liabilities,
respectively, in the consolidated balance sheets. A loss on
these POM guarantees would be recognized if the sum of expected
costs for services exceeded unearned revenue. The changes in the
deferred revenue liability for fiscal years 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
146,807
|
|
|
$
|
140,583
|
|
|
|
|
|
Amounts deferred for new guarantees issued
|
|
|
74,889
|
|
|
|
84,429
|
|
|
|
|
|
Revenue recognized on previous deferrals
|
|
|
(80,154
|
)
|
|
|
(78,205
|
)
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
141,542
|
|
|
$
|
146,807
|
|
|
|
|
|
|
|
|
|
During fiscal year 2009, we entered into an agreement to
purchase $45.8 million in media advertising between
July 1, 2009 and June 30, 2013. At April 30,
2010, our remaining obligation totaled $26.5 million. We
expect to make payments totaling $13.3 million during
fiscal years 2011 and 2012.
We have various contingent purchase price obligations in
connection with prior acquisitions. In many cases, contingent
payments to be made in connection with these acquisitions are
not subject to a stated limit. We estimate the potential
payments (undiscounted) total $20.7 million as of
April 30, 2010. Our estimate is based on current financial
conditions. Should actual results differ materially from our
assumptions, the potential payments will differ from the above
estimate.
We have contractual commitments to fund certain franchises
requesting Franchise Equity Lines of Credit (FELCs). Our total
obligation under these lines of credit was $82.4 million at
April 30, 2010, and net of amounts drawn and outstanding,
our remaining commitment to fund totaled $36.8 million.
We are self-insured for certain risks, including, workers
compensation, property and casualty, professional liability and
claims related to our POM program. These programs maintain
various self-insured retentions. In all but POM, commercial
insurance is purchased in excess of the self-insured retentions.
We accrue estimated losses for self-insured retentions using
actuarial models and assumptions based on historical loss
experience. The nature of our business may subject us to error
and omissions, casualty and professional liability lawsuits. To
the extent that we are subject to claims exceeding our insurance
coverage, such suits could have a material adverse effect on our
financial position, results of operations or liquidity.
We issued three standby letters of credit to servicers paying
claims related to our POM, errors and omissions, and property
and casualty insurance policies. These letters of credit are for
amounts not to exceed $6.7 million in the aggregate. At
April 30, 2010, there were no balances outstanding on these
letters of credit.
H&R
BLOCK 2010
Form 10K 59
Our self-insured health benefits plan provides medical benefits
to employees electing coverage under the plan. We maintain a
reserve for incurred but not reported medical claims and claim
development. The reserve is an estimate based on historical
experience and other assumptions, some of which are subjective.
We adjust our self-insured medical benefits reserve as our loss
experience changes due to medical inflation, changes in the
number of plan participants and an aging employee base.
During fiscal year 2006, we entered into a transaction with the
City of Kansas City, Missouri, to provide us with sales and
property tax savings on the furniture, fixtures and equipment
for our corporate headquarters facility. Under the transaction,
the City purchased equipment by issuing $31.0 million in
Industrial Revenue Bonds due in December 2015, and leased the
furniture, fixtures and equipment to us for an identical term
under a capital lease. The Citys bonds were purchased by
us. Because the City has assigned the lease to the bond trustee
for our benefit as the sole bondholder, we, in effect, control
enforcement of the lease against ourselves. As a result of the
capital lease treatment, the furniture, fixtures and equipment
will remain a component of property, plant and equipment in our
consolidated balance sheets. As a result of the legal right of
offset, the capital lease obligation and the corresponding bond
investments have been eliminated in consolidation. The
transaction provides us with property tax exemptions for the
leased furniture, fixtures and equipment. As of April 30,
2010, we have purchased $31.0 million in bonds in
connection with this arrangement.
Substantially all of the operations of our subsidiaries are
conducted in leased premises. Most of the operating leases are
for periods ranging from three years to five years, with renewal
options and provide for fixed monthly rentals. Future minimum
operating lease commitments of our continuing operations at
April 30, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
2011
|
|
$
|
246,061
|
|
|
|
|
|
2012
|
|
|
196,343
|
|
|
|
|
|
2013
|
|
|
135,776
|
|
|
|
|
|
2014
|
|
|
87,138
|
|
|
|
|
|
2015
|
|
|
57,140
|
|
|
|
|
|
2016 and beyond
|
|
|
68,748
|
|
|
|
|
|
|
|
|
|
|
$
|
791,206
|
|
|
|
|
|
|
|
|
|
Rent expense of our continuing operations for fiscal years 2010,
2009 and 2008 totaled $289.6 million, $308.1 million
and $299.6 million, respectively.
In the regular course of business, we are subject to routine
examinations by federal, state and local taxing authorities. In
managements opinion, the disposition of matters raised by
such taxing authorities, if any, would not have a material
adverse impact on our consolidated financial statements.
We routinely enter into contracts that include embedded
indemnifications that have characteristics similar to
guarantees. Other 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 is 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 these
guarantees and indemnifications is not material as of
April 30, 2010.
DISCONTINUED
OPERATIONS SCC 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.
As a result, SCC may be required to repurchase loans or
otherwise indemnify third-parties for losses. These
representations and warranties and corresponding repurchase
obligations generally are not subject to stated limits or a
stated term and, therefore, may continue. SCC has established a
liability related to potential losses under these
indemnifications and monitors the adequacy of the repurchase
liability on an ongoing basis. To the extent that future claim
volumes differ from current estimates, or the value of mortgage
loans and residential home prices change, future losses may be
different than these estimates and those differences may be
significant.
At April 30, 2010 and 2009, our loan repurchase liability
totaled $188.2 million and $206.6 million,
respectively. This liability is included in accounts payable,
accrued expenses and other current liabilities on our
consolidated balance sheets. Actual losses charged against this
reserve during fiscal year 2010 totaled $18.4 million.
60 H&R
BLOCK 2010 Form 10K
NOTE 17:
ALTERNATIVE PRACTICE STRUCTURE WITH McGLADREY & PULLEN
LLP
McGladrey & Pullen LLP (M&P) is a limited
liability partnership, owned 100% by certified public
accountants (CPAs), which provides attest services to middle
market clients.
Under state accountancy regulations, a firm cannot provide
attest services unless it is majority owned and controlled by
licensed CPAs. As such, RSM McGladrey, Inc. (RSM) is unable to
provide attest services. Since 1999, RSM and M&P have
operated in what is known as an alternative practice
structure (APS). Through the APS, RSM and M&P are
able to offer clients a full-range of attest and non-attest
services in full compliance with applicable accountancy
regulations.
An administrative services agreement between RSM and M&P
obligates RSM to provide M&P with administrative services,
information technology, office space, non-professional staff,
and other infrastructure in exchange for market rate fees from
M&P. During fiscal year 2010, we received
$22.6 million in management fee revenues from M&P.
On July 21, 2009, M&P provided 210 days notice of
its intent to terminate the administrative services agreement,
resulting in termination of the APS unless revoked or modified
prior to the expiration of the notice period. As a protective
measure, on September 15, 2009, RSM also provided notice of
its intent to terminate the administrative services agreement.
Effective February 3, 2010, RSM and M&P entered into
new agreements, withdrawing their prior notices of termination.
Pursuant to a Governance and Operations Agreement effective
February 3, 2010, RSM and M&P agreed to be bound by a
final award of an arbitration panel, dated as of
November 24, 2009, regarding the applicability and
enforceability of certain restrictive covenants between the
parties. In the event the APS were ever terminated, M&P
would generally be prohibited as a result of these restrictive
covenants, from (1) engaging in businesses in which RSM
operates in for 17 months, (2) soliciting any business
with clients or potential clients of RSM or any of its
subsidiaries or affiliates for 29 months, and
(3) soliciting employees of RSM or any of its subsidiaries
or affiliates for 24 months.
Although not required by the Governance and Operations
Agreement, all partners of M&P, with the exception of
M&Ps Managing Partner, are also managing directors
employed by RSM. Approximately 86% of RSMs managing
directors are also partners in M&P. Certain other personnel
are also employed by both M&P and RSM. M&P partners
receive distributions from M&P in their capacity as
partners, as well as compensation from RSM in their capacity as
managing directors. Distributions to M&P partners are based
on the profitability of M&P and are not capped by this
arrangement. Pursuant to the Governance and Operations
Agreement, effective May 1, 2010, the aggregate
compensation payable to RSM managing directors by RSM in any
given year shall generally equal 67 percent of the combined
profits of M&P and RSM less any amounts paid in their
capacity as M&P partners. RSM followed a similar practice
historically, except that the compensation pool for managing
directors was based on 65 percent of combined profits. In
practice, this means that variability in the amounts paid to RSM
managing directors under these contracts can cause variability
in RSMs operating results. RSM is not entitled to any
profits or residual interests of M&P, nor is it obligated
to fund losses or capital deficiencies of M&P. Managing
directors of RSM have historically participated in stock-based
compensation plans of H&R Block. Beginning in fiscal 2011,
participation in those plans will cease and be replaced by a
non-qualified retirement plan. RSM is required to pay
$60.0 million during fiscal year 2011 to fund contributions
to the retirement plan through 2015.
The administrative services agreement and compensation
arrangements described above all represent variable interests of
RSM in M&P. Our determination of primary beneficiary of
M&P was based on an assessment of which party was most
closely associated with M&P. We have concluded that RSM is
not the primary beneficiary of M&P and, therefore, the
financial results of M&P have not been included in the
accompanying consolidated financial statements. RSM does not
have an equity interest in M&P, nor does it have the power
to direct any activities of M&P.
The carrying amounts included in our consolidated balance sheet,
and our exposure to economic loss, resulting from our interests
in the various agreements with M&P is as follows at
April 30, 2010:
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
Carrying Amount
|
|
Maximum Exposure to
Loss
|
|
|
Compensation arrangements
|
|
|
N/A
|
|
|
|
|
(1)
|
Administrative Services Agreement
|
|
|
N/A
|
|
|
$
|
94,200
|
(2)
|
|
|
|
(1)
|
As described above,
operating results of RSM are exposed to variability caused by
compensation arrangements.
|
(2)
|
Under this
agreement, M&P shares costs with RSM for office space under
RSMs operating leases. RSM could be exposed to loss in the
event of default by M&P.
|
H&R
BLOCK 2010
Form 10K 61
|
|
NOTE 18:
|
LITIGATION AND
RELATED CONTINGENCIES
|
We are party to investigations, legal claims and lawsuits
arising out of our business operations. As required, we accrue
our best estimate of loss contingencies when we believe a loss
is probable and we can reasonably estimate the amount of any
such loss. Amounts accrued, including obligations under
indemnifications, totaled $35.5 million and
$27.9 million at April 30, 2010 and 2009,
respectively. Litigation is inherently unpredictable and it is
difficult to predict the outcome of particular matters with
reasonable certainty and, therefore, the actual amount of any
loss may prove to be larger or smaller than the amounts
reflected in our consolidated financial statements.
RAL
LITIGATION We have been named in multiple
lawsuits as defendants in litigation regarding our refund
anticipation loan program in past years. All of those lawsuits
have been settled or otherwise resolved, except for one.
The sole remaining case is a putative class action styled
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. The
plaintiffs allege inadequate disclosures with respect to the RAL
product and assert claims for violation of consumer protection
statutes, negligent misrepresentation, breach of fiduciary duty,
common law fraud, usury, and violation of the Truth In Lending
Act. Plaintiffs seek unspecified actual and punitive damages,
injunctive relief, attorneys fees and costs. A
Pennsylvania class was certified, but later decertified by the
trial court in December 2003. The trial courts
decertification decision is currently on appeal. We believe we
have meritorious defenses to this case and intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of this case or its impact on our consolidated results
of operations.
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 putative class action case originally filed in
the Circuit Court of Madison County, Illinois on
January 18, 2002. 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. The
plaintiffs seek unspecified damages, injunctive relief,
attorneys fees and costs. The Madison County court
ultimately certified a class consisting of all persons residing
in 13 states who paid a separate fee for POM from
January 1, 1997 to the date of a final judgment from the
court. We subsequently removed the case to federal court in the
Southern District of Illinois, where it is now pending. In
November 2009, the federal court issued an order effectively
vacating the state courts class certification ruling and
allowing plaintiffs time to file a renewed motion for class
certification under the federal rules. Plaintiffs filed a new
motion for class certification seeking certification of an
11-state class. Oral argument on plaintiffs motion
occurred in April 2010 and the parties are awaiting a ruling. A
trial date has been set for November 2010.
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case, styled
Desiri L. Soliz v. H&R Block, et al. (Cause
No. 03-032-D),
was filed on January 23, 2003 in the District Court of
Kleberg County, Texas. This case involves the same
plaintiffs attorneys that are involved in the Marshall
litigation in Illinois and contains allegations similar to
those in the Marshall litigation. The plaintiff seeks
actual and treble damages, equitable relief, attorneys
fees and costs. 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 or
their impact on our consolidated results of operations,
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) styled The People of New York v.
H&R Block, Inc. and H&R Block Financial Advisors, Inc.
et al. The complaint asserts nationwide jurisdiction and
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. To avoid the cost and inherent
risk associated with litigation, we reached an agreement to
settle this case and the civil actions described below. Details
regarding the settlement are below.
Subsequent to the filing of the New York Attorney General
action, 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 were consolidated by the
panel for Multi-District Litigation into
62 H&R
BLOCK 2010 Form 10K
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. To avoid the cost and inherent risk associated with
litigation, we reached an agreement to settle these cases and
the New York Attorney General action. The federal court
presiding over the Multi-District Litigation approved the
settlement in a final fairness hearing and dismissed its
underlying actions with prejudice on May 17, 2010.
Stipulations of dismissal were subsequently filed in the two
cases pending in state court. The settlement requires a minimum
payment of $11.4 million and a maximum payment of
$25.4 million. The actual cost of the settlement will
depend on the number of claims submitted by class members, which
are due no later than July 30, 2010. We previously recorded
a liability for our best estimate of the expected loss.
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) styled
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 sale of the Express IRA product in Mississippi 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 can be no assurances
as to its outcome or its impact on our consolidated results of
operations.
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 AND
SHAREHOLDER 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. In September 2009, the appellate court affirmed the
dismissal of the securities fraud class action, but reversed the
dismissal of the shareholder derivative action. The plaintiffs
in the shareholder derivative action subsequently agreed to
voluntarily dismiss their complaint; an order dismissing their
complaint was entered on April 19, 2010, thereby ending
this litigation.
RSM McGLADREY
LITIGATION RSM EquiCo, its parent and certain
of its subsidiaries and affiliates, are parties to a class
action filed on July 11, 2006 and styled 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, 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. Plaintiffs seek
unspecified actual and punitive damages, in addition to
pre-judgment interest and attorneys fees. On
March 17, 2009, the court granted plaintiffs motion
for class certification on all claims. The defendants filed two
requests for interlocutory review of the decision, the last of
which was denied by the Supreme Court of California on
September 30, 2009. A trial date has been set for January
2011.
The certified class consists of RSM EquiCos
U.S. clients who signed platform agreements and for whom
RSM EquiCo did not ultimately market their business for sale.
The fees paid to RSM EquiCo in connection with these agreements
total approximately $185 million, a number which
substantially exceeds the equity of RSM EquiCo. 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.
As more fully described in note 17, RSM and M&P
operate in an alternative practice structure. Accordingly,
certain claims and lawsuits against M&P could have an
impact on RSM. More specifically, any judgments or settlements
arising from claims and lawsuits against M&P which exceed
its insurance coverage could have a direct adverse effect on
M&Ps operations. Although RSM is not responsible for
the liabilities of M&P, significant M&P litigation and
claims could impair the profitability of the APS and impair the
ability to attract and retain clients and quality professionals.
This could, in turn, 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 any claims
or litigation involving M&P.
H&R
BLOCK 2010
Form 10K 63
On December 7, 2009, a lawsuit was filed in the Circuit
Court of Cook County, Illinois (2009-L-014920) against M&P,
RSM and H&R Block styled Ronald R. Peterson ex rel.
Lancelot Investors Fund, L.P., et al. v.
McGladrey & Pullen LLP, et al. The case was
removed to the United States District Court for the Northern
District of Illinois on December 28, 2009, where it remains
pending (Case
No. 08-28225).
The complaint, which was filed by the trustee for certain
bankrupt investment funds, seeks unspecified damages and asserts
claims against RSM for vicarious liability and alter ego
liability and against H&R Block for equitable restitution
relating to audit work performed by M&P. The amount claimed
in this case is substantial. We believe we have meritorious
defenses to the claims against RSM and H&R Block in this
case and intend to defend it vigorously, but there can be no
assurances as to its outcome or its impact on our consolidated
results of operations.
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)
styled 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. An appeal
of the preliminary injunction was denied. A trial date has been
set for June 2011. We believe the claims in this case are
without merit, and we intend to defend this case vigorously.
There can be no assurances, however, as to its outcome or its
impact on our consolidated results of operations.
OTHER CLAIMS AND
LITIGATION We have been named in several wage
and hour class action lawsuits throughout the country,
respectively styled Alice Williams v. H&R Block
Enterprises LLC, Case No.RG08366506 (Superior Court of
California, County of Alameda, filed January 17, 2008);
Arabella Lemus v. H&R Block Enterprises LLC, et
al., Case
No. CGC-09-489251
(United States District Court, Northern District of California,
filed June 9, 2009); Delana Ugas v. H&R Block
Enterprises LLC, et al., Case No. BC417700 (United
States District Court, Central District of California, filed
July 13, 2009); Joaquin Llano v. H&R Block
Eastern Enterprises, Inc., Case
No. 09-CV-22531
(United States District Court, Southern District of Florida,
filed August 27, 2009); Barbara Petroski v.
H&R Block Eastern Enterprises, Inc., et al., Case
No. 10-CV-00075
(United States District Court, Western District of Missouri,
filed January 25, 2010); Lance Hom v. H&R
Block Enterprises LLC, et al., Case No. 10CV0476 H
(United States District Court, Southern District of California,
filed March 4, 2010); Stacy Oyer v. H&R Block
Eastern Enterprises, Inc., et al., Case
No. 10-CV-00387-WMS
(United States District Court, Western District of New York,
filed May, 10 2010); Rita Greene v. H&R Block
Eastern Enterprises, Inc., et al., Case
No. 10-CV-21663-FAM
(United States District Court, Southern District of Florida,
filed May 21, 2010); and Li Dong Ma v. RSM
McGladrey TBS, LLC, et al., Case
No. C-08-01729
JF (United States District Court, Northern District of
California, filed February 28, 2008). These cases involve a
variety of legal theories and allegations including, among other
things, failure to compensate employees for all hours worked;
failure to provide employees with meal periods; failure to
provide itemized wage statements; failure to pay wages due upon
termination; failure to compensate for mandatory off-season
training;
and/or
misclassification of non-exempt employees. The plaintiffs seek
actual damages, in addition to statutory penalties, pre-judgment
interest and attorneys fees. The Company has moved to
consolidate certain of these cases into a single action because
they allege substantially identical claims. We believe we have
meritorious defenses to the claims in these cases and intend to
defend them vigorously. The amounts claimed in these matters are
substantial in some instances, however, and the ultimate
liability with respect to these matters is difficult to predict.
There can be no assurances
64 H&R
BLOCK 2010 Form 10K
as to the outcome of these cases or
their impact on our consolidated results of operations,
individually or in the aggregate.
In addition, 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, and other products and services. 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 have
a material adverse impact on our consolidated results of
operations.
We are also 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 impact on our consolidated results of operations.
|
|
NOTE 19:
|
REGULATORY
REQUIREMENTS
|
HRB Bank and the Company are subject to various regulatory
requirements, including capital guidelines for HRB Bank,
administered by federal banking agencies. Failure to meet
minimum capital requirements can trigger certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on HRB Bank and
our consolidated financial statements. All savings associations
are subject to the capital adequacy guidelines and the
regulatory framework for prompt corrective action. HRB Bank must
meet specific capital guidelines that involve quantitative
measures of HRB Banks assets, liabilities and certain
off-balance sheet items, as calculated under regulatory
accounting practices. HRB Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
HRB Bank files its regulatory Thrift Financial Report (TFR) on a
calendar quarter basis.
Quantitative measures established by regulation to ensure
capital adequacy require HRB Bank to maintain minimum amounts
and ratios of tangible equity, total risk-based capital and
Tier 1 capital, as set forth in the table below. In
addition to these minimum ratio requirements, HRB Bank is
required to continually maintain a 12.0% minimum leverage ratio.
As of April 30, 2010, HRB Banks leverage ratio was
28.8%.
As of March 31, 2010, our most recent TFR filing with the
Office of Thrift Supervision (OTS), HRB Bank was a well
capitalized institution under the prompt corrective action
provisions of the FDIC. The five capital categories are:
(1) well capitalized (total risk-based capital
ratio of 10%, Tier 1 Risk-based capital ratio of 6% and
leverage ratio of 5%); (2) adequately
capitalized; (3) undercapitalized;
(4) significantly undercapitalized; and
(5) critically undercapitalized. There are no
conditions or events since March 31, 2010 that management
believes have changed HRB Banks category.
The following table sets forth HRB Banks regulatory
capital requirements at March 31, 2010, as calculated in
the most recently filed TFR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
|
|
|
Actual
|
|
|
Under
Purposes
|
|
|
Action
Provisions
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
Total risk-based capital ratio
(1)
|
|
$
|
420,401
|
|
|
|
75.7%
|
|
|
$
|
44,436
|
|
|
|
8.0%
|
|
|
$
|
55,545
|
|
|
|
10.0%
|
|
|
|
|
|
Tier 1 risk-based capital ratio
(2)
|
|
$
|
413,074
|
|
|
|
74.4%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
33,327
|
|
|
|
6.0%
|
|
|
|
|
|
Tier 1 capital ratio (leverage)
(3)
|
|
$
|
413,074
|
|
|
|
24.9%
|
|
|
$
|
199,272
|
|
|
|
12.0%
|
|
|
$
|
83,030
|
|
|
|
5.0%
|
|
|
|
|
|
Tangible equity ratio
(4)
|
|
$
|
413,074
|
|
|
|
24.9%
|
|
|
$
|
24,909
|
|
|
|
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.
|
H&R
BLOCK 2010
Form 10K 65
Block Financial LLC (BFC) typically makes capital contributions
to HRB Bank to help it meet its capital requirements. BFC made
capital contributions to HRB Bank of $235.0 million during
fiscal year 2010, and $245.0 million during fiscal year
2009.
|
|
NOTE 20:
|
DISCONTINUED
OPERATIONS
|
Discontinued operations for the year ended April 30, 2010,
consist primarily of the continued wind-down of our mortgage
operations. Fiscal year 2009 and 2008 include the results of
operations of H&R Block Financial Advisors, Inc. (HRBFA)
and its direct corporate parent, as well as our mortgage
operations and three smaller lines of business related to our
Business Services segment.
The financial results of discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net revenue
|
|
$
|
372
|
|
|
$
|
129,863
|
|
|
$
|
(105,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss from operations
|
|
$
|
(23,872
|
)
|
|
$
|
(37,015
|
)
|
|
$
|
(1,120,216
|
)
|
Gain (loss) on sale and estimated impairments
|
|
|
6,194
|
|
|
|
(10,626
|
)
|
|
|
(45,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
|
(17,678
|
)
|
|
|
(47,641
|
)
|
|
|
(1,165,726
|
)
|
Income tax benefit
|
|
|
(7,974
|
)
|
|
|
(20,259
|
)
|
|
|
(411,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
$
|
(9,704
|
)
|
|
$
|
(27,382
|
)
|
|
$
|
(754,594
|
)
|
|
|
|
|
|
|
NOTE 21:
|
SEGMENT
INFORMATION
|
Management has determined the reportable segments identified
below according to types of services offered and the manner in
which operational decisions are made. Operating results of our
reportable segments are all seasonal. 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.
TAX
SERVICES Our Tax Services segment is
primarily engaged in providing tax return preparation and
related services and products in the U.S. and its
territories, Canada and Australia. Major revenue sources include
fees earned for tax preparation services performed at
company-owned retail tax offices, royalties from franchise
retail tax offices, fees for tax-related services, sales of tax
preparation and other software, online tax preparation fees,
participation in RALs, fees from activities related to H&R
Block Prepaid Emerald
MasterCard®,
and interest and fees from Emerald Advance lines of credit. HRB
Bank also offers traditional banking services including checking
and savings accounts, individual retirement accounts and
certificates of deposit.
Our international operations contributed $190.9 million,
$160.7 million and $170.2 million in revenues for
fiscal years 2010, 2009 and 2008, respectively, and
$46.7 million, $31.6 million and $32.1 million of
pretax income, respectively.
BUSINESS
SERVICES This segment offers tax and
consulting services, wealth management, and capital markets
services to middle-market companies in offices located
throughout the U.S.
CORPORATE
This segments operations 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.
IDENTIFIABLE
ASSETS Identifiable assets are those
assets, including goodwill and intangible assets, associated
with each reportable segment. The remaining assets are
classified as Corporate assets, which consist primarily of cash
and marketable securities. The carrying value of assets held
outside the U.S. totaled $166.8 million,
$126.8 million and $124.8 million at April 30,
2010, 2009 and 2008, respectively.
66 H&R
BLOCK 2010 Form 10K
Information concerning the Companys operations by
reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
REVENUES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,975,252
|
|
|
$
|
3,132,077
|
|
|
$
|
3,060,661
|
|
|
|
|
|
Business Services
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
941,686
|
|
|
|
|
|
Corporate
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
84,283
|
|
|
|
|
|
|
|
|
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
$
|
4,086,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
$
|
825,721
|
|
|
|
|
|
Business Services
|
|
|
58,714
|
|
|
|
96,097
|
|
|
|
88,797
|
|
|
|
|
|
Corporate
|
|
|
(141,941
|
)
|
|
|
(183,775
|
)
|
|
|
(179,447
|
)
|
|
|
|
|
|
|
|
|
|
$
|
784,135
|
|
|
$
|
839,370
|
|
|
$
|
735,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
88,523
|
|
|
$
|
79,415
|
|
|
$
|
77,207
|
|
|
|
|
|
Business Services
|
|
|
33,064
|
|
|
|
36,748
|
|
|
|
36,523
|
|
|
|
|
|
Corporate
|
|
|
5,314
|
|
|
|
7,468
|
|
|
|
5,784
|
|
|
|
|
|
|
|
|
|
|
$
|
126,901
|
|
|
$
|
123,631
|
|
|
$
|
119,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
78,108
|
|
|
$
|
76,305
|
|
|
$
|
59,474
|
|
|
|
|
|
Business Services
|
|
|
12,318
|
|
|
|
21,185
|
|
|
|
32,918
|
|
|
|
|
|
Corporate
|
|
|
89
|
|
|
|
390
|
|
|
|
9,162
|
|
|
|
|
|
|
|
|
|
|
$
|
90,515
|
|
|
$
|
97,880
|
|
|
$
|
101,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDENTIFIABLE ASSETS :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,279,161
|
|
|
$
|
2,117,475
|
|
|
$
|
1,303,749
|
|
|
|
|
|
Business Services
|
|
|
806,688
|
|
|
|
897,250
|
|
|
|
920,945
|
|
|
|
|
|
Corporate
|
|
|
2,148,469
|
|
|
|
2,344,997
|
|
|
|
2,411,139
|
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
987,592
|
|
|
|
|
|
|
|
|
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
$
|
5,623,425
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2010
Form 10K 67
|
|
NOTE 22:
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
|
|
|
Apr 30, 2010
|
|
|
Jan 31, 2010
|
|
|
Oct 31, 2009
|
|
|
Jul 31, 2009
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,874,332
|
|
|
$
|
2,337,894
|
|
|
$
|
934,852
|
|
|
$
|
326,081
|
|
|
$
|
275,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
$
|
784,135
|
|
|
$
|
1,110,410
|
|
|
$
|
97,451
|
|
|
$
|
(212,853
|
)
|
|
$
|
(210,873
|
)
|
|
|
|
|
Income taxes (benefit)
|
|
|
295,189
|
|
|
|
417,978
|
|
|
|
43,848
|
|
|
|
(86,381
|
)
|
|
|
(80,256
|
)
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
488,946
|
|
|
|
692,432
|
|
|
|
53,603
|
|
|
|
(126,472
|
)
|
|
|
(130,617
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(9,704
|
)
|
|
|
(1,604
|
)
|
|
|
(2,968
|
)
|
|
|
(2,115
|
)
|
|
|
(3,017
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
479,242
|
|
|
$
|
690,828
|
|
|
$
|
50,635
|
|
|
$
|
(128,587
|
)
|
|
$
|
(133,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.47
|
|
|
$
|
2.11
|
|
|
$
|
0.16
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.44
|
|
|
$
|
2.11
|
|
|
$
|
0.15
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.46
|
|
|
$
|
2.11
|
|
|
$
|
0.16
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1.43
|
|
|
$
|
2.10
|
|
|
$
|
0.15
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
Apr 30, 2009
|
|
|
Jan 31, 2009
|
|
|
Oct 31, 2008
|
|
|
Jul 31, 2008
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,083,577
|
|
|
$
|
2,466,753
|
|
|
$
|
993,446
|
|
|
$
|
351,469
|
|
|
$
|
271,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
$
|
839,370
|
|
|
$
|
1,178,054
|
|
|
$
|
101,739
|
|
|
$
|
(227,453
|
)
|
|
$
|
(212,970
|
)
|
|
|
|
|
Income taxes (benefit)
|
|
|
326,315
|
|
|
|
470,245
|
|
|
|
34,909
|
|
|
|
(94,292
|
)
|
|
|
(84,547
|
)
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
513,055
|
|
|
|
707,809
|
|
|
|
66,830
|
|
|
|
(133,161
|
)
|
|
|
(128,423
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(27,382
|
)
|
|
|
(906
|
)
|
|
|
(19,467
|
)
|
|
|
(2,713
|
)
|
|
|
(4,296
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
485,673
|
|
|
$
|
706,903
|
|
|
$
|
47,363
|
|
|
$
|
(135,874
|
)
|
|
$
|
(132,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.53
|
|
|
$
|
2.09
|
|
|
$
|
0.20
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.45
|
|
|
$
|
2.09
|
|
|
$
|
0.14
|
|
|
$
|
(0.41
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.53
|
|
|
$
|
2.08
|
|
|
$
|
0.20
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.45
|
|
|
$
|
2.08
|
|
|
$
|
0.14
|
|
|
$
|
(0.41
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
The accumulation of four quarters in fiscal years 2010 and 2009
for earnings per share may not equal the related per share
amounts for the years ended April 30, 2010 and 2009 due to
the timing of the exercise of stock options and
68 H&R
BLOCK 2010 Form 10K
lapse of certain restrictions on
nonvested shares and the antidilutive effect of stock options
and nonvested shares in the first two quarters for those years,
as well as the retirement of treasury shares for fiscal year
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fourth Quarter
|
|
|
Third Quarter
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
|
Fiscal Year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.60
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
|
|
|
Stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
23.23
|
|
|
$
|
21.84
|
|
|
$
|
23.23
|
|
|
$
|
20.00
|
|
|
$
|
17.85
|
|
|
|
|
|
Low
|
|
|
13.73
|
|
|
|
15.90
|
|
|
|
18.10
|
|
|
|
16.41
|
|
|
|
13.73
|
|
|
|
|
|
Fiscal Year 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.59
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
|
|
|
Stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.97
|
|
|
$
|
22.98
|
|
|
$
|
23.27
|
|
|
$
|
27.97
|
|
|
$
|
24.65
|
|
|
|
|
|
Low
|
|
|
14.69
|
|
|
|
14.69
|
|
|
|
15.37
|
|
|
|
15.00
|
|
|
|
20.40
|
|
|
|
|
|
NOTE 23:
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
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, the 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2010
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
271,704
|
|
|
$
|
3,602,721
|
|
|
$
|
(93
|
)
|
|
$
|
3,874,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
257,245
|
|
|
|
2,210,868
|
|
|
|
(117
|
)
|
|
|
2,467,996
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
36,946
|
|
|
|
594,646
|
|
|
|
(93
|
)
|
|
|
631,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
294,191
|
|
|
|
2,805,514
|
|
|
|
(210
|
)
|
|
|
3,099,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(22,487
|
)
|
|
|
797,207
|
|
|
|
117
|
|
|
|
774,837
|
|
|
|
|
|
Other income, net
|
|
|
784,135
|
|
|
|
5,644
|
|
|
|
3,771
|
|
|
|
(784,252
|
)
|
|
|
9,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
784,135
|
|
|
|
(16,843
|
)
|
|
|
800,978
|
|
|
|
(784,135
|
)
|
|
|
784,135
|
|
|
|
|
|
Income taxes (benefit)
|
|
|
295,189
|
|
|
|
(6,368
|
)
|
|
|
301,557
|
|
|
|
(295,189
|
)
|
|
|
295,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
488,946
|
|
|
|
(10,475
|
)
|
|
|
499,421
|
|
|
|
(488,946
|
)
|
|
|
488,946
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(9,704
|
)
|
|
|
(5,276
|
)
|
|
|
(4,428
|
)
|
|
|
9,704
|
|
|
|
(9,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
479,242
|
|
|
$
|
(15,751
|
)
|
|
$
|
494,993
|
|
|
$
|
(479,242
|
)
|
|
$
|
479,242
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2010
Form 10K 69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
251,758
|
|
|
$
|
3,834,880
|
|
|
$
|
(3,061
|
)
|
|
$
|
4,083,577
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
278,789
|
|
|
|
2,317,439
|
|
|
|
(10
|
)
|
|
|
2,596,218
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
66,230
|
|
|
|
582,812
|
|
|
|
(552
|
)
|
|
|
648,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
345,019
|
|
|
|
2,900,251
|
|
|
|
(562
|
)
|
|
|
3,244,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(93,261
|
)
|
|
|
934,629
|
|
|
|
(2,499
|
)
|
|
|
838,869
|
|
|
|
|
|
Other income (expense), net
|
|
|
839,370
|
|
|
|
(5,992
|
)
|
|
|
6,461
|
|
|
|
(839,338
|
)
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
839,370
|
|
|
|
(99,253
|
)
|
|
|
941,090
|
|
|
|
(841,837
|
)
|
|
|
839,370
|
|
|
|
|
|
Income taxes (benefit)
|
|
|
326,315
|
|
|
|
(40,386
|
)
|
|
|
367,660
|
|
|
|
(327,274
|
)
|
|
|
326,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
513,055
|
|
|
|
(58,867
|
)
|
|
|
573,430
|
|
|
|
(514,563
|
)
|
|
|
513,055
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(27,382
|
)
|
|
|
(29,176
|
)
|
|
|
|
|
|
|
29,176
|
|
|
|
(27,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
485,673
|
|
|
$
|
(88,043
|
)
|
|
$
|
573,430
|
|
|
$
|
(485,387
|
)
|
|
$
|
485,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
338,688
|
|
|
$
|
3,755,118
|
|
|
$
|
(7,176
|
)
|
|
$
|
4,086,630
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
231,025
|
|
|
|
2,357,577
|
|
|
|
(409
|
)
|
|
|
2,588,193
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
148,218
|
|
|
|
639,986
|
|
|
|
694
|
|
|
|
788,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
379,243
|
|
|
|
2,997,563
|
|
|
|
285
|
|
|
|
3,377,091
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(40,555
|
)
|
|
|
757,555
|
|
|
|
(7,461
|
)
|
|
|
709,539
|
|
|
|
|
|
Other income, net
|
|
|
735,071
|
|
|
|
|
|
|
|
25,532
|
|
|
|
(735,071
|
)
|
|
|
25,532
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
735,071
|
|
|
|
(40,555
|
)
|
|
|
783,087
|
|
|
|
(742,532
|
)
|
|
|
735,071
|
|
|
|
|
|
Income taxes (benefit)
|
|
|
289,124
|
|
|
|
(10,351
|
)
|
|
|
302,873
|
|
|
|
(292,522
|
)
|
|
|
289,124
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
445,947
|
|
|
|
(30,204
|
)
|
|
|
480,214
|
|
|
|
(450,010
|
)
|
|
|
445,947
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(754,594
|
)
|
|
|
(752,386
|
)
|
|
|
(6,288
|
)
|
|
|
758,674
|
|
|
|
(754,594
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(308,647
|
)
|
|
$
|
(782,590
|
)
|
|
$
|
473,926
|
|
|
$
|
308,664
|
|
|
$
|
(308,647
|
)
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING BALANCE SHEETS
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
April 30, 2010
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Cash & cash equivalents
|
|
$
|
|
|
|
$
|
702,021
|
|
|
$
|
1,102,135
|
|
|
$
|
(111
|
)
|
|
$
|
1,804,045
|
|
|
|
|
|
Cash & cash equivalents restricted
|
|
|
|
|
|
|
6,160
|
|
|
|
28,190
|
|
|
|
|
|
|
|
34,350
|
|
|
|
|
|
Receivables, net
|
|
|
57
|
|
|
|
105,192
|
|
|
|
412,737
|
|
|
|
|
|
|
|
517,986
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
595,405
|
|
|
|
|
|
|
|
|
|
|
|
595,405
|
|
|
|
|
|
Intangible assets and goodwill, net
|
|
|
|
|
|
|
|
|
|
|
1,207,879
|
|
|
|
|
|
|
|
1,207,879
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
3,276,597
|
|
|
|
|
|
|
|
231
|
|
|
|
(3,276,597
|
)
|
|
|
231
|
|
|
|
|
|
Other assets
|
|
|
19,014
|
|
|
|
332,782
|
|
|
|
722,626
|
|
|
|
|
|
|
|
1,074,422
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,295,668
|
|
|
$
|
1,741,560
|
|
|
$
|
3,473,798
|
|
|
$
|
(3,276,708
|
)
|
|
$
|
5,234,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
|
|
|
$
|
852,666
|
|
|
$
|
|
|
|
$
|
(111
|
)
|
|
$
|
852,555
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
998,605
|
|
|
|
36,539
|
|
|
|
|
|
|
|
1,035,144
|
|
|
|
|
|
FHLB borrowings
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
Other liabilities
|
|
|
48,775
|
|
|
|
153,154
|
|
|
|
1,629,060
|
|
|
|
|
|
|
|
1,830,989
|
|
|
|
|
|
Net intercompany advances
|
|
|
1,806,263
|
|
|
|
(431,696
|
)
|
|
|
(1,374,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,440,630
|
|
|
|
93,831
|
|
|
|
3,182,766
|
|
|
|
(3,276,597
|
)
|
|
|
1,440,630
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,295,668
|
|
|
$
|
1,741,560
|
|
|
$
|
3,473,798
|
|
|
$
|
(3,276,708
|
)
|
|
$
|
5,234,318
|
|
|
|
|
|
|
|
|
|
70 H&R
BLOCK 2010 Form 10K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, net
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2010
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Net cash provided by operating activities:
|
|
$
|
21,252
|
|
|
$
|
16,698
|
|
|
$
|
549,519
|
|
|
$
|
|
|
|
$
|
587,469
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
72,832
|
|
|
|
|
|
|
|
|
|
|
|
72,832
|
|
|
|
|
|
Purchases of property & equipment
|
|
|
|
|
|
|
|
|
|
|
(90,515
|
)
|
|
|
|
|
|
|
(90,515
|
)
|
|
|
|
|
Payments for business acquisitions
|
|
|
|
|
|
|
|
|
|
|
(10,539
|
)
|
|
|
|
|
|
|
(10,539
|
)
|
|
|
|
|
Net intercompany advances
|
|
|
415,591
|
|
|
|
|
|
|
|
|
|
|
|
(415,591
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
38,813
|
|
|
|
20,762
|
|
|
|
|
|
|
|
59,575
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
415,591
|
|
|
|
111,645
|
|
|
|
(80,292
|
)
|
|
|
(415,591
|
)
|
|
|
31,353
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
|
|
|
|
(1,406,013
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,406,013
|
)
|
|
|
|
|
Proceeds from commercial paper
|
|
|
|
|
|
|
1,406,013
|
|
|
|
|
|
|
|
|
|
|
|
1,406,013
|
|
|
|
|
|
Repayments of other borrowings
|
|
|
|
|
|
|
(4,267,727
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
(4,267,773
|
)
|
|
|
|
|
Proceeds from other borrowings
|
|
|
|
|
|
|
4,242,727
|
|
|
|
|
|
|
|
|
|
|
|
4,242,727
|
|
|
|
|
|
Customer banking deposits, net
|
|
|
|
|
|
|
11,428
|
|
|
|
|
|
|
|
6,111
|
|
|
|
17,539
|
|
|
|
|
|
Dividends paid
|
|
|
(200,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,899
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
(254,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254,250
|
)
|
|
|
|
|
Proceeds from stock options
|
|
|
16,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,682
|
|
|
|
|
|
Net intercompany advances
|
|
|
|
|
|
|
354,617
|
|
|
|
(770,208
|
)
|
|
|
415,591
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1,624
|
|
|
|
(8,717
|
)
|
|
|
(28,051
|
)
|
|
|
|
|
|
|
(35,144
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(436,843
|
)
|
|
|
332,328
|
|
|
|
(798,305
|
)
|
|
|
421,702
|
|
|
|
(481,118
|
)
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
460,671
|
|
|
|
(317,400
|
)
|
|
|
6,111
|
|
|
|
149,382
|
|
|
|
|
|
Cash beginning of the year
|
|
|
|
|
|
|
241,350
|
|
|
|
1,419,535
|
|
|
|
(6,222
|
)
|
|
|
1,654,663
|
|
|
|
|
|
|
|
|
Cash end of the year
|
|
$
|
|
|
|
$
|
702,021
|
|
|
$
|
1,102,135
|
|
|
$
|
(111
|
)
|
|
$
|
1,804,045
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2010
Form 10K 71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
3,835
|
|
|
$
|
(13,225
|
)
|
|
$
|
1,033,829
|
|
|
$
|
|
|
|
$
|
1,024,439
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
91,329
|
|
|
|
|
|
|
|
|
|
|
|
91,329
|
|
|
|
|
|
Purchases of property & equipment
|
|
|
|
|
|
|
(43
|
)
|
|
|
(97,837
|
)
|
|
|
|
|
|
|
(97,880
|
)
|
|
|
|
|
Payments for business acquisitions
|
|
|
|
|
|
|
|
|
|
|
(293,805
|
)
|
|
|
|
|
|
|
(293,805
|
)
|
|
|
|
|
Net intercompany advances
|
|
|
73,820
|
|
|
|
|
|
|
|
|
|
|
|
(73,820
|
)
|
|
|
|
|
|
|
|
|
Investing cash flows of discontinued operations
|
|
|
|
|
|
|
255,066
|
|
|
|
|
|
|
|
|
|
|
|
255,066
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
17,598
|
|
|
|
33,252
|
|
|
|
|
|
|
|
50,850
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
73,820
|
|
|
|
363,950
|
|
|
|
(358,390
|
)
|
|
|
(73,820
|
)
|
|
|
5,560
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of short-term borrowings
|
|
|
|
|
|
|
(4,762,294
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,762,294
|
)
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
|
|
|
|
4,733,294
|
|
|
|
|
|
|
|
|
|
|
|
4,733,294
|
|
|
|
|
|
Customer banking deposits, net
|
|
|
|
|
|
|
69,932
|
|
|
|
|
|
|
|
(5,575
|
)
|
|
|
64,357
|
|
|
|
|
|
Dividends paid
|
|
|
(198,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,685
|
)
|
|
|
|
|
Acquisition of treasury shares
|
|
|
(106,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,189
|
)
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
141,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,415
|
|
|
|
|
|
Proceeds from stock options
|
|
|
71,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,594
|
|
|
|
|
|
Net intercompany advances
|
|
|
|
|
|
|
(199,032
|
)
|
|
|
125,212
|
|
|
|
73,820
|
|
|
|
|
|
|
|
|
|
Financing cash flows of discontinued operations
|
|
|
|
|
|
|
4,783
|
|
|
|
|
|
|
|
|
|
|
|
4,783
|
|
|
|
|
|
Other, net
|
|
|
14,210
|
|
|
|
9,331
|
|
|
|
(12,049
|
)
|
|
|
|
|
|
|
11,492
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(77,655
|
)
|
|
|
(143,986
|
)
|
|
|
113,163
|
|
|
|
68,245
|
|
|
|
(40,233
|
)
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
|
|
|
|
206,739
|
|
|
|
788,602
|
|
|
|
(5,575
|
)
|
|
|
989,766
|
|
|
|
|
|
Cash beginning of the year
|
|
|
|
|
|
|
34,611
|
|
|
|
630,933
|
|
|
|
(647
|
)
|
|
|
664,897
|
|
|
|
|
|
|
|
|
Cash end of the year
|
|
$
|
|
|
|
$
|
241,350
|
|
|
$
|
1,419,535
|
|
|
$
|
(6,222
|
)
|
|
$
|
1,654,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
47,521
|
|
|
$
|
(686,591
|
)
|
|
$
|
897,830
|
|
|
$
|
|
|
|
$
|
258,760
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
207,606
|
|
|
|
|
|
|
|
|
|
|
|
207,606
|
|
|
|
|
|
Purchases of property & equipment
|
|
|
|
|
|
|
(17
|
)
|
|
|
(101,537
|
)
|
|
|
|
|
|
|
(101,554
|
)
|
|
|
|
|
Payments for business acquisitions
|
|
|
|
|
|
|
|
|
|
|
(24,872
|
)
|
|
|
|
|
|
|
(24,872
|
)
|
|
|
|
|
Net intercompany advances
|
|
|
112,027
|
|
|
|
|
|
|
|
|
|
|
|
(112,027
|
)
|
|
|
|
|
|
|
|
|
Investing cash flows of discontinued operations
|
|
|
|
|
|
|
1,041,260
|
|
|
|
3,730
|
|
|
|
|
|
|
|
1,044,990
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
13,410
|
|
|
|
7,709
|
|
|
|
|
|
|
|
21,119
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
112,027
|
|
|
|
1,262,259
|
|
|
|
(114,970
|
)
|
|
|
(112,027
|
)
|
|
|
1,147,289
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
|
|
|
|
(5,125,279
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,125,279
|
)
|
|
|
|
|
Proceeds from commercial paper
|
|
|
|
|
|
|
4,133,197
|
|
|
|
|
|
|
|
|
|
|
|
4,133,197
|
|
|
|
|
|
Proceeds from issuance of Senior Notes
|
|
|
|
|
|
|
599,376
|
|
|
|
|
|
|
|
|
|
|
|
599,376
|
|
|
|
|
|
Repayments of other borrowings
|
|
|
|
|
|
|
(9,055,426
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,055,426
|
)
|
|
|
|
|
Proceeds from other borrowings
|
|
|
|
|
|
|
8,505,426
|
|
|
|
|
|
|
|
|
|
|
|
8,505,426
|
|
|
|
|
|
Customer banking deposits, net
|
|
|
|
|
|
|
(344,744
|
)
|
|
|
|
|
|
|
(647
|
)
|
|
|
(345,391
|
)
|
|
|
|
|
Dividends paid
|
|
|
(183,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,628
|
)
|
|
|
|
|
Acquisition of treasury shares
|
|
|
(7,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,280
|
)
|
|
|
|
|
Proceeds from stock options
|
|
|
23,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,322
|
|
|
|
|
|
Net intercompany advances
|
|
|
|
|
|
|
753,873
|
|
|
|
(865,900
|
)
|
|
|
112,027
|
|
|
|
|
|
|
|
|
|
Financing cash flows of discontinued operations
|
|
|
|
|
|
|
(63,249
|
)
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
(64,439
|
)
|
|
|
|
|
Other, net
|
|
|
8,038
|
|
|
|
(4,428
|
)
|
|
|
(41,557
|
)
|
|
|
|
|
|
|
(37,947
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(159,548
|
)
|
|
|
(601,254
|
)
|
|
|
(908,647
|
)
|
|
|
111,380
|
|
|
|
(1,558,069
|
)
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
|
(25,586
|
)
|
|
|
(125,787
|
)
|
|
|
(647
|
)
|
|
|
(152,020
|
)
|
|
|
|
|
Cash beginning of the year
|
|
|
|
|
|
|
60,197
|
|
|
|
756,720
|
|
|
|
|
|
|
|
816,917
|
|
|
|
|
|
|
|
|
Cash end of the year
|
|
$
|
|
|
|
$
|
34,611
|
|
|
$
|
630,933
|
|
|
$
|
(647
|
)
|
|
$
|
664,897
|
|
|
|
|
|
|
|
|
|
72 H&R
BLOCK 2010 Form 10K
|
|
ITEM 9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There were no disagreements or reportable events requiring
disclosure pursuant to Item 304(b) of
Regulation S-K.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
(a) EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES We
have established disclosure controls and procedures (Disclosure
Controls) to ensure that information required to be disclosed in
the Companys reports filed under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the
U.S. Securities and Exchange Commissions rules and
forms. Disclosure Controls are also designed to ensure that such
information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. Our Disclosure Controls were designed to
provide reasonable assurance that the controls and procedures
would meet their objectives. Our management, including the Chief
Executive Officer and Chief Financial Officer, does not expect
that our Disclosure Controls will prevent all error and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
designed control objectives and management is required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusions of two or more people or by management
override of the control. Because of the inherent limitations in
a cost-effective, maturing control system, misstatements due to
error or fraud may occur and not be detected.
As of the end of the period covered by this
Form 10-K,
we evaluated the effectiveness of the design and operations of
our Disclosure Controls. 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, our Chief Executive Officer
and Chief Financial Officer have concluded our Disclosure
Controls were effective as of the end of the period covered by
this Annual Report on
Form 10-K.
(b) MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING Management is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company, as such term is defined in
Exchange Act
Rules 13a-15(f).
Under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as of April 30, 2010.
Based on our assessment, management concluded that, as of
April 30, 2010, the Companys internal control over
financial reporting was effective based on the criteria set
forth by COSO.
The Companys external auditors who audited the
consolidated financial statements included in Item 8,
Deloitte & Touche LLP, an independent registered
public accounting firm, have issued an audit report on the
effectiveness of the Companys internal control over
financial reporting. This report appears near the beginning of
Item 8.
(c) CHANGES
IN INTERNAL CONTROL OVER FINANCIAL
REPORTING During the quarter ended
April 30, 2010, there were no changes that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
H&R
BLOCK 2010
Form 10K 73
|
|
ITEM 10. |
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The following information appearing in our definitive proxy
statement, to be filed no later than 120 days after
April 30, 2010, is incorporated herein by reference:
|
|
|
|
§
|
Information appearing under the heading Election of
Directors,
|
|
§
|
Information appearing under the heading Section 16(a)
Beneficial Ownership Reporting Compliance,
|
|
§
|
Information appearing under the heading Board of
Directors Meetings and Committees regarding
identification of the Audit Committee and Audit Committee
financial experts.
|
We have adopted a code of business ethics and conduct that
applies to our directors, officers and employees, including our
chief executive officer, chief financial officer, principal
accounting officer and persons performing similar functions. A
copy of the code of business ethics and conduct is available on
our website at www.hrblock.com. We intend to provide
information on our website regarding amendments to or waivers
from the code of business ethics and conduct.
Information about our executive officers as of May 15,
2010, is as follows:
|
|
|
|
|
|
Name,
age
|
|
Current
position
|
|
Business
experience since May 1, 2005
|
|
|
Russell P. Smyth,
age 53
|
|
President and Chief Executive Officer
|
|
President and Chief Executive Officer since August 2008;
Consultant, equity owner and active board member for several
private equity firms and served on the boards of several
privately held companies from January 2005 to July 2008;
President McDonalds Europe from January 2003
to January 2005.
|
|
Jeffrey T. Brown,
age 51
|
|
Vice President, Interim Chief Financial Officer and Corporate
Controller
|
|
Interim Chief Financial Officer since May 1, 2010; Vice
President and Corporate Controller since March 2008; Assistant
Vice President and Assistant Controller from August 2005 until
March 2008; Director of Corporate Accounting, from September
2002 to August 2005.
|
|
C.E. Andrews,
age 58
|
|
President and Chief Operating Officer, RSM McGladrey, Inc.
|
|
President and Chief Operating Officer, RSM McGladrey since June
2009; President of SLM Corporation (Sallie Mae) from May 2007
until September 2008; Chief Financial Officer of Sallie Mae from
2006 until 2007; Executive Vice President of Accounting and Risk
of Sallie Mae from 2003 until 2005.
|
|
Robert J. Turtledove,
age 50
|
|
Senior Vice President and Chief Marketing Officer
|
|
Senior Vice President and Chief Marketing Officer since August
2009; Chief Marketing Officer of TheLadders.com from June 2007
until June 2009; Chief Concept Officer of Metromedia Restaurant
Group from January 2003 until February 2007.
|
|
Brian J. Woram,
age 49
|
|
Senior Vice President and Chief Legal Officer
|
|
Senior Vice President and Chief Legal Officer since September
2009; Senior Vice President, Chief Legal Officer and Chief
Compliance Officer of Centex Corporation from 2005 until
September 2009.
|
|
|
|
ITEM 11. |
EXECUTIVE
COMPENSATION
|
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2010, in the
sections entitled Director Compensation and
Executive Compensation and is incorporated herein by
reference.
|
|
ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2010, in the
section titled Equity Compensation Plans and in the
section titled Information Regarding Security
Holders and is incorporated herein by reference.
|
|
ITEM 13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2010, in the
section titled Employee Agreements,
Change-of-Control
and Other Arrangements and is incorporated herein by
reference.
74 H&R
BLOCK 2010 Form 10K
|
|
ITEM 14. |
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation 14A
not later than 120 days after April 30, 2010, in the
section titled Audit Fees and is incorporated herein
by reference.
PART IV
|
|
ITEM 15. |
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Documents filed as part of this Report:
|
|
|
|
1.
|
The following financial statements appearing in Item 8:
Consolidated Statements of Operations and Comprehensive
Income (Loss), Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and
Consolidated Statements of Stockholders Equity.
|
|
2.
|
Financial Statement Schedule II Valuation
and Qualifying Accounts with the related Reports of
Independent Registered Public Accounting Firms. These will be
filed with the SEC but will not be included in the printed
version of the Annual Report to Shareholders.
|
|
3.
|
Exhibits The list of exhibits in the
Exhibit Index to this Report is incorporated herein by
reference.
|
H&R
BLOCK 2010
Form 10K 75
Pursuant to the requirements of Section 13 or 15(d) 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
June 28, 2010
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated on June 28, 2010.
76 H&R
BLOCK 2010 Form 10K
The following
exhibits are numbered in accordance with the Exhibit Table
of Item 601 of
Regulation S-K:
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of H&R
Block, Inc., filed as Exhibit 3.1 to the Companys
quarterly report on
Form 10-Q
for the quarter ended October 31, 2008, file number 1-6089,
is incorporated herein by reference.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of H&R Block, Inc., as amended
through May 5, 2009, filed as Exhibit 3.1 to the
Companys current report on
Form 8-K
dated May 5, 2009, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.1
|
|
Indenture dated as of October 20, 1997, among H&R
Block, Inc., Block Financial Corporation and Bankers
Trust Company, as Trustee, filed as Exhibit 4(a) to
the Companys quarterly report on
Form 10-Q
for the quarter ended October 31, 1997, file number 1-6089,
is incorporated herein by reference.
|
|
4
|
.2
|
|
First Supplemental Indenture, dated as of April 18, 2000,
among H&R Block, Inc., Block Financial Corporation, Bankers
Trust Company and the Bank of New York, filed as
Exhibit 4(a) to the Companys current report on
Form 8-K
dated April 13, 2000, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.3
|
|
Officers Certificate, dated October 26, 2004, in
respect of 5.125% Notes due 2014 of Block Financial
Corporation, filed as Exhibit 4.1 to the Companys
current report on
Form 8-K
dated October 21, 2004, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.4
|
|
Officers Certificate, dated January 11, 2008, in
respect of 7.875% Notes due 2013 of Block Financial LLC,
filed as Exhibit 4.1 to the Companys current report
on
Form 8-K
dated January 8, 2008, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.5
|
|
Form of 5.125% Note due 2014 of Block Financial
Corporation, filed as Exhibit 4.2 to the Companys
current report on
Form 8-K
dated October 21, 2004, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.6
|
|
Form of 7.875% Note due 2013 of Block Financial LLC, filed
as Exhibit 4.2 to the Companys current report on
Form 8-K
dated January 8, 2008, file number 1-6089, is incorporated
herein by reference.
|
|
4
|
.7
|
|
Form of Certificate of Designation, Preferences and Rights of
Participating Preferred Stock of H&R Block, Inc., filed as
Exhibit 4(e) to the Companys annual report on
Form 10-K
for the fiscal year ended April 30, 1995, file number
1-6089, is incorporated herein by reference.
|
|
4
|
.8
|
|
Form of Certificate of Amendment of Certificate of Designation,
Preferences and Rights of Participating Preferred Stock of
H&R Block, Inc., filed as Exhibit 4(j) to the
Companys annual report on
Form 10-K
for the fiscal year ended April 30, 1998, file number
1-6089, is incorporated herein by reference.
|
|
4
|
.9
|
|
Form of Certificate of Designation, Preferences and Rights of
Delayed Convertible Preferred Stock of H&R Block, Inc.,
filed as Exhibit 4(f) to the Companys annual report
on
Form 10-K
for the fiscal year ended April 30, 1995, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.1*
|
|
The Companys 2003 Long-Term Executive Compensation Plan,
as amended and restated as of September 24, 2009.
|
|
10
|
.2*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Restricted Shares.
|
|
10
|
.3*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Stock Options.
|
|
10
|
.4*
|
|
H&R Block Deferred Compensation Plan for Executives
(amended and restated effective December 31, 2008), filed
as Exhibit 10.4 to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2009, file
number 1-6089,
is incorporated herein by reference.
|
|
10
|
.5*
|
|
Amendment No. 1 to the H&R Block Deferred Compensation
Plan for Executives, as Amended and Restated, effective as of
March 12, 2003, filed as Exhibit 10.5 to the
Companys annual report on
Form 10-K
for the fiscal year ended April 30, 2003, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.6*
|
|
The H&R Block Executive Performance Plan (as amended),
filed as Exhibit 10.6 to the companys annual report
on
Form 10-K
for the fiscal year ended April 30, 2006, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.7*
|
|
The H&R Block, Inc. 2000 Employee Stock Purchase Plan, as
amended August 1, 2001, filed as Exhibit 10.2 to the
Companys quarterly report on
Form 10-Q
for the quarter ended October 31, 2001, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.8*
|
|
The H&R Block, Inc. Executive Survivor Plan (as Amended and
Restated) filed as Exhibit 10.4 to the Companys
quarterly report on
Form 10-Q
for the quarter ended October 31, 2000, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.9*
|
|
First Amendment to the H&R Block, Inc. Executive Survivor
Plan (as Amended and Restated), filed as Exhibit 10.9 to
the Companys annual report on
Form 10-K
for the fiscal year ended April 30, 2002, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.10*
|
|
Second Amendment to the H&R Block, Inc. Executive Survivor
Plan (as Amended and Restated), effective as of March 12,
2003, filed as Exhibit 10.12 to the companys annual
report on
Form 10-K
for the fiscal year ended April 30, 2003, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.11*
|
|
H&R Block Severance Plan, filed as Exhibit 10.1 to the
Companys quarterly report on
Form 10-Q
for the quarter ended October 31, 2008, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.12*
|
|
H&R Block Inc. Executive Severance Plan, filed as
Exhibit 10.2 to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2009, file number 1-6089, is
incorporated herein by reference.
|
|
10
|
.13*
|
|
Employment Agreement dated July 19, 2008 between H&R
Block Management LLC and Russell P. Smyth, filed as
Exhibit 10.1 to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2008, file number 1-6089, is
incorporated herein by reference.
|
H&R
BLOCK 2010
Form 10K 77
|
|
|
|
|
|
10
|
.14*
|
|
Employment Agreement dated December 3, 2007 between HRB
Management, Inc. and Alan M. Bennett, filed as Exhibit 10.5
to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2008, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.15*
|
|
Employment Agreement dated as of June 28, 2004 between
H&R Block Services, Inc. and Timothy C. Gokey, filed as
Exhibit 10.4 to the quarterly report on
Form 10-Q
for the quarter ended July 31, 2004, file number 1-6089, is
incorporated herein by reference.
|
|
10
|
.16*
|
|
Separation and Release Agreement dated July 28, 2009
between HRB Tax Group, Inc. and Timothy C. Gokey, filed as
Exhibit 10.1 to the quarterly report on
Form 10-Q
for the quarter ended July 31, 2009, file number 1-6089, is
incorporated herein by reference.
|
|
10
|
.17*
|
|
Separation and Release Agreement dated May 4, 2010, between
H&R Block Management, LLC and Becky S. Shulman.
|
|
10
|
.18*
|
|
Form of Indemnification Agreement for directors, filed as
Exhibit 10.1 to the Companys current report on
Form 8-K
dated December 14, 2005, file number 1-6089, is
incorporated herein by reference.
|
|
10
|
.19*
|
|
2008 Deferred Stock Unit Plan for Outside Directors, as amended
and restated as of September 24, 2009.
|
|
10
|
.20
|
|
HSBC Retail Settlement Products Distribution Agreement dated as
of September 23, 2005, among HSBC Bank USA, National
Association, HSBC Taxpayer Financial Services Inc., Beneficial
Franchise Company Inc., Household Tax Masters Acquisition
Corporation, H&R Block Services, Inc., H&R Block Tax
Services, Inc., H&R Block Enterprises, Inc., H&R Block
Eastern Enterprises, Inc., H&R Block Digital Tax Solutions,
LLC, H&R Block Associates, L.P., HRB Royalty, Inc., HSBC
Finance Corporation and H&R Block, Inc., filed as
Exhibit 10.14 to the quarterly report on
Form 10-Q
for the quarter ended October 31, 2005, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.21
|
|
HSBC Digital Settlement Products Distribution Agreement dated as
of September 23, 2005, among HSBC Bank USA, National
Association, HSBC Taxpayer Financial Services Inc., H&R
Block Digital Tax Solutions, LLC, and H&R Block Services,
Inc., filed as Exhibit 10.15 to the quarterly report on
Form 10-Q
for the quarter ended October 31, 2005, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.22
|
|
HSBC Program Appendix of Defined Terms and Rules of
Construction, filed as Exhibit 10.18 to the quarterly
report on
Form 10-Q
for the quarter ended October 31, 2005, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.23
|
|
Joinder and First Amendment to Program Contracts dated as of
November 10, 2006, among HSBC Bank USA, National
Association, HSBC Trust Company (Delaware), N.A., HSBC
Taxpayer Financial Services Inc., Beneficial Franchise Company
Inc., Household Tax Masters Acquisition Corporation, H&R
Block Services, Inc., H&R Block Tax Services, Inc.,
H&R Block Enterprises, Inc., H&R Block Eastern
Enterprises, Inc., H&R Block Digital Solutions, LLC,,
H&R Block and Associates, L.P., HRB Royalty, Inc., HSBC
Finance Corporation, H&R Block, Inc. and Block Financial
Corporation, filed as Exhibit 10.25 to the Companys
quarterly report on
Form 10-Q
for the quarter ended January 31, 2007, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.24
|
|
Second Amendment to Program Contracts dated as of
November 13, 2006, among HSBC Bank USA, National
Association, HSBC Trust Company (Delaware), N.A., HSBC
Taxpayer Financial Services, Inc., Beneficial Franchise Company
Inc., H&R Block Services, Inc., H&R Block Tax Service,
Inc., H&R Block Enterprises, Inc., H&R Block Eastern
Enterprises, Inc., H&R Block Digital Solutions,, LLC,
H&R Block and Associates, L.P., HRB Royalty, Inc., HSBC
Finance Corporation, and H&R Block, Inc., filed as
Exhibit 10.26 to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2007, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.25
|
|
Third Amendment to Program Contracts dated as of
December 5, 2008, by and among HSBC Bank USA, HSBC
Trust Company (Delaware), N.A., HSBC Taxpayer Financial
Services Inc., Beneficial Franchise Company Inc., HRB Tax Group,
Inc., H&R Block Tax Services LLC, H&R Block
Enterprises LLC, H&R Block Eastern enterprises, Inc., HRB
Digital LLC, Block Financial LLC, HRB Innovations, Inc., HSBC
Finance Corporation, and H&R Block, Inc., filed as
Exhibit 10.1 to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2009, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.26
|
|
Second Amended and Restated HSBC Refund Anticipation Loan
Participation Agreement dated as of January 12, 2010 among
Block Financial LLC, HSBC Bank USA, National Association, HSBC
Trust Company (Delaware), National Association, and HSBC
Taxpayer Financial Services Inc., filed as Exhibit 10.1 to
the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2010, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.27
|
|
First Amended and Restated HSBC Settlements Products Servicing
Agreement dated as of November 13, 2006 among Block
Financial Corporation, HSBC Bank USA, National Association, HSBC
Trust Company (Delaware), National Association, and HSBC
Taxpayer Financial Services, Inc., filed as Exhibit 10.28
to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2007, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.28
|
|
Amended and Restated Five-Year Credit and Guarantee Agreement
dated as of August 10, 2005 among Block Financial
Corporation, H&R Block, Inc., the lenders party thereto,
Bank of America, N.A., HSBC Bank USA, National Association,
Royal Bank of Scotland PLC, JPMorgan Chase Bank, N.A., and
J.P. Morgan Securities Inc., filed as Exhibit 10.3 to
the quarterly report on
Form 10-Q
for the quarter ended October 31, 2005, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.29
|
|
First Amendment dated as of November 28, 2006 to Amended
and Restated Five-Year Credit and Guarantee Agreement among
Block Financial Corporation, H&R Block, Inc., JP Morgan
Chase Bank and various financial institutions, filed as
Exhibit 10.31 to the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2007, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.30
|
|
Second Amendment dated as of November 19, 2007, to the
Amended and Restated Five-Year Credit and Guarantee Agreement
dated as of August 10, 2005, filed as Exhibit 10.4 to
the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2008, file number 1-6089,
is incorporated herein by reference.
|
78 H&R
BLOCK 2010 Form 10K
|
|
|
|
|
|
10
|
.31
|
|
Consent dated January 4, 2010, concerning the Amended and
Restated Five-Year Credit and Guarantee Agreement dated as of
August 10, 2005. as amended, by and among Block Financial
LLC, H&R Block, Inc., the Lenders as parties thereto, and
JPMorgan Chase Bank, N.A., approving the Aurora Bank Commitment
Termination, filed as Exhibit 10.4 to the quarterly report
on
Form 10-Q
for the quarter ended January 31, 2010, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.32
|
|
Five-Year Credit and Guarantee Agreement dated as of
August 10, 2005 among Block Financial Corporation, H&R
Block, Inc., the lenders party thereto, Bank of America, N.A.,
HSBC Bank USA, National Association, The Royal Bank of Scotland
PLC, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities,
Inc., filed as Exhibit 10.4 to the quarterly report on
Form 10-Q
for the quarter ended October 31, 2005, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.33
|
|
First Amendment dated as of November 28, 2006 to Five-Year
Credit and Guarantee Agreement among Block Financial
Corporation, H&R Block, Inc., JP Morgan Chase Bank and
various financial institutions, filed as Exhibit 10.30 to
the Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2007, file number 1-6089,
is incorporated by reference.
|
|
10
|
.34
|
|
Second Amendment dated as of November 19, 2007, to the
Five-Year Credit and Guarantee Agreement dated as of
August 10, 2005, filed as Exhibit 10.3 to the
Companys quarterly report on
Form 10-Q
for the quarter ended January 31, 2008, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.35
|
|
Consent dated January 4, 2010, concerning the Five-Year
Credit and Guarantee Agreement dated as of August 10, 2005.
as amended, by and among Block Financial LLC, H&R Block,
Inc., the Lenders as parties thereto, and JPMorgan Chase Bank,
N.A., approving the Aurora Bank Commitment Termination, filed as
Exhibit 10.3 to the quarterly report on
Form 10-Q
for the quarter ended January 31, 2010, file number 1-6089,
is incorporated herein by reference.
|
|
10
|
.36
|
|
Credit and Guarantee Agreement dated as of March 4, 2010,
among Block Financial LLC, H&R Block, Inc., each lender
from time to time party thereto, and Bank of America, N.A.
|
|
10
|
.37
|
|
License Agreement effective August 1, 2007 between H&R
Block Services, Inc. and Sears, Roebuck and Co., filed as
Exhibit 10.1 to the quarterly report on
Form 10-Q
for the quarter ended July 31, 2007, file number 1-6089, is
incorporated herein by reference.**
|
|
10
|
.38
|
|
Advances, Pledge and Security Agreement dated April 17,
2006, between H&R Block Bank and the Federal Home Loan Bank
of Des Moines, filed as Exhibit 10.11 to the Companys
quarterly report on
Form 10-Q
for the quarter ended October 31, 2007, file number 1-6089,
is incorporated herein by reference.**
|
|
10
|
.39
|
|
Administrative Services Agreement dated January 30, 2006,
by and among RSM McGladrey, Inc. and McGladrey &
Pullen, LLP, filed as Exhibit 10.35 to the companys
annual report on
Form 10-K
for the fiscal year ended April 30, 2009, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.40
|
|
Amendment Number One, dated June 1, 2008, to the
Administrative Services Agreement dated January 30, 2006,
by and among RSM McGladrey, Inc. and McGladrey &
Pullen, LLP, filed as Exhibit 10.36 to the companys
annual report on
Form 10-K
for the fiscal year ended April 30, 2009, file number
1-6089, is incorporated herein by reference
|
|
10
|
.41
|
|
Operations Agreement, dated as of August 2, 1999, by and
among McGladrey & Pullen, LLP, MP Active Partners
Trust, Mark W. Scally, Thomas G. Rotherham, RSM McGladrey, Inc.,
HRB Business Services, Inc., and H&R Block, Inc., filed as
Exhibit 10.37 to the companys annual report on
Form 10-K
for the fiscal year ended April 30, 2009, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.42
|
|
Amended and Restated Administrative Services Agreement dated as
of February 3, 2010 among RSM McGladrey, Inc., H&R
Block, Inc. and McGladrey & Pullen, LLP.
|
|
10
|
.43
|
|
Governance and Operations Agreement dated as of February 3,
2010 among RSM McGladrey, Inc., H&R Block, Inc. and
McGladrey & Pullen LLP.
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges for the five
years ended April 30, 2010.
|
|
21
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.
|
|
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 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 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
|
|
|
|
*
|
|
Indicates
management contracts, compensatory plans or arrangements.
|
|
**
|
|
Confidential
Information has been omitted from this exhibit and filed
separately with the Commission pursuant to a confidential
treatment request under
Rule 24b-2.
|
H&R
BLOCK 2010
Form 10K 79
H&R BLOCK, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 2010, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
Beginning of |
|
|
Costs and |
|
|
|
|
|
|
Balance at End of |
|
Description |
|
Period |
|
|
Expenses |
|
|
Deductions (1) |
|
|
Period |
|
Allowance for Doubtful Accounts deducted from accounts receivable in the balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
128,541,000 |
|
|
$ |
111,754,000 |
|
|
$ |
127,820,000 |
|
|
$ |
112,475,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
120,155,000 |
|
|
$ |
181,829,000 |
|
|
$ |
173,443,000 |
|
|
$ |
128,541,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
95,161,000 |
|
|
$ |
174,813,000 |
|
|
$ |
149,819,000 |
|
|
$ |
120,155,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability related to Mortgage Services restructuring charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
7,533,000 |
|
|
$ |
|
|
|
$ |
5,764,000 |
|
|
$ |
1,769,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
27,920,000 |
|
|
$ |
|
|
|
$ |
20,387,000 |
|
|
$ |
7,533,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
14,607,000 |
|
|
$ |
76,388,000 |
|
|
$ |
63,075,000 |
|
|
$ |
27,920,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Deductions from the Allowance for Doubtful Accounts reflect recoveries and charge-offs. |
|
|
|
Deductions from the restructuring charge liability represent payments made. |
exv10w1
Exhibit 10.1
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN (AS AMENDED)
1. Purposes. The purposes of this 2003 Long-Term Executive Compensation Plan are to
provide incentives and rewards to those employees and persons largely responsible for the success
and growth of H&R Block, Inc. and its subsidiary corporations, and to assist all such corporations
in attracting and retaining executives and other key employees and persons with experience and
ability.
2. Definitions.
(a) Award means one or more of the following: shares of Common Stock, Restricted Shares, Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Performance Shares, Performance Units
and any other rights which may be granted to a Recipient under the Plan.
(b) Committee means the Compensation Committee described in Section 3.
(c) Common Stock means the Common Stock, without par value, of the Company.
(d) Company means H&R Block, Inc., a Missouri corporation, and, unless the context otherwise
requires, includes its subsidiary corporations (as defined in Section 424(f) of the Internal
Revenue Code) and their respective divisions, departments and subsidiaries and the respective
divisions, departments and subsidiaries of such subsidiaries.
(e) Incentive Stock Option means a Stock Option which meets all of the requirements of an
incentive stock option as defined in Section 422(b) of the Internal Revenue Code.
(f) Internal Revenue Code means the Internal Revenue Code of 1986, as now in effect or
hereafter amended.
(g) Performance Period means that period of time specified by the Committee during which a
Recipient must satisfy any designated performance goals in order to receive an Award.
(h) Performance Share means the right to receive, upon satisfying designated performance goals
within a Performance Period, shares of Common Stock, cash, or a combination of cash and shares of
Common Stock, based on the market value of shares of Common Stock covered by such Performance
Shares at the close of the Performance Period.
(i) Performance Unit means the right to receive, upon satisfying designated performance goals
within a Performance Period, shares of Common Stock, cash, or a combination of cash and shares of
Common Stock.
(j) Plan means this 2003 Long-Term Executive Compensation Plan, as the same may be amended
from time to time.
(k) Recipient means an employee of the Company or other person who has been granted an Award
under the Plan.
(l) Restricted Share means a share of Common Stock issued to a Recipient hereunder subject to
such terms and conditions, including, without limitation, forfeiture or resale to the Company, and
to such restrictions against sale, transfer or other disposition, as the Committee may determine at
the time of issuance.
(m) Stock Appreciation Right means the right to receive, upon exercise of a stock appreciation
right granted under this Plan, shares of Common Stock, cash, or a combination of cash and shares of
Common
Stock, based on the increase in the market value of the shares of Common Stock covered by such
stock appreciation right from the initial day of the Performance Period for such stock appreciation
right to the date of exercise.
(n) Stock Option means the right to purchase, upon exercise of a stock option granted under
this Plan, shares of the Companys Common Stock.
3. Administration of the Plan. The Plan shall be administered by the Committee which shall
consist of directors of the Company, to be appointed by and to serve at the pleasure of the Board
of Directors of the Company. A majority of the Committee members shall constitute a quorum and the
acts of a majority of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee, shall be valid acts of the Committee, however
designated, or the Board of Directors of the Company if the Board has not appointed a Committee.
The Committee shall have full power and authority to construe, interpret and administer the
Plan and, subject to the powers herein specifically reserved to the Board of Directors and subject
to the other provisions of this Plan, to make determinations which shall be final, conclusive and
binding upon all persons including, without limitation, the Company, the shareholders of the
Company, the Board of Directors, the Recipients and any persons having any interest in any Awards
which may be granted under the Plan. The Committee shall impose such additional conditions upon the
grant and exercise of Awards under this Plan as may from time to time be deemed necessary or
advisable, in the opinion of counsel to the Company, to comply with applicable laws and
regulations. The Committee from time to time may adopt rules and regulations for carrying out the
Plan and written policies for implementation of the Plan. Such policies may include, but need not
be limited to, the type, size and terms of Awards to be made to Recipients and the conditions for
payment of such Awards.
4. Absolute Discretion. The Committee may, in its sole and absolute discretion (subject to the
Committees power to delegate certain authority in accordance with the second paragraph of this
Section 4), at any time and from time to time during the continuance of the Plan, (i) determine
which Recipients shall be granted Awards under the Plan, (ii) grant to any Recipient so selected
such an Award, (iii) determine the type, size and terms of Awards to be granted (subject to
Sections 6, 10 and 11 hereof), (iv) establish objectives and conditions for receipt of Awards, (v)
place conditions or restrictions on the payment or exercise of Awards, and (vi) do all other things
necessary and proper to carry out the intentions of this Plan; provided, however, that, in each and
every case, those Awards which are Incentive Stock Options shall contain and be subject to those
requirements specified in Section 422 of the Internal Revenue Code and shall be granted only to
those persons eligible thereunder to receive the same.
The Committee may at any time and from time to time delegate to the Chief Executive Officer of
the Company authority to take any or all of the actions that may be taken by the Committee as
specified in this Section 4 or in other sections of the Plan in connection with the determination
of Recipients, types, sizes, terms and conditions of Awards under the Plan and the grant of any
such Awards, provided that any authority so delegated (a) shall apply only to Awards to employees
of the Company that are not officers of Company under Regulation Section 240.16a-1(f) promulgated
pursuant to Section 16 of the Securities Exchange Act of 1934, and (b) shall be exercised only in
accordance with the Plan and such rules, regulations, guidelines, and limitations as the Committee
shall prescribe.
5. Eligibility. Awards may be granted to any employee of the Company or to the non-executive
Chairman of the Board of the Company. No member of the Committee (other than any ex officio member
or the non-executive Chairman of the Board of the Company) shall be eligible for grants of Awards
under the Plan. A Recipient may be granted multiple forms of Awards under the Plan. Incentive Stock
Options may be granted under the Plan to a Recipient during any calendar year only if the aggregate
fair market value (determined as of the date the Incentive Stock Option is granted) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time by such Recipient
during any calendar year under the Plan and any other incentive stock option plans (as defined in
the Internal Revenue Code) maintained by the Company does not exceed the sum of $100,000.
2
6. Stock Subject to the Plan. The total number of shares of Common Stock issuable under this
Plan may not at any time exceed 14,000,000 shares, subject to adjustment as provided herein. All of
such shares may be issued or issuable in connection with the exercise of Incentive Stock Options.
Shares of Common Stock not actually issued pursuant to an Award shall be available for future
Awards. Shares of common Stock to be delivered or purchased under the Plan may be either
authorized but unissued Common Stock or treasury shares. The total number of shares of Common
Stock that may be subject to one or more Awards granted to any one Recipient during a calendar year
may not exceed 1,000,000, subject to adjustment as provided in Section 16 of the Plan.
7. Awards.
(a) Awards under the Plan may include, but need not be limited to, shares of Common Stock,
Restricted Shares, Stock Options, Incentive Stock Options, Stock Appreciation Rights, Performance
Shares and Performance Units. The amount of each Award may be based upon the market value of a
share of Common Stock. The Committee may make any other type of Award which it shall determine is
consistent with the objectives and limitations of the Plan.
(b) The Committee may establish performance goals to be achieved within such Performance
Periods as may be selected by it using such measures of the performance of the Company as it may
select as a condition to the receipt of any Award.
8. Vesting Requirements. The Committee may determine that all or a portion of an Award or a
payment to a Recipient pursuant to an Award, in any form whatsoever, shall be vested at such times
and upon such terms as may be selected by it.
9. Deferred Payments and Dividend and Interest Equivalents.
(a) The Committee may determine that the receipt of all or a portion of an Award or a payment
to a Recipient pursuant to an Award, in any form whatsoever, shall be deferred. Deferrals shall be
for such periods and upon such terms as the Committee may determine.
(b) The Committee may provide, in its sole and absolute discretion, that a Recipient to whom
an Award is payable in whole or in part at a future time in shares of Common Stock shall be
entitled to receive an amount per share equal in value to the cash dividends paid per share on
issued and outstanding shares as of the dividend record dates occurring during the period from the
date of the Award to the date of delivery of such share to the Recipient. The Committee may also
authorize, in its sole and absolute discretion, payment of an amount which a Recipient would have
received in interest on (i) any Award payable at a future time in cash during the period from the
date of the Award to the date of payment, and (ii) any cash dividends paid on issued and
outstanding shares as of the dividend record dates occurring during the period from the date of an
Award to the date of delivery of shares pursuant to the Award. Any amounts provided under this
subsection shall be payable in such manner, at such time or times, and subject to such terms and
conditions as the Committee may determine in its sole and absolute discretion.
10. Stock Option Price. The purchase price per share of Common Stock under each Stock Option
shall be determined by the Committee, but shall not be less than market value (as determined by the
Committee) of one share of Common Stock on the date the Stock Option or Incentive Stock Option is
granted. Payment for exercise of any Stock Option granted hereunder shall be made (a) in cash, or
(b) by delivery of Common Stock having a market value equal to the aggregate option price, or (c)
by a combination of payment of cash and delivery of Common Stock in amounts such that the amount of
cash plus the market value of the Common Stock equals the aggregate option price.
11. Stock Appreciation Right Value. The base value per share of Common Stock covered by an
Award in the form of a Stock Appreciation Right shall be the market value of one share of Common
Stock on the date the Award is granted.
3
12. Continuation of Employment. The Committee shall require that a Recipient be an employee or
director of the Company at the time an Award is paid or exercised. The Committee may provide for
the termination of an outstanding Award if a Recipient ceases to be an employee or director of the
Company and may establish such other provisions with respect to the termination or disposition of
an Award on the death or retirement of a Recipient (or not being re-elected to the Board of
Directors) as it, in its sole discretion, deems advisable. The Committee shall have the sole power
to determine the date of any circumstances which shall constitute a cessation of employment or term
as a director and to determine whether such cessation is the result of retirement, death or any
other reason.
13. Registration of Stock. Each Award shall be subject to the requirement that if at any time
the Committee shall determine that qualification or registration under any state or federal law of
the shares of Common Stock, Restricted Shares, Stock Options, Incentive Stock Options, or other
securities thereby covered or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of or in connection with the granting of such Award or the
purchase of shares thereunder, the Award may not be paid or exercised in whole or in part unless
and until such qualification, registration, consent or approval shall have been effected or
obtained free of any conditions the Committee, in its discretion, deems unacceptable.
14. Employment Status. No Award shall be construed as imposing upon the Company the obligation
to continue the employment or term of a Recipient. No employee or other person shall have any claim
or right to be granted an Award under the Plan.
15. Assignability. No Award granted pursuant to the Plan shall be transferable or assignable
by the Recipient other than by will or the laws of descent and distribution and during the lifetime
of the Recipient shall be exercisable or payable only by or to him or her; provided, however, that
a Recipient who was granted an Award in consideration for serving as the Companys non-executive
Chairman of the Board may transfer or assign an Award to an entity that is or was a shareholder of
the Company at any time during which the Recipient served as the Companys non-executive Chairman
of the Board (a Shareholder Entity) if (i) the Recipient is affiliated with the manager of the
investments made by such Shareholder Entity or otherwise serves on the Companys Board of Directors
at the Shareholder Entitys direction or request, and (ii) pursuant to the Shareholder Entitys
governance documents or any regulatory, contractual or other requirement, any consideration the
Recipient may receive as compensation for serving as a director of the Company must be transferred,
assigned, surrendered or otherwise paid to the Shareholder Entity.
16. Dilution or Other Adjustments. In the event of any changes in the capital structure of the
Company, including but not limited to a change resulting from a stock dividend or split-up, or
combination or reclassification of shares, the Board of Directors shall make such equitable
adjustments with respect to Awards or any provisions of this Plan as it deems necessary and
appropriate, including, if necessary, any adjustment in the maximum number of shares of Common
Stock subject to the Plan, the maximum number of shares that may be subject to one or more Awards
granted to any one Recipient during a calendar year, or the number of shares of Common Stock
subject to an outstanding Award.
17. Merger, Consolidation, Reorganization, Liquidation, Etc. If the Company shall become a
party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall make such arrangements it deems
advisable with respect to outstanding Awards, which shall be binding upon the Recipients of
outstanding Awards, including, but not limited to, the substitution of new Awards for any Awards
then outstanding, the assumption of any such Awards and the termination of or payment for such
Awards.
18. Withholding Taxes. The Company shall have the right to deduct from all Awards hereunder
paid in cash any federal, state, local or foreign taxes required by law to be withheld with respect
to such Awards and, with respect to Awards paid in other than cash, to require the payment (through
withholding from the Recipients salary or otherwise) of any such taxes. Subject to such conditions
as the Committee
4
may establish, Awards payable in shares of Common Stock, or in the form of an Incentive Stock
Option or Stock Option, may provide that the Recipients thereof may elect, in accordance with any
applicable regulations, to satisfy all or any part of the tax required to be withheld by the
Company in connection with such Award, or the exercise of such Incentive Stock Option or Stock
Option, by electing to have the Company withhold a number of shares of Common Stock awarded, or
purchased pursuant to such exercise, having a fair market value on the date the tax withholding is
required to be made equal to or less than the amount required to be withheld.
19. Costs and Expenses. The cost and expenses of administering the Plan shall be borne by the
Company and not charged to any Award or to any Recipient.
20. Funding of Plan. The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of assets to assure the
payment of any Award under the Plan.
21. Award Contracts. The Committee shall have the power to specify the form of Award contracts
to be granted from time to time pursuant to and in accordance with the provisions of the Plan and
such contracts shall be final, conclusive and binding upon the Company, the shareholders of the
Company and the Recipients. No Recipient shall have or acquire any rights under the Plan except
such as are evidenced by a duly executed contract in the form thus specified. No Recipient shall
have any rights as a holder of Common Stock with respect to Awards hereunder unless and until
certificates for shares of Common Stock or Restricted Shares are issued to the Recipient.
22. Guidelines. The Board of Directors of the Company shall have the power to provide
guidelines for administration of the Plan by the Committee and to make any changes in such
guidelines as from time to time the Board deems necessary.
23. Amendment and Discontinuance. The Board of Directors of the Company shall have the right
at any time during the continuance of the Plan to amend, modify, supplement, suspend or terminate
the Plan, provided that in the absence of the approval of the holders of a majority of the shares
of Common Stock of the Company present in person or by proxy at a duly constituted meeting of
shareholders of the Company, no such amendment, modification or supplement shall (i) increase the
aggregate number of shares which may be issued under the Plan, unless such increase is by reason of
any change in capital structure referred to in Section 16 hereof, (ii) change the termination date
of the Plan provided in Section 24, (iii) delete or amend the market value restrictions contained
in Sections 10 and 11 hereof, (iv) materially modify the requirements as to eligibility for
participation in the Plan, or (v) materially increase the benefits accruing to participants under
the Plan, and provided further, that no amendment, modification or termination of the Plan shall in
any manner affect any Award of any kind theretofore granted under the Plan without the consent of
the Recipient of the Award, unless such amendment, modification or termination is by reason of any
change in capital structure referred to in Section 16 hereof or unless the same is by reason of the
matters referred to in Section 17 hereof.
24. Termination. The Committee may grant Awards at any time prior to July 1, 2013, on which
date this Plan will terminate except as to Awards then outstanding hereunder, which Awards shall
remain in effect until they have expired according to their terms or until July 1, 2023, whichever
first occurs. No Incentive Stock Option shall be exercisable later than 10 years following the date
it is granted.
25. Approval. This Plan shall take effect July 1, 2003, contingent upon prior approval by the
shareholders of the Company.
5
exv10w2
Exhibit 10.2
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and [Participant Name] (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan);
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of [Grant Date], wherein Participant agrees to abide by
certain terms and conditions authorized by the Compensation Committee of the Board of Directors;
WHEREAS, the Participant has been selected by the Compensation Committee or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of the Company and is
eligible to receive Awards under the Plan.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this Grant
Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Agreement or an Award Certificate issued
under the Plan, the following words and phrases shall have the meanings set forth below unless the
context plainly requires a different meaning, and when a defined meaning is intended, the term is
capitalized.
1.1 Amount of Gain Realized. The Amount of Gain Realized shall be equal to the number of
Shares delivered to the Participant multiplied by the Fair Market Value (FMV) of one Share of the
Companys Common Stock on the date the Shares were no longer considered to be held by the Company.
1.2 Change of Control means the occurrence of one or more of the following events:
(a) Any one person, or more than one person acting as a group, acquires ownership of stock of
the Company 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 the Company. 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 the Company, 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 the Company acquires
its stock in exchange for property will be treated as an acquisition of stock for purposes of this
Section 1.2(a).
(b) 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 the Company possessing 35 percent or more of the total voting power
of the stock of the Company. 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.
(c) A majority of members of the Companys Board of Directors (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.
(d) 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 the Company 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 the Company immediately before
such acquisition or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, 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 1.2(d) when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of assets by the Company
is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a
shareholder of the Company (immediately before the asset transfer) in exchange for or with respect
to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (iii) 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 the Company; or (iv) 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 (iii) 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.
1.3 Code. Code means the Internal Revenue Code of 1986, as amended.
1.4 Committee. Committee means the Compensation Committee of the Board of Directors for H&R
Block, Inc.
1.5 Common Stock. Common Stock means the common stock, without par value, of the Company.
2
1.6 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the context
otherwise requires, includes its subsidiary corporations (as defined in Section 424(f) of the
Internal Revenue Code) and their respective divisions, departments and subsidiaries and the
respective divisions, departments and subsidiaries of such subsidiaries.
1.7 Closing Price. Closing Price shall mean the last reported market price for one share of
Common Stock, regular way, on the New York Stock Exchange (or any successor exchange or stock
market on which such last reported market price is reported) on the day in question. In the event
the exchange is closed on the day on which Closing Price is to be determined or if there were no
sales reported on such date, Closing Price shall be computed as of the last date preceding such
date on which the exchange was open and a sale was reported.
1.8 Disability. Disability or disabled shall be as defined in the employment practices or
policies of the applicable subsidiary of the Company in effect from time to time during the term
hereof or, absent such definition, then as defined in the H&R Block Retirement Savings Plan or any
successor plan thereto.
1.9 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one share of H&R
Block, Inc. Stock.
1.10 Last Day of Employment. Last Day of Employment means the date the Participant ceases for
whatever reason to be an employee and is not immediately thereafter and continuously employed as a
regular active employee by any other direct or indirect subsidiary of the Company
1.11 Line of Business. Line of Business of the Company means any line of business of the
subsidiary of the Company by which Participant was employed as of the Last Day of Employment, as
well as any one or more lines of business of any other subsidiary of the Company by which
Participant was employed during the two-year period preceding the Last Day of Employment, provided
that, if Participants employment was, as of the Last Day of Employment or during the two-year
period immediately prior to the Last Day of Employment, with H&R Block Management, LLC or any
successor entity thereto, Line of Business of the Company shall mean any lines of business of the
Company and all of its subsidiaries.
1.12 Qualifying Termination. Qualifying Termination shall mean Participants termination of
employment which meets the definition of a Qualifying Termination under a severance plan
sponsored by the Company or a subsidiary of the Company. In the event that no formal severance
plan exists for the Participants subsidiary, the definition of Qualifying Termination contained
in any applicable severance plan for the Company will govern.
1.13 Restricted Shares. Restricted Share (Shares) means a share of Common Stock issued to a
Participant under the Plan subject to such terms and conditions, including without limitation,
forfeiture or resale to the Company, and to
3
such restrictions against sale, transfer or other disposition, as the Committee may determine at
the time of issuance.
1.14 Retirement. Retirement means the Participants voluntary termination of employment with
the Company and each of its subsidiaries, at or after attaining age 65.
2. Restricted Shares.
2.1 Issuance of Shares. As of [Grant Date] (the Award Date), the Company shall issue
[Number of Shares Granted] [Grant Type] (the Shares) evidenced by this Grant Agreement to the
Participant which shall be held by the Company and subject to the substantial risk of forfeiture.
2.2 Substantial Risk of Forfeiture. Each grant of an Award shall provide that the Shares
covered thereby shall be subject to a substantial risk of forfeiture within the meaning of Code
Section 83 for a period time as designated by Section 2.7, and any such Award may provide for the
earlier termination of such risk of forfeiture in the event of change of control of the Company or
other similar transaction or event.
2.3 Restrictions on Transfer. During for period the Shares are subject to substantial risk of
forfeiture, the Shares shall be held by the Company, or its transfer agent or other designee and
shall be subject to restrictions on transfer.
2.4 Dividends and Voting Rights. During the time that the Company, or its transfer agent or
other designee, continues to hold any Shares subject to substantial risk of forfeiture, the
Participant shall be entitled to receive any dividends paid with respect to such Shares and to vote
such Shares on any matters submitted by the Company to its shareholders. Dividends paid with
respect to such Shares may not be reinvested under the H&R Block, Inc. Dividend Reinvestment Plan,
as amended.
2.5 Requirement of Employment. The Participant must remain in continuous employment of the
Company during the period any Shares are subject to substantial risk of forfeiture. Absent an
agreement to the contrary, if Participants employment with the Company should terminate for any
reason, other than Retirement, all Shares then held by the Company or its transfer agent or other
designee, if any, shall be forfeited by the Participant and Participant authorizes the Company and
its stock transfer agent to cause delivery, transfer and conveyance of the Shares to the Company.
2.6 Delivery of Shares. Any Shares to be delivered to the Participant by the Company in
accordance with the following Schedule:
|
|
|
|
|
Percent of Shares Subject to Vesting |
Vesting Date |
|
on Such Vesting Date |
First Anniversary of the Award Date |
|
25% |
Second Anniversary of the Award Date |
|
25% |
Third Anniversary of the Award Date |
|
25% |
Fourth Anniversary of the Award Date |
|
25% |
4
Upon the vesting date, Shares shall be transferred directly into a brokerage account established
for the Participant at a financial institution the Committee shall select at its sole discretion
(the Financial Institution) or delivered in certificate form free of restrictions, such method to
be selected by the Committee in its sole discretion. The Participant agrees to complete any
documentation with the Company or the financial institution that is necessary to affect the
transfer of Shares to the financial institution before the delivery will occur.
2.7 Acceleration of Vesting. Notwithstanding Section 2.6, the Participant shall become vested
in all or a portion of the Shares awarded under this Grant Agreement on the occurrence of any of
the following events:
(a) Change of Control. In the event the Participant incurs a Qualifying Termination in
the 24 months immediately following a Change of Control, as defined in Section 1.2, such
Participant shall become 100% vested in all outstanding Shares granted under this Grant Agreement.
Receipt of this award may be conditioned upon Participants execution of a separation agreement.
(b) Qualifying Termination. The Participant experiences a Qualifying Termination, all
or a portion of the then outstanding Shares granted under this Grant Agreement shall vest according
to the terms of the applicable severance plan. Receipt of this award may be conditioned upon
Participants execution of a separation agreement.
(c) Retirement. If a Participant retires from employment with any subsidiary of the
Company at least one year after the anniversary of the Grant Date, all Shares issued on such Grant
Date shall no longer be considered to be held by the Company. Receipt of this retirement award may
be conditioned upon Participants execution of a separation agreement.
3. Covenants.
3.1 Consideration for Award under the Plan Participant acknowledges that Participants
agreement to this Section 3 is a key consideration for any Award under the Plan. Participant
hereby agrees to abide by the Covenants set forth in Sections 3.2, 3.3, and 3.4.
3.2 Covenant Against Competition. During the period of Participants employment and for two
(2) years after his/her Last Day of Employment, Participant acknowledges and agrees he/she will not
engage in, or own or control any interest in, or act as an officer, director or employee of, or
consultant, advisor or lender to, any entity that engages in any business that is competitive with
the primary business
5
activities of the Companys Tax Services business which are tax preparation, accounting, and small
business services.
3.3 Covenant Against Hiring. Participant acknowledges and agrees the he/she will not directly
or indirectly recruit, solicit, or hire any Company employee or otherwise induce any such employee
to leave the Companys employment during the period of Participants employment and for one (1)
year after his/her Last Day of Employment.
3.4 Covenant Against Solicitation. During the period of Participants employment and for two
(2) years after his/her Last Day of Employment, Participant acknowledges and agrees that he/she
will not directly or indirectly solicit or enter into any business transaction of the nature
performed by the Company with any Company client for which Participant personally performed
services or acquired material information.
3.5 Forfeiture of Rights. Notwithstanding anything herein to the contrary, if Participant
violates any provisions of this Section 3, Participant shall forfeit all rights to payments or
benefits under the Plan. All Shares held by the Company and subject to forfeiture on such date
shall terminate.
3.6 Remedies. Notwithstanding anything herein to the contrary, if Participant violates any
provisions of this Section 3, whether prior to, on or after any Settlement of an Award under the
Plan, then Participant shall promptly pay to Company an amount equal to the aggregate Amount of
Gain Realized by the Participant on all Shares received after a date commencing one year prior to
Participants Last Day of Employment. The Participant shall pay Company within three (3) business
days after the date of any written demand by the Company to the Participant.
3.7 Remedies payable in Companys Common Stock or Cash. The Participant shall pay the amounts
described in Section 3.6 in the Companys Common Stock or cash.
3.8 Remedies without Prejudice. The remedies provided in this Section 3 shall be without
prejudice to the rights of the Company and/or the rights of any one or more of its subsidiaries to
recover any losses resulting from the applicable conduct of the Participant and shall be in
addition to any other remedies the Company and/or any one or more subsidiaries may have, at law or
in equity, resulting from such conduct.
3.9 Survival. Participants obligations in this Section 3 shall survive and continue beyond
settlement of all Awards under the Plan and any termination or expiration of this Agreement for any
reason.
4. Transfer Restrictions.
4.1 Transfer Restrictions on Shares. During the period that Shares are held by the Company
hereunder for delivery to the Participant, such Shares and the rights
6
and privileges conferred hereby shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to sale under execution,
attachment or similar process. Upon any attempt, contrary to the terms hereof, to transfer, assign,
pledge, hypothecate, or otherwise so dispose of such Shares or any right or privilege conferred
hereby, or upon any attempted sale under any execution, attachment, or similar process upon such
Shares or the rights and privileges hereby granted, then and in any such event this Agreement and
the rights and privileges hereby granted shall immediately terminate. Immediately after such
termination, such Shares shall be forfeited by the Participant and the Participant hereby
authorizes the Company and its stock transfer agent to cause the delivery, transfer and conveyance
of such Shares to the Company.
4.2 Non-Transferability of Awards Generally. Any Award (including all rights, privileges and
benefits conferred under such Award) shall not be transferred, assigned, pledged, or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any Award, or of any right or privilege conferred hereby,
contrary to the provisions hereof, or upon any attempted sale under any execution, attachment, or
similar process upon the rights and privileges hereby granted, then and in any such event such
Award and the rights and privileges hereby granted shall immediately become null and void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any right to
continued employment for any period of time, is not an employment contract, and shall not in any
manner modify any effective contract of employment between the Participant and any subsidiary of
the Company.
5.2 Clawback for Negligence or Misconduct. If the Committee determines that the Participant
has engaged in negligence or intentional misconduct that results in a significant restatement of
the Companys financial results and a resulting overpayment in compensation or Awards under this
Plan, the Committee may seek reimbursement of any portion of the Amount of Gain Realized from such
Awards where such Awards were greater than the Awards would have been if calculated on the restated
financial results.
5.3 Adjustment of Shares. If there shall be any change in the capital structure of the
Company, including but not limited to a change in the number or kind of the outstanding shares of
the Common Stock resulting from a stock dividend or split-up, or combination or reclassification of
such shares (or of any stock or other securities into which shares shall have been changed, or for
which they shall have been exchanged), then the Board of Directors of the Company shall make such
equitable adjustments with respect to the Shares, or any other provisions of the Plan, as it deems
necessary or appropriate to prevent dilution or enlargement of the Stock Option rights hereunder or
of the shares subject to this Grant Agreement.
7
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall become a
party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall, acting in its absolute and sole
discretion, make such arrangements, which shall be binding upon the Participant of outstanding
Awards, including but not limited to, the substitution of new Awards or for any Awards then
outstanding, the assumption of any such Awards and the termination of or payment for such Awards.
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have the
power to provide regulations for administration of the Plan by the Committee and to make any
changes in such guidelines as from time to time the Board may deem necessary. The Committee shall
have the sole power to determine, solely for purposes of the Plan and this Agreement, the date of
and circumstances which shall constitute a cessation or termination of employment and whether such
cessation or termination is the result of retirement, death, disability or termination without
cause or any other reason, and further to determine, solely for purposes of the Plan and this
Agreement, what constitutes continuous employment with respect to the delivery of Shares under the
Grant Agreement (except that leaves of absence approved by the Committee or transfers of employment
among the subsidiaries of the Company shall not be considered an interruption of continuous
employment for any purpose under the Plan).
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or approval
of any governmental regulatory authority, is necessary or desirable as a condition of the executing
an Award or benefit under the Plan, then such action may not be taken, in whole or in part, unless
and until such qualification, registration, consent or approval shall have been effected or
obtained free of any conditions such counsel deems unacceptable.
5.7 Reasonableness of Restrictions, Severability and Court Modification. Participant and the
Company agree that, the restrictions contained in this Agreement are reasonable, but, should any
provision of this Agreement be determined by a court of competent jurisdiction to be invalid,
illegal or otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected thereby, and the
provision found invalid, illegal, or otherwise unenforceable or unreasonable will be considered by
the Company and Participant to be amended as to scope of protection, time or geographic area (or
any one of them, as the case may be) in whatever manner is considered reasonable by that court,
and, as so amended will be enforced.
5.8 Withholding of Taxes. To the extent that the Company is required to withhold taxes in
compliance with any federal, state, local or foreign law in connection with any payment made or
benefit realized by a Participant or other person under this Plan, it shall be a condition to the
receipt of such payment or the realization of such benefit that the Participant or such other
person make arrangements satisfactory to the Company for the payment of all such taxes required to
be withheld. At the discretion of the Committee, such arrangements may include relinquishment of a
8
portion of such benefit. In the event the Participant has not made arrangements, the Company shall
withhold the amount of such tax obligations from such dividend payment or instruct the
Participants employer to withhold such amount from the Participants next payment(s) of wages.
The Participant authorizes the Company to so instruct the Participants employer and authorizes the
Participants employer to make such withholdings from payment(s) of wages.
5.9 Waiver. The failure of the Company to enforce at any time any terms, covenants or
conditions of this Agreement shall not be construed to be a waiver of such terms, covenants or
conditions or of any other provision. Any waiver or modification of the terms, covenants or
conditions of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Notices. Any notice to be given to the Company or election to be made under the terms of
this Agreement shall be addressed to the Company (Attention: Long-Term Incentive Department) at One
H&R Block Way, Kansas City Missouri 64105 or at such other address as the Company may hereafter
designate in writing to the Participant. Any notice to be given to the Participant shall be
addressed to the Participant at the last address of record with the Company or at such other
address as the Participant may hereafter designate in writing to the Company. Any such notice shall
be deemed to have been duly given when deposited in the United States mail via regular or certified
mail, addressed as aforesaid, postage prepaid.
5.11 Choice of Law. This Grant Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Missouri without reference to principles of conflicts of
laws.
5.12 Choice of Forum and Jurisdiction. Participant and Company agree that any proceedings to
enforce the obligations and rights under this Grant Agreement must be brought in Missouri District
Court located in Jackson County, Missouri, or in the United States District Court for the Western
District of Missouri in Kansas City, Missouri. Participant agrees and submits to personal
jurisdiction in either court. Participant and Company further agree that this Choice of Forum and
Jurisdiction is binding on all matters related to Awards under the Plan and may not be altered or
amended by any other arrangement or agreement (including an employment agreement) without the
express written consent of Participant and H&R Block, Inc.
5.13 Attorneys Fees. Participant and Company agree that in the event of litigation to enforce
the terms and obligations under this Grant Agreement, the party prevailing in any such cause of
action will be entitled to reimbursement of reasonable attorney fees.
5.14 Relationship of the Parties. Participant acknowledges that this Grant Agreement is
between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block, Inc. is
a holding company and that Participant is not an employee of H&R Block, Inc.
9
5.15 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.16 Amendment. No amendment, supplement, or waiver to this Agreement is valid or binding
unless in writing and signed by both parties.
5.17 Execution of Agreement. This Agreement shall not be enforceable by either party, and
Participant shall have no rights with respect to the Long Term Incentive Award, unless and until it
has been (1) signed by Participant and on behalf of the Company by an officer of the Company,
provided that the signature by such officer of the Company on behalf of the Company may be a
facsimile or stamped signature, and (2) returned to the Company.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
|
|
|
Associate Name:
|
|
[Participant Name] |
|
|
|
Date Signed:
|
|
[Acceptance Date] |
H&R BLOCK, INC.
By:
Russ Smyth,
President and Chief Executive Officer
10
exv10w3
Exhibit 10.3
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and [Participant Name] (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan);
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of [Grant Date], wherein Participant agrees to abide by
certain terms and conditions authorized by the Compensation Committee of the Board of Directors;
WHEREAS, the Participant has been selected by the Compensation Committee or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of the Company and is
eligible to receive Awards under the Plan.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this Grant
Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Grant Agreement (Agreement), the
following words and phrases shall have the meanings set forth below unless the context plainly
requires a different meaning, and when a defined meaning is intended, the term is capitalized.
1.1 Amount of Gain Realized. The Amount of Gain Realized shall be equal to the number of
shares of Common Stock purchased pursuant to such exercise multiplied by the difference between the
FMV of one Share of the Companys Common Stock on the date of exercise and the Option Price.
1.2 Change of Control means the occurrence of one or more of the following events:
(a) Any one person, or more than one person acting as a group, acquires ownership of stock of
the Company 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 the Company. 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 the Company, 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 the Company acquires
its stock in exchange for property will be treated as an acquisition of stock for purposes of this
Section 1.2(a).
(b) 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 the Company possessing 35 percent or more of the total voting power
of the stock of the Company. 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.
(c) A majority of members of the Companys Board of Directors (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.
(d) 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 the Company 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 the Company immediately before
such acquisition or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, 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 1.2(d) when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of assets by the Company
is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a
shareholder of the Company (immediately before the asset transfer) in exchange for or with respect
to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (iii) 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 the Company; or (iv) 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 (iii) 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.
1.3 Code. Code means the Internal Revenue Code of 1986, as amended.
1.4 Committee. Committee means the Compensation Committee of the Board of Directors for H&R
Block, Inc.
1.5 Common Stock. Common Stock means the common stock, without par value, of the Company.
2
1.6 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the context
otherwise requires, includes its subsidiary corporations (as defined in Section 424(f) of the
Internal Revenue Code) and their respective divisions, departments and subsidiaries and the
respective divisions, departments and subsidiaries of such subsidiaries.
1.7 Closing Price. Closing Price shall mean the last reported market price for one share of
Common Stock, regular way, on the New York Stock Exchange (or any successor exchange or stock
market on which such last reported market price is reported) on the day in question. In the event
the exchange is closed on the day on which Closing Price is to be determined or if there were no
sales reported on such date, Closing Price shall be computed as of the last date preceding such
date on which the exchange was open and a sale was reported.
1.8 Disability. Disability or disabled shall be as defined in the employment practices or
policies of the applicable subsidiary of the Company in effect from time to time during the term
hereof or, absent such definition, then as defined in the H&R Block Retirement Savings Plan or any
successor plan thereto.
1.9 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one share of H&R
Block, Inc. Stock.
1.10 Last Day of Employment. Last Day of Employment means the date the Participant ceases for
whatever reason to be an employee and is not immediately thereafter and continuously employed as a
regular active employee by any other direct or indirect subsidiary of the Company
1.11 Line of Business. Line of Business of the Company means any line of business of the
subsidiary of the Company by which Participant was employed as of the Last Day of Employment, as
well as any one or more lines of business of any other subsidiary of the Company by which
Participant was employed during the two-year period preceding the Last Day of Employment, provided
that, if Participants employment was, as of the Last Day of Employment or during the two-year
period immediately prior to the Last Day of Employment, with H&R Block Management, LLC or any
successor entity thereto, Line of Business of the Company shall mean any lines of business of the
Company and all of its subsidiaries.
1.12 Qualifying Termination. Qualifying Termination shall mean Participants termination of
employment which meets the definition of a Qualifying Termination under a severance plan
sponsored by the Company or a subsidiary of the Company. In the event that no formal severance
plan exists for the Participants subsidiary, the definition of Qualifying Termination contained
in any applicable severance plan for the Company will govern.
1.13 Retirement. Retirement means the Participants voluntary termination of employment with
the Company and each of its subsidiaries, at or after attaining age 65.
3
1.14 Stock Option. Stock Option means the right to purchase, upon exercise of a stock option
granted under the Plan, shares of the Companys Common Stock. A Stock Option may be an Incentive
Stock Option which meets the requirements of Code Section 422(b) or a Nonqualified Stock Option.
The right and option to purchase shares of Common Stock identified as subject to Nonqualified Stock
Option shall not constitute and shall not be treated for any purpose as an incentive stock
option, as such term is defined in the Code.
2. Stock Option.
2.1 Grant of Stock Option. As of [Grant Date] (the Grant Date), the Company grants the
Participant the right and option to purchase [Number of Shares Granted] shares of Common Stock
(this Stock Option) identified as [Grant Type].
2.2 Option Price. The Price per share of Common Stock subject to this Stock Option is [Grant
Price], which is the Closing Price on [Grant Date].
2.3 Vesting. This Stock Option shall vest and become exercisable in installments, which shall
be cumulative, with regard to the percentage of the number of shares of Common Stock subject to
this Stock Option indicated next to each vesting date set forth in the table below provided that
the Participant remains continuously employed by the Company through such date:
|
|
|
|
|
Percent of Shares Subject to this |
|
|
Stock Option Vesting on Such |
Vesting Date |
|
Vesting Date |
First Anniversary of the Grant Date |
|
25% |
Second Anniversary of the Grant Date |
|
25% |
Third Anniversary of the Grant Date |
|
25% |
Fourth Anniversary of the Grant Date |
|
25% |
(Note: If the percentage of the aggregate number of shares of Common Stock subject to this Stock
Option scheduled to vest on a vesting date is not a whole number of shares, then the amount vesting
shall be rounded down to the nearest whole number of shares for each vesting date, except that the
amount vesting on the final vesting date shall be such that 100% of the aggregate number of shares
of Common Stock subject to this Stock Option shall be cumulatively vested as of the final vesting
date.)
2.4 Acceleration of Vesting. Notwithstanding Section 2.3, the Participant shall become vested
in all or a portion of the Stock Options awarded under this Grant Agreement on the occurrence of
any of the following events:
(a) Change of Control. In the event the Participant incurs a Qualifying Termination
in the 24 months immediately following a Change of Control,
4
as defined in Section 1.2, such Participant shall become 100% vested in all outstanding stock
options granted under this Grant Agreement. The Participant may exercise such options until the
earlier of: (i) ninety (90) days following the Participants Last Day of Employment unless the
Participant elects in writing to extend this time period through the severance period as defined by
the applicable severance plan or (ii) the last day the stock options would have been exercisable if
the Participant had not incurred a termination of employment. Receipt of this award may be
conditioned on the execution of a separation agreement.
(b) Retirement. The Participant may purchase 100% of the total Stock Options granted
under this Stock Option provided that the Participant retires more than one year after the Grant
Date. Receipt of this award may be conditioned upon Participants execution of a separation
agreement.
(c) Qualifying Termination. The Participant experiences a Qualifying Termination, all
or a portion of the then outstanding Stock Options granted under this Stock Option shall vest
according to any applicable severance plan and Participant may purchase 100% of such vested Stock
Options. Receipt of this award may be conditioned upon Participants execution of a separation
agreement.
(d) Employment Agreement. The Participant may purchase all or a portion of the total
vested Stock Options granted under this Stock Option upon the occurrence of certain events
specified in the Participants employment agreement.
If application of this Section 2.4 results in the acceleration of vesting of all or any portion of
the Stock Options, shares of Common Stock then subject to Stock Options shall be allocated such
that the number of shares subject to Incentive Stock Option shall be the maximum number of shares
that may be subject to Incentive Stock Option under Section 422 of the Code for the calendar year
in which the acceleration of vesting results.
2.5 Term of Option. No Stock Option granted under this Grant Agreement may be exercised after
[Expiration Date]. Except as provided in this Section 2.5 and Section 2.6, all Stock Options shall
terminate when the Participant ceases, for whatever reason, to be an employee of any of the
subsidiaries of the Company. In the event the Participant ceases to be an employee of any of the
subsidiaries of the Company because of Retirement, Disability or Termination without Cause,
Participant may exercise any vested Stock Options up to three months after employment ceases. In
the event the Participant experiences a Qualifying Termination, this Stock Option may be eligible
for an extension of the exercise period up to three months after the severance period as defined
under the applicable severance plan.
2.6 Participants Death. In the event the Participant ceases to be an employee of any of the
subsidiaries of the Company because of Death, the person or persons to whom the Participants
rights under the Stock Option shall pass by the Participants will or laws of descent and
distribution may exercise any vested Stock Options for a period up to twelve months after the date
of death.
5
2.7 Exercise of Stock Option. The Stock Option granted under the Plan shall be
exercisable from time to time by the Participant by giving notice of exercise to the Company, in
the manner specified by the Company, specifying the number of whole shares to be purchased, and
accompanied by full payment of the purchase price. The right to purchase shall be cumulative, so
that the full number of shares of Common Stock that become purchasable at any time need not be
purchased at such time, but may be purchased at any time or from time to time thereafter (but prior
to the termination of the Stock Option).
2.8 Payment of the Option Price. Full payment of the Option Price for shares purchased shall
be made at the time the Participant exercises the Stock Option. Payment of the aggregate Option
Price may be made in (a) cash, (b) by delivery of Common Stock (with a value equal to the Closing
Price of Common Stock on the last trading date preceding the date on which the Stock Option is
exercised), or (c) a combination thereof. Payment shall be made only in cash unless at least six
months have elapsed between the date of Participants acquisition of each share of Common Stock
delivered by Participant in full or partial payment of the aggregate Option Price and the date on
which the Stock Option is exercised.
2.9 No Shareholder Privileges. Neither the Participant nor any person claiming under or
through him or her shall be, or have any of the rights or privileges of, a shareholder of the
Company with respect to any of the Common Stock issuable upon the exercise of this Stock Option,
unless and until certificates evidencing such shares of Common Stock shall have been duly issued
and delivered.
3. Covenants.
3.1 Consideration for Award under the Plan. Participant acknowledges that Participants
agreement to this Section 3 is a key consideration for any Award under the Plan. Participant
hereby agrees to abide by the Covenants set forth in Sections 3.2, 3.3, and 3.4.
3.2 Covenant Against Competition. During the period of Participants employment and for two
(2) years after his/her Last Day of Employment, Participant acknowledges and agrees he/she will not
engage in, or own or control any interest in, or act as an officer, director or employee of, or
consultant, advisor or lender to, any entity that engages in any business that is competitive with
the primary business activities of the Companys Tax Services business which are tax preparation,
accounting, and small business services.
3.3 Covenant Against Hiring. Participant acknowledges and agrees the he/she will not directly
or indirectly recruit, solicit, or hire any Company employee or otherwise induce any such employee
to leave the Companys employment during the period of Participants employment and for one (1)
year after his/her Last Day of Employment.
3.4 Covenant Against Solicitation. During the period of Participants employment and for two
(2) years after his/her Last Day of Employment, Participant
6
acknowledges and agrees that he/she will not directly or indirectly solicit or enter into any
business transaction of the nature performed by the Company with any Company client for which
Participant personally performed services or acquired material information.
3.5 Forfeiture of Rights. Notwithstanding anything herein to the contrary, if Participant
violates any provisions of this Section 3, Participant shall forfeit all rights to payments or
benefits under the Plan. All Stock Options outstanding on such date shall terminate.
3.6 Remedies. Notwithstanding anything herein to the contrary, if Participant violates any
provisions of this Section 3, whether prior to, on or after any Settlement of an Award under the
Plan, then Participant shall promptly pay to Company an amount equal to the aggregate Amount of
Gain Realized by the Participant on all Stock Options exercised after a date commencing one year
prior to Participants Last Day of Employment. The Participant shall pay Company within three (3)
business days after the date of any written demand by the Company to the Participant.
3.7 Remedies payable in Companys Common Stock or Cash. The Participant shall pay the amounts
described in Section 3.6 in the Companys Common Stock or cash.
3.8 Remedies without Prejudice. The remedies provided in this Section 3 shall be without
prejudice to the rights of the Company and/or the rights of any one or more of its subsidiaries to
recover any losses resulting from the applicable conduct of the Participant and shall be in
addition to any other remedies the Company and/or any one or more subsidiaries may have, at law or
in equity, resulting from such conduct.
3.9 Survival. Participants obligations in this Section 3 shall survive and continue beyond
settlement of all Awards under the Plan and any termination or expiration of this Agreement for any
reason.
4. Non-Transferability of Awards. Any Stock Option (including all rights, privileges and
benefits conferred under such Award) shall not be transferred, assigned, pledged, or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any Stock Option, or of any right or privilege conferred
hereby, contrary to the provisions hereof, or upon any attempted sale under any execution,
attachment, or similar process upon the rights and privileges hereby granted, then and in any such
event such Award and the rights and privileges hereby granted shall immediately become null and
void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any right to
continued employment for any period of time, is not an
7
employment contract, and shall not in any manner modify any effective contract of employment
between the Participant and any subsidiary of the Company.
5.2 Clawback for Negligence or Misconduct. If the Committee determines that the Participant
has engaged in negligence or intentional misconduct that results in a significant restatement of
the Companys financial results and a resulting overpayment in compensation or Awards under this
Plan, the Committee may seek reimbursement of any portion of the Amount of Gain Realized from such
Awards where such Awards were greater than the Awards would have been if calculated on the restated
financial results.
5.3 Adjustment of Shares. If there shall be any change in the capital structure of the
Company, including but not limited to a change in the number or kind of the outstanding shares of
the Common Stock resulting from a stock dividend or split-up, or combination or reclassification of
such shares (or of any stock or other securities into which shares shall have been changed, or for
which they shall have been exchanged), then the Board of Directors of the Company shall make such
equitable adjustments with respect to the Stock Option, or any other provisions of the Plan, as it
deems necessary or appropriate to prevent dilution or enlargement of the Stock Option rights
hereunder or of the shares subject to this Stock Option.
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall become a
party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall, acting in its absolute and sole
discretion, make such arrangements, which shall be binding upon the Participant of outstanding
Awards, including but not limited to, the substitution of new Awards or for any Awards then
outstanding, the assumption of any such Awards and the termination of or payment for such Awards.
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have the
power to provide regulations for administration of the Plan by the Committee and to make any
changes in such guidelines as from time to time the Board may deem necessary. The Committee shall
have the sole power to determine, solely for purposes of the Plan and this Agreement, the date of
and circumstances which shall constitute a cessation or termination of employment and whether such
cessation or termination is the result of retirement, death, disability or termination without
cause or any other reason, and further to determine, solely for purposes of the Plan and this
Agreement, what constitutes continuous employment with respect to the exercise of Stock Option or
delivery of Shares under the Plan (except that leaves of absence approved by the Committee or
transfers of employment among the subsidiaries of the Company shall not be considered an
interruption of continuous employment for any purpose under the Plan).
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or approval
of any governmental regulatory authority, is necessary or desirable as a condition of the executing
an Award or benefit under the Plan, then such action may not be taken, in whole or in part, unless
and until such qualification,
8
registration, consent or approval shall have been effected or obtained free of any conditions such
counsel deems unacceptable.
5.7 Reasonableness of Restrictions, Severability and Court Modification. Participant and the
Company agree that, the restrictions contained in this Agreement are reasonable, but, should any
provision of this Agreement be determined by a court of competent jurisdiction to be invalid,
illegal or otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected thereby, and the
provision found invalid, illegal, or otherwise unenforceable or unreasonable will be considered by
the Company and Participant to be amended as to scope of protection, time or geographic area (or
any one of them, as the case may be) in whatever manner is considered reasonable by that court,
and, as so amended will be enforced.
5.8 Withholding of Taxes. To the extent that the Company is required to withhold taxes in
compliance with any federal, state, local or foreign law in connection with any payment made or
benefit realized by a Participant or other person under this Plan, it shall be a condition to the
receipt of such payment or the realization of such benefit that the Participant or such other
person make arrangements satisfactory to the Company for the payment of all such taxes required to
be withheld. At the discretion of the Committee, such arrangements may include relinquishment of a
portion of such benefit. In the event the Participant has not made arrangements, the Company shall
withhold the amount of such tax obligations from such dividend payment or instruct the
Participants employer to withhold such amount from the Participants next payment(s) of wages.
The Participant authorizes the Company to so instruct the Participants employer and authorizes the
Participants employer to make such withholdings from payment(s) of wages.
5.9 Waiver. The failure of the Company to enforce at any time any terms, covenants or
conditions of this Agreement shall not be construed to be a waiver of such terms, covenants or
conditions or of any other provision. Any waiver or modification of the terms, covenants or
conditions of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Incorporation. The terms and conditions of this Grant Agreement are authorized by the
Compensation Committee of the Board of Directors of H&R Block, Inc. The terms and conditions of
this Grant Agreement are deemed to be incorporated into and form a part of every Award under the
H&R Block, Inc. 1993 Long-Term Executive Compensation Plan and H&R Block, Inc. 2003 Long-Term
Executive Compensation Plan unless the Award Certificate relating to a specific grant or award
provides otherwise. If the Participant has previously executed a Grant Agreement, such Grant
Agreement shall only cover those Awards subject to such specific Grant Agreement.
5.11 Notices. Any notice to be given to the Company or election to be made under the terms of
this Agreement shall be addressed to the Company (Attention: Long-Term Incentive Department) at One
H&R Block Way, Kansas City Missouri 64105 or at such other address as the Company may hereafter
designate in writing to
9
the Participant. Any notice to be given to the Participant shall be addressed to the Participant at
the last address of record with the Company or at such other address as the Participant may
hereafter designate in writing to the Company. Any such notice shall be deemed to have been duly
given when deposited in the United States mail via regular or certified mail, addressed as
aforesaid, postage prepaid.
5.12 Choice of Law. This Grant Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Missouri without reference to principles of conflicts of
laws.
5.13 Choice of Forum and Jurisdiction. Participant and Company agree that any proceedings to
enforce the obligations and rights under this Grant Agreement must be brought in Missouri District
Court located in Jackson County, Missouri, or in the United States District Court for the Western
District of Missouri in Kansas City, Missouri. Participant agrees and submits to personal
jurisdiction in either court. Participant and Company further agree that this Choice of Forum and
Jurisdiction is binding on all matters related to Awards under the Plan and may not be altered or
amended by any other arrangement or agreement (including an employment agreement) without the
express written consent of Participant and H&R Block, Inc.
5.14 Attorneys Fees. Participant and Company agree that in the event of litigation to enforce
the terms and obligations under this Grant Agreement, the party prevailing in any such cause of
action will be entitled to reimbursement of reasonable attorney fees.
5.15 Relationship of the Parties. Participant acknowledges that this Grant Agreement is
between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block, Inc. is
a holding company and that Participant is not an employee of H&R Block, Inc.
5.16 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.17 Amendment. No amendment, supplement, or waiver to this Agreement is valid or binding
unless in writing and signed by both parties.
5.18 Execution of Agreement. This Agreement shall not be enforceable by either party, and
Participant shall have no rights with respect to the Long Term Incentive Award, unless and until it
has been (1) signed by Participant and on behalf of the Company by an officer of the Company,
provided that the signature by such officer of the Company on behalf of the Company may be a
facsimile or stamped signature, and (2) returned to the Company.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
10
|
|
|
Associate Name:
|
|
[Participant Name] |
|
|
|
Date Signed:
|
|
[Acceptance Date] |
H&R BLOCK, INC.
By:
Russ Smyth,
President and Chief Executive Officer
11
exv10w17
Exhibit 10.17
SEPARATION AND RELEASE AGREEMENT
This SEPARATION AND RELEASE AGREEMENT (the Agreement) is entered into as of the 4th day of
May, 2010, by and between, H&R Block Management, LLC, a Delaware Limited Liability Company
(Block), and Becky Shulman (Executive).
WHEREAS, Executive and Block agree to terminate 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 terminate on April 30, 2010 (Termination Date). Until the Termination Date, Executive
will remain on active payroll and be paid her current salary in accordance with Blocks regular
payroll practices. Until the Termination Date, Executive agrees that she will continue to perform
her role and other transition work as specifically agreed by Block Chief Executive Officer (CEO)
Russ Smyth. Executive further agrees that she will timely respond to questions and provide
guidance as requested by Mr. Smyth. On or after the Termination Date, Executive acknowledges and
agrees that she will not represent herself 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.
2. Resignation. Executive agrees that as of the Termination Date, she 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 her execution of
this Agreement.
3. Severance Benefits. The parties agree to treat Executives termination of
employment as a termination without cause and a Qualifying Termination under the H&R Block
Severance Plan (Severance Plan) 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 she will not be eligible for any compensation or
benefits after the Termination Date except for the following:
a. Severance Pay. Subject to the terms of the Severance Plan, Block will pay
to Executive $610,560.00, less required tax withholdings, in a lump sum payment within 30
days from the later of the Termination 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 Termination Date.
After the Termination Date, Block will pay Executive a lump sum payment of $10,219.00, less
applicable tax withholdings, which represents Executives monthly post-employment
premium for health and welfare benefits under COBRA for 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 Termination 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
Termination 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 Termination 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 Termination Date. No later than the Termination Date, Executive will complete an
election form on which she will elect the time period during which she may exercise her ISO
and NQ Stock Options. Executive acknowledges and agrees that she is solely responsible for
the income tax treatment of her ISO and NQ Stock Options election, and that Block has not
provided her 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 Termination Date
and six (6) months thereafter shall terminate (and shall be fully vested) as of the
Termination Date. Executive shall forfeit on the Termination 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 her at the time payments are generally made to other
individuals who received a similar award of performance shares. On the Termination Date,
Executive shall forfeit to Block any Performance Shares Block awarded her 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.
f. Outplacement Services. Block will pay directly to Right Management Services
for standard executive outplacement services to be provided to Executive. Executive must
elect these outplacement services on or before April 30, 2010 in writing to the
2
Block Senior Vice-President, Human Resources. Executive waives these outplacement
services if she fails to provide such written notification on or before April 30, 2010.
g. Deferred Compensation. Executive will receive her 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 her
if she violates any of the post-employment obligations under Section 7 of this Agreement.
4. Vacation. Block will pay Executive for her 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 Termination Date. 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 her to consult with an attorney of her choosing; (b) she has had twenty-one
(21) days to consider the waiver of her rights under the Age Discrimination in Employment Act of
1967, as amended (ADEA) prior to signing this Agreement; (c) she has disclosed to Block any
information in her possession concerning any conduct involving Block or its Affiliates that she 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 her under this
Agreement is sufficient to support the releases provided by her under this Agreement; and (e) she
has not filed any charges, claims, or lawsuits against Block involving any aspect of her employment
which have not been terminated as of the date of this Agreement. Executive understands that Block
regards the representations made by her 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 she signs this Agreement to revoke her consent to the waiver of her rights under the ADEA in
writing addressed and delivered to Block SVP, HR Tammy Serati 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 her consent, this Agreement will take effect on the
day after the end of this revocation period (the Effective Date).
7. Post-Employment Obligations. Executive agrees to the following post-employment
covenants and restrictions:
a. Covenant Against Hiring. Executive acknowledges and agrees that she will
not directly or indirectly recruit, solicit, or hire any Block employee or otherwise induce
any such employee to leave Blocks employment during the period of Executives employment
and for one (1) year after the Termination Date. The running of the one (1) 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.
b. Covenant Against Solicitation. During the period of Executives employment
and for two (2) years after the Termination Date, Executive acknowledges and
3
agrees that she will not directly or indirectly solicit or enter into any business
transaction of the nature performed by Block with any Block client for which Executive
personally performed services or acquired material information. The running of the two (2)
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.
c. Covenant Against Competition. During the period of Executives employment
and for two (2) years after the Termination Date, Executive acknowledges and agrees she will
not engage in, or own or control any interest in, or act as an officer, director or employee
of, or consultant, advisor or lender to, any entity that engages in any business that is
competitive with the primary business activity of Blocks Tax Services business which is tax
preparation. The running of the two (2) 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.
d. Reasonableness of Covenants. Executive acknowledges and agrees that the
covenants contained in this Agreement are reasonable and enforceable. However, should a
court determine that any provision of this Agreement is invalid or otherwise unenforceable,
the court shall amend such provision so that it is enforceable and so enforce it.
e. Waiver. Block may agree to waive any of Executives surviving
post-employment obligations. Any such waiver must be in writing and signed by Executive and
the Block Chief Executive Officer. Unless otherwise agreed by the parties in writing, any
payments made to and/or benefits received by Executive under this Agreement will immediately
cease upon any such waiver.
8. Business Expenses and Commitments. As of the Termination Date, Executive agrees
that she will have submitted required documentation for all outstanding expenses on her corporate
credit card and she will have fully cleared all such outstanding expenses. As of the Effective
Date, Executive further agrees that she will not initiate, make, renew, confirm, or ratify any
contracts or commitments for or on behalf of Block or any Affiliate, nor will she incur any
expenses on behalf of Block or any Affiliate without Blocks prior written consent.
9. Release. Executive and her 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
4
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 she 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 she is releasing, and that she understands
that she 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.
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.
10. Breach by Executive. Blocks obligations to Executive after the
Effective Date are contingent on her 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.
11. Executive Availability. Executive agrees to make herself 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. Block and Executive
further agree that if Block requires Executives cooperation for more than five (5) days during any
calendar year, Block will pay Executive a per diem of $1500 per day for each day of Executives
cooperation which exceeds five (5) days during such calendar year. Nothing herein shall prevent
Executive from communicating with or participating in any government investigation.
5
12. Non-Disparagement. Executive agrees, subject to any obligations she may have
under applicable law, that she 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.
13. Return of Company Property. Executive agrees that as of the Termination Date she
will have returned to Block any and all Block and/or Affiliates property or equipment in her
possession, including but not limited to, any computer, printer, fax, phone, credit card, badge,
and telephone card assigned to her.
14. 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
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.
15. 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.
16. Applicable Law. This Agreement shall be construed, interpreted, and applied in
accordance with the law of the State of Missouri.
17. 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.
18. 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.
19. Indemnification. To the fullest extent permitted by law and Blocks Bylaws, Block
will indemnify Executive during and after the period of her employment from and against all loss,
costs, damages, and expenses including, without limitation, legal expenses of counsel selected by
Block to represent the interests of Executive (which expenses Block will, to the extent so
permitted,
6
advance to executive as the same are incurred) arising out of or in connection with the fact
that Executive is or was a director, officer, employee, or agent of the Block or serving in such
capacity for another corporation at the request of Block.
20. Counterparts. This Agreement may be signed in counterparts and delivered by
facsimile transmission confirmed promptly thereafter by actual delivery of executed counterparts.
21. 409A Representations. Executive and Block agree that this Agreement shall be
interpreted to comply with Section 409A of the Internal Revenue Code and that 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 she shall not have any
claim against Block or any Affiliate for any good faith effort taken by them to comply with Section
409A.
22. Confidentiality. Executive agrees to keep strictly confidential all terms and
conditions, including amounts, in this Agreement and shall not disclose them to any person other
than his immediate family, legal or financial advisor, or U.S. government officials who seek such
information in the course of their official duties, unless compelled to do so by law. If a person
not a party to this Agreement requests or demands, by subpoena or otherwise, that Executive
disclose or produce this Agreement or any terms or conditions of it, Executive shall immediately
notify Block and shall give Block an opportunity to respond to such notice before taking any action
or making any decision in connection with such request or subpoena.
EXECUTIVE:
Accepted and Agreed:
H&R Block Management, LLC
|
|
|
|
|
By: |
|
|
|
|
|
|
Russell P. Smyth
|
|
|
|
|
President |
|
|
|
|
|
|
|
Dated: |
|
|
|
|
|
|
|
|
|
7
EXHIBIT A
RESIGNATION
To Whom It May Concern:
Effective April 30, 2010, I hereby resign from the following director and officer positions:
|
|
|
Business Entity |
|
Title |
H&R Block, Inc.
|
|
Senior Vice President and Chief Financial Officer |
BFC Transactions, Inc.
|
|
Treasurer |
Block Financial LLC
|
|
President and Chief Financial Officer |
Block Financial LLC
|
|
Manager |
Cityfront, Inc.
|
|
Treasurer |
Companion Insurance, Ltd.
|
|
Director |
Companion Insurance, Ltd.
|
|
Vice President |
Financial Marketing Services, Inc.
|
|
Treasurer |
Financial Stop Inc.
|
|
Treasurer |
FM Business Services, Inc.
|
|
Treasurer |
Franchise Partner, Inc.
|
|
Director |
Franchise Partner, Inc.
|
|
President and Treasurer |
H&R Block Bank
|
|
Director |
H&R Block Canada, Inc.
|
|
Senior Vice President and Treasurer |
H&R Block Management, LLC
|
|
Senior Vice President and Chief Financial Officer |
HRB Digital LLC
|
|
Senior Vice President and Treasurer |
OOMC Holdings LLC
|
|
Senior Vice President and Treasurer |
RSM McGladrey Business Services, Inc.
|
|
Senior Vice President and Treasurer |
RSM McGladrey Insurance Services, Inc.
|
|
Treasurer |
TaxNet Inc.
|
|
Senior Vice President and Treasurer |
EXHIBIT B
STOCK OPTION SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
Grant Price |
|
|
Shares Granted |
|
|
Vested |
|
|
Accelerated |
|
|
8/7/2001 |
|
$ |
17.529 |
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2002 |
|
$ |
23.075 |
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2003 |
|
$ |
21.625 |
|
|
|
16,000 |
|
|
|
16,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2004 |
|
$ |
23.84 |
|
|
|
16,000 |
|
|
|
16,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2005 |
|
$ |
29.175 |
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2006 |
|
$ |
23.86 |
|
|
|
31,405 |
|
|
|
31,405 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2007 |
|
$ |
23.37 |
|
|
|
41,945 |
|
|
|
27,963 |
|
|
|
13,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/3/2008 |
|
$ |
21.81 |
|
|
|
96,401 |
|
|
|
32,133 |
|
|
|
64,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2009 |
|
$ |
16.89 |
|
|
|
105,714 |
|
|
|
0 |
|
|
|
70,475 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
183,501 |
|
|
|
148,725 |
|
|
|
|
* |
|
Executive forfeits 35,239 stock options from the July 2, 2009 grant. |
EXHIBIT C
RESTRICTED SHARES SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
Grant Price |
|
|
Shares Granted |
|
|
Vested |
|
|
Accelerated |
|
|
7/2/2007 |
|
$ |
23.37 |
|
|
|
1,440 |
|
|
|
720 |
|
|
|
720 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2009 |
|
$ |
16.89 |
|
|
|
5,895 |
|
|
|
0 |
|
|
|
0 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
720 |
|
|
|
720 |
|
|
|
|
* |
|
Executive forfeits 5,895 shares from the July 2, 2009 grant. |
EXHIBIT D
PERFORMANCE SHARES SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
Grant Price |
|
|
Shares Granted |
|
|
Vested |
|
|
Accelerated |
|
|
6/30/2007 |
|
$ |
0.00 |
|
|
|
2,675 |
|
|
|
* |
|
|
|
|
|
7/3/2008 |
|
$ |
0.00 |
|
|
|
5,463 |
|
|
|
|
|
|
|
* |
|
|
|
|
* |
|
The number of shares actually awarded will be determined at the end of the applicable 3-year
performance cycle based upon actual performance results. Awards will also be prorated based upon
the number of days worked by Executive during the applicable three year performance cycle |
exv10w19
Exhibit 10.19
H&R BLOCK, INC.
2008 DEFERRED STOCK UNIT PLAN FOR OUTSIDE DIRECTORS
(as amended September 24, 2009)
1. Purposes. The purposes of this 2008 Deferred Stock Unit Plan for Outside Directors are to
attract, retain and reward experienced and qualified directors who are not employees of the Company
or any Subsidiary of the Company, and to secure for the Company and its shareholders the benefits
of stock ownership in the Company by those directors.
2. Definitions.
(a) Account shall mean a recordkeeping account for each Recipient reflecting the number of
Deferred Stock Units credited to such a Recipient.
(b) Beneficiary or Beneficiaries shall mean the persons or trusts designated by a
Recipient in writing pursuant to Section 10(a) of the Plan as being entitled to receive any benefit
payable under the Plan by reason of the death of a Recipient, or, in the absence of such
designation, the persons specified in Section 10(b) of the Plan.
(c) Board of Directors shall mean the board of directors of the Company.
(d) Closing Price shall mean the last reported market price for one share of Common Stock,
regular way, on the New York Stock Exchange (or any successor exchange or stock market on which
such last reported market price is reported) on the day in question. If such exchange or market is
closed on the day on which Closing Price is to be determined or if there were no sales reported on
such date, Closing Price shall be computed as of the last date preceding such date on which such
exchange or market was open and a sale was reported.
(e) Code shall mean the Internal Revenue Code of 1986, as amended.
(f) Common Stock shall mean the common stock, without par value, of the Company.
(g) Company shall mean H&R Block, Inc., a Missouri corporation.
(h) Deferred Stock Unit shall mean the unit of measurement of a Recipients interest in the
Plan.
(i) Director shall mean a member of the Board of Directors of the Company or a member of the
Board of Directors of any Subsidiary of the Company, as the case may be. With respect only to
awards made within thirty (30) days after initial approval of this Plan by shareholders of the
Company, Director shall include an individual who was a Director in June, 2008 and whose term
expired at the 2008 annual meeting of shareholders at which this Plan was initially approved.
(j) Outside Director shall mean a Director who is not an employee of the Company on the date
of grant of the Deferred Stock Unit. As used herein, employee of the Company means any full-time
employee of the Company, its subsidiaries and their respective
divisions, departments and subsidiaries and the respective divisions, departments and
subsidiaries of such subsidiaries who is employed at least thirty-five (35) hours a week; provided,
however, it is expressly understood that an employee of the Company does not include independent
contractors or other persons not otherwise employed by the Company or any Subsidiary of the Company
but who provide legal, accounting, investment banking or other professional services to the Company
or any Subsidiary of the Company.
(k) Plan shall mean this 2008 Deferred Stock Unit Plan for Outside Directors, as the same
may be amended from time to time.
(l) Recipient shall mean an Outside Director of the Company or any Subsidiary of the Company
who has been granted a Deferred Stock Unit under the Plan or any person who succeeds to the rights
of such Outside Director under this Plan by reason of the death of such Outside Director.
(m) Related Company shall mean (i) any corporation that is a member of a controlled group of
corporations (as defined in Section 414(b) of the Code) that includes that Company; and (ii) any
trade or business (whether or not incorporated) that is under common control (as defined in Section
414(c) of the Code) with the Company (for purposes of applying Sections 414(b) and (c) of the Code,
twenty-five percent (25%) is substituted for the eighty percent (80%) ownership level).
(n) Separation from Service shall mean that a Director ceases to be a Director and it is not
anticipated that the individual will thereafter perform services for the Company or a Related
Company. For this purpose, services provided as an employee are disregarded if this Plan is not
aggregated with any plan in which a Director participates as an employee pursuant to Treasury
Regulation section 1.409A-1(c)(2)(ii).
(o) Subsidiary of the Company shall mean a subsidiary of the Company, its divisions,
departments, and subsidiaries and the respective divisions, departments and subsidiaries of such
subsidiaries.
3. Administration of the Plan. The Plan may be administered by the Board of Directors. A majority
of the Board of Directors shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing by all members of
the Board of Directors, shall be valid acts of the Board of Directors.
The Board of Directors shall have full power and authority to construe, interpret and
administer the Plan and, subject to the other provisions of this Plan, to make determinations which
shall be final, conclusive and binding upon all persons, including, without limitation, the
Company, the shareholders of the Company, the Board of Directors, the Recipients and any persons
having any interest in any Deferred Stock Units which may be granted under this Plan. The Board of
Directors shall impose such additional conditions upon Deferred Stock Units granted under this Plan
and the exercise thereof as may from time to time be deemed necessary or advisable, in the opinion
of counsel to the Company, to comply with applicable laws and regulations. The Board of Directors
from time to time may adopt rules and regulations for carrying out the Plan and written policies
for implementation of the Plan. Such policies may
2
include, but need not be limited to, the type, size and terms of Deferred Stock Units to be
granted to Outside Directors.
4. Awards. The Board of Directors may, in its sole and absolute discretion, from time to time
during the continuance of the Plan, (i) determine which Outside Directors shall be granted Deferred
Stock Units under the Plan, (ii) grant Deferred Stock Units to any Outside Directors so selected,
(iii) determine the date of grant, size and terms of Deferred Stock Units to be granted to Outside
Directors of any Subsidiary of the Company (subject to Sections 7, 13 and 14 hereof, as the same
may be hereafter amended), and (iv) do all other things necessary and proper to carry out the
intentions of this Plan.
5. Eligibility. Deferred Stock Units may be granted to any Outside Director; however, no Outside
Director or other person shall have any claim or right to be granted a Deferred Stock Unit under
the Plan.
6. Credits. The number of Deferred Stock Units credited to a Recipients Account pursuant to an
award shall equal the dollar amount of the award divided by the average Closing Price for the ten
consecutive trading dates ending on the date of award. If a cash dividend is paid on Common Stock,
a Recipients Account shall be credited with the number of Deferred Stock Units equal to the amount
of dividend that would have been paid with respect to the Deferred Stock Units if they were shares
of Common Stock, divided by the Closing Price on the date the dividends were paid. If a stock
dividend is paid on Common Stock, a Recipients Account shall be credited with the same number of
Deferred Stock Units as the number of shares of Common Stock the Recipient would have received as a
dividend if the Deferred Stock Units credited to his Account were shares of Common Stock.
7. Stock Subject to the Plan. The total number of shares of Common Stock issuable under this Plan
may not at any time exceed three hundred thousand (300,000) shares, subject to adjustment as
provided in Sections 16 and 17 hereof. Shares of Common Stock not actually issued pursuant to
Deferred Stock Units shall be available for future awards of Deferred Stock Units. Shares of Common
Stock to be delivered under the Plan may be either authorized but unissued Common Stock or treasury
shares.
8. Vesting. All Deferred Stock Units credited to a Recipients Account shall be fully vested at all
times.
9. Payment.
(a) Time and Form of Payment Upon Separation from Service. If a Recipient has a Separation
from Service for a reason other than death, payment of his Account shall be made in one lump sum on
the six month anniversary of the date the Recipient had a Separation from Service. If the New York
Stock Exchange (or any successor exchange or stock market on which shares of the Common Stock are
traded) is not open on such day, then payment shall be made on the next day the New York Stock
Exchange (or any successor exchange or stock market on which shares of the Common Stock are traded)
is open.
(b) Payment Following Death. If a Recipient dies prior to the payment in full of all amounts
due him under the Plan, the balance of his Account shall be payable to his
3
designated Beneficiary in a lump sum as soon as reasonably practical following death, but no
later than ninety (90) days following the Recipients death. The beneficiary designation shall be
revocable and must be made in writing in a manner approved by the Company.
(c) Medium of Payment. Payment of a Directors Account shall be made in shares of Common
Stock. The number of shares of Common Stock issued shall equal the number, rounded up to the next
whole number, of Deferred Stock Units credited to a Directors Account.
10. Beneficiary.
(a) Designation by Recipient. Each Recipient has the right to designate primary and contingent
Beneficiaries for death benefits payable under the Plan. Such Beneficiaries may be individuals or
trusts for the benefit of individuals. A beneficiary designation by a Recipient shall be in writing
on a form acceptable to the Company and shall only be effective upon delivery to the Company. In
the event a Recipient is married at the time he or she designates a beneficiary other than his or
her spouse, such designation will not be valid unless the Recipients spouse consents in writing to
such designation. A beneficiary designation may be revoked by a Recipient at any time by delivering
to the Company either written notice of revocation or a new beneficiary designation form. The
beneficiary designation form last delivered to the Company prior to the death of a Recipient shall
control.
(b) Failure to Designate Beneficiary. In the event there is no beneficiary designation on file
with the Company, or all Beneficiaries designated by a Recipient have predeceased the Recipient,
the benefits payable by reason of the death of the Recipient shall be paid to the Recipients
spouse, if living; if the Recipient does not leave a surviving spouse, to the Recipients issue by
right of representation; or, if there are no such issue then living, to the Recipients estate. In
the event there are benefits remaining unpaid at the death of a sole Beneficiary and no successor
Beneficiary has been designated, either by the Recipient or the Recipients spouse pursuant to
Section 10(a), the remaining balance of such benefit shall be paid to the deceased Beneficiarys
estate; or, if the deceased Beneficiary is one of multiple concurrent Beneficiaries, such remaining
benefits shall be paid proportionally to the surviving Beneficiaries.
11. Unfunded. This Plan is unfunded and payable solely from the general assets of the Company.
The Recipients shall be unsecured creditors of the Company with respect to their interests in the
Plan.
12. No Claim on Specific Assets. No Recipient shall be deemed to have, by virtue of being a
Recipient, any claim on any specific assets of the Company such that the Recipient would be subject
to income taxation on his or her benefits under the Plan prior to distribution and the rights of
Recipients and Beneficiaries to benefits to which they are otherwise entitled under the Plan shall
be those of an unsecured general creditor of the Company.
13. Continuation as Director. The Board of Directors shall require that a Recipient be an Outside
Director at the time a Deferred Stock Unit is granted. The Board of Directors shall have the sole
power to determine the date of any circumstances which shall constitute cessation as a Director and
to determine whether such cessation is the result of death or any other reason.
4
14. Registration of Stock. No shares of Common Stock may be issued at any time when its exercise or
the delivery of shares of Common Stock or other securities thereunder would, in the opinion of
counsel for the Company, be in violation of any state or federal law, rule or ordinance, including
any state or federal securities laws or any regulation or ruling of the Securities and Exchange
Commission.
15. Non-Assignability. No Deferred Stock Unit granted pursuant to the Plan shall be transferable or
assignable by the Recipient other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder; provided however, that
a Recipient may transfer or assign a Deferred Stock Unit to an entity that is or was a shareholder
of the Company at any time during which the Recipient served as a Director (a Shareholder Entity)
if (i) the Recipient is affiliated with the manager of the investments made by such Shareholder
Entity or otherwise serves as a Director at the Shareholder Entitys discretion or request, and
(ii) pursuant to the Shareholder Entitys governance documents or any regulatory, contractual or
other requirement, any consideration the Recipient may receive as compensation for serving as a
Director must be transferred, assigned, surrendered or otherwise paid to the Shareholder Entity.
16. Dilution or Other Adjustments. In the event of any change in the capital structure of the
Company, including but not limited to a change resulting from a stock dividend or split, or
combination or reclassification of shares, the Board of Directors shall make such equitable
adjustments with respect to the Deferred Stock Units or any provisions of this Plan as it deems
necessary or appropriate, including, if necessary, any adjustment in the maximum number of shares
of Common Stock subject to an outstanding Deferred Stock Unit.
17. Merger, Consolidation, Reorganization, Liquidation, Etc. If the Company shall become a party to
any corporate merger, consolidation, major acquisition of property for stock, reorganization or
liquidation, the Board of Directors shall make such arrangements it deems advisable with respect to
outstanding Deferred Stock Units, which shall be binding upon the Recipients of outstanding
Deferred Stock Units, including, but not limited to, the substitution of new Deferred Stock Units
for any Deferred Stock Units then outstanding, the assumption of such Deferred Stock Units and the
termination of or payment for such Deferred Stock Units.
18. Costs and Expenses. The cost and expenses of administering the Plan shall be borne by the
Company and not charged to any Deferred Stock Unit nor to any Recipient.
19. Deferred Stock Unit Agreements. The Board of Directors shall have the power to specify the form
of Deferred Stock Unit agreements to be granted from time to time pursuant to and in accordance
with the provisions of the Plan and such agreements shall be final, conclusive and binding upon the
Company, the shareholders of the Company and the Recipients. No Recipient shall have or acquire any
rights under the Plan except such as are evidenced by a duly executed agreement in the form thus
specified.
20. No Shareholder Privileges. Neither the Recipient nor any person claiming under or through him
or her shall be or have any of the rights or privileges of a shareholder of the Company in respect
to any of the Common Stock issuable with respect to any Deferred Stock
5
Unit, unless and until certificates evidencing such shares of Common Stock shall have been duly
issued and delivered.
21. Guidelines. The Board of Directors shall have the power to provide guidelines for
administration of the Plan and to make any changes in such guidelines as from time to time the
Board deems necessary.
22. Amendment and Discontinuance. The Board of Directors shall have the right at any time during
the continuance of the Plan to amend, modify, supplement, suspend or terminate the Plan, provided
that (a) no amendment, supplement, modification, suspension or termination of the Plan shall in any
material manner affect any Deferred Stock Unit of any kind theretofore granted under the Plan
without the consent of the Recipient of the Deferred Stock Unit, unless such amendment, supplement,
modification, suspension or termination is by reason of any change in capital structure referred to
in Section 16 hereof or unless the same is by reason of the matters referred to in Section 17
hereof; (b) Section 409A of the Code is not violated thereby, and (c) if the Plan is duly approved
by the shareholders of the Company, no amendment, modification or supplement to the Plan shall
thereafter, in the absence of the approval of the holders of a majority of the shares of Common
Stock present in person or by proxy at a duly constituted meeting of shareholders of the Company,
(i) increase the aggregate number of shares which may be issued under the Plan, unless such
increase is by reason of any change in capital structure referred to in Section 16 hereof, or (ii)
change the termination date of the Plan provided in Section 23 hereof.
23. Termination. Deferred Stock Units may be granted in accordance with the terms of the Plan until
September 4, 2018, on which date this Plan will terminate except as to Deferred Stock Units then
outstanding hereunder, which Deferred Stock Units shall remain in effect until they have been paid
out according to their terms.
24. Notices. Any notice permitted or required under the Plan shall be in writing and shall be hand
delivered or sent, postage prepaid, by certified mail with return receipt requested, to the
principal office of the Company, if to the Company, or to the address last shown on the records of
the Company, if to a Recipient or Beneficiary. Any such notice shall be effective as of the date of
hand delivery or mailing.
25. No Guarantee of Membership. Neither the adoption and maintenance of the Plan nor the award of
Deferred Stock Units by the Company to any Director shall be deemed to be a contract between the
Company and any Recipient to retain his or her position as a Director.
26. Withholding. The Company may withhold from any payment of benefits under the Plan such amounts
as the Company determines are reasonably necessary to pay any taxes (and interest thereon) required
to be withheld or for which the Company may become liable under applicable law. Any amounts
withheld pursuant to this Section 26 in excess of the amount of taxes due (and interest thereon)
shall be paid to the Recipient or Beneficiary upon final determination, as determined by the
Company, of such amount. No interest shall be payable by the Company to any Recipient or
Beneficiary by reason of any amounts withheld pursuant to this Section 26.
6
27. 409A Compliance. To the extent provisions of this Plan do not comply with 409A of the Code,
the non-compliant provisions shall be interpreted and applied in the manner that complies with 409A
of the Code and implements the intent of this Plan as closely as possible.
28. Release. Any payment of benefits to or for the benefit of a Recipient or Beneficiaries that is
made in good faith by the Company in accordance with the Companys interpretation of its
obligations hereunder, shall be in full satisfaction of all claims against the Company for benefits
under this Plan to the extent of such payment.
29. Captions. Article and section headings and captions are provided for purposes of reference and
convenience only and shall not be relied upon in any way to construe, define, modify, limit, or
extend the scope of any provision of the Plan.
30. Approval. This Plan shall take effect upon due approval by the Board of Directors and the
shareholders of the Company.
7
exv10w36
Exhibit 10.36
EXECUTION COPY
Published CUSIP Number: 09365VAE1
CREDIT AND GUARANTEE AGREEMENT
Dated as of March 4, 2010
among
BLOCK FINANCIAL LLC,
as the Borrower,
H&R BLOCK, INC.,
as the Guarantor,
The Lenders Party Hereto,
WELLS FARGO BANK, N.A.
as Syndication Agent,
BNP PARIBAS,
as Documentation Agent,
and
BANK OF AMERICA, N.A.,
as Administrative Agent and Swingline Lender
BANC OF AMERICA SECURITIES LLC,
WELLS FARGO SECURITIES, LLC and
BNP PARIBAS SECURITIES CORP.
Joint Lead Arrangers and Joint Book Managers
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS |
|
|
|
|
|
|
|
|
|
|
|
Section 1.01
|
|
Defined Terms
|
|
|
1 |
|
Section 1.02
|
|
Other Interpretive Provisions
|
|
|
17 |
|
Section 1.03
|
|
Accounting Terms; GAAP
|
|
|
18 |
|
Section 1.04
|
|
Times of Day
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
ARTICLE II
THE COMMITMENTS AND CREDITS |
|
|
|
|
|
|
|
|
|
|
|
Section 2.01
|
|
Committed Loans
|
|
|
18 |
|
Section 2.02
|
|
Borrowings, Conversions and Continuations of Committed Loans
|
|
|
18 |
|
Section 2.03
|
|
Swingline Loans
|
|
|
20 |
|
Section 2.04
|
|
Termination and Reduction of Commitments
|
|
|
23 |
|
Section 2.05
|
|
Repayment of Loans; Evidence of Debt
|
|
|
23 |
|
Section 2.06
|
|
Prepayment of Loans
|
|
|
24 |
|
Section 2.07
|
|
Fees
|
|
|
25 |
|
Section 2.08
|
|
Interest
|
|
|
25 |
|
Section 2.09
|
|
Alternate Rate of Interest
|
|
|
26 |
|
Section 2.10
|
|
Increased Costs
|
|
|
26 |
|
Section 2.11
|
|
Break Funding Payments
|
|
|
27 |
|
Section 2.12
|
|
Taxes
|
|
|
28 |
|
Section 2.13
|
|
Payments Generally; Pro Rata Treatment; Sharing of Set-offs;
Administrative Agents Clawback
|
|
|
29 |
|
Section 2.14
|
|
Mitigation Obligations; Replacement of Lenders
|
|
|
31 |
|
Section 2.15
|
|
Illegality
|
|
|
32 |
|
Section 2.16
|
|
Cash Collateral
|
|
|
33 |
|
Section 2.17
|
|
Defaulting Lenders
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
ARTICLE III
REPRESENTATIONS AND WARRANTIES |
|
|
|
|
|
|
|
|
|
|
|
Section 3.01
|
|
Organization; Powers
|
|
|
35 |
|
Section 3.02
|
|
Authorization; Enforceability
|
|
|
35 |
|
Section 3.03
|
|
Governmental Approvals; No Conflicts
|
|
|
36 |
|
Section 3.04
|
|
Financial Condition; No Material Adverse Change
|
|
|
36 |
|
Section 3.05
|
|
Properties
|
|
|
36 |
|
Section 3.06
|
|
Litigation and Environmental Matters
|
|
|
37 |
|
Section 3.07
|
|
Compliance with Laws and Agreements
|
|
|
37 |
|
Section 3.08
|
|
Investment Company Status
|
|
|
37 |
|
Section 3.09
|
|
Taxes
|
|
|
37 |
|
Section 3.10
|
|
ERISA
|
|
|
37 |
|
Block Financial LLC Credit Agreement
i
|
|
|
|
|
|
|
|
|
|
|
Page |
Section 3.11
|
|
Disclosure
|
|
|
38 |
|
Section 3.12
|
|
Federal Regulations
|
|
|
38 |
|
Section 3.13
|
|
Subsidiaries
|
|
|
38 |
|
Section 3.14
|
|
Insurance
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
ARTICLE IV
CONDITIONS |
|
|
|
|
|
|
|
|
|
|
|
Section 4.01
|
|
Conditions of Effectiveness
|
|
|
38 |
|
Section 4.02
|
|
Conditions to all Loans
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
ARTICLE V
AFFIRMATIVE COVENANTS |
|
|
|
|
|
|
|
|
|
|
|
Section 5.01
|
|
Financial Statements and Other Information
|
|
|
40 |
|
Section 5.02
|
|
Notices of Material Events
|
|
|
42 |
|
Section 5.03
|
|
Existence; Conduct of Business
|
|
|
42 |
|
Section 5.04
|
|
Payment of Taxes
|
|
|
42 |
|
Section 5.05
|
|
Maintenance of Properties; Insurance
|
|
|
43 |
|
Section 5.06
|
|
Books and Records; Inspection Rights
|
|
|
43 |
|
Section 5.07
|
|
Compliance with Laws
|
|
|
43 |
|
Section 5.08
|
|
Use of Proceeds
|
|
|
43 |
|
Section 5.09
|
|
Cleandown
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
ARTICLE VI
NEGATIVE COVENANTS |
|
|
|
|
|
|
|
|
|
|
|
Section 6.01
|
|
Consolidated Net Worth
|
|
|
44 |
|
Section 6.02
|
|
Indebtedness
|
|
|
44 |
|
Section 6.03
|
|
Liens
|
|
|
47 |
|
Section 6.04
|
|
Fundamental Changes; Sale of Assets
|
|
|
48 |
|
Section 6.05
|
|
Transactions with Affiliates
|
|
|
49 |
|
Section 6.06
|
|
Restrictive Agreements
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
ARTICLE VII
GUARANTEE |
|
|
|
|
|
|
|
|
|
|
|
Section 7.01
|
|
Guarantee
|
|
|
49 |
|
Section 7.02
|
|
Delay of Subrogation
|
|
|
50 |
|
Section 7.03
|
|
Amendments, etc. with respect to the Obligations; Waiver of Rights
|
|
|
51 |
|
Section 7.04
|
|
Guarantee Absolute and Unconditional
|
|
|
51 |
|
Section 7.05
|
|
Reinstatement
|
|
|
52 |
|
Section 7.06
|
|
Payments
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES |
|
|
|
|
|
|
|
|
|
|
|
Section 8.01
|
|
Events of Default
|
|
|
52 |
|
Block Financial LLC Credit Agreement
ii
|
|
|
|
|
|
|
|
|
|
|
Page |
Section 8.02
|
|
Remedies Upon Event of Default
|
|
|
54 |
|
Section 8.03
|
|
Application of Funds
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
ARTICLE IX
ADMINISTRATIVE AGENT |
|
|
|
|
|
|
|
|
|
|
|
Section 9.01
|
|
Appointment and Authority
|
|
|
55 |
|
Section 9.02
|
|
Rights as a Lender
|
|
|
55 |
|
Section 9.03
|
|
Exculpatory Provisions
|
|
|
56 |
|
Section 9.04
|
|
Reliance by Administrative Agent
|
|
|
57 |
|
Section 9.05
|
|
Delegation of Duties
|
|
|
57 |
|
Section 9.06
|
|
Resignation of Administrative Agent
|
|
|
57 |
|
Section 9.07
|
|
Non-Reliance on Administrative Agent and Other Lenders
|
|
|
58 |
|
Section 9.08
|
|
No Other Duties, Etc
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
ARTICLE X
MISCELLANEOUS |
|
|
|
|
|
|
|
|
|
|
|
Section 10.01
|
|
Notices; Effectiveness; Electronic Communication
|
|
|
58 |
|
Section 10.02
|
|
Amendments, Etc
|
|
|
60 |
|
Section 10.03
|
|
Enforcement
|
|
|
61 |
|
Section 10.04
|
|
Expenses; Indemnity; Damage Waiver
|
|
|
62 |
|
Section 10.05
|
|
Payments Set Aside
|
|
|
63 |
|
Section 10.06
|
|
Successors and Assigns
|
|
|
64 |
|
Section 10.07
|
|
Survival
|
|
|
67 |
|
Section 10.08
|
|
Counterparts; Integration; Effectiveness
|
|
|
67 |
|
Section 10.09
|
|
Severability
|
|
|
68 |
|
Section 10.10
|
|
Right of Setoff
|
|
|
68 |
|
Section 10.11
|
|
Governing Law; Jurisdiction; Etc.
|
|
|
68 |
|
Section 10.12
|
|
Waiver of Jury Trial
|
|
|
69 |
|
Section 10.13
|
|
Treatment of Certain Information; Confidentiality
|
|
|
70 |
|
Section 10.14
|
|
Interest Rate Limitation
|
|
|
70 |
|
Section 10.15
|
|
No Advisory or Fiduciary Responsibility
|
|
|
71 |
|
Section 10.16
|
|
Electronic Execution of Assignments and Certain Other Documents
|
|
|
71 |
|
Section 10.17
|
|
Termination of Existing Agreements
|
|
|
71 |
|
Section 10.18
|
|
USA PATRIOT Act
|
|
|
72 |
|
|
|
|
|
|
|
|
SIGNATURES
|
|
|
|
|
S-1 |
|
Block Financial LLC Credit Agreement
iii
|
|
|
|
|
|
|
SCHEDULES |
|
|
|
|
|
|
|
|
|
|
|
|
2.01 |
|
|
Commitments and Applicable Percentages |
|
|
|
3.04(a) |
|
|
Guarantee Obligations |
|
|
|
3.06 |
|
|
Disclosed Matters |
|
|
|
3.13 |
|
|
Subsidiaries |
|
|
|
6.02 |
|
|
Existing Indebtedness |
|
|
|
6.03 |
|
|
Existing Liens |
|
|
|
6.04(b) |
|
|
Additional Businesses |
|
|
|
6.06 |
|
|
Existing Restrictions |
|
|
|
10.01 |
|
|
Administrative Agents Office; Certain Addresses for Notices |
|
|
|
|
|
|
|
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form of |
|
|
|
|
|
|
|
|
|
|
A |
|
|
Committed Loan Notice |
|
|
|
B |
|
|
Swingline Loan Notice |
|
|
|
C |
|
|
Note |
|
|
|
D |
|
|
Assignment and Acceptance |
|
|
|
E-1 |
|
|
Form of Opinion of Mayer Brown LLP |
|
|
|
E-2 |
|
|
Form of Opinion of Stinson Morrison Hecker LLP |
Block Financial LLC Credit Agreement
iv
CREDIT AND GUARANTEE AGREEMENT
This CREDIT AND GUARANTEE AGREEMENT is entered into as of March 4, 2010, among BLOCK FINANCIAL
LLC, a Delaware limited liability company (the Borrower), H&R BLOCK, INC., a Missouri
corporation (the Guarantor), each lender from time to time party hereto (collectively,
the Lenders and individually, a Lender), and BANK OF AMERICA, N.A., as
Administrative Agent and Swingline Lender.
The Borrower has requested that the Lenders provide a revolving credit facility, and the
Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Defined Terms. As used in this Agreement, the following terms have the
meanings specified below:
Administrative Agent means Bank of America in its capacity as administrative agent
for the Lenders hereunder, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as
appropriate, account as set forth on Schedule 10.01, or such other address or account as
the Administrative Agent may from time to time notify to the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in a form
approved by the Administrative Agent.
Affiliate means, with respect to a specified Person, another Person that directly,
or indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified. For the avoidance of doubt, neither the Guarantor nor any of
its Subsidiaries shall be deemed to Control any of its franchisees by virtue of provisions in the
relevant franchise agreement regulating the business and operations of such franchisee.
Aggregate Commitments means the Commitments of all the Lenders.
Agreement means this Credit and Guarantee Agreement.
Applicable Percentage means, with respect to any Lender, the percentage of the
Aggregate Commitments represented by such Lenders Commitment. If the Commitments have terminated
or expired, the Applicable Percentages shall be determined based upon the Commitments most recently
in effect, giving effect to any assignments.
Applicable Rate means, for any day, the rate per annum based on the Ratings in
effect on such day, as set forth under the relevant column heading below:
Block Financial LLC Credit Agreement
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Rate for |
|
|
|
|
|
|
|
|
|
|
|
Eurodollar Rate |
|
|
Facility Fees |
|
Category |
|
|
Ratings |
|
Base Rate Loans |
|
|
Loans |
|
|
Payable Hereunder |
|
I |
|
Higher than: A- by
S&P or A3 by
Moodys |
|
|
0.300 |
% |
|
|
1.300 |
% |
|
|
0.200 |
% |
II |
|
A- by S&P or A3 by
Moodys |
|
|
0.750 |
% |
|
|
1.750 |
% |
|
|
0.250 |
% |
III |
|
BBB+ by S&P or Baa1
by Moodys |
|
|
1.125 |
% |
|
|
2.125 |
% |
|
|
0.375 |
% |
IV |
|
BBB by S&P or Baa2
by Moodys |
|
|
1.125 |
% |
|
|
2.125 |
% |
|
|
0.500 |
% |
V |
|
BBB- by S&P or Baa3
by Moodys |
|
|
1.400 |
% |
|
|
2.400 |
% |
|
|
0.600 |
% |
VI |
|
Lower than: BBB-
by S&P or Baa3 by
Moodys |
|
|
1.800 |
% |
|
|
2.800 |
% |
|
|
0.700 |
% |
; provided that (a) if on any day the Ratings of S&P and Moodys do not fall in the
same category, then the higher of such Ratings shall be applicable for such day, unless one of the
two ratings is two or more Ratings levels lower than the other, in which case the applicable rate
shall be determined by reference to the Ratings level next below that of the higher of the two
ratings, (b) if on any day the Rating of only S&P or Moodys is available, then such Rating shall
be applicable for such day and (c) if on any day a Rating is not available from both S&P and
Moodys, then the Ratings in category VI above shall be applicable for such day. Any change in the
Applicable Rate resulting from a change in Rating by either S&P or Moodys shall become effective
on the date such change is publicly announced by such rating agency.
Arranger means any of Banc of America Securities LLC, Wells Fargo Securities, LLC
and BNP Paribas Securities Corp. in its capacity as a joint lead arranger and joint book manager.
Assignment and Acceptance means an assignment and acceptance entered into by a
Lender and an assignee (with the consent of any party whose consent is required by
Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of
Exhibit D or any other form approved by the Administrative Agent.
Availability Period means the period from the Closing Date to the earlier of the
Maturity Date and the date of termination of the Commitments.
Bank of America means Bank of America, N.A. and its successors.
Base Rate means for any day a fluctuating rate per annum equal to the highest of
(a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day
as publicly announced from time to time by Bank of America as its prime rate and (c) the
Eurodollar Rate plus 1.00%. The prime rate is a rate set by Bank of America based upon
various factors, including Bank of Americas costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate. Any change in such rate announced by Bank
Block Financial LLC Credit Agreement
2
of America shall take effect at the opening of business on the day specified in the public
announcement of such change.
Base Rate Committed Loan means a Committed Loan that is a Base Rate Loan.
Base Rate Loan means a Loan that bears interest based on the Base Rate.
Board means the Board of Governors of the Federal Reserve System of the United
States of America.
Borrower has the meaning assigned to such term in the introductory paragraph hereof.
Borrower Materials has the meaning specified in Section 5.01.
Borrowing means (a) Committed Loans of the same Type made, converted or continued on
the same date and, in the case of Eurodollar Rate Loans, as to which a single Interest Period is in
effect or (b) a Swingline Loan.
Business Day means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the laws of, or are in fact closed in, New York City
and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in
Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
Capital Lease Obligations of any Person means the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
Capital Stock means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
Cash Collateralize means to pledge and deposit with or deliver to the Administrative
Agent, for the benefit of the Administrative Agent or the Swingline Lender (as applicable) and the
Lenders, as collateral for obligations of Defaulting Lenders to fund participations in Swingline
Loans, cash or deposit account balances or, if the Swingline Lender shall agree in its sole
discretion, other credit support, in each case pursuant to documentation in form and substance
satisfactory to (a) the Administrative Agent and (b) the Swingline Lender (as applicable). Cash
Collateral shall have a meaning correlative to the foregoing and shall include the proceeds of
such cash collateral and other credit support.
Cash Equivalents: (a) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States government or issued by any agency thereof
Block Financial LLC Credit Agreement
3
and backed by the full faith and credit of the United States, in each case maturing within one
year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or less from the date of
acquisition issued by (i) any Lender, (ii) any commercial bank organized under the laws of the
United States or any state thereof having combined capital and surplus of not less than
$500,000,000 or (iii) any other bank if, and to the extent, covered by FDIC insurance;
(c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moodys, or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally, and maturing within six
months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a term of not more than
30 days, with respect to securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of acquisition issued
or fully guaranteed by any state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political subdivision, taxing
authority or foreign government (as the case may be) are rated at least A by S&P or A2 by Moodys;
(f) securities with maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition; (g) money market mutual or similar funds that invest exclusively in
assets satisfying the requirements of clauses (a) through (f) of this definition; (h) money market
funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act
of 1940, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have portfolio assets of at least
$1,000,000,000; (i) interests in privately offered investment funds under Section 3(c)(7) of the
U.S. Investment Company Act of 1940 where such interests are (i) freely transferable and (ii) rated
AAA by S&P or Aaa by Moodys; and (j) one month LIBOR floating rate asset backed securities that
are (i) freely transferable and (ii) rated AAA by S&P or Aaa by Moodys.
Change in Control means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934, and the rules of the Securities and Exchange Commission thereunder as in effect on the
date hereof) of shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Guarantor; (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the Guarantor by
Persons who were neither (i) nominated by the board of directors of the Guarantor nor
(ii) appointed by directors so nominated; (c) the acquisition of direct or indirect Control of the
Guarantor by any Person or group; or (d) the failure of the Guarantor to own, directly or
indirectly, shares representing 100% of the aggregate ordinary voting power represented by the
issued and outstanding Capital Stock of the Borrower.
Change in Law means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement or
(c) compliance by any Lender (or, for purposes of Section 2.10(b), by any Lending Office of
such Lender or by such Lenders holding company, if any) with any request, guideline or
Block Financial LLC Credit Agreement
4
directive (whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
Charges has the meaning assigned to such term in Section 10.14.
Closing Date means the first date all the conditions precedent in
Section 4.01 are satisfied or waived in accordance with Section 10.02.
Code means the Internal Revenue Code of 1986.
Commitment means, as to each Lender, its obligation to (a) make Committed Loans to
the Borrower pursuant to Section 2.01 and (b) purchase participations in Swingline Loans,
in an aggregate principal amount at any one time outstanding not to exceed the amount set forth
opposite such Lenders name on Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from
time to time in accordance with this Agreement.
Committed Borrowing means a borrowing consisting of simultaneous Committed Loans of
the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by
each of the Lenders pursuant to Section 2.01.
Committed Loan has the meaning specified in Section 2.01.
Committed Loan Notice means a notice of (a) a Committed Borrowing, (b) a conversion
of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans,
pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of
Exhibit A.
Company means any of the Guarantor, the Borrower or any Subsidiary.
Consolidated Net Worth means, at any time, the total amount of stockholders equity
of the Guarantor and its consolidated Subsidiaries at such time determined on a consolidated basis
in accordance with GAAP.
Contractual Obligation means, as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or undertaking to which such Person is a party or by
which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. Controlling and Controlled
have meanings correlative thereto.
Credit Parties means the collective reference to the Borrower and the Guarantor.
Block Financial LLC Credit Agreement
5
Default means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Defaulting Lender means, subject to Section 2.17(b), any Lender that, as
determined by the Administrative Agent, (a) has failed to perform any of its funding obligations
hereunder, including in respect of its Loans or participations in respect of Swingline Loans,
within three Business Days of the date required to be funded by it hereunder, (b) has notified the
Borrower, or the Administrative Agent that it does not intend to comply with its funding
obligations or has made a public statement to that effect with respect to its funding obligations
hereunder or under other agreements in which it commits to extend credit, (c) has failed, within
three Business Days after written request by the Administrative Agent (based on its reasonable
belief that such Lender may not fulfill its funding obligations), to confirm in a manner
satisfactory to the Administrative Agent that it will comply with its funding obligations
hereunder, or (d) has, or has a direct or indirect parent company that has, (i) become the subject
of a proceeding under any debtor relief law, (ii) had a receiver, conservator, trustee,
administrator, assignee for the benefit of creditors or similar Person charged with reorganization
or liquidation of its business or a custodian appointed for it, or (iii) taken any action in
furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or
appointment; provided that a Lender shall not be a Defaulting Lender solely by virtue of
the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent
company thereof by a Governmental Authority.
Disclosed Matters means (a) matters disclosed in the Borrowers public filings with
the Securities and Exchange Commission prior to March 1, 2010 and (b) the actions, suits,
proceedings and environmental matters disclosed in Schedule 3.06.
Dollar or $ refers to lawful money of the United States of America.
Environmental Laws means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into
by any Governmental Authority, relating in any way to the environment, preservation or reclamation
of natural resources, to the management, release or threatened release of any Hazardous Material or
to health and safety matters.
Environmental Liability means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any
Company directly or indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any
Hazardous Materials into the environment or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
ERISA means the Employee Retirement Income Security Act of 1974.
Block Financial LLC Credit Agreement
6
ERISA Affiliate means any trade or business (whether or not incorporated) that,
together with either Credit Party, is treated as a single employer under Section 414(b) or (c) of
the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as
a single employer under Section 414 of the Code.
ERISA Event means (a) any reportable event, as defined in Section 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) a determination that any Plan is in at risk status (within the
meaning of Section 303 of ERISA); (c) the filing pursuant to Section 412(c) of the Code or
Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect
to any Plan; (d) the incurrence by either Credit Party or any of their ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by
either Credit Party or any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any
Plan; (f) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met
with respect to any Plan; (g) the incurrence by either Credit Party or any of their ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (h) the receipt by either Credit Party or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from either Credit Party or any ERISA Affiliate of any
notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer
Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of
ERISA.
Eurodollar Rate means:
(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum
equal to the British Bankers Association LIBOR Rate (BBA LIBOR), as published by
Reuters (or another commercially available source providing quotations of BBA LIBOR as
reasonably designated by the Administrative Agent from time to time in a notice to the
Borrower) at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, for Dollar deposits (for delivery on the first day of
such Interest Period) with a term equivalent to such Interest Period; or if such rate is not
available at such time for any reason, then the Eurodollar Rate for such Interest Period
shall be the rate per annum determined by the Administrative Agent to be the rate at which
deposits in Dollars for delivery on the first day of such Interest Period in same day funds
in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by
Bank of America and with a term equivalent to such Interest Period would be offered by Bank
of Americas London Branch to major banks in the London interbank eurodollar market at their
request at approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period; and
(b) for any interest rate calculation with respect to a Base Rate Loan, the rate per
annum equal to (i) BBA LIBOR, as published by Reuters (or another commercially available
source providing quotations of BBA LIBOR as reasonably designated by the Administrative
Agent from time to time in a notice to the Borrower) at approximately 11:00 a.m., London
time, two Business Days prior to the date of determination for Dollar deposits being
delivered in the London interbank market for a term of one month
Block Financial LLC Credit Agreement
7
commencing that day; or (ii) if such rate is not available at such time for any reason,
the rate determined by the Administrative Agent to be the rate at which deposits in Dollars
for delivery on the date of determination in same day funds in the approximate amount of the
Base Rate Loan being made, continued or converted by Bank of America and with a term equal
to one month would be offered by Bank of Americas London Branch to major banks in the
London interbank eurodollar market at their request at approximately 11:00 a.m. (London
time) two Business Days prior to the date of determination.
Eurodollar Rate Loan means a Committed Loan that bears interest at a rate based on
clause (a) of the definition of Eurodollar Rate.
Event of Default means any event or condition described in Section 8.01.
Excluded Taxes means, with respect to the Administrative Agent, any Lender or any
other recipient of any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United
States of America, or by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which its applicable
Lending Office is located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the
case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.14(b)), any withholding tax that is imposed on amounts payable to such Foreign
Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such
Foreign Lenders failure or inability to comply with Section 2.12(e), except to the extent
that such Foreign Lenders assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.12(a).
Existing Agreements means (a) the Five-Year Credit and Guarantee Agreement, dated as
of August 10, 2005, among the Borrower, the Guarantor, various financial institutions and JPMorgan
Chase Bank, N.A., as Administrative Agent and (b) the Amended and Restated Five-Year Credit and
Guarantee Agreement, dated as of August 10, 2005, among the Borrower, the Guarantor, various
financial institutions and JPMorgan Chase Bank, N.A., as administrative agent.
Federal Funds Rate means, for any day, the rate per annum equal to the weighted
average of the rates on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day; provided that (a) if such day is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such
rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%)
charged to Bank of America on such day on such transactions as determined by the Administrative
Agent.
Block Financial LLC Credit Agreement
8
Fee Letters means the letter agreements, each dated February 3, 2010, among the
Borrower, the Administrative Agent and the respective Arrangers.
Financial Officer means the chief financial officer, principal accounting officer,
treasurer or controller of the Borrower or the Guarantor, as the context may require.
Foreign Lender means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
Fronting Exposure means, at any time there is a Defaulting Lender, such Defaulting
Lenders Applicable Percentage of Swingline Loans other than Swingline Loans as to which such
Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash
Collateralized in accordance with the terms hereof.
GAAP means generally accepted accounting principles in the United States of America.
Governmental Authority means the government of the United States of America, any
other nation or any political subdivision thereof, whether state, provincial or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government (including any supra-national bodies such as the European Union or the
European Central Bank).
Guarantee of or by any Person (the guarantor) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the primary
obligor) in any manner, whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or obligation;
provided that the term Guarantee shall not include endorsements for collection or deposit
in the ordinary course of business.
Guarantee Obligation means, as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations
(the primary obligations) of any other Person (the primary obligor) in any
manner, whether directly or indirectly, including any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary
Block Financial LLC Credit Agreement
9
obligation or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary obligation or
(d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in
respect thereof; provided, however, that the term Guarantee Obligation shall not
include endorsements of instruments for deposit or collection in the ordinary course of business.
The amount of any Guarantee Obligation shall be deemed to be an amount equal as of any date of
determination to the stated determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made (unless such Guarantee Obligation shall be expressly limited to a
lesser amount, in which case such lesser amount shall apply) or, if not stated or determinable, the
amount as of any date of determination of the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.
Guarantor has the meaning assigned to such term in the introductory paragraph
hereof.
Hazardous Materials means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.
Hedging Agreement means any interest rate protection agreement, foreign currency
exchange agreement, commodity price protection agreement or other interest or currency exchange
rate or commodity price hedging arrangement.
Indebtedness of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property acquired by such
Person, (e) all obligations of such Person in respect of the deferred purchase price of property or
services (excluding current accounts payable and accrued expenses incurred in the ordinary course
of business), (f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,
(g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise,
of such Person in respect of bankers acceptances, (k) for purposes of Section 6.02 only,
all preferred stock issued by a Subsidiary of such Person and (l) obligations under any RAL
Receivables Transaction or Other Receivables Transaction to the extent of the related RAL
Receivables Amount or Other Receivables Amount, respectively. The Indebtedness of any Person shall
include the Indebtedness of any other entity (including any partnership in which such Person is a
general partner) to the extent such Person is liable therefor as a result of such Persons
ownership interest in or other relationship with such entity, except to
Block Financial LLC Credit Agreement
10
the extent the terms of such Indebtedness provide that such Person is not liable therefor.
Indebtedness of a Person shall not include obligations with respect to funds held by such Person in
custody for, or for the benefit of, third parties which are to be paid at the direction of such
third parties (and are not used for any other purpose).
Indemnified Taxes means Taxes other than Excluded Taxes.
Indemnitee has the meaning assigned to such term in Section 10.04(b).
Indirect RAL Participation Transaction means any transaction by any Company
involving (a) an investment in a partnership, limited partnership, limited liability company,
limited liability partnership, business trust or other pass-through entity which is partially owned
by any Company, (b) the purchase by such pass-through entity of refund anticipation loans or
participation interests in refund anticipation loans (and/or related rights and interests), and
(c) the distribution of cash flow received by such pass-through entity with respect to such refund
anticipation loans or participation interests therein to the owners of such pass-through entity.
Information has the meaning assigned to such term in Section 10.03.
Interest Payment Date means, (a) as to any Loan other than a Base Rate Loan, the
last day of each Interest Period applicable to such Loan and the Maturity Date; provided,
however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the
respective dates that fall every three months after the beginning of such Interest Period shall
also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swingline Loan), the
last Business Day of each March, June, September and December and the Maturity Date.
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the
date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan
and ending on the date one or two weeks or one, two, three or six months thereafter, as selected by
the Borrower in its Committed Loan Notice; provided that:
(i) any Interest Period (other than a one or two week Interest Period) that would
otherwise end on a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period (other than a one or two week Interest Period) that begins on
the last Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
Lender has the meaning assigned to such term in the introductory paragraph hereof
and, as the context requires, includes the Swingline Lender.
Block Financial LLC Credit Agreement
11
Lending Office means, as to any Lender, the office or offices of such Lender
described as such in such Lenders Administrative Questionnaire, or such other office or offices as
a Lender may from time to time notify the Borrower and the Administrative Agent.
Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the
interest of a vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call
or similar right of a third party with respect to such securities; provided that clause (c)
above shall be deemed not to include stock options granted by any Person to its directors, officers
or employees with respect to the Capital Stock of such Person.
Loan means an extension of credit by a Lender to the Borrower under
Article II in the form of a Committed Loan or a Swingline Loan.
Loan Documents means this Agreement and the Notes, if any, and the Fee Letters.
Margin Stock means any margin stock as defined in Regulation U of the Board.
Material Adverse Effect means a material adverse effect on (a) the business, assets
or condition (financial or otherwise) of the Guarantor and its Subsidiaries taken as a whole,
(b) the ability of either Credit Party to perform any of its obligations under this Agreement or
(c) the rights of or benefits available to the Lenders under this Agreement.
Material Indebtedness means Indebtedness (other than the Loans), or obligations in
respect of one or more Hedging Agreements, of one or more of the Companies in an aggregate
principal amount exceeding $40,000,000. For purposes of determining Material Indebtedness, the
principal amount of the obligations of any Company in respect of any Hedging Agreement at any
time shall be the aggregate amount (giving effect to any netting agreements) that such Company
would be required to pay if such Hedging Agreement were terminated at such time.
Material Subsidiary means any Subsidiary of a Credit Party the aggregate assets or
revenues of which, as of the last day of the most recently ended fiscal quarter for which the
Borrower has delivered financial statements pursuant to Section 5.01(a) or (b), (x)
when aggregated with the assets or revenues of all other Subsidiaries with respect to which the
actions contemplated by Section 6.04 are taken, are greater than 5% of the total assets or
total revenues, as applicable, of the Guarantor and its consolidated Subsidiaries, or (y) as to
such Subsidiary, are greater than 5% of the total assets or total revenues, as applicable, of the
Guarantor and its consolidated Subsidiaries, in each case as determined in accordance with GAAP.
Maturity Date means July 31, 2013; provided, however, that if such
date is not a Business Day, the Maturity Date shall be the next succeeding Business Day.
Maximum Rate has the meaning assigned to such term in Section 10.14.
Block Financial LLC Credit Agreement
12
Moodys means Moodys Investors Service, Inc. and any successor thereto.
Multiemployer Plan means a multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
Note means a promissory note made by the Borrower in favor of a Lender evidencing
Loans made by such Lender, substantially in the form of Exhibit C.
Obligations means, collectively, the unpaid principal of and interest on the Loans
and all other obligations and liabilities of the Borrower (including interest accruing at the then
applicable rate provided herein after the maturity of the Loans and interest accruing at the then
applicable rate provided herein after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding) to the
Administrative Agent or any Lender, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out of, or in connection
with, this Agreement or any other document made, delivered or given in connection herewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including all fees and disbursements of counsel to the Administrative Agent or to the
Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing
agreements).
Other Receivables Amount means, at any time, the difference (but not less than
zero) between (i) the aggregate amount of funds received by the Guarantor, any Subsidiary or
any qualified or unqualified special purpose entity created by any Subsidiary with respect to the
transfer of loans or advances to customers, or participation interests in such loans or advances
(and/or related rights and interests), to any third party in any Other Receivables Transaction, at
or prior to such time, minus (ii) the aggregate amount received by all such third parties
with respect to the transferred loans or advances, or participation interests in such loans or
advances (and/or related rights and interests), in all Other Receivables Transactions, at or prior
to such time, excluding from the amounts received by such third parties, the aggregate
amount of any origination, set up, structuring or similar fees, all implicit or explicit financing
expenses and all indemnification and reimbursement payments paid to any such third party in
connection with any Other Receivables Transaction.
Other Receivables Transaction means any securitization, on or off- balance sheet
financing or sale transaction, involving financial products or services offered to retail customers
of any Company, or any participation interest therein (and/or related rights and interests), that
were acquired by a Company or any qualified or unqualified special purpose entity created by any
Company; excluding any RAL Receivables Transaction.
Other Taxes means all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment made hereunder or from
the execution, delivery or enforcement of, or otherwise with respect to, this Agreement.
Participant has the meaning assigned to such term in Section 10.06(e).
Block Financial LLC Credit Agreement
13
PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.
Permitted Encumbrances means:
(a) judgment Liens in respect of judgments not constituting an Event of Default under
clause (k) of Article VIII;
(b) Liens imposed by law for taxes that are not yet due or are being contested in
compliance with Section 5.04;
(c) carriers, warehousemens, mechanics, materialmens, repairmens and other like
Liens imposed by law, arising in the ordinary course of business and securing obligations
that are not overdue by more than 30 days or are being contested in compliance with
Section 5.04;
(d) pledges and deposits made in the ordinary course of business in compliance with
workers compensation, unemployment insurance and other social security laws or regulations;
(e) deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; and
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real
property imposed by law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the affected property
or interfere with the ordinary conduct of business of any Company;
provided that the term Permitted Encumbrances shall not include any Lien securing
Indebtedness.
Person means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA
that is maintained for employees of either Credit Party or any ERISA Affiliate (or, if such plan
were terminated, either Credit Party or any ERISA Affiliate could have liability under Section 4069
of ERISA.
Platform has the meaning assigned to such term in Section 5.01.
Public Lender has the meaning assigned to such term in Section 5.01.
RAL Receivables Amount means, at any time, the difference (but not less than
zero) between (i) the aggregate amount of funds received by the Guarantor, any Subsidiary or
any qualified or unqualified special purpose entity created by any Subsidiary with respect to the
Block Financial LLC Credit Agreement
14
transfer of refund anticipation loans, or participation interests in refund anticipation loans
(and/or related rights and interests), to any third party in any RAL Receivables Transaction, at or
prior to such time, minus (ii) the aggregate amount received by all such third parties with
respect to the transferred refund anticipation loans, or participation interests in refund
anticipation loans (and/or related rights and interests), in all RAL Receivables Transactions, at
or prior to such time, excluding from the amounts received by such third parties, the
aggregate amount of any origination, set up, structuring or similar fees, all implicit or explicit
financing expenses and all indemnification and reimbursement payments paid to any such third party
in connection with any RAL Receivables Transaction.
RAL Receivables Transaction means any securitization, on or off balance sheet
financing or sale transaction, involving refund anticipation loans, or participation interests in
refund anticipation loans (and/or related rights and interests), that were acquired by the
Guarantor, any Subsidiary or any qualified or unqualified special purpose entity created by any
Subsidiary.
Rating means the rating of S&P or Moodys, as the case may be, applicable to the
long-term senior unsecured non-credit enhanced debt of the Borrower, as announced by S&P or
Moodys, as the case may be, from time to time.
Register has the meaning assigned to such term in Section 10.06(c).
Related Parties means, with respect to any specified Person, such Persons
Affiliates and the respective partners, directors, officers, employees, agents, trustees and
advisors of such Person and such Persons Affiliates.
Required Lenders means, as of any date of determination, Lenders having more than
50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans has been
terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the
Total Outstandings (with the aggregate amount of each Lenders risk participation and funded
participation in Swingline Loans being deemed held by such Lender for purposes of this
definition); provided that the Commitment of, and the portion of the Total Outstandings
held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a
determination of Required Lenders.
Restricted Margin Stock means all Margin Stock owned by the Guarantor and its
Subsidiaries to the extent the value of such Margin Stock does not exceed 25% of the value of all
assets of the Guarantor and its Subsidiaries (determined on a consolidated basis) that are subject
to the provisions of Section 6.03 and 6.04.
RSM means RSM McGladrey, Inc., a Delaware corporation.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc. and any successor thereto.
Short-Term Debt means, at any time, the aggregate amount of Indebtedness of the
Guarantor and its Subsidiaries at such time (excluding seasonal Indebtedness of H&R Block Canada,
Inc.) having a final maturity less than one year after such time, determined on a
Block Financial LLC Credit Agreement
15
consolidated basis in accordance with GAAP plus (without duplication) the aggregate amount of
Indebtedness at such time under this Agreement, minus (a) to the extent otherwise included therein,
Indebtedness outstanding at such time (i) under mortgage facilities secured by mortgages and
related assets, (ii) incurred to fund servicing obligations required as part of servicing mortgage
backed securities in the ordinary course of business, (iii) incurred and secured by broker-dealer
Subsidiaries in the ordinary course of business and (iv) deposits and other customary banking
related liabilities incurred by banking Subsidiaries in the ordinary course of business, (b) the
excess, if any, of (i) the aggregate amount of cash and Cash Equivalents held at such time in
accounts of the Guarantor and its Subsidiaries (other than broker-dealer Subsidiaries and banking
Subsidiaries) to the extent freely transferable to the Credit Parties and capable of being applied
to the Obligations without any contractual, legal or tax consequences over (ii) $15,000,000 and
(c) to the extent otherwise included therein, the current portion of long term debt.
Subsidiary means, with respect to any Person (the parent) at any date, any
corporation, limited liability company, partnership, association or other entity the accounts of
which would be consolidated with those of the parent in the parents consolidated financial
statements if such financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50% of the equity or
more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as
of such date, otherwise Controlled, by the parent or one or more Subsidiaries of the parent or by
the parent and one or more Subsidiaries of the parent. Notwithstanding the foregoing, no entity
shall be considered a Subsidiary solely as a result of the effect and application of FASB
Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R), as amended by FASB
Statement of Financial Standards No. 167, Amendments to FASB Interpretation No. 46(R), and any
subsequent FASB statements or interpretations. Unless the context shall otherwise require, all
references to a Subsidiary or to Subsidiaries in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Guarantor, including the Borrower and the Subsidiaries of the Borrower.
Swingline Borrowing means a borrowing of a Swingline Loan pursuant to
Section 2.03.
Swingline Lender means Bank of America in its capacity as provider of Swingline
Loans, or any successor swingline lender hereunder.
Swingline Loan has the meaning assigned to such term in Section 2.03(a).
Swingline Loan Notice means a notice of a Swingline Borrowing pursuant to
Section 2.03(b), which, if in writing, shall be substantially in the form of
Exhibit B.
Swingline Sublimit means an amount equal to the lesser of (a) $150,000,000 and
(b) 10% of the Aggregate Commitments. The Swingline Sublimit is part of, and not in addition to,
the Aggregate Commitments.
Block Financial LLC Credit Agreement
16
Taxes means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
Total Outstandings means, on any date, the aggregate outstanding principal amount of
Committed Loans and Swingline Loans after giving effect to any borrowings and prepayments or
repayments of Committed Loans and Swingline Loans, as the case may be, occurring on such date.
Transactions means the execution, delivery and performance by the Credit Parties of
this Agreement, the borrowing of Loans and the use of the proceeds thereof.
Type means, with respect to a Committed Loan, its character as a Base Rate Loan or a
Eurodollar Rate Loan.
Unrestricted Margin Stock means all Margin Stock owned by the Guarantor and its
Subsidiaries other than Restricted Margin Stock.
Withdrawal Liability means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.
Section 1.02 Other Interpretive Provisions. With reference to this Agreement and each
other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words include,
includes and including shall be deemed to be followed by the phrase
without limitation. The word will shall be construed to have the same meaning
and effect as the word shall. Unless the context requires otherwise, (i) any
definition of or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from time to time
amended, supplemented or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (ii) any reference herein to any Person
shall be construed to include such Persons successors and assigns, (iii) the words
herein, hereof and hereunder, and words of similar import,
shall be construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (iv) all references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement, (v) any reference to any law shall include all statutory and regulatory
provisions consolidating, amending, replacing or interpreting such law and any reference to
any law or regulation shall, unless otherwise specified, refer to such law or regulation as
amended, modified or supplemented from time to time, and (vi) the words asset and
property shall be construed to have the same meaning and effect and to refer to
any and all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
Block Financial LLC Credit Agreement
17
(b) In the computation of periods of time from a specified date to a later specified
date, the word from means from and including; the words to and
until each mean to but excluding; and the word through means
to and including.
(c) Section headings herein and in the other Loan Documents are included for
convenience of reference only and shall not affect the interpretation of this Agreement or
any other Loan Document.
Section 1.03 Accounting Terms; GAAP. Except as otherwise expressly provided herein,
all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided that, if the Borrower notifies the Administrative Agent
that the Borrower requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on the operation of
such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders
request an amendment to any provision hereof for such purpose), regardless of whether any such
notice is given before or after such change in GAAP or in the application thereof, then such
provision shall be interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
Section 1.04 Times of Day. Unless otherwise specified, all references herein to times
of day shall be references to Eastern time (daylight or standard, as applicable).
ARTICLE II
THE COMMITMENTS AND CREDITS
Section 2.01 Committed Loans. Subject to the terms and conditions set forth herein,
each Lender severally agrees to make loans (each such loan, a Committed Loan) to the
Borrower from time to time, on any Business Day during the Availability Period, in an aggregate
amount not to exceed at any time outstanding the amount of such Lenders Commitment;
provided, however, that after giving effect to any Committed Borrowing, (i) the
Total Outstandings shall not exceed the Aggregate Commitments and (ii) the outstanding principal
amount of the Committed Loans of any Lender, plus such Lenders Applicable Percentage of the
outstanding principal amount of all Swingline Loans shall not exceed such Lenders Commitment.
Within the limits of each Lenders Commitment, and subject to the other terms and conditions
hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.06,
and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or Eurodollar
Rate Loans, as further provided herein.
Section 2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the
other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers
irrevocable notice to the Administrative Agent, which may be given in writing or by telephone.
Each such notice must be received by the Administrative Agent not later than (i) 3:00 p.m. three
Business Days prior to the requested date of any Borrowing of,
Block Financial LLC Credit Agreement
18
conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar
Rate Loans to Base Rate Committed Loans, and (ii) 1:00 p.m. on the requested date of any
Borrowing of Base Rate Committed Loans. Each telephonic notice by the Borrower pursuant to this
Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a
written Committed Loan Notice, appropriately completed and signed by the Borrower. Each
Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal
amount of $25,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided
in Section 2.03(c), each Borrowing of or conversion to Base Rate Committed Loans shall
be in a principal amount of $25,000,000 or a whole multiple of $1,000,000 in excess thereof.
Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the
Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to
the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing,
conversion or continuation, as the case may be (which shall be a Business Day), (iii) the
principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of
Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and
(v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower
fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to
give a timely notice requesting a conversion or continuation, then the applicable Committed
Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base
Rate Loans shall be effective as of the last day of the Interest Period then in effect with
respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of,
conversion to, or continuation of Eurodollar Rate Loans in any Committed Loan Notice, but fails
to specify an Interest Period, it will be deemed to have specified an Interest Period of one
month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly
notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans,
and if no timely notice of a conversion or continuation is provided by the Borrower, the
Administrative Agent shall notify each Lender of the details of any automatic conversion to Base
Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each
Lender shall make the amount of its Committed Loan available to the Administrative Agent in
immediately available funds at the Administrative Agents Office not later than 3:00 p.m. on the
Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the
applicable conditions set forth in Section 4.02, the Administrative Agent shall make all
funds so received available to the Borrower not later than 5:00 p.m. on the Business Day
specified in such Committed Loan Notice in like funds as received by the Administrative Agent by
wire transfer of such funds in accordance with instructions provided to (and reasonably
acceptable to) the Administrative Agent by the Borrower.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or
converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the
existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar
Rate Loans without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the
interest rate applicable to any Interest Period for Eurodollar Rate Loans upon
Block Financial LLC Credit Agreement
19
determination of such interest rate. At any time that Base Rate Loans are outstanding, the
Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of
Americas prime rate used in determining the Base Rate promptly following the public
announcement of such change.
(e) After giving effect to all Committed Borrowings, all conversions of Committed Loans
from one Type to the other, and all continuations of Committed Loans as the same Type, there
shall not be more than twelve Interest Periods in effect with respect to Committed Loans.
Section 2.03 Swingline Loans.
(a) The Swingline. Subject to the terms and conditions set forth herein, the
Swingline Lender, in reliance upon the agreements of the other Lenders set forth in this
Section 2.03, shall make loans (each such loan, a Swingline Loan) to the
Borrower from time to time on any Business Day during the Availability Period in an aggregate
principal amount not to exceed at any time outstanding the amount of the Swingline Sublimit,
notwithstanding the fact that such Swingline Loans, when aggregated with the Applicable
Percentage of the outstanding principal amount of Committed Loans of the Lender acting as
Swingline Lender, may exceed the amount of such Lenders Commitment; provided,
however, that after giving effect to any Swingline Loan, (i) the Total Outstandings
shall not exceed the Aggregate Commitments and (ii) the outstanding principal amount of the
Committed Loans of any Lender, plus such Lenders Applicable Percentage of the
outstanding principal amount of all Swingline Loans shall not exceed such Lenders Commitment,
and provided, further, that the Borrower shall not use the proceeds of any
Swingline Loan to refinance any outstanding Swingline Loan. Within the foregoing limits, and
subject to the other terms and conditions hereof, the Borrower may borrow under this
Section 2.03, prepay under Section 2.06, and reborrow under this
Section 2.03. Subject to the next sentence, each Swingline Loan shall be a Base Rate
Loan. Each Swingline Loan may bear interest at a rate to be agreed upon by the Swingline Lender
and the Borrower, which rate shall in no case be greater than the Base Rate plus the Applicable
Rate; provided that, if the Swingline Lender shall require other Lenders to fund their
participations in such Swingline Loan pursuant to this Section 2.03, then such Swingline
Loan shall bear interest at the Base Rate plus the Applicable Rate. Immediately upon the making
of a Swingline Loan, each Lender (other than a Lender that is a Defaulting Lender on the date
such Swingline Loan is made) shall be deemed to, and hereby irrevocably and unconditionally
agrees to, purchase from the Swingline Lender a risk participation in such Swingline Loan in an
amount equal to the product of such Lenders Applicable Percentage times the amount of
such Swingline Loan.
(b) Borrowing Procedures. Each Swingline Borrowing shall be made upon the
Borrowers irrevocable notice to the Swingline Lender and the Administrative Agent, which may be
given in writing or by telephone. Each such notice must be received by the Swingline Lender and
the Administrative Agent not later than 3:00 p.m. on the requested borrowing date, and shall
specify (i) the amount to be borrowed, which shall be a minimum of $15,000,000, and (ii) the
requested borrowing date, which shall be a Business Day. Each such telephonic notice must be
confirmed promptly by delivery to the Swingline Lender and
Block Financial LLC Credit Agreement
20
the Administrative Agent of a written Swingline Loan Notice, appropriately completed and
signed by the Borrower. Promptly after receipt by the Swingline Lender of any telephonic
Swingline Loan Notice, the Swingline Lender will confirm with the Administrative Agent (by
telephone or in writing) that the Administrative Agent has also received such Swingline Loan
Notice and, if not, the Swingline Lender will notify the Administrative Agent (by telephone or
in writing) of the contents thereof. Unless the Swingline Lender has received notice (by
telephone or in writing) from the Administrative Agent (including at the request of any Lender)
prior to the time of funding of the proposed Swingline Borrowing (A) directing the Swingline
Lender not to make such Swingline Loan as a result of the limitations set forth in the first
proviso to the first sentence of Section 2.03(a), or (B) that one or more of the
applicable conditions specified in Article IV is not then satisfied, then, subject to
the terms and conditions hereof, the Swingline Lender will, not later than 5:00 p.m. on the
borrowing date specified in such Swingline Loan Notice, make the amount of its Swingline Loan
available to the Borrower; provided that if any Lender is a Defaulting Lender on the date the
Swingline Loan is made, the Swingline Lender shall not advance that portion of the requested
Swingline Loan that is equal to the Applicable Percentage of such Defaulting Lender (except to
the extent such Defaulting Lender has provided Cash Collateral therefor pursuant to Section
2.16).
(c) Refinancing of Swingline Loans.
(i) The Swingline Lender at any time in its sole discretion may request, on behalf of
the Borrower (which hereby irrevocably authorizes the Swingline Lender to so request on its
behalf), that each Lender make a Base Rate Committed Loan in an amount equal to such
Lenders Applicable Percentage of the amount of Swingline Loans then outstanding. Such
request shall be made in writing (which written request shall be deemed to be a Committed
Loan Notice for purposes hereof) and in accordance with the requirements of
Section 2.02, without regard to the minimum and multiples specified therein for the
principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate
Commitments and the conditions set forth in Section 4.02. The Swingline Lender
shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly
after delivering such notice to the Administrative Agent. Each Lender shall make an amount
equal to its Applicable Percentage of the amount specified in such Committed Loan Notice
available to the Administrative Agent in immediately available funds (and the Administrative
Agent may apply Cash Collateral available with respect to the applicable Swingline Loan) for
the account of the Swingline Lender at the Administrative Agents Office not later than
1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to
Section 2.03(c)(ii), each Lender that so makes funds available shall be deemed to
have made a Base Rate Committed Loan to the Borrower in such amount. The Administrative
Agent shall remit the funds so received to the Swingline Lender.
(ii) If for any reason any Swingline Loan cannot be refinanced by a Committed Borrowing
in accordance with Section 2.03(c)(i), the request for Base Rate Committed Loans
submitted by the Swingline Lender as set forth herein shall be deemed to be a request by the
Swingline Lender that each of the Lenders fund its risk participation in the relevant
Swingline Loan and each Lenders payment to the
Block Financial LLC Credit Agreement
21
Administrative Agent for the account of the Swingline Lender pursuant to
Section 2.03(c)(i) shall be deemed payment in respect of such participation.
(iii) If any Lender fails to make available to the Administrative Agent for the account
of the Swingline Lender any amount required to be paid by such Lender pursuant to the
foregoing provisions of this Section 2.03(c) by the time specified in
Section 2.03(c)(i), the Swingline Lender shall be entitled to recover from such
Lender (acting through the Administrative Agent), on demand, such amount with interest
thereon for the period from the date such payment is required to the date on which such
payment is immediately available to the Swingline Lender at a rate per annum equal to the
Federal Funds Rate, plus any administrative, processing or similar fees customarily charged
by the Swingline Lender in connection with the foregoing. If such Lender pays such amount
(with interest and fees as aforesaid), the amount so paid shall constitute such Lenders
Committed Loan included in the relevant Committed Borrowing or funded participation in the
relevant Swingline Loan, as the case may be. A certificate of the Swingline Lender
submitted to any Lender (through the Administrative Agent) with respect to any amounts owing
under this clause (iii) shall be conclusive absent manifest error.
(iv) Each Lenders obligation to make Committed Loans or to purchase and fund risk
participations in Swingline Loans pursuant to this Section 2.03(c) shall be absolute
and unconditional and shall not be affected by any circumstance, including (A) any setoff,
counterclaim, recoupment, defense or other right which such Lender may have against the
Swingline Lender, the Borrower or any other Person for any reason whatsoever, (B) the
occurrence or continuance of a Default, or (C) any other occurrence, event or condition,
whether or not similar to any of the foregoing; provided, however, that each
Lenders obligation to make Committed Loans pursuant to this Section 2.03(c) is
subject to the conditions set forth in Section 4.02. No such funding of risk
participations shall relieve or otherwise impair the obligation of the Borrower to repay
Swingline Loans, together with interest as provided herein.
(d) Repayment of Participations.
(i) At any time after any Lender has purchased and funded a risk participation in a
Swingline Loan, if the Swingline Lender receives any payment on account of such Swingline
Loan, the Swingline Lender will distribute to such Lender its Applicable Percentage thereof
in the same funds as those received by the Swingline Lender.
(ii) If any payment received by the Swingline Lender in respect of principal or
interest on any Swingline Loan is required to be returned by the Swingline Lender under any
of the circumstances described in Section 10.05 (including pursuant to any
settlement entered into by the Swingline Lender in its discretion), each Lender shall pay to
the Swingline Lender its Applicable Percentage thereof on demand of the Administrative
Agent, plus interest thereon from the date of such demand to the date such amount is
returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent
will make such demand upon the request of the Swingline Lender.
Block Financial LLC Credit Agreement
22
The obligations of the Lenders under this clause shall survive the payment in full of
the Obligations and the termination of this Agreement.
(e) Interest for Account of Swingline Lender. The Swingline Lender shall be
responsible for invoicing the Borrower for interest on the Swingline Loans. Until each Lender
funds its Base Rate Committed Loan or risk participation pursuant to this Section 2.03
to refinance such Lenders Applicable Percentage of any Swingline Loan, interest in respect of
such Applicable Percentage shall be solely for the account of the Swingline Lender.
(f) Payments Directly to Swingline Lender. The Borrower shall make all payments of
principal and interest in respect of the Swingline Loans directly to the Swingline Lender.
Section 2.04 Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments;
provided that (i) each reduction of the Commitments shall be in an amount that is an
integral multiple of $1,000,000 and not less than $25,000,000 and (ii) the Borrower shall not
terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.06, the Total Outstandings would exceed the Aggregate
Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or
reduce the Commitments under Section 2.04(b) at least three Business Days prior to the
effective date of such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise
the applicable Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable; provided that a notice of termination of the
Commitments delivered by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be revoked by the
Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if
such condition is not satisfied. Any termination or reduction of the Commitments shall be
permanent. Each reduction of the Commitments shall be made ratably among the applicable Lenders
in accordance with their respective Commitments.
Section 2.05 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Committed Loan on the Maturity Date and (ii) to the Swingline
Lender or to the Administrative Agent the then unpaid principal amount of each Swingline Loan on
the earlier of the first Business Day prior to the Maturity Date and the fifth Business Day after
such Swingline Loan is made; provided that on each date that a Committed Loan is made, the
Borrower shall repay all Swingline Loans then outstanding.
Block Financial LLC Credit Agreement
23
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such
Lender, including the amounts of principal and interest payable and paid to such Lender from
time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, the Type thereof and, if applicable, each Interest Period
applicable therefor, (ii) the amount of any principal or interest due and payable or to become
due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder for the account of the Lenders and each Lenders
share thereof.
(d) The entries made in the accounts maintained pursuant to Section 2.05(b)
or (c) shall be prima facie evidence of the existence and amounts of the obligations
recorded therein; provided that the failure of any Lender or the Administrative Agent to
maintain such accounts or any error therein shall not in any manner affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In
such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note
payable to the order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.06) be represented by one or more promissory notes in
such form payable to the order of the payee named therein (or, if such promissory note is a
registered note, to such payee and its registered assigns). In addition, upon receipt of an
affidavit of an officer of such Lender as to the loss, theft, destruction or mutilation of the
promissory note, and, in the case of any such loss, theft, destruction or mutilation, upon
cancellation of such promissory note, the Borrower will issue, in lieu thereof, a replacement
promissory note in the same principal amount thereof and otherwise of like tenor.
Section 2.06 Prepayment of Loans. (a) The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part without premium or penalty except
as provided in Section 2.11, subject to prior notice in accordance with Section
2.06(b).
(b) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a
Swingline Loan, the Swingline Lender) in writing or by telephone (confirmed by electronic
transmission) of any prepayment hereunder (i) in the case of prepayment of Eurodollar Rate
Loans, not later than 11:00 a.m., three Business Days before the date of prepayment, (ii) in the
case of prepayment of Base Rate Loans (other than Swingline Loans), not later than 11:00 a.m.,
on the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than
12:00 noon, on the date of prepayment. Each such notice shall be irrevocable and shall specify
the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid;
provided that, if a notice of prepayment is given in connection with a conditional
notice of termination of the
Block Financial LLC Credit Agreement
24
Commitments as contemplated by Section 2.04, then such notice of prepayment may be
revoked if such notice of termination is revoked in accordance with Section 2.04.
Promptly following receipt of any such notice relating to a Committed Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Committed Borrowing shall be in an amount that would be permitted in the case of an
advance of a Committed Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Committed Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required
by Section 2.08.
(c) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments
then in effect, the Borrower shall promptly (and in any event within one Business Day) prepay
Loans in an aggregate amount equal to such excess.
Section 2.07 Fees. (a) The Borrower agrees to pay to the Administrative Agent for
the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily
amount of the Commitment of such Lender (whether used or unused) during the period from the Closing
Date to the date on which such Commitment terminates; provided that, if such Lender
continues to have any Loans or risk participations in Swingline Loans outstanding after its
Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such
Lenders Committed Loans and risk participations in Swingline Loans outstanding from the date on
which its Commitment terminates to the date on which such Lender ceases to have any Committed Loans
or risk participations in Swingline Loans outstanding. Accrued facility fees shall be payable in
arrears on the last day of March, June, September and December of each year, on the date of any
voluntary termination of the Commitments and on the date on which all Loans become due and payable
(by acceleration or otherwise); provided that any facility fees accruing after the date on
which all Loans become due and payable shall be payable on demand. All facility fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).
(b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees
payable in the amounts and at the times separately agreed upon between the Borrower and the
Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, in the case of facility fees, to the
Lenders. Fees paid shall not be refundable under any circumstances.
Section 2.08 Interest. (a) Each Borrowing of Base Rate Loans shall bear interest at
a rate per annum equal to the Base Rate plus the Applicable Rate.
(b) Each Borrowing of Eurodollar Rate Loans shall bear interest at a rate per annum equal
to the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable
Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee
or other amount payable by the Borrower hereunder is not paid when due,
Block Financial LLC Credit Agreement
25
whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear
interest, after as well as before judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided
above or (ii) in the case of any other amount, 2% plus the rate applicable to Base Rate Loans as
provided above.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date
for such Loan; provided that (i) interest accrued pursuant to Section 2.08(c)
shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an Base Rate Committed Loan prior to the end of the Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Rate Loan prior
to the end of the current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion and (iv) all accrued interest shall be payable
upon termination of the Commitments.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except
that interest computed by reference to the Base Rate shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and in each case shall be payable for the actual number
of days elapsed (including the first day but excluding the last day). The applicable Base Rate
or Eurodollar Rate shall be determined by the Administrative Agent, and such determination shall
be conclusive absent manifest error. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of the effective date and the amount of each change in
interest rate.
Section 2.09 Alternate Rate of Interest. If prior to the commencement of any Interest
Period for a Borrowing of Eurodollar Loans:
(a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Eurodollar
Rate for such Interest Period will not adequately and fairly reflect the cost to such
Lenders of making or maintaining their Loans included in such Borrowing for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or electronic transmission as promptly as practicable thereafter and, until the
Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to
such notice no longer exist, (i) any Interest Election Request that requests the conversion of any
Committed Borrowing to, or continuation of any Committed Borrowing as, a Borrowing of Eurodollar
Rate Loans shall be ineffective, and (ii) if any Committed Loan Notice requests a Borrowing of
Eurodollar Rate Loans, such Borrowing shall be made as a Borrowing of Base Rate Loans.
Section 2.10 Increased Costs. (a) If any Change in Law shall:
Block Financial LLC Credit Agreement
26
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit extended by,
any Lender; or
(ii) impose on any Lender or the London interbank market any other condition affecting
this Agreement or Eurodollar Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to such Lender or to reduce the amount of any sum received or receivable by such
Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such
Lender such additional amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on such Lenders capital or on the capital
of such Lenders holding company, if any, as a consequence of this Agreement or the Loans made
by such Lender to a level below that which such Lender or such Lenders holding company could
have achieved but for such Change in Law (taking into consideration such Lenders policies and
the policies of such Lenders holding company with respect to capital adequacy), then from time
to time the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lenders holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate
such Lender or its holding company, as the case may be, as specified in Section 2.10(a)
or (b) (together with a statement of the reason for such compensation and a calculation
thereof in reasonable detail) shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation pursuant to this
Section shall not constitute a waiver of such Lenders right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender pursuant to this
Section for any increased costs or reductions incurred more than six months prior to the date
that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lenders intention to claim compensation therefor; provided,
further, that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the six-month period referred to above shall be extended to include the period
of retroactive effect thereof.
Section 2.11 Break Funding Payments. In the event of (a) the payment of any principal
of any Eurodollar Rate Loan other than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the conversion of any Eurodollar Rate Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Committed Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice is permitted to be revocable under
Block Financial LLC Credit Agreement
27
Section 2.06(b) and is revoked in accordance herewith), (d) the assignment of any Eurodollar
Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.14, then, in any such event, the Borrower
shall compensate each Lender for the loss, cost and expense attributable to such event. In the
case of a Eurodollar Rate Loan, the loss to any Lender attributable to any such event shall be
deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the
amount of interest that such Lender would pay for a deposit equal to the principal amount of such
Loan for the period from the date of such payment, conversion, failure or assignment to the last
day of the then current Interest Period for such Loan (or, in the case of a failure to borrow,
convert or continue, the duration of the Interest Period that would have resulted from such
borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to
the Eurodollar Rate for such Interest Period, over (ii) the amount of interest that such Lender
would earn on such principal amount for such period if such Lender were to invest such principal
amount for such period at the interest rate that would be bid by such Lender (or an affiliate of
such Lender) for Dollar deposits from other banks in the eurodollar market at the commencement of
such period. A certificate of any Lender setting forth any amount or amounts that such Lender is
entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
Section 2.12 Taxes. (a) Any and all payments by or on account of any obligation of
the Borrower or the Guarantor hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes or Other Taxes; provided that if the Borrower or the Guarantor shall
be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Administrative Agent or
Lender (as the case may be) receives an amount equal to the sum it would have received had no such
deductions been made (provided, however, that neither the Borrower nor the
Guarantor shall be required to increase any such amounts payable to the Administrative Agent or
Lender (as the case may be) with respect to any Indemnified Taxes or Other Taxes that are
attributable to such Lenders failure to comply with the requirements of Section 2.12(e)),
(ii) the Borrower or the Guarantor shall make such deductions and (iii) the Borrower or the
Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days
after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
(including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts
payable under this Section) paid by the Administrative Agent or such Lender, as the case may be,
and any penalties, interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to the Borrower by a
Block Financial LLC Credit Agreement
28
Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the
original or a certified copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding
tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which
such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by
applicable law or reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate.
Section 2.13 Payments Generally; Pro Rata Treatment; Sharing of Set-offs; Administrative
Agents Clawback. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or under Section 2.10, 2.11 or
2.12, or otherwise) prior to 12:00 noon on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time on any date may, in
the discretion of the Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments shall be made to the
Administrative Agents Office, except payments to be made directly to the Swingline Lender as
expressly provided herein and except that payments pursuant to Sections 2.10, 2.11,
2.12 and 10.04 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder
shall be due on a day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon
shall be payable for the period of such extension. All payments hereunder shall be made in
Dollars.
(b) If at any time insufficient funds are received by and available to the Administrative
Agent to pay fully all amounts of principal, interest, fees and any other amounts then due
hereunder, such funds shall be applied to such obligations as the Borrower shall direct (as among
interest, fees, principal or other amounts, but in each case ratably to the parties entitled
thereto) or, if all Loans have become due and payable (by acceleration or otherwise) or if the
Borrower does not so direct, as follows: (i) first, to pay interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of interest and fees then
due to such parties, (ii) second, to pay principal then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal then due to such parties, and (iii)
third, any other amounts due and owing hereunder, ratably among the parties entitled thereto in
accordance with such amounts then due to such parties.
Block Financial LLC Credit Agreement
29
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on any of its Committed Loans or
participations in Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Committed Loans and participations in Swingline Loans and
accrued interest thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value) participations in the
Committed Loans and participations in Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Committed Loans and
participations in Swingline Loans, provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent of such recovery,
without interest, and (ii) the provisions of this subsection shall not be construed to apply to (x)
any payment made by the Borrower pursuant to and in accordance with the express terms of this
Agreement (including the application of funds arising from the existence of a Defaulting Lender),
(y) the application of Cash Collateral provided for in Section 2.16, or (z) any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of
its Committed Loans to any assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this subsection shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so under applicable law,
that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such participation as fully
as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) If any Lender shall fail to make any payment required to be made by it pursuant to
Section 2.02, 2.03, 2.13(c) or 2.13(e), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Lender to satisfy such
Lenders obligations under such Sections until all such unsatisfied obligations are fully paid.
(e) (i) Unless the Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed
Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Committed Borrowing) that
such Lender will not make available to the Administrative Agent such Lenders share of such
Committed Borrowing, the Administrative Agent may assume that such Lender has made such share
available in accordance with and at the time required by Section 2.02 and may, in reliance
upon such assumption, make available to the Borrower a corresponding amount. In such event, if a
Lender has not in fact made its share of the applicable Committed Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent promptly (and in any event within one Business Day after demand) such
corresponding amount in immediately available funds with interest thereon, for each day from the
date such amount is made available to the Borrower to the date of payment to the Administrative
Agent, at (A) in the case of a payment to be made by such Lender, the Federal Funds Rate, plus any
administrative, processing or similar fees customarily charged by the Administrative Agent in
connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the
interest rate
Block Financial LLC Credit Agreement
30
applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the
Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly
remit to the Borrower the amount of such interest paid by the Borrower for such period. If such
Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the
amount so paid shall constitute such Lenders Committed Loan included in such Committed Borrowing.
Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a
Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Unless the Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of the Lenders
hereunder that the Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds
with interest thereon, for each day from the date such amount is distributed to it to the date of
payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(iii) A notice of the Administrative Agent to any Lender or the Borrower with respect to any
amount owing under this subsection (e) shall be conclusive, absent manifest error.
(f) If any Lender makes available to the Administrative Agent funds for any Loan to be made by
such Lender as provided in the foregoing provisions of this Article II, and such funds are
not made available to the Borrower by the Administrative Agent because the conditions to the
applicable Loan set forth in Article IV are not satisfied or waived in accordance with the
terms hereof, the Administrative Agent shall return such funds (in like funds as received from such
Lender) to such Lender, without interest.
(g) The obligations of the Lenders hereunder to make Committed Loans, to fund participations
in Swingline Loans and to make payments pursuant to Section 10.04(c) are several and not
joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to
make any payment under Section 10.04(c) on any date required hereunder shall not relieve
any other Lender of its corresponding obligation to do so on such date, and no Lender shall be
responsible for the failure of any other Lender to so make its Committed Loan, to purchase its
participation or to make its payment under Section 10.04(c).
(h) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in
any particular place or manner or to constitute a representation by any Lender that it has obtained
or will obtain the funds for any Loan in any particular place or manner.
Section 2.14 Mitigation Obligations; Replacement of Lenders. (a) If any Lender
requests compensation under Section 2.10, the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.12 or any Lender becomes subject to any circumstance described in Section
2.15, then
Block Financial LLC Credit Agreement
31
such Lender shall use reasonable efforts to designate a different Lending Office for funding
or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 2.10 or 2.12, as
the case may be, in the future, or avoid the unavailability of Eurodollar Rate Loans pursuant to
Section 2.15, and (ii) would not subject such Lender to any unreimbursed cost or expense
and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such designation or
assignment.
(b) If any Lender requests compensation under Section 2.10, the Borrower is
required to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.12, a Lender is subject to any circumstance
described in Section 2.15 or any Lender is a Defaulting Lender, then the Borrower may,
at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require
such Lender to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 10.06), all its interests, rights and obligations
under this Agreement to an assignee that shall assume such obligations (which assignee may be
another Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and, if a Commitment
is being assigned, the Swingline Lender), which consent shall not unreasonably be withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding principal of its
Loans and participations in Swingline Loans, accrued interest thereon, accrued fees and all
other amounts payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and
(iii) in the case of any such assignment resulting from a claim for compensation under
Section 2.10 or payments required to be made pursuant to Section 2.12, such
assignment will result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a result of a waiver
by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply. In determining whether to make a claim, and calculating the
amount of compensation, under Sections 2.10 and 2.12, each Lender shall apply
standards that are not inconsistent with those generally applied by such Lender in similar
circumstances.
Section 2.15 Illegality. If any Lender determines that any Law has made it unlawful,
or that any Governmental Authority has asserted that it is unlawful, for such Lender or its
applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or
charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed
material restrictions on the authority of such Lender to purchase or sell, or to take deposits of,
Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower
through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate
Loans or to convert Base Rate Committed Loans to Eurodollar Rate Loans shall be suspended until
such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise
to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon
demand from such Lender (with a copy to the Administrative Agent), convert all Eurodollar Rate
Loans of such Lender to Base Rate Loans, either on the last
Block Financial LLC Credit Agreement
32
day of the Interest Period therefor or on such earlier date on which such Lender may not
lawfully continue to maintain such Eurodollar Rate Loans. Upon any such conversion, the Borrower
shall also pay accrued interest on the amount so converted. Thereafter, so long as such
circumstances shall continue, all Loans of such Lender that would otherwise be Eurodollar Rate
Loans shall be Base Rate Loans.
Section 2.16 Cash Collateral.
(a) Certain Credit Support Events. If a Lender shall become a Defaulting Lender at
any time that a Swingline Loan is outstanding, promptly upon the request of the Administrative
Agent or the Swingline Lender, the Borrower shall prepay Swingline Loans in an amount sufficient
to reduce all Fronting Exposure with respect to the Defaulting Lender to zero (after giving
effect to Section 2.17(a)(ii) and any Cash Collateral provided by the Defaulting
Lender).
(b) Grant of Security Interest. All Cash Collateral (other than credit support not
constituting funds subject to deposit) shall be maintained in blocked deposit accounts at Bank
of America. Any Lender that has provided such collateral hereby grants to (and subjects to the
control of) the Administrative Agent, for the benefit of the Administrative Agent and the
Lenders (including the Swingline Lender), and agrees to maintain, a first priority security
interest in all such cash, all deposit accounts and all balances therein, and all other property
so provided as collateral pursuant hereto, and in all proceeds of the foregoing, all as security
for the obligations to which such Cash Collateral may be applied pursuant to Section
2.16(c).
(c) Application. Notwithstanding anything to the contrary contained in this
Agreement, Cash Collateral provided under this Section 2.16 or Section 2.17in
respect of Swingline Loans shall be held and applied to the satisfaction of the specific
Swingline Loans, obligations to fund participations therein (including any interest accrued on
such obligation) and other obligations for which the Cash Collateral was so provided, prior to
any other application of such property as may be provided for herein.
(d) Release. Subject to Section 2.17, Cash Collateral (or the appropriate portion
thereof) provided to reduce Fronting Exposure or other obligations shall be released promptly
following (i) the elimination of the applicable Fronting Exposure or other obligations giving
rise thereto (including by the termination of Defaulting Lender status of the applicable Lender
(or, as appropriate, its assignee following compliance with Section 10.06(j)) or (ii)
the Administrative Agents good faith determination that there exists excess Cash Collateral;
provided, however, that the Person providing Cash Collateral and the Swingline Lender
may agree that Cash Collateral shall not be released but instead held to support future
anticipated Fronting Exposure or other obligations.
Section 2.17 Defaulting Lenders
(a) Adjustments. Notwithstanding anything to the contrary contained in this
Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no
longer a Defaulting Lender, to the extent permitted by applicable Law:
Block Financial LLC Credit Agreement
33
(i) Waivers and Amendments. That Defaulting Lenders right to approve or
disapprove any amendment, waiver or consent with respect to this Agreement shall be
restricted as set forth in the definition of Required Lenders.
(ii) Reallocation of Payments. Any payment of principal, interest, fees or
other amounts received by the Administrative Agent for the account of that Defaulting Lender
(whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise,
and including any amounts made available to the Administrative Agent by that Defaulting
Lender pursuant to Section 10.10), shall be applied at such time or times as may be
determined by the Administrative Agent as follows: first, to the payment of any amounts
owing by that Defaulting Lender to the Administrative Agent hereunder; second, to the
payment of any amounts owing by that Defaulting Lender to the Swingline Lender hereunder;
third, if so determined by the Administrative Agent or requested by the Swingline Lender, to
be held as Cash Collateral for future funding obligations of that Defaulting Lender with
respect to any participation in any Swingline Loan; fourth, as the Borrower may request (so
long as no Default exists), to the funding of any Loan in respect of which that Defaulting
Lender has failed to fund its portion thereof as required by this Agreement, as determined
by the Administrative Agent; fifth, if so determined by the Administrative Agent and the
Borrower, to be held in a non-interest bearing deposit account and released in order to
satisfy obligations of that Defaulting Lender to fund Loans under this Agreement; sixth, to
the payment of any amounts owing to the Lenders or the Swingline Lender as a result of any
judgment of a court of competent jurisdiction obtained by any Lender or the Swingline Lender
against that Defaulting Lender as a result of that Defaulting Lenders breach of its
obligations under this Agreement; seventh, so long as no Default exists, to the payment of
any amounts owing to the Borrower as a result of any judgment of a court of competent
jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that
Defaulting Lenders breach of its obligations under this Agreement; and eighth, to that
Defaulting Lender or as otherwise directed by a court of competent jurisdiction;
provided that if (x) such payment is a payment of the principal amount of any Loans
in respect of which that Defaulting Lender has not fully funded its appropriate share and
(y) such Loans were made at a time when the conditions set forth in Section 4.02
were satisfied or waived, such payment shall be applied solely to pay the Loans of all
non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any
Loans of that Defaulting Lender. Any payments, prepayments or other amounts paid or payable
to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender
or to post Cash Collateral pursuant to this Section 2.17(a)(ii) shall be deemed paid
to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees. That Defaulting Lender (x) shall be entitled to receive
any facility fee pursuant to Section 2.10(a) for any period during which that Lender
is a Defaulting Lender only to extent allocable to the outstanding principal amount of the
Committed Loans funded by it (and the Borrower shall (A) be required to pay the Swingline
Lender the amount of such fee allocable to its Fronting Exposure arising from that
Defaulting Lender and (B) not be required to pay the remaining amount of such fee that
otherwise would have been required to have been paid to that Defaulting Lender).
Block Financial LLC Credit Agreement
34
(iv) Reallocation of Applicable Percentages to Reduce Fronting Exposure.
During any period in which there is a Defaulting Lender, for purposes of computing the
amount of the obligation of each non-Defaulting Lender to acquire, refinance or fund
participations in Swingline Loans pursuant to Section 2.03, the Applicable
Percentage of each non-Defaulting Lender shall be computed without giving effect to the
Commitment of that Defaulting Lender; provided, that, (i) each such reallocation
shall be given effect only if, at the date the applicable Lender becomes a Defaulting
Lender, no Default exists; and (ii) the aggregate obligation of each non-Defaulting Lender
to acquire, refinance or fund participations in Swingline Loans shall not exceed the
positive remainder, if any, of (1) the Commitment of that non-Defaulting Lender
minus (2) the outstanding principal amount of the Committed Loans of that Lender.
(b) Defaulting Lender Cure. If the Borrower, the Administrative Agent and Swingline
Lender agree in writing in their sole discretion that a Defaulting Lender should no longer be
deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto,
whereupon as of the effective date specified in such notice and subject to any conditions set forth
therein, that Lender will, to the extent applicable, purchase that portion of outstanding Loans of
the other Lenders or take such other actions as the Administrative Agent may determine to be
necessary to cause the Committed Loans and funded and unfunded participations in Swingline Loans to
be held on a pro rata basis by the Lenders in accordance with their respective Commitments (without
giving effect to Section 2.17(a)(iv)), whereupon that Lender will cease to be a Defaulting
Lender; provided that no adjustments will be made retroactively with respect to fees
accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender;
and provided, further, that except to the extent otherwise expressly agreed by the
affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or
release of any claim of any party hereunder arising from that Lender having been a Defaulting
Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Credit Parties represents and warrants to the Lenders that:
Section 3.01 Organization; Powers. Each Company is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, has the power and
authority to carry on its business as now conducted and, except where the failure to be so,
individually or in the aggregate, would not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such
qualification is required.
Section 3.02 Authorization; Enforceability. The Transactions are within each Credit
Partys corporate powers and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by each Credit Party and
constitutes a legal, valid and binding obligation of each Credit Party, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors rights generally and subject to general principles of equity, regardless
of whether considered in a proceeding in equity or at law.
Block Financial LLC Credit Agreement
35
Section 3.03 Governmental Approvals; No Conflicts. The Transactions (a) do not
require any consent or approval of, registration or filing (other than routine SEC and similar
filings) with, or any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect, (b) will not violate any applicable law or
regulation or the charter, by-laws or other organizational documents of any Company or any order of
any Governmental Authority, (c) will not violate or result in a default under any indenture,
material agreement or other instrument (other than those to be terminated on or prior to the
Closing Date) binding upon any Company or its assets, or give rise to a right thereunder to require
any payment to be made by any Company, and (d) will not result in the creation or imposition of any
Lien on any asset of any Company except for Liens arising under the Loan Documents.
Section 3.04 Financial Condition; No Material Adverse Change. (a) Each Credit Party
has heretofore furnished to the Lenders consolidated balance sheets and statements of income and
cash flows (and, in the case of the Guarantor, of stockholders equity) as of and for the fiscal
year ended April 30, 2009 (A) reported on by Deloitte & Touche LLP, an independent registered
public accounting firm, in respect of the financial statements of the Guarantor, or (B) certified
by its chief financial officer, in respect of the financial statements of the Borrower. Such
financial statements present fairly, in all material respects, the financial position and results
of operations and cash flows of the Borrower and its consolidated Subsidiaries and of the Guarantor
and its consolidated Subsidiaries as of such date and for such period in accordance with GAAP.
Except as set forth on Schedule 3.04(a), neither the Guarantor nor any of its consolidated
Subsidiaries had, as of April 30, 2009, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term commitment, including
any interest rate or foreign currency swap or exchange transaction not in the ordinary course of
business, which is not reflected in the foregoing statements or in the notes thereto. During the
period from April 30, 2009 to and including the date hereof, and except as disclosed in filings
made by the Guarantor with the U.S. Securities and Exchange Commission pursuant to the Securities
Act of 1933 or the Securities Exchange Act of 1934, there has been no sale, transfer or other
disposition by the Guarantor or any of its consolidated Subsidiaries of any material part of its
business or property other than in the ordinary course of business and no purchase or other
acquisition of any business or property (including any Capital Stock of any other Person), material
in relation to the consolidated financial condition of the Guarantor and its consolidated
Subsidiaries at April 30, 2009.
(b) Since April 30, 2009, there has been no material adverse change in the business, assets
or condition (financial or otherwise) of the Guarantor and its Subsidiaries, taken as a whole.
Section 3.05 Properties. (a) Each Company has good title to, or valid leasehold
interests in, all its real and personal property material to its business, except for minor defects
in title that do not interfere with its ability to conduct its business as currently conducted or
to utilize such properties for their intended purposes.
(b) Each Company owns, or is licensed to use, all trademarks, tradenames, copyrights,
patents and other intellectual property material to its business, and the use thereof by such
Company does not infringe upon the rights of any other Person, except for any such
Block Financial LLC Credit Agreement
36
infringements that, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.
Section 3.06 Litigation and Environmental Matters. (a) There are no actions, suits
or proceedings by or before any arbitrator or Governmental Authority pending against or, to the
knowledge of either Credit Party, threatened against or affecting any Company that (i) have not
been disclosed in the Disclosed Matters and as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, would reasonably be expected, individually
or in the aggregate, to result in a Material Adverse Effect or (ii) challenge or would reasonably
be expected to affect the legality, validity or enforceability of this Agreement.
(b) Except for the Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect, no Company (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under any Environmental
Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any
claim with respect to any Environmental Liability or (iv) knows of any basis for any
Environmental Liability.
Section 3.07 Compliance with Laws and Agreements. Each Company is in compliance with
all laws, regulations and orders of any Governmental Authority applicable to it or its property and
all indentures, agreements and other instruments binding upon it or its property, except where the
failure to be so, individually or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect.
Section 3.08 Investment Company Status. No Company is an investment company as
defined in, or subject to regulation under, the Investment Company Act of 1940.
Section 3.09 Taxes. Each Company has timely filed or caused to be filed all Tax
returns and reports required to have been filed and has paid or caused to be paid all Taxes
required to have been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which such Company has set aside on its books adequate reserves or
(b) to the extent that the failure to do so would not reasonably be expected to result in a
Material Adverse Effect.
Section 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur
that, when taken together with all other such ERISA Events for which liability is reasonably
expected to occur, would reasonably be expected to result in a Material Adverse Effect. The
present value of all accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the
most recent financial statements reflecting such amounts, exceed by more than $25,000,000 the fair
market value of the assets of such Plan, and the present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $25,000,000 the fair market value of the
assets of all such underfunded Plans.
Block Financial LLC Credit Agreement
37
Section 3.11 Disclosure. None of the reports, financial statements, certificates or
other information furnished by or on behalf of the Credit Parties to the Administrative Agent or
any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified
or supplemented by other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with respect to
projected financial information, the Credit Parties represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the time.
Section 3.12 Federal Regulations. No part of the proceeds of any Loans will be used
for purchasing or carrying any margin stock (within the respective meanings of each of the
quoted terms under Regulation U of the Board as now and from time to time hereafter in effect) in a
manner or in circumstances that would constitute or result in non-compliance by either Credit Party
or any Lender with the provisions of Regulations U, T or X of the Board. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to such Lender or the Administrative
Agent, as applicable, a statement to the foregoing effect in conformity with the requirements of FR
Form U-1 referred to in said Regulation U.
Section 3.13 Subsidiaries. As of the date hereof, the Guarantor has only the
Subsidiaries set forth on Schedule 3.13.
Section 3.14 Insurance. Each Company maintains (pursuant to a self-insurance program
and/or with financially sound and reputable insurers) insurance with respect to its properties and
business and against at least such liabilities, casualties and contingencies and in at least such
types and amounts as is customary in the case of companies engaged in the same or a similar
business or having similar properties similarly situated.
ARTICLE IV
CONDITIONS
Section 4.01 Conditions of Effectiveness. The obligations of the Lenders to make
Loans (or to purchase participations in Swingline Loans) hereunder shall become effective on the
date on which each of the following conditions is satisfied (or waived in accordance with
Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received from each party
hereto a counterpart of this Agreement signed on behalf of such party.
(b) The Administrative Agent shall have received reasonably satisfactory written
opinions (addressed to the Administrative Agent and the Lenders and dated the Closing Date)
of Mayer Brown LLP, special New York counsel for the Credit Parties, and Stinson Morrison
Hecker LLP, special counsel for the Credit Parties, substantially in the forms of
Exhibit E-1 and E-2, respectively, and covering such other matters relating
to the Credit Parties, this Agreement or the Transactions as the Required Lenders shall
reasonably request. The Credit Parties hereby request such counsel to deliver such opinion.
Block Financial LLC Credit Agreement
38
(c) The Administrative Agent shall have received such documents and certificates as the
Administrative Agent or its counsel may reasonably request relating to the organization,
existence and good standing of the Credit Parties, the authorization of the Transactions and
any other legal matters relating to the Credit Parties, this Agreement or the Transactions,
all in form and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated the Closing Date
and signed by the President, a Vice President or a Financial Officer of each Credit Party,
stating that:
(i) the representations and warranties contained in Article III of this Agreement are
correct on and as of the Closing Date; and
(ii) no event has occurred and is continuing that constitutes a Default.
(e) The Administrative Agent shall have received all fees and other amounts due and
payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or
payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower
hereunder.
(f) The Borrower shall have repaid all obligations owing and outstanding under each
Existing Agreement.
(g) All governmental and material third party approvals necessary in connection with
the execution, delivery and performance of this Agreement shall have been obtained and be in
full force and effect.
The Administrative Agent shall notify the Borrower and the Lenders of the Closing Date, and
such notice shall be conclusive and binding.
Without limiting the generality of the provisions of the last paragraph of Section
9.03, for purposes of determining compliance with the conditions specified in this Section
4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved
or accepted, or to be satisfied with, each document or other matter required hereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative
Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its
objection thereto.
Section 4.02 Conditions to all Loans. The obligation of each Lender to make a Loan on
the occasion of any Borrowing is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Credit Parties set forth in Article
III of this Agreement (other than the representations and warranties set forth in
subsections 3.04(b), 3.06(a)(i) and 3.06(b)) shall be true and correct in all material
respects on and as of the date of such Borrowing (except to the extent related to a specific
earlier date).
Block Financial LLC Credit Agreement
39
(b) At the time of and immediately after giving effect to such Borrowing, no Default
shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by each of the
Credit Parties on the date thereof as to the matters specified in subsections (a) and (b) of this
Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder shall have been paid in full, each of the Credit Parties
covenants and agrees with the Lenders that:
Section 5.01 Financial Statements and Other Information. The Borrower will furnish to
the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Guarantor, an audited
consolidated balance sheet and related statements of operations, stockholders equity and
cash flows of the Guarantor and its consolidated Subsidiaries as of the end of and for such
year, setting forth in each case in comparative form the figures for the previous fiscal
year, all reported on by Deloitte & Touche LLP or other another independent registered
public accounting firm of recognized national standing (without a going concern or like
qualification or exception and without any qualification or exception as to the scope of
such audit) to the effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of the Guarantor and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) (i) in the case of the Guarantor, within 45 days after the end of each of the first
three fiscal quarters of each fiscal year of the Guarantor and (ii) in the case of the
Borrower, within 90 days after the end of each fiscal year of the Borrower, consolidated
balance sheets and related statements of operations and cash flows of the Borrower and the
Guarantor and their consolidated Subsidiaries, and the consolidated statement of
stockholders equity of the Guarantor, as of the end of and for such fiscal quarter (in the
case of the Guarantor) and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all certified by
a Financial Officer of the Borrower and the Guarantor as presenting fairly in all material
respects the financial condition and results of operations of the Borrower and the Guarantor
and their consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the absence of
footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b)
above, a certificate of a Financial Officer of the Borrower and the Guarantor (i) certifying
as to whether a Default has occurred and, if a Default has occurred,
Block Financial LLC Credit Agreement
40
specifying
the details thereof and any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations demonstrating compliance with
Section 6.01 and (iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate (which delivery may be by
electronic communication and shall be deemed to be an original authentic counterpart thereof
for all purposes);
(d) promptly after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials (other than (i) statements of ownership such
as Forms 3, 4 and 5 and Schedule 13G, (ii) routine filings relating to employee benefits,
such as Forms S-8 and 11-K, and (iii) routine filings by (A) RSM McGladrey, Inc. and its
Subsidiaries, including Birchtree Financial Services, Inc., (B) RSM Equico, Inc. and its
Subsidiaries, including McGladrey Capital Markets, LLC, (C) Sand Canyon Corporation and its
Subsidiaries, (D) H&R Block Canada, Inc. and (E) H&R Block Limited) filed by either Credit
Party or any Subsidiary with the Securities and Exchange Commission, or any Governmental
Authority succeeding to any or all of the functions of said Commission, or with any national
securities exchange, or distributed by either Credit Party to its shareholders generally, as
the case may be; and
(e) promptly following any request therefor, such other information regarding the
operations, business affairs and financial condition of any Company, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.
Documents required to be delivered pursuant to Section 5.01(a), (b) or
(d) (to the extent any such documents are included in materials otherwise filed with the
SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on
the date (i) on which the Borrower or the Guarantor posts such documents, or provides a link
thereto, on the Borrowers website on the Internet at the website address listed on Schedule
10.01; or (ii) on which such documents are posted on the Borrowers or the Guarantors behalf
on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have
access (whether a commercial, third-party website or whether sponsored by the Administrative
Agent); provided that the Borrower shall notify the Administrative Agent by electronic mail
of the posting of any such documents. The Administrative Agent shall have no obligation to request
the delivery of or to maintain paper copies of the documents referred to above, and in any event
shall have no responsibility to monitor compliance by the Borrower with any such request by a
Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or
maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will
make available to the Lenders materials and/or information provided by or on behalf of the Borrower
hereunder (collectively, Borrower Materials) by posting the Borrower Materials on
IntraLinks or another similar electronic system (the Platform) and (b) certain of the
Lenders (each, a Public Lender) may have personnel who do not wish to receive material
non-public information with respect to the Borrower or its Affiliates, or the respective securities
Block Financial LLC Credit Agreement
41
of any of the foregoing, and who may be engaged in investment and other market-related
activities with respect to such Persons securities. The Borrower hereby agrees that (w) all
Borrower Materials that are to be made available to Public Lenders shall be clearly and
conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear
prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Borrower
shall be deemed to have authorized the Administrative Agent, the Arrangers and the Lenders to treat
such Borrower Materials as not containing any material non-public information with respect to the
Borrower or its securities for purposes of United States Federal and state securities laws
(provided, however, that to the extent such Borrower Materials constitute
Information, they shall be treated as set forth in Section 10.13); (y) all Borrower
Materials marked PUBLIC are permitted to be made available through a portion of the Platform
designated Public Side Information; and (z) the Administrative Agent and the Arrangers shall be
entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for
posting on a portion of the Platform that is not designated Public Side Information.
Section 5.02 Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any
arbitrator or Governmental Authority against or affecting either Credit Party or any
Affiliate thereof that is reasonably likely to be adversely determined and, if so
determined, would reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA
Events that have occurred, would reasonably be expected to result in liability of any
Company in an aggregate amount exceeding $25,000,000; and
(d) any other development that results in, or would reasonably be expected to result
in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial
Officer or other executive officer of the Borrower and the Guarantor setting forth the details of
the event or development requiring such notice and any action taken or proposed to be taken with
respect thereto.
Section 5.03 Existence; Conduct of Business. Each Credit Party will, and will cause
each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation, disposition or dissolution permitted under
Section 6.04.
Section 5.04 Payment of Taxes. Each Credit Party will, and will cause each of its
Subsidiaries to, pay its Tax liabilities that, if not paid, would reasonably be expected to have a
Material Adverse Effect before the same shall become delinquent, except where (a) the validity
Block Financial LLC Credit Agreement
42
or amount thereof is being contested in good faith by appropriate proceedings, (b) such Credit
Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in
accordance with GAAP and (c) the failure to make payment pending such contest would not reasonably
be expected to result in a Material Adverse Effect.
Section 5.05 Maintenance of Properties; Insurance. Each Credit Party will, and will
cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of
its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain
(pursuant to a self-insurance program and/or with financially sound and reputable insurers)
insurance in such amounts and against such risks as is customarily maintained by companies engaged
in the same or similar businesses operating in the same or similar locations.
Section 5.06 Books and Records; Inspection Rights. Each Credit Party will, and will
cause each of its Subsidiaries to, keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its business and
activities. Each Credit Party will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice,
to visit and inspect its properties, to examine and make extracts from its books and records, and
to discuss its affairs, finances and condition with its officers and independent accountants, all
at such reasonable times and as often as reasonably requested; provided that so long as no
Event of Default exists, each Credit Party and each Subsidiary shall have the right to be present
and participate in any discussions with its independent accountants. Nothing in this Section
5.06 shall permit the Administrative Agent or any Lender to examine or otherwise have access to
the tax returns or other confidential information of any customer of either Credit Party or any of
their respective Subsidiaries.
Section 5.07 Compliance with Laws. Each Credit Party will, and will cause each of its
Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority
applicable to it or its property, except where the failure to do so, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Section 5.08 Use of Proceeds. The proceeds of the Loans will be used only for paying
at maturity commercial paper issued by the Borrower from time to time, for general corporate
purposes or for working capital needs. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the Regulations of the
Board, including Regulations U and X.
Section 5.09 Cleandown. The Credit Parties shall reduce the aggregate outstanding
principal amount of all Short-Term Debt to $200,000,000 or less for a minimum period of thirty
consecutive days during the period from March 1 to June 30 of each fiscal year.
Block Financial LLC Credit Agreement
43
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of and interest on each
Loan and all fees payable hereunder have been paid in full, each of the Credit Parties covenants
and agrees with the Lenders that:
Section 6.01 Consolidated Net Worth. The Guarantor will not permit Consolidated Net
Worth as at the last day of any fiscal quarter of the Guarantor to be less than $650,000,000.
Section 6.02 Indebtedness. The Credit Parties will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:
(a) subject to the proviso at the end of this Section 6.02, Indebtedness
created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.02 and
extensions, renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof;
(c) seasonal Indebtedness of H&R Block Canada, Inc., provided that the
aggregate principal amount of all such Indebtedness incurred pursuant to this subsection (c)
shall not exceed 250,000,000 Canadian dollars at any time outstanding;
(d) Indebtedness of the Borrower and the Guarantor, provided that (i) the
obligations of the Credit Parties hereunder shall rank at least pari passu with such
Indebtedness (including with respect to security) and (ii) the aggregate principal amount of
all Indebtedness permitted by this subsection (d) shall not exceed $2,000,000,000 at any
time outstanding;
(e) subject to the proviso at the end of this Section 6.02, (i) Indebtedness in
connection with commercial paper issued in the United States through the Borrower which is
guaranteed by the Guarantor and (ii) Indebtedness under bank lines of credit or similar
facilities;
(f) Indebtedness in connection with Guarantees of the performance of (i) any
Subsidiarys or franchisees obligations under or pursuant to indemnity, fee, daylight
overdraft and other similar customary banking arrangements between such Subsidiary or
franchisee and one or more financial institutions in the ordinary course of business, (ii)
any Subsidiarys or franchisees obligations under or pursuant to any office lease entered
into in the ordinary course of business, and (iii) any Subsidiarys obligations under or
pursuant to any promotional, joint-promotional, cross-promotional, joint marketing, service,
equipment or supply procurement, software license or other similar agreement entered into by
such Subsidiary with one or more vendors, suppliers, retail businesses or other third
parties in the ordinary course of business, including indemnification obligations relating
to such Subsidiarys failure to perform its obligations under such lease or agreement;
Block Financial LLC Credit Agreement
44
(g) acquisition-related Indebtedness (either incurred or assumed) and Indebtedness in
connection with the Guarantors guarantees of the payment or performance of primary
obligations of Subsidiaries of the Guarantor in connection with acquisitions by such
Subsidiaries, or Indebtedness secured by Liens permitted under Section 6.03(f);
provided that, during any fiscal year, the aggregate outstanding principal amount of
all Indebtedness incurred pursuant to this subsection (g) shall not exceed at any time
$500,000,000;
(h) Indebtedness of any Company to any other Company; provided that such
Indebtedness shall not be prohibited by Section 6.05;
(i) Indebtedness in connection with repurchase agreements pursuant to which mortgage
loans of a Credit Party or a Subsidiary are sold with the simultaneous agreement to
repurchase the mortgage loans at the same price plus interest at an agreed upon rate;
provided that the aggregate outstanding principal amount of all Indebtedness
incurred pursuant to this subsection (i) shall not at any time exceed $500,000,000;
provided, further, that no agreed upon repurchase date shall be later than
90 business days after the date of the corresponding repurchase agreement;
(j) Indebtedness in connection with Guarantees or Guarantee Obligations which are made,
given or undertaken as representations and warranties, indemnities or assurances of the
payment or performance of primary obligations in connection with securitization transactions
or other transactions permitted hereunder, as to which primary obligations the primary
obligor is a Credit Party, a Subsidiary or a securitization trust or similar securitization
vehicle to which a Credit Party or a Subsidiary sold, directly or indirectly, the relevant
mortgage loans;
(k) Indebtedness of RSM, a Subsidiary of the Guarantor, to McGladrey & Pullen, LLP and
certain related trusts; provided that the aggregate outstanding principal of all
Indebtedness permitted under this subsection (k) shall not exceed $200,000,000 at any time;
(l) Indebtedness in connection with (i) Capital Lease Obligations in an aggregate
outstanding principal amount not at any time exceeding $50,000,000 (excluding any Capital
Lease Obligations permitted by Section 6.02(p)), (ii) obligations under existing
mortgages in an aggregate outstanding principal amount not exceeding $12,000,000 at any
time, (iii) securities sold and not yet purchased, provided that the aggregate
outstanding principal amount of all Indebtedness incurred pursuant to this clause (iii)
(other than Indebtedness of Subsidiaries which act as broker-dealers) shall not at any time
exceed $15,000,000 and (iv) customer deposits in the ordinary course of business;
(m) subject to the proviso at the end of this Section 6.02, Indebtedness
incurred in connection with any RAL Receivables Transaction or Indirect RAL Participation
Transaction; provided that (i) such Indebtedness is incurred during the period
beginning on January 2 of any year and ending on June 29 of such year, (ii) such
Indebtedness is repaid in full by June 30 of the year in which such Indebtedness is
Block Financial LLC Credit Agreement
45
incurred and (iii) the covenants contained in any agreement relating to such
Indebtedness, or guarantee thereof (other than covenants specific to the Borrowers refund
anticipation loan program and the operation thereof), are no more restrictive in any
material respect than the covenants contained in this Agreement (or, in the case of any
agreement entered into prior to the effectiveness of this Agreement, than the covenants
contained in the Existing Agreements, provided that any such agreement shall terminate no
later than June 30, 2010);
(n) Indebtedness in respect of letters of credit in an aggregate outstanding principal
amount not to exceed $100,000,000;
(o) Indebtedness (including Capital Lease Obligations) in connection with a
monetization of the Guarantors headquarters in an aggregate outstanding principal amount
not exceeding $200,000,000 at any time;
(p) deposits and other liabilities incurred by banking Subsidiaries in the ordinary
course of business;
(q) customary liabilities of broker-dealers incurred by broker-dealer Subsidiaries in
the ordinary course of business;
(r) Indebtedness issued by a Subsidiary of the Borrower and primarily secured by
mortgage loans sold as contemplated by Section 6.05(c) to such Subsidiary by another
Subsidiary of the Borrower;
(s) Indebtedness secured by Liens permitted by Section 6.03(d) or
6.03(e);
(t) Indebtedness incurred solely to finance businesses described on Schedule
6.04(b) after the date hereof that neither the Credit Parties nor their respective
Subsidiaries are currently engaged in to any material extent on the date hereof;
provided that the aggregate principal amount of all Indebtedness incurred pursuant
to this clause (t) shall not at any time exceed $400,000,000;
(u) other Indebtedness (excluding Indebtedness of the types described in Sections
6.02(a), 6.02(b), 6.02(e) and 6.02(m)) in an aggregate principal
amount not at any time exceeding $20,000,000; and
(v) subject to the proviso at the end of this Section 6.02, Indebtedness
incurred in Other Receivables Transactions;
provided, that the sum, without duplication, of the aggregate outstanding principal amount
of all Indebtedness permitted pursuant to Sections 6.02(a), 6.02(b),
6.02(e), 6.02(m) and 6.02(v) shall not at any time exceed the Aggregate
Commitments then in effect, except that, during the period from October 15 of any year through June
30 of the following year, such sum may exceed the Aggregate Commitments then in effect by an amount
up to the total of (A) the Permitted Amount (as defined below) and (B) $500,000,000. For purposes
of the foregoing, Permitted Amount means (i) from October 15 of any year through January 1 of the
following year, the aggregate outstanding principal amount of Indebtedness described in Section
6.02(v); (ii) from January 2 of
Block Financial LLC Credit Agreement
46
any year through April 30 of such year, the aggregate outstanding principal amount of Indebtedness
described in Sections 6.02(m) and 6.02(v); and (iii) from May 1 of any year through
June 30 of such year, the aggregate outstanding principal amount of Indebtedness described in
Section 6.02(m).
Section 6.03 Liens. The Credit Parties will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable)
or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any asset of any Company existing on the date hereof and set forth in
Schedule 6.03; provided that (i) such Lien shall not apply to any other
asset of any Company and (ii) such Lien shall secure only those obligations which it secures
on the date hereof and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof;
(c) any Lien existing on any asset prior to the acquisition thereof by any Company or
existing on any asset of any Person that becomes a Subsidiary after the date hereof prior to
the time such Person becomes a Subsidiary; provided that (i) such Lien is not
created in contemplation of or in connection with such acquisition or such Person becoming a
Subsidiary, as the case may be, (ii) such Lien shall not apply to any other assets of any
Company and (iii) such Lien shall secure only those obligations which it secures on the date
of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and
extensions, renewals and replacements thereof that do not increase the outstanding principal
amount thereof;
(d) Liens and transfers in connection with the securitization, financing or other
transfer of any mortgage loans or mortgage servicing reimbursement rights (and/or, in each
case, related rights, interests and servicing assets) owned by the Borrower or any of its
Subsidiaries;
(e) Liens and transfers in connection with the securitization or other transfer of any
credit card receivables (and/or related rights and interests) owned by the Borrower or any
of its Subsidiaries;
(f) Liens on fixed or capital assets acquired, constructed or improved by any Company
to secure Indebtedness of such Company incurred to finance the acquisition, construction or
improvement of such fixed or capital assets; provided that (i) such Liens and the
Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition
or the completion of such construction or improvement, (ii) the Indebtedness secured thereby
does not exceed 100% of the cost of acquiring, constructing or improving such fixed or
capital assets and (iii) such Liens shall not apply to any other assets of any Company;
(g) Liens arising in connection with repurchase agreements contemplated by Section
6.02(i); provided that such security interests shall not apply to any assets of
any
Block Financial LLC Credit Agreement
47
Company except for the mortgage loans or securities, as applicable, subject to such
repurchase agreements;
(h) Liens arising in connection with Indebtedness permitted by Sections
6.02(p), which Liens are granted in the ordinary course of business;
(i) Liens not otherwise permitted by this Section 6.03 so long as the
Obligations hereunder are contemporaneously secured equally and ratably with the obligations
secured thereby;
(j) Liens not otherwise permitted by this Section 6.03, so long as the
aggregate outstanding principal amount of the obligations secured thereby does not exceed
(as to all Companies) $250,000,000 at any one time;
(k) Liens and transfers in connection with any RAL Receivables Transaction or Other
Receivables Transaction;
(l) Liens securing Indebtedness permitted by Sections 6.02(o) or
6.02(t);
(m) Liens on Unrestricted Margin Stock; and
(n) Liens securing the Obligations.
Section 6.04 Fundamental Changes; Sale of Assets. (a) The Credit Parties will not,
and will not permit any Material Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or substantially all of its
assets (other than Unrestricted Margin Stock), or all or substantially all of the stock or assets
related to its tax preparation business or liquidate or dissolve, except (i) transfers in
connection with any RAL Receivables Transaction, Other Receivables Transaction or securitization
otherwise permitted hereby, (ii) sales and other transfers of mortgage loans (and/or related rights
and interests and servicing assets) and (iii) if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing, (A) any Material Subsidiary other
than the Borrower may merge into a Credit Party in a transaction in which the Credit Party is the
surviving corporation, (B) any wholly owned Material Subsidiary other than the Borrower may merge
into any other wholly owned Material Subsidiary in a transaction in which the surviving entity is a
wholly owned Subsidiary, (C) any Material Subsidiary other than the Borrower may sell, transfer,
lease or otherwise dispose of its assets to the Guarantor or to another Material Subsidiary and (D)
any Material Subsidiary other than the Borrower may liquidate or dissolve if the Guarantor
determines in good faith that such liquidation or dissolution is in the best interests of the
Guarantor and is not materially disadvantageous to the Lenders; provided that any such
merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger
shall not be permitted unless also permitted by Section 6.05.
(b) Except as set forth on Schedule 6.04(b), the Credit Parties will not, and will
not permit any Material Subsidiary to, engage to any material extent in any business other than
businesses of the type conducted by the Credit Parties and the Subsidiaries on the date of
execution of this Agreement and businesses reasonably related thereto.
Block Financial LLC Credit Agreement
48
Section 6.05 Transactions with Affiliates. The Credit Parties will not, and will not
permit any other Company to, sell, lease or otherwise transfer any assets to, or purchase, lease or
otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not
less favorable to such Company than could be obtained on an arms-length basis from unrelated third
parties, (b) transactions between or among Companies not involving any other Affiliate, and (c)
transactions involving the transfer of mortgage loans and other assets for cash and other
consideration of not less than the sum of (i) the lesser of (x) the fair market value of such
mortgage loans and (y) the outstanding principal amount of such mortgage loans, and (ii) the fair
market value of such other assets, to a Subsidiary of the Borrower that issues Indebtedness
permitted by Section 6.02(r).
Section 6.06 Restrictive Agreements. The Credit Parties will not, and will not permit
any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that by its terms prohibits, restricts or imposes any condition upon (a) the
ability of any Company to create, incur or permit to exist any Lien upon any of its material assets
(unless such agreement or arrangement does not prohibit, restrict or impose any condition upon the
ability of any Company to create, incur or permit to exist any Lien in favor of the Administrative
Agent or any Lender created hereunder), or (b) the ability of any Subsidiary to pay dividends or
other distributions with respect to any shares of its capital stock or to make or repay loans or
advances to the Guarantor or any other Subsidiary or to Guarantee Indebtedness of the Guarantor or
any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and
conditions imposed by law, by this Agreement or, in the case of any banking Subsidiary, by any
Governmental Authority having jurisdiction over such Subsidiary, (ii) the foregoing shall not apply
to restrictions and conditions existing on the date hereof identified on Schedule 6.06 (but
shall apply to any extension, renewal, amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) the foregoing shall not apply to customary restrictions and conditions
contained in agreements relating to the securitization, financing or other transfer of mortgage
loans (and/or related rights and interests and servicing assets) owned by the Borrower or any of
its Subsidiaries, (v) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured obligations permitted by this Agreement (including
obligations secured by Liens permitted by Section 6.03(j)) if such restrictions or
conditions apply only to the assets securing such obligations, (vi) clause (a) of the foregoing
shall not apply to customary provisions in leases and other contracts restricting the assignment
thereof and (vii) clause (a) of the foregoing shall not apply to restrictions or conditions imposed
by any agreement relating to Indebtedness permitted hereunder pursuant to Section 6.02(m)
or 6.02(v) or any RAL Receivables Transaction or Other Receivables Transaction.
ARTICLE VII
GUARANTEE
Section 7.01 Guarantee. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Administrative Agent and the Lenders and their respective
Block Financial LLC Credit Agreement
49
successors, indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise)
of the Obligations.
(b) The Guarantor further agrees to pay any and all expenses (including all fees and
disbursements of counsel) which may be paid or incurred by the Administrative Agent or any
Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to,
or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, the Guarantor under this Article. This Article shall remain in full force
and effect until the Obligations and the obligations of the Guarantor under the guarantee
contained in this Article shall have been satisfied by payment in full and the Commitments shall
be terminated, notwithstanding that from time to time prior thereto the Borrower may be free
from any Obligations.
(c) No payment or payments made by either Credit Party, any other guarantor or any other
Person or received or collected by the Administrative Agent or any Lender from either Credit
Party or any other Person by virtue of any action or proceeding or any set-off or appropriation
or application, at any time or from time to time, in reduction of or in payment of the
Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments, remain liable
hereunder for the Obligations until the Obligations are paid in full and the Commitments are
terminated.
(d) The Guarantor agrees that whenever, at any time or from time to time, it shall make any
payment to the Administrative Agent or any Lender on account of its liability hereunder, it will
notify the Administrative Agent and such Lender in writing that such payment is made under this
Article for such purpose.
Section 7.02 Delay of Subrogation. Notwithstanding any payment or payments made by
the Guarantor hereunder, or any set-off or application of funds of the Guarantor by the
Administrative Agent or any Lender, the Guarantor shall not be entitled to be subrogated to any of
the rights of the Administrative Agent or any Lender against the Borrower or against any collateral
security or guarantee or right of offset held by the Administrative Agent or any Lender for the
payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or
reimbursement from the Borrower in respect of payments made by the Guarantor hereunder, until all
amounts owing to the Administrative Agent and the Lenders by the Borrower on account of the
Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full, such amount shall be held by the Guarantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of the Guarantor, and shall,
forthwith upon receipt by the Guarantor, be turned over to the Administrative Agent in the exact
form received by the Guarantor (duly indorsed by the Guarantor to the Administrative Agent, if
required) to be applied against the Obligations, whether matured or unmatured, in such order as the
Administrative Agent may determine. The provisions of this Section shall be effective
notwithstanding the termination of this Agreement and the payment in full of the Obligations and
the termination of the Commitments.
Block Financial LLC Credit Agreement
50
Section 7.03 Amendments, etc. with respect to the Obligations; Waiver of Rights. The
Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights
against the Guarantor, and without notice to or further assent by the Guarantor, any demand for
payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded
by the Administrative Agent or such Lender, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and this Agreement and any other
documents executed and delivered in connection herewith may be amended, modified, supplemented or
terminated, in whole or in part, in accordance with the provisions hereof as the Administrative
Agent (or the requisite Lenders, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the Administrative Agent or
any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the Obligations or for
this Agreement or any property subject thereto. When making any demand hereunder against the
Guarantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a
similar demand on the Borrower or any other guarantor, and any failure by the Administrative Agent
or any Lender to make any such demand or to collect any payments from the Borrower or any such
other guarantor or any release of the Borrower or such other guarantor shall not relieve the
Guarantor of its obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender
against the Guarantor. For the purposes hereof demand shall include the commencement and
continuance of any legal proceedings.
Section 7.04 Guarantee Absolute and Unconditional. The Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or
proof of reliance by the Administrative Agent or any Lender upon this Agreement or acceptance of
this Agreement; the Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this
Agreement; and all dealings between the Borrower and the Guarantor, on the one hand, and the
Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Agreement. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to or upon the
Borrower and the Guarantor with respect to the Obligations. This Article shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of this Agreement, any other documents executed and delivered in
connection herewith, any of the Obligations or any other collateral security therefor or guarantee
or right of offset with respect thereto at any time or from time to time held by the Administrative
Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the Guarantor against the
Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or the Guarantor) which constitutes, or might be construed
to constitute, an equitable or legal discharge of the Borrower for the Obligations, or of the
Guarantor under this Article, in bankruptcy or in any other instance.
Block Financial LLC Credit Agreement
51
When pursuing its rights and remedies hereunder against the Guarantor, the Administrative
Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as
it may have against the Borrower or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and any failure by the
Administrative Agent or any Lender to pursue such other rights or remedies or to collect any
payments from the Borrower or any such other Person or to realize upon any such collateral security
or guarantee or to exercise any such right of offset, or any release of the Borrower or any such
other Person or of any such collateral security, guarantee or right of offset, shall not relieve
the Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Administrative Agent or any Lender
against the Guarantor. This Article shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantor and its successors and assigns,
and shall inure to the benefit of the Administrative Agent and the Lenders, and their respective
successors, indorsees, transferees and assigns, until all the Obligations and the obligations of
the Guarantor under this Agreement shall have been satisfied by payment in full and the Commitments
shall be terminated, notwithstanding that from time to time during the term of this Agreement the
Borrower may be free from any Obligations.
Section 7.05 Reinstatement. This Article shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of any of the
Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or
any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either
Credit Party or upon or as a result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, either Credit Party or any substantial part of its property, or
otherwise, all as though such payments had not been made.
Section 7.06 Payments. The Guarantor hereby agrees that all payments required to be
made by it hereunder will be made to the Administrative Agent without set-off or counterclaim in
accordance with the terms of the Obligations, including in the currency in which payment is due.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01 Events of Default. Any of the following shall constitute an Event of
Default:
(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for prepayment
thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other
amount (other than an amount referred to in clause (a) of this Article) payable under this
Agreement, when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of five Business Days;
Block Financial LLC Credit Agreement
52
(c) any representation or warranty made or deemed made by either Credit Party (or any
of its officers) in or in connection with this Agreement or any amendment or modification
hereof, or in any report, certificate, financial statement or other document furnished
pursuant to or in connection with this Agreement or any amendment or modification hereof,
shall prove to have been incorrect in any material respect when made or deemed made;
(d) either Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in Section 5.02, 5.03 (with respect to the Credit
Parties existence), 5.08 or 5.09 or in Article VI;
(e) either Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in clause (a), (b) or (d)
of this Article), and such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent (given at the request of any Lender) to the
Borrower;
(f) either Credit Party or any Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material Indebtedness,
when and as the same shall become due and payable (after expiration of any applicable grace
or cure period);
(g) any event or condition occurs that results in any Material Indebtedness becoming
due prior to its scheduled maturity; provided that this clause (g) shall not apply
to (i) secured Indebtedness that becomes due as a result of the voluntary sale or transfer
of the assets securing such Indebtedness or (ii) any obligation under a Hedging Agreement
that becomes due as a result of a default by a party thereto other than a Company;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be
filed seeking (i) liquidation, reorganization or other relief in respect of either Credit
Party or any Material Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for either Credit Party or any Material Subsidiary or for a
substantial part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) either Credit Party or any Material Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other relief under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this Article,
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or
for a substantial part of its assets, (iv) file an answer admitting the material allegations
Block Financial LLC Credit Agreement
53
of a petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) either Credit Party or any Material Subsidiary shall become unable, admit in
writing or fail generally to pay its debts as they become due;
(k) one or more final judgments for the payment of money shall be rendered against the
Guarantor, the Borrower, any Subsidiary or any combination thereof and either (i) a creditor
shall have commenced enforcement proceedings upon any such judgment in an aggregate amount
(to the extent not covered by insurance as to which the relevant insurance company has not
denied coverage) in excess of $40,000,000 (a Material Judgment) or (ii) there
shall be a period of 30 consecutive days during which a stay of enforcement of any Material
Judgment shall not be in effect (by reason of pending appeal or otherwise) (it being
understood that, notwithstanding the definition of Default, no Default shall be
triggered solely by the rendering of such a judgment or judgments prior to the commencement
of enforcement proceedings or the lapse of such 30 consecutive day period, so long as such
judgments are capable of satisfaction by payment at any time);
(l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders,
when taken together with all other ERISA Events that have occurred, would reasonably be
expected to result in a Material Adverse Effect;
(m) a Change in Control shall occur; or
(n) the Guarantee contained in Article VII herein shall cease, for any reason,
to be in full force and effect in any material respect or either Credit Party shall so
assert.
Section 8.02 Remedies Upon Event of Default. If any Event of Default occurs and is
continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the
Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans to be terminated, whereupon
such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued
and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan
Document to be immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Lenders all rights and remedies available to
it and the Lenders under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an
order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the
obligation of each Lender to make Loans shall automatically terminate, the unpaid principal amount
of all
Block Financial LLC Credit Agreement
54
outstanding Loans and all interest and other amounts as aforesaid shall automatically become due
and payable without further act of the Administrative Agent or any Lender.
Section 8.03 Application of Funds. After the exercise of remedies provided for in
Section 8.02 (or after the Loans have automatically become immediately due and payable as
set forth in the proviso to Section 8.02), any amounts received on account of the
Obligations shall be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities,
expenses and other amounts (including fees, charges and disbursements of counsel to the
Administrative Agent and amounts payable under Section 2.12) payable to the Administrative
Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities
and other amounts (other than principal and interest) payable to the Lenders (including fees,
charges and disbursements of counsel to the respective Lenders and amounts payable under
Sections 2.10, 2.11 or 2.12), ratably among them in proportion to the
respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid
interest on the Loans and other Obligations, ratably among the Lenders in proportion to the
respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of
the Loans, ratably among the Lenders in proportion to the respective amounts described in this
clause Fourth held by them; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in
full, to the Borrower or as otherwise required by Law.
ARTICLE IX
ADMINISTRATIVE AGENT
Section 9.01 Appointment and Authority.
Each of the Lenders hereby irrevocably appoints Bank of America to act on its behalf as the
Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof or thereof, together with such actions and powers as are
reasonably incidental thereto. The provisions of this Article are solely for the benefit of the
Administrative Agent and the Lenders, and neither the Borrower nor any other Credit Party shall
have rights as a third party beneficiary of any of such provisions.
Section 9.02 Rights as a Lender. The Person serving as the Administrative Agent
hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not the Administrative Agent, and the term Lender or
Lenders shall, unless otherwise expressly indicated or the context otherwise requires, include
the Person serving as the Administrative Agent hereunder in its individual
Block Financial LLC Credit Agreement
55
capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the
financial advisor or in any other advisory capacity for and generally engage in any kind of
business with any Company or any Affiliate thereof as if such Person were not the Administrative
Agent hereunder and without any duty to account therefor to the Lenders.
Section 9.03 Exculpatory Provisions. The Administrative Agent shall not have any
duties or obligations except those expressly set forth herein and in the other Loan Documents.
Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly contemplated hereby
or by the other Loan Documents that the Administrative Agent is required to exercise as
directed in writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be expressly provided for herein or in the other Loan Documents),
provided that the Administrative Agent shall not be required to take any action
that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to
liability or that is contrary to any Loan Document or applicable law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents,
have any duty to disclose, and shall not be liable for the failure to disclose, any
information relating to the Borrower or any of its Affiliates that is communicated to or
obtained by the Person serving as the Administrative Agent or any of its Affiliates in any
capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with
the consent or at the request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be
necessary, under the circumstances as provided in Sections 10.02) or (ii) in the absence of
its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to
have knowledge of any Default unless and until notice describing such Default is given to the
Administrative Agent by the Borrower or a Lender.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made in or in connection with this Agreement or
any other Loan Document, (ii) the contents of any certificate, report or other document delivered
hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance
of any of the covenants, agreements or other terms or conditions set forth herein or therein or the
occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the Administrative Agent.
Block Financial LLC Credit Agreement
56
Section 9.04 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for
relying upon, any notice, request, certificate, consent, statement, instrument, document or other
writing (including any electronic message, Internet or intranet website posting or other
distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated
by the proper Person. The Administrative Agent also may rely upon any statement made to it orally
or by telephone and believed by it to have been made by the proper Person, and shall not incur any
liability for relying thereon. In determining compliance with any condition hereunder to the
making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the
Administrative Agent may presume that such condition is satisfactory to such Lender unless the
Administrative Agent shall have received notice to the contrary from such Lender prior to the
making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel
for the Borrower), independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of any such counsel,
accountants or experts.
Section 9.05 Delegation of Duties. The Administrative Agent may perform any and all
of its duties and exercise its rights and powers hereunder or under any other Loan Document by or
through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent
and any such sub-agent may perform any and all of its duties and exercise its rights and powers by
or through their respective Related Parties. The exculpatory provisions of this Article shall
apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such
sub-agent, and shall apply to their respective activities in connection with the syndication of the
credit facilities provided for herein as well as activities as Administrative Agent.
Section 9.06 Resignation of Administrative Agent. The Administrative Agent may at any
time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such
notice of resignation, the Required Lenders shall have the right, subject to the consent of the
Borrower so long as no Event of Default described in Section 8.01(a), (b) or
(i) shall have occurred and be continuing (which consent shall not be unreasonably
withheld), to appoint a successor, which shall be a bank with an office in the United States, or an
Affiliate of any such bank so long as such Affiliate has an office in the United States. If no
such successor shall have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice of its resignation,
then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor
Administrative Agent meeting the qualifications set forth above; provided that if the
Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has
accepted such appointment, then such resignation shall nonetheless become effective in accordance
with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder and under the other Loan Documents and (2) all payments, communications and
determinations provided to be made by, to or through the Administrative Agent shall instead be made
by or to each Lender directly, until such time as the Required Lenders appoint a successor
Administrative Agent as provided for above in this Section. Upon acceptance of appointment as
Administrative Agent hereunder, such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the
retiring (or
Block Financial LLC Credit Agreement
57
retired) Administrative Agent shall be discharged from all of its duties and
obligations hereunder or under the other Loan Documents (if not already discharged therefrom as
provided above in this Section). The fees payable by the Borrower to a successor Administrative
Agent shall be the same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the retiring Administrative Agents resignation hereunder and
under the other Loan Documents, the provisions of this Article and Section 10.04 shall
continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be taken by any of them
while the retiring Administrative Agent was acting as Administrative Agent.
Any resignation by Bank of America as Administrative Agent pursuant to this Section shall
also constitute its resignation as Swingline Lender. Upon the acceptance of a successors
appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring Swingline Lender and
(b) the retiring Swingline Lender shall be discharged from all of its duties and obligations
hereunder or under the other Loan Documents.
Section 9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
acknowledges that it has, independently and without reliance upon the Administrative Agent or any
other Lender or any of their Related Parties and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon the Administrative
Agent or any other Lender or any of their Related Parties and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this Agreement, any other
Loan Document or any related agreement or any document furnished hereunder or thereunder.
Section 9.08 No Other Duties, Etc.Anything herein to the contrary notwithstanding,
none of the Bookrunners, Arrangers, Syndication Agent or Documentation Agent listed on the cover
page hereof shall have any powers, duties or responsibilities under this Agreement, except in its
capacity, as applicable, as the Administrative Agent or a Lender hereunder.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in subsection (b) below),
all notices and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or registered mail or sent
by telecopier as follows, and all notices and other communications expressly permitted hereunder
to be given by telephone shall be made to the applicable telephone number, as follows:
Block Financial LLC Credit Agreement
58
(i) if to the Borrower, the Guarantor, the Administrative Agent or the Swingline
Lender, to the address, telecopier number, electronic mail address or telephone number
specified for such Person on Schedule 10.01; and
(ii) if to any other Lender, to the address, telecopier number, electronic mail address
or telephone number specified in its Administrative Questionnaire.
Notices and other communications sent by hand or overnight courier service, or mailed by
certified or registered mail, shall be deemed to have been given when received; notices and other
communications sent by telecopier shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have been given at the
opening of business on the next business day for the recipient). Notices and other communications
delivered through electronic communications to the extent provided in subsection (b) below, shall
be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders
hereunder may be delivered or furnished by electronic communication (including e-mail and
Internet or intranet websites) pursuant to procedures approved by the Administrative Agent,
provided that the foregoing shall not apply to notices to any Lender pursuant to
Article II if such Lender has notified the Administrative Agent that it is incapable of
receiving notices under such Article by electronic communication. The Administrative Agent or
the Borrower may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it, provided
that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications
sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement
from the intended recipient (such as by the return receipt requested function, as available,
return e-mail or other written acknowledgement), provided that if such notice or other
communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next business day
for the recipient, and (ii) notices or communications posted to an Internet or intranet website
shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as
described in the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.
(c) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS
OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS
FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING
ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN
CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no
Block Financial LLC Credit Agreement
59
event shall the Administrative
Agent or any of its Related Parties (collectively, the Agent Parties) have any
liability to the Borrower, the Guarantor, any Lender or any other Person for losses, claims,
damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising
out of the Borrowers or the Administrative Agents transmission of Borrower Materials through
the Internet, except to the extent that such losses, claims, damages, liabilities or expenses
are determined by a court of competent jurisdiction by a final and nonappealable judgment to
have resulted from the gross negligence or willful misconduct of such Agent Party;
provided, however, that in no event shall any Agent Party have any liability to
the Borrower, the Guarantor, any Lender or any other Person for indirect, special, incidental,
consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc. Each of the Borrower, the Guarantor, the
Administrative Agent and the Swingline Lender may change its address, telecopier or telephone
number for notices and other communications hereunder by notice to the other parties hereto.
Each other Lender may change its address, telecopier or telephone number for notices and other
communications hereunder by notice to the Borrower, the Administrative Agent and the Swingline
Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time,
at the request of the Administrative Agent, to ensure that the Administrative Agent has on
record (i) an effective address, contact name, telephone number, telecopier number and
electronic mail address to which notices and other communications may be sent and (ii) accurate
wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one
individual at or on behalf of such Public Lender to at all times have selected the Private Side
Information or similar designation on the content declaration screen of the Platform in order
to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance
procedures and applicable Law, including United States Federal and state securities laws, to make
reference to Borrower Materials that are not made available through the Public Side
Information portion of the Platform and that may contain material non-public information with
respect to the Borrower, the Guarantor or their securities for purposes of United States Federal
or state securities laws.
(e) Reliance by Administrative Agent and Lenders. The Administrative Agent and the
Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan
Notices and Swingline Loan Notices) purportedly given by or on behalf of the Borrower even if
(i) such notices were not made in a manner specified herein, were incomplete or were not
preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as
understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify
the Administrative Agent, each Lender and the Related Parties of each of them from all losses,
costs, expenses and liabilities resulting from the reliance by such Person on each notice
purportedly given by or on behalf of the Borrower. All telephonic notices to and other
telephonic communications with the Administrative Agent may be recorded by the Administrative
Agent, and each of the parties hereto hereby consents to such recording.
Section 10.02 Amendments, Etc. (a) No failure or delay by the Administrative Agent
or any Lender in exercising any right or power hereunder shall operate as a waiver
Block Financial LLC Credit Agreement
60
thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of the Administrative
Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or consent to any
departure by the Credit Parties therefrom shall in any event be effective unless the same shall be
permitted by Section 10.02(b), and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of
whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at
the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into by the Credit Parties and
the Required Lenders or by the Credit Parties and the Administrative Agent with the consent of
the Required Lenders; provided that no such agreement shall (i) increase the Commitment
of any Lender without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without
the written consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan, or any interest thereon, or any fees payable
hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled
date of expiration of any Commitment, without the written consent of each Lender affected
thereby, (iv) change Section 2.13(b) or (c) or Section 8.03 in a manner
that would alter the pro rata sharing of payments required thereby, without the written consent
of each Lender, (v) release the guarantee contained in Article VII, without the written
consent of each Lender, (vi) waive
any of the conditions precedent to the Closing Date set forth in Section 4.01
without the written consent of each Lender or (vii) change any of the provisions of this Section
or the definition of Required Lenders or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of each Lender;
provided, further, that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent or the Swingline Lender hereunder
without the prior written consent of the Administrative Agent or the Swingline Lender, as the
case may be.
Section 10.03 Enforcement. Notwithstanding anything to the contrary contained herein
or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the
other Loan Documents against the Credit Parties or any of them shall be vested exclusively in, and
all actions and proceedings at law in connection with such enforcement shall be instituted and
maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the
benefit of all the Lenders; provided, however, that the foregoing shall not
prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies
that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the
other Loan Documents, (b) the Swingline Lender from exercising the rights and remedies that inure
to its benefit (solely in its capacity as Swingline Lender) hereunder and under the other Loan
Documents, (c) any Lender from exercising setoff rights in accordance with Section 10.10
(subject to the terms of Section 2.13), or (d) any Lender from filing proofs of claim or
appearing
Block Financial LLC Credit Agreement
61
and filing pleadings on its own behalf during the pendency of a proceeding relative to
either Credit Party under any debtor relief law; and provided, further, that if at
any time there is no Person acting as Administrative Agent hereunder and under the other Loan
Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the
Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth
in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.13, any
Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to
it and as authorized by the Required Lenders.
Section 10.04 Expenses; Indemnity; Damage Waiver.
(a) The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including the reasonable and documented
fees, charges and disbursements of counsel for the Administrative Agent, in connection with the
syndication of the credit facilities provided for herein, the preparation and administration of
this Agreement and any amendments, modifications or waivers of the provisions hereof (whether or
not the transactions contemplated hereby or thereby shall be consummated) and (ii) all
reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, or any
Lender, including the reasonable and documented fees, charges and disbursements of any counsel
for the Administrative Agent, or any Lender, in connection with the enforcement or protection of
its rights in connection with this Agreement, including its rights under this Section, or in
connection with the Loans made hereunder, including in connection with any workout,
restructuring or negotiations in respect thereof.
(b) The Credit Parties shall jointly and severally indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such Person being
called an Indemnitee), against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or delivery of this
Agreement or any agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom,
(iii) any actual or alleged presence or release of Hazardous Materials on or from any property
owned or operated by any Company, or any Environmental Liability related in any way to any
Company, or (iv) any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee or any Company is a party thereto; provided that
such indemnity shall not be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful misconduct of such
Indemnitee or any of its Related Parties.
(c) To the extent that either Credit Party fails to pay any amount required to be paid by
it to the Administrative Agent or the Swingline Lender under Section 10.04(a) or (b) but without
affecting such Credit Partys reimbursement obligations with respect
Block Financial LLC Credit Agreement
62
thereto, each Lender
severally agrees to pay to the Administrative Agent or the Swingline Lender, as the case may be,
such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed
expense or indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the
case may be, was incurred by or asserted against the Administrative Agent or the Swingline
Lender in its capacity as such. The Administrative Agent or the Swingline Lender shall have the
right to deduct any amount owed to it by any Lender under this subsection (c) from any payment
made by it to such Lender hereunder.
(d) To the extent permitted by applicable law, the Credit Parties shall not assert, and
hereby waive, any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out
of, in connection with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.
(e) No Indemnitee referred to in subsection (b) above shall be liable for any damages
arising from the use by unintended recipients of any information or other materials distributed
to such unintended recipients by such Indemnitee through telecommunications, electronic or other
information transmission systems in connection with this Agreement or the other Loan Documents
or the transactions contemplated hereby or thereby other than for direct or actual damages
resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a
final and nonappealable judgment of a court of competent jurisdiction.
(f) All amounts due under this Section shall be payable promptly after written demand
therefor.
Section 10.05 Payments Set Aside. To the extent that any payment by or on behalf of
the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any
Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or
required (including pursuant to any settlement entered into by the Administrative Agent or such
Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection
with any proceeding under any debtor relief law or otherwise, then (a) to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such setoff had not
occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its
applicable share (without duplication) of any amount so recovered from or repaid by the
Administrative Agent, plus interest thereon from the date of such demand to the date such payment
is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The
obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in
full of the Obligations and the termination of this Agreement.
Block Financial LLC Credit Agreement
63
Section 10.06 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that no
Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender (and any attempted assignment or transfer by a Credit
Party without such consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees (other than a Credit Party or any of its
Affiliates or a Defaulting Lender) all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans at the time owing to it);
provided that (i) each of the Borrower and the Administrative Agent (and, in the case of
an assignment of all or a portion of a Commitment or any Lenders obligations in respect of its
risk participation in Swingline Loans, the Swingline Lender) must give its prior written consent
to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case
of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire
remaining amount of the assigning Lenders Commitment, the amount of the Commitment of the
assigning Lender subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise
consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lenders rights and obligations under this Agreement, (iv) the parties to each
assignment
shall execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not
be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire;
provided, further, that any consent of the Borrower otherwise required under
this subsection shall not be required if an Event of Default has occurred and is continuing.
Upon acceptance and recording pursuant to Section 10.06(d), from and after the effective
date specified in each Assignment and Acceptance, the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and Acceptance
covering all of the assigning Lenders rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the benefits of
Sections 2.10, 2.11, 2.12 and 10.04). Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not comply with
this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with Section 10.06(e).
Block Financial LLC Credit Agreement
64
(c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall
maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of the Lenders,
and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the Register). The entries in the Register shall be
conclusive, and each Credit Party, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement, notwithstanding notice to the contrary. In addition, the
Administrative Agent shall maintain on the Register information regarding the designation, and
revocation of designation, of any Lender as a Defaulting Lender.
(d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning
Lender and an assignee, the assignees completed Administrative Questionnaire (unless the
assignee shall already be a Lender hereunder), the processing and recordation fee referred to in
Section 10.06(b) and any written consent to such assignment required by Section
10.06(b), the Administrative Agent shall accept such Assignment and Acceptance and record
the information contained therein in the Register. No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the Register as provided in this
subsection.
(e) Any Lender may, without the consent of either Credit Party, the Administrative Agent or
the Swingline Lender, sell participations to one or more banks or other entities (a
Participant) in all or a portion of such Lenders rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lenders obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for the performance
of such obligations and (iii) the Credit Parties, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lenders rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such Lender (rather
than its Participant) shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the first proviso to
Section 10.02(b) that affects such Participant. Subject to Section 10.06(f),
the Borrower agrees that each Participant shall be entitled to the benefits of Sections
2.10, 2.11 and 2.12 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to Section 10.06(b).
(f) A Participant shall not be entitled to receive any greater payment under Section
2.10 or 2.12 than the applicable Lender would have been entitled to receive with
respect to the participation sold to such Participant, unless the sale of the participation to
such Participant is made with the Borrowers prior written consent. A Participant that would be
a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section
2.12 unless the Borrower is notified of the participation sold to such Participant and such
Block Financial LLC Credit Agreement
65
Participant agrees, for the benefit of the Borrower, to comply with Section 2.12(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in all or any portion
of its rights under this Agreement to secure obligations of such Lender, including any such
pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such
pledge or assignment of a security interest; provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations hereunder or
substitute any such assignee for such Lender as a party hereto.
(h) Notwithstanding anything to the contrary contained herein, any Lender (a Granting
Lender) may grant to a special purpose funding vehicle (an SPC), identified as
such in writing from time to time by the Granting Lender to the Administrative Agent and the
Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting
Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement;
provided that (i) nothing herein shall constitute a commitment by any SPC to make any
Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or
any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the
terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the
Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender.
Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the Granting Lender).
In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive
the termination of this Agreement) that, prior to the date that is one year and one day after
the payment in full of all outstanding commercial paper or other indebtedness of any SPC, it
will not institute against, or join any other person in instituting against, such SPC any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of
the United States or any state thereof. In addition, notwithstanding anything to the contrary
in this Section 10.04(h), any SPC may (A) with notice to, but without the prior written
consent of, the Borrower and the Administrative
Agent and without paying any processing fee therefor, assign all or a portion of its
interests in any Loans to the Granting Lender, or with the prior written consent of the Borrower
and the Administrative Agent (which consent shall not be unreasonably withheld) to any financial
institutions providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Loans, and (B) disclose on a confidential basis any
non-public information relating to its Loans to any rating agency, commercial paper dealer or
provider of any surety, guarantee or credit or liquidity enhancement to such SPC;
provided that non-public information with respect to the Borrower may be disclosed only
with the Borrowers consent which will not be unreasonably withheld. This subsection (h) may
not be amended without the written consent of any SPC with Loans outstanding at the time of such
proposed amendment. An SPC shall not be entitled to receive any greater payment under
Section 2.10 or 2.12 than the applicable Granting Lender would have been
entitled to receive under such Sections if the Granting Lender had made the relevant credit
extension.
(i) Notwithstanding anything to the contrary contained herein, if at any time Bank of America
assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, upon
30 days notice to the Borrower and the Lenders, resign as
Block Financial LLC Credit Agreement
66
Swingline Lender. In the event of any
such resignation as Swingline Lender, the Borrower shall be entitled to appoint from among the
Lenders a successor Swingline Lender hereunder (subject to the consent of such Lender to serve as a
successor Swingline Lender); provided, however, that no failure by the Borrower to
appoint any such successor shall affect the resignation of Bank of America as Swingline Lender. If
Bank of America resigns as Swingline Lender, it shall retain all the rights of the Swingline Lender
provided for hereunder with respect to Swingline Loans made by it and outstanding as of the
effective date of such resignation, including the right to require the Lenders to make Base Rate
Committed Loans or fund risk participations in outstanding Swingline Loans pursuant to Section
2.03(c). Upon the appointment of a successor Swingline Lender, such successor shall succeed to
and become vested with all of the rights, powers, privileges and duties of the retiring Swingline
Lender.
(j) In connection with any assignment of rights and obligations of any Defaulting Lender
hereunder, no such assignment shall be effective unless and until, in addition to the other
conditions thereto set forth herein, the parties to the assignment shall make such additional
payments to the Administrative Agent in an aggregate amount sufficient, upon distribution
thereof as appropriate (which may be outright payment, purchases by the assignee of
participations or subparticipations, or other compensating actions, including funding, with the
consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans
previously requested but not funded by the Defaulting Lender, to each of which the applicable
assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment
liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender
hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro
rata share of all Loans and participations in Swingline Loans in accordance with its Applicable
Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and
obligations of any Defaulting Lender hereunder shall become effective under applicable law
without compliance with the provisions of this subsection, then the assignee of such interest
shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such
compliance occurs.
Section 10.07 Survival. All covenants, agreements, representations and warranties
made by the Credit Parties herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been relied upon by the
other parties hereto and shall survive the execution and delivery of this Agreement and the making
of any Loans regardless of any investigation made by any such other party or on its behalf and
notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any accrued interest on any
Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so
long as the Commitments have not expired or terminated. The provisions of Sections 2.10,
2.11, 2.12, 10.04 and 10.05(b) and Article IX shall survive
and remain in full force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the Commitments or the
termination of this Agreement or any provision hereof.
Section 10.08 Counterparts; Integration; Effectiveness. This Agreement may be
executed in counterparts (and by different parties hereto in different counterparts), each of which
Block Financial LLC Credit Agreement
67
shall constitute an original, but all of which when taken together shall constitute a single
contract. This Agreement and the other Loan Documents constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received counterparts hereof
that, when taken together, bear the signatures of each of the other parties hereto and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement
by telecopy or other electronic imaging means shall be effective as delivery of a manually executed
counterpart of this Agreement.
Section 10.09 Severability. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality
and enforceability of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Without limiting the foregoing provisions of this Section 10.09, if and to the extent that
the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be
limited by debtor relief laws, as determined in good faith by the Administrative Agent or the
Swingline Lender, as applicable, then such provisions shall be deemed to be in effect only to the
extent not so limited.
Section 10.10 Right of Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of either Credit Party against any of and all the
obligations of such Credit Party now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured; provided, that in the event that any
Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be
paid over immediately to the Administrative Agent for further application in accordance with the
provisions of Section 2.17 and, pending such payment, shall be segregated by such
Defaulting Lender from its other funds and deemed held in trust for the benefit of the
Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the
Administrative Agent a statement describing in reasonable detail the Obligations owing to such
Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender under
this Section are in addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
Section 10.11 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Block Financial LLC Credit Agreement
68
(b) SUBMISSION TO JURISDICTION. EACH CREDIT PARTY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE
SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER CREDIT PARTY OR
ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. EACH CREDIT PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN SECTION 10.11(b). EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.01. NOTHING IN THIS AGREEMENT
WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW.
Section 10.12 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT
OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD
Block Financial LLC Credit Agreement
69
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.13 Treatment of Certain Information; Confidentiality. Each of the
Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its Affiliates and to its and its
Affiliates respective partners, directors, officers, employees, agents, trustees, advisors and
representatives (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority purporting to have
jurisdiction over it or its Affiliates (including any self-regulatory authority, such as the
National Association of Insurance Commissioners), (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding
relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information
(x) becomes publicly available other than as a result of a breach of this Section or (y) becomes
available to the Administrative Agent, any Lender or any of their respective Affiliates on a
nonconfidential basis from a source other than either Credit Party. For the purposes of this
Section, Information means all information received from any Company relating to any
Company or its business, other than any such information that is available to the Administrative
Agent or any Lender on a nonconfidential basis prior to disclosure by such Company;
provided that, in the case of information received from any Company after the date hereof,
such information is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to its own
confidential information.
Each of the Administrative Agent and each Lender acknowledges that (a) the Information may
include material non-public information concerning any Company, (b) it has developed compliance
procedures regarding the use of material non-public information and (c) it will handle such
material non-public information in accordance with applicable law, including United States Federal
and state securities laws.
Section 10.14 Interest Rate Limitation. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges
and other amounts which are treated as interest on such Loan under applicable law (collectively the
Charges), shall exceed the maximum lawful rate (the Maximum Rate) which may be
contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance
with applicable law, the rate of interest payable in respect of such Loan hereunder, together with
all Charges payable in respect thereof, shall be limited to the Maximum Rate and,
Block Financial LLC Credit Agreement
70
to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
Section 10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects
of each transaction contemplated hereby (including in connection with any amendment, waiver or
other modification hereof or of any other Loan Document), each Credit Party acknowledges and agrees
that: (i) (A) the arranging and other services regarding this Agreement provided by the
Administrative Agent, the Lenders and the Arrangers are arms-length commercial transactions
between the Credit Parties and their Affiliates, on the one hand, and the Administrative Agent, the
Lenders and the Arrangers, on the other hand, (B) each of the Credit Parties has consulted its own
legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C)
each Credit Party is capable of evaluating, and understands and accepts, the terms, risks and
conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each
of the Administrative Agent, each Lender and each Arranger is and has been acting solely as a
principal and, except as expressly agreed in writing by the relevant parties, has not been, is not,
and will not be acting as an advisor, agent or fiduciary for either Credit Party or any of its
Affiliates, or any other Person and (B) none of the Administrative Agent, any Lender or any
Arranger has any obligation to the Credit Parties or any of their Affiliates with respect to the
transactions contemplated hereby except those obligations expressly set forth herein and in the
other Loan Documents; and (iii) the Administrative Agent and the Arrangers and their respective
Affiliates may be engaged in a broad range of transactions that involve interests that differ from
those of the Credit Parties and their respective Affiliates, and none of the Administrative Agent,
any Lender or any Arranger has any obligation to disclose any of such interests to the Credit
Parties or their Affiliates. To the fullest extent permitted by law, each of the Credit Parties
hereby waives and releases any claims that it may have against the Administrative Agent, the
Lenders and the Arrangers with respect to any breach or alleged
breach of agency or fiduciary duty in connection with any aspect of any transaction
contemplated hereby.
Section 10.16 Electronic Execution of Assignments and Certain Other Documents. The
words execution, signed, signature, and words of like import in any Assignment and Acceptance
or in any amendment or other modification hereof (including waivers and consents) shall be deemed
to include electronic signatures or the keeping of records in electronic form, each of which shall
be of the same legal effect, validity or enforceability as a manually executed signature or the use
of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable law, including the Federal Electronic Signatures in Global and National Commerce Act,
the New York State Electronic Signatures and Records Act, or any other similar state laws based on
the Uniform Electronic Transactions Act.
Section 10.17 Termination of Existing Agreements.
The Lenders that are parties to either Existing Agreement (and which constitute Required
Lenders under and as defined in such Existing Agreement) hereby waive the any
Block Financial LLC Credit Agreement
71
notice requirement set forth in such Existing Agreement for terminating the commitments under such Existing Agreement,
and such Lenders and the Borrower agree that, subject to the Borrowers payment of all amounts then
payable under such Existing Agreement (whether or not then due), the commitments under such
Existing Agreement shall be terminated on the Closing Date. After the termination of such
commitments, such Existing Agreement shall be of no further force or effect (except for provisions
thereof which by their terms survive termination thereof).
Section 10.18 USA PATRIOT Act. Each Lender that is subject to the Act (as hereinafter
defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies
the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the Act), it is required to obtain, verify and
record information that identifies the Borrower, which information includes the name and address of
the Borrower and other information that will allow such Lender or the Administrative Agent, as
applicable, to identify the Borrower in accordance with the Act. The Borrower shall, promptly
following a request by the Administrative Agent or any Lender, provide all documentation and other
information that the Administrative Agent or such Lender requests in order to comply with its
ongoing obligations under applicable know your customer and anti-money laundering rules and
regulations, including the Act.
Block Financial LLC Credit Agreement
72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.
|
|
|
|
|
|
BLOCK FINANCIAL LLC
|
|
|
By: |
/s/ Becky S. Shulman
|
|
|
|
Becky S. Shulman, President and |
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
H&R BLOCK, INC.
|
|
|
By: |
/s/ Becky S. Shulman
|
|
|
|
Becky S. Shulman, Senior Vice President and |
|
|
|
Chief Financial Officer |
|
|
Block Financial LLC Credit Agreement
73
|
|
|
|
|
|
BANK OF AMERICA, N.A., as Administrative Agent
|
|
|
By: |
/s/ Aamir Saleem
|
|
|
|
Aamir Saleem |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
74
|
|
|
|
|
|
BANK OF AMERICA, N.A., as a Lender and
Swingline Lender
|
|
|
By: |
/s/ James H. Harper
|
|
|
|
James H. Harper |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
75
|
|
|
|
|
|
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a
Lender
|
|
|
By: |
/s/ Barbara Van Meerten
|
|
|
|
Barbara Van Meerten |
|
|
|
Director |
|
|
Block Financial LLC Credit Agreement
76
|
|
|
|
|
|
BNP PARIBAS, as a Lender
|
|
|
By: |
/s/ Scott Tricarico
|
|
|
|
Scott Tricarico |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
77
|
|
|
|
|
|
COMPASS BANK, as a Lender
|
|
|
By: |
/s/ Ramon Garcia
|
|
|
|
Ramon Garcia |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
78
|
|
|
|
|
|
CREDIT AGRICOLE CORPORATE & INVESTMENT BANK,
as a Lender
|
|
|
By: |
/s/ Corey Billups
|
|
|
|
Corey Billups |
|
|
|
Managing Director |
|
|
|
|
|
|
By: |
/s/ Blake Wright
|
|
|
|
Blake Wright |
|
|
|
Managing Director |
|
|
Block Financial LLC Credit Agreement
79
|
|
|
|
|
|
DEUTSCHE BANK AG NEW YORK
BRANCH, as a Lender
|
|
|
By: |
/s/ Frederick W. Laird
|
|
|
|
Frederick W. Laird |
|
|
|
Managing Director |
|
|
|
|
|
|
By: |
/s/ Heidi Sandquist
|
|
|
|
Heidi Sandquist |
|
|
|
Director |
|
|
Block Financial LLC Credit Agreement
80
|
|
|
|
|
|
SCOTIABANC INC., as a
Lender
|
|
|
By: |
/s/ J. F. Todd
|
|
|
|
J. F. Todd |
|
|
|
Managing Director |
|
|
|
THE BANK OF NOVA SCOTIA, as a Lender
|
|
|
By: |
/s/ Todd S. Meller
|
|
|
|
Todd S. Meller |
|
|
|
Managing Director |
|
|
Block Financial LLC Credit Agreement
81
|
|
|
|
|
|
SUNTRUST BANK, as a Lender
|
|
|
By: |
/s/ K. Scott Bazemore
|
|
|
|
K. Scott Bazemore |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
82
|
|
|
|
|
|
TORONTO DOMINION (NEW YORK)
LLC, as a Lender
|
|
|
By: |
/s/ Debbi L. Brito
|
|
|
|
Debbi L. Brito |
|
|
|
Authorized Signatory |
|
|
Block Financial LLC Credit Agreement
83
|
|
|
|
|
|
THE BANK OF TOKYO MITSUBISHI
UFJ, LTD., as a
Lender
|
|
|
By: |
/s/ Christine Howatt
|
|
|
|
Christine Howatt |
|
|
|
Authorized Signatory |
|
|
Block Financial LLC Credit Agreement
84
|
|
|
|
|
|
CIBC INC., as a Lender
|
|
|
By: |
/s/ Dominic J. Sorresso
|
|
|
|
Dominic J. Sorresso |
|
|
|
Executive Director
CIBC World Markets Corp.
Authorized Signatory |
|
|
Block Financial LLC Credit Agreement
85
|
|
|
|
|
|
COMERICA BANK, as a Lender
|
|
|
By: |
/s/ Mark J. Leveille
|
|
|
|
Mark J. Leveille |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
86
|
|
|
|
|
|
U.S. BANK NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ Gaylen Frazier
|
|
|
|
Gaylen Frazier |
|
|
|
A.V.P. |
|
|
Block Financial LLC Credit Agreement
87
|
|
|
|
|
|
KEYBANK, NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ David M. Morris
|
|
|
|
David M. Morris |
|
|
|
Vice President |
|
|
Block Financial LLC Credit Agreement
88
|
|
|
|
|
|
PNC BANK NATIONAL ASSOCIATION,
as a Lender
|
|
|
By: |
/s/ D. R. Mitchell
|
|
|
|
D. R. Mitchell |
|
|
|
EVP |
|
|
Block Financial LLC Credit Agreement
89
|
|
|
|
|
|
ROYAL BANK OF CANADA,
as a Lender
|
|
|
By: |
/s/ Nicholas J. Woyevodsky
|
|
|
|
Nicholas J. Woyevodsky |
|
|
|
Attorney-In-Fact
Royal Bank of Canada |
|
|
Block Financial LLC Credit Agreement
90
|
|
|
|
|
|
UBS LOAN FINANCE LLC, as a Lender
|
|
|
By: |
/s/ Irja R. Otsa
|
|
|
|
Irja R. Otsa |
|
|
|
Associate Director |
|
|
|
|
|
|
By: |
/s/ Mary E. Evans
|
|
|
|
Mary E. Evans |
|
|
|
Associate Director |
|
|
Block Financial LLC Credit Agreement
91
|
|
|
|
|
|
GOLDMAN SACHS BANK USA,
as a Lender
|
|
|
By: |
/s/ Mark Walton
|
|
|
|
Mark Walton |
|
|
|
Authorized Signatory |
|
|
Block Financial LLC Credit Agreement
92
|
|
|
|
|
|
BRANCH BANKING AND TRUST
COMPANY, as a Lender
|
|
|
By: |
/s/ Roberts A. Bass
|
|
|
|
Roberts A. Bass |
|
|
|
Senior Vice President |
|
|
Block Financial LLC Credit Agreement
93
|
|
|
|
|
|
FIFTH THIRD BANK, as a Lender
|
|
|
By: |
/s/ Tim Adair
|
|
|
|
Tim Adair |
|
|
|
Assistant Vice President |
|
|
Block Financial LLC Credit Agreement
94
|
|
|
|
|
|
SUMITOMO MITSUI BANKING
CORPORATION, as a
Lender
|
|
|
By: |
/s/ William M. Ginn
|
|
|
|
William M. Ginn |
|
|
|
Executive Director |
|
|
Block Financial LLC Credit Agreement
95
|
|
|
|
|
|
UMB BANK, N.A. as a Lender
|
|
|
By: |
/s/ Martin Nay
|
|
|
|
Martin Nay |
|
|
|
Senior Vice President |
|
|
Block Financial LLC Credit Agreement
96
|
|
|
|
|
|
THE BANK OF EAST ASIA, LIMITED,
NEW YORK
BRANCH, as a Lender
|
|
|
By: |
/s/ Kenneth Pettis
|
|
|
|
Kenneth Pettis |
|
|
|
Senior Vice President |
|
|
|
|
|
|
By: |
/s/ Kitty Sin
|
|
|
|
Kitty Sin |
|
|
|
Senior Vice President |
|
|
Block Financial LLC Credit Agreement
97
|
|
|
|
|
|
COMMERCE BANK N.A., as a Lender
|
|
|
By: |
/s/ David C. Enslen
|
|
|
|
David C. Enslen |
|
|
|
Senior Vice President |
|
|
Block Financial LLC Credit Agreement
98
|
|
|
|
|
|
TAIPEI FUBON COMMERCIAL
BANK, as a Lender
|
|
|
By: |
/s/ Michael Tan
|
|
|
|
Michael Tan |
|
|
|
VP and DGM |
|
|
Block Financial LLC Credit Agreement
99
SCHEDULE 2.01
COMMITMENTS
AND APPLICABLE PERCENTAGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable |
Lender |
|
Commitment |
|
Percentage |
Bank of America, N.A. |
|
$ |
150,000,000 |
|
|
|
8.82352941 |
% |
BNP Paribas |
|
$ |
150,000,000 |
|
|
|
8.82352941 |
% |
Wells Fargo Bank, National Association |
|
$ |
150,000,000 |
|
|
|
8.82352941 |
% |
Compass Bank |
|
$ |
100,000,000 |
|
|
|
5.88235294 |
% |
Credit Agricole Corporate &
Investment Bank |
|
$ |
100,000,000 |
|
|
|
5.88235294 |
% |
Deutsche Bank AG New York Branch |
|
$ |
100,000,000 |
|
|
|
5.88235294 |
% |
Scotiabanc Inc. |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
The Bank of Nova Scotia |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
SunTrust Bank |
|
$ |
100,000,000 |
|
|
|
5.88235294 |
% |
Toronto Dominion (New York) LLC |
|
$ |
100,000,000 |
|
|
|
5.88235294 |
% |
The Bank Of Tokyo Mitsubishi UFJ, Ltd. |
|
$ |
75,000,000 |
|
|
|
4.41176471 |
% |
CIBC Inc. |
|
$ |
75,000,000 |
|
|
|
4.41176471 |
% |
Comerica Bank |
|
$ |
75,000,000 |
|
|
|
4.41176471 |
% |
U.S. Bank National Association |
|
$ |
75,000,000 |
|
|
|
4.41176471 |
% |
KeyBank, National Association |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
PNC Bank National Association |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
Royal Bank of Canada |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
UBS Loan Finance LLC |
|
$ |
50,000,000 |
|
|
|
2.94117647 |
% |
Goldman Sachs Bank USA |
|
$ |
30,000,000 |
|
|
|
1.76470588 |
% |
Branch Banking and Trust Company |
|
$ |
25,000,000 |
|
|
|
1.47058824 |
% |
Fifth Third Bank |
|
$ |
25,000,000 |
|
|
|
1.47058824 |
% |
Sumitiomo Mitsui Banking Corporation |
|
$ |
25,000,000 |
|
|
|
1.47058824 |
% |
UMB Bank, N.A. |
|
$ |
15,000,000 |
|
|
|
0.88235294 |
% |
The Bank of East Asia, Limited, New
York Branch |
|
$ |
10,000,000 |
|
|
|
0.58823529 |
% |
Commerce Bank N.A. |
|
$ |
10,000,000 |
|
|
|
0.58823529 |
% |
Taipei Fubon Commercial Bank |
|
$ |
10,000,000 |
|
|
|
0.58823529 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,700,000,000 |
|
|
|
100.00000000 |
% |
1
SCHEDULE 3.04(a)
Guarantee Obligations
None.
1
SCHEDULE 3.06
Disclosed Matters
None.
2
SCHEDULE 3.13
Subsidiaries
The following is a list of the direct and indirect subsidiaries of H&R Block, Inc., a
Missouri corporation.
|
|
|
Company Name |
|
Domestic Jurisdiction |
Aculink Mortgage Solutions, LLC
|
|
Florida |
AcuLink of Alabama, LLC
|
|
Alabama |
Ada Services Corporation
|
|
Massachusetts |
BFC Transactions, Inc.
|
|
Delaware |
Birchtree Financial Services, Inc.
|
|
Oklahoma |
Birchtree Insurance Agency, Inc.
|
|
Missouri |
Block Financial LLC
|
|
Delaware |
CFS-McGladrey, LLC
|
|
Massachusetts |
Cfstaffing, Ltd.
|
|
British Columbia |
Cityfront, Inc.
|
|
Delaware |
Companion Insurance, Ltd.
|
|
Bermuda |
Companion Mortgage Corporation
|
|
Delaware |
Creative Financial Staffing of Western Washington, LLC
|
|
Massachusetts |
EquiCo, Inc.
|
|
California |
Express Tax Service, Inc.
|
|
Delaware |
Financial Marketing Services, Inc.
|
|
Michigan |
Financial Stop Inc.
|
|
British Columbia |
FM Business Services, Inc.
|
|
Delaware |
Franchise Partner, Inc.
|
|
Nevada |
H&R Block (India) Private Limited
|
|
India |
H&R Block (Nova Scotia), Incorporated
|
|
Nova Scotia |
H&R Block Bank
|
|
Missouri |
H&R Block Canada Financial Services, Inc.
|
|
Federally Chartered |
H&R Block Canada, Inc.
|
|
Federally Chartered |
H&R Block Eastern Enterprises, Inc.
|
|
Missouri |
H&R Block Enterprises LLC
|
|
Missouri |
H&R Block Global Solutions (Hong Kong) Limited
|
|
Hong Kong |
H&R Block Group, Inc.
|
|
Delaware |
H&R Block Insurance Agency, Inc.
|
|
Delaware |
H&R Block Limited
|
|
New South Wales |
H&R Block Management, LLC
|
|
Delaware |
H&R Block Tax and Business Services, Inc.
|
|
Delaware |
H&R Block Tax Institute, LLC
|
|
Missouri |
H&R Block Tax Services LLC
|
|
Missouri |
H&R Block, Inc.
|
|
Missouri |
HRB Advance LLC
|
|
Delaware |
HRB Center LLC
|
|
Missouri |
3
|
|
|
Company Name |
|
Domestic Jurisdiction |
HRB Concepts LLC
|
|
Delaware |
HRB Corporate Enterprises LLC
|
|
Delaware |
HRB Corporate Services LLC
|
|
Missouri |
HRB Digital LLC
|
|
Delaware |
HRB Digital Technology Resources LLC
|
|
Delaware |
HRB Expertise LLC
|
|
Missouri |
HRB Flint Hills LLC
|
|
Missouri |
HRB Innovations, Inc.
|
|
Delaware |
HRB International LLC
|
|
Missouri |
HRB Products LLC
|
|
Missouri |
HRB Support Services LLC
|
|
Delaware |
HRB Tax & Technology Leadership LLC
|
|
Missouri |
HRB Tax Group, Inc.
|
|
Missouri |
HRB Technology Holding LLC
|
|
Delaware |
HRB Technology LLC
|
|
Missouri |
McGladrey Capital Markets Canada Inc.
|
|
Federally Chartered |
McGladrey Capital Markets Europe Limited
|
|
United Kingdom |
McGladrey Capital Markets LLC
|
|
Delaware |
OOMC Holdings LLC
|
|
Delaware |
OOMC Residual Corporation
|
|
New York |
ORourke Career Connections, LLC
|
|
California |
Pension Resources, Inc.
|
|
Illinois |
Provident Mortgage Services, Inc.
|
|
Delaware |
RedGear Technologies, Inc.
|
|
Missouri |
RSM Employer Services Agency of Florida, Inc.
|
|
Florida |
RSM Employer Services Agency, Inc.
|
|
Georgia |
RSM EquiCo, Inc.
|
|
Delaware |
RSM McGladrey Business Services, Inc.
|
|
Delaware |
RSM McGladrey Business Solutions, Inc.
|
|
Delaware |
RSM McGladrey Employer Services, Inc.
|
|
Georgia |
RSM McGladrey Insurance Services, Inc.
|
|
Delaware |
RSM McGladrey TBS, LLC
|
|
Delaware |
RSM McGladrey, Inc.
|
|
Delaware |
Sand Canyon Acceptance Corporation
|
|
Delaware |
Sand Canyon Corporation
|
|
California |
Sand Canyon Securities Corp.
|
|
Delaware |
Sand Canyon Securities II Corp.
|
|
Delaware |
Sand Canyon Securities III Corp.
|
|
Delaware |
Sand Canyon Securities IV LLC
|
|
Delaware |
ServiceWorks, Inc.
|
|
Delaware |
TaxNet Inc.
|
|
California |
TaxWorks, Inc.
|
|
Delaware |
West Estate Investors, LLC
|
|
Missouri |
Woodbridge Mortgage Acceptance Corporation
|
|
Delaware |
4
SCHEDULE 6.02
Existing Indebtedness
None.
5
SCHEDULE 6.03
Existing Liens
|
|
|
Existing liens on copiers, telephone and computer equipment and other specifically
identified equipment (and proceeds thereof, accessions thereto and other related property)
in favor of sellers, lessors or financers thereof. |
|
|
|
Liens related to the following UCC financing statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General description |
Debtor |
|
Secured Party |
|
State |
|
File No. |
|
File Date |
|
of Collateral |
Companion Mortgage Corporation
|
|
JPMorgan Chase
Bank, NA
|
|
DE
|
|
|
53688620 |
|
|
11/30/2005 (amended 11/30/05)
|
|
A/R and proceeds;
Negotiable
instruments and
proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block Bank
|
|
Federal Home Loan
Bank of Des Moines
|
|
MO
|
|
|
20060060533G |
|
|
5/31/2006 (amended 12/18/06, 4/9/09)
|
|
Accounts and
proceeds; Negotiable
instruments and
proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block Bank
|
|
Kennedy, Harold Elton
|
|
MO
|
|
|
20090112360F |
|
|
11/17/2009
|
|
Notice of Bailment |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block Bank
|
|
Fannie Mae
|
|
MO
|
|
|
20070130050K |
|
|
11/26/2007
|
|
All loans and other
property sold or
assigned to Secured
Party by Debtor |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block Bank
|
|
Federal Reserve
Bank of Kansas
City
|
|
MO
|
|
|
20080100822E |
|
|
9/16/2008
|
|
All accounts, chattel
paper and other
property assigned to
Secured Party by
Debtor |
|
|
|
|
|
|
|
|
|
|
|
|
|
RSM McGladrey
Employer
Services, Inc.
|
|
RSM McGladrey
Business Services,
Inc.
|
|
GA
|
|
|
6005006544 |
|
|
5/27/2005
|
|
Contracts specified in
asset purchase
agreement and
property related
thereto |
|
|
|
|
|
|
|
|
|
|
|
|
|
RSM McGladrey,
Inc.
|
|
GreatAmerica Leasing Corporation
|
|
DE
|
|
|
20091076360 |
|
|
4/4/2009
|
|
Specific software and
related property |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block
Eastern
Enterprises, Inc.
|
|
Pantops Shopping
Center I, LLC
|
|
MO
|
|
|
20070143525M |
|
|
12/31/2007
|
|
Property of Debtor at
specific location in
Albermarle County,
VA |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block
Eastern
Enterprises, Inc.
|
|
Village at Time Corners, LP
|
|
MO
|
|
|
20090076200H |
|
|
8/13/2004 (in lieu)
|
|
Property of Debtor at
specific location in Ft.
Wayne, IN |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block Enterprises LLC
|
|
Iskum II, LLC
|
|
MO
|
|
|
20090105920K |
|
|
11/3/2004
|
|
Property of Debtor at
specific location in
Salem, OR |
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block, Inc.
|
|
TUO-Houston Long
Point, LLC
|
|
MO
|
|
|
20080113972E |
|
|
10/23/2008
|
|
Property of Debtor at
specific location in
Houston, TX |
6
SCHEDULE 6.04(b)
Additional Businesses
|
|
|
Businesses that offer products and services typically provided by finance companies,
banks and other financial service providers, including consumer finance and mortgage-loan
related products and services, credit products, insurance products, check cashing,
money orders, wire transfers, stored value cards, bill payment services, notary services
and similar products and services. |
|
|
|
Businesses that offer financial, or financial-related, products and services that can be marketed,
provided or distributed by leveraging the retail locations of Guarantors Subsidiaries or the relationships of such Subsidiaries with
their clients as a tax return preparer or financial advisor or service provider. |
7
SCHEDULE 6.06
Existing Restrictions
|
|
|
Indenture dated as of October 20, 1997 (the October 20, 1997 Indenture), by and
between the Credit Parties and Deutsche Bank Trust Company Americas (f/k/a Bankers Trust
Company) (the First Trustee), along with the: |
|
1. |
|
The First Supplemental Indenture dated as of April 18, 2000,
among the Credit Parties, the First Trustee and The Bank of New York, as
separate trustee under the Indenture; |
|
|
2. |
|
The Officers Certificate of the Borrower dated October 26,
2004 establishing the terms of the Borrowers 5.125% Notes due 2014, which are
guaranteed by the Guarantor pursuant to the guarantees endorsed on said Notes;
and |
|
|
3. |
|
The Officers Certificate of the Borrower dated January 11,
2008 establishing the terms of the Borrowers 7.875% Notes due 2013, which are
guaranteed by the Guarantor pursuant to the guarantees endorsed on said Notes. |
|
|
|
Certain Subsidiaries must maintain capital requirements which could impair their ability
to pay dividends or other distributions. |
|
|
|
|
Credit and Guarantee Agreement dated as of January 12, 2010, among the Borrower, the
Guarantor and HSBC Bank USA, National Association. |
8
SCHEDULE 10.01
ADMINISTRATIVE AGENTS OFFICE;
CERTAIN ADDRESSES FOR NOTICES
BORROWER or GUARANTOR:
Block Financial LLC
H&R Block, Inc.
One H&R Block Way
Kansas City, Missouri 64105
Attention: Andrew Somora
Telephone: 816 854-4529
Telecopier: 816 802-1043
Electronic Mail: ASomora@HRBlock.com
and
Attention: Vince Clark
Telephone: 816 854-5559
Telecopier: 816 854-8045
Electronic Mail: Vince.Clark@HRBlock.com
Website Address: www.HRBlock.com
U.S. Taxpayer Identification Number: 52-1781495 (Borrower)/ 44-0607856 (Guarantor)
ADMINISTRATIVE AGENT:
Administrative Agents Office
(for payments and Requests for Loans):
Bank of America, N.A.
101 N. Tryon Street
Mail Code: NC1-001-04-39
Charlotte, NC 28255-0001
Attention: Robert Garvey
Telephone: 980-387-9468
Telecopier: 617-310-3288
Electronic Mail: robert.garvey@baml.com
Account No.: 1366212250600
Ref: BLOCK FINANCIAL LLC
ABA# 026009593
Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
1455 Market Street
Mail Code: CA5-701-05-19
San Francisco, CA 94103-1399
1
Attention: AAmir Saleem
Telephone: 415-436-2769
Telecopier: 415-503-5089
Electronic Mail: aamir.saleem@baml.com
SWINGLINE LENDER:
Bank of America, N.A.
101 N. Tryon Street
Mail Code: NC1-001-04-39
Charlotte, NC 28255-0001
Attention: Robert Garvey
Telephone: 980-387-9468
Telecopier: 617-310-3288
Electronic Mail: robert.garvey@baml.com
Account No.: 1366212250600
Ref: BLOCK FINANCIAL LLC
ABA# 026009593
2
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date: , ___
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit and Guarantee Agreement, dated as of March 4, 2010
(as amended, restated, extended, supplemented or otherwise modified in writing from time to time,
the Agreement; the terms defined therein being used herein as therein defined), among
Block Financial LLC, a Delaware limited partnership (the Borrower), H&R Block, Inc., as
guarantor, the Lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent and Swingline Lender.
The undersigned hereby requests (select one):
o A Borrowing of Committed Loans o A conversion or continuation of Loans
1. On (a Business Day).
2. In the amount of $ .
3. Comprised of .
[Type of Committed Loan requested]
4. For Eurodollar Rate Loans: with an Interest Period of [weeks][months].
The Committed Borrowing, if any, requested herein complies with the provisos to the first
sentence of Section 2.01 of the Agreement.
|
|
|
|
|
|
BLOCK FINANCIAL LLC
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
Form of Committed Loan Notice
A - 1
EXHIBIT B
FORM OF SWINGLINE LOAN NOTICE
Date: , _____
|
|
|
To:
|
|
Bank of America, N.A., as Swingline Lender |
|
|
Bank of America, N.A., as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Credit and Guarantee Agreement, dated as of March 4, 2010
(as amended, restated, extended, supplemented or otherwise modified in writing from time to time,
the Agreement; the terms defined therein being used herein as therein defined), among
Block Financial LLC, a Delaware limited partnership (the Borrower), H&R Block, Inc., as
guarantor, the Lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent and Swingline Lender.
The undersigned hereby requests a Swingline Loan:
1. On (a Business Day).
2. In the amount of $ .
The Swingline Borrowing requested herein complies with the requirements of the provisos to the
first sentence of Section 2.04(a) of the Agreement.
|
|
|
|
|
|
BLOCK FINANCIAL LLC
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
Form of Swingline Loan Notice
B - 1
EXHIBIT C
FORM OF NOTE
FOR VALUE RECEIVED, the undersigned (the Borrower) hereby promises to pay to
or registered assigns (the Lender), in accordance with the
provisions of the Agreement (as hereinafter defined), the principal amount of each Loan from time
to time made by the Lender to the Borrower under that certain Credit and Guarantee Agreement, dated
as of March 4, 2010 (as amended, restated, extended, supplemented or otherwise modified in writing
from time to time, the Agreement; the terms defined therein being used herein as therein
defined), among the Borrower, H&R Block, Inc., as guarantor, the Lenders from time to time party
thereto, and Bank of America, N.A., as Administrative Agent and Swingline Lender.
The Borrower promises to pay interest on the unpaid principal amount of each Loan from the
date of such Loan until such principal amount is paid in full, at such interest rates and at such
times as provided in the Agreement. Except as otherwise provided in Section 2.04(f) of the
Agreement with respect to Swingline Loans, all payments of principal and interest shall be made to
the Administrative Agent for the account of the Lender in Dollars in immediately available funds at
the Administrative Agents Office. If any amount is not paid in full when due hereunder, such
unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date
of actual payment (and before as well as after judgment) computed at the per annum rate set forth
in the Agreement.
This Note is one of the Notes referred to in the Agreement, is entitled to the benefits
thereof and may be prepaid in whole or in part subject to the terms and conditions provided
therein. Upon the occurrence and continuation of one or more of the Events of Default specified in
the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable all as provided in the Agreement. Loans made by the Lender shall
be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary
course of business. The Lender may also attach schedules to this Note and endorse thereon the
date, amount and maturity of its Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment,
protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Form of Note
C - 1
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
|
|
|
|
|
|
BLOCK FINANCIAL LLC
|
|
|
By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
Form of Note
C - 2
LOANS AND PAYMENTS WITH RESPECT THERETO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Outstanding |
|
|
|
|
Type of |
|
Amount of |
|
End of |
|
or Interest |
|
Principal |
|
|
|
|
Loan |
|
Loan |
|
Interest |
|
Paid This |
|
Balance |
|
Notation |
Date |
|
Made |
|
Made |
|
Period |
|
Date |
|
This Date |
|
Made By |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form of Note
C - 3
EXHIBIT D
Form of Compliance Certificate
D - 1
EXHIBIT D-1
ASSIGNMENT AND ACCEPTANCE
This Assignment and Acceptance (this Assignment and Acceptance) is dated as of the
Effective Date set forth below and is entered into by and between [the][each]1 Assignor
identified in item 1 below ([the][each, an] Assignor) and [the][each]2
Assignee identified in item 2 below ([the][each, an] Assignee). [It is understood and
agreed that the rights and obligations of [the Assignors][the Assignees]3 hereunder are
several and not joint.]4 Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit and Guarantee Agreement identified below (the Credit
Agreement), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard
Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated
herein by reference and made a part of this Assignment and Acceptance as if set forth herein in
full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the
Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and
assumes from [the Assignor][the respective Assignors], subject to and in accordance with the
Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors]
rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under
the Credit Agreement and any other documents or instruments delivered pursuant thereto to the
extent related to the amount and percentage interest identified below of all of such outstanding
rights and obligations of [the Assignor][the respective Assignors] under the respective facilities
identified below (including, without limitation, the Swingline Loans included in such
facilities5) and (ii) to the extent permitted to be assigned under applicable law, all
claims, suits, causes of action and any other right of [the Assignor (in its capacity as a
Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person,
whether known or unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in
any way based on or related to any of the foregoing, including, but not limited to, contract
claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity
related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights
and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses
(i) and (ii) above being referred to herein collectively
|
|
|
1 |
|
For bracketed language here and elsewhere in
this form relating to the Assignor(s), if the assignment is from a single
Assignor, choose the first bracketed language. If the assignment is from
multiple Assignors, choose the second bracketed language. |
|
2 |
|
For bracketed language here and elsewhere in
this form relating to the Assignee(s), if the assignment is to a single
Assignee, choose the first bracketed language. If the assignment is to
multiple Assignees, choose the second bracketed language. |
|
3 |
|
Select as appropriate. |
|
4 |
|
Include bracketed language if there are
either multiple Assignors or multiple Assignees. |
|
5 |
|
Include all applicable subfacilities. |
D - 2 - 1
as [the][an] Assigned Interest). Each such sale and assignment is without recourse
to [the][any] Assignor and, except as expressly provided in this Assignment and Acceptance, without
representation or warranty by [the][any] Assignor.
|
|
|
|
|
|
|
1.
|
|
Assignor[s]:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Assignee[s]:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[for each Assignee, indicate [Affiliate] of [identify Lender]] |
|
|
|
|
|
|
|
|
|
3.
|
|
Borrower(s):
|
|
|
|
|
4. |
|
Administrative Agent: Bank of America, N.A., as the administrative agent under the
Credit Agreement |
|
5. |
|
Credit Agreement: Credit and Guarantee Agreement, dated as of March 4, 2010, among
Block Financial LLC, a Delaware limited partnership (the Borrower), H&R Block, Inc.,
as guarantor, the Lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent and Swingline Lender |
|
6. |
|
Assigned Interest[s]:6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment/Loans |
|
|
Amount of |
|
|
Percentage Assigned |
|
|
|
|
|
|
|
|
|
|
Facility |
|
|
for all |
|
|
Commitment/Loans |
|
|
of Commitment/ |
|
|
|
|
Assignor[s]7 |
|
Assignee[s]8 |
|
|
Assigned9 |
|
|
Lenders10 |
|
|
Assigned |
|
|
Loans11 |
|
|
CUSIP Number |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
The reference to Loans in the table should
be used only if the Credit Agreement provides for Term Loans. |
|
7 |
|
List each Assignor, as appropriate. |
|
8 |
|
List each Assignee, as appropriate. |
|
9 |
|
Fill in the appropriate terminology for the
types of facilities under the Credit Agreement that are being assigned under
this Assignment (e.g. Revolving Credit Commitment, Term Loan Commitment,
etc.). |
|
10 |
|
Amounts in this column and in the column
immediately to the right to be adjusted by the counterparties to take into
account any payments or prepayments made between the Trade Date and the
Effective Date. |
|
11 |
|
Set forth, to at least 9 decimals, as a
percentage of the Commitment/Loans of all Lenders thereunder. |
2
[7. Trade Date: ]12
Effective Date: , 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL
BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Acceptance are hereby agreed to:
|
|
|
|
|
|
ASSIGNOR
[NAME OF ASSIGNOR]
|
|
|
By: |
|
|
|
|
Title: |
|
|
|
|
|
|
|
ASSIGNEE
[NAME OF ASSIGNEE]
|
|
|
By: |
|
|
|
|
Title: |
|
|
|
|
|
|
|
|
|
|
|
[Consented to and]13 Accepted: |
|
|
|
|
|
|
|
BANK OF AMERICA, N.A., as |
|
|
Administrative Agent |
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
[Consented to:]14 |
|
|
|
|
|
|
|
BLOCK FINANCIAL LLC |
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
Title: |
|
|
|
|
|
|
|
[SWINGLINE LENDER] |
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
Title: |
|
|
|
|
|
12 |
|
To be completed if the Assignor and the
Assignee intend that the minimum assignment amount is to be determined as of
the Trade Date. |
|
13 |
|
To be added only if the consent of the
Administrative Agent is required by the terms of the Credit Agreement. |
|
14 |
|
To be deleted only if the consent of the
Borrower and/or other parties (e.g. Swingline Lender) is not required by the
terms of the Credit Agreement. |
3
ANNEX 1 TO ASSIGNMENT AND ACCEPTANCE
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ACCEPTANCE
1. Representations and Warranties.
1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the
legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full
power and authority, and has taken all action necessary, to execute and deliver this Assignment and
Acceptance and to consummate the transactions contemplated hereby; and (b) assumes no
responsibility with respect to (i) any statements, warranties or representations made in or in
connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral
thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or
any other Person obligated in respect of any Loan Document or (iv) the performance or observance by
the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Loan Document.
1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full
power and authority, and has taken all action necessary, to execute and deliver this Assignment and
Acceptance and to consummate the transactions contemplated hereby and to become a Lender under the
Credit Agreement, (ii) it meets all the requirements to be an assignee under Section
10.06(b) of the Credit Agreement (subject to such consents, if any, as may be required under
Section 10.06(b) of the Credit Agreement), (iii) from and after the Effective Date, it
shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv)
it is sophisticated with respect to decisions to acquire assets of the type represented by
[the][such] Assigned Interest and either it, or the Person exercising discretion in making its
decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type,
(v) it has received a copy of the Credit Agreement, and has received or has been accorded the
opportunity to receive copies of the most recent financial statements delivered pursuant to Section
___thereof, as applicable, and such other documents and information as it deems appropriate to make
its own credit analysis and decision to enter into this Assignment and Acceptance and to purchase
[the][such] Assigned Interest, (vi) it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Assignment and
Acceptance and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender,
attached hereto is any documentation required to be delivered by it pursuant to the terms of the
Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it
will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any
other Lender, and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Loan Documents,
and (ii) it will perform in accordance with their terms
4
all of the obligations which by the terms of the Loan Documents are required to be performed
by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make
all payments in respect of [the][each] Assigned Interest (including payments of principal,
interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to
but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued
from and after the Effective Date.
3. General Provisions. This Assignment and Acceptance shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and assigns. This
Assignment and Acceptance may be executed in any number of counterparts, which together shall
constitute one instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Acceptance by telecopy shall be effective as delivery of a manually executed
counterpart of this Assignment and Acceptance. This Assignment and Acceptance shall be governed
by, and construed in accordance with, the law of the State of [confirm that choice
of law provision parallels the Credit Agreement].
5
exv10w42
Exhibit 10.42
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT (the Agreement) is dated
as of February 3, 2010 and effective as of May 1, 2010 (other than Section 16 hereof, which shall
be effective immediately upon execution and delivery of the Agreement), by and among RSM McGladrey,
Inc. (RSMM), which is an indirect wholly-owned subsidiary of H&R Block, Inc.
(HRB), McGladrey & Pullen, LLP (M&P) and, solely for purposes of Section 11.3,
HRB.
RECITALS
WHEREAS, M&P is licensed to hold itself out as a licensed certified public accounting firm in
numerous states and jurisdictions;
WHEREAS, M&P desires to continue to focus its effort, energy and expertise on the provision of
Public Accounting Services (as defined below) (the Business), and to accomplish this
goal, desires to outsource certain administrative functions of the Business to RSMM;
WHEREAS, M&P desires to retain certain administrative services of RSMM in connection with the
provision of certain services and products relating to the Business that do not involve the
provision of Public Accounting Services and RSMM desires to provide such administrative services to
M&P;
WHEREAS, M&P and RSMM have agreed upon a fair compensation for the administrative services
provided by RSMM hereunder;
WHEREAS, RSMM has performed the administrative services under (a) an Administrative Services
Agreement dated August 2, 1999, which was terminated on January 30, 2006, and (b) an Administrative
Services Agreement dated January 30, 2006 (the 2006 Agreement);
WHEREAS, on July 21, 2009, M&P provided notice to RSMM of its intent to terminate the 2006
Agreement, and on September 15, 2009, RSMM provided notice to M&P of its intent to terminate the
2006 Agreement (together, the Termination Notices);
WHEREAS, in consideration of the premises and the mutual covenants hereinafter set forth and
in the Governance and Operations Agreement, dated as of even date herewith, among the parties
thereto (the Governance and Operations Agreement), M&P and RSMM desire to withdraw their
respective Termination Notices; and
WHEREAS, the parties desire to modify certain of the rights and obligations of the parties set
forth in the 2006 Agreement by amending and restating the 2006 Agreement in its entirety on the
terms and conditions set forth herein, effective as of May 1, 2010.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set
forth, the parties hereby agree to amend and restate the 2006 Agreement in its
entirety, effective as of May 1, 2010 (other than Section 16 hereof, which shall be effective
immediately upon execution and delivery of the Agreement), as follows:
1. Obligations of RSMM.
1.1 Appointment of RSMM; Administrative Services. M&P hereby retains RSMM and RSMM
agrees to provide the administrative services described in Schedule 1.1 hereto (collectively, the
Administrative Services). From time to time, RSMM may replace any of its employees or
independent contractors (including hiring and firing employees and terminating the relationship
with any independent contractors providing the Administrative Services hereunder), and may obtain
alternative types or sources of the Administrative Services in RSMMs reasonable discretion.
1.2 Records. Solely for purposes of providing the records management and
Administrative Services for M&P under this Agreement, RSMM shall be granted access to M&P files and
may use such files subject to reasonable restrictions imposed by M&P on RSMMs management of client
engagement files related to Public Accounting Services (as defined below). Such files shall be
maintained at RSMMs and/or M&Ps offices and such offsite storage as may be obtained by RSMM.
Client information shall be subject to and protected by applicable state and federal law, rules and
regulations governing Public Accounting Services, including those promulgated by state boards of
accountancy, the AICPA, and the PCAOB.
1.3 Limitation on RSMMs Authority. Administrative Services shall not include, and RSMM
shall not at any time or in any manner engage, pursuant to this Agreement, in providing to M&P or
any client or customer of M&P, any services that, under applicable state or federal law, cannot be
provided by a firm that is not licensed as a CPA firm under applicable state law, such services to
be collectively referred to, herein as Public Accounting Services. For clarification,
Public Accounting Services shall not include any services deemed to be practiced before the
Internal Revenue Service as defined in Treasury Department Circular No. 230, Title 31 Code of
Federal Regulations, Subtitle A, Part 10. If any Administrative Services or acts required or
requested of RSMM herein would be reasonably likely to be construed by a court of competent
jurisdiction or the applicable state agency, board or other authority charged under the laws of the
state with the licensing, registration and/or regulation of public accountants (each a State
Board) or by the Public Company Accounting Oversight Board (PCAOB) to be Public
Accounting Services, the requirement or other request to perform that act shall be deemed waived.
In order to preserve auditor independence and audit quality, M&P shall have complete control and
supervision over its provision of any Public Accounting Services including, but not limited to (i)
the establishment and maintenance of quality assurance policies, (ii) the hiring, training,
promotion, compensation and termination of professional staff and partners, (iii) the acceptance,
continuation of, and fee arrangements with clients, and (iv) the management and supervision of
client engagements. Anything in this Agreement to the contrary notwithstanding, although M&P has
delegated to RSMM under the terms of this Agreement various ministerial administrative matters, M&P
retains the exclusive right, through its own personnel, to manage its own Business (including
Public Accounting Services) subject to the surviving terms and conditions of the Governance and
Operations Agreement, the Amended and Restated Trademark Assignment and Joint Ownership Agreement
of even date herewith (the Joint Ownership
2
Agreement) and the Amended and Restated Loan Agreement of even date herewith (the
Loan Agreement).
1.4 Execution of Contracts. RSMM is hereby authorized to execute contracts on behalf
of M&P provided that the contracts so executed relate to the provision of Administrative Services,
and do not relate to the performance of Public Accounting Services. M&P grants to RSMM a limited
and special power of attorney (the Power of Attorney) for the execution of contracts
(with amounts due and payable there-under not to exceed One Hundred Thousand Dollars ($100,000)).
Notwithstanding the foregoing, RSMM may execute contracts (including those exceeding $100,000 in
annual expenditures) that benefit both RSMM and M&P and relate to services provided by RSMM under
this Agreement. A form of the Power of Attorney is set forth as Exhibit 1.4 hereto. The M&P Board
of Directors (the M&P Board) or Managing Partner, or his/her or its designees, must
authorize contracts with total amounts due and payable thereunder in excess of such amount or which
relate to the performance of Public Accounting Services.
2. Term. Other than Section 16 hereof, which shall be effective immediately, the term of
this Agreement shall commence on May 1, 2010 (the Effective Date) and shall continue for
a period of five years after the Effective Date (unless sooner terminated pursuant to Sections 9 or
10 hereof) (the Initial Term), which term will automatically be extended five additional
years on the fifth anniversary of the Effective Date (a Renewal Term) and on the fifth
anniversary of the first May 1 of each Renewal Term such that the term of this Agreement will be
automatically renewed and extended for successive five-year terms indefinitely unless and until
terminated in accordance with the terms hereof.
3. Shared Expenses and Fee. RSMM and M&P shall agree to jointly share in certain common
overhead costs which are necessary operating expenses for the performance of attest, accounting,
tax and consulting services (the Shared Expenses). Such Shared Expenses may include but
are not limited to certain human resources, client service, sales and marketing, equipment and
technology, and administrative expenses. RSMM and M&P agree that such cost sharing arrangement
will be allocated each quarter based upon actual Shared Expenses and an allocation method (the
Allocation Method) based to the extent feasible and reasonable on actual usage by the
respective parties and agreed upon in advance by the President of RSMM and the M&P Board. Shared
Expenses will be paid based upon a budget with true-up calculations and adjustments reflecting
services actually performed and as recorded in year-to-date financial reports for August, November,
February and April. Adjustments will be made in each of the months following August, November and
February. April adjustments will be made in April. The Shared Expenses and the Allocation Method
shall be reviewed by the parties on an annual basis. RSMM will be responsible for payment of the
Shared Expenses (except those expenses directly related to the practice of Public Accounting
Services, which shall be fully paid directly by M&P) and will be reimbursed monthly by M&P for its
portion of the Shared Expenses based on the Allocation Method. M&P shall pay RSMM an annual
administration fee (the Administration Fee) for all of its Administrative Services equal
to 3% of M&Ps share of the budgeted Shared Expenses, payable monthly in arrears. The
Administration Fee will be reviewed by the parties on an annual basis in connection with planning
objectives and updated forecasts to ensure that the Administration Fee is an arms-length
arrangement and provides fair market value to RSMM for the Administrative Services actually being
rendered. If M&P
3
believes that a portion of the Administration Fee is unauthorized, unsubstantiated or otherwise
improper and the parties cannot resolve such disputed fee in the regular annual Administration Fee
review process, then M&P may submit a written notice of dispute to RSMM and the parties will follow
the dispute escalation and resolution process described in Section 9.3 hereof (recognizing that the
dispute escalation and resolution process cannot lead to a termination of this Agreement unless the
process occurs after the third anniversary of the Effective Date).
4. Occupancy and Partner Benefits.
4.1 Occupancy of Premises. M&P shall be entitled to occupy all office space from time
to time occupied by RSMM on the terms and subject to the conditions of this Section 4.1.
4.1.1 Allocation of Occupancy Costs. Following the Effective Date, upon the
entry into or renewal by RSMM of any lease for office space that is or will be shared with
M&P, M&P will enter into a sublease agreement with RSMM for the proportion of the space that
will be utilized by M&P on substantially the same terms as the underlying lease. The
proportion of space allocated to M&P will be determined initially at lease inception and
then adjusted annually based on the fiscal year end actual number of each level of
professional personnel M&P has housed in the premises compared to RSMM taking into account
the size of workstation each personnel level is assigned. The proportion of the space
utilized by RSMM or M&P will be subject to calculation as set forth in Schedule 4.1.1. The
cost allocated to M&P under this sublease will be based on the cost of the lease to RSMM
without any mark-up or profit to RSMM and will not be subject to the Administration Fee
described in Section 3 of this Agreement. The term of the sublease will be the lesser of the
term of the RSMM lease or five (5) years. If RSMM commits to an initial lease term in
excess of five (5) years and M&P continues to occupy the space after the initial five (5)
year sublease term, then M&P will renew the sublease for the lesser of the remaining term of
the original RSMM lease or five (5) years.
4.1.2 Notice to Vacate Premises. Unless otherwise required under any lease or
sublease entered into pursuant to Section 4.1.1 hereof, M&P agrees to give RSMM at least 270
days prior written notice of its intention to vacate any particular office space then
occupied by M&P. RSMM agrees to give M&P at least 270 days prior written notice of its
intention to vacate any office space at the time occupied by both RSMM and M&P, unless such
intent to vacate is due to an office relocation or closing which is generally known. Except
as may be otherwise provided in any sublease agreement entered into pursuant to Section
4.1.1 hereof, in the event of any termination of this Agreement by either party for any
reason, except for a default by M&P for nonpayment of fees, M&P shall in any case be
entitled if it so elects to occupy all office space which it then occupies for 270 days
after such termination, subject to having received earlier notice of RSMMs intention to
vacate such space as stated above. In the event M&P occupies such office space after
termination of this Agreement, the parties shall agree on rent payable during M&Ps
continued occupancy, or if they fail to do so, the rent shall be prorated according to the
Allocation Method described in Section 4.1.1.
4.2 Partner Benefits. RSMM and M&P agree that certain partner benefits may, if the
parties agree, be paid by RSMM and in such case M&P will reimburse RSMM for the payment
4
of those benefits. In such case, RSMM and M&P will agree to the allocation methodology as a
part of the annual budgeting process and payment for such benefits will be made monthly by M&P.
4.3 Independent Identity. M&P shall continue to maintain a separate legal identity
and shall observe all legal requirements and customary practices necessary to maintain M&P as a
separate legal entity distinct from any other person or entity, including RSMM. Consistent with
the Joint Ownership Agreement, M&P shall also maintain its own business identity, including,
without limitation, letterhead and business cards and shall have the right at its option to conduct
its own marketing activities. Nothing herein shall prevent M&P from being acquired by or otherwise
combining with any other person, in which case this Agreement may be terminated in accordance with
the terms of this Agreement. For the avoidance of doubt, Section 9.5.2 shall continue to be
effective in the event of termination in connection with an acquisition or merger of M&P. In
addition, any proceeds from the sale of M&P or its assets shall remain the sole property of M&P
subject to the terms of the Loan Agreement.
5. Engagement Letters, Billing and Collection of Fees; Accounting.
5.1 Engagement Letters. M&P will prepare engagement letters in accordance with its
policies for services and/or products to be provided by M&P to its clients. The content of such
letters shall be solely under the control of M&P and shall be executed only by a partner or
employee of M&P.
5.2 Billing and Collection. As part of the Administrative Services, RSMM shall
prepare and mail statements for all services provided by or on behalf of M&P to clients of M&P
based upon time records, expense payments and other information provided by M&P to RSMM. M&P shall
and shall cause its partners and employers to provide RSMM all records reasonably necessary for
billing and collection of accounts pursuant to the provisions of this Section.
5.3 Accounting. As a part of the Administrative Services, RSMM shall maintain books
of account for M&P. In addition, RSMM shall prepare the monthly and annual operational and
financial reports for M&P.
6. Mutual Nondisclosure. Except as provided in the Loan Agreement or Governance and
Operations Agreement, neither M&P nor RSMM shall at any time or in any manner, directly or
indirectly, use or disclose to any third party any trade secrets or other Confidential Information
(defined herein) learned or obtained from the other party hereto as a result of its relationship
with the other party hereto or any direct or indirect subsidiary or affiliate (i.e., a person which
controls, is controlled by or under common control with a party) of the other party, except as may
be required by law or legal, regulatory or judicial process; provided that the disclosing party
shall give prompt written notice to the other party of such requirement, disclose no more
information than is so required, and cooperate with any attempts by the other party to obtain a
protective order or similar treatment; or to its or its affiliates directors, officers, attorneys,
accountants, advisors or consultants who need to know such information in such capacities and who
agree to comply with the non-disclosure obligations set forth in this Section 6. As used herein,
the term Confidential Information means confidential, proprietary or personal information
of a party or its affiliates that is not generally known in the industry in which the
5
parties or any of their direct or indirect subsidiaries or (in the case of information of or about
clients of either party) clients is engaged, including such information that in any way relates to
the products, processes, services, inventions (whether patentable or not), formulas, techniques or
know-how, including, but not limited to, information relating to distribution systems and methods,
research, development, purchasing, accounting, procedures, marketing, customers, vendors,
merchandising and selling, of RSMM or M&P or any of their respective direct or indirect
subsidiaries or affiliates, or the clients of either party, and regardless of the format in which
it is presented or embodied (written, graphic, electromagnetic or otherwise). The term
Confidential Information, as used herein, does not include information (a) which was already in
the public domain other than through any disclosure in violation of this Section 6, (b) information
already in the possession of the other party and not subject to any confidentiality obligations of
the other party or (c) which is or was disclosed as a matter of right by a third party source
provided such third party source is not bound by confidentiality obligations in favor of the owner
of the Confidential Information in question. This Section 6 shall survive the termination of this
Agreement. Each party agrees that it will adopt reasonable precautions to guard against
unauthorized release or use of Confidential Information, and that it will not use or disclose such
Confidential Information in any manner that will unfairly benefit itself or damage the other party
hereto. Each party agrees to return to the other party all such Confidential Information
pertaining to the other party upon termination of this Agreement. In lieu of returning all
Confidential Information, a party may destroy such Confidential Information provided that the other
party hereto has agreed in writing that destruction is acceptable.
7. Administrative Services, Warranties, Disclaimers, Limitations on Liability and Required
Notices. RSMM will act diligently and use reasonable care in providing Administrative Services
to M&P. M&P and each Partner hereby release and forever discharge RSMM and its affiliates,
parents, employees, subcontractors, agents and assigns from any liability in any way connected with
this Agreement or the Administrative Services, except for any liability for intentional torts or
gross negligence. RSMM does not warrant the success or results of M&P. RSMM shall not be liable
to M&P or any Partner under any circumstances for special, exemplary, punitive or consequential
damages relating to the Administrative Services except for intentional torts or gross negligence.
Neither M&P nor any Partner shall be liable to RSMM for special, exemplary, punitive or
consequential damages relating to this Agreement.
RSMM hereby agrees to indemnify and hold harmless M&P and its affiliates from and against any
liability or losses (including, without limitation, attorneys fees) arising out of any claims,
actions, litigations, disputes or proceedings brought by any third parties against M&P or its
affiliates as a result of any negligence, willful misconduct or fraud by RSMM in connection with
its provision of any services under this Agreement (excluding, for clarity, any Public Accounting
Services). M&P hereby agrees to indemnify and hold harmless RSMM and its affiliates from and
against any liability or losses (including, without limitation, attorneys fees) arising out of any
claims, actions, litigations, disputes or proceedings brought by any third parties against RSMM or
its affiliates as a result of any negligence, willful misconduct or fraud by M&P in connection with
the provision of Public Accounting Services.
8. Mutual Provision of Professional Services. RSMM and M&P may from time to time request
assistance from the others professionals and other personnel in meeting the Contractors
professional service obligations to its clients (the Professional Services). The party
requesting
6
such assistance and billing the client for the Professional Services rendered is referred to in
this Section 8 as the Contractor. The party providing the requested Professional
Services to or on behalf of the Contractor and billing the Contractor is referred to in this
Section 8 as the Subcontractor. In no case shall the Administrative Services rendered by
RSMM to M&P pursuant to other sections of this Agreement be subject to this Section 8. The
Subcontractor may at its sole option and discretion, provide or decline to provide the requested
Professional Services to the Contractor. The provisions set forth below shall apply with respect
to all Professional Services so provided pursuant to this Section 8.
8.1 Nature of Requests. Such a request may be made by any person authorized by the
Contractor to do so, and such request may be accepted by any person authorized by the Subcontractor
to do so. No formalities are required.
8.2 Contractor to Bill Client. The Contractor shall have sole responsibility for
billing and collecting from its own client with respect to the Subcontractors Professional
Services. No delay or failure by the client to pay for such Professional Services shall relieve
the Contractor from its obligations to pay the Subcontractor for such Professional Services as
provided herein.
8.3 Subcontractors Billing for Services Rendered. The Subcontractor shall bill the
Contractor for actual hours expended by its personnel to provide Professional Services to the
client of the Contractor. The rate to be charged shall be mutually agreed upon from time to time,
but no less frequently than annually, between Contractor and Subcontractor, in writing. The fees
in effect as of the date hereof are an agreed percentage of the standard rate typically charged by
the Subcontractor to its own clients consistent with the rates currently in place between the
shared services of locations of RSMM and M&P. Contractor shall make payment to the Subcontractor
for Professional Services provided hereunder within 30 days after the end of the month in which the
Professional Services were provided by the Subcontractor.
8.4 Subcontractor Responsible for Own Expenses. Subcontractor is solely responsible
for the payroll, benefits, training, equipment and facilities necessary for its personnel to
provide Professional Services to the Contractors client, and for its own profitability or lack
thereof, relating to the rendition of such Professional Services. Travel and living expenses away
from Subcontractors office normally employing personnel used to perform the Professional Services
shall be billed to Contractor as disbursements at the actual amount paid to vendors, and Contractor
will reimburse Subcontractor within thirty (30) days following the end of the month during which
expenses are incurred.
8.5 Compliance With Laws, Rules and Professional Standards. Contractor and
Subcontractor agree to comply, and to cause their respective partners and employees to comply, with
Rule 301, Confidential Client Information, of the Code of Professional Conduct of the American
Institute of Certified Public Accountants. In addition, the parties shall, in connection with
providing of such Professional Services, observe the mutual nondisclosure provisions of Section 6
of this Agreement. The parties also agree to comply, and to cause their respective partners and
employees to comply, with Section 7216 of the Internal Revenue Code in connection with providing
Professional Services to each others clients. RSMM agrees to comply with Interpretation 101-14
under Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public
Accountants and, unless an exception is agreed to by
7
M&P (which agreement shall not be unreasonably withheld), M&Ps Independence and Relationship
Policies as in effect from time to time with respect to all attest clients. The parties agree that
RSMM shall not perform any Professional Service that violates any state law governing the practice
of public accounting. It is specifically contemplated that M&P will utilize Professional Services
of RSMM only in a manner or in instances consistent with the requirements of the governing
accounting licensing laws.
8.6 Professional Services Indemnity. Contractor agrees to indemnify and hold harmless
Subcontractor and its partners, directors, officers, employees, agents and members, as applicable,
with respect to any and all claims, losses, damages, liabilities, judgments or settlements
(including but not limited to reasonable attorneys fees, costs and other expenses) incurred by
Subcontractor on account of any Professional Services conducted by Subcontractor pursuant to this
Section 8 except those arising in the ordinary course of business of performing requested services
and allocated to Subcontractor by Section 8.4 hereof; provided, however, this
indemnification shall not extend to cover any claims, losses, damages, liabilities, judgments or
settlements (including attorneys fees, costs and other expenses) incurred by such indemnified
persons on account of the negligence, willful misconduct or fraud of Subcontractor (or its
partners, directors, officers, employees, agents or members, as applicable).
9. Termination. Other than any termination pursuant to Section 10 hereof, this Agreement
may only be terminated in accordance with and subject to the provisions of this Section 9. In the
event of a termination under this Section 9, the Governance and Operations Agreement shall
terminate pursuant to Section 12(a) of the Governance and Operations Agreement.
9.1 By RSMM. RSMM may terminate this Agreement: (a) at any time pursuant to Section
10 hereof; (b) at any time if M&P loses or has suspended its license or certification to practice
public accounting in any state significant to its business; (c) at any time if M&P is wound up or
liquidated or files for bankruptcy or other action is taken against it under any statute for the
protection of creditors; (d) subject to Sections 9.3 and 9.4 hereof, at any time, with or without
cause, following the third anniversary of the Effective Date, provided that (I) the
effective date of any termination pursuant to this clause (d) may only occur on a date during the
period between May 1 and August 31 of any calendar year and (II) RSMM must have provided M&P with
at least 270 days advance written notice of any termination (specifying the effective date of such
termination) pursuant to this clause (d) (it being understood and agreed that RSMM may not deliver
a notice of termination pursuant to this clause (d) prior to the third anniversary of the Effective
Date and that any such purported termination pursuant to this clause (d) prior to the third
anniversary of the Effective Date shall be void and of no force or effect); or (e) with at least 60
days advance written notice, upon consummation of any sale of at least a majority interest of the
M&P business to a third party, whether accomplished by the sale of stock, sale of assets or
otherwise, or any merger of M&P with a competitor of M&P or RSMM.
9.2 By M&P. M&P may terminate this Agreement: (a) at any time pursuant to Section 10
hereof; (b) subject to Sections 9.3 and 9.4 hereof, at any time, with or without cause, following
the third anniversary of the Effective Date, provided that (I) the effective date
of any termination pursuant to this clause (b) may only occur on a date during the period between
May 1 and August 31 of any calendar year and (II) M&P must have provided RSMM with at least 270
days advance written notice of any termination (specifying the effective date of such
8
termination) pursuant to this clause (b) (it being understood and agreed that M&P may not
deliver a notice of termination pursuant to this clause (b) prior to the third anniversary of the
Effective Date and that any such purported termination pursuant to this clause (b) prior to the
third anniversary of the Effective Date shall be void and of no force or effect). Notwithstanding
the foregoing, if a sale of at least a majority interest of the RSMM business to a third party,
whether accomplished by the sale of stock, sale of assets or otherwise (a Change of
Control), is consummated during the first two years after the Effective Date and after
consummation of such Change of Control a business dispute between RSMM and M&P results from such
Change of Control, M&P may deliver a written notice of dispute to RSMM pursuant to Section 9.3
hereof, even if the notice is delivered before the third anniversary of the Effective Date. If
such dispute is not resolved after good faith compliance with the dispute escalation and resolution
process described in Section 9.3 hereof, M&P may begin the termination process and, subject to
compliance with Section 9.4 hereof, terminate this Agreement.
9.3 Escalation and Resolution Procedures. If a party is considering termination of
this Agreement following the third anniversary of the Effective Date for any reason, other than
pursuant to Section 10 hereof or, in the case of RSMM, clauses (b) or (c) or (e) of Section 9.1
hereof, the parties, including members of senior leadership and members of the Board of Directors
of RSMM and the M&P Board, will participate in and abide by the following escalation and resolution
process prior to issuing any notice of termination hereunder or publicly announcing any intention
to terminate this Agreement (whether to a party, publicly or otherwise). Prior to issuing any
notice of termination pursuant to clause (d) of Section 9.1, in the case of RSMM, or clause (b) of
Section 9.2, in the case of M&P, the party desiring to terminate this Agreement will deliver to the
other party a written notice (the Notice) of the reasons for which the party is
considering termination of this Agreement (such notice to detail all relevant information
pertaining to the reasons, including the clear statement that it could lead to a termination
notice), which will include a request for an initial meeting between the parties to discuss the
reasons on a date no earlier than seven days and no later than 30 days after the date of receipt of
the Notice. The parties (including representatives of the senior leadership of each party) will
meet to discuss, and negotiate in good faith to continue the APS on the date specified in the
Notice or on such other date no later than 30 days after the date of receipt of the Notice as may
be agreed by the parties. If, following such meeting the reasons for termination still exist, then
no later than 30 days following the initial meeting (or such other date as the parties may mutually
agree) the parties will hold a second meeting (including representatives of the senior leadership
and boards of directors of each party) to continue to negotiate in good faith to continue the APS.
If, after compliance with the foregoing procedures, such reason for termination is not resolved,
either party may submit such reason for termination to resolution pursuant to Section 14 below.
For the avoidance of doubt, termination of this Agreement without cause in accordance with Section
9.1 or 9.2 is not subject to the terms of Section 14. All negotiations pursuant to this Section
9.3 are confidential and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.
9.4 Notice of Termination. If, following the second meeting of the escalation and
resolution process set forth in Section 9.3 hereof, the parties have failed to agree to continue
the APS after good faith compliance with the escalation and resolution process set forth in Section
9.3 hereof and the board of directors of the party that originally delivered the Notice determines
to terminate the Agreement, then such party may issue and deliver a written notice of termination
9
(the Notice of Termination) to the other party, provided that M&P
may not issue (whether to RSMM, publicly or otherwise) or deliver a Notice of Termination to RSMM
unless (a) the M&P Board first calls a meeting of M&Ps Partners, to occur no sooner than 60 days
after the calling of the meeting and in any event not before the third anniversary of the Effective
Date, to vote on the decision to terminate this Agreement and approve delivery of a Notice of
Termination and (b) the decisions to terminate this Agreement and deliver a Notice of Termination
are approved at such Partner meeting (I) by a majority of the Partner votes held by all of M&Ps
Partners and (II) in accordance with any other vote requirement specified in the M&P Partnership
Agreement, as in effect at the time of any such M&P Partner vote. Once a Notice of Termination is
issued by a party, such Notice of Termination shall be irrevocable unless the other party consents
in writing to its withdrawal.
9.5 Effect of Termination.
9.5.1 Payment of Money Owed. Upon the termination of this Agreement for any
reason, M&P shall pay all amounts due to RSMM and RSMM shall pay all amounts due to M&P
under this Agreement as soon as practicable but in no event later than sixty (60) days after
the effective date of such termination, it being understood that any amounts due to each
other under any other agreements by and between, or which may be entered into by and
between, the parties shall be payable in accordance with the provisions thereof.
9.5.2 Survival of Certain Provisions. Sections 4.1, 6, 8.5, 8.6, 9.5, 12, 13,
14 and 16 shall survive the termination of this Agreement.
9.5.3 Records; Files. In the event of termination for any reason, RSMM may, at
its expense, and, subject to RSMMs compliance with any requirements for prior client
consent, copy all records or files of M&P, except for client engagement files which contain
or reflect the performance of Public Accounting Services.
9.5.4 License of Proprietary Systems. Nothing in this Agreement shall prevent
M&P from independently obtaining any licenses or other agreements providing for M&Ps right
to use any Proprietary and Customized Applications (as defined below) primarily in the
provision of Public Accounting Services, including, without limitation, the application
known as Caseware.
Effective upon any termination of this Agreement by either party, RSMM hereby grants to
M&P a world-wide, royalty-free, fully paid-up, nonexclusive, nontransferable,
nonsublicensable license, sublicense, and/or right (i) to use, for a period (at M&Ps
election) of up to eighteen (18) months following the effective date of termination hereof,
in substantially the same manner and for substantially the same purposes as used or
available for use immediately prior to such termination, all Proprietary and Customized
Applications, and (ii) to perpetually use the source code of (a) all customizations of such
Proprietary and Customized Applications in RSMMs possession or control, which
customizations were created by or on behalf of RSMM and/or M&P (whether for use exclusively
by M&P or for use by both M&P and RSMM), and (b) all software-based audit tools owned by
RSMM, or by both RSMM and M&P, comprising the Proprietary
10
and Customized Applications (including, without limitation, Engagement Management,
McGladrey Risk Assessment Model (MRAM), Interoffice Inspection (IOI) and audit related Lotus
Notes based databases). The licenses, sublicenses and/or rights to use described above in
this Section 9.5.4 shall only be granted to the extent that: (x) RSMM has the legal right to
do so; (y) RSMM is contractually permitted to grant such licenses, sublicenses or rights to
use to M&P, in the event any portion of the Proprietary and Customized Applications is
provided to RSMM pursuant to a contract with any third parties (a Third Party Contract);
and (z) such action will not adversely affect or alter RSMMs pre-existing right to use such
Proprietary and Customized Applications. M&P agrees to indemnify RSMM for any breach of any
Third Party Contract that may result from RSMMs grant of such licenses, sublicenses or
rights to use to M&P under this Section 9.5.4. The foregoing does not transfer or assign to
M&P any rights which RSMM may have or acquire in any Proprietary and Customized
Applications. As used herein, Proprietary and Customized Applications means,
collectively, software applications owned by RSMM or owned by one or more third parties and
licensed or otherwise provided to RSMM, and any customizations or extensions to or other
enhancements of such software applications developed and/or owned by RSMM, that are used or
available for use to provide Administrative Services to M&P immediately prior to the
effective date of termination of this Agreement.
In the event that RSMM is not permitted to license, sublicense or grant M&P the right
to use any Proprietary and Customized Applications as set forth above, if and when requested
by M&P during the eighteen (18) months following the effective date of termination hereof,
RSMM will use commercially reasonable efforts to help M&P obtain (at M&Ps own cost and
expense) licensing rights from third party providers of the Proprietary and Customized
Applications that are being utilized or are available for utilization by or on behalf of
RSMM to provide Administrative Services immediately prior to the effective date of
termination hereof. For the avoidance of doubt, except as otherwise specified herein or as
otherwise agreed by RSMM and M&P, RSMM will not have any obligation to provide its own or
any third partys Proprietary and Customized Applications after the eighteen (18) month term
set forth above.
9.5.5 Transition Services and Return of Data. If either RSMM or M&P delivers a
Notice of Termination to the other party, each party will promptly designate a senior level
leader to represent such party in the development of a transition services plan. The
designated representatives of each party will meet to begin to design such transition
services plan as soon as reasonably practicable following the date of the Notice of
Termination and in any event at least 180 days prior to the effective date of the
termination of this Agreement. The purpose of the transition service plan will be to enable
M&P to transition, before or after the effective date of termination, the Administrative
Services to other third party or internal M&P providers or resources. RSMM and M&P further
agree that any such transition services plan shall, at a minimum, provide terms to
facilitate RSMMs performance of its obligations specifically set forth in Section 9.5.4 and
this Section 9.5.5. In furtherance of such transition services plan, RSMM shall cooperate
with M&P in transitioning performance of the Administrative Services to M&P or to any third
party service provider designated by M&P; provided, however, that M&P shall
pay RSMM a reasonable agreed upon amount for any work
11
RSMM needs to perform to segregate data, delete it and/or integrate such data with M&P
and/or its third party vendor, in conjunction with such transition upon the written request
of M&P. RSMM shall return all copies of all M&P data, materials, and information in the
possession or control of RSMM (including, without limitation, all audit-related data, files
and databases) to M&P in such form or format as reasonably requested by M&P. RSMM shall not
retain any copies of such M&P data, materials or information except as required by law. M&P
shall return all copies of all RSMM data, materials, and information in the possession or
control of M&P to RSMM in such form or format as reasonably requested by RSMM. M&P shall
not retain any copies of such RSMM data, materials, or information except as required by
law. This provision shall survive termination of this Agreement.
10. Regulatory or Legislative Change. In the event of any material change in any state or
federal statute, regulation or definitive interpretation thereof by a government agency or
administrative body (Laws), or an enforcement action against M&P or its affiliates
arising under any Laws, in each case which shall make this Agreement unlawful in whole or in
material part, the parties shall immediately enter into good faith negotiations regarding a new
service arrangement (if necessary) or basis for compensation for the Administrative Services
provided hereunder which is consistent with such Laws and approximates as closely as possible the
economic position of the parties hereunder prior to the change. If the parties are unable to reach
such an agreement within 30 business days following written notice from one party to the other,
then either party may terminate this Agreement effective upon 90 days prior written notice.
Termination of this Agreement pursuant to this provision shall not, however, terminate M&Ps right
to occupy such office space as it then may occupy on premises leased by RSMM.
11. Miscellaneous.
11.1 This Agreement shall be binding upon and shall inure to the benefit of the successors and
assignees of the parties.
11.2 M&P shall not assign, confer any right in, assume in bankruptcy, pledge, mortgage or
otherwise encumber this Agreement, in whole or in part, without the prior written consent of RSMM,
which can be withheld in RSMMs sole discretion. For the avoidance of doubt, a merger, change of
control, reorganization (in bankruptcy or otherwise) or a stock sale of M&P shall be deemed an
assignment requiring such consent, regardless of whether M&P is the surviving entity. For the
further avoidance of doubt, Section 9.5.2 shall continue in effect in the event of termination of
this Agreement resulting from a merger, change of control, reorganization (in bankruptcy or
otherwise) or stock sale of M&P. Any attempted action in violation of the foregoing shall be null
and void ab initio and of no force or effect. RSMM may, in its discretion, assign this Agreement
to any other direct or indirect parent, subsidiary or affiliate of RSMM, or to any third party that
in connection therewith is acquiring all or substantially all of the assets of RSMM used in the
APS, and M&P shall be liable hereon to the same extent as if such agreement were originally made
with such other person, firm or corporation.
11.3 If the Board of Directors of HRB (the HRB Board) determines to sell RSMM and
its subsidiaries in any auction or marketed sale process, M&P will be invited to participate as
12
a bidder in the sale process. In addition, if outside of any such sale process the HRB Board
receives from a third party a bona fide written offer to purchase RSMM and its subsidiaries and the
HRB Board subsequently determines to engage in negotiations with such third party with the intent
to consummate such offer or to otherwise sell RSMM and its subsidiaries, it will notify the M&P
Board of such proposed sale in writing within a reasonable period of time prior to the entry into a
definitive agreement with such third party relating to such proposed sale, providing M&P a
reasonable opportunity to submit a bona fide written offer to purchase RSMM and its subsidiaries.
Any such offer must include the proposed cash purchase price for RSMM and its subsidiaries, a
summary of the other material terms and conditions of the proposed purchase and, to the extent
financing is contemplated to fund the proposed purchase, evidence of committed financing. The HRB
Board may accept or reject M&Ps proposed offer in its sole discretion (it being understood that if
M&Ps proposed offer is rejected, the HRB Board may consummate the proposed third party sale or any
other sale in its sole determination, regardless of whether the purchase price of the proposed
third party sale is lower than M&Ps proposed purchase price or the terms and conditions of the
proposed third party sale are less favorable to HRB than those of M&Ps proposed offer). It is
understood that the foregoing rights of M&P and obligations of RSMM will not apply to any spin-off
of RSMM or to an initial public offering of RSMM (whether with the intent to subsequently spin off
RSMM or otherwise). M&P acknowledges and agrees that HRB will in no case be under any obligation
to accept or consummate any proposed offer to purchase RSMM and its subsidiaries from M&P (or from
any third party), that this provision does not confer a right of first refusal on M&P, and that M&P
has no rights to purchase RSMM and its subsidiaries. M&P further acknowledges and agrees that RSMM
and its subsidiaries are not for sale and that the foregoing does not commit or in any way reflect
an intention of HRB to cause the sale of RSMM and its subsidiaries.
11.4 This Agreement, together with the Governance and Operations Agreement, the Loan Agreement
and the Joint Ownership Agreement, contain the complete understanding of the parties with respect
to the subject matter hereof and no modification or waiver of any provision hereof shall be valid
unless in writing and signed by the parties, unless specifically provided to the contrary. This
Agreement may not be amended except by an instrument in writing signed by RSMM and M&P.
Notwithstanding anything to the contrary herein, no party shall be required to violate any law or
the good faith reasonable exercise of such partys professional responsibility.
12. Governing Law. This Agreement shall be governed and interpreted in all respects
pursuant to the internal and substantive laws of the State of Missouri without regard to conflict
of laws principles which might cause the law of another jurisdiction to apply.
13. Right to Offset. M&P agrees that RSMM may offset amounts due M&P hereunder against
amounts due RSMM hereunder. Such right to offset shall arise if M&P fails to pay such amounts owed
to RSMM within thirty (30) days after written notice to the M&Ps Representative. In the event
that any such offset is made but is finally determined by mediation, arbitration or a court of
competent jurisdiction to be improper and such offset is revised, RSMM shall pay interest, at the
Prime Rate, on the amount of such offset for the period such offset was in effect. Prime
Rate means the prime rate as published in the Money Rates section of The Wall Street
Journal or successor section and/or publication. If The Wall Street Journal ceases to publish the
prime rate, then the Prime Rate shall be the prime rate as announced from time to time by HRBs
lead agent bank under its senior credit facilities.
13
14. Arbitration; Interim Relief. Any controversy, claim or dispute arising out of or
relating to this Agreement or any actual or alleged breach of any provisions hereof, including
without limitation any dispute concerning the scope of the arbitration clause set forth below (a
Dispute), shall be resolved as set forth below, except that (a) this Section 14 shall not
apply to any controversy, claim or dispute asserted by either party hereto against the other
arising out of or related to a controversy, claim or dispute asserted by a third person (other than
M&P and/or any of its Partners or RSMM) against either or both parties to this Agreement, nor to
any controversy, claim or dispute where a third party (other than M&P and/or any of its Partners or
RSMM) would be an indispensable party under the Federal Rules of Civil Procedure and (b) any
Dispute subject to Section 10(a)(i) of the Governance and Operations Agreement shall be resolved as
described in Section 8 of the Final Award (as defined in the Governance and Operations Agreement).
14.1 In the event a Dispute arises relating to this Agreement, the parties shall first
negotiate in good faith to resolve such dispute in accordance with the dispute escalation and
resolution process described in Section 9.3 hereof before proceeding to mediation pursuant to
Section 14.2 hereof.
14.2 In the event that the parties have complied with Section 9.3 hereof and the Dispute has
not been resolved within 60 days after service of the Notice as provided in Section 9.3, or in the
event the parties failed to meet within 30 days after delivery of a Notice, either party may demand
mediation in accordance with the CPR Institute for Dispute Resolution (CPR) Mediation
Procedure then currently in effect in the location where any arbitration would be conducted as set
forth below, in writing with copies to all other parties involved in the Dispute. The notification
will state with specificity the nature of the Dispute. Unless the parties agree otherwise, the
parties will select a mediator from the CPR Panels of Distinguished Neutrals (the
Mediator). If the parties do not agree on the Mediator within five (5) business days
after either party delivers a demand for mediation, the CPR will provide the parties on an
expedited basis a list of three candidates, with their resumes and hourly rates. If the parties
are unable to agree on a candidate from the list within three (3) business days following receipt
of the list, each party will, within five (5) business days following receipt of the list, send to
CPR the list of candidates ranked by order of preference. The candidate with the lowest combined
score will be appointed as the mediator by the CPR. The CPR will break any tie. Upon appointment,
the Mediator will immediately convene a telephone conference of the parties hereto. The parties
will make a representative, with full authority to settle, available for such a conference. During
the initial telephone conference, the parties will agree on mediation procedures or, in the event
they cannot agree, the Mediator will set the mediation procedures. The mediation procedures will
provide for the mediation to be completed within thirty (30) business days after the date of the
initial demand for mediation. The parties will participate in good faith in the mediation and will
use their best efforts to reach a resolution within the thirty (30) day time period. Each party
will make available in a timely fashion a representative with authority to resolve the Dispute.
Absent agreement of the parties otherwise, in the event that the Dispute has not been resolved
within thirty (30) days, the mediation shall be deemed terminated. In the event that the mediation
continues beyond thirty (30) days by agreement of the parties, but is not resolved within what the
Mediator believes is a reasonable time thereafter, the Mediator will declare the mediation
terminated. Fees of the mediator shall be split equally between RSMM, on the one
14
hand, and M&P, on the other hand. In the event one party fails to participate in the dispute
resolution process set forth in Section 9.3, the other party can immediately initiate mediation.
14.3 Any Dispute that has not been resolved by negotiation or mediation as provided herein as
of the termination of the mediation and no later than 45 days after delivery of a mediation demand
shall be settled by binding arbitration in accordance with the CPR Rules for Non-Administered
Arbitration then currently in effect, as supplemented or modified herein (the Rules) by
three independent and impartial arbitrators of whom each party shall designate one and those two
arbitrators shall jointly select the third arbitrator, unless they are unable to agree on the
selection of the third arbitrator, in which case the third arbitrator shall be determined pursuant
to the Rules. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et
seq., and judgment upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In the event one party fails to participate in accordance with the dispute
resolution process set forth in Section 9.3 or in the mediation as set forth in Section 14.2
herein, the other party can immediately commence arbitration. The governing law of this Agreement
shall be the law used by the arbitrators in rendering their award as set forth in Section 12,
except that the Federal Rules of Evidence shall apply and that the parties have the right and shall
be permitted to conduct and enforce full pre-hearing discovery in accordance with and to the same
extent permitted by the Federal Rules of Civil Procedure. Pending final award, the compensation
and expenses of the third arbitrator selected by the arbitrators designated by the parties shall be
split equally between RSMM, on the one hand, and M&P, on the other hand, and each of the parties
shall bear the compensation and expenses of its designated arbitrator. The CPR shall hold an
administrative conference with counsel for the parties within twenty (20) days after the filing of
the demand for arbitration by any one or more of the parties. The parties and the CPR shall
thereafter cooperate in order to complete the appointment of three arbitrators as quickly as
possible. Within fifteen (15) days after all three arbitrators have been appointed, an initial
meeting (which, if the arbitrators so determine, may be by phone) among the arbitrators and counsel
for the parties shall be held for the purpose of establishing a plan for administration of the
arbitration, including: (1) definition of issues; (2) scope, timing, and types of discovery; (3)
exchange of documents and filing of detailed statements of claims, pre-hearing memoranda and
dispositive motions; (4) schedule and place of hearings; and (5) any other matters that may promote
the efficient, expeditious, and cost effective conduct of the proceeding. The parties and the
arbitrators shall endeavor in good faith to complete the arbitration as quickly as possible. Each
party shall have the right to request that the arbitrators make specific findings of fact.
14.4 The majority decision of the arbitrators shall contain findings of fact on which the
decision is based, including any specific factual findings requested by either party, and shall
further contain the reasons for the decision with reference to the legal principles on which the
arbitrators relied. Such decision of the arbitrators shall be final and binding upon the parties.
Absent agreement of the parties otherwise, the arbitration shall take place in Minneapolis,
Minnesota if the party requesting same is RSMM, or Kansas City, Missouri, if the party requesting
same is M&P. The final award may grant such relief as authorized by the Rules, including damages
and out-of-pocket costs but which may not include exemplary or punitive damages.
14.5 Nothing in this Agreement shall limit, interfere or delay any party from seeking at any
time interim relief from a court of competent jurisdiction.
15
15. Notices. Any notice, request, consent or communication under this Agreement shall
be effective only if it is in writing and (a) personally delivered, (b) sent by certified or
registered mail, return receipt requested, postage pre-paid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, (d) e-mailed (with a copy simultaneously sent
by first class mail or any other delivery method permitted hereunder), or (e) telexed or
telecopied, with receipt confirmed, addressed as follows:
|
|
|
If to HRB: |
|
H&R Block, Inc. |
|
|
One H&R Block Way |
|
|
Kansas City, MO 64105 |
|
|
Attn.: Brian Woram |
|
|
Facsimile: (816) 854-8500 |
|
|
E-mail: Brian.Woram@hrblock.com |
|
|
|
If to RSMM: |
|
RSM McGladrey, Inc. |
|
|
One South Wacker Drive, Suite 800 |
|
|
Chicago, IL 60606 |
|
|
Attn.: Peter Fontaine |
|
|
Facsimile: (312) 634-5513 |
|
|
E-mail: Peter.Fontaine@rsmi.com |
|
|
|
If to M&P: |
|
McGladrey & Pullen, LLP |
|
|
3600 American Blvd., Third Floor |
|
|
Bloomington, MN 55431-4502 |
|
|
Attn: David Scudder |
|
|
Facsimile: (847) 517-7067 |
|
|
E-mail: dave.scudder@rsmi.com |
|
|
|
with a copy to: |
|
Katten Muchin Rosenman, LLP |
|
|
525 W. Monroe Street, Suite 1900 |
|
|
Chicago, IL 60661 |
|
|
Attn: Herbert S. Wander |
|
|
Facsimile: (312) 577-8885 |
|
|
E-mail: hwander@kattenlaw.com |
or such other persons or addresses as shall be furnished in writing by any party to the other
party. A notice shall be deemed to have been given as of the date when (i) personally delivered,
(ii) three (3) days after the date when deposited with the United States mail properly addressed,
(iii) when receipt of a notice sent by an overnight delivery service is confirmed by such overnight
delivery service, or (iv) when receipt of the e-mail, telex or telecopy is confirmed, as the case
may be.
16. Withdrawal of Termination Notices; Integration. The parties hereby withdraw their
respective Termination Notices and agree that the 2006 Agreement shall govern RSMMs provision of
the Administrative Services to M&P from the date of this Agreement through and until April 30,
2010. The parties further agree that no notice of termination of the 2006 Agreement or this
Agreement may be issued by either party during the period between the date
16
of this Agreement and April 30, 2010, and that any such purported notice of termination issued
prior to April 30, 2010 shall be void and of no force or effect. Effective as of May 1, 2010, this
Agreement will amend and restate in its entirety, and supersede and replace, the 2006 Agreement,
without any further action being required, and the 2006 Agreement shall have no further
applicability.
[Signature Pages Follow]
17
\
THIS AGREEMENT CONTAINS AN ARBITRATION PROVISION WHICH IS BINDING ON THE PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and
year first above written.
|
|
|
|
|
|
RSM MCGLADREY, INC.
|
|
|
By: |
/s/ C.E. Andrews |
|
|
|
Name: |
C.E. Andrews |
|
|
|
Title: |
President |
|
|
|
MCGLADREY & PULLEN, LLP
|
|
|
By: |
/s/ Dave Scudder |
|
|
|
Name: |
Dave Scudder |
|
|
|
Title: |
Managing Partner |
|
|
The undersigned joins in this Agreement solely for purposes of Section 11.3:
|
|
|
|
|
|
H&R BLOCK, INC.
|
|
|
By: |
/s/ Becky Shulman |
|
|
|
Name: |
Becky Shulman |
|
|
|
Title: |
S.V.P. and C.F.O. |
|
18
SCHEDULE 1.1
Administrative Services
Administrative Services to be provided by RSMM to M&P:
1. |
|
Provision and maintenance of suitable office space for sublease. |
2. |
|
Recruiting, training and provision of nonprofessional staff, including clerical services. |
3. |
|
Provision of office supplies, furniture, fixtures and equipment and leasehold improvements. |
4. |
|
Provision of Information Systems development, management and support, including but not
limited to hardware, software, operating systems, network systems and Internet Services. |
5. |
|
Provision and maintenance of a computer system and data processing activities. |
6. |
|
Provision of billing services. |
7. |
|
Scheduling and payment of accounts payable. |
8. |
|
Assistance in collection of accounts receivable. |
9. |
|
Preparation of payroll and related tax matters. |
10. |
|
Records management as provided in Section 1.2. |
11. |
|
Development of policies and procedures relating to the Administrative Services (except those
relating to the performance of Public Accounting Services or otherwise inconsistent with those
adopted by M&P). |
12. |
|
Assistance in compliance with all regulatory requirements as requested by M&P. |
13. |
|
Assistance in maintenance of the books and records of M&P. |
14. |
|
Provision of annual budgeting assistance. |
15. |
|
Provision and maintenance of a system of internal accounting. |
16. |
|
Provision of insurance policies and provision of risk manager services except in each case, as
to the professional liability of M&P, including the gathering of underwriting data to submit to
broker (payroll, losses, locations, autos, etc.), securing and managing the third party administer
to administer workers compensation, general liability or auto claims that M&P may have, obtaining
Certificates or Evidences of Insurance for distribution with proposals and reviewing contract
language as it pertains to insurance. |
EXHIBIT 1.4
Form of Power of Attorney
LIMITED POWER OF ATTORNEY
On this day of ,
20___, McGladrey & Pullen, LLP, an Iowa limited
liability partnership (hereinafter referred to as M&P), hereby authorizes and appoints as
its attorney-in-fact RSM McGladrey, Inc. (hereinafter referred to as RSMM), a corporation
organized under the laws of the State of Delaware and having its principal place of business at
4400 Main Street, Kansas City, Missouri 64111, and its successors, to carry out its duties under
the Amended and Restated Administrative Services Agreement of even date herewith (the
ASA) in accordance with, but not limited to, the following:
|
1. |
|
To enter into and execute contracts (with amounts due and payable thereunder
not to exceed One Hundred Thousand Dollars ($100,000)) relating to the performance of
Administrative Services as defined in the ASA but do not relate to the performance of
Public Accounting Services; and |
|
|
2. |
|
To deposit into M&P account(s), all funds, fees and revenues generated from the
Business and to make withdrawals from the M&P account(s) for payment to creditors,
including without limitation, RSMM and the employees of M&P and other persons who
perform services on behalf of M&P. |
This Limited Power of Attorney may be revoked by M&P at anytime with respect to matters
following the date of revocation. In the event of such revocation, M&P shall indemnify and hold
RSMM harmless for any and all costs, expenses or damages incurred by RSMM as a result of the
revocation.
This Limited Power of Attorney shall terminate on the expiration or earlier termination of the
Administrative Services Agreement.
All capitalized terms not otherwise defined herein shall have the meaning given to them in
that certain Administrative Services Agreement of even date hereto.
|
|
|
|
|
|
McGLADREY & PULLEN, LLP
|
|
|
By: |
|
|
|
|
Dave Scudder, Managing Partner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATE OF
|
|
) |
|
|
|
|
|
) ss. |
|
|
COUNTY OF
|
|
) |
|
|
|
On this _____________ day of ___________, 20___, before me, _______________________, a Notary public
in and for said state, personally appeared Dave Scudder of McGladrey & Pullen, LLP, who executed
the above document, and acknowledged to me that he is the Managing Partner of McGladrey & Pullen,
LLP, and executed the same for the purposes therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal the day and
year last above written.
My commission expires:
2
SCHEDULE 4.1.1
With reference to Section 4.1.1, the proportion of the space utilized by each party shall be
calculated as follows:
|
1. |
|
The relative use of space as between RSMM & M&P attest FTEs at the inception of
the subleases or March 1, 2010 (for purposes of FY 2011 planned allocation) for all
shared locations to determine annual base rents allocated to each party. The
proportionate share of annual base rents will be used to allocate total location
occupancy costs. A true-up calculation will be performed on March 1st of each year. |
|
|
2. |
|
The relative use of space as between RSMM and M&P on March 1st of each year
will be used for both the current years true-up calculation as well as for the initial
budgeted allocation for the following fiscal year. True-up adjustments will be made if
the computed annual base rents based on March 1 FTEs changed by more than 2% from the
planned allocation. |
|
|
3. |
|
Merged-in locations and add-on mergers will be added at the merger inception
date in the same manner as a new subleased location. These locations will trigger an
adjustment to both the number of FTEs at the inception date and the number of FTEs at
the end of the fiscal year. |
|
|
4. |
|
If RSMM or M&P exits a location under sublease, then that location will be
removed from the proportionate share calculation and both parties shall pay occupancy
costs based on the proportion of FTEs as of the lease inception date. |
exv10w43
Exhibit 10.43
GOVERNANCE AND OPERATIONS AGREEMENT
THIS GOVERNANCE AND OPERATIONS AGREEMENT (the Agreement), dated as of February 3,
2010 and effective as of February 3, 2010, is made by and among RSM MCGLADREY, INC
(RSMM), a Delaware corporation and indirect wholly-owned subsidiary of H&R BLOCK, INC.
(HRB), a Missouri corporation, MCGLADREY & PULLEN, LLP (M&P), an Iowa limited
liability partnership, and HRB.
RECITALS
WHEREAS, M&P, RSMM, HRB and certain other persons and entities are parties to the Asset
Purchase Agreement, dated as of June 28, 1999 (the Purchase Agreement), pursuant to
which, among other things, RSMM purchased certain assets of M&P;
WHEREAS, RSMM and M&P previously made certain agreements regarding the respective business
operations of RSMM and M&P in an Operations Agreement dated August 2, 1999 (the Original
Agreement);
WHEREAS, RSMM has performed certain administrative services under an Administrative Services
Agreement dated January 30, 2006 (the 2006 ASA);
WHEREAS, on July 21, 2009, M&P provided notice to RSMM of its intent to terminate the 2006
ASA, and on September 15, 2009, RSMM provided notice to M&P of its intent to terminate the 2006 ASA
(together, the Termination Notices);
WHEREAS, in connection with the Termination Notices issued by M&P and RSMM, the parties hereto
arbitrated the applicability and enforceability of the covenants contained in Section 13 of the
Original Agreement (the Arbitration Proceeding);
WHEREAS, on November 24, 2009, the arbitration panel in the Arbitration Proceeding issued a
final award (the Final Award) with respect to the matters in dispute;
WHEREAS, following the issuance of the Final Award, the parties negotiated and agreed to a
letter of intent to modify various aspects of the current alternative practice structure
arrangements between the parties;
WHEREAS, as contemplated in the letter of intent, the parties have agreed to modify certain
agreements with respect to the rights and obligations of the parties set forth in the 2006 ASA by
amending and restating the 2006 ASA in its entirety on the terms and conditions set forth in an
Amended and Restated Administrative Services Agreement, dated as of even date herewith (the
Administrative Services Agreement);
WHEREAS, the parties have decided to terminate the Original Agreement as of the date hereof
and execute this Agreement in its place;
WHEREAS, concurrently with the entry into this Agreement, and in consideration of the premises
and the mutual covenants hereinafter set forth and in the
Administrative Services Agreement, M&P and RSMM have each withdrawn their respective
Termination Notices; and
WHEREAS, the parties desire to set forth certain understandings and agreements regarding the
respective business operations of RSMM and M&P as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual premises and the covenants herein contained,
the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Structure and Governance. The organizational structure, governance framework and
financial and business arrangements constituting the alternative practice structure between RSMM
and M&P (the APS) in effect as of the date hereof will remain so in effect, subject to
the prompt (and no later than May 1, 2010 unless otherwise specified) implementation by the parties
of the measures set forth in this Section 1.
(a) RSMM and M&P. Effective as of May 1, 2010:
(i) strategic plans, operating budgets and profit plans related to the APS will
require both the approval of the Board of Directors of M&P (the M&P Board)
and the Board of Directors of RSMM (the RSMM Board), and each party shall
be responsible for its own operating plan and budget;
(ii) compensation and evaluation of the M&P Managing Partner will be the sole
responsibility of the M&P Board, which will solicit input from RSMMs senior
executive(s);
(iii) monitoring of the Administrative Services Agreement will be the
responsibility of RSMMs senior management and the M&P Board; and
(iv) the President of RSMM and the CEO and CFO of HRB will meet with the M&P
Board at least once per fiscal year to review the status of the APS.
(v) both parties will advise the other, in a timely manner, and to the extent
possible, without causing a waiver of any privilege, of significant unplanned
expenditures, including, without limitation, legal costs and settlements.
(b) M&P. In addition:
(i) Although the governance and management of M&P is M&Ps sole responsibility,
the M&P Board recognizes the interest of RSMM in good governance and management of
M&P in connection with the APS and the M&P Board intends to evaluate the governance
and management processes of M&P.
2
(ii) By June 30, 2010, the M&P Board intends to schedule a vote of the partners
of M&P (the M&P Partners) and recommend for approval by the M&P Partners
changes to the M&P Partnership Agreement that the M&P Board considers necessary for
the governance and management at M&P to be consistent with modern governance and
management practices in large accounting firms. In its evaluation process, the M&P
Board will review information about current governance and management practices in
the accounting profession, including information from other firms and relevant
experts. The M&P Board will also solicit and consider the suggestions of the M&P
Partners and RSMM.
(iii) As part of the process described in paragraph (ii) above, the M&P Board
commits to taking certain key governance enhancement provisions to the M&P Partners
for their vote. One such provision will be to require, in addition to a vote of a
majority of the M&P Partners, a 2/3 audit partner vote in connection with any vote
in favor of termination of the Administrative Services Agreement between the third
and fifth years of the initial term of the Administrative Services Agreement. The
M&P Board will incorporate the results of the M&P Partners vote into a revised M&P
Partnership Agreement to be executed by current and future M&P Partners. For
purposes of this provision, audit partner shall mean an M&P partner who receives
more than 50% of their total compensation from the income of the M&P partnership.
(c) Senior Management. The parties acknowledge that the M&P Managing Partner
is a member of the APS senior leadership team and agree that the M&P Managing Partner will
actively participate in the preparation of strategic and profit plans for the APS. Other
M&P leaders, such as those in Human Resources, Information Technology, Finance and
Operations, will be designated as members of corresponding RSMM functional teams within the
organization; they will, however, report to the M&P Managing Partner (or another senior
executive of M&P, as applicable) as to matters impacting M&P. The parties agree that
systems and processes for compensation and evaluation of senior management throughout the
APS will be aligned in a manner consistent with job type and performance against agreed
goals.
(d) Geographic Practice Leaders and Geographic Assurance Practice Leaders. The
direct reporting relationship for Geographic Practice Leaders (i.e., assurance, tax and
consulting leaders) in effect as of the date hereof will remain so in effect, with indirect
reporting to the M&P Managing Partner (or another senior executive of M&P, as applicable).
Geographic Assurance Practice Leaders shall report directly to the M&P Managing Partner (or
another senior executive of M&P, as applicable), and in a manner that supports economic unit
management practices. The M&P Managing Partner (or other senior executive of M&P, as
applicable) will participate in the selection and evaluation of Geographic Practice Leaders.
(e) Dispute Resolution. The parties, including members of senior leadership,
the RSMM Board and the M&P Board, agree to work together in good faith to attempt to resolve
any controversy, claim or dispute arising out of or relating to this Agreement or any actual
or alleged breach of any provisions hereof (other than disputes
3
subject to Section 10(a)(i) below) using the following dispute escalation and
resolution process:
(i) the party bringing the dispute will deliver to the other party a written
notice (the Dispute Notice) of the dispute (such notice to detail all
relevant information pertaining to the dispute), which shall include a request for
an initial meeting between the parties to discuss the dispute on a date no earlier
than seven days and no later than 30 days after the date of receipt of the Dispute
Notice;
(ii) the parties (including representatives of the senior leadership of each
party) will meet to discuss, and negotiate in good faith to resolve, the applicable
dispute on the date specified in the Dispute Notice or on such other date no later
than 30 days after the date of receipt of the Dispute Notice as may be agreed upon
by the parties;
(iii) if, following such meeting the breach or dispute remains unresolved,
then, no later than 30 days following the initial meeting (or such other date as the
parties may mutually agree), the parties will hold a second meeting (which shall
include representatives of the senior leadership, the RSMM Board and the M&P Board)
to continue to negotiate in good faith to resolve such dispute;
(iv) if, after compliance with the foregoing procedures, such dispute is not
resolved, either party may submit such dispute to resolution pursuant to Section
12(j) below; and
(v) all negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of applicable rules
of evidence.
2. Managing Director Compensation. The parties acknowledge and agree that the
Managing Directors of RSMM should be compensated comparably to the market for accounting firm
professionals (adjusting for the at-risk capital structure of the APS) in a manner consistent with
their individual performance and the performance of the combined businesses (including both the
economic unit performance and the national performance). Likewise, the parties acknowledge and
agree that RSMM should receive a market return on its past and future investments in the APS.
Finally, notwithstanding anything in this Section 2 to the contrary, the parties acknowledge and
agree that the income attributable to Public Accounting Services (as defined in the Administrative
Services Agreement) belongs exclusively to the M&P Partners and shall only be paid to the M&P
Partners, subject to the exclusive approval of the M&P Board. M&P agrees that confidential M&P
earnings information may be used by RSMM and the Compensation Subcommittee for the purpose of
determining Managing Director compensation pursuant to this Section 2. Any other use requires the
approval of M&Ps Managing Partner.
In furtherance of the foregoing, the parties agree as follows with respect to Managing
Director compensation:
4
(a) Regular Compensation Plan. Effective May 1, 2010, and subject to paragraph
(b) below, 33% of Location Contribution (as defined in Section 2(d) below) will be retained
by RSMM and the remaining 67% of Location Contribution, less the amount, if any, paid to
Managing Directors who are M&P Partners from the M&P partnership income as referenced above,
will be payable as regular compensation to the Managing Directors. The distribution of the
Location Contribution to Managing Directors shall remain effective through the term of the
Administrative Services Agreement and any renewals or extensions thereof.
(b) Growth Bonus Plan. For the fiscal year ending April 30, 2011, and for each
subsequent fiscal year during the term of the Administrative Services Agreement and any
renewals or extensions thereof, the Managing Directors may be eligible for a growth bonus
based on growth in Location Contribution, as determined on a consistent basis, over the
Reference Year (as defined below), determined as follows:
(i) in a fiscal year where there is 6 to 10% growth in Location Contribution
over the Reference Year, for such fiscal year, and only such fiscal year, (I) 33% of
the Location Contribution up to the 6% growth level and 20% of the incremental
Location Contribution dollars above 6% growth will be retained by RSMM and (II) 67%
of the Location Contribution up to the 6% growth level and 80% of the incremental
Location Contribution dollars above 6% growth will be payable as compensation to the
Managing Directors;
(ii) in a fiscal year where there is 10 to 15% growth in Location Contribution
over the Reference Year, for such fiscal year, and only such fiscal year, the
provisions of paragraph (i) above will apply up to the 10% growth level and (I) 15%
of the incremental Location Contribution dollars above 10% growth will be retained
by RSMM and (II) 85% of the incremental Location Contribution dollars above 10%
growth will be payable as compensation to the Managing Directors; and
(iii) in a fiscal year where there is growth in Location Contribution over the
Reference Year which is above 15%, for such fiscal year, and only such fiscal year,
the provisions of paragraphs (i) and (ii) above will apply up to the 15% growth
level and (I) 10% of the incremental Location Contribution dollars above 15% growth
will be retained by RSMM and (II) 90% of the incremental Location Contribution
dollars above 15% growth will be payable as compensation to the Managing Directors.
For purposes of this Section 2(b), annual growth in Location Contribution will be determined
by comparing the current fiscal years growth to the previous fiscal years Location
Contribution unless such amount is lower than any prior fiscal year, in which case the
comparison shall be made against the highest prior fiscal year (in each case, the
Reference Year). The parties agree that the initial Reference Year for purposes of
measuring growth in Location Contribution shall be the fiscal year ending April 30, 2010,
such that, for example, the fiscal year ending April 30, 2010 will be treated as the highest
previous year for earnings purposes when considering the growth, if any, in Location
5
Contribution in the fiscal year ending April 30, 2011. For the avoidance of doubt, in a
fiscal year that has experienced year over year growth in Location Contribution of less than
6%, Managing Directors shall not be eligible for a growth bonus and all of the Location
Contribution for such fiscal year will be treated as set forth in Section 2(a). Annex
A sets forth a hypothetical scenario illustrating the mechanics of the growth bonus
calculation pursuant to this Section 2(b). For purposes of this Section 2(b), the
applicable Reference Year Location Contribution will be adjusted equitably to account for
any acquisitions or divestitures that would impact Location Contribution in order to ensure
that the growth in Reference Year Location Contribution measured in this Section 2(b) is
organic growth and not attributable to acquired or divested businesses or assets.
(c) Discretionary One-time Bonus. RSMM will consider, in its sole discretion,
paying, on or about June 30, 2010, a special one-time bonus to be paid by RSMM to the
Managing Directors equal to the incremental amount that would have been payable to the
Managing Directors if the 67/33 Location Contribution split described in Section 2(a) (but
not the growth bonus described in Section 2(b)) had been in effect during the period from
January 1, 2010 through April 30, 2010.
(d) Location Contribution. As used herein, Location Contribution
means the total revenue less expenses associated with the operations of the core RSMM and
M&P businesses of attest, tax and consulting work (excluding revenue and expenses associated
with other non-core businesses, such as McGladrey Capital Markets, Provident Financial
Management, and any separate accounting businesses of RSMM, such as the alternative practice
structure in Buffalo, New York) prior to the payment of Partner and/or Managing Director
draws or salaries and shall be calculated in accordance with the methodology used for the
fiscal year ending April 30, 2010, as may be modified by mutual agreement of RSMM and M&P
from time to time, subject to the following:
(i) In order to reduce the impact on Location Contribution of the return on
capital paid by M&P to the M&P Partners, the parties agree as follows. In each
fiscal year, the amount of Location Contribution paid to the Managing Directors, as
outlined in Section 2(a) above, shall be increased by an amount equal to the lesser
of (i) the aggregate amount paid by M&P to the M&P Partners as a return on partner
capital at a rate not to exceed ten percent (10%) for any individual partner; or
(ii) five million dollars ($5,000,000). Any return on the M&P Partners capital in
excess of the amount specified above will be paid out of M&P partnership income. A
hypothetical sample calculation is attached as Annex B)
(ii) RSMM contributions to the Managing Director retirement plan up to the
amount identified in Section 3 hereof will be made by RSMM from its own funds (but,
for clarification, to the extent the amount of expense is greater than the RSMM
contributions agreed to in Section 3 hereof, the difference will be an operating
expense charged to Location Contribution); and
(iii) Restricted stock expense will not be charged to Location Contribution.
6
(e) Compensation Subcommittee. RSMM and M&P will promptly establish and
maintain a Compensation Subcommittee, which will be responsible for the implementation of
the regular compensation and growth bonus plans described in this Section 2 under the
direction of the President of RSMM. The Compensation Subcommittee shall consist of seven
Managing Directors; three of whom shall be assigned by the M&P Board and four of whom shall
be assigned by the President of RSMM. The Compensation Subcommittee shall consist of
representatives from various lines of business, geographies and practices.
3. Partner/Managing Director Retirement Plan. The parties agree that they should
implement mechanisms for the APS that would provide for a long-term wealth building and retirement
program to attract and retain talented Partners/Managing Directors. It is the intention of RSMM to
develop a career-long Partner/Managing Director wealth building and retirement program that is
comparable to the programs established by other large accounting, tax and consulting firms. As of
the date of this Agreement, such program has yet to be fully designed or approved, but it is
proposed to be established in a way that is effective and complies with all applicable laws.
Depending upon the programs design and objectives, the program may include an element of phantom
equity in RSMM. Adoption of the program will require approval of each of the M&P Board, the RSMM
Board and the Board of Directors of HRB. If a retirement benefit program similar to the one
described in this Section 3 cannot be implemented on satisfactory terms because of infeasibility or
any other good reason, the parties will establish and implement a deferred compensation plan for
the benefit of the Partners/Managing Directors with RSMM contributions and criteria as set forth in
Section 4 hereof.
(a) RSMM and M&P will work in good faith to establish and administer a non-qualified
retirement plan for Partners/Managing Directors (the Retirement Plan), with RSMM
contributions and criteria as set forth in this Section 3, and any other required funding
being funded as an operating expense charged to Location Contribution. The Retirement Plan
for the Partners/Managing Directors shall be designed to support the APSs talent
attraction, talent retention and wealth building objectives, and is intended to include the
following terms and conditions:
(i) On May 1, 2010, if the Retirement Plan is in effect on such date, or if not
then promptly after the retirement plan becomes effective, RSMM will make an upfront
aggregate contribution of $60 million to a rabbi trust or similar vehicle (the
RSMM Funding Vehicle) for purposes of contributing to the funding of the
Retirement Plan. This initial $60 million contribution to the RSMM Funding Vehicle
represents the sum of six $10 million annual contributions for each of the fiscal
years from the fiscal year ending April 30, 2010 through the fiscal year ending
April 30, 2015 inclusive. On May 1, 2015, for the fiscal year ending April 30,
2016, and on each succeeding May 1, RSMM will contribute $10 million directly to the
Retirement Plan. For the avoidance of doubt, subject to Section 6(b) hereof, RSMM
intends to not, and shall not be required to, make any contributions to the
Retirement Plan other than those specifically set forth in this paragraph.
7
(ii) Principal from the RSMM Funding Vehicle will be transferred to the
Retirement Plan beginning in the fiscal year ending April 30, 2011 and continuing
through the fiscal year ending April 30, 2015, on the following schedule:
|
|
|
Year 1:
|
|
10% ($6 million) |
Year 2:
|
|
10% ($6 million) |
Year 3:
|
|
20% ($12 million) |
Year 4:
|
|
25% ($15 million) |
Year 5:
|
|
35% ($21 million) |
The above contributions are not being made in recognition of any prior service.
Any interest or income resulting from the investment of the principal in the RSMM
Funding Vehicle will be distributed to the Retirement Plan in the fiscal year ending
April 30, 2016. The Compensation Subcommittee (as established in Section 2(e)
hereof) shall be responsible for making the appropriate investment decisions
including the selection of a qualified investment advisor, for the RSMM Funding
Vehicle.
(iii) If there is a sale of at least a majority interest in the RSMM business
to a third party, whether accomplished by the sale of stock, sale of assets or
otherwise (any of the foregoing, a Change of Control), the undistributed
funds in the RSMM Funding Vehicle will remain in the RSMM Funding Vehicle for the
purpose of funding the Retirement Plan, will not revert to RSMM as a result of such
Change of Control and will be protected by restrictions precluding the acquiror of
the RSMM business from compromising such undistributed funds, including, without
limitation, by the appointment of an independent trustee at the inception of the
Retirement Plan, to be selected by RSMM with input from M&P.
(iv) If the M&P Partners vote on and approve M&Ps termination of the
Administrative Services Agreement or notice shall have been given of any other
termination of the Administrative Services Agreement, then (i) all of RSMMs
commitments to contribute to the funding of the Retirement Plan will be suspended
effective as of the calling of the vote or other notice of termination and will
terminate effective as of the date of such vote and (ii) effective as of the date of
such vote or other notice of termination, all undistributed funds in the RSMM
Funding Vehicle, including any interest or income thereon, will revert to RSMM.
(v) On or promptly following the effective date of any termination of the
Administrative Services Agreement, RSMMs contributions to the Retirement Plan will
be segregated on an appropriate basis reflecting the relative anticipated actuarial
liabilities between Partners/Managing Directors who continue to be employed by or
similarly affiliated with RSMM and Partners/Managing Directors who are no longer
employed by nor similarly
8
affiliated with RSMM so that each of the separated pools is funded to the same
extent on an actuarial basis.
(vi) If a Partner/Managing Director or former Partner/Managing Director
breaches the non-competition or non-solicitation covenants contained in his or her
employment agreement with RSMM, he or she will no longer be eligible for any
retirement benefits to which he or she would otherwise be entitled under the
Retirement Plan.
(b) RSMMs current expectation (subject to further analysis and planning) is that the
Retirement Plan will be available to Partners/Managing Directors of a certain performance
level and that the retirement benefit will be equal to two times the career average annual
pay of the Partner/Managing Director. RSMM will consider including a floor and a cap on the
retirement benefit, although RSMM believes that a cap is more appropriate than a floor. The
final benefit will be paid over 10 years in equal annual installments of one-tenth of the
benefit. The career average annual pay calculation will consider only earnings and years of
service as a Partner/Managing Director. Achievement of the maximum benefit will require a
certain number of years of service after plan adoption; however, some benefit may be
available for prior years service. Retirement eligibility will be based on a combination
of age and years of service. The parties agree that the Retirement Plan may, if
practicable, also include an early retirement option.
(c) The parties acknowledge and agree that the Retirement Plan and RSMMs contributions
thereto are meant to replace the restricted stock award program in effect as of the date
hereof, which program will cease effective May 1, 2010. The parties also acknowledge and
agree that employees of McGladrey Capital Markets and Provident Financial Management, and
any separate accounting business of RSMM, such as the alternative practice structure in
Buffalo, New York, will not be eligible to participate in the Retirement Plan.
4. Alternate Partner/Managing Director Deferred Compensation Plan. If, and only if,
the proposed Retirement Plan described in Section 3 hereof cannot be implemented, in lieu thereof,
the parties will establish and implement a deferred compensation plan for the benefit of the
Partners/Managing Directors (the Deferred Compensation Plan), with RSMM contributions and
criteria as outlined in this Section 4. The Deferred Compensation Plan, if applicable, is intended
to include the following terms and conditions:
(a) On May 1, 2010, RSMM will make an upfront aggregate contribution of $60 million to
an RSMM Funding Vehicle for purposes of funding the Deferred Compensation Plan. An initial
amount of $10 million will be distributed on May 1, 2010 from the RSMM Funding Vehicle to a
pool for deferred compensation awards to Managing Directors (the Deferred Compensation
Pool). Each year thereafter on May 1 until May 1, 2015, $10 million will be
distributed from the RSMM Funding Vehicle to the Deferred Compensation Pool. Any interest
or income resulting from the investment of the funds in the RSMM Funding Vehicle will be
distributed to the Deferred Compensation Pool in the fiscal year ending April 30, 2016. The
Compensation
9
Subcommittee (as established in Section 2(e) hereof) shall be responsible for making
investment decisions for the RSMM Funding Vehicle.
(b) On May 1, 2016, for the fiscal year ending April 30, 2017, and on each succeeding
May 1, RSMM will contribute $10 million directly to the Deferred Compensation Pool.
(c) For the avoidance of doubt, subject to Section 6(b) hereof, RSMM intends not to,
and shall not be required to make any contributions to the Deferred Compensation Plan other
than those specifically set forth in paragraphs (a) and (b) of this Section 4.
(d) The parties agree that the allocation of deferred compensation awards to
Partners/Managing Directors will be consistent with talent attraction, talent retention and
wealth building objectives. Deferred compensation awards will vest on the following
schedule:
|
|
|
Year 1:
|
10 |
% |
Year 2:
|
20 |
% |
Year 3:
|
40 |
% |
Year 4:
|
65 |
% |
Year 5:
|
100 |
% |
Contributions will cease to vest for each Partner/Managing Director effective on the
termination date of such Partner/Managing Directors employment with RSMM.
(e) If the M&P Partners vote on and approve M&Ps termination of the Administrative
Services Agreement or notice shall have been given of any other termination of the
Administrative Services Agreement, then (i) all of RSMMs commitments to fund deferred
compensation will be suspended effective as of the calling of the vote or giving of such
notice and will terminate effective as of the date of such vote, (ii) effective as of the
date of such vote or giving of such notice, all undistributed funds in the RSMM Funding
Vehicle, including any interest or income thereon, will revert to RSMM and (iii) effective
as of the date of such vote or giving of such notice, those portions of each
Partner/Managing Directors deferred compensation that were contributed by RSMM will cease
to vest, unless such Partner/Managing Director continues after the termination of the
Administrative Services Agreement to be employed by or similarly affiliated with RSMM.
(f) If a Partner/Managing Director or former Partner/Managing Director breaches the
non-competition or non-solicitation covenants contained in his or her employment agreement
with RSMM, those portions of such Partner/Managing Directors deferred compensation that
were contributed by RSMM will cease to vest and undistributed vested portions will be
forfeited effective as of the date of such breach.
(g) The parties acknowledge and agree that, if the Retirement Plan described in Section
3 hereof cannot be implemented, the Deferred Compensation Plan
10
and RSMMs contributions thereto are meant to replace the restricted stock award
program in effect as of the date hereof, which program will cease effective May 1, 2010.
The parties also acknowledge and agree that employees of McGladrey Capital Markets and
Provident Financial Management, and any separate accounting business of RSMM, such as the
alternative practice structure in Buffalo, New York, will not be eligible to participate in
the Deferred Compensation Plan.
5. Development Expenditures. As used herein, the term Development
Expenditures mean expenditures in infrastructure, personnel and branding or related
promotional efforts and other expenditures that are generally expensed for accounting purposes.
(a) The target for Development Expenditures is $15 million per fiscal year, commencing
with the fiscal year ending April 30, 2011. Development Expenditures will be an operating
expense charged to Location Contribution;
(b) Development Expenditures will be consistent with the long-term strategy and goals
of RSMM and M&P, including quality of the assurance function. The parties agree that new
Development Expenditures will be evaluated on their potential to generate measurable and
sufficient returns on the invested capital of both RSMM and M&P.
(c) Development Expenditures will be reviewed by a seven person Development Committee
comprised of the President of RSMM and the Managing Partner of M&P (or their designees,
respectively) along with five additional members. The RSMM President will appoint three
Managing Directors and the Managing Partner of M&P will appoint two Partners/Managing
Directors to complete the Development Committee, with members intended to provide reasonable
representation of the various lines of business, geographies and national practices. The
President of RSMM (and, with respect to the attest practice only, the Managing Partner of
M&P) will have final decision-making authority to approve all Development Expenditures.
(d) The duties of the Development Committee are to develop a prioritization model to
evaluate Development Expenditures using inputs such as anticipated cost benefit analysis and
return on investment, ability to implement, risk and strategic synergies. The Development
Committee shall meet at least quarterly to review progress on implementation and utilization
of the approved Development Expenditures. The Development Committee will ensure that the
Development Expenditures meet certain criteria established annually by RSMM senior
management as part of the planning process. Such criteria include, but are not limited to,
Development Expenditures that are designed to:
(i) aid in growth and build the APSs brand, such as sales, marketing and
branding expenditures;
(ii) acquire talent to expand service line, industry or functional capability;
(iii) develop service line and/or client service tools;
11
(iv) improve technology platforms;
(v) enhance the international capability of the APS;
(vi) invest or seed talent in new markets, such as San Francisco and Atlanta;
(vii) align with the overall strategic objectives of the business;
(viii) enhance audit and attest quality with respect to M&P; and
(ix) enhance tax and consulting quality with respect to RSMM.
(e) Development expenditures will be subject to approval by the RSMM Board and, to the
extent related to the attest practice, the M&P Board.
6. Acquisitions. The term Acquisitions refers to investments consisting of
acquisitions of or affiliations with accounting, tax and consulting firms and other investments
that are of the type that require all or a portion of such investment to be capitalized.
(a) The parties will work together to identify and analyze Acquisitions that would
further the APS strategic goals and grow the APS and each of the parties respective
businesses relating to the APS. The parties agree that any new Acquisitions will be
evaluated on their potential to generate a satisfactory return on invested capital for RSMM
and M&P. The parties also agree that Acquisitions may take more than one form, such as
acquiring select personnel from accounting, tax and consulting firms or acquiring or
affiliating with entire accounting, tax or consulting entities.
(b) It is RSMMs intention to take into account, when assessing Acquisition
opportunities, the accretive or dilutive effect of the transaction on Managing Director
compensation, including long-term compensation vehicles and funding levels. It is RSMMs
preference to avoid diluting the compensation of the pre-Acquisition Managing Directors
through an Acquisition.
(c) Acquisitions will be examined on a case by case basis and will be subject to
required approvals, including approval by the RSMM Board (and its corporate parent), and the
M&P Board. The portion of any such Acquisition involving attestation services and allocable
to M&P will be approved by the M&P Board and funded and acquired by M&P.
(d) In connection with each Acquisition, the parties will determine the portion of such
Acquisition allocable to M&P and agree on the terms of any acquisition loan that will be
extended by RSMM to M&P, if any, to fund its allocated portion of the Acquisition. It is
understood and agreed that any such acquisition loan, if any, will be extended to M&P on
customary acquisition financing terms (including required equity contribution and
pricing/rate). The terms will include a provision to the effect that upon any M&P Partner
vote to terminate the Administrative Services Agreement, such loan shall become immediately
due and payable.
12
(e) Subject to the terms of the Loan Agreement, M&P maintains the right to obtain
financing from any source it deems appropriate to finance its operations and/or acquisitions
of practices offering Public Accounting Services.
7. Branding. RSMM and M&P shall, on or before May 1, 2010:
(a) jointly develop branding guidelines and an approval process for any
marketing, advertising and promotional materials displaying or otherwise
incorporating any of the MCGLADREY, Rothko design, and MCGLADREY and Rothko
design marks (collectively, the McGladrey Marks);
(b) jointly develop a brand strategy in respect of the McGladrey Marks (the
Brand Strategy) designed to maximize the likelihood that adoption of the
McGladrey Marks will pass without objection by the State Boards of Accountancy,
including by meeting, conferring and agreeing upon (i) a specific strategy for
rolling out the McGladrey Marks, and (ii) a detailed plan for implementing that
strategy within the fiscal year ending April 30, 2010; and
(c) execute and deliver the Amended and Restated Trademark Assignment and Joint
Ownership Agreement (the Joint Ownership Agreement), the form of which is
attached hereto as Annex C.
The parties will use good faith efforts to implement the Brand Strategy within the fiscal year
ending April 30, 2010 in accordance with the branding guidelines agreed by RSMM and M&P and the
Joint Ownership Agreement. RSMM senior management will, in collaboration with M&P, periodically
review and if necessary implement agreed modifications to the Brand Strategy.
8. Regulatory Matters. RSMM recognizes that M&P is engaged in a regulated profession,
is subject to registration and regulation by state and federal authorities, and that M&P is
ultimately responsible for its license to practice public accounting as a CPA firm. M&P recognizes
that RSMM has a critical business interest in the APS, the regulatory environment and the
relationship that M&P has with its regulators. In furtherance of the foregoing, the parties agree
as follows:
(a) After thorough discussion with RSMM, M&P will use its best independent judgment to
determine, in its sole discretion, if the changes in the parties relationship, as reflected
in this Agreement and in the Administrative Services Agreement, are sufficiently significant
to trigger voluntary disclosure to or additional approval from applicable regulatory
authorities. Subject to the immediately preceding sentence, M&P will involve RSMM to the
maximum extent possible in its dealings and communications with regulators on an ongoing
basis.
(b) If any state or federal regulator requires changes to the agreements made by the
parties, as reflected in this Agreement and in the Administrative Services Agreement, the
parties will work together in good faith to reach a mutually satisfactory modified
arrangement that respects to the greatest extent possible the agreements that the parties
have made. If either party considers that any proposed changes will materially
13
and adversely affect the benefits of the APS for it, it can require that the senior
leadership, and the Boards of Directors, of RSMM and M&P be engaged in the discussions
directed at agreeing on the modified alternative arrangement that best preserves those
benefits.
(c) From the date hereof, M&P will increase the resources devoted to managing
regulatory matters and will, in its sole discretion, utilize appropriate internal and
external resources (including RSMM), to the maximum extent possible, to ensure all
regulatory matters are managed in the best interests of the APS. The parties, to the
maximum extent possible, will collaborate, and develop a strategy for addressing any actual
or anticipated issues related to registration or regulation of the APS. M&P and RSMM shall
meet periodically to discuss regulatory matters and update each other on developments in any
ongoing discussions with or matters at issue before regulators.
9. [Reserved].
10. Non-Competition/Non-Solicitation Covenants.
(a) Certain Acknowledgments by the Parties. The parties acknowledge and agree
as follows in exchange for valuable consideration, the receipt and sufficiency of which each
party acknowledges:
(i) The Arbitration Proceeding has been concluded except for the continuing
service of the chairman, as a single arbitrator, as provided in Section 8 of the
Final Award;
(ii) The parties are bound by the Final Award, including any interim rulings by
the arbitration panel incorporated by reference into the Final Award;
(iii) The Final Award states that if termination of the 2006 ASA were to occur
on February 15, 2010, the covenants set forth in Section 13 of the Original
Agreement would apply from that date through certain dates specified in the Final
Award. To avoid future litigation regarding the enforceability of restrictive
covenants governing the parties relationship under the Original Agreement, the
parties have taken the arbitration panels decision and through negotiation and
compromise agreed to modify the post-termination time periods applicable to the
covenants as set forth in Section 10(b) hereof (the Acknowledged Covenant
Periods);
(iv) The Acknowledged Covenant Periods will apply and shall be enforceable
regardless of the date of termination of the Administrative Services Agreement;
(v) The parties are bound by the covenants and to the enforceability of the
covenants during the Acknowledged Covenant Periods as agreed in Section 10(b) hereof
and will not challenge their enforceability again;
14
(vi) The parties each forever release and covenant not to bring any claim,
known or unknown, challenging the interpretation, enforceability or scope of the
covenants set forth in Section 10(b) hereof, and in the Final Award, regardless of
the date of termination of the Administrative Services Agreement;
(vii) Enforcing the restrictive covenants under Section 10 for the entirety of
the Acknowledged Covenant Periods is reasonable, necessary and essential to protect
RSMMs investment in the goodwill associated with the portions of M&Ps practice
that RSMM acquired from M&P regardless of whether and when the relationship between
M&P and RSMM terminates;
(viii) M&Ps relationship with RSMM involves the understanding of and continued
access to confidential and competitively sensitive information pertaining to the
property, business and operations of RSMM and its Affiliates (as defined in Section
10(c) below), such that enforcing the covenants under Section 10 for the entirety of
the Acknowledged Covenant Periods is reasonable, necessary and essential to protect
against M&P gaining an unfair competitive advantage over RSMM, regardless of whether
and when the relationship between M&P and RSMM terminates; and
(ix) M&Ps covenants under this Section 10 and its release of any claim that
the covenants are unenforceable are an essential part of the inducement to RSMM to
enter into this Agreement.
(b) Scope. Informed by the Final Award and as consideration for the parties
mutual release and covenant not to bring claims challenging the enforceability of the
Covenants, RSMM agreed to modify the Covenant Periods under the Original Agreement to the
Acknowledged Covenant Periods as set forth below. Accordingly, M&P agrees as follows in
consideration for entering into the Purchase Agreement, the Administrative Services
Agreement, this Agreement, and for RSMMs withdrawal of its Termination Notice.
(i) The Acknowledged Covenant Period for this Section 10(b)(i) (the Entity
Services Non-Compete Covenant Period) shall run until the date that is 17
months after the expiration or termination of the Administrative Services Agreement.
Until expiration of the Entity Services Non-Compete Covenant Period, except with
the prior written consent of RSMM, M&P shall not directly or indirectly, either
individually or as a principal, partner, member, manager, agent, employee, employer,
consultant, stockholder, joint venturer, or investor, or as a director or officer of
any corporation, company, partnership or association, or in any other manner or
capacity whatsoever, engage in, assist or have any active interest in a business
located anywhere in the United States or in locations where RSMM has offices outside
the United States, on its own behalf or for others, that provides, sells, develops,
markets, designs, distributes, coordinates, conducts or publishes, to or for the
benefit of any person or entity, investment advisory services, asset management
services, financial planning services or products, estate planning services or
products, seminars, training
15
materials, industry newsletters, practice development tools or programs,
accounting services (not including Public Accounting Services (as defined in the
Administrative Services Agreement)), consulting services, tax services (excluding
any state tax services that are Public Accounting Services (as defined in the
Administrative Services Agreement)), management advisory services or such other
service or product that otherwise competes with or is substantially similar in
concept, design, format or otherwise to the business conducted by RSMM on the date
hereof, or at any time during the Entity Services Non-Compete Covenant Period.
Notwithstanding the above, this paragraph shall not be construed to prohibit M&P
from mere ownership of less than three percent (3%) of the outstanding securities of
a corporation which is publicly traded on a securities exchange or through Nasdaq.
(ii) The Acknowledged Covenant Period for this Section 10(b)(ii) (the
Entity Client Non-Solicitation Covenant Period) shall run until the date
that is 29 months after the expiration or termination of the Administrative Services
Agreement. Until expiration of the Entity Client Non-Solicitation Covenant Period,
except with the prior written consent of RSMM, M&P shall not, directly or
indirectly, either individually, or as a principal, partner, member, manager, agent,
employer, consultant, stockholder, joint venturer, or investor, or in any other
manner or capacity whatsoever,
(1) solicit, divert or take away, or attempt to solicit, divert or take
away, from RSMM, or any direct or indirect subsidiary or Affiliate of RSMM,
any business with any client of RSMM or any of its direct or indirect
subsidiaries or Affiliates (other than for the provision of Public
Accounting Services (as defined in the Administrative Services Agreement)),
(2) solicit, divert or take away, or attempt to solicit, divert or take
away, from RSMM or any direct or indirect subsidiary or Affiliate of RSMM,
any business with any person or entity who was being solicited as a
potential client by, or is an Affiliate of a potential client of RSMM or any
of its direct or indirect subsidiaries or Affiliates (other than for the
provision of Public Accounting Services (as defined in the Administrative
Services Agreement)), within one year prior to the commencement of this
Agreement and during the Entity Client Non-Solicitation Covenant Period, or
(3) induce or cause, or attempt to induce or cause, any salesperson,
distributor, supplier, vendor, manufacturer, representative, agent, or other
person transacting business with RSMM or any of its direct or indirect
subsidiaries or Affiliates to terminate or modify such relationship or
association.
(iii) The Acknowledged Covenant Period for this Section 10(b)(iii) (the
Employee Non-Solicitation Covenant Period) shall run until the
16
date that is 24 months after the expiration or termination of the
Administrative Services Agreement. Until expiration of the Employee Non-Solicitation
Covenant Period, except with the prior written consent of RSMM, M&P shall not,
directly or indirectly, either individually, or as a principal, partner, member,
manager, agent, employer, consultant, stockholder, joint venturer, or investor, or
in any other manner or capacity whatsoever, induce or cause, or attempt to induce or
cause, any employee, accountant, member, manager, shareholder, partner, director or
officer of RSMM or any of its direct or indirect subsidiaries or Affiliates to leave
the employ of RSMM or any of its direct or indirect subsidiaries or Affiliates;
provided, however, that prior to the date on which the
Administrative Services Agreement is terminated, M&P may solicit and extend
employment offers to RSMM personnel who are M&P Partners or M&P employees.
(iv) If M&P violates any of the provisions of Section 10(b)(i), Section
10(b)(ii) or Section 10(b)(iii) after the date hereof, the applicable Covenant
Period shall be extended for a period of time equal to the period of any such
violation.
(v) In addition to any other rights or remedies RSMM may possess, RSMM shall be
entitled to injunctive and other equitable relief to prevent any breach, threatened
breach or continuing breach of any part of this Agreement.
(c) For purposes of this Agreement, an Affiliate means, with respect to any
person, (i) any person which, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such person, or (ii) any person
which RSMM or any of its affiliates have an alternative practice structure with. For
purposes of this definition control of a person shall mean the power, direct or
indirect to, (x) vote or direct the voting of 50% or more of the outstanding shares of
voting stock or similar interests of such person, or (y) direct or cause the direction of
the management of such person, whether by contract or otherwise.
11. Compliance with Independence Policies. RSMM and HRB agree that M&P retains the
right and authority to (i) establish reasonable independence policies for the practice that
provides Public Accounting Services and that such policies will be binding upon RSMM and HRB, and
(ii) monitor and enforce the compliance with such policies within RSMM and HRB through the
methodology deemed reasonably necessary by M&P to accomplish such objectives and to ensure that
independence exists between M&P clients and RSMM and HRB and their respective officers, directors
and employees, as appropriate. M&P will resign from any engagement where a satisfactory resolution
cannot be achieved whereby M&P can retain its independence.
12. Miscellaneous.
(a) Termination. This Agreement will terminate automatically upon termination
of the Administrative Services Agreement, except that Sections 10, 12(i) and 12(j) shall
survive the termination of this Agreement.
17
(b) Amendment and Modification. This Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto.
(c) Waiver of Compliance; Consents. Any failure of any party to comply with
any obligation, covenant, agreement or condition herein may be waived in writing by other
benefited parties, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
(d) Notices. Any notice, request, consent or communication (collectively, a
Notice) under this Agreement shall be effective only if it is in writing and (a)
personally delivered, (b) sent by certified or registered mail, return receipt requested,
postage prepaid, (c) sent by a nationally recognized overnight delivery service, with
delivery confirmed, (d) e-mailed (with a copy simultaneously sent by first class mail or any
other delivery method permitted hereunder), or (e) telexed or telecopied, with receipt
confirmed, addressed as follows:
|
|
|
If to HRB: |
|
H&R Block, Inc. |
|
|
One H&R Block Way |
|
|
Kansas City, MO 64105 |
|
|
Attn.: Brian Woram |
|
|
Facsimile: (816) 854-8500 |
|
|
E-mail: Brian.Woram@hrblock.com |
|
|
|
If to RSMM: |
|
RSM McGladrey, Inc. |
|
|
One South Wacker Drive, Suite 800 |
|
|
Chicago, IL 60606 |
|
|
Attn.: Peter Fontaine |
|
|
Facsimile: (312) 634-5513 |
|
|
E-mail: Peter.Fontaine@rsmi.com |
|
|
|
If to M&P: |
|
McGladrey & Pullen, LLP |
|
|
3600 American Blvd., Third Floor |
|
|
Bloomington, MN 55431-4502 |
|
|
Attn: David Scudder |
|
|
Facsimile: (847) 517-7067 |
|
|
E-mail: dave.scudder@rsmi.com |
|
|
|
with a copy to: |
|
Katten Muchin Rosenman, LLP |
|
|
525 W. Monroe Street, Suite 1900 |
|
|
Chicago, IL 60661 |
|
|
Attn: Herbert S. Wander |
|
|
Facsimile: (312) 577-8885 |
|
|
E-mail: hwander@kattenlaw.com |
or such other persons or addresses as shall be furnished in writing by any party to the
other party. A Notice shall be deemed to have been given as of the date when (i)
18
personally delivered, (ii) three (3) days after the date when deposited with the United
States mail properly addressed, (iii) when receipt of a Notice sent by an overnight delivery
service is confirmed by such overnight delivery service, or (iv) when receipt of the e-mail,
telex or telecopy is confirmed, as the case may be.
(e) Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party without the prior written
consent of other parties; provided, however, that RSMM may, in its
discretion, assign this Agreement to any other direct or indirect parent, subsidiary or
affiliate of RSMM, or to any third party that in connection therewith is acquiring all or
substantially all of the assets of RSMM used in connection with its relationship with M&P,
and M&P shall be liable hereon to the same extent as if such agreement were originally made
with such other person, firm or corporation.
(f) Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one
and the same instrument.
(g) Neutral Interpretation. This Agreement constitutes the product of the
negotiation of the parties hereto and the enforcement hereof shall be interpreted in a
neutral manner, and not more strongly for or against any party based upon the source of the
draftsmanship hereof.
(h) Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(i) Governing Law. This Agreement shall be governed and interpreted in all
respects pursuant to the internal and substantive laws of the State of Missouri without
regard to conflict of laws principles which might cause the law of another jurisdiction to
apply.
(j) Arbitration; Interim Relief. Any controversy, claim or dispute arising out
of or relating to this Agreement or any actual or alleged breach of any provisions hereof,
including without limitation any dispute concerning the scope of the arbitration clause set
forth below (a Dispute), shall be resolved as set forth below, except that (a)
this Section 12(j) shall not apply to any controversy, claim or dispute asserted by either
party hereto against the other arising out of or related to a controversy, claim or dispute
asserted by a third person (other than M&P and/or any of its Partners or RSMM) against
either or both parties to this Agreement, nor to any controversy, claim or dispute where a
third party (other than M&P and/or any of its Partners or RSMM) would be an indispensable
party under the Federal Rules of Civil Procedure and (b) any Dispute subject to Section
10(a)(i) shall be resolved as described in Section 8 of the Final Award.
19
(i) In the event a Dispute arises relating to this Agreement, the parties shall
first negotiate in good faith to resolve such dispute in accordance with the dispute
escalation and resolution process described in Section 1(e) hereof before proceeding
to mediation pursuant to Section 12(j)(ii) hereof.
(ii) In the event that the parties have complied with Section 1(e) hereof and
the Dispute has not been resolved within 60 days after service of the Dispute
Notice, or in the event the parties failed to meet within 30 days after delivery of
a Dispute Notice, either party may demand mediation in accordance with the CPR
Institute for Dispute Resolution (CPR) Mediation Procedure then currently
in effect in the location where any arbitration would be conducted as set forth
below, in writing with copies to all other parties involved in the Dispute. The
notification will state with specificity the nature of the Dispute. Unless the
parties agree otherwise, the parties will select a mediator from the CPR Panels of
Distinguished Neutrals (the Mediator). If the parties do not agree on the
Mediator within five (5) business days after either party delivers a demand for
mediation, the CPR will provide the parties on an expedited basis a list of three
candidates, with their resumes and hourly rates. If the parties are unable to agree
on a candidate from the list within three (3) business days following receipt of the
list, each party will, within five (5) business days following receipt of the list,
send to CPR the list of candidates ranked by order of preference. The candidate
with the lowest combined score will be appointed as the mediator by the CPR. The
CPR will break any tie. Upon appointment, the Mediator will immediately convene a
telephone conference of the parties hereto. The parties will make a representative,
with full authority to settle, available for such a conference. During the initial
telephone conference, the parties will agree on mediation procedures or, in the
event they cannot agree, the Mediator will set the mediation procedures. The
mediation procedures will provide for the mediation to be completed within thirty
(30) business days after the date of the initial demand for mediation. The parties
will participate in good faith in the mediation and will use their best efforts to
reach a resolution within the thirty (30) day time period. Each party will make
available in a timely fashion a representative with authority to resolve the
Dispute. Absent agreement of the parties otherwise, in the event that the Dispute
has not been resolved within thirty (30) days, the mediation shall be deemed
terminated. In the event that the mediation continues beyond thirty (30) days by
agreement of the parties, but is not resolved within what the Mediator believes is a
reasonable time thereafter, the Mediator will declare the mediation terminated.
Fees of the mediator shall be split equally between RSMM, on the one hand, and M&P,
on the other hand. In the event one party fails to participate in the dispute
resolution process set forth in Section 1(e), the other party can immediately
initiate mediation.
(iii) Any Dispute that has not been resolved by negotiation or mediation as
provided herein as of the termination of the mediation and no later than 45 days
after delivery of a mediation demand shall be settled by binding arbitration in
accordance with the CPR Rules for Non-Administered Arbitration then currently in
effect, as supplemented or modified herein (the Rules) by
20
three independent and impartial arbitrators of whom each party shall designate
one , and those two arbitrators shall jointly select the third arbitrator, unless
they are unable to agree on the selection of the third arbitrator, in which case the
third arbitrator shall be determined pursuant to the Rules. The arbitration shall
be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In the event one party fails to participate in accordance with
the dispute resolution process set forth in Section 1(e) or in the mediation as set
forth in Section 12(j)(ii) herein, the other party can immediately commence
arbitration. The governing law of this Agreement shall be the law used by the
arbitrators in rendering their award as set forth in Section 12(i), except that the
Federal Rules of Evidence shall apply and that the parties have the right and shall
be permitted to conduct and enforce full pre-hearing discovery in accordance with
and to the same extent permitted by the Federal Rules of Civil Procedure. Pending
final award, the compensation and expenses of the third arbitrator selected by the
arbitrators designated by the parties shall be split equally between RSMM, on the
one hand, and M&P, on the other hand, and each of the parties shall bear the
compensation and expenses of its designated arbitrator. The CPR shall hold an
administrative conference with counsel for the parties within twenty (20) days after
the filing of the demand for arbitration by any one or more of the parties. The
parties and the CPR shall thereafter cooperate in order to complete the appointment
of three arbitrators as quickly as possible. Within fifteen (15) days after all
three arbitrators have been appointed, an initial meeting (which, if the arbitrators
so determine, may be by phone) among the arbitrators and counsel for the parties
shall be held for the purpose of establishing a plan for administration of the
arbitration, including: (1) definition of issues; (2) scope, timing, and types of
discovery; (3) exchange of documents and filing of detailed statements of claims,
pre-hearing memoranda and dispositive motions; (4) schedule and place of hearings;
and (5) any other matters that may promote the efficient, expeditious, and cost
effective conduct of the proceeding. The parties and the arbitrators shall endeavor
in good faith to complete the arbitration as quickly as possible. Each party shall
have the right to request that the arbitrators make specific findings of fact.
(iv) The majority decision of the arbitrators shall contain findings of fact on
which the decision is based, including any specific factual findings requested by
either party, and shall further contain the reasons for the decision with reference
to the legal principles on which the arbitrators relied. Such decision of the
arbitrators shall be final and binding upon the parties. Absent agreement of the
parties otherwise, the arbitration shall take place in Minneapolis, Minnesota if the
party requesting same is RSMM, or Kansas City, Missouri, if the party requesting
same is M&P. The final award may grant such relief as authorized by the Rules,
including damages and out-of-pocket costs but which may not include exemplary or
punitive damages.
21
(v) Nothing in this Agreement shall limit, interfere or delay any party from
seeking at any time interim relief from a court of competent jurisdiction.
(k) Integration; Termination of Original Agreement. This Agreement supersedes
and replaces the Original Agreement and the Original Agreement is hereby terminated, without
any further action being required.
[Signature Pages Follow]
22
THIS AGREEMENT IS SUBJECT TO AN ARBITRATION PROVISION THAT IS
BINDING ON THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first
written above.
|
|
|
|
|
|
RSM MCGLADREY, INC.
|
|
|
By: |
/s/ C.E.
Andrews |
|
|
|
Name: C.E. Andrews |
|
|
|
Title: President |
|
|
|
MCGLADREY & PULLEN, LLP
|
|
|
By: |
/s/ Dave Scudder |
|
|
|
Name: Dave Scudder |
|
|
|
Title: Managing Partner |
|
|
|
H&R BLOCK, INC.
|
|
|
By: |
/s/ Becky Shulman |
|
|
|
Name: Becky Shulman |
|
|
|
Title: S.V.P. and C.F.O. |
|
|
23
Annex A
HYPOTHETICAL SAMPLE CALCULATION SECTION 2(B)
EXAMPLE OF GROWTH BONUS CALCULATION PURSUANT TO SECTION 2(B)
(in $ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
Year 1 |
|
|
Year 2 |
|
|
Year 3 |
|
Location Contribution (1) |
|
|
360 |
|
|
|
375 |
|
|
|
410 |
|
|
|
485 |
|
Year-over-year growth in LC |
|
|
|
|
|
|
4 |
% |
|
|
9 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managing Director Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67% of LC up to 6%
growth |
|
|
|
|
|
|
251 |
|
|
|
266 |
|
|
|
291 |
|
80% of growth >
6% and <= 10% |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
13 |
|
85% of growth
>10% and <=
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
90% of growth
>15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
251 |
|
|
|
276 |
|
|
|
334 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSMM Portion of Location Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33% of LC up to 6%
growth |
|
|
|
|
|
|
124 |
|
|
|
131 |
|
|
|
143 |
|
20% of growth >
6% and <= 10% |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
15% of growth
>10% and <=
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
10% of growth
>15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
124 |
|
|
|
134 |
|
|
|
151 |
|
|
|
|
|
|
|
| |
|
|
|
(1) |
|
Location Contribution before return on partner capital, PMD retirement plan contributions and restricted
stock awards. Excludes non-core businesses such as McGladrey Capital Markets, Provident, and Freed Maxick. |
Annex B
HYPOTHETICAL SAMPLE CALCULATION SECTION 2(D)(I)
Regular Compensation Plan Example:
Calculation of Location Contribution:
|
|
|
|
|
M&P Location Contribution |
|
|
100,000,000 |
|
RSMM Location Contribution |
|
|
300,000,000 |
|
Combined Location Contribution |
|
|
400,000,000 |
* |
|
Return on M&P Partner Capital |
|
|
10,000,000 |
|
Subtract amount in excess of Cap |
|
|
(5,000,000 |
) |
Increase to Location Contribution |
|
|
5,000,000 |
|
|
Combined Location Contribution for Calculation |
|
|
405,000,000 |
|
|
RSMM 33% of Location Contribution |
|
|
133,650,000 |
|
RSMM Retention of Return on Capital |
|
|
(5,000,000 |
) |
RSMM Retained Location Contribution |
|
|
128,650,000 |
|
|
Regular Compensation Plan |
|
|
271,350,000 |
|
|
M&P Income Available for Distribution to Partners |
|
|
100,000,000 |
|
|
RSMM Compensation to Managing Directors |
|
|
171,350,000 |
|
|
|
|
* |
|
The $400,000,000 amount is after deduction for return on partner capital. |
Annex C
AMENDED AND RESTATED TRADEMARK ASSIGNMENT AND JOINT
OWNERSHIP AGREEMENT SECTION 7(C)
AMENDED AND RESTATED TRADEMARK ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT
This Amended and Restated Trademark Assignment and Joint Ownership Agreement (Agreement) is
made and entered into as of this 3rd day of February, 2010, by and between RSM
McGladrey, Inc., a Delaware corporation, having its main office at 3600 American Boulevard West,
Third Floor, Bloomington, MN 55431 (RSM), and McGladrey & Pullen, LLP, an Iowa limited liability
partnership, having its main office also at 3600 American Boulevard West, Third Floor, Bloomington,
MN 55431 (M&P) (each of the foregoing a Party and, together, the Parties).
WHEREAS, M&P is the owner of the service mark McGladrey as used in connection with Attest
Services and Non-Attest Services, as defined below;
WHEREAS, pursuant to the Asset Purchase Agreement between M&P and H&R Block, Inc. dated June
28th 1999, RSM has used the designation RSM McGladrey in association with providing
certain Non-Attest Services;
WHEREAS, RSM desires to continue to use the Mark (as defined below) and to invest in the
advertising, promotion and use of the Mark in connection with Non-Attest Services throughout the
world;
WHEREAS, in order to safeguard its investment in the Mark, RSM desires to obtain an ownership
interest therein, subject to the terms and conditions hereof; and
WHEREAS, the Parties previously entered into a Trademark Assignment and Joint Ownership
Agreement dated December 31, 2007 (the Prior Agreement), which the Parties desire to amend and
restate (i) to clarify the meaning of Mark hereunder and (ii) to provide for a licensing
mechanism to be utilized in jurisdictions in which joint registration of the Mark by the Parties is
not permitted.
1
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
I. DEFINITIONS
1.1 Administrative Services Agreement means the Amended and Restated Administrative Services
Agreement between M&P and RSM dated February 3, 2010, as may be amended or extended from time to
time and any successor agreement.
1.2 Affiliate, in respect to a specified Person, means a Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under common control with,
the Person specified.
1.3 Alternative Practice Structure means a relationship between firms licensed to provide
Attest Services and firms providing Non-Attest Services, which relationship is coordinated and/or
delivered in accordance with the principles set forth in the AICPAs Code of Conduct Section 101-14
or other generally accepted standards for firms operating in an alternative practice structure.
1.4 Attest Services means Public Accounting Services (as defined in the Administrative
Services Agreement).
1.5 Change in Control means any occurrence of any of the following events: (i) an entity
sells, leases, transfers or conveys to any other Person, in one transaction or a series of
transactions, all or substantially all of the assets of such entity and any subsidiaries thereof,
taken as a whole, (ii) a majority of the equity interests in such entity are sold or conveyed to
any Person, or (iii) a transaction or series of transactions (including by way of merger,
consolidation, recapitalization, reorganization or sale of stock or equity interests), the result
of which is that the equity owners immediately prior to such transaction own, immediately after
giving effect to such
2
transaction, less than a majority of the total voting power of the equity interests of the
surviving entity (or its parent) or the purchasing entity (or its parent), as the case may be.
1.6 Designated Representative means the individual or individuals appointed by a Party to be
responsible for communication with the other Party regarding issues arising under this Agreement.
1.7 Disclaimer comprises the following language and/or alternative language agreed to
between the Parties: RSM McGladrey, Inc. and McGladrey & Pullen, LLP operate in an alternative
practice structure. RSM McGladrey, Inc. provides tax, consulting and business services. McGladrey &
Pullen, LLP is a licensed CPA firm which provides audit and assurance services. Through separate
and independent legal entities, the two firms work together to serve clients business needs.
1.8 Encumbrances means any and all pledges, liens, encumbrances and security interests of
any kind or nature whatsoever.
1.9 Mark means (i) the service mark McGladrey; (ii) the Rothko design; (iii) the
McGladrey and Rothko design logo; (iv) any other logo comprised of the mark McGladrey as the
Parties may devise; and (v) any additional marks or names as the Parties may adopt or have an
intention of adopting during the term of this Agreement as an indicia of the origin of services
offered under the Parties Alternative Practice Structure. Notwithstanding the foregoing, Mark
does not include the M&P Mark, or any other marks or trade names used by the Parties, as of
December 31, 2007, in branding their respective services, including logos, numbers, sounds,
slogans/taglines, colors, shapes, trade dress, and nicknames.
1.10 M&P Mark means the service mark McGladrey & Pullen, and any and all other trademarks,
service marks, domain names, company names, and trade names comprising
3
the terms McGladrey and Pullen, whether existing as of the effective date of this
Agreement or created subsequent thereto, including logos, sounds, slogans, taglines, and trade
dress.
1.11 Non-Attest Services means any and all professional services (i) which are not Attest
Services, and (ii) which are currently provided by RSM or which may be provided in the future by
RSM or its Affiliates or permitted licensees of the Mark.
1.12 Person means any individual, corporation, company, partnership, joint venture,
association, limited liability company, trust, estate, firm or other entity, enterprise or
organization.
II. ASSIGNMENTS OF THE MARK
2.1 Assignment of the Mark to RSM. M&P hereby assigns and transfers to RSM an
undivided 50% interest, free and clear of any and all Encumbrances, in and to: (i) the Mark, (ii)
the goodwill associated therewith and symbolized thereby, and (iii) subject to Article VI hereof,
all rights to sue and recover for past or future infringements and other violations thereof. This
assignment does not convey to RSM any rights in or to the mark MCGLADREY & PULLEN or to United
States Service Mark Registration No. 1,633,380 for the mark MCGLADREY & PULLEN. M&P does not grant
to RSM any rights or licenses in or to any trademarks or other intellectual property, whether by
implication, estoppel, or otherwise, except to the extent expressly provided for under this
Agreement.
2.2 Retention of Rights by M&P. M&P retains for itself an undivided 50% interest in
and to: (i) the Mark, (ii) the goodwill associated therewith and symbolized thereby, and (iii)
subject to Article VI hereof, all rights to sue and recover for past or future infringements and
other violations thereof.
2.3 Assignment of the Mark to M&P. RSM hereby assigns and transfers to M&P an
undivided 50% interest, free and clear of all Encumbrances, in and to: (i) any and all common
4
law rights it has acquired through use of the Mark in the United States or elsewhere, (ii) the
goodwill associated therewith and symbolized thereby, and (iii) subject to Article VI hereof, all
rights to sue and recover for past or future infringements and other violations thereof. This
assignment does not convey to M&P any rights in or to the mark RSM.
2.4 Retention of Rights by RSM. RSM retains for itself an undivided 50% interest in
and to: (i) any and all common law rights it may have acquired through use of the Mark in the
United States or elsewhere, (ii) the goodwill associated therewith and symbolized thereby, and
(iii) subject to Article VI hereof, all rights to sue and recover for past or future infringements
and other violations thereof.
III. ASSIGNMENTS AND USE OF DOMAIN NAMES
3.1 McGladrey.com. RSM hereby assigns and transfers to M&P, free and clear of all
Encumbrances, (i) any and all rights, title and interest as RSM possesses in and to the
registration for the domain name mcgladrey.com; together with (ii) an undivided 50% interest in and
to the domain name mcgladrey.com, the goodwill associated therewith and symbolized thereby, and,
subject to Article VI hereof, all rights to sue and recover for past or future infringements and
other violations thereof. RSM agrees to execute and deliver to M&P any such documents and take
such other reasonable actions as may be required to transfer such rights, title and interest to
M&P, including coordinating with M&Ps domain name or website administrators and with the registrar
of the domain name. RSM will immediately discontinue linking the domain name mcgladrey.com to
RSMs website, and shall cause the mcgladrey.com domain name to link to a landing page with equally
prominent links to both M&Ps and RSMs separate websites for (a) the duration of this Agreement
and (b) the term of any license granted pursuant to Section 9.2 or Section 9.3 below. The
appearance and content of such landing page shall be mutually agreed upon by M&P and RSM.
5
3.2 McGladreyandPullen.com and McGladreyPullen.com. RSM hereby assigns and transfers
to M&P, free and clear of all Encumbrances, all rights, title and interest as RSM possesses in and
to (i) the registrations for the domain names mcgladreyandpullen.com and mcgladreypullen.com;
together with (ii) the domain names mcgladreyandpullen.com and mcgladreypullen.com, the goodwill
associated therewith and symbolized thereby, and, subject to Article VI hereof, all rights to sue
and recover for past or future infringements and other violations thereof. RSM agrees to execute
and deliver to M&P any such documents and take such other reasonable actions as may be required to
transfer to M&P such domain names and the registrations therefor, including coordinating with M&Ps
domain name or website administrators and with the registrar(s) of the domain names.
3.3 Use by RSM. All uses by RSM of the mcgladrey.com domain name, and any other
domain names containing the term mcgladrey, shall comply with the applicable provisions of
Articles IV and V herein.
3.4 Ownership. Except as set forth in this Article III, RSM and M&P shall each own an
undivided 50% interest in any domain name registered or controlled by RSM or M&P that contains the
term mcgladrey. RSM and M&P agree to assign, and hereby assign, to the other an undivided 50%
interest in and to any such domain name. Notwithstanding the above, RSM shall not register or own
any interest in domain names containing the term Pullen, and M&P shall not register or own any
interest in domain names containing the term RSM.
IV. USAGE AND REGISTRATION RIGHTS
4.1 RSM.
4.1.1 Composite Marks. Subject to Section 5.2, RSM may use the Mark (i) alone or (ii)
in combination with another word or words that are not confusingly similar to Pullen, provided
that the resulting composite mark or name is not confusingly similar to
6
McGladrey & Pullen or any other M&P Mark in existence at the time such composite term is
adopted.
4.1.2 Non-Attest Services. Subject to Section 5.2, RSM may use the Mark (i) throughout
the world in connection with any and all Non-Attest Services, and (ii) with M&Ps prior written
consent, which consent shall not be unreasonably withheld, conditioned or delayed, in any part of
the world other than the United States, in connection with Attest Services. RSM may not use the
Mark with Attest Services in the United States. Notwithstanding the foregoing, either Party may
use the Mark to promote the services of the other Party, and/or the relationship between the
Parties, anywhere in the world.
4.1.3 Prosecution of New Applications by RSM. Subject to the terms of this Agreement,
RSM shall bear primary responsibility for filing, prosecuting and maintaining any applications and
registrations for the Mark (New Applications), and all costs and fees related thereto. RSM shall
(i) design and implement a commercially reasonable international registration strategy; (ii) inform
M&P of RSMs desire to file any New Application; (iii) keep M&P informed regarding the status and
activity of any New Application; (iv) promptly provide M&P with a copy of any document or
correspondence received from an associated trademark office; (v) promptly provide M&P with a copy
of any document or correspondence RSM intends to file with an associated trademark office prior to
any such filing, and accept any reasonable comments or edits to such document or correspondence
delivered to RSM in writing within five (5) business days of delivery to M&P; and (vi) promptly
notify M&P if RSM determines that it does not desire to file, prosecute or maintain a New
Application. Subject to Section 4.1.4 below, all New Applications will be filed in the name of
both Parties as joint owners. M&P shall provide reasonable assistance to RSM in connection with
RSMs efforts to register the Mark
7
anywhere in the world, including executing appropriate Powers of Attorney, letters of consent,
and other documents that may be required by the registration authority in a particular
jurisdiction. In the event that United States Reg. No. 1,633,380 is cited as a bar to registration
of the Mark in the United States, M&P shall sign a Letter of Consent in such form as is agreed by
the Parties.
4.1.4 License in Foreign Jurisdictions. Notwithstanding the foregoing, if any foreign
jurisdiction in which the Parties seek to file a New Application prohibits (or does not recognize)
joint ownership and/or joint registration of trademarks and service marks (each such jurisdiction,
a Special Jurisdiction):
|
(i) |
|
RSM shall be the sole owner of the Mark and any
registration application or registration therefor in such Special
Jurisdiction; |
|
|
(ii) |
|
M&P hereby grants and assigns to RSM (a) any
and all rights, title and interest in and to the Mark in such Special
Jurisdiction as M&P possesses, (b) the goodwill associated therewith
and symbolized thereby, and (c) subject to Article VI hereof, all
rights to sue and recover for past or future infringements or other
violations of the Mark in such Special Jurisdiction; and |
|
|
(iii) |
|
RSM hereby grants to M&P a worldwide,
irrevocable, perpetual, non-exclusive, royalty-free, transferable
(subject to Section 11.4) and sublicenseable (subject to Section 4.2.3)
right and license to use the Mark in such Special Jurisdiction in
accordance with the terms and conditions of this Agreement. |
8
Promptly upon RSMs discovery of any circumstances prohibiting the Parties joint ownership and/or
registration of the Mark in any Special Jurisdiction, RSM shall so notify M&P. Thereafter, RSM
shall (i) keep M&P informed regarding the status and activity of any and all New Applications filed
in any Special Jurisdiction; (ii) promptly provide M&P with a copy of any document or
correspondence received from an associated trademark office; (iii) promptly provide M&P with a copy
of any document or correspondence RSM intends to file with an associated trademark office in
respect of any Special Jurisdiction prior to any such filing, and accept any reasonable comments or
edits to such document or correspondence delivered to RSM in writing within five (5) business days
of delivery to M&P; and (iv) promptly notify M&P if RSM determines that it does not desire to file,
prosecute or maintain any registration or registration application in any Special Jurisdiction.
4.1.5 Prosecution of New Applications by M&P. If RSM notifies M&P that RSM does not
desire to file, prosecute or maintain a New Application for the Mark, M&P shall have the right, in
its sole discretion, to file, prosecute and/or maintain such New Application, at M&Ps sole cost
and expense. RSM shall provide reasonable assistance to M&P in connection with M&Ps efforts to
register the Mark and/or the M&P Mark anywhere in the world, including executing appropriate Powers
of Attorney, letters of consent, and other documents that may be required by the registration
authority in a particular jurisdiction. Notwithstanding the foregoing, if RSM notifies M&P that
RSM does not desire to file, prosecute or maintain a New Application in any Special Jurisdiction,
effective as of the date of such notice: (i) M&P shall be the sole owner of the Mark and any
registration application or registration therefor in such Special Jurisdiction; (ii) RSM hereby
grants and assigns to M&P (a) any and all rights, title and interest in and to the Mark and any
then existing registration or registration application therefor in such
9
Special Jurisdiction as RSM possesses, (b) the goodwill associated therewith and symbolized
thereby, and (c) subject to Article VI hereof, all rights to sue and recover for past or future
infringements or other violations of the Mark in such Special Jurisdiction; and (iii) M&P hereby
grants to RSM a worldwide, irrevocable, perpetual, non-exclusive, royalty-free, transferable
(subject to Section 11.4) and sublicenseable (subject to Section 4.1.7) right and license to use
the Mark in such Special Jurisdiction in accordance with the terms and conditions of this
Agreement.
4.1.6 RSMs Corporate Name. RSM may not adopt or use the corporate name McGladrey,
Inc. or any other name incorporating the Mark except in combination with another term that is not
confusingly similar to the name Pullen, including, but not limited to, terms generic to the
business of RSM, such as tax, consulting, capital markets, financial services, and wealth
management.
4.1.7 Right to License. RSM may license the right to use the Mark (but may not grant
others the right to sublicense use of the Mark), alone or in combination with other words that are
not confusingly similar to the word Pullen, to current and future members of what is known
currently as the RSM McGladrey Network, and to Persons that are or become Affiliates of RSM, (i)
with Non-Attest Services anywhere in the world; and (ii) with Attest Services anywhere in the world
with the prior written consent of M&P, which consent shall not be unreasonably withheld,
conditioned, or delayed. Any license granted under this Section 4.1.7 must be governed by a
written agreement between RSM and the applicable Affiliate (a) containing terms at least as
protective of the value of the Mark and the rights of M&P as the terms of this Agreement and (b)
specifying that M&P shall be a third party beneficiary thereunder. RSM shall provide M&P a copy of
each agreement granting any license pursuant to this Section 4.1.7, together with any and all
amendments thereto, and shall notify M&P promptly
10
of any breach of the license granted under such agreement, and any other act or omission of
the licensee that RSM reasonably believes has caused, or is reasonably likely to cause, a material
and substantial diminution of the value of the Mark.
4.1.8 Other Uses. Other than as specifically provided under this Agreement, RSM shall
not, without the prior written consent of M&P, (i) license use of the Mark in association with
Non-Attest Services or Attest Services, or (ii) sell, assign, transfer, dispose of, pledge or
encumber the Mark or any of RSMs rights therein. Any act in violation of the foregoing shall be
void ab initio.
4.2 M&P.
4.2.1 Composite Marks. Subject to Section 5.2, M&P may use the Mark alone or in
combination with another word or words that are not confusingly similar to the name RSM.
4.2.2 Attest Services. Subject to Section 5.2, M&P may use the Mark in connection with
any and all Attest Services, but not in connection with Non-Attest Services.
4.2.3 Licenses. Other than as specifically provided under this Agreement, M&P shall
not, without the prior written consent of RSM (which consent shall not be unreasonably withheld,
conditioned or delayed), (i) license use of the Mark in association with Attest or Non-Attest
Services, or (ii) sell, assign, transfer, dispose of, pledge or encumber the Mark or any of M&Ps
rights therein. Any act in violation of the foregoing shall be void ab initio. Any license granted
under this Section 4.2.3 must be governed by a written agreement between M&P and the applicable
licensee (a) containing terms at least as protective of the value of the Mark and the rights of RSM
as the terms of this Agreement and (b) specifying that RSM shall be a third party beneficiary
thereunder. M&P shall provide RSM a copy of each agreement granting any license
11
pursuant to this Section 4.2.3, together with any and all amendments thereto, and shall notify
RSM promptly of any breach of the license granted under such agreement, and any other act or
omission of the licensee that M&P reasonably believes has caused, or is reasonably likely to cause,
a material and substantial diminution of the value of the Mark.
4.2.4 M&P Mark. M&P shall be the sole owner of the M&P Mark, and, subject to Section
4.1.4, shall be solely responsible for all costs relating to registration, prosecution, maintenance
and renewal of the M&P Mark anywhere in the world.
V. UNDERTAKINGS REGARDING USE OF THE MARK
5.1 Quality Control Standards. In the interest of preserving the reputation for
quality, integrity and value of the goodwill associated with the Mark, each Party shall at all
times use good faith efforts (i) to ensure that the quality of services offered under the Mark
will, at a minimum, be materially commensurate with the quality of such services provided, and the
general professional image and reputation enjoyed, by such Party as of the effective date of this
Agreement; (ii) to comply with all laws, rules and regulations applicable to their respective
services and businesses; and (iii) to avoid undertaking or approving any act or omission reasonably
likely to disparage the other Party or adversely affect the prestige or value of the Mark (the
Quality Control Standards).
5.2 Avoidance of Confusion. The Parties shall each use good faith efforts to avoid
confusion as to the source of their respective services offered under the Mark by complying
strictly with the terms of this Article V. In the event a Party becomes aware of the existence of
actual confusion or a likelihood of confusion in connection with either Partys use of the Mark,
(i) such Party shall promptly, but in any event within two (2) business days, provide written
notice to the Designated Representative of the other Party of the circumstances of such
12
confusion, and (ii) both Parties shall thereafter use reasonable commercial efforts to
work together to dispel such actual confusion or avoid such likelihood of confusion.
5.3 Benefit to Parties. The Parties acknowledge that use of the Mark by either Party
shall inure to the legal benefit of both Parties in accordance with their share of ownership set
forth in Article II above.
5.4 Branding Guidelines. The Parties shall (i) display the Disclaimer on their
respective websites and, whenever feasible, on all printed materials bearing the Mark; (ii) where
reasonably feasible, include a service mark notice as follows in connection with all uses of the
Mark:
McGladrey is a [registered] service mark jointly owned by RSM McGladrey,
Inc. and McGladrey & Pullen, LLP in the United States and elsewhere.
and (iii) otherwise display the Mark in accordance with such guidelines as are agreed by the
Parties, as such guidelines may be amended from time to time ((i) (iii), collectively, the
Branding Guidelines). Notwithstanding the foregoing, for materials created for use exclusively
in a Special Jurisdiction, the service mark notice may identify the Party that is the registrant of
the Mark in such Special Jurisdiction as the sole owner of the Mark in such Special Jurisdiction.
5.5 Representative Samples. Either Party may request in writing from the other
samples of advertising and promotional materials bearing the Mark. The Party receiving the request
will furnish, without cost to the requesting Party, such samples, within seven (7) days of receipt
of such request. If, after reviewing such samples, the requesting Party believes the other Party
is not in compliance with the Quality Control Standards or the Branding Guidelines, it shall so
notify the Designated Representative of the other Party in a writing setting forth the specific
reasons why it believes such use is non-compliant. Within seven (7) days of receipt of such
13
notice, the Party receiving such notice shall either cure such non-compliance or provide a
written response to the Designated Representative of the requesting Party setting forth the
reason(s) that it believes it is in compliance with the Quality Control Standards or the Branding
Guidelines. If the Party that raised the issue of non-compliance is not satisfied with such
explanation, the dispute shall be submitted for resolution in accordance with the dispute
resolution process set forth in Article X herein. In the event that a QCS Dispute (as defined
below) involving a breach of this Section 5.5 results in a ruling against the Party alleged to be
non-compliant, such ruling shall be considered a Catastrophic Event under Section 9.2.
5.6 Designated Representatives. The Designated Representatives shall meet regularly,
but no less frequently than annually, to (i) review performance under this Agreement, (ii) consider
any proposed changes to the Branding Guidelines, and (iii) discuss any other issues that may arise
regarding the use, registration and/or enforcement of the Mark.
VI. ENFORCEMENT
6.1 Investigation of Third-Party Infringers. In the event that a Party learns of any
actual or suspected infringement of the Mark, such Party shall promptly notify the Designated
Representative of the other Party, and the Parties shall cooperate in a commercially reasonable
manner, excluding formal legal action, to investigate and terminate any suspected or actual
infringement of the Mark. The Parties shall share equally (i) all costs associated with
investigating and terminating any suspected or actual infringement of the Mark and (ii) all
proceeds recovered in association with such enforcement activities less the costs incurred by the
Parties in connection with such enforcement activities.
6.2 Legal Action by RSM. Subject to Section 6.1 and Section 6.3, RSM will have
control over and will conduct any formal legal action(s) as it reasonably deems necessary to
protect the Parties interests in and to the Mark. RSM shall (i) keep M&P informed as to, and
14
provide M&P the opportunity to participate in and/or otherwise cooperate with respect to, any
formal legal action regarding enforcement of the Mark; and (ii) not enter into any settlement or
other compromise in respect of such action without the prior written consent of M&P, which consent
shall not be unreasonably withheld. Subject to the foregoing, M&P shall undertake to, at its own
expense, render reasonable assistance to RSM in connection with any such legal action including (a)
furnishing documents, records, files and other information, (b) making available its employees, (c)
executing all necessary documents, and (d) providing its consent to be joined as a Party to any
legal proceedings as RSM may reasonably request. Notwithstanding the foregoing, M&P may, in its
sole discretion and at M&Ps expense, join RSM as a party to any formal legal action against an
infringer, in which event the Parties shall cooperate in respect of prosecution thereof. Each
Party will be solely responsible for the costs incurred by such Party in prosecuting any formal
legal action against an infringer. In the event either Party collects any damages, costs and/or
settlement proceeds pursuant to any formal legal action, (x) the amount received will be applied
toward reimbursement of each Party for any costs incurred by such Party in connection with such
action, and (y) any remaining amount will be shared equally by the Parties.
6.3 Legal Action by M&P. In the event that RSM elects not to take formal legal action
pursuant to Section 6.2 and in respect of legal actions with respect to the Mark in Special
Jurisdictions in which M&P owns all rights, title and interest thereto in accordance with Section
4.1.5, M&P may take such action, and RSM undertakes to, at its own expense, render reasonable
assistance to M&P in connection with such legal action including (i) furnishing documents, records,
files and other information, (ii) making available its employees, (iii) executing all necessary
documents, and (iv) providing its consent to be joined as a Party to any legal proceedings as M&P
may reasonably request. Each Party will be solely responsible for its costs
15
associated in prosecuting such an action. In the event either Party collects any damages,
costs and/or settlement proceeds pursuant to any formal legal action, (a) the amount received will
be applied toward reimbursement of each Party for any costs incurred by such Party in connection
with such action, and (b) any remaining amounts will be shared equally by the Parties.
6.4 M&P Mark. The Parties hereby acknowledge and agree that nothing herein shall
prohibit, restrict or otherwise limit, in any manner whatsoever, M&Ps right (i) to protect and
enforce its rights in the M&P Mark, as M&P determines necessary or appropriate, in its sole
discretion, and (ii) to receive the entirety of any damages, costs and/or settlement proceeds
collected in connection with any informal or formal legal action in respect of the M&P Mark, less
any reasonable expenses incurred by RSM in assisting M&P in such legal action.
VII. WARRANTIES, REPRESENTATIONS AND AGREEMENTS
7.1
By RSM. RSM represents, warrants and agrees that:
7.1.1 RSM (a) is a corporation duly organized, validly existing and in good standing under the
laws of Delaware, with full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and (b) maintains an executive office at the address set forth
herein. The execution, delivery and performance of this Agreement has been duly authorized by all
necessary actions of RSM, and this Agreement constitutes a valid and binding obligation of RSM
enforceable against RSM in accordance with its terms;
7.1.2 The making of this Agreement does not violate any rights or obligations existing between
RSM and any other Person;
7.1.3 RSM has all necessary rights, power and authority to make the assignments in accordance
with the terms and conditions of Articles II and III of this Agreement;
16
7.1.4 During the term of this Agreement, RSM shall promote the Mark with a level of effort
which is greater than the level of effort with which it promotes the RSM McGladrey mark.
7.1.5 As of the effective date of this Agreement, (i) RSM does not possess any right, title or
interest in or to any domain name registrations comprised of McGladrey other than mcgladrey.com,
mcgladreyandpullen.com, and mcgladreypullen.com, and (ii) to the knowledge of RSM, no Affiliate of
RSM possesses any right, title or interest in or to any domain name registration comprised of
McGladrey.
7.2 By M&P. M&P represents and warrants that:
7.2.1 M&P (i) is a limited liability partnership duly organized, validly existing and in good
standing under the laws of Iowa, with full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, and (ii) maintains an executive office at the
address set forth herein. The execution, delivery and performance of this Agreement has been duly
authorized by all necessary actions of M&P, and this Agreement constitutes a valid and binding
obligation of M&P enforceable against M&P in accordance with its terms;
7.2.2 The making of this Agreement does not violate any regulations or agreements existing
between M&P and any other Person; and
7.2.3 M&P has all necessary rights, power and authority to make the assignments in accordance
with the terms and conditions of Article II of this Agreement.
7.2.4 Notwithstanding the foregoing, M&P does not represent or warrant that its execution,
delivery or performance of or under this Agreement does not violate any statute, rule, regulation
or interpretation thereof relating to the regulation of certified public accountants or
17
auditors, or, if any such violation occurs, that M&P has the power, right or authority to make
the foregoing representations or warranties or that this Agreement would be enforceable against
M&P.
VIII. INDEMNITIES
8.1 By RSM. RSM shall indemnify and hold harmless M&P and its partners, officers,
directors, employees and agents from any liability, loss, expense (including reasonable attorneys
fees and disbursements) or claim by any third party resulting from or arising out of: (i) any
allegation that RSMs use of any trademark or service mark, excluding the Mark, infringes or
otherwise violates any trademark, trade name, service mark, or registration therefor of any third
party; or (ii) any breach by RSM of any warranties, covenants or agreements under this Agreement;
provided, however, that RSMs obligations hereunder shall in no way require defense or
indemnification regarding any liability, loss, expense or claim to the extent that the same arises
out of: (a) any breach by M&P of any warranties, covenants or agreement in the performance of its
obligations under this Agreement; or (b) the provision of any goods or services by M&P under the
Mark.
8.2 By M&P. M&P shall indemnify and hold harmless RSM and its officers, directors,
employees and agents from any liability, loss, expense (including reasonable attorneys fees and
disbursements) or claim by any third party resulting from or arising out of; (i) any allegation
that M&Ps use of any trademark or service mark, excluding the Mark, infringes or otherwise
violates any trademark, trade name, service mark, or registration therefor of any third party; or
(ii) any breach by M&P of any warranties, covenants or agreements under this Agreement; provided,
however, that M&Ps obligations hereunder shall in no way require defense or indemnification
regarding any liability, loss, expense or claim to the extent that the same arises out of: (a) any
breach by RSM of any warranties, covenants or agreement in the
18
performance of its obligations under this Agreement; or (b) the provision of any goods or
services by RSM under the Mark.
IX. TERM, TERMINATION, CONSEQUENCES OF TERMINATION
9.1 Term. This Agreement shall remain in effect in perpetuity unless terminated by
the mutual written agreement of the Parties or as otherwise provided in this Article IX.
9.2 Termination for Catastrophic Event. In the event (i) the Parties agree in writing
that a Partys failure to comply with the Quality Control Standards has resulted in a material,
substantial, and irreparable diminution of the value of the Mark (a Catastrophic Event), or (ii)
pursuant to Section 10.1 below, an arbitration panel determines that a Catastrophic Event has
occurred, the non-breaching Party shall have the right to terminate this Agreement immediately upon
notice to the other Party. Upon termination pursuant to this Section 9.2, the non-breaching Party
hereby grants to the breaching Party a license to continue using the Mark for one (1) year
immediately following the effective date of termination of this Agreement.
9.3 Additional Termination Events.
9.3.1 M&P may terminate this Agreement, immediately upon notice to RSM, in the event (i) RSM
ceases to use the Mark as a primary brand of the company, (ii) RSM notifies M&P of RSMs decision
to cease use of the Mark, (iii) pursuant to Section 10.2, an arbitration panel finds RSM
materially breached its promotional services obligations under the Agreement, (iv) RSM is wound up
or liquidated, or files a voluntary petition in bankruptcy, or other action is taken voluntarily or
involuntarily under any statute for the protection of RSMs creditors, or (v) of a final,
non-appealable judgment or decision by any of M&Ps accounting regulators, or by a court or
administrative body of competent jurisdiction (excluding the U.S. Patent and Trademark Office and
comparable trademark offices in other jurisdictions), opposing the Parties joint ownership of the
Mark or otherwise ruling that a likelihood of confusion exists, or would result
19
from, the Parties joint ownership and/or use of the Mark. Provided that RSM has not ceased
all uses of the Mark prior to the effective date of termination of this Agreement pursuant to this
Section 9.3.1, M&P hereby grants to RSM a license to continue using the Mark for one (1) year
immediately following such effective date of termination.
9.3.2 RSM may terminate this Agreement, immediately upon notice to M&P, in the event (i) M&P
ceases to use the M&P Mark as a primary brand of the company, (ii) M&P notifies RSM of M&Ps
decision to cease use of the M&P Mark, or (iii) M&P is wound up or liquidated, or files a voluntary
petition in bankruptcy, or other action is taken voluntarily or involuntarily under any statute for
the protection of M&Ps creditors. Provided that M&P has not ceased all uses of the Mark prior to
the effective date of termination of this Agreement pursuant to this Section 9.3.2, RSM hereby
grants to M&P a license to continue using the Mark for one (1) year immediately following such
effective date of termination.
9.4 Damages. Subject to any indemnification payments provided for in Article VIII, in
no event shall damages be awarded in respect of the cause or exercise of any right of termination
under this Agreement.
9.5 Assignment. Upon the effective date of termination of this Agreement for any
reason, (i) the non-terminating Party (hereinafter the Licensee Party) hereby assigns and
transfers to the Party exercising its termination rights under this Article IX (hereinafter the
Licensor Party), free and clear of all Encumbrances, the Licensee Partys undivided 50% interest
in the Mark, and any registration or registration application therefor and the domain name
mcgladrey.com (and, if applicable, all rights, title and interest as the Licensee Party possesses
in the Mark, and any registration or registration application therefor, in any Special
Jurisdiction), including all goodwill associated therewith and symbolized thereby, and all rights
20
to sue and recover for past or future infringements or other violations thereof; and (ii)
except as expressly provided in this Article IX, (a) the Licensee Party shall make no further use
of the Mark or the domain name mcgladrey.com, and (b) the Licensee Party shall cause its licensees
of the Mark to cease all uses thereof. After termination, the Parties will cooperate in executing
and recording appropriate documents to effect and record the aforementioned assignments, and to
take all other steps necessary to confer and record in the Licensor Party sole ownership of the
Mark, and all registrations and registration applications therefor, and the domain name
mcgladrey.com, as provided under this Section 9.5. In the event the Licensee Party fails to
respond to any reasonable request of the Licensor Party therefore within five (5) business days
following such request, the Licensee Party hereby appoints the Licensor Party as the Licensee
Partys attorney-in-fact, with full power of substitution, to execute, acknowledge, deliver and
record any and all such documents as the Licensor Party deems reasonably necessary to confirm sole
ownership of the Mark in the Licensor Party, and the foregoing appointment shall be a power coupled
with an interest and is irrevocable. Following the effective date of termination of this
Agreement, the Licensee Party shall not at any time, directly or indirectly, do or cause to be done
any act contesting or in any way impairing the Licensor Partys rights, title or interest in or to
the Mark or any registrations or registration applications therefor.
9.6 License. Notwithstanding the foregoing, in the event either Party is granted any
license under this Article IX, such license shall be non-exclusive, royalty-free, nontransferable,
and non-sublicenseable; except that the Licensee Party may sublicense its rights under such license
to any Affiliate to which it has granted a license to the Mark prior to serving or receiving notice
of termination of this Agreement (Termination Notice), provided that such sublicense is
memorialized in a written agreement consistent with the terms of this Agreement, and a copy
21
of is provided to the Licensor Party. Such license shall additionally relate only to the
geographic territory in which the Licensee Party and its licensees permitted hereunder are using
the Mark as of the date of the Termination Notice. During the term of any such license, the
Licensee Party shall (i) comply with the Quality Control Standards and the Branding Guidelines, and
any modifications thereof as may be reasonably prescribed by the Licensor Party from time to time;
(ii) make available to representatives of the Licensor Party information related to the Licensee
Partys use of the Mark and representative samples, as described in Section 5.5; and (iii) promptly
notify the Licensor Party of any and all suspected infringements or other violations of the Mark of
which the Licensee Party becomes aware. The Licensor Party shall have the sole right, but no
obligation, to investigate, prosecute, and otherwise take action in respect of any suspected
violation of which the Licensee Party notifies the Licensor Party during the term of any license
hereunder. The Licensor Party may terminate any license granted under this Article IX in the event
(a) the Parties agree in writing that the Licensee Party has materially breached such license, or
pursuant to Section 10.2, an arbitration panel determines that the Licensee Party has materially
breached such license, and (b) the Licensee Party fails to cure such breach within thirty (30) days
from the date of such written agreement or determination. The Licensee Party shall in any event
cease (and cause any of the Licensee Partys sublicensees of the Mark to cease) all uses of the
Mark on or before the effective date of expiration of any license granted under this Agreement.
The Licensee Party acknowledges and agrees that any and all uses of the Mark pursuant to any
license granted under this Article IX inure solely to the benefit of the Licensor Party.
9.7 Right to Use the M&P Mark and RSM McGladrey Mark. Notwithstanding any provision
of this Agreement to the contrary, after termination of this Agreement for any reason,
22
RSM may continue using the mark RSM McGladrey, or other marks or names comprised of RSM
McGladrey, for Non-Attest Services, and M&P may continue using the M&P Mark, or other marks or
names comprised of McGladrey & Pullen, for Attest Services, in perpetuity.
9.8 Change in Control; Termination of the Alternative Practice Structure. The Parties
agree that neither a Change in Control involving one or both of the Parties, nor the termination of
the Administrative Services Agreement, nor the termination of the Alternative Practice Structure
between the Parties, shall alter in any way the rights or obligations of the Parties under this
Agreement. Promptly following any such event, the Parties shall use good faith efforts to make any
modifications to the Disclaimer necessitated by such event and to undertake any other actions they
deem reasonably necessary or desirable to avoid confusion as to the source of their respective
services offered under the Mark.
X. DISPUTE
10.1 QCS Dispute. In the event of any controversy, claim or dispute arising out of or
relating to an allegation that a Party has breached its obligations under Section 5.1 or failed to
cure any such breach (a QCS Dispute), the Designated Representatives of the Parties shall
promptly confer and attempt to resolve such QCS Dispute between them. If the Parties fail to
resolve such QCS Dispute within thirty (30) days following notice of such dispute by one Party to
the other, the Parties shall attempt to resolve the QCS Dispute in accordance with the procedures
described in Section 10.2 below. The Parties acknowledge and agree that the analysis and
conclusions contained within any M&P internal inspection report, peer review report, PCAOB
inspection report, or any such analogous report or inspection, shall not alone constitute evidence
of M&Ps breach of the Quality Control Standards or any applicable law, rule or regulation;
provided, however, that the foregoing shall not prohibit any facts which are the subject matter of
any such report or inspection from being propounded as evidence of M&Ps
23
acts or omissions. Absent a Catastrophic Event (as defined above), the sole remedy under this
Agreement for breach of the Quality Control Standards shall be to require the breaching Party to
use its best efforts to cure such breach within a reasonable period of time, as agreed by the
Parties.
10.2 Mediation and Arbitration. The provisions of Section 14 of the Administrative
Services Agreement are hereby incorporated into this Agreement mutatis mutandis, except that (i)
the governing law of this Agreement, as stated in Section 11.1 hereof, rather than the law
governing the Administrative Services Agreement, shall be the law used by the arbitrators in
rendering their award; (ii) any mediator and/or arbitrators addressing any QCS Dispute shall
possess expertise in trademark law and shall give due consideration to the prestige and value of
the Mark and the effect thereon of the alleged act or omission; and (iii) in the event of a Partys
failure to comply with any order by the arbitration panel, the non-breaching Party may seek
specific performance or other equitable relief before a court of competent jurisdiction.
XI. MISCELLANEOUS PROVISIONS
11.1 Governing Law. This Agreement shall be governed and construed in accordance with
Minnesota law, without regard to any principles of conflicts of law, and the Parties hereby consent
to the exclusive jurisdiction of the state and federal courts located in Hennepin County or Ramsey
County, Minnesota, over any dispute arising hereunder that is not otherwise resolved pursuant to
Article X.
11.2 Entire Agreement; Amendment. This Agreement, and all Appendices hereto,
constitute the entire understanding of the Parties with respect to the subject matter hereof and
supersede all previous agreements and understandings between them as to the subject matter hereof.
This Agreement be amended or modified only by a writing signed by an authorized representative of
each Party.
24
11.3 Confidentiality. The provisions of Section 6 of the Administrative Services
Agreement are hereby incorporated into this Agreement mutatis mutandis.
11.4 Assignment. The Parties recognize that the nature of this Agreement is personal
and that neither Party shall assign or otherwise transfer its respective rights in this Agreement
without the express prior written consent of the other Party. Any purported assignment without
consent shall be null and void. A permitted license or sublicense hereunder shall not constitute
an assignment.
11.5 Relationship. Nothing contained in this Agreement shall be construed as creating
any agency, partnership, joint venture or other form of joint enterprise between the Parties. RSM
is not authorized to make any statements or take any action on behalf of M&P without M&Ps consent,
and M&P is not authorized to make any statements or take any actions on behalf of RSM or its
licensees without their consent.
11.6 Severability. The provisions of this Agreement are independent of each other,
and the invalidity of any provision or a portion hereof shall not affect the validity or
enforceability of any other provision.
11.7 Waiver. Any delay or failure on the part of either Party to exercise or enforce
any rights or remedies hereunder to which it may be entitled shall not be construed as a waiver
thereof. No waiver hereunder shall be effective unless in writing and signed by an authorized
representative of the waiving Party.
11.8 Beneficiaries. The terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the Parties and their respective agents, representatives, permitted
successors and assigns. Nothing in this agreement, express or implied, is intended to or shall
25
confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
11.9 Survival. All terms which by their nature are intended to survive the expiration
or termination of this Agreement in order to give effect to their meaning, shall survive any
expiration or other termination of the Agreement, including Sections 9.2-9.8, and Articles VII,
VIII, X and XI.
11.10 Notices. All notices and statements required under this Agreement shall be in
writing addressed to the Parties Designated Representatives as set forth below and shall be sent
by email and by certified mail, return receipt requested or by overnight delivery service that
provides evidence of receipt, in either case also by facsimile with a simultaneous confirmation
copy. The date of mailing or sending shall be deemed the date the notice or statement is given.
RSM McGladrey, Inc.
One South Wacker Drive, Suite 800
Chicago, IL 60606
Attention: R. Peter Fontaine, Chief Legal Officer
peter.fontaine@rsmi.com
Fax: (312) 634-5513
With copy to:
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
55 Cambridge Parkway
Cambridge, MA 02142
Attention: Lawrence R. Robins, Esq.
larry.robins@finnegan.com
Fax: (617) 452-1666
If to M&P:
McGladrey & Pullen, LLP
20 N. Martingale Rd.
Suite 500
Schaumburg, IL 60173
Attention: David Scudder
26
dave.scudder@rsmi.com
Fax: 847-517-7067
With copies to:
Fredrikson & Byron, P.A.
200 South Sixth Street, Suite 4000
Minneapolis, MN 55402
Attention: Quentin T. Johnson, Esq.
qjohnson@fredlaw.com
Fax: 612-492-7077; and
Katten Muchin Rosenman, LLP
525 W. Monroe Street, Suite 1900
Chicago, IL 60661
Attention: Herbert S. Wander
hwander@kattenlaw.com
Fax: 312-577-8885
11.11 Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute one and the same
document.
11.12 Interpretation. This Agreement shall be considered to have been drafted by the
Parties hereto and no rule of strict construction will be applied. The article and section
headings contained in this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement. As used in this Agreement, unless otherwise
provided to the contrary, (a) all references to days will be deemed references to calendar days and
(b) any reference to an Article, Section, or Appendix will be deemed to refer to an article,
section or exhibit of or to this Agreement. Unless the context otherwise requires, as used in this
Agreement, all terms used in the singular will be deemed to refer to the plural as well, and vice
versa. The words hereof, herein and hereunder and words of similar import referring to this
Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.
The words include, includes and including will be deemed to be followed by
27
the phrase without limitation. The word trademarks will be deemed to mean both trademarks
and service marks.
IN WITNESS WHEREOF, authorized representatives of the Parties hereto have executed this
Agreement, effective the day and year first above written.
|
|
|
|
|
|
|
|
|
|
|
RSM McGLADREY, INC. |
|
McGLADREY & PULLEN, LLP |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print Name: |
|
Print Name: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title:
|
|
|
|
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
|
|
|
Date: |
|
|
|
|
|
|
|
|
|
|
|
28
exv12
EXHIBIT 12
H&R BLOCK
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Pretax income from continuing operations |
|
$ |
784,135 |
|
|
$ |
839,370 |
|
|
$ |
735,071 |
|
|
$ |
627,261 |
|
|
$ |
531,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED CHARGES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
80,395 |
|
|
|
89,959 |
|
|
|
64,509 |
|
|
|
91,134 |
|
|
|
69,724 |
|
Interest on deposits |
|
|
10,174 |
|
|
|
14,069 |
|
|
|
42,878 |
|
|
|
32,128 |
|
|
|
|
|
Interest portion of net rent expense (a) |
|
|
96,541 |
|
|
|
102,685 |
|
|
|
99,871 |
|
|
|
94,978 |
|
|
|
95,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
|
187,110 |
|
|
|
206,713 |
|
|
|
207,258 |
|
|
|
218,240 |
|
|
|
164,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and fixed charges |
|
$ |
971,245 |
|
|
$ |
1,046,083 |
|
|
$ |
942,329 |
|
|
$ |
845,501 |
|
|
$ |
696,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including interest on deposits |
|
|
5.2 |
|
|
|
5.1 |
|
|
|
4.5 |
|
|
|
3.9 |
|
|
|
4.2 |
|
Excluding interest on deposits |
|
|
5.4 |
|
|
|
5.4 |
|
|
|
5.7 |
|
|
|
4.5 |
|
|
|
4.2 |
|
|
|
|
(a) |
|
One-third of net rent expense is the portion deemed representative of the interest
factor. |
Note: In computing the ratio of earnings to fixed charges: (a) earnings have been based on income
from continuing operations before income taxes and fixed charges (exclusive of interest
capitalized) and (b) fixed charges consist of interest expense and the estimated interest portion
of rents. Interest expense on uncertain tax positions has been excluded from fixed charges, as it
is included as a component of income taxes in the consolidated financial statements.
exv21
Exhibit 21
Subsidiaries of H&R Block, Inc.
The following is a list of the direct and indirect subsidiaries of H&R Block, Inc., a Missouri
corporation.
|
|
|
Company Name |
|
Domestic Jurisdiction |
0374257 B.C. Ltd.
|
|
British Columbia |
Aculink Mortgage Solutions, LLC
|
|
Florida |
AcuLink of Alabama, LLC
|
|
Alabama |
Ada Services Corporation
|
|
Massachusetts |
BFC Transactions, Inc.
|
|
Delaware |
Birchtree Financial Services, Inc.
|
|
Oklahoma |
Birchtree Insurance Agency, Inc.
|
|
Missouri |
Block Financial LLC
|
|
Delaware |
CFS-McGladrey, LLC
|
|
Massachusetts |
Cfstaffing, Ltd.
|
|
British Columbia |
Companion Insurance, Ltd.
|
|
Bermuda |
Companion Mortgage Corporation
|
|
Delaware |
Creative Financial Staffing of Western Washington, LLC
|
|
Massachusetts |
EquiCo, Inc.
|
|
California |
Express Tax Service, Inc.
|
|
Delaware |
Financial Marketing Services, Inc.
|
|
Michigan |
FM Business Services, Inc.
|
|
Delaware |
Franchise Partner, Inc.
|
|
Nevada |
H&R Block (India) Private Limited
|
|
India |
H&R Block (Nova Scotia), Incorporated
|
|
Nova Scotia |
H&R Block Bank
|
|
Missouri |
H&R Block Canada Financial Services, Inc.
|
|
Federally Chartered |
H&R Block Canada, Inc.
|
|
Federally Chartered |
H&R Block Eastern Enterprises, Inc.
|
|
Missouri |
H&R Block Enterprises LLC
|
|
Missouri |
H&R Block Global Solutions (Hong Kong) Limited
|
|
Hong Kong |
H&R Block Group, Inc.
|
|
Delaware |
H&R Block Insurance Agency, Inc.
|
|
Delaware |
H&R Block Limited
|
|
New South Wales |
H&R Block Management, LLC
|
|
Delaware |
H&R Block Tax and Business Services, Inc.
|
|
Delaware |
|
|
|
Company Name |
|
Domestic Jurisdiction |
H&R Block Tax Institute, LLC
|
|
Missouri |
H&R Block Tax Services LLC
|
|
Missouri |
HRB Advance LLC
|
|
Delaware |
HRB Center LLC
|
|
Missouri |
HRB Concepts LLC
|
|
Delaware |
HRB Corporate Enterprises LLC
|
|
Delaware |
HRB Corporate Services LLC
|
|
Missouri |
HRB Digital LLC
|
|
Delaware |
HRB Digital Technology Resources LLC
|
|
Delaware |
HRB Expertise LLC
|
|
Missouri |
HRB Innovations, Inc.
|
|
Delaware |
HRB International LLC
|
|
Missouri |
HRB Products LLC
|
|
Missouri |
HRB Support Services LLC
|
|
Delaware |
HRB Tax & Technology Leadership LLC
|
|
Missouri |
HRB Tax Group, Inc.
|
|
Missouri |
HRB Technology Holding LLC
|
|
Delaware |
HRB Technology LLC
|
|
Missouri |
McGladrey Capital Markets Canada Inc.
|
|
Federally Chartered |
McGladrey Capital Markets Europe Limited
|
|
United Kingdom |
McGladrey Capital Markets LLC
|
|
Delaware |
OOMC Holdings LLC
|
|
Delaware |
OOMC Residual Corporation
|
|
New York |
ORourke Career Connections, LLC
|
|
California |
Pension Resources, Inc.
|
|
Illinois |
Provident Mortgage Services, Inc.
|
|
Delaware |
RedGear Technologies, Inc.
|
|
Missouri |
RSM Employer Services Agency of Florida, Inc.
|
|
Florida |
RSM Employer Services Agency, Inc.
|
|
Georgia |
RSM EquiCo, Inc.
|
|
Delaware |
RSM McGladrey Business Services, Inc.
|
|
Delaware |
RSM McGladrey Business Solutions, Inc.
|
|
Delaware |
RSM McGladrey Employer Services, Inc.
|
|
Georgia |
RSM McGladrey Insurance Services, Inc.
|
|
Delaware |
RSM McGladrey TBS, LLC
|
|
Delaware |
RSM McGladrey, Inc.
|
|
Delaware |
Sand Canyon Acceptance Corporation
|
|
Delaware |
|
|
|
Company Name |
|
Domestic Jurisdiction |
Sand Canyon Corporation
|
|
California |
Sand Canyon Securities Corp.
|
|
Delaware |
Sand Canyon Securities II Corp.
|
|
Delaware |
Sand Canyon Securities III Corp.
|
|
Delaware |
Sand Canyon Securities IV LLC
|
|
Delaware |
ServiceWorks, Inc.
|
|
Delaware |
TaxNet Inc.
|
|
California |
TaxWorks, Inc.
|
|
Delaware |
West Estate Investors, LLC
|
|
Missouri |
Woodbridge Mortgage Acceptance Corporation
|
|
Delaware |
exv23
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-118020 on Form S-3
of Block Financial Corporation and Registration Statement Nos. 333-118020-01 and 333-154611 on Form
S-3 and Nos. 333-160957, 333-119070, 333-42143, 333-42736, 333-56400, 333-70420, and 333-106710 on
Form S-8 of H&R Block, Inc. of our reports dated June 28, 2010, relating to the financial
statements and financial statement schedule of H&R Block, Inc., (which report expresses an
unqualified opinion and includes an explanatory paragraph regarding H&R Block, Inc.s adoption of
an accounting standard for uncertainty in income taxes on May 1, 2007) and the effectiveness of H&R
Block Inc.s internal control over financial reporting, appearing in this Annual Report on Form
10-K of H&R Block, Inc. for the year ended April 30, 2010.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
June 28, 2010
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 annual report on Form 10-K 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.
|
|
|
|
|
|
|
|
Date: June 28, 2010 |
/s/ Russell P. Smyth
|
|
|
Russell P. Smyth |
|
|
Chief Executive Officer
H&R Block, Inc. |
|
|
exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey T. Brown, acting Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K 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.
|
|
|
|
|
|
|
|
Date: June 28, 2010 |
/s/ Jeffrey T. Brown
|
|
|
Jeffrey T. Brown |
|
|
Vice President, Corporate Controller,
Acting Chief Financial Officer
H&R Block, Inc. |
|
|
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 annual report of H&R Block, Inc. (the Company) on Form 10-K for the
fiscal year ending April 30, 2010 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:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ Russell P. Smyth
|
|
|
Russell P. Smyth |
|
|
Chief Executive Officer
H&R Block, Inc. June 28, 2010 |
|
|
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 annual report of H&R Block, Inc. (the Company) on Form 10-K for the
fiscal year ending April 30, 2010 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Jeffrey T. Brown, acting 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:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ Jeffrey T. Brown
|
|
|
Jeffrey T. Brown |
|
|
Vice President, Corporate Controller,
Acting Chief Financial Officer
H&R Block, Inc.
June 28, 2010 |
|
|