e10vk
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
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For the fiscal year ended April 30,
2011
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
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For the transition period
from to
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Commission file
number 1-6089
H&R Block,
Inc.
(Exact name of registrant as
specified in its charter)
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MISSOURI
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44-0607856
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One
H&R Block Way, Kansas City, Missouri 64105
(Address of principal executive
offices, including zip code)
(816) 854-3000
(Registrants telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each
exchange on which registered
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Common Stock, without par value
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New York Stock Exchange
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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
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No
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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
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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
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No
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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
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No
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do
not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act). Yes
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No
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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, 2010, was $3,564,690,812.
Number of shares of the registrants Common Stock, without
par value, outstanding on May 31, 2011: 305,383,646.
Documents
incorporated by reference
The definitive proxy statement for the registrants Annual
Meeting of Shareholders, to be held September 14, 2011, is
incorporated by reference in Part III to the extent
described therein.
2011
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 2011, 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, Inc. 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
Historically, refund anticipation loans (RALs) were
offered in our US retail tax offices through a contractual
relationship with HSBC Holdings plc (HSBC). We purchased a 49.9%
participation interest in all RALs obtained through our retail
offices. In December 2010, HSBC terminated its contract with us
based on restrictions placed on them by their regulator and RALs
were not offered in our tax offices this tax season. In
connection with the contract termination, we obtained the
remaining rights to collect on the outstanding balances of RALs
originated in years 2006 and later. The impact of this is
discussed in the Tax Services segment results in Item 7.
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 software, online
tax preparation fees, 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
(EAs). HRB Bank also offers traditional banking services
including checking and savings accounts, individual retirement
accounts and certificates of deposit. Segment revenues
constituted 77.2% of our consolidated revenues from continuing
operations for fiscal year 2011, 76.8% for 2010 and 76.7% for
2009.
H&R
BLOCK 2011
Form 10K 1
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
24.5 million tax returns worldwide during fiscal year 2011,
compared to 23.2 million in 2010 and 23.9 million in
2009. We prepared 21.4 million tax returns in the
U.S. during fiscal year 2011, up from 20.1 million in
2010 and 21.0 million in 2009. Our U.S. tax returns
prepared, including those prepared by our franchisees and those
prepared and filed at no charge, for the 2011 tax season
constituted 16.4% of an Internal Revenue Service (IRS) estimate
of total individual income tax returns filed during the fiscal
year 2011 tax season. This compares to 15.6% in the 2010 tax
season and 15.8% in the 2009 tax season. 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, 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
in the U.S.
During fiscal years 2011, 2010 and 2009 we sold certain offices
to existing franchisees for sales proceeds totaling
$65.6 million, $65.7 million and $16.9 million,
respectively. The net gain on these transactions totaled
$45.1 million, $49.0 million and $14.9 million in
fiscal years 2011, 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:
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April 30,
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2011
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2010
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2009
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U.S. OFFICES:
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Company-owned offices
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5,921
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6,431
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7,029
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Company-owned shared
locations(1)
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572
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760
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1,542
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Total company-owned offices
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6,493
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7,191
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8,571
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Franchise offices
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4,178
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3,909
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3,565
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Franchise shared
locations(1)
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397
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406
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787
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Total franchise offices
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4,575
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4,315
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4,352
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11,068
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11,506
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12,923
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INTERNATIONAL OFFICES:
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Canada
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1,324
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1,269
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1,193
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Australia
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384
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374
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378
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1,708
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1,643
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1,571
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(1)
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Shared locations
include offices located within Sears or other third-party
businesses. In 2009, these locations also included offices
within Wal-Mart stores.
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We sold 280, 267 and 76 company-owned offices to
franchisees in fiscal years 2011, 2010 and 2009, respectively.
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, 2011 and 2010
consist primarily of offices in Sears stores operated as
H&R Block at Sears. The Sears license agreement
expires in July 2012. Offices in shared locations at
April 30, 2009 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 or a RAC.
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
2 H&R
BLOCK 2011 Form 10K
software, calculations, completion of the appropriate tax forms,
error checking and electronic filing. Our software products may
be purchased online, through third-party retail stores or direct
mail.
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 $58,000 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.
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
or (2) have their tax preparation fees paid directly out of
their refund. A RAC is not a loan and is provided by HRB Bank.
Emerald Advance
Lines of
Credit. EAs
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 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 through direct deposit or at participating retail
locations. The H&R Block Prepaid Emerald
MasterCard®
is issued by HRB Bank.
Peace of Mind
Guarantee. The
Peace of Mind (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 $5,500 in
additional taxes assessed with respect to the federal, state and
local tax returns we prepared for the taxable year covered by
the program.
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 2011 was 821,000, compared
to 797,000 in 2010 and 782,000 in 2009.
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. These agreements
were effective through June 2011, but were terminated by HSBC in
December 2010. The impact of this is discussed in Item 7,
under Tax Services operating results. 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 was
earned over the contract term. Our purchases of the
participation interests were financed through short-term
borrowings. Revenue from our participation was 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 and $139.8 million in fiscal years 2010
and 2009, 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 earned 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:
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United States and Canada
Australia
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January April
July October
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H&R
BLOCK 2011
Form 10K 3
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
We provide both retail and do-it-yourself tax preparation
products and services and face substantial competition
throughout our businesses. 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, and we face significant competition from
independent tax preparers and CPAs. Certain firms are involved
in providing electronic filing services, RALs and RACs to the
public. Commercial tax return preparers and electronic filers
are highly competitive with regard to price and service and many
firms offer services that may include federal
and/or state
returns at no charge. Additionally, certain tax return preparers
were able to offer RALs this tax season while we were not. 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 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.
Do-it-yourself tax preparation options include use of
traditional paper forms, digital electronic forms and various
forms of digital electronic assistance, including online and
desktop software both of which we offer. Our digital tax
solutions businesses compete with a number of companies. Based
on tax return volumes, Intuit, Inc. is the largest supplier of
tax preparation software and online tax preparation services.
Many other companies offer digital and online services. Price
and marketing competition for digital tax preparation services
is intense among value and premium products and many firms offer
services that may include federal
and/or state
returns at no charge.
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.
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.
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 final regulations in September 2010 that:
(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) caused all previously issued PTINs to
expire on December 31, 2010 unless properly renewed;
(4) allow the IRS to conduct tax compliance checks on tax
return preparers; (5) define the individuals who are
considered tax return preparers for the PTIN
requirement, and (6) set the amount of the PTIN user
registration fee at $64.25 per year. The IRS is also conducting
background checks on PTIN applicants. The IRS plans to review
the amount of the PTIN user registration fee in the summer of
2011 and may adjust the fee amount. The IRS also published final
regulations implementing the individual
e-file
mandate in March 2011.
Other changes are expected to be finalized in calendar year
2011. These include changes to: (1) establish a new class
of practitioners who are authorized to practice before the IRS
under Circular 230, called registered tax return
preparers who would be required to (a) pass a
competency examination as a prerequisite to becoming a
registered tax return preparer, (b) complete annual
continuing professional education requirements, and
(c) comply with ethical standards; (2) revise the
amount of the enrolled agent application and renewal fee;
(3) set the amount of a sponsor fee for qualified
continuing professional education sponsors; (4) set the
amount of
4 H&R
BLOCK 2011 Form 10K
the competency examination user fee, and (5) set the amount
of the registered tax return preparer application and renewal
fee. The IRS also issued interim guidance for tax preparers,
which includes allowing certain supervised tax preparers to
obtain a PTIN and work on returns without passing a competency
exam.
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.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Reform Act) was signed into law, which
contains a comprehensive set of provisions designed to govern
the practices and oversight of financial institutions and other
participants in the financial markets. The full impact of the
Reform Act is difficult to assess because many provisions
require federal agencies to adopt implementing regulations. In
addition, the Reform Act mandates multiple studies, which could
result in additional legislative or regulatory action. In July
2011, the responsibility and authority of the OTS moves to the
Office of the Comptroller of the Currency (OCC). The Reform Act,
as well as other legislative and regulatory changes, could have
a significant impact on us and on our subsidiary, HRB Bank.
See Item 7, Regulatory Environment and
Item 8, note 20 to the consolidated financial
statements for additional discussion of regulatory requirements.
See discussion in Item 1A, Risk Factors for
additional information.
BUSINESS
SERVICES
GENERAL
Our Business Services segment offers tax, consulting and
accounting services and capital markets services to
middle-market companies. Segment revenues constituted 22.0% of
our consolidated revenues from continuing operations for fiscal
year 2011, 22.2% for fiscal year 2010 and 22.0% for fiscal year
2009.
This segment consists primarily of RSM, which provides tax and
consulting services in 85 cities and 25 states and
offers services in 20 of the 25 top U.S. markets.
Effective July 20, 2010, our Business Services segment
acquired certain non-attest assets and liabilities of
Caturano & Company, Inc. (Caturano), a Boston-based
accounting firm, for an aggregate purchase price of
$40.2 million. We expect this acquisition to expand our
presence in the Boston market. We made cash payments of
$32.6 million, including $29.8 million at closing.
Payment of the remaining purchase price is deferred and will be
paid over the next 13 years. See additional discussion in
Item 8, note 2 to the consolidated financial
statements.
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
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.
H&R
BLOCK 2011
Form 10K 5
Under state accountancy regulations, a firm cannot provide
attest services unless it is properly licensed which requires
that the firm be majority-owned and controlled by licensed CPAs.
As such, RSM cannot be a licensed CPA firm and cannot 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 offer clients a full
range of attest and non-attest services in compliance with
applicable accountancy regulations. In fiscal year 2010, RSM and
M&P entered into new agreements related to the operation of
the APS.
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. In addition, the agreement allows for professional
staff to be
sub-contracted
between RSM and M&P at market rates.
All partners of M&P, with the exception of M&Ps
Managing Partner, are also managing directors employed by RSM.
Approximately 84% 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 of M&Ps earnings 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 the APS.
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 generally equals
67 percent of the combined profits of M&P and RSM less
any amounts paid in their capacity as M&P partners.
Historically, RSM followed a similar practice, except that the
compensation pool for managing directors was based on
65 percent of combined profits, less amounts paid to
M&P partners. 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
ceased and was replaced by a non-contributory, non-qualified
defined contribution 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 the Tax
Services segment 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 any services that require a CPA license. In addition to
tax and consulting services, RSM provides wealth management
services and, through a separate subsidiary, capital market
services. Accordingly, RSM 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 RSM and
its affiliates and the Attest Firms as a single entity and
requires that RSM and its affiliates be independent of any SEC
audit client of the Attest Firms. The SEC attributes any
financial interest or business relationship that RSM or its
affiliates has with a client of the Attest Firms as a financial
interest or business relationship between the Attest Firms and
the client, and applies its auditor independence rules
accordingly.
We and the Attest Firms have jointly developed and implemented
policies, procedures and controls designed to ensure the Attest
Firms independence is preserved in compliance 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.
6 H&R
BLOCK 2011 Form 10K
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 7,900 regular full-time employees as of
April 30, 2011. The highest number of persons we employed
during the fiscal year ended April 30, 2011, including
seasonal employees, was approximately 107,200.
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:
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The Amended and Restated Articles of Incorporation of H&R
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The Amended and Restated Bylaws of H&R Block, Inc.;
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The H&R Block, Inc. Corporate Governance Guidelines;
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The H&R Block, Inc. Code of Business Ethics and Conduct;
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The H&R Block, Inc. Board of Directors Independence
Standards;
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The H&R Block, Inc. Audit Committee Charter;
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The H&R Block, Inc. Governance and Nominating Committee
Charter; and
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The H&R Block, Inc. Compensation Committee Charter.
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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.
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.
Our access to
liquidity may be negatively impacted as 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 and for other related activities. 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 unsecured committed line of credit
(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.
H&R
BLOCK 2011
Form 10K 7
We are subject to
potential contingent liabilities related to the loan repurchase
obligations of Sand Canyon Corporation, which may result in
significant financial losses.
Sand Canyon Corporation (SCC) remains exposed to losses relating
to mortgage loans it previously originated. Mortgage loans
originated by SCC were sold either as whole-loans to single
third-party buyers or in the form of a securitization.
In connection with the securitization and sale of mortgage
loans, SCC made certain representations and warranties. 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. In the event that there is a breach of a
representation and warranty and such breach materially and
adversely affects the value of a mortgage loan, SCC may be
obligated to repurchase a loan or otherwise indemnify certain
parties for losses incurred as a result of loan liquidation. In
some instances, H&R Block, Inc. was required to guarantee
SCCs obligations related to breaches of representations
and warranties. These representations and warranties and
corresponding repurchase obligations generally are not subject
to stated limits or a stated term, but would be subject to
statutes of limitations applicable to the contractual provisions.
SCC records a liability for contingent losses relating to
representation and warranty claims by estimating loan repurchase
and indemnification obligations for both known claims and
projections of 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. See Item 8, note 18 to the consolidated
financial statements for additional information.
SCC is subject to
potential investigations and lawsuits stemming from its
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, 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.
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 marketing purposes. 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.
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, and/or
our subsidiaries, 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.
8 H&R
BLOCK 2011 Form 10K
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. Additionally, due to the
seasonality of our tax business, we employ a substantial amount
of seasonal tax professionals on an annual basis. If we were
unable to hire a sufficient amount of seasonal tax
professionals, it could negatively impact our ability to serve
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.
Our businesses
may be adversely affected by difficult economic conditions,
particularly if unemployment levels do not improve or continue
to increase.
The difficult economic conditions we are currently experiencing
are frequently characterized by higher unemployment levels and
declining consumer and business spending. Poor economic
conditions may negatively affect demand and pricing for our
services. Higher unemployment 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 higher unemployment levels may
negatively impact our ability to increase tax preparation
clients.
In addition to mortgage loans, we also extend secured and
unsecured credit to other customers, including EAs to our tax
clients. We may incur significant losses on credit we extend,
which in turn could reduce our profitability.
Economic
conditions that negatively affect housing prices and the job
market may result in deterioration in credit quality of our loan
portfolio primarily held by HRB Bank, 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. Trends in the residential mortgage loan market
continue to reflect high loan delinquencies and lower collateral
values. As a result, we recorded loan loss provisions totaling
$35.6 million, $47.8 million and $63.9 million
during fiscal years 2011, 2010 and 2009, respectively.
Our loan portfolio is concentrated in the states of Florida,
California, New York and Wisconsin, which represented 20%, 14%,
17% and 8%, respectively, of our total mortgage loans held for
investment at April 30, 2011. 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 SCC represent 62% of total loans
held for investment at April 30, 2011. These loans have
experienced higher delinquency rates than other loans in our
portfolio, and may expose us to greater risk of credit loss.
H&R
BLOCK 2011
Form 10K 9
TAX
SERVICES
Government
initiatives that simplify tax return preparation or expedite
refunds 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 and funding of tax refunds may increase our
operating costs or reduce our revenues.
Many taxpayers seek assistance from paid tax return preparers
such as us not only because of the level of complexity involved
in the tax return preparation and filing process, but also
because of paid tax return preparers ability to expedite
refund proceeds under certain circumstances. 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
or expediting refunds. During tax season 2011, the
U.S. Department of the Treasury (the Treasury) introduced a
prepaid debit card pilot program designed to facilitate the
refund process. HRB Bank provides this service as well through
its H&R Block Prepaid Emerald
MasterCard®.
Additionally, during tax season 2011, the IRS increased its
emphasis on a process to allow taxpayers to allocate their
refund to multiple accounts. The adoption or expansion of any
measures that significantly simplify tax return preparation,
expedite refunds 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, resulting in the loss
of a significant number of clients, causing our revenues or
results of operations to decline.
Certain regulators have alleged that some of our competitors are
lending tax preparation fees when they issue products similar to
a RAC to their clients. An adverse ruling in this area could
have a material impact on our offering of RACs resulting in the
loss of a significant number of clients, causing our revenues or
results of operations to decline.
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.
We provide both retail and do-it-yourself tax preparation
products and services and face substantial competition
throughout our businesses. 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 other related
services to the public, and certain firms provide RALs and RACs.
Commercial tax return preparers and electronic filers are highly
competitive with regard to price and service, and many firms
offer services that may include federal
and/or state
returns at no charge. Do-it-yourself tax preparation options
include use of traditional paper forms, digital electronic forms
and various forms of digital electronic assistance, including
online and desktop software, both of which we offer. 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 767,000, 810,000 and 788,000 federal income tax
returns in fiscal years 2011, 2010 and 2009, respectively, at no
charge as part of the FFA. In addition, we have free online tax
preparation offerings and also provided free preparation of
Federal 1040EZ forms in fiscal year 2011. 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.
The elimination
of the IRS debt indicator has caused federal and state
regulators to scrutinize the RAL underwriting practices of
third-party financial institutions that provide RALs.
In August 2010, the Internal Revenue Service (IRS) announced
that, as of the beginning of the 2011 tax season, it would no
longer furnish the debt indicator (DI), to tax preparers or
financial institutions. The DI is an underwriting tool that
lenders have historically used when considering whether to loan
money to taxpayers who applied for a RAL, which is a short term
loan, secured by the taxpayers federal tax refund.
10 H&R
BLOCK 2011 Form 10K
In December 2010, HSBC terminated its contract with us to
provide RALs in our retail tax offices based on restrictions
placed on HSBC by its regulators due to the DI no longer being
available. As a result, RALs were not offered in our retail tax
offices in the 2011 tax season. Subsequently, two other banks
offering RALs during the 2011 tax season through our competitors
announced that due to regulatory concerns they will not be
offering RALs next tax season. Additionally, a third bank
offering RALs during the 2011 tax season through our competitors
announced that it was requesting an administrative hearing
regarding a notice it had received from its regulator that its
practice of originating RALs without the DI is unsafe and
unsound and has recently filed a lawsuit in federal court
against its regulator. Based on these developments and the
overall limited amount of banks that offer RALs, there can be no
assurances as to the availability of RALs in our retail tax
offices in the future.
Termination of the contract with HSBC and our inability to
secure a RAL originator in the future could continue to have
adverse effects on our operating results, including declines in
tax returns prepared as a result of clients seeking alternate
preparers who may be able to offers RALs, to the extent prior
RAL clients do not purchase a RAC or change their refund
disbursement elections. A decline in clients could have other
adverse impacts, including increased credit losses on loan
balances with those clients.
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, and
potentially us, as HRB Banks holding company. 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.
In addition, the OTS may deem certain products offered by HRB
Bank, including EAs, to be unsafe and unsound and
thus require us to discontinue offering such products. To the
extent such products are instrumental in attracting clients to
our offices for tax preparation services, we could experience a
significant loss of clients should such products be
discontinued. This could cause our revenues or profitability to
decline. See Item 8, note 20 to the consolidated
financial statements for additional discussion of regulatory
capital requirements and classifications.
Recent
legislative and regulatory reforms may have a significant impact
on our business, results of operations and financial
condition.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Reform Act) was signed into law, which
contains a comprehensive set of provisions designed to govern
the practices and oversight of financial institutions and other
participants in the financial markets.
The full impact of the Reform Act is difficult to assess because
many provisions require federal agencies to adopt implementing
regulations. In addition, the Reform Act mandates multiple
studies, which could result in additional legislative or
regulatory action. The Reform Act, as well as other legislative
and regulatory changes, could have a significant impact on us
and on our subsidiary, HRB Bank, by, for example, requiring us
to change our business practices, requiring us to meet more
stringent capital, liquidity and leverage ratio requirements,
limiting our ability to pursue business opportunities, imposing
additional costs on us, limiting fees we can charge for
services, impacting the value of our assets, or otherwise
adversely affecting our businesses. Specific provisions of the
Reform Act include:
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changes to the thrift supervisory structure as the
responsibility and authority of the OTS moves to the OCC in July
2011;
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changes which may require the Company, as a thrift holding
company, to meet regulatory capital, liquidity, leverage or
other standards;
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regulation of interchange fees charged by payment card issuers
for transactions in which a person uses a debit or general-use
prepaid card, and enforcement of a new statutory requirement
that such fees be reasonable and proportional to the actual cost
of the transaction to the issuer; and
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H&R
BLOCK 2011
Form 10K 11
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establishment of a Consumer Financial Protection Bureau with
broad authority to implement new consumer protection regulations.
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The effect of the Reform Act on our business and operations
could be significant, depending upon final implementation of
regulations, the actions of our competitors and the behavior of
other marketplace participants. In addition, we may be required
to invest significant management time and resources to address
the various provisions of the Reform Act and the numerous
regulations that are required to be issued under it. The Reform
Act and any related legislation or regulations could have a
material adverse effect on our business, results of operations
and financial condition.
BUSINESS
SERVICES
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 under a common
brand McGladrey. 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 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.
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 or litigation 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 related to the practice
of public accounting and auditor independence. Many of
RSMs clients are also clients of the Attest Firms. In
addition, the relationship with the Attest Firms and the common
brand closely links RSM and the Attest Firms. If the Attest
Firms 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 reputation and
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) divert significant management attention. This, in turn,
could result in reduced revenue and earnings and, if
significant, impairment of our investment in RSM.
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. Our Australian executive offices are located
in a leased office in Thornleigh, New South Wales. Our
Australian tax offices are operated under leases throughout
Australia. 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.
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.
12 H&R
BLOCK 2011 Form 10K
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. An appellate court subsequently
reversed the decertification decision. We are appealing the
reversal. We have not concluded that a loss related to this
matter is probable nor have we accrued a loss contingency
related to this matter. Plaintiffs have not provided a dollar
amount of their claim and we are not able to estimate a possible
range of loss. 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.
Express IRA
Litigation
We have been named defendants in lawsuits regarding our former
Express IRA product. All of those lawsuits have been settled or
otherwise resolved, except for one.
The one remaining case was filed on January 2, 2008 by the
Mississippi Attorney General in the Chancery Court of Hinds
County, Mississippi First Judicial District (Case No. G
2008 6 S 2) and is styled Jim Hood, Attorney for the
State of Mississippi v. H&R Block, Inc., H&R
Block Financial Advisors, Inc., et al. The complaint
alleges fraudulent business practices, deceptive acts and
practices, common law fraud and breach of fiduciary duty with
respect to the sale of the product in Mississippi and seeks
equitable relief, disgorgement of profits, damages and
restitution, civil penalties and punitive damages. We are not
able to estimate a possible range of loss. 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 H&R Block Financial Advisors, Inc. (HRBFA)
effective November 1, 2008, we remain responsible for any
liabilities relating to the Express IRA litigation, among other
things, through an indemnification agreement. A portion of our
accrual is related to these indemnity obligations.
RSM McGladrey
Litigation
RSM EquiCo, Inc. (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. (the RSM
Parties), 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, conversion 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.
To avoid the cost and inherent risk associated with litigation,
the parties have reached an agreement in principle to settle
this case, subject to approval by the California Superior Court.
The settlement would require a maximum payment of
$41.5 million, although the actual cost of the settlement
depends on the number of valid claims submitted by class
members. The defendants believe they have meritorious defenses
to the claims in this case and, if for any reason the settlement
is not approved, they will continue to defend the case
vigorously. Although we have recorded a liability for expected
losses, there can be no assurance regarding the outcome of this
matter.
On December 7, 2009, a lawsuit was filed in the Circuit
Court of Cook County, Illinois (2010-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 (Case
No. 1:10-CV-00274).
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. On November 3, 2010, the court
dismissed the case against all defendants in its entirety with
prejudice. The trustee has filed an appeal to the Seventh
Circuit Court of Appeals with respect to the claims against
M&P and RSM. The appeal remains pending.
RSM and M&P operate in an alternative practice structure
(APS). 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 that 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 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 2011
Form 10K 13
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 and HRB remain subject to investigations, claims and
lawsuits pertaining to its mortgage business activities that
occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state
attorneys general, other state and federal 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, fraud, and
violations of securities laws, the Truth in Lending Act, Equal
Credit Opportunity Act and the Fair Housing Act. Given the
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 and thus cannot be
reasonably estimated. In the event of unfavorable outcomes, the
amounts that may be required to pay in the discharge of
liabilities or settlements could be substantial and could have a
material 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 portion of our loss
contingency accrual is related to this matter for the amount of
loss that we consider probable and estimable. We do not believe
losses in excess of our accrual would be material to our
financial statements, although it is possible that our losses
could exceed the amount we have accrued. We and SCC believe we
have meritorious defenses to the claims presented and intend to
defend them vigorously. There can be no assurances, however, as
to the outcome of this matter or its impact on our consolidated
results of operations.
On October 15, 2010, the Federal Home Loan Bank of Chicago
filed a lawsuit in the Circuit Court of Cook County, Illinois
(Case No. 10CH45033) styled Federal Home Loan Bank of
Chicago v. Bank of America Funding Corporation, et al.
against multiple defendants, including various SCC related
entities and H&R Block, Inc. related entities, arising out
of Federal Home Loan Banks (FHLBs) purchase of
mortgage-backed securities. Plaintiff asserts claims for
rescission and damages under state securities law and for common
law negligent misrepresentation in connection with its purchase
of two securities originated and securitized by SCC. These two
securities had a total initial principal amount of approximately
$50 million, of which approximately $42 million
remains outstanding. We have not concluded that a loss related
to this matter is probable nor have we established a loss
contingency related to this matter. We believe the claims in
this case are without merit and we intend to defend them
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, including Alice
Williams v. H&R Block Enterprises LLC, Case
No.RG08366506 (Superior Court of California, County of Alameda,
filed January 17, 2008) (alleging improper classification
of office managers in California); 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) (alleging failure to timely pay
compensation to tax professionals in California and to include
itemized information on wage statements); 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) (alleging
failure to compensate tax professionals in California and
eighteen other states for all hours worked and to provide meal
periods); and 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) (alleging failure to compensate tax
professionals nationwide for off-season training). A class was
certified in the Lemus case in December 2010 (consisting
of tax professionals who worked in company-owned offices in
California from 2007 to 2010) and in the Williams
case in March 2011 (consisting of office managers who worked
in company-owned offices in California from 2004 to 2011). A
conditional class was certified in the Petroski case in
March 2011 (consisting of tax professionals who were not
compensated for certain training courses occurring on or after
April 15, 2007).
The plaintiffs in the wage and hour class action lawsuits seek
actual damages, pre-judgment interest and attorneys fees,
in addition to statutory penalties under California and federal
law, which could equal up to 30 days
14 H&R
BLOCK 2011 Form 10K
of wages per tax season for class
members who worked in California. A portion of our loss
contingency accrual is related to these lawsuits for the amount
of loss that we consider probable and estimable. For those wage
and hour class action lawsuits for which we are able to estimate
a range of possible loss, the current estimated range is $0 to
$70 million in excess of the accrued liability related to
those matters. This estimated range of possible loss is based
upon currently available information and is subject to
significant judgment and a variety of assumptions and
uncertainties. The matters underlying the estimated range will
change from time to time, and actual results may vary
significantly from the current estimate. Because this estimated
range does not include matters for which an estimate is not
possible, the range does not represent our maximum loss exposure
for the wage and hour class action lawsuits. We believe we have
meritorious defenses to the claims in these lawsuits and intend
to defend them vigorously. The amounts claimed in these matters
are substantial in some instances 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 October 2010, we signed a definitive merger agreement to
acquire all of the outstanding shares of 2SS Holdings, Inc.
(2SS), developer of TaxACT digital tax preparation
solutions, for $287.5 million in cash. In May 2011, the
United States Department of Justice (the DOJ) filed
a civil antitrust lawsuit in the U.S. district court in
Washington, D.C., (Case
No. 1:11-cv-00948)
against H&R Block and 2SS styled United States v.
H&R Block, Inc., 2SS Holdings, Inc., and TA IX L.P., to
block our proposed acquisition of 2SS. There are no assurances
that the DOJs lawsuit will be resolved in our favor or
that the transaction will be consummated.
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. 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 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
impact on our consolidated results of operations.
H&R
BLOCK 2011
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,
2011, there were 22,982 shareholders of record and the
closing stock price on the NYSE was $16.20 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, 2011 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
|
|
|
10,650
|
|
|
$
|
18.71
|
|
|
|
11,476
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,650
|
|
|
$
|
18.71
|
|
|
|
11,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The remaining information called for by this item relating to
Securities Authorized for Issuance under Equity
Compensation Plans is reported in Item 8,
note 14 to our consolidated financial statements.
A summary of our purchases of H&R Block common stock during
the fourth quarter of fiscal year 2011 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
|
|
|
$
|
12.67
|
|
|
|
|
|
|
$
|
1,371,957
|
|
|
|
March 1 March 31
|
|
|
|
|
|
$
|
14.70
|
|
|
|
|
|
|
$
|
1,371,957
|
|
|
|
April 1 April 30
|
|
|
2
|
|
|
$
|
17.31
|
|
|
|
|
|
|
$
|
1,371,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All share purchases
above 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 2011 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, 2006, and its relative
performance is tracked through April 30, 2011.
|
|
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, 2011, from our audited consolidated financial
statements. Results of operations of fiscal years 2011, 2010 and
2009 are discussed in Item 7. Results of operations for
fiscal years 2008 and 2007 included significant losses of our
discontinued mortgage businesses. 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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Revenues
|
|
$
|
3,774,296
|
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
$
|
4,086,630
|
|
|
$
|
3,710,362
|
|
|
|
Net income from continuing operations
|
|
|
419,405
|
|
|
|
488,946
|
|
|
|
513,055
|
|
|
|
445,947
|
|
|
|
369,460
|
|
|
|
Net income (loss)
|
|
|
406,110
|
|
|
|
479,242
|
|
|
|
485,673
|
|
|
|
(308,647
|
)
|
|
|
(433,653
|
)
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
$
|
1.37
|
|
|
$
|
1.14
|
|
|
|
Net income (loss)
|
|
|
1.31
|
|
|
|
1.44
|
|
|
|
1.45
|
|
|
|
(0.95
|
)
|
|
|
(1.35
|
)
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
|
$
|
1.35
|
|
|
$
|
1.13
|
|
|
|
Net income (loss)
|
|
|
1.31
|
|
|
|
1.43
|
|
|
|
1.45
|
|
|
|
(0.95
|
)
|
|
|
(1.33
|
)
|
|
|
Total assets
|
|
$
|
5,207,961
|
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
$
|
5,623,425
|
|
|
$
|
7,544,050
|
|
|
|
Long-term debt
|
|
|
1,049,754
|
|
|
|
1,035,144
|
|
|
|
1,032,122
|
|
|
|
1,031,784
|
|
|
|
537,134
|
|
|
|
Dividends per
share(1)
|
|
$
|
0.45
|
|
|
$
|
0.75
|
|
|
$
|
0.59
|
|
|
$
|
0.56
|
|
|
$
|
0.53
|
|
|
|
|
|
|
(1)
|
Amounts represent
dividends declared. In fiscal year 2010, the dividend payable in
July 2010 was declared in April.
|
H&R
BLOCK 2011
Form 10K 17
|
|
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.
OVERVIEW
A summary of our fiscal year 2011 results is as follows:
|
|
|
|
§
|
Revenues for the fiscal year were $3.8 billion, down 2.6%
from prior year results.
|
|
§
|
Diluted earnings per share from continuing operations decreased
7.5% from the prior year to $1.35.
|
|
§
|
U.S. tax returns prepared by us increased 6.5% from the
prior year primarily due to strong results in our retail offices
related to a free Federal 1040 EZ offer during the first half of
the season as well as improved results during the second half.
Online results also improved due to enhancements to our client
interface and improved traffic to our website.
|
|
§
|
Revenues in our Tax Services segment decreased 2.1% from the
prior year, primarily due to the sale of 280 company-owned
offices to franchisees and a decline in revenues from RAL
participations, which were partially offset by higher RAC fees.
|
|
§
|
Pretax income for the Tax Services segment decreased
$99.9 million, or 11.5%, due primarily to a
$34.3 million increase in bad debt expense, goodwill
impairment of $22.7 million and litigation charges of
$15.0 million.
|
|
§
|
Pretax income for the Business Services segment decreased
$9.7 million, or 16.5%, primarily due to lower revenues and
higher litigation expenses, partially offset by a goodwill
impairment charge recorded in the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Results of Operations Data
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,912,361
|
|
|
$
|
2,975,252
|
|
|
$
|
3,132,077
|
|
|
|
Business Services
|
|
|
829,794
|
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
Corporate and eliminations
|
|
|
32,141
|
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
|
|
|
|
|
$
|
3,774,296
|
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
767,498
|
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
|
Business Services
|
|
|
49,003
|
|
|
|
58,714
|
|
|
|
96,097
|
|
|
|
Corporate and eliminations
|
|
|
(139,476
|
)
|
|
|
(141,941
|
)
|
|
|
(183,775
|
)
|
|
|
|
|
|
|
|
|
677,025
|
|
|
|
784,135
|
|
|
|
839,370
|
|
|
|
Income taxes
|
|
|
257,620
|
|
|
|
295,189
|
|
|
|
326,315
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
419,405
|
|
|
|
488,946
|
|
|
|
513,055
|
|
|
|
Net loss of discontinued operations
|
|
|
(13,295
|
)
|
|
|
(9,704
|
)
|
|
|
(27,382
|
)
|
|
|
|
|
|
Net income
|
|
$
|
406,110
|
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
|
Net loss of discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.44
|
|
|
$
|
1.45
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
|
|
Net loss of discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.43
|
|
|
$
|
1.45
|
|
|
|
|
|
|
|
18 H&R
BLOCK 2011 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. and its
territories, Canada, and Australia. Additionally, this segment
includes the product offerings and activities of HRB Bank that
primarily support the tax network, RACs, our prior
participations in RALs, and our commercial tax business, which
provides tax preparation software to CPAs and other tax
preparers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Operating Statistics
|
|
|
|
|
|
|
|
|
|
(in 000s, except
average fee)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
TAX RETURNS PREPARED :
|
|
|
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
|
9,168
|
|
|
|
9,182
|
|
|
|
10,231
|
|
Franchise operations
|
|
|
5,588
|
|
|
|
5,064
|
|
|
|
4,936
|
|
|
|
|
Total retail operations
|
|
|
14,756
|
|
|
|
14,246
|
|
|
|
15,167
|
|
|
|
|
Software
|
|
|
2,201
|
|
|
|
2,193
|
|
|
|
2,309
|
|
Online
|
|
|
3,722
|
|
|
|
2,893
|
|
|
|
2,775
|
|
Free File Alliance
|
|
|
767
|
|
|
|
810
|
|
|
|
788
|
|
|
|
|
Total digital tax solutions
|
|
|
6,690
|
|
|
|
5,896
|
|
|
|
5,872
|
|
|
|
|
Total U.S. operations
|
|
|
21,446
|
|
|
|
20,142
|
|
|
|
21,039
|
|
International operations
(1)
|
|
|
3,055
|
|
|
|
3,019
|
|
|
|
2,864
|
|
|
|
|
|
|
|
24,501
|
|
|
|
23,161
|
|
|
|
23,903
|
|
|
|
|
NET AVERAGE FEE PER U.S. TAX RETURN PREPARED
RETAIL OPERATIONS
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
$
|
189.73
|
|
|
$
|
197.42
|
|
|
$
|
196.16
|
|
Franchise operations
|
|
|
171.86
|
|
|
|
174.32
|
|
|
|
169.04
|
|
|
|
|
|
|
$
|
182.96
|
|
|
$
|
189.21
|
|
|
$
|
187.36
|
|
|
|
|
|
|
|
|
(1)
|
In fiscal year 2011,
the end of the Canadian tax season was extended from April 30 to
May 2, 2011. Tax returns prepared in our international
operations in fiscal year 2011 includes 51,000 returns in both
company-owned and franchise offices which were accepted by the
client on May 1 or 2. The revenues related to these returns will
be recognized in fiscal year 2012.
|
(2)
|
Calculated as net
tax preparation fees divided by retail tax returns prepared.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Financial Results
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Tax preparation fees
|
|
$
|
1,914,876
|
|
|
$
|
1,991,989
|
|
|
$
|
2,154,822
|
|
Royalties
|
|
|
304,194
|
|
|
|
275,559
|
|
|
|
255,536
|
|
Fees from refund anticipation checks
|
|
|
181,661
|
|
|
|
87,541
|
|
|
|
100,021
|
|
Interest income on Emerald Advance
|
|
|
94,300
|
|
|
|
77,882
|
|
|
|
91,010
|
|
Fees from Emerald Card activities
|
|
|
90,451
|
|
|
|
99,822
|
|
|
|
98,031
|
|
Fees from Peace of Mind guarantees
|
|
|
78,413
|
|
|
|
79,888
|
|
|
|
78,205
|
|
Loan participation fees and related revenue
|
|
|
17,151
|
|
|
|
146,160
|
|
|
|
139,770
|
|
Other
|
|
|
231,315
|
|
|
|
216,411
|
|
|
|
214,682
|
|
|
|
|
Total revenues
|
|
|
2,912,361
|
|
|
|
2,975,252
|
|
|
|
3,132,077
|
|
|
|
|
Compensation and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Field wages
|
|
|
692,561
|
|
|
|
713,792
|
|
|
|
757,835
|
|
Other wages
|
|
|
133,183
|
|
|
|
111,326
|
|
|
|
117,291
|
|
Benefits and other compensation
|
|
|
162,544
|
|
|
|
175,904
|
|
|
|
167,005
|
|
|
|
|
|
|
|
988,288
|
|
|
|
1,001,022
|
|
|
|
1,042,131
|
|
Occupancy and equipment
|
|
|
385,130
|
|
|
|
410,709
|
|
|
|
412,335
|
|
Marketing and advertising
|
|
|
242,538
|
|
|
|
233,748
|
|
|
|
226,483
|
|
Bad debt
|
|
|
139,059
|
|
|
|
104,716
|
|
|
|
112,032
|
|
Depreciation and amortization
|
|
|
90,672
|
|
|
|
93,424
|
|
|
|
79,543
|
|
Supplies
|
|
|
42,300
|
|
|
|
49,781
|
|
|
|
52,438
|
|
Goodwill impairment
|
|
|
22,700
|
|
|
|
|
|
|
|
2,188
|
|
Other
|
|
|
279,277
|
|
|
|
263,556
|
|
|
|
292,795
|
|
Gains on sale of tax offices
|
|
|
(45,101
|
)
|
|
|
(49,066
|
)
|
|
|
(14,916
|
)
|
|
|
|
Total expenses
|
|
|
2,144,863
|
|
|
|
2,107,890
|
|
|
|
2,205,029
|
|
|
|
|
Pretax income
|
|
$
|
767,498
|
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
|
|
Pretax margin
|
|
|
26.4%
|
|
|
|
29.2%
|
|
|
|
29.6%
|
|
H&R
BLOCK 2011
Form 10K 19
FISCAL 2011
COMPARED TO FISCAL
2010 Tax
Services revenues decreased $62.9 million, or 2.1%,
compared to the prior year. Tax preparation fees decreased
$77.1 million, or 3.9%, due primarily to the sale of
company-owned offices to franchisees and the loss of certain
clients as a result of not having a RAL offering in our tax
offices this year. Although we believe we gained clients through
the free Federal EZ filing we began offering this year, that
increase did not have a significant impact on our
revenues.
Royalties increased $28.6 million, or 10.4%, primarily due
to the conversion of 280 company-owned offices into
franchises.
Fees earned on RACs increased $94.1 million, or 107.5%,
primarily due to an increase in the number of RACs issued as a
portion of our clients chose to receive their refunds via RAC,
as an alternative to a RAL.
RALs were historically offered to our clients by HSBC. In
December 2010, HSBC terminated its contract with us based on
restrictions placed on HSBC by its regulator and, therefore,
RALs were not offered this tax season. Current year revenues of
$17.2 million include the recognition of net deferred fees
from HSBC. This compares with revenues resulting from loans
participations and related fees in the prior year of
$146.2 million.
Interest income earned on EAs increased $16.4 million, or
21.1%, over the prior year primarily due to an increase in loan
volume, which resulted from offering the product to a wider
client base.
Other revenue increased $14.9 million, or 6.9%, primarily
due to an increase in online revenues.
Total expenses increased $37.0 million, or 1.8%, compared
to the prior year. Compensation and benefits decreased
$12.7 million, or 1.3%, primarily due to lower
commission-based wages due to conversions to franchise offices,
reduced headcount and related payroll taxes. This decline was
partially offset by severance costs and related payroll taxes of
$27.4 million. Occupancy costs declined $25.6 million,
or 6.2%, due to office closures and cost-saving initiatives. Bad
debt expense increased $34.3 million, or 32.8%, primarily
due to increased volumes on EAs, as well as a decline in tax
returns prepared for those clients. During the current year, we
recorded a $22.7 million impairment of goodwill in our
RedGear reporting unit, as discussed in Item 8, note 9
to the consolidated financial statements. Other expenses
increased $15.7 million, or 6.0%, primarily due to
incremental litigation expenses recorded in the current year.
Pretax income for fiscal year 2011 decreased $99.9 million,
or 11.5%, from 2010. As a result of the declines in revenues and
higher expenses, primarily bad debt expense and goodwill
impairment, pretax margin for the segment decreased to 26.4%
from 29.2% in fiscal year 2010.
FISCAL 2010
COMPARED TO FISCAL
2009 Tax
Services revenues decreased $156.8 million, or 5.0%,
compared to fiscal year 2009. 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 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 EAs 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.
Total expenses decreased $97.1 million, or 4.4%, compared
to fiscal year 2009. 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 EA 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 fiscal year
2009.
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.
20 H&R
BLOCK 2011 Form 10K
BUSINESS
SERVICES
This segment consists of RSM McGladrey, Inc. (RSM), a national
firm offering tax, consulting and accounting services, and
capital market services to middle-market companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Results
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Tax services
|
|
$
|
465,406
|
|
|
$
|
454,551
|
|
|
$
|
484,825
|
|
Business consulting
|
|
|
243,189
|
|
|
|
260,339
|
|
|
|
246,724
|
|
Accounting services
|
|
|
38,903
|
|
|
|
47,706
|
|
|
|
52,496
|
|
Capital markets
|
|
|
12,243
|
|
|
|
11,855
|
|
|
|
18,220
|
|
Reimbursed expenses
|
|
|
19,910
|
|
|
|
22,929
|
|
|
|
19,863
|
|
Other
|
|
|
50,143
|
|
|
|
62,969
|
|
|
|
75,681
|
|
|
|
|
Total revenues
|
|
|
829,794
|
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
|
Compensation and benefits
|
|
|
552,775
|
|
|
|
574,901
|
|
|
|
588,866
|
|
Occupancy
|
|
|
48,274
|
|
|
|
49,154
|
|
|
|
49,070
|
|
Depreciation
|
|
|
18,970
|
|
|
|
21,122
|
|
|
|
22,626
|
|
Marketing and advertising
|
|
|
20,914
|
|
|
|
18,960
|
|
|
|
23,803
|
|
Amortization of intangible assets
|
|
|
11,563
|
|
|
|
11,639
|
|
|
|
13,018
|
|
Litigation
|
|
|
39,317
|
|
|
|
19,968
|
|
|
|
6,712
|
|
Other
|
|
|
88,978
|
|
|
|
105,891
|
|
|
|
97,617
|
|
|
|
|
Total expenses
|
|
|
780,791
|
|
|
|
801,635
|
|
|
|
801,712
|
|
|
|
|
Pretax income
|
|
$
|
49,003
|
|
|
$
|
58,714
|
|
|
$
|
96,097
|
|
|
|
|
Pretax margin
|
|
|
5.9%
|
|
|
|
6.8%
|
|
|
|
10.7%
|
|
|
FISCAL 2011
COMPARED TO FISCAL 2010 Business
Services revenues decreased $30.6 million, or 3.6%,
from the prior year. Tax services revenues increased primarily
as a result of the acquisition of Caturano, as discussed in
Item 8, note 2 to the consolidated financial
statements. Business consulting revenues declined
$17.2 million, or 6.6%, primarily due to a decline in
services performed on a large multi-year engagement in our
consulting practice.
Other revenues declined $12.8 million, or 20.4%, primarily
as a result of a reduction in management fees received related
to the new administrative services agreement with M&P, as
discussed in Item 8, note 17 to the consolidated
financial statements.
Total expenses decreased $20.8 million, or 2.6%, from the
prior year. Compensation and benefits decreased
$22.1 million, or 3.8%, primarily due to a reduction of
costs directly related to the large multi-year consulting
engagement discussed above and reduced spend on employee
insurance benefits. Litigation expenses increased
$19.3 million, or 96.9%, over the prior year. Other
expenses declined $16.9 million, or 16.0%, primarily due to
an impairment of goodwill recorded in the prior year.
Pretax income for the year ended April 30, 2011 of
$49.0 million compares to $58.7 million in the prior
year. Pretax margin for the segment decreased to 5.9% from 6.8%
in fiscal year 2010, primarily due to litigation costs.
FISCAL 2010
COMPARED TO FISCAL
2009 Business
Services revenues for fiscal year 2010 decreased
$37.5 million, or 4.2%, from fiscal year 2009. Revenues
from core tax, consulting and accounting services decreased
$21.4 million, or 2.7%, from fiscal year 2009. Tax and
accounting services revenues decreased $30.3 million and
$4.8 million, respectively, primarily due to decreases in
chargeable hours and pressures on billable rates. Business
consulting revenues increased $13.6 million, or 5.5%,
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 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 $12.7 million, or 16.8%, primarily
due to lower management fee revenues and interest income
received from M&P.
Total expenses were essentially flat compared to fiscal year
2009. 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. Litigation expenses increased
$13.3 million from fiscal year 2009. Other expenses
increased $8.3 million primarily due to a
$15.0 million impairment of goodwill at RSM EquiCo, as
discussed in Item 8, note 9 to the consolidated
financial statements.
H&R
BLOCK 2011
Form 10K 21
Pretax income for the year ended April 30, 2010 of
$58.7 million compares to $96.1 million in fiscal year
2009. 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.
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.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operating Results
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Interest income on mortgage loans held for investment
|
|
$
|
24,693
|
|
|
$
|
31,877
|
|
|
$
|
46,396
|
|
|
|
|
|
Other
|
|
|
7,448
|
|
|
|
6,854
|
|
|
|
7,295
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
32,141
|
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
84,288
|
|
|
|
79,929
|
|
|
|
92,945
|
|
|
|
|
|
Provision for loan losses
|
|
|
35,567
|
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
|
|
Compensation and benefits
|
|
|
49,463
|
|
|
|
53,607
|
|
|
|
48,973
|
|
|
|
|
|
Other, net
|
|
|
2,299
|
|
|
|
(614
|
)
|
|
|
31,651
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
171,617
|
|
|
|
180,672
|
|
|
|
237,466
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(139,476
|
)
|
|
$
|
(141,941
|
)
|
|
$
|
(183,775
|
)
|
|
|
|
|
|
|
|
FISCAL YEAR 2011
COMPARED TO FISCAL YEAR 2010
Interest income earned on mortgage loans held for investment
decreased $7.2 million, or 22.5%, from the prior year,
primarily as a result of declining rates and non-performing
loans. Our provision for loan losses decreased
$12.2 million, or 25.5%, from the prior year as a result of
the continued run-off of our portfolio.
Income Taxes on
Continuing Operations
Our effective tax rate for continuing operations was 38.1% for
the fiscal year ended April 30, 2011, compared to 37.6% in
the prior year. This increase resulted from a decline in gains
from investments in company-owned life insurance assets which
are not subject to tax, an increase in the state effective tax
rate and other favorable net discrete adjustments booked in the
current year compared to unfavorable adjustments recorded in the
prior year.
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 fiscal year 2009, 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
fiscal year 2009.
Other expenses declined $32.3 million primarily due to
gains of $9.0 million on residual interests in fiscal year
2010, compared to impairments of $3.1 million recorded in
fiscal year 2009. 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
fiscal year 2009. Our effective tax rates declined from fiscal
year 2009 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.
DISCONTINUED
OPERATIONS
Sand Canyon Corporation (SCC, previously known as
Option One Mortgage Corporation) ceased originating mortgage
loans in December of 2007 and, in April 2008, sold its servicing
assets and discontinued its remaining operations. The sale of
servicing assets did not include the sale of any mortgage loans.
SCC retained contingent liabilities that arose from the
operations of SCC prior to its disposal, including certain
mortgage loan repurchase obligations, contingent liabilities
associated with litigation and related claims, lease
commitments, and employee termination benefits. SCC also
retained residual interests in certain mortgage loan
securitization transactions prior to cessation of its
origination business. The net loss from discontinued operations
totaled $13.3 million, $9.7 million and
$27.4 million for the fiscal years ended April 30,
2011, 2010 and 2009, respectively.
In connection with the securitization and sale of mortgage
loans, SCC made certain representations and warranties. In the
event that there is a breach of a representation and warranty
and such breach materially and adversely affects the value of a
mortgage loan, SCC may be obligated to repurchase a loan or
otherwise indemnify certain parties for losses incurred as a
result of loan liquidation.
22 H&R
BLOCK 2011 Form 10K
SCC has recorded a liability for estimated contingent losses
related to representation and warranty claims as of
April 30, 2011, of $126.3 million, which represents
SCCs best estimate of the probable loss that may occur.
Losses on valid claims totaled $12.2 million,
$18.2 million and $36.4 million for fiscal years 2011,
2010 and 2009, respectively. These amounts were recorded as
reductions of our loan repurchase liability. During the current
year, payments totaling $49.8 million were made under an
indemnity agreement dated April 2008 with a specific
counterparty in exchange for a full and complete release of such
partys ability to assert representation and warranty
claims. These payments were also recorded as a reduction in our
loan repurchase liability. The indemnity agreement was given as
part of obtaining the counterpartys consent to SCCs
sale of its mortgage servicing business in 2008. We have no
remaining payment obligations under this indemnity agreement.
While SCC uses the best information available to it in
estimating its liability, assessing the likelihood that claims
will be asserted in the future and estimating probable losses is
inherently difficult and requires considerable management
judgment. Although net losses on settled claims since
May 1, 2008 have been within initial loss estimates, to the
extent that the volume of asserted claims, the level of valid
claims, the counterparties asserting claims, the nature of
claims, or the value of residential home prices differ in the
future from current estimates, future losses may be greater than
the current estimates and those differences may be significant.
See additional discussion in Item 8, note 18 to the
consolidated financial statements.
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 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.
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.
ALLOWANCE FOR
LOAN LOSSES The principal amount of
mortgage loans held for investment totaled $573.0 million
at April 30, 2011. 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 $304.3 million at April 30, 2011,
and the portion of our allowance for loan losses allocated to
these loans totaled $11.2 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, 2011 our weighted-average frequency assumption
was 9.4% for SCC-originated loans compared to 2.8% 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 43% at April 30, 2011. The aggregate
principal balance of impaired loans
H&R
BLOCK 2011
Form 10K 23
totaled $162.3 million at April 30, 2011, and the
portion of our allowance for loan losses allocated to these
loans totaled $69.8 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
$106.3 million at April 30, 2011, and the portion of
our allowance for loan losses allocated to these loans totaled
$11.1 million.
The loan loss allowance as a percent of mortgage loans held for
investment was 16.1% at April 30, 2011, compared to 13.7%
at April 30, 2010. The increase during the current year is
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 In connection
with the securitization and sale of loans, SCC made certain
representations and warranties, including, but not limited to,
representations relating to matters such as ownership of the
loan, validity of lien securing the loan, and the loans
compliance with SCCs underwriting criteria.
Representations and warranties in whole loan sale transactions
to institutional investors included a knowledge
qualifier which limits SCC liability for borrower fraud to
those instances where SCC had knowledge of the fraud at the time
the loans were sold. In the event that there is a breach of a
representation and warranty and such breach materially and
adversely affects the value of a mortgage loan, SCC may be
obligated to repurchase a loan or otherwise indemnify certain
parties for losses incurred as a result of loan liquidation.
Generally, these representations and warranties are not subject
to a stated term, but would be subject to statutes of limitation
applicable to the contractual provisions.
SCC estimates losses relating to representation and warranty
claims by estimating loan repurchase and indemnification
obligations on both known claims and projections of future
claims. Projections of future claims are based on an analysis
that includes a combination of reviewing repurchase demands and
actual defaults and loss severities, inquiries from various
third-parties, the terms and provisions of related agreements
and the historical rate of repurchase and indemnification
obligations related to breaches of representations and
warranties. SCCs methodology for calculating this
liability considers the likelihood that individual
counterparties will assert future claims.
SCC recorded a liability for estimated contingent losses related
to representation and warranty claims of $126.3 million as
of April 30, 2011. Actual losses charged against this
reserve during fiscal year 2011 totaled $61.9 million,
which included payments totaling $49.8 million made under
an indemnity agreement dated April 2008 with a specific
counterparty in exchange for a full and complete release of such
partys ability to assert representation and warranty
claims. The recorded liability represents SCCs estimate of
losses from future claims where assertion of a claim and a
related contingent loss are both deemed probable. Because the
rate at which future claims may be deemed valid and actual loss
severity rates may differ significantly from historical
experience, SCC is not able to estimate reasonably possible loss
outcomes in excess of its current accrual. A 1% increase in both
assumed validity rates and loss severities would result in
losses beyond SCCs accrual of approximately
$16 million. This sensitivity is hypothetical and is
intended to provide an indication of the impact of a change in
key assumptions on the representations and warranties liability.
In reality, changes in one assumption may result in changes in
other assumptions, which may or may not counteract the
sensitivity.
While SCC uses the best information available to it in
estimating its liability, assessing the likelihood that claims
will be asserted in the future and estimating probable losses
are inherently difficult to estimate and require considerable
management judgment. Although net losses on settled claims since
May 1, 2008 have been within initial loss estimates, to the
extent that the volume of asserted claims, the level of valid
claims, the counterparties asserting claims, the nature of
claims, or the value of residential home prices differ in the
future from current estimates, future losses may be greater than
the current estimates and those differences may be significant.
See Item 8, note 18 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,
24 H&R
BLOCK 2011 Form 10K
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.
See Item 8, note 19 to our consolidated financial
statements.
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 $846.2 million as of April 30, 2011
and $840.4 million as of April 30, 2010.
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.
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.
We recorded a goodwill impairment of $22.7 million related
to our RedGear reporting unit within our Tax Services segment in
the third quarter of fiscal year 2011, leaving a remaining
goodwill balance of approximately $14 million. Revenues for
this reporting unit have been below our estimates. Poor results
in future years could result in further impairment.
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. Continued poor
results for this reporting unit could result in further
impairment.
See Item 8, note 9 to our consolidated financial
statements.
INCOME
TAXES Income taxes are accounted for
using the asset and liability approach under U.S. GAAP. 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
H&R
BLOCK 2011
Form 10K 25
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.
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, 2011 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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
512,503
|
|
|
$
|
587,469
|
|
|
$
|
1,024,439
|
|
|
|
|
|
Investing activities
|
|
|
(110,157
|
)
|
|
|
31,353
|
|
|
|
5,560
|
|
|
|
|
|
Financing activities
|
|
|
(534,391
|
)
|
|
|
(481,118
|
)
|
|
|
(40,233
|
)
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
5,844
|
|
|
|
11,678
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(126,201
|
)
|
|
$
|
149,382
|
|
|
$
|
989,766
|
|
|
|
|
|
|
|
|
CASH FROM
OPERATING ACTIVITIES Cash provided
by operations, which consists primarily of cash received from
customers, decreased $75.0 million from fiscal year 2010.
Cash payments for representation and warranty obligations of our
discontinued mortgage business totaled $61.9 million in
fiscal year 2011, compared to $18.4 million in fiscal year
2010 and $36.5 million in fiscal year 2009.
Restricted
Cash. We hold certain cash balances that are
restricted as to use. Cash and cash equivalents
restricted totaled $48.4 million at April 30, 2011,
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:
Purchases of
Available-for-Sale
Securities. During fiscal year 2011, HRB Bank
purchased $138.8 million in mortgage-backed securities for
regulatory purposes. See additional discussion in Item 8,
note 4 to the consolidated financial statements.
Mortgage Loans
Held for Investment. We received net proceeds of
$58.5 million, $72.8 million and $91.3 million on
our mortgage loans held for investment in fiscal years 2011,
2010 and 2009, respectively.
Purchases of
Property and Equipment. Total cash paid for
property and equipment was $63.0 million,
$90.5 million and $97.9 million for fiscal years 2011,
2010 and 2009, respectively.
Business
Acquisitions. Total cash paid for acquisitions
was $54.2 million, $10.5 million and
$293.8 million during fiscal years 2011, 2010 and 2009,
respectively. In July 2010 our Business Services segment
acquired Caturano, a Boston-based accounting firm, and cash used
in investing activities includes payments totaling
$32.6 million related to this acquisition. See additional
discussion in Item 8, note 2 to the consolidated
financial statements. In November 2008, we acquired our last
major independent franchise operator for an aggregate purchase
price of $279.2 million.
In October 2010, we signed a definitive merger agreement to
acquire all of the outstanding shares of 2SS Holdings, Inc.
(2SS), developer of TaxACT digital tax preparation
solutions, for $287.5 million in cash. Completion of the
transaction is subject to the satisfaction of customary closing
conditions, including regulatory approval. In May 2011, the
United States Department of Justice (the DOJ) filed
a civil antitrust lawsuit to block our proposed acquisition of
2SS. On June 21, 2011, the parties to the merger agreement
signed an amendment to the merger agreement, which is discussed
in Item 9B. There are no assurances that the DOJs
lawsuit will be resolved in our favor or that the transaction
will be consummated.
26 H&R
BLOCK 2011 Form 10K
If the closing conditions are satisfied and this acquisition is
consummated, we expect this acquisition will be funded by excess
available liquidity from
cash-on-hand
or short-term borrowings.
Sales of
Businesses. In fiscal year 2011, we sold 280 tax
offices to franchisees for proceeds of $65.6 million. 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 loans we made to our franchisees.
Loans Made to
Franchisees. Loans made to franchisees totaled
$92.5 million and $89.7 million for fiscal years 2011
and 2010, respectively. We received payments from franchisees
totaling $57.6 million and $40.7 million,
respectively. These amounts include both the financing of sales
of tax offices and franchisee draws under our Franchise Equity
Lines of Credit (FELCs).
Discontinued
Operations. In fiscal year 2009, we sold our
financial advisor business for proceeds of $304.0 million.
CASH FROM
FINANCING ACTIVITIES Changes in cash
used in financing activities primarily relate to the
following:
Short-Term
Borrowings. We use commercial paper borrowings
to fund our off-season losses and cover our seasonal working
capital needs, however we had no commercial paper borrowings
outstanding as of April 30, 2011 or 2010. Our commercial
paper borrowings peaked at $674.7 million in the current
year. We had other short-term borrowings in prior years to fund
our participation interests in RALs.
FHLB
Borrowings. HRB Bank obtains borrowings from the
FHLB in accordance with regulatory and capital requirements.
During fiscal years 2011, 2010 and 2009, we had net repayments
of $50.0 million, $25.0 million and
$29.0 million, respectively.
Customer Banking
Deposits. Customer banking deposits used
$11.4 million in the current year compared to
$17.5 million provided in fiscal year 2010 and
$64.4 million in fiscal year 2009. These deposits are held
by HRB Bank
Dividends. We
have consistently paid quarterly dividends. Dividends paid
totaled $186.8 million, $200.9 million and
$198.7 million in fiscal years 2011, 2010 and 2009,
respectively.
Repurchase and
Retirement of Common Stock. During fiscal year
2011, we purchased and immediately retired 19.0 million
shares of our common stock at a cost of $279.9 million.
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 $1.4 billion
remaining under this authorization at April 30, 2011.
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 $0.4 million,
$16.7 million and $71.6 million in fiscal years 2011,
2010 and 2009, 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 years 2011 and
2010, and $245.0 million in 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 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. HRB Bank paid dividends and returned of
capital of $262.5 million during fiscal year 2011,
comprised of $37.5 million in REO properties and loans and
$225.0 million in cash. At April 30, 2011, HRB Bank
had cash balances of $615.1 million. Distribution of those
cash balances would be subject to OTS approval and are therefore
not currently available for general corporate purposes.
H&R
BLOCK 2011
Form 10K 27
See additional discussion of regulatory and capital requirements
of HRB Bank in Regulatory Environment below.
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, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
April 30,
2011
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
|
|
Moodys
|
|
|
P-2
|
|
|
|
Baa2
|
|
|
|
Negative
|
|
|
|
P-2
|
|
|
|
Baa1
|
|
|
|
Stable
|
|
S&P
|
|
|
A-2
|
|
|
|
BBB
|
|
|
|
Negative
|
|
|
|
A-2
|
|
|
|
BBB
|
|
|
|
Positive
|
|
DBRS
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Stable
|
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Positive
|
|
|
At April 30, 2011, we maintained a CLOC agreement to
support commercial paper issuances, general corporate purposes
or for working capital needs. This facility provides funding up
to $1.7 billion and matures July 31, 2013. This
facility bears interest at an annual rate of LIBOR plus 1.30% to
2.80% or PRIME plus 0.30% to 1.80% (depending on the type of
borrowing) and includes an annual facility fee of 0.20% to 0.70%
of the committed amounts, based on our credit ratings. Covenants
in this facility include: (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, 2011, 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, 2011.
During fiscal years 2011, 2010 and 2009, 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,
2011.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
A summary of our obligations to make future payments as of
April 30, 2011, is as follows:
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
After 5 Years
|
|
|
|
|
|
Long-term debt (including interest)
|
|
$
|
1,151,434
|
|
|
$
|
67,750
|
|
|
$
|
674,257
|
|
|
$
|
409,427
|
|
|
$
|
|
|
|
|
Customer deposits
|
|
|
863,898
|
|
|
|
511,010
|
|
|
|
11,656
|
|
|
|
22
|
|
|
|
341,210
|
|
|
|
FHLB borrowings
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement plan contribution
|
|
|
50,000
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
Acquisition payments
|
|
|
43,273
|
|
|
|
2,880
|
|
|
|
31,376
|
|
|
|
2,909
|
|
|
|
6,108
|
|
|
|
Contingent acquisition payments
|
|
|
11,000
|
|
|
|
8,652
|
|
|
|
2,318
|
|
|
|
30
|
|
|
|
|
|
|
|
Media advertising purchase obligation
|
|
|
9,498
|
|
|
|
6,665
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
10,953
|
|
|
|
557
|
|
|
|
1,411
|
|
|
|
1,545
|
|
|
|
7,440
|
|
|
|
Operating leases
|
|
|
735,048
|
|
|
|
238,167
|
|
|
|
309,107
|
|
|
|
120,080
|
|
|
|
67,694
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
2,900,104
|
|
|
$
|
870,681
|
|
|
$
|
1,052,958
|
|
|
$
|
554,013
|
|
|
$
|
422,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of liabilities recorded in connection with
unrecognized tax positions that we reasonably expect to pay
within twelve months is $16.6 million at April 30,
2011 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 15 to the
consolidated financial statements for additional information.
See discussion of contractual obligations and commitments in
Item 8, within the notes to our consolidated financial
statements.
28 H&R
BLOCK 2011 Form 10K
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, 2011, 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 20 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 offering of RACs,
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 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 19 to
our consolidated financial statements.
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.
H&R
BLOCK 2011
Form 10K 29
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 2011,
2010 and 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
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
|
|
$
|
545,052
|
|
|
$
|
24,693
|
|
|
|
4.53
|
%
|
|
$
|
677,115
|
|
|
$
|
31,877
|
|
|
|
4.12
|
%
|
|
$
|
839,253
|
|
|
$
|
46,396
|
|
|
|
5.14
|
%
|
Federal funds sold
|
|
|
2,649
|
|
|
|
3
|
|
|
|
0.10
|
%
|
|
|
9,471
|
|
|
|
9
|
|
|
|
0.09
|
%
|
|
|
311,138
|
|
|
|
801
|
|
|
|
0.26
|
%
|
Emerald Advance
(1)
|
|
|
141,127
|
|
|
|
94,300
|
|
|
|
35.21
|
%
|
|
|
106,093
|
|
|
|
77,891
|
|
|
|
35.21
|
%
|
|
|
133,252
|
|
|
|
91,019
|
|
|
|
35.31
|
%
|
Available-for-sale
investment securities
|
|
|
22,243
|
|
|
|
174
|
|
|
|
0.78
|
%
|
|
|
25,144
|
|
|
|
181
|
|
|
|
0.71
|
%
|
|
|
29,500
|
|
|
|
791
|
|
|
|
2.68
|
%
|
FHLB stock
|
|
|
5,953
|
|
|
|
171
|
|
|
|
2.88
|
%
|
|
|
6,703
|
|
|
|
119
|
|
|
|
1.77
|
%
|
|
|
6,557
|
|
|
|
127
|
|
|
|
1.93
|
%
|
Cash and due from banks
|
|
|
930,666
|
|
|
|
2,338
|
|
|
|
0.25
|
%
|
|
|
747,504
|
|
|
|
1,976
|
|
|
|
0.26
|
%
|
|
|
12,474
|
|
|
|
123
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,647,690
|
|
|
$
|
121,679
|
|
|
|
7.38
|
%
|
|
|
1,572,030
|
|
|
$
|
112,053
|
|
|
|
7.00
|
%
|
|
|
1,332,174
|
|
|
$
|
139,257
|
|
|
|
10.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
57,899
|
|
|
|
|
|
|
|
|
|
|
|
94,499
|
|
|
|
|
|
|
|
|
|
|
|
71,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HRB Bank assets
|
|
$
|
1,705,589
|
|
|
|
|
|
|
|
|
|
|
$
|
1,666,529
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
830,597
|
|
|
$
|
8,488
|
|
|
|
1.02
|
%
|
|
$
|
1,019,664
|
|
|
$
|
10,174
|
|
|
|
1.00
|
%
|
|
$
|
863,072
|
|
|
$
|
14,069
|
|
|
|
1.63
|
%
|
FHLB borrowing
|
|
|
72,534
|
|
|
|
1,526
|
|
|
|
2.10
|
%
|
|
|
98,767
|
|
|
|
1,997
|
|
|
|
2.02
|
%
|
|
|
103,885
|
|
|
|
5,113
|
|
|
|
4.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903,131
|
|
|
$
|
10,014
|
|
|
|
1.11
|
%
|
|
|
1,118,431
|
|
|
$
|
12,171
|
|
|
|
1.09
|
%
|
|
|
966,957
|
|
|
$
|
19,182
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
366,666
|
|
|
|
|
|
|
|
|
|
|
|
267,159
|
|
|
|
|
|
|
|
|
|
|
|
230,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,269,797
|
|
|
|
|
|
|
|
|
|
|
|
1,385,590
|
|
|
|
|
|
|
|
|
|
|
|
1,197,228
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
435,792
|
|
|
|
|
|
|
|
|
|
|
|
280,939
|
|
|
|
|
|
|
|
|
|
|
|
206,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,705,589
|
|
|
|
|
|
|
|
|
|
|
$
|
1,666,529
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
(1)
|
|
|
|
|
|
$
|
111,665
|
|
|
|
6.78
|
%
|
|
|
|
|
|
$
|
99,882
|
|
|
|
6.23
|
%
|
|
|
|
|
|
$
|
120,075
|
|
|
|
9.06
|
%
|
|
|
|
|
(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
$48.5 million, $39.2 million and $44.0 million
for fiscal years 2011, 2010 and 2009, 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,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
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)
|
|
$
|
9,225
|
|
|
$
|
4,485
|
|
|
$
|
(1,211
|
)
|
|
$
|
5,951
|
|
|
$
|
(27,646
|
)
|
|
$
|
1,233
|
|
|
$
|
(8,192
|
)
|
|
$
|
(20,687
|
)
|
|
|
|
|
Available-for-sale
investment securities
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
16
|
|
|
|
(21
|
)
|
|
|
(611
|
)
|
|
|
86
|
|
|
|
(580
|
)
|
|
|
(117
|
)
|
|
|
|
|
Federal funds sold
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(6
|
)
|
|
|
(792
|
)
|
|
|
500
|
|
|
|
(515
|
)
|
|
|
(777
|
)
|
|
|
|
|
FHLB stock
|
|
|
52
|
|
|
|
(8
|
)
|
|
|
73
|
|
|
|
(13
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
|
|
Cash & due from banks
|
|
|
362
|
|
|
|
40
|
|
|
|
(128
|
)
|
|
|
450
|
|
|
|
1,853
|
|
|
|
(5,305
|
)
|
|
|
(90
|
)
|
|
|
7,248
|
|
|
|
|
|
|
|
|
|
|
$
|
9,626
|
|
|
$
|
4,514
|
|
|
$
|
(1,249
|
)
|
|
$
|
6,361
|
|
|
$
|
(27,204
|
)
|
|
$
|
(3,486
|
)
|
|
$
|
(9,388
|
)
|
|
$
|
(14,330
|
)
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
(1,686
|
)
|
|
$
|
(264
|
)
|
|
$
|
56
|
|
|
$
|
(1,478
|
)
|
|
$
|
(3,895
|
)
|
|
$
|
(573
|
)
|
|
$
|
(5,457
|
)
|
|
$
|
2,135
|
|
|
|
|
|
FHLB borrowings
|
|
|
(471
|
)
|
|
|
(22
|
)
|
|
|
81
|
|
|
|
(530
|
)
|
|
|
(3,116
|
)
|
|
|
149
|
|
|
|
(3,013
|
)
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(2,157
|
)
|
|
$
|
(286
|
)
|
|
$
|
137
|
|
|
$
|
(2,008
|
)
|
|
$
|
(7,011
|
)
|
|
$
|
(424
|
)
|
|
$
|
(8,470
|
)
|
|
$
|
1,883
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Non-accruing loans
have been excluded.
|
INVESTMENT
PORTFOLIO
The following table presents the cost basis and fair
value of HRB Banks investment portfolio at April 30,
2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
157,970
|
|
|
$
|
158,177
|
|
|
$
|
23,026
|
|
|
$
|
23,016
|
|
|
$
|
27,466
|
|
|
$
|
26,793
|
|
|
|
|
|
Federal funds sold
|
|
|
8,727
|
|
|
|
8,727
|
|
|
|
2,338
|
|
|
|
2,338
|
|
|
|
157,326
|
|
|
|
157,326
|
|
|
|
|
|
FHLB stock
|
|
|
3,315
|
|
|
|
3,315
|
|
|
|
6,033
|
|
|
|
6,033
|
|
|
|
6,730
|
|
|
|
6,730
|
|
|
|
|
|
Trust preferred security
|
|
|
|
|
|
|
|
|
|
|
1,854
|
|
|
|
31
|
|
|
|
3,454
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
$
|
170,012
|
|
|
$
|
170,219
|
|
|
$
|
33,251
|
|
|
$
|
31,418
|
|
|
$
|
194,976
|
|
|
$
|
191,141
|
|
|
|
|
|
|
|
|
|
30 H&R
BLOCK 2011 Form 10K
The following table shows the cost basis, scheduled maturities
and average yields for HRB Banks investment portfolio at
April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
$
|
157,970
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
157,970
|
|
|
|
2.32
|
%
|
|
$
|
157,970
|
|
|
|
2.32
|
%
|
|
|
Federal funds sold
|
|
|
8,727
|
|
|
|
8,727
|
|
|
|
0.08
|
%
|
|
|
|
|
|
|
|
%
|
|
|
8,727
|
|
|
|
0.08
|
%
|
|
|
FHLB stock
|
|
|
3,315
|
|
|
|
3,315
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
%
|
|
|
3,315
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,012
|
|
|
$
|
12,042
|
|
|
|
|
|
|
$
|
157,970
|
|
|
|
|
|
|
$
|
170,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN PORTFOLIO
AND SUMMARY OF LOAN LOSS
EXPERIENCE
The following table shows the composition of HRB
Banks mortgage loan portfolio as of April 30, 2011,
2010, 2009, 2008 and 2007, and information on delinquent loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Residential real estate mortgages
|
|
$
|
569,610
|
|
|
$
|
683,452
|
|
|
$
|
821,583
|
|
|
$
|
1,004,283
|
|
|
$
|
1,350,612
|
|
|
|
|
|
Home equity lines of credit
|
|
|
183
|
|
|
|
232
|
|
|
|
254
|
|
|
|
357
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
569,793
|
|
|
$
|
683,684
|
|
|
$
|
821,837
|
|
|
$
|
1,004,640
|
|
|
$
|
1,350,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and TDRs on non-accrual
|
|
$
|
155,645
|
|
|
$
|
185,209
|
|
|
$
|
222,382
|
|
|
$
|
110,759
|
|
|
$
|
22,909
|
|
|
|
|
|
Loans past due 90 days or more
|
|
|
149,501
|
|
|
|
153,703
|
|
|
|
121,685
|
|
|
|
73,600
|
|
|
|
22,909
|
|
|
|
|
|
Total TDRs
|
|
|
106,328
|
|
|
|
144,977
|
|
|
|
160,741
|
|
|
|
37,159
|
|
|
|
|
|
|
|
|
|
|
|
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
from Other
|
|
|
|
|
|
Percent
|
|
|
Delinquency
|
|
|
|
|
|
|
from SCC
|
|
|
Parties
|
|
|
Total
|
|
|
of Total
|
|
|
Rate (30+ Days)
|
|
|
|
|
|
|
|
Florida
|
|
$
|
47,378
|
|
|
$
|
68,499
|
|
|
$
|
115,877
|
|
|
|
20%
|
|
|
|
33
|
%
|
|
|
|
|
California
|
|
|
67,662
|
|
|
|
12,219
|
|
|
|
79,881
|
|
|
|
14%
|
|
|
|
32
|
%
|
|
|
|
|
New York
|
|
|
88,004
|
|
|
|
10,101
|
|
|
|
98,105
|
|
|
|
17%
|
|
|
|
46
|
%
|
|
|
|
|
Wisconsin
|
|
|
1,998
|
|
|
|
44,551
|
|
|
|
46,549
|
|
|
|
8%
|
|
|
|
8
|
%
|
|
|
|
|
All others
|
|
|
149,949
|
|
|
|
79,432
|
|
|
|
229,381
|
|
|
|
41%
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
354,991
|
|
|
$
|
214,802
|
|
|
$
|
569,793
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A rollforward of HRB Banks allowance for loss on mortgage
loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
$
|
|
|
|
|
|
|
Provision
|
|
|
35,200
|
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
42,004
|
|
|
|
3,622
|
|
|
|
|
|
Recoveries
|
|
|
272
|
|
|
|
88
|
|
|
|
54
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
Charge-offs and transfers
|
|
|
(38,520
|
)
|
|
|
(38,376
|
)
|
|
|
(25,279
|
)
|
|
|
(1,050
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
90,487
|
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans outstanding during the
year
|
|
|
5.96
|
%
|
|
|
4.95%
|
|
|
|
2.80%
|
|
|
|
0.09%
|
|
|
|
0.02%
|
|
|
|
|
|
|
|
H&R
BLOCK 2011
Form 10K 31
DEPOSITS
The following table shows HRB Banks average deposit
balances and the average rate paid on those deposits for fiscal
years 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
|
|
Money market and savings
|
|
$
|
279,162
|
|
|
|
0.81
|
%
|
|
$
|
400,920
|
|
|
|
0.50
|
%
|
|
$
|
467,864
|
|
|
|
1.37
|
%
|
Interest-bearing checking accounts
|
|
|
10,782
|
|
|
|
0.87
|
%
|
|
|
13,677
|
|
|
|
0.61
|
%
|
|
|
13,579
|
|
|
|
2.25
|
%
|
IRAs
|
|
|
353,902
|
|
|
|
1.01
|
%
|
|
|
377,973
|
|
|
|
1.02
|
%
|
|
|
289,814
|
|
|
|
1.27
|
%
|
Certificates of deposit
|
|
|
186,742
|
|
|
|
1.36
|
%
|
|
|
227,094
|
|
|
|
1.86
|
%
|
|
|
91,815
|
|
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
830,588
|
|
|
|
1.02
|
%
|
|
|
1,019,664
|
|
|
|
1.00
|
%
|
|
|
863,072
|
|
|
|
1.63
|
%
|
Non-interest-bearing deposits
|
|
|
310,781
|
|
|
|
|
|
|
|
233,717
|
|
|
|
|
|
|
|
212,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,141,369
|
|
|
|
|
|
|
$
|
1,253,381
|
|
|
|
|
|
|
$
|
1,075,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS
The following table shows certain of HRB Banks key
ratios for fiscal years 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
2010
|
|
|
2009
|
|
|
|
|
Pretax return on assets
|
|
|
2.36%
|
|
|
2.12%
|
|
|
|
(1.03
|
)%
|
Net return on equity
|
|
|
5.43%
|
|
|
21.04%
|
|
|
|
(6.67
|
)%
|
Equity to assets ratio
|
|
|
30.81%
|
|
|
28.83%
|
|
|
|
12.44%
|
|
|
During fiscal year 2009, HRB Bank shared the revenues and
expenses of the H&R Block Prepaid
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 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
|
|
Ending balance of FHLB advances
|
|
$
|
25,000
|
|
|
|
2.36%
|
|
|
$
|
50,000
|
|
|
|
1.92%
|
|
|
$
|
25,000
|
|
|
|
1.76%
|
|
Average balance of FHLB advances
|
|
|
72,534
|
|
|
|
2.10%
|
|
|
|
98,767
|
|
|
|
2.07%
|
|
|
|
103,885
|
|
|
|
4.92%
|
|
|
The maximum amount of FHLB advances outstanding during fiscal
years 2011, 2010 and 2009 was $75.0 million,
$100.0 million and $129.0 million, respectively.
NEW ACCOUNTING
PRONOUNCEMENTS
See Item 8, note 1 to our consolidated financial
statements for a discussion of recently issued accounting
pronouncements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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, 2011, 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 11 to our consolidated financial
statements.
HRB
BANK At
April 30, 2011, residential mortgage loans held for
investment consisted of 42% fixed-rate loans and 58%
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
32 H&R
BLOCK 2011 Form 10K
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, 2011, 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, 2011, 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, 2011 and 2010, 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 $10.9 million and $9.7 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 2011 and 2010 by $3.7 million and
$5.1 million, respectively, and cash balances at
April 30, 2011 and 2010 by $7.6 million and
$7.1 million, respectively.
During fiscal year 2011, 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 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,
2011 we had no forward exchange contracts outstanding.
SENSITIVITY
ANALYSIS
The sensitivities of certain financial instruments to changes in
interest rates as of April 30, 2011 and 2010 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, 2011
|
|
−300
|
|
−200
|
|
−100
|
|
+100
|
|
+200
|
|
+300
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
485,008
|
|
$
|
53,949
|
|
$
|
36,810
|
|
$
|
18,844
|
|
$
|
(16,601)
|
|
$
|
(31,228)
|
|
$
|
(46,280)
|
|
|
|
Mortgage-backed securities
|
|
|
158,177
|
|
|
640
|
|
|
611
|
|
|
1,161
|
|
|
(5,325)
|
|
|
(11,700)
|
|
|
(17,978)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at
|
|
Basis Point Change
|
|
|
|
|
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)
|
|
|
|
H&R
BLOCK 2011
Form 10K 33
|
|
ITEM 8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
DISCUSSION OF
FINANCIAL RESPONSIBILITY
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 2011, 2010 and 2009. Their
audits were conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
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, 2011.
Based on our assessment, management concluded that as of
April 30, 2011, 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.
|
|
|
William C. Cobb
President and Chief Executive Officer
|
|
Jeffrey T. Brown
Senior Vice President and Chief Financial Officer
|
34 H&R
BLOCK 2011 Form 10K
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
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, 2011 and 2010, and the related consolidated
statements of income and comprehensive income,
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2011. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements 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, 2011
and 2010, and the results of their operations and their cash
flows for each of the three years in the period ended
April 30, 2011, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 17 to the consolidated financial
statements, the Company adopted an accounting standard related
to consolidation of variable interest entities effective
May 1, 2010.
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, 2011, 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 23, 2011 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
Kansas City, Missouri
June 23, 2011
H&R
BLOCK 2011
Form 10K 35
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
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, 2011, 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, 2011, 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 as of and for the year ended
April 30, 2011 of the Company and our report dated
June 23, 2011 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding the Companys adoption of an accounting standard
related to consolidation of variable interest entities on
May 1, 2010.
Kansas City, Missouri
June 23, 2011
36 H&R
BLOCK 2011 Form 10K
CONSOLIDATED
STATEMENTS OF INCOME
|
|
AND
COMPREHENSIVE INCOME
|
(in
000s, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
3,225,861
|
|
|
$
|
3,231,487
|
|
|
$
|
3,437,906
|
|
Product and other revenues
|
|
|
414,282
|
|
|
|
520,440
|
|
|
|
491,155
|
|
Interest income
|
|
|
134,153
|
|
|
|
122,405
|
|
|
|
154,516
|
|
|
|
|
|
|
|
3,774,296
|
|
|
|
3,874,332
|
|
|
|
4,083,577
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
2,414,590
|
|
|
|
2,467,996
|
|
|
|
2,596,218
|
|
Selling, general and administrative
|
|
|
694,136
|
|
|
|
631,499
|
|
|
|
648,490
|
|
|
|
|
|
|
|
3,108,726
|
|
|
|
3,099,495
|
|
|
|
3,244,708
|
|
|
|
|
Operating income
|
|
|
665,570
|
|
|
|
774,837
|
|
|
|
838,869
|
|
Other income, net
|
|
|
11,455
|
|
|
|
9,298
|
|
|
|
501
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
677,025
|
|
|
|
784,135
|
|
|
|
839,370
|
|
Income taxes
|
|
|
257,620
|
|
|
|
295,189
|
|
|
|
326,315
|
|
|
|
|
Net income from continuing operations
|
|
|
419,405
|
|
|
|
488,946
|
|
|
|
513,055
|
|
Net loss from discontinued operations
|
|
|
(13,295
|
)
|
|
|
(9,704
|
)
|
|
|
(27,382
|
)
|
|
|
|
NET INCOME
|
|
$
|
406,110
|
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
Net loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.44
|
|
|
$
|
1.45
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
1.35
|
|
|
$
|
1.46
|
|
|
$
|
1.53
|
|
Net loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.08
|
)
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.43
|
|
|
$
|
1.45
|
|
|
|
|
COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
406,110
|
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
Unrealized gains (losses) on securities, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the year, net
of taxes of $58, $188 and $(1,736)
|
|
|
73
|
|
|
|
274
|
|
|
|
(2,836
|
)
|
Reclassification adjustment for gains included in income, net of
taxes of ($133), $811 and $762
|
|
|
55
|
|
|
|
(1,399
|
)
|
|
|
(1,164
|
)
|
Change in foreign currency translation adjustments
|
|
|
9,427
|
|
|
|
14,442
|
|
|
|
(10,125
|
)
|
|
|
|
Comprehensive income
|
|
$
|
415,665
|
|
|
$
|
492,559
|
|
|
$
|
471,548
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
H&R
BLOCK 2011
Form 10K 37
|
|
CONSOLIDATED
BALANCE SHEETS |
(in
000s, except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,677,844
|
|
|
$
|
1,804,045
|
|
Cash and cash equivalents restricted
|
|
|
48,383
|
|
|
|
34,350
|
|
Receivables, less allowance for doubtful accounts of $67,466 and
$112,475
|
|
|
492,290
|
|
|
|
517,986
|
|
Prepaid expenses and other current assets
|
|
|
259,214
|
|
|
|
292,655
|
|
|
|
|
Total current assets
|
|
|
2,477,731
|
|
|
|
2,649,036
|
|
Mortgage loans held for investment, less allowance for loan
losses of $92,087 and $93,535
|
|
|
485,008
|
|
|
|
595,405
|
|
Property and equipment, at cost less accumulated depreciation
and amortization of $677,220 and $657,008
|
|
|
307,320
|
|
|
|
345,470
|
|
Intangible assets, net
|
|
|
367,919
|
|
|
|
367,432
|
|
Goodwill
|
|
|
846,245
|
|
|
|
840,447
|
|
Other assets
|
|
|
723,738
|
|
|
|
436,528
|
|
|
|
|
Total assets
|
|
$
|
5,207,961
|
|
|
$
|
5,234,318
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Customer banking deposits
|
|
$
|
852,220
|
|
|
$
|
852,555
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
618,070
|
|
|
|
756,577
|
|
Accrued salaries, wages and payroll taxes
|
|
|
257,038
|
|
|
|
199,496
|
|
Accrued income taxes
|
|
|
458,910
|
|
|
|
459,175
|
|
Current portion of long-term debt
|
|
|
3,437
|
|
|
|
3,688
|
|
Federal Home Loan Bank borrowings
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
|
Total current liabilities
|
|
|
2,214,675
|
|
|
|
2,321,491
|
|
Long-term debt
|
|
|
1,049,754
|
|
|
|
1,035,144
|
|
Federal Home Loan Bank borrowings
|
|
|
|
|
|
|
25,000
|
|
Other noncurrent liabilities
|
|
|
493,958
|
|
|
|
412,053
|
|
|
|
|
Total liabilities
|
|
|
3,758,387
|
|
|
|
3,793,688
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, shares issued of 412,440,599
and 431,390,599
|
|
|
4,124
|
|
|
|
4,314
|
|
Convertible preferred stock, no par, stated value $0.01 per
share,
500,000 shares authorized
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
812,666
|
|
|
|
832,604
|
|
Accumulated other comprehensive income
|
|
|
11,233
|
|
|
|
1,678
|
|
Retained earnings
|
|
|
2,658,103
|
|
|
|
2,658,586
|
|
Less treasury shares, at cost
|
|
|
(2,036,552
|
)
|
|
|
(2,056,552
|
)
|
|
|
|
Total stockholders equity
|
|
|
1,449,574
|
|
|
|
1,440,630
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,207,961
|
|
|
$
|
5,234,318
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
38 H&R
BLOCK 2011 Form 10K
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
406,110
|
|
|
$
|
479,242
|
|
|
$
|
485,673
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
121,633
|
|
|
|
126,901
|
|
|
|
123,631
|
|
|
|
|
|
Provision for bad debts and loan losses
|
|
|
180,951
|
|
|
|
161,296
|
|
|
|
181,829
|
|
|
|
|
|
Provision for deferred taxes
|
|
|
9,432
|
|
|
|
170,566
|
|
|
|
73,213
|
|
|
|
|
|
Stock-based compensation
|
|
|
14,500
|
|
|
|
29,369
|
|
|
|
26,557
|
|
|
|
|
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
|
|
|
|
97,578
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents restricted
|
|
|
(14,033
|
)
|
|
|
2,497
|
|
|
|
(44,625
|
)
|
|
|
|
|
Receivables
|
|
|
(105,708
|
)
|
|
|
(87,889
|
)
|
|
|
(77,447
|
)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(37,892
|
)
|
|
|
(2,320
|
)
|
|
|
84,279
|
|
|
|
|
|
Other noncurrent assets
|
|
|
(98,818
|
)
|
|
|
(59,429
|
)
|
|
|
176,864
|
|
|
|
|
|
Accounts payable, accrued expenses and
other current liabilities
|
|
|
(111,727
|
)
|
|
|
(305
|
)
|
|
|
(36,024
|
)
|
|
|
|
|
Accrued salaries, wages and payroll taxes
|
|
|
56,009
|
|
|
|
(59,617
|
)
|
|
|
(106,014
|
)
|
|
|
|
|
Accrued income taxes
|
|
|
5,962
|
|
|
|
(77,254
|
)
|
|
|
126,594
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
119,428
|
|
|
|
(65,261
|
)
|
|
|
(56,001
|
)
|
|
|
|
|
Other, net
|
|
|
(33,344
|
)
|
|
|
(30,327
|
)
|
|
|
(31,668
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
512,503
|
|
|
|
587,469
|
|
|
|
1,024,439
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(138,824
|
)
|
|
|
(5,365
|
)
|
|
|
(5,092
|
)
|
|
|
|
|
Maturities of and payments received on
available-for-sale
securities
|
|
|
16,797
|
|
|
|
15,758
|
|
|
|
15,075
|
|
|
|
|
|
Principal payments on mortgage loans held for investment, net
|
|
|
58,471
|
|
|
|
72,832
|
|
|
|
91,329
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(62,959
|
)
|
|
|
(90,515
|
)
|
|
|
(97,880
|
)
|
|
|
|
|
Payments made for business acquisitions, net of cash acquired
|
|
|
(54,171
|
)
|
|
|
(10,539
|
)
|
|
|
(293,805
|
)
|
|
|
|
|
Proceeds from sale of businesses, net
|
|
|
71,083
|
|
|
|
66,623
|
|
|
|
18,865
|
|
|
|
|
|
Franchise loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans funded
|
|
|
(92,455
|
)
|
|
|
(89,664
|
)
|
|
|
|
|
|
|
|
|
Payments received
|
|
|
57,552
|
|
|
|
40,710
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
255,066
|
|
|
|
|
|
Other, net
|
|
|
34,349
|
|
|
|
31,513
|
|
|
|
22,002
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(110,157
|
)
|
|
|
31,353
|
|
|
|
5,560
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
(4,818,766
|
)
|
|
|
(1,406,013
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of commercial paper
|
|
|
4,818,766
|
|
|
|
1,406,013
|
|
|
|
|
|
|
|
|
|
Repayments of other borrowings
|
|
|
(50,000
|
)
|
|
|
(4,267,773
|
)
|
|
|
(4,762,294
|
)
|
|
|
|
|
Proceeds from other borrowings
|
|
|
|
|
|
|
4,242,727
|
|
|
|
4,733,294
|
|
|
|
|
|
Customer banking deposits, net
|
|
|
(11,440
|
)
|
|
|
17,539
|
|
|
|
64,357
|
|
|
|
|
|
Dividends paid
|
|
|
(186,802
|
)
|
|
|
(200,899
|
)
|
|
|
(198,685
|
)
|
|
|
|
|
Repurchase of common stock, including shares surrendered
|
|
|
(283,534
|
)
|
|
|
(254,250
|
)
|
|
|
(106,189
|
)
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
|
|
|
|
141,415
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
424
|
|
|
|
16,682
|
|
|
|
71,594
|
|
|
|
|
|
Net cash provided by financing activities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
4,783
|
|
|
|
|
|
Other, net
|
|
|
(3,039
|
)
|
|
|
(35,144
|
)
|
|
|
11,492
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(534,391
|
)
|
|
|
(481,118
|
)
|
|
|
(40,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
5,844
|
|
|
|
11,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(126,201
|
)
|
|
|
149,382
|
|
|
|
989,766
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
1,804,045
|
|
|
|
1,654,663
|
|
|
|
664,897
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
1,677,844
|
|
|
$
|
1,804,045
|
|
|
$
|
1,654,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds received
of $4,762, $12,587 and $158,862
|
|
$
|
244,917
|
|
|
$
|
359,559
|
|
|
$
|
(1,593
|
)
|
|
|
|
|
Interest paid on borrowings
|
|
|
73,791
|
|
|
|
78,305
|
|
|
|
89,541
|
|
|
|
|
|
Interest paid on deposits
|
|
|
8,541
|
|
|
|
10,156
|
|
|
|
14,004
|
|
|
|
|
|
Transfers of foreclosed loans to other assets
|
|
|
16,463
|
|
|
|
19,341
|
|
|
|
65,171
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
H&R
BLOCK 2011
Form 10K 39
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(amounts
in 000s, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
|
Balances at May 1, 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
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406,110
|
|
|
|
|
|
|
|
|
|
|
|
406,110
|
|
Unrealized translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,427
|
|
Change in net unrealized gain (loss) on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,500
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,332
|
)
|
|
|
|
|
|
|
|
|
|
|
339
|
|
|
|
6,439
|
|
|
|
(1,893
|
)
|
Nonvested shares/units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,952
|
)
|
|
|
|
|
|
|
(95
|
)
|
|
|
632
|
|
|
|
12,028
|
|
|
|
(1,019
|
)
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,784
|
)
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
5,121
|
|
|
|
3,337
|
|
Acquisition of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230
|
)
|
|
|
(3,588
|
)
|
|
|
(3,588
|
)
|
Retirement of common shares
|
|
|
(18,950
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,370
|
)
|
|
|
|
|
|
|
(268,387
|
)
|
|
|
|
|
|
|
|
|
|
|
(279,947
|
)
|
Cash dividends declared $0.45 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138,111
|
)
|
|
|
|
|
|
|
|
|
|
|
(138,111
|
)
|
|
|
|
Balances at April 30, 2011
|
|
|
412,441
|
|
|
$
|
4,124
|
|
|
|
|
|
|
$
|
|
|
|
$
|
812,666
|
|
|
$
|
11,233
|
|
|
$
|
2,658,103
|
|
|
|
(107,075
|
)
|
|
$
|
(2,036,552
|
)
|
|
$
|
1,449,574
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
40 H&R
BLOCK 2011 Form 10K
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 and tax preparation and related software. Tax
preparation services are also provided in Canada and Australia.
Our Tax Services segment comprised 77.2% of our consolidated
revenues from continuing operations for fiscal year 2011.
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.
MANAGEMENT
ESTIMATES The
preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) 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, credit losses on
receivable balances and related matters. Estimates have been
prepared on the basis of the most current and best information
available as of each balance sheet date. 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 59% of our mortgage loan portfolio consists of
loans to borrowers located in the states of Florida, California,
New York and Wisconsin.
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 $38.8 million and $35.9 million at
April 30, 2011 and 2010, respectively.
CASH AND CASH
EQUIVALENTS
RESTRICTED Cash
and cash equivalents restricted consists primarily
of cash held by H&R Block Bank (HRB Bank) required for
regulatory compliance and cash held by our captive insurance
subsidiary that will be used to pay claims.
RECEIVABLES AND
RELATED
ALLOWANCES Receivables
consist primarily of accounts receivable from customers of our
Business Services segment and receivables from tax clients for
tax return preparation. The allowance for doubtful accounts for
these receivables 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. Business Services
accounts receivable are charged-off primarily when we determine
that the specific customer does not have the ability to repay
the balance in full. Receivables from tax clients for tax return
preparation are not specifically identified and charged off, but
are evaluated on a pooled basis. At the end of each tax season
the outstanding balances on these receivables are evaluated
based on collections received and expected collections over
subsequent tax seasons.
Our financing receivables consist primarily of mortgage loans
held for investment, Emerald Advance lines of Credit (EAs), tax
client receivables related to refund anticipation loans (RALs)
and loans made to franchisees.
Emerald Advance
lines of credit. EAs are offered to clients in tax
offices from late November through mid-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.
Interest income on EAs is calculated using the average daily
balance method and is recognized based on the principal amount
outstanding until the outstanding balance is paid or becomes
delinquent. Loan commitment fees on EAs, net of related
expenses, are initially deferred and recognized as revenue over
the commitment period, which is typically two months. EAs
balances are due on February 15th, and any amounts unpaid by
that date are placed on non-accrual status. Payments on past due
amounts are recorded as a reduction in the receivable balance.
H&R
BLOCK 2011
Form 10K 41
We review the credit quality of these receivables based on
pools, which are segregated by the year of origination. Specific
bad debt rates are applied to each pool, as well as to those who
maintain their loan year-round.
We determine our allowance for these receivables collectively,
based on a review of receipts taking into consideration
historical experience. These receivables are not specifically
identified and charged-off, but are evaluated on a pooled basis.
Initial bad debt rates also consider whether the loan was made
to a new or repeat client. At the end of each tax season the
outstanding balances on these receivables are evaluated based on
collections received and expected collections over subsequent
tax seasons. We adjust our allowance accordingly, with these
adjustments reflected as bad debt expense.
Tax client
receivables related to RALs. Historically, RALs were
offered in our US retail tax offices through a contractual
relationship with HSBC Holdings plc (HSBC). We purchased a 49.9%
participation interest in all RALs obtained through our retail
offices. In December 2010, HSBC terminated its contract with us
based on restrictions placed on HSBC by its regulator and RALs
were not offered in our tax offices this tax season. In
connection with the contract termination, we obtained the
remaining rights to collect on the outstanding balances of RALs
originated in years 2006 and later. All tax client receivables
related to RALs outstanding at April 30, 2011 were
originated prior to fiscal year 2011 and are past due. We do not
accrue interest on these receivables. Payments on past due
amounts are recorded as a reduction in the receivable balance.
We review the credit quality of these receivables based on
pools, which are segregated by the year of origination, with
specific bad debt rates applied to each pool.
These receivables are not specifically identified and
charged-off, but are evaluated on a pooled basis. At the end of
each tax season the outstanding balances on these receivables
are evaluated based on collections received and expected
collections over subsequent tax seasons. We adjust our allowance
accordingly, with these adjustments reflected as bad debt
expense.
Loans made to
franchisees. Interest income on loans made to
franchisees 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. Loans made
to franchisees totaled $172.6 million at April 30,
2011, and consisted of $125.1 million in term loans made to
finance the purchase of franchises and $47.5 million in
revolving lines of credit made to existing franchisees primarily
for the purpose of funding their off-season needs. The credit
quality of these receivables is determined on a specific
franchisee basis, taking into account the franchisees
credit score, their payment history on existing loans and
operational amounts due to us, the
loan-to-value
ratio and
debt-to-income
ratio. Credit scores,
loan-to-value
and
debt-to-income
ratios are obtained at the time of underwriting. Payment history
is monitored on a regular basis. We believe all loans to
franchisees are of similar credit quality. Loans are evaluated
for impairment when they become delinquent. Amounts deemed to be
uncollectible are written off to bad debt expense and bad debt
related to these loans has typically been insignificant.
Additionally, the franchise office serves as collateral for the
loan. In the event the franchisee is unable to repay the loans,
we revoke their franchise rights, write off the remaining
balance of the loans and assume control of the office. As of
April 30, 2011, loans totaling $0.1 million were past
due, however we had no loans to franchisees on non-accrual
status.
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 of 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 life of the related loan.
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 loans underlying
collateral 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 included in the provision for credit
losses.
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
42 H&R
BLOCK 2011 Form 10K
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 all contractual payments 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 or who may otherwise have difficulty making their
payments. 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 the restructured terms. 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.
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.
INVESTMENTS Investments
include both
available-for-sale
marketable securities and investments
held-to-maturity.
These investments are included in other assets in the
consolidated balance sheets.
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.
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.
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.
Held-to-Maturity.
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 HRB Bank for borrowing
availability. The cost of the stock represents its redemption
value, as there is no ready market value.
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,
H&R
BLOCK 2011
Form 10K 43
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 $22.7 million goodwill impairment related to
our RedGear reporting unit within our Tax Services segment in
fiscal year 2011. 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, 2011.
The weighted-average life of intangible assets with finite lives
is 26 years. Intangible assets are typically amortized over
the estimated useful life of the assets using the straight-line
method.
COMMERCIAL
PAPER During
the year we issued commercial paper to finance temporary
liquidity needs and various financial activities. There was no
commercial paper outstanding at April 30, 2011 or 2010.
MORTGAGE LOAN
REPURCHASE
LIABILITY In
connection with the securitization and sale of loans, Sand
Canyon Corporation (SCC) made certain representations and
warranties, including, but not limited to, representations
relating to matters such as ownership of the loan, validity of
lien securing the loan, and the loans compliance with
SCCs underwriting criteria. Representations and warranties
in whole loan sale transactions to institutional investors
included a knowledge qualifier which limits SCC
liability for borrower fraud to those instances where SCC had
knowledge of the fraud at the time the loans were sold. In the
event that there is a breach of a representation and warranty
and such breach materially and adversely affects the value of a
mortgage loan, SCC may be obligated to repurchase a loan or
otherwise indemnify certain parties for losses incurred as a
result of loan liquidation. Generally, these representations and
warranties are not subject to a stated term, but would be
subject to statutes of limitation applicable to the contractual
provisions.
SCC estimates losses relating to representation and warranty
claims by estimating loan repurchase and indemnification
obligations on both known claims and projections of future
claims. Projections of future claims are based on an analysis
that includes a combination of reviewing repurchase demands and
actual defaults and loss severities, inquiries from various
third-parties, the terms and provisions of related agreements
and the historical rate of repurchase and indemnification
obligations related to breaches of representations and
warranties. SCCs methodology for calculating this
liability considers the likelihood that individual
counterparties will assert future claims. The repurchase
liability is included in accounts payable, accrued expenses and
other current liabilities on our consolidated balance sheets.
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
44 H&R
BLOCK 2011 Form 10K
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
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 in the current year include royalties
from franchisees 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.
|
|
§
|
Software revenues consist mainly of tax preparation 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.
|
|
§
|
In fiscal years 2010 and 2009, loan participation revenue was
recognized over the life of the loan.
|
Interest income consists primarily of interest earned on
mortgage loans held for investment and EAs 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 EAs 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.
|
H&R
BLOCK 2011
Form 10K 45
|
|
|
|
§
|
Loan commitment fees, net of related expenses, are initially
deferred and recognized as revenue over the commitment period.
|
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 for radio and television ads are expensed the first time
the advertisement takes place, with print and mailing
advertising expensed as incurred. Total advertising costs of
continuing operations for fiscal years 2011, 2010 and 2009
totaled $264.2 million, $254.8 million and
$249.2 million, respectively.
GAINS ON SALES OF
TAX
OFFICES We
periodically sell company-owned tax offices to franchisees.
These sales can be financed by franchisees through loans offered
by an affiliated company, which we consolidate. Gains are
recorded upon determination that collection of the sales
proceeds is reasonably assured. Gains are initially deferred
when they are financed with these loans and are recognized after
minimum payments and equity thresholds are met. Gains are
reported in operating income due to their recurring nature, and
are included as a reduction of selling, general and
administrative expenses in our consolidated income statements.
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 $22.3 million,
$24.0 million and $26.7 million for fiscal years 2011,
2010 and 2009, 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 $29.6 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 is comprised of net income, foreign
currency translation adjustments and the change in net
unrealized gains or losses on AFS marketable securities.
Included in stockholders equity at April 30, 2011 and
2010, the net unrealized holding gain on AFS securities was
$0.5 million and $0.3 million, respectively, and the
foreign currency translation adjustment was $10.8 million
and $1.3 million, respectively.
NEW ACCOUNTING
STANDARDS In
April 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update
2011-02,
Receivables (Topic 310) A Creditors
Determination of Whether a Restructuring is a Troubled Debt
Restructuring. This guidance assists in determining if a
loan modification qualifies as a TDR and requires that creditors
must determine that a concession has been made and the borrower
is having financial difficulties. This guidance is effective
beginning with our fiscal year 2012. As a result of applying
this guidance, we may identify loans that are newly considered
impaired, however we believe this guidance will not have a
material effect on our consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements. 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 believe this guidance will not have a material
effect on our consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update
2010-28,
Intangibles Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts.
The amendments affect reporting units whose carrying amount is
zero or negative, and require performance of Step 2 of the
goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, a reporting
unit would consider whether there are any adverse qualitative
factors indicating that an impairment may exist. The qualitative
factors are consistent with existing guidance. The reporting
unit would evaluate if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its
46 H&R
BLOCK 2011 Form 10K
carrying amount. This guidance is effective beginning with our
fiscal year 2012. We believe this guidance will not have a
material effect on our consolidated financial statements.
STANDARDS
IMPLEMENTED In
July 2010 the FASB issued Accounting Standards Update
2010-20,
Disclosures About Credit Quality of Financing Receivables
and Allowance for Credit Losses. This guidance requires
enhanced disclosures about the allowance for credit losses and
the credit quality of financing receivables and would apply to
financing receivables held by all creditors. The requirements
for period end disclosures are effective beginning with the
first interim or annual reporting period ending after
December 15, 2010. The requirements for activity-based
disclosures were effective for our fourth quarter. The new
disclosures are included in notes 1, 5 and 6. The
requirements for TDR disclosures are effective for our first
quarter of fiscal year 2012.
In June 2009, the FASB issued revised authoritative guidance
associated with the consolidation of variable interest entities
(VIEs). The revised guidance replaced the previous
quantitative-based assessment for determining whether an
enterprise is the primary beneficiary of a VIE and focuses
primarily on a qualitative assessment. This assessment requires
identifying the enterprise that has (1) the power to direct
the activities of the VIE that can most significantly impact the
entitys performance; and (2) the obligation to absorb
losses and the right to receive benefits from the VIE that could
potentially be significant to such entity. The revised guidance
also requires that the enterprise continually reassess whether
it is the primary beneficiary of a VIE rather than conducting a
reassessment only upon the occurrence of specific events. We
implemented this guidance on May 1, 2010 and evaluated our
financial interests to determine if we had interests in VIEs and
if we are the primary beneficiary of the VIE. See note 17
for additional information on our VIEs.
In June 2009, the FASB issued guidance, under Topic
860 Transfers and Servicing. This guidance requires
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.
We adopted this guidance as of May 1, 2010 and it did not
have a material effect on our consolidated financial statements.
NOTE 2:
BUSINESS COMBINATIONS AND DISPOSALS
Effective July 20, 2010, our Business Services segment
acquired certain non-attest assets and liabilities of
Caturano & Company, Inc. (Caturano), a Boston-based
accounting firm, for an aggregate purchase price of
$40.2 million. We expect this acquisition to expand our
presence in the Boston market. We made cash payments of
$32.6 million, including $29.8 million at closing.
Payment of the remaining purchase price is deferred and will be
paid over the next 13 years. The following table summarizes
the fair value of identifiable assets acquired and liabilities
assumed and the resulting goodwill:
|
|
|
|
|
(in 000s)
|
|
|
|
|
Customer
relationships(1)
|
|
$
|
6,733
|
|
Non-compete
agreements(2)
|
|
|
2,766
|
|
Attest firm
affiliation(3)
|
|
|
7,629
|
|
Goodwill
|
|
|
27,289
|
|
Fixed assets
|
|
|
2,500
|
|
Other assets
|
|
|
831
|
|
Other liabilities
|
|
|
(1,640
|
)
|
Unfavorable
leasehold(2)
|
|
|
(5,890
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
40,218
|
|
|
|
|
|
|
|
|
|
(1)
|
Estimated life of
12 years.
|
(2)
|
Estimated life of
7 years.
|
(3)
|
Estimated life of
18 years. Represents the benefits to be received from the
Alternative Practice Structure arrangement and affiliation with
attest clients.
|
In connection with the acquisition a deferred compensation plan,
an employee retention program and a performance bonus plan were
put in place for eligible employees. Expenses related to these
plans will be treated as compensation and will be expensed as
incurred. We incurred expenses totaling $2.6 million under
these plans during fiscal year 2011.
In October 2010, we signed a definitive merger agreement to
acquire all of the outstanding shares of 2SS Holdings, Inc.
(2SS), developer of TaxACT digital tax preparation
solutions, for $287.5 million in cash. Completion of the
transaction is subject to the satisfaction of customary closing
conditions, including regulatory approval. In May 2011, the
United States Department of Justice (the DOJ) filed
a civil antitrust lawsuit to block our proposed acquisition of
2SS. On June 21, 2011, the parties to the merger agreement
signed an
H&R
BLOCK 2011
Form 10K 47
amendment to the merger agreement. There are no assurances that
the DOJs lawsuit will be resolved in our favor or that the
transaction will be consummated.
During fiscal years 2011, 2010 and 2009, we sold certain retail
tax offices to existing franchisees for cash proceeds of
$65.6 million, $65.7 million and $16.9 million,
respectively, and recorded gains on these sales of
$45.1 million, $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 2011, 2010 and 2009, we made other
acquisitions, which were accounted for as purchases with cash
payments totaling $19.1 million, $10.3 million and
$12.6 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 2011, 2010 and 2009 we also paid
$2.5 million, $0.2 million and $1.9 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. 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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to
shareholders
|
|
$
|
419,405
|
|
|
$
|
488,946
|
|
|
$
|
513,055
|
|
|
|
|
|
Amounts allocated to participating securities (nonvested shares)
|
|
|
(1,085
|
)
|
|
|
(1,888
|
)
|
|
|
(2,042
|
)
|
|
|
|
|
|
|
|
Net income from continuing operations
attributable to common shareholders
|
|
$
|
418,320
|
|
|
$
|
487,058
|
|
|
$
|
511,013
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
309,230
|
|
|
|
332,283
|
|
|
|
332,787
|
|
|
|
|
|
Potential dilutive shares
|
|
|
547
|
|
|
|
953
|
|
|
|
1,752
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
|
|
|
309,777
|
|
|
|
333,236
|
|
|
|
334,539
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations attributable to
common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.35
|
|
|
$
|
1.47
|
|
|
$
|
1.53
|
|
|
|
|
|
Diluted
|
|
|
1.35
|
|
|
|
1.46
|
|
|
|
1.53
|
|
|
|
|
|
|
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 12.8 million,
13.7 million and 15.7 million shares of stock for
fiscal years 2011, 2010 and 2009, respectively, as the effect
would be antidilutive.
NOTE 4:
INVESTMENTS
AVAILABLE-FOR-SALE The
amortized cost and fair value of securities classified as
available-for-sale
held at April 30, 2011 and 2010 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
157,970
|
|
|
$
|
401
|
|
|
$
|
(194
|
)
|
|
$
|
158,177
|
|
|
$
|
23,026
|
|
|
$
|
39
|
|
|
$
|
(49
|
)
|
|
$
|
23,016
|
|
|
|
|
|
Municipal bonds
|
|
|
8,335
|
|
|
|
405
|
|
|
|
|
|
|
|
8,740
|
|
|
|
8,442
|
|
|
|
459
|
|
|
|
|
|
|
|
8,901
|
|
|
|
|
|
Trust preferred security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,854
|
|
|
|
|
|
|
|
(1,823
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
$
|
166,305
|
|
|
$
|
806
|
|
|
$
|
(194
|
)
|
|
$
|
166,917
|
|
|
$
|
33,322
|
|
|
$
|
498
|
|
|
$
|
(1,872
|
)
|
|
$
|
31,948
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At April 30,
2011, we had no investments that had been in a continuous loss
position for more than twelve months. At April 30, 2010,
investments with a cost of $15.7 million and gross
unrealized losses of $1.9 million had been in a continuous
loss position for more than twelve months.
|
We did not sell any AFS securities in fiscal year 2011. Proceeds
from the sales of AFS securities were $2.1 million and
$8.3 million during fiscal years 2010 and 2009,
respectively. We recorded no gross realized gains or losses on
those sales during fiscal year 2010. Gross realized gains on
sales during fiscal year 2009 were $0.7 million; gross
realized losses were $1.3 million. During fiscal years
2011, 2010 and 2009, we recorded
other-than-temporary
48 H&R
BLOCK 2011 Form 10K
impairments of AFS securities totaling $1.9 million,
$1.6 million and $1.5 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,
2011, occur at varying dates over the next 30 years, and
are set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Maturing in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year
|
|
$
|
3,023
|
|
|
$
|
3,081
|
|
|
|
|
|
Two to five years
|
|
|
3,112
|
|
|
|
3,331
|
|
|
|
|
|
Six to ten years
|
|
|
2,200
|
|
|
|
2,328
|
|
|
|
|
|
Beyond
|
|
|
157,970
|
|
|
|
158,177
|
|
|
|
|
|
|
|
|
|
|
$
|
166,305
|
|
|
$
|
166,917
|
|
|
|
|
|
|
|
|
|
HELD-TO-MATURITY HRB
Bank is required to maintain a restricted investment in FHLB
stock for borrowing availability. The cost of this investment,
$3.3 million and $6.0 million at April 30, 2011
and 2010, respectively, represents its redemption value at each
balance sheet date, as these investments do not have a ready
market.
NOTE 5:
RECEIVABLES
Short-term receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Business Services receivables
|
|
$
|
281,847
|
|
|
$
|
326,681
|
|
|
|
|
|
Loans to franchisees
|
|
|
62,181
|
|
|
|
55,047
|
|
|
|
|
|
Receivables for tax preparation and related fees
|
|
|
38,930
|
|
|
|
45,248
|
|
|
|
|
|
Emerald Advance lines of credit
|
|
|
31,645
|
|
|
|
57,914
|
|
|
|
|
|
Royalties from franchisees
|
|
|
11,645
|
|
|
|
3,845
|
|
|
|
|
|
Tax client receivables related to RALs
|
|
|
2,412
|
|
|
|
21,646
|
|
|
|
|
|
Other
|
|
|
131,096
|
|
|
|
120,080
|
|
|
|
|
|
|
|
|
|
|
|
559,756
|
|
|
|
630,461
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(67,466
|
)
|
|
|
(112,475
|
)
|
|
|
|
|
|
|
|
|
|
$
|
492,290
|
|
|
$
|
517,986
|
|
|
|
|
|
|
|
|
|
The short-term portion of EAs, tax client receivables related to
RALs and loans made to franchisees is included in receivables,
while the long-term portion is included in other assets in the
consolidated financial statements. These amounts as of
April 30, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
Emerald Advance
|
|
|
Tax Client
|
|
|
Loans
|
|
|
|
|
|
|
Lines of Credit
|
|
|
Receivables - RALs
|
|
|
to Franchisees
|
|
|
|
|
|
|
|
Short-term
|
|
$
|
31,645
|
|
|
$
|
2,412
|
|
|
$
|
62,181
|
|
|
|
|
|
Long-term
|
|
|
21,619
|
|
|
|
5,855
|
|
|
|
110,420
|
|
|
|
|
|
|
|
|
|
|
$
|
53,264
|
|
|
$
|
8,267
|
|
|
$
|
172,601
|
|
|
|
|
|
|
|
|
|
We review the credit quality of our EA receivables and tax
client receivables related to RALs based on pools, which are
segregated by the year of origination, with older years being
deemed more unlikely to be repaid. These amounts as of
April 30, 2011, by year of origination, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
Emerald Advance
|
|
|
Tax Client
|
|
|
|
|
|
|
Lines of Credit
|
|
|
Receivables - RALs
|
|
|
|
|
|
|
|
Credit Quality Indicator Year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
28,800
|
|
|
$
|
|
|
|
|
|
|
2010
|
|
|
5,236
|
|
|
|
446
|
|
|
|
|
|
2009
|
|
|
4,443
|
|
|
|
2,270
|
|
|
|
|
|
2008 and prior
|
|
|
2,722
|
|
|
|
5,551
|
|
|
|
|
|
Revolving loans
|
|
|
12,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,264
|
|
|
$
|
8,267
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011, $46.8 million of EAs were on
non-accrual status and classified as impaired, or more than
60 days past due. All tax client receivables related to
RALs are considered impaired.
H&R
BLOCK 2011
Form 10K 49
Our allowance for doubtful accounts consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Allowance related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerald Advance lines of credit
|
|
$
|
4,400
|
|
|
$
|
35,239
|
|
|
|
|
|
Tax client receivables related to RALs
|
|
|
|
|
|
|
12,191
|
|
|
|
|
|
Loans to franchisees
|
|
|
|
|
|
|
4
|
|
|
|
|
|
All other receivables
|
|
|
63,066
|
|
|
|
65,041
|
|
|
|
|
|
|
|
|
|
|
$
|
67,466
|
|
|
$
|
112,475
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for doubtful accounts for the years
ended April 30, 2011, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
Emerald Advance
|
|
|
Tax Client
|
|
|
Loans
|
|
|
All
|
|
|
|
|
|
|
|
|
|
Lines of Credit
|
|
|
Receivables - RALs
|
|
|
to Franchisees
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
Balance as of May 1, 2008
|
|
$
|
31,393
|
|
|
$
|
17,398
|
|
|
$
|
4
|
|
|
$
|
71,360
|
|
|
$
|
120,155
|
|
|
|
|
|
Provision
|
|
|
42,875
|
|
|
|
14,144
|
|
|
|
|
|
|
|
59,155
|
|
|
|
116,174
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
315
|
|
|
|
|
|
Charge-offs
|
|
|
(31,393
|
)
|
|
|
(17,406
|
)
|
|
|
|
|
|
|
(59,304
|
)
|
|
|
(108,103
|
)
|
|
|
|
|
|
|
|
Balance as of April 30, 2009
|
|
$
|
42,875
|
|
|
$
|
14,136
|
|
|
$
|
4
|
|
|
$
|
71,526
|
|
|
$
|
128,541
|
|
|
|
|
|
Provision
|
|
|
33,919
|
|
|
|
12,193
|
|
|
|
|
|
|
|
65,642
|
|
|
|
111,754
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
534
|
|
|
|
|
|
Charge-offs
|
|
|
(41,555
|
)
|
|
|
(14,138
|
)
|
|
|
|
|
|
|
(72,661
|
)
|
|
|
(128,354
|
)
|
|
|
|
|
|
|
|
Balance as of April 30, 2010
|
|
$
|
35,239
|
|
|
$
|
12,191
|
|
|
$
|
4
|
|
|
$
|
65,041
|
|
|
$
|
112,475
|
|
|
|
|
|
Provision
|
|
|
91,546
|
|
|
|
2
|
|
|
|
|
|
|
|
52,716
|
|
|
|
144,264
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
312
|
|
|
|
|
|
Charge-offs
|
|
|
(122,385
|
)
|
|
|
(12,193
|
)
|
|
|
(4
|
)
|
|
|
(55,003
|
)
|
|
|
(189,585
|
)
|
|
|
|
|
|
|
|
Balance as of April 30, 2011
|
|
$
|
4,400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,066
|
|
|
$
|
67,466
|
|
|
|
|
|
|
|
|
|
There were no changes to our methodology related to the
calculation of our allowance for doubtful accounts during fiscal
year 2011.
NOTE 6:
MORTGAGE LOANS HELD FOR INVESTMENT AND RELATED ASSETS
The composition of our mortgage loan portfolio as of
April 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
As
of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
|
|
|
|
|
Adjustable-rate loans
|
|
$
|
333,828
|
|
|
|
58
|
%
|
|
$
|
411,122
|
|
|
|
60
|
%
|
|
|
|
|
Fixed-rate loans
|
|
|
239,146
|
|
|
|
42
|
%
|
|
|
272,562
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
572,974
|
|
|
|
100
|
%
|
|
|
683,684
|
|
|
|
100
|
%
|
|
|
|
|
Unamortized deferred fees and costs
|
|
|
4,121
|
|
|
|
|
|
|
|
5,256
|
|
|
|
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(92,087
|
)
|
|
|
|
|
|
|
(93,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
485,008
|
|
|
|
|
|
|
$
|
595,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses for the years ended
April 30, 2011, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
$
|
45,401
|
|
|
|
|
|
Provision
|
|
|
35,567
|
|
|
|
47,750
|
|
|
|
63,897
|
|
|
|
|
|
Recoveries
|
|
|
272
|
|
|
|
88
|
|
|
|
54
|
|
|
|
|
|
Charge-offs
|
|
|
(37,287
|
)
|
|
|
(38,376
|
)
|
|
|
(25,279
|
)
|
|
|
|
|
|
|
|
Balance at end of the year
|
|
$
|
92,087
|
|
|
$
|
93,535
|
|
|
$
|
84,073
|
|
|
|
|
|
|
|
|
|
Our loan loss allowance as a percent of mortgage loans was 16.1%
at April 30, 2011, compared to 13.7% at April 30, 2010.
50 H&R
BLOCK 2011 Form 10K
When determining our allowance for loan losses, we evaluate
loans less than 60 days past due on a pooled basis, while
loans we consider impaired (which includes those loans more than
60 days past due or that have been modified) are evaluated
individually. The balance of these loans and the related
allowance is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As
of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Portfolio
|
|
|
Related
|
|
|
Portfolio
|
|
|
Related
|
|
|
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
|
|
|
|
Pooled (less than 60 days past due)
|
|
$
|
304,325
|
|
|
$
|
11,238
|
|
|
$
|
372,823
|
|
|
$
|
15,924
|
|
|
|
|
|
Impaired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually (TDRs)
|
|
|
106,328
|
|
|
|
11,056
|
|
|
|
144,977
|
|
|
|
8,915
|
|
|
|
|
|
Individually (60 days or more past due)
|
|
|
162,321
|
|
|
|
69,793
|
|
|
|
165,884
|
|
|
|
68,696
|
|
|
|
|
|
|
|
|
|
|
$
|
572,974
|
|
|
$
|
92,087
|
|
|
$
|
683,684
|
|
|
$
|
93,535
|
|
|
|
|
|
|
|
|
|
We review the credit quality of our portfolio based on the
following criteria: (1) originator, (2) the level of
documentation obtained for loan at origination,
(3) occupancy status of property at origination,
(4) geography, and (5) credit score and loan to value
at origination. We specifically evaluate each loan and assign an
internal risk rating of high, medium or low to each loan. The
risk rating is based upon multiple loan characteristics that
correlate to delinquency and loss. These characteristics
include, but are not limited to, the five criteria listed above.
These loan attributes are evaluated quarterly against a variety
of additional characteristics to ensure the appropriate data is
being utilized to determine the level of risk within the
portfolio.
All criteria are obtained at the time of origination and are
only subsequently updated if the loan is refinanced.
Our portfolio includes loans originated SCC and purchased by HRB
Bank which constitute 62% of the total loan portfolio at
April 30, 2011. 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 $215.2 million and is characteristic of a prime
loan portfolio, and we believe subject to a lower loss exposure.
Detail of our mortgage loans held for investment and the related
allowance at April 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Loan Loss Allowance
|
|
|
% 30+ Days
|
|
|
|
|
|
|
Principal Balance
|
|
|
Amount
|
|
|
% of Principal
|
|
|
Past Due
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
357,814
|
|
|
$
|
81,396
|
|
|
|
22.7
|
%
|
|
|
41.7
|
%
|
|
|
|
|
All other
|
|
|
215,160
|
|
|
|
10,691
|
|
|
|
5.0
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
572,974
|
|
|
$
|
92,087
|
|
|
|
16.1
|
%
|
|
|
30.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicators at April 30, 2011 include the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Credit Quality
Indicators
|
|
Purchased from SCC
|
|
|
All Other
|
|
|
Total Portfolio
|
|
|
|
|
|
|
|
Occupancy status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
249,048
|
|
|
$
|
136,380
|
|
|
$
|
385,428
|
|
|
|
|
|
Non-owner occupied
|
|
|
108,766
|
|
|
|
78,780
|
|
|
|
187,546
|
|
|
|
|
|
|
|
|
|
|
$
|
357,814
|
|
|
$
|
215,160
|
|
|
$
|
572,974
|
|
|
|
|
|
|
|
|
Documentation level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation
|
|
$
|
108,509
|
|
|
$
|
157,270
|
|
|
$
|
265,779
|
|
|
|
|
|
Limited documentation
|
|
|
11,146
|
|
|
|
23,355
|
|
|
|
34,501
|
|
|
|
|
|
Stated income
|
|
|
205,485
|
|
|
|
21,705
|
|
|
|
227,190
|
|
|
|
|
|
No documentation
|
|
|
32,674
|
|
|
|
12,830
|
|
|
|
45,504
|
|
|
|
|
|
|
|
|
|
|
$
|
357,814
|
|
|
$
|
215,160
|
|
|
$
|
572,974
|
|
|
|
|
|
|
|
|
Internal risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
151,522
|
|
|
$
|
357
|
|
|
$
|
151,879
|
|
|
|
|
|
Medium
|
|
|
206,292
|
|
|
|
|
|
|
|
206,292
|
|
|
|
|
|
Low
|
|
|
|
|
|
|
214,803
|
|
|
|
214,803
|
|
|
|
|
|
|
|
|
|
|
$
|
357,814
|
|
|
$
|
215,160
|
|
|
$
|
572,974
|
|
|
|
|
|
|
|
|
|
Loans given our internal risk rating of high are
generally originated by SCC, have no documentation or are stated
income and are non-owner occupied. Loans given our internal risk
rating of medium are generally full documentation or
stated income, with
loan-to-value
at origination of more than 80% and have credit scores at
H&R
BLOCK 2011
Form 10K 51
origination below 700. Loans given our internal risk rating of
low are generally full documentation, with
loan-to-value
at origination of less than 80% and have credit scores greater
than 700.
Detail of the aging of the mortgage loans in our portfolio that
are past due as of April 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
Less than 60
|
|
|
60 - 89 Days
|
|
|
90 + Days
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Days Past Due
|
|
|
Past Due
|
|
|
Past
Due(1)
|
|
|
Past Due
|
|
|
Current
|
|
|
Total
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
37,371
|
|
|
$
|
4,882
|
|
|
$
|
132,326
|
|
|
$
|
174,579
|
|
|
$
|
183,235
|
|
|
$
|
357,814
|
|
|
|
|
|
All other
|
|
|
10,250
|
|
|
|
1,594
|
|
|
|
20,546
|
|
|
|
32,390
|
|
|
|
182,770
|
|
|
|
215,160
|
|
|
|
|
|
|
|
|
|
|
$
|
47,621
|
|
|
$
|
6,476
|
|
|
$
|
152,872
|
|
|
$
|
206,969
|
|
|
$
|
366,005
|
|
|
$
|
572,974
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
No loans past due
90 days or more are still accruing interest.
|
Information related to our non-accrual loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
143,358
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
14,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,464
|
|
|
$
|
160,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
|
2,849
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,178
|
|
|
|
31,506
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
$
|
160,642
|
|
|
$
|
191,630
|
|
|
|
|
|
|
|
|
|
Information related to impaired loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
Portfolio Balance
|
|
|
Portfolio Balance
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
With Allowance
|
|
|
With No Allowance
|
|
|
Portfolio Balance
|
|
|
Related Allowance
|
|
|
|
|
|
|
|
As of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
190,074
|
|
|
$
|
54,000
|
|
|
$
|
244,074
|
|
|
$
|
75,373
|
|
|
|
|
|
Other
|
|
|
19,340
|
|
|
|
5,235
|
|
|
|
24,575
|
|
|
|
5,476
|
|
|
|
|
|
|
|
|
|
|
$
|
209,414
|
|
|
$
|
59,235
|
|
|
$
|
268,649
|
|
|
$
|
80,849
|
|
|
|
|
|
|
|
|
As of April 30, 2010
|
|
$
|
288,309
|
|
|
$
|
22,552
|
|
|
$
|
310,861
|
|
|
$
|
77,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to the allowance for impaired loans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Portion of total allowance for loan losses allocated
to impaired loans and TDR loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on collateral value method
|
|
$
|
69,794
|
|
|
$
|
68,696
|
|
|
|
|
|
Based on discounted cash flow method
|
|
|
11,055
|
|
|
|
8,915
|
|
|
|
|
|
|
|
|
|
|
$
|
80,849
|
|
|
$
|
77,611
|
|
|
|
|
|
|
|
|
|
52 H&R
BLOCK 2011 Form 10K
Information related to activities of our non-performing assets
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
For the Year Ended
April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Average impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
252,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
37,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
289,755
|
|
|
$
|
307,351
|
|
|
$
|
216,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
5,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,624
|
|
|
$
|
8,548
|
|
|
$
|
5,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on impaired loans recognized on a
cash basis on non-accrual status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
5,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,311
|
|
|
$
|
7,452
|
|
|
$
|
4,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011 and 2010, accrued interest receivable
on mortgage loans held for investment totaled $2.1 million
and $2.6 million, respectively. At April 30, 2011, HRB
Bank had interest-only mortgage loans in its investment
portfolio totaling $3.7 million.
Our real estate owned includes loans accounted for as
in-substance foreclosures of $7.7 million and
$12.5 million at April 30, 2011 and 2010,
respectively. Activity related to our real estate owned is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
29,252
|
|
|
$
|
44,533
|
|
|
$
|
350
|
|
|
|
|
|
Additions
|
|
|
16,463
|
|
|
|
19,341
|
|
|
|
65,171
|
|
|
|
|
|
Sales
|
|
|
(21,889
|
)
|
|
|
(24,308
|
)
|
|
|
(9,072
|
)
|
|
|
|
|
Impairments
|
|
|
(4,294
|
)
|
|
|
(10,314
|
)
|
|
|
(11,916
|
)
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
19,532
|
|
|
$
|
29,252
|
|
|
$
|
44,533
|
|
|
|
|
|
|
|
|
|
|
NOTE 7:
|
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, we use a third-party
pricing service to determine fair value and classify the
securities as Level 2. The services pricing model is
based on market data and utilizes available trade, bid and other
market information.
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.
|
|
§
|
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. 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. Because our REO is valued based on significant inputs
that are unobservable in the market and our own estimates of
assumptions that market participants would use in pricing the
asset, these assets are classified as Level 3.
|
|
§
|
Impaired mortgage loans held for investment The fair
value of impaired mortgage loans held for investment is
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 2011
Form 10K 53
The following table presents for each hierarchy level the assets
that were remeasured at fair value on both a recurring and
non-recurring basis during fiscal years 2011 and 2010 and the
gains (losses) on those remeasurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Gain (loss)
|
|
|
|
|
|
|
|
As of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
158,177
|
|
|
$
|
|
|
|
$
|
158,177
|
|
|
$
|
|
|
|
$
|
207
|
|
|
|
|
|
Municipal bonds
|
|
|
8,740
|
|
|
|
|
|
|
|
8,740
|
|
|
|
|
|
|
|
405
|
|
|
|
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
|
12,366
|
|
|
|
|
|
|
|
|
|
|
|
12,366
|
|
|
|
(1,920
|
)
|
|
|
|
|
Impaired mortgage loans held for investment
|
|
|
90,628
|
|
|
|
|
|
|
|
|
|
|
|
90,628
|
|
|
|
(11,390
|
)
|
|
|
|
|
|
|
|
|
|
$
|
269,911
|
|
|
$
|
|
|
|
$
|
166,917
|
|
|
$
|
102,994
|
|
|
$
|
(12,698
|
)
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
5.2
|
%
|
|
|
|
%
|
|
|
3.2
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
As of April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
23,016
|
|
|
$
|
|
|
|
$
|
23,016
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
|
|
|
Municipal bonds
|
|
|
8,901
|
|
|
|
|
|
|
|
8,901
|
|
|
|
|
|
|
|
459
|
|
|
|
|
|
Trust preferred security
|
|
|
31
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
(1,823
|
)
|
|
|
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
|
16,291
|
|
|
|
|
|
|
|
|
|
|
|
16,291
|
|
|
|
(4,430
|
)
|
|
|
|
|
Impaired mortgage loans held for investment
|
|
|
88,456
|
|
|
|
|
|
|
|
|
|
|
|
88,456
|
|
|
|
(9,453
|
)
|
|
|
|
|
|
|
|
|
|
$
|
136,695
|
|
|
$
|
|
|
|
$
|
31,948
|
|
|
$
|
104,747
|
|
|
$
|
(15,257
|
)
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
2.6
|
%
|
|
|
|
%
|
|
|
0.6
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
There were no changes to the unobservable inputs used in
determining the fair values of our level 2 and level 3
financial assets.
The following methods were used to determine the fair values of
our other financial instruments:
|
|
|
|
§
|
Cash equivalents, accounts receivable, investment in FHLB stock,
accounts payable, accrued liabilities, commercial paper
borrowings 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
market pricing sources based on origination channel and
performance characteristics.
|
|
§
|
Deposits The estimated fair value of demand deposits
is the amount payable on demand at the reporting date. The
estimated fair value of IRAs and other time deposits is
estimated by discounting the future cash flows using the rates
currently offered by HRB Bank for products with similar
remaining maturities.
|
|
§
|
Long-term borrowings and FHLB borrowings 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 carrying amounts and estimated fair values of our financial
instruments at April 30, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
485,008
|
|
|
$
|
295,154
|
|
|
|
|
|
Deposits
|
|
|
863,898
|
|
|
|
865,318
|
|
|
|
|
|
Long-term debt
|
|
|
1,053,191
|
|
|
|
1,112,886
|
|
|
|
|
|
FHLB advances
|
|
|
25,000
|
|
|
|
24,998
|
|
|
|
|
|
|
54 H&R
BLOCK 2011 Form 10K
|
|
NOTE 8:
|
PROPERTY AND
EQUIPMENT
|
The components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Land and other non-depreciable assets
|
|
$
|
2,245
|
|
|
$
|
2,482
|
|
|
|
|
|
Buildings
|
|
|
154,519
|
|
|
|
161,460
|
|
|
|
|
|
Computers and other equipment
|
|
|
475,351
|
|
|
|
488,160
|
|
|
|
|
|
Capitalized software
|
|
|
156,108
|
|
|
|
147,104
|
|
|
|
|
|
Leasehold improvements
|
|
|
191,943
|
|
|
|
199,370
|
|
|
|
|
|
Construction in process
|
|
|
4,374
|
|
|
|
3,902
|
|
|
|
|
|
|
|
|
|
|
|
984,540
|
|
|
|
1,002,478
|
|
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(677,220
|
)
|
|
|
(657,008
|
)
|
|
|
|
|
|
|
|
|
|
$
|
307,320
|
|
|
$
|
345,470
|
|
|
|
|
|
During fiscal years 2011 and 2010, we received $6.5 million
and $10.3 million, respectively, for tax incentives from
certain government agencies related to our corporate
headquarters building, which was recorded as a reduction of
original cost.
Property and equipment included above and subject to capital
lease arrangements included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Property and equipment under capital lease
|
|
$
|
47,842
|
|
|
$
|
47,844
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(35,056
|
)
|
|
|
(31,418
|
)
|
|
|
|
|
|
|
|
|
|
$
|
12,786
|
|
|
$
|
16,426
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of continuing operations
for fiscal years 2011, 2010 and 2009 was $92.2 million,
$96.9 million and $96.6 million, respectively.
Included in depreciation and amortization expense of continuing
operations is amortization of capitalized software of
$18.8 million, $21.8 million and $23.4 million,
respectively.
|
|
NOTE 9: |
GOODWILL AND
INTANGIBLE ASSETS
|
Changes in the carrying amount of goodwill by segment for the
years ended April 30, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
Tax Services
|
|
|
Business Services
|
|
|
Total
|
|
|
|
|
|
|
|
Balance at May 1, 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
|
|
|
|
|
|
|
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
15,441
|
|
|
|
28,552
|
|
|
|
43,993
|
|
|
|
|
|
Disposals and foreign currency changes
|
|
|
(10,286
|
)
|
|
|
(5,209
|
)
|
|
|
(15,495
|
)
|
|
|
|
|
Impairments
|
|
|
(22,700
|
)
|
|
|
|
|
|
|
(22,700
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
459,039
|
|
|
|
427,094
|
|
|
|
886,133
|
|
|
|
|
|
Accumulated impairment losses
|
|
|
(24,888
|
)
|
|
|
(15,000
|
)
|
|
|
(39,888
|
)
|
|
|
|
|
|
|
|
|
|
$
|
434,151
|
|
|
$
|
412,094
|
|
|
$
|
846,245
|
|
|
|
|
|
|
|
|
|
Goodwill and other indefinite-life intangible assets were tested
for impairment in the fourth quarter of fiscal year 2011. Except
as discussed below, no impairment was identified.
H&R
BLOCK 2011
Form 10K 55
The RedGear reporting unit within our Tax Services segment
experienced lower than expected revenues, and as a result, we
evaluated this reporting units goodwill for impairment at
January 31, 2011. The measurement of impairment of goodwill
consists of two steps. In the first step, we compared the fair
value of this reporting unit, determined using discounted cash
flows, to its carrying value. As the results of the first test
indicated that the fair value was less than its carrying value,
we then performed the second step, which was to determine the
implied fair value of its goodwill and to compare that to its
carrying value. The second step included hypothetically valuing
all of the tangible and intangible assets of this reporting
unit. As a result, we recorded an impairment of the reporting
units goodwill of $22.7 million, leaving a remaining
goodwill balance of approximately $14 million. The
impairment is included in selling, general and administrative
expenses on the consolidated statements of income.
We recorded a $15.0 million impairment in our Business
Services segment in fiscal year 2010, related to RSM EquiCo, due
to declining revenues and profitability.
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.
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As
of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
Tax Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
87,624
|
|
|
$
|
(41,076
|
)
|
|
$
|
46,548
|
|
|
$
|
67,705
|
|
|
$
|
(33,096
|
)
|
|
$
|
34,609
|
|
|
|
|
|
Noncompete agreements
|
|
|
23,456
|
|
|
|
(22,059
|
)
|
|
|
1,397
|
|
|
|
23,062
|
|
|
|
(21,278
|
)
|
|
|
1,784
|
|
|
|
|
|
Reacquired franchise rights
|
|
|
214,330
|
|
|
|
(9,961
|
)
|
|
|
204,369
|
|
|
|
223,773
|
|
|
|
(6,096
|
)
|
|
|
217,677
|
|
|
|
|
|
Franchise agreements
|
|
|
19,201
|
|
|
|
(3,093
|
)
|
|
|
16,108
|
|
|
|
19,201
|
|
|
|
(1,813
|
)
|
|
|
17,388
|
|
|
|
|
|
Purchased technology
|
|
|
14,700
|
|
|
|
(8,505
|
)
|
|
|
6,195
|
|
|
|
14,500
|
|
|
|
(6,266
|
)
|
|
|
8,234
|
|
|
|
|
|
Trade name
|
|
|
1,325
|
|
|
|
(600
|
)
|
|
|
725
|
|
|
|
1,325
|
|
|
|
(400
|
)
|
|
|
925
|
|
|
|
|
|
Business Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
152,079
|
|
|
|
(128,738
|
)
|
|
|
23,341
|
|
|
|
145,149
|
|
|
|
(120,037
|
)
|
|
|
25,112
|
|
|
|
|
|
Noncompete agreements
|
|
|
35,818
|
|
|
|
(24,662
|
)
|
|
|
11,156
|
|
|
|
33,052
|
|
|
|
(22,118
|
)
|
|
|
10,934
|
|
|
|
|
|
Attest firm affiliation
|
|
|
7,629
|
|
|
|
(318
|
)
|
|
|
7,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
614,399
|
|
|
$
|
(246,480
|
)
|
|
$
|
367,919
|
|
|
$
|
586,004
|
|
|
$
|
(218,572
|
)
|
|
$
|
367,432
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets of continuing operations for
the years ended April 30, 2011, 2010 and 2009 was
$29.5 million, $30.0 million and $24.9 million,
respectively. Estimated amortization of intangible assets for
fiscal years 2012, 2013, 2014, 2015 and 2016 is
$27.3 million, $22.8 million, $19.3 million,
$14.5 million and $13.1 million, respectively.
In connection with the acquisition of Caturano, as discussed in
note 2, we recorded a liability related to unfavorable
operating lease terms in the amount of $5.9 million, which
will be amortized over the remaining contractual life of the
operating lease. The net balance was $5.5 million at
April 30, 2011.
56 H&R
BLOCK 2011 Form 10K
NOTE 10:
CUSTOMER BANKING DEPOSITS
The components of customer banking deposits at April 30,
2011 and 2010 and the related interest expense recorded during
the periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
April
30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Interest
|
|
|
Outstanding
|
|
|
Interest
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Balance
|
|
|
Expense
|
|
|
|
|
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money-market deposits
|
|
$
|
164,734
|
|
|
$
|
2,168
|
|
|
$
|
195,220
|
|
|
$
|
1,871
|
|
|
|
|
|
Savings deposits
|
|
|
11,030
|
|
|
|
107
|
|
|
|
12,460
|
|
|
|
128
|
|
|
|
|
|
Checking deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
|
6,947
|
|
|
|
94
|
|
|
|
24,190
|
|
|
|
83
|
|
|
|
|
|
Non-interest-bearing
|
|
|
279,296
|
|
|
|
|
|
|
|
200,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286,243
|
|
|
|
94
|
|
|
|
224,286
|
|
|
|
83
|
|
|
|
|
|
|
|
|
IRAs and other time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year
|
|
|
49,003
|
|
|
|
|
|
|
|
60,349
|
|
|
|
|
|
|
|
|
|
IRAs
|
|
|
341,210
|
|
|
|
|
|
|
|
360,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,213
|
|
|
|
6,119
|
|
|
|
420,589
|
|
|
|
8,092
|
|
|
|
|
|
|
|
|
|
|
$
|
852,220
|
|
|
$
|
8,488
|
|
|
$
|
852,555
|
|
|
$
|
10,174
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in two years
|
|
$
|
7,939
|
|
|
|
|
|
|
$
|
12,479
|
|
|
|
|
|
|
|
|
|
Due in three years
|
|
|
3,717
|
|
|
|
|
|
|
|
6,079
|
|
|
|
|
|
|
|
|
|
Due in four years
|
|
|
16
|
|
|
|
|
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
Due in five years
|
|
|
6
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,678
|
|
|
$
|
|
|
|
$
|
21,664
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Accrued but unpaid interest on deposits totaled
$0.2 million at April 30, 2011 and 2010.
Time deposit accounts totaling $7.3 million were in excess
of Federal Deposit Insurance Corporation (FDIC) insured limits
at April 30, 2011, and mature as follows:
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
Three months or less
|
|
$
|
480
|
|
Three to six months
|
|
|
2,929
|
|
Six to twelve months
|
|
|
2,011
|
|
Over twelve months
|
|
|
1,883
|
|
|
|
|
|
|
|
|
$
|
7,303
|
|
|
|
|
|
|
NOTE 11:
LONG-TERM DEBT
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Senior Notes, 7.875%, due January 2013
|
|
$
|
599,788
|
|
|
$
|
599,664
|
|
|
|
|
|
Senior Notes, 5.125%, due October 2014
|
|
|
399,177
|
|
|
|
398,941
|
|
|
|
|
|
Acquisition obligations, due from May 2011 to December 2022
|
|
|
43,273
|
|
|
|
28,701
|
|
|
|
|
|
Capital lease obligations
|
|
|
10,953
|
|
|
|
11,526
|
|
|
|
|
|
|
|
|
|
|
|
1,053,191
|
|
|
|
1,038,832
|
|
|
|
|
|
Less: Current portion
|
|
|
(3,437
|
)
|
|
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,049,754
|
|
|
$
|
1,035,144
|
|
|
|
|
|
|
|
|
|
On March 4, 2010, we entered into a committed line of
credit (CLOC) agreement to support commercial paper issuances,
general corporate purposes or for working capital needs. This
facility provides funding up to $1.7 billion and matures
July 31, 2013. This 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 this facility include:
(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, 2011, we were in
H&R
BLOCK 2011
Form 10K 57
compliance with these covenants and had net worth of
$1.4 billion. We had no balance outstanding under the CLOCs
at April 30, 2011 or 2010.
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.
We have obligations related to various acquisitions of
$43.3 million and $28.7 million at April 30, 2011
and 2010, respectively, which are due from May 2011 to December
2022.
We have a capitalized lease obligation of $11.0 million at
April 30, 2011, that is collateralized by land and
buildings. The obligation is due in 12 years.
The aggregate payments required to retire long-term debt are
$3.4 million, $631.0 million, $1.6 million,
$400.9 million, $2.7 million and $13.5 million in
fiscal years 2012, 2013, 2014, 2015, 2016 and beyond,
respectively.
HRB Bank is a member of the FHLB of Des Moines, which extends
credit to member banks based on eligible collateral. At
April 30, 2011, HRB Bank had FHLB advance capacity of
$276.1 million. At April 30, 2011, we had
$25.0 million outstanding on this facility, leaving
remaining availability of $251.1 million. Mortgage loans
held for investment of $381.5 million serve as eligible
collateral and are used to determine total capacity. Our current
outstanding borrowings of $25.0 million are due in April
2012 and bear interest at a rate of 2.36%.
NOTE 12:
OTHER NONCURRENT ASSETS AND LIABILITIES
We have various compensation plans where we make contributions
to eligible participant accounts, which may also include
deferred compensation of the participant, with the participants
then accruing income on these amounts. Included in other
noncurrent liabilities is $152.7 million and
$135.5 million at April 30, 2011 and 2010,
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 trusts are recorded in other noncurrent
assets and totaled $115.0 million and $112.4 million
at April 30, 2011 and 2010, respectively. These assets are
restricted, as they are only available to fund the related
liabilities.
NOTE 13:
STOCKHOLDERS EQUITY
During fiscal year 2011, we purchased and immediately retired
19.0 million shares of our common stock at a cost of
$279.9 million. 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, 2011, 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.
We are authorized to issue 0.5 million shares of non-voting
Preferred Stock designated as Convertible Preferred Stock
without par value. At April 30, 2011, 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 14:
STOCK-BASED COMPENSATION
We utilize the fair value method to account for stock-based
awards. Stock-based compensation expense of $14.5 million,
$29.4 million and $32.6 million was recorded in fiscal
years 2011, 2010 and 2009, respectively, net of related tax
benefits of $5.4 million, $10.5 million and
$12.2 million, respectively. Stock-based compensation
58 H&R
BLOCK 2011 Form 10K
expense of our continuing operations totaled $14.5 million,
$29.3 million and $26.6 million in fiscal years 2011,
2010 and 2009, 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
$0.5 million, $1.6 million and $8.6 million as
cash inflows from financing activities for fiscal years 2011,
2010 and 2009, respectively. We realized tax benefits of
$4.4 million, $6.6 million and $20.2 million in
fiscal years 2011, 2010 and 2009, respectively.
We have four stock-based compensation plans which have been
approved by our shareholders. As of April 30, 2011, we had
11.5 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 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 or four-year period with a
portion vesting each year. Historically, nonvested shares have
received dividends during the vesting period, however awards
granted after October 1, 2010 will no longer receive
dividends during the vesting period. 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 early retirement age
(age 65 or age 55 and ten years of service) or reach
either retirement age 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
measured the fair value of options on the grant date using the
Black-Scholes option valuation model. We expensed 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.
H&R
BLOCK 2011
Form 10K 59
A summary of options for the year ended April 30, 2011, 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
|
|
|
15,082
|
|
|
$
|
20.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,080
|
|
|
|
13.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(338
|
)
|
|
|
10.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(6,034
|
)
|
|
|
22.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
10,790
|
|
|
$
|
18.64
|
|
|
|
4 years
|
|
|
$
|
9,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of the year
|
|
|
8,122
|
|
|
$
|
19.95
|
|
|
|
2 years
|
|
|
$
|
1,318
|
|
|
|
|
|
Exercisable and expected to vest
|
|
|
10,650
|
|
|
|
18.71
|
|
|
|
4 years
|
|
|
|
8,666
|
|
|
|
|
|
|
The total intrinsic value of options exercised during fiscal
years 2011, 2010 and 2009 was $1.8 million,
$5.4 million and $33.0 million, respectively. As of
April 30, 2011, we had $3.2 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 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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Options management and director:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
28.98% - 30.20%
|
|
|
|
27.11% - 27.27%
|
|
|
|
23.41% - 25.20%
|
|
|
|
|
|
Expected term
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
4 years
|
|
|
|
|
|
Dividend yield
|
|
|
4.18% - 5.17%
|
|
|
|
3.24% - 3.55%
|
|
|
|
2.35% - 3.04%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.26% - 1.92%
|
|
|
|
2.38% - 2.75%
|
|
|
|
2.54% - 3.26%
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
2.25
|
|
|
$
|
3.27
|
|
|
$
|
3.80
|
|
|
|
|
|
Options
seasonal:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
|
|
|
|
33.81%
|
|
|
|
25.35%
|
|
|
|
|
|
Expected term
|
|
|
|
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
3.48%
|
|
|
|
2.80%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
|
|
|
|
0.85%
|
|
|
|
2.54%
|
|
|
|
|
|
Weighted-average fair value
|
|
|
|
|
|
$
|
2.70
|
|
|
$
|
2.83
|
|
|
|
|
|
ESPP options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
22.75% - 23.31%
|
|
|
|
23.68% - 43.20%
|
|
|
|
29.13% - 43.82%
|
|
|
|
|
|
Expected term
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
|
|
|
|
Dividend yield
|
|
|
3.86% - 4.80%
|
|
|
|
2.65% - 3.46%
|
|
|
|
2.67% - 2.78%
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.19% - 0.23%
|
|
|
|
0.20% - 0.33%
|
|
|
|
0.27% - 2.13%
|
|
|
|
|
|
Weighted-average fair value
|
|
$
|
2.16
|
|
|
$
|
3.66
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
(1)
|
This plan was
terminated in fiscal year 2010, except for outstanding awards
thereunder.
|
A summary of nonvested shares and performance nonvested share
units for the year ended April 30, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Outstanding, beginning of the year
|
|
|
1,619
|
|
|
$
|
19.55
|
|
|
|
|
|
Granted
|
|
|
745
|
|
|
|
12.56
|
|
|
|
|
|
Released
|
|
|
(632
|
)
|
|
|
20.20
|
|
|
|
|
|
Forfeited
|
|
|
(232
|
)
|
|
|
17.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of the year
|
|
|
1,500
|
|
|
$
|
15.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vesting during fiscal years 2011,
2010 and 2009 was $13.0 million, $15.5 million and
$21.1 million, respectively. Upon the grant of nonvested
shares and performance nonvested share units, unearned
60 H&R
BLOCK 2011 Form 10K
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, 2011, we had
$11.5 million of total unrecognized compensation cost
related to these shares. This cost is expected to be recognized
over a weighted-average period of 2 years.
NOTE 15:
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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
639,914
|
|
|
$
|
745,912
|
|
|
$
|
815,614
|
|
|
|
|
|
Foreign
|
|
|
37,111
|
|
|
|
38,223
|
|
|
|
23,756
|
|
|
|
|
|
|
|
|
|
|
$
|
677,025
|
|
|
$
|
784,135
|
|
|
$
|
839,370
|
|
|
|
|
|
|
|
|
|
The components of income tax expense (benefit) for continuing
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
188,086
|
|
|
$
|
92,992
|
|
|
$
|
243,085
|
|
State
|
|
|
45,068
|
|
|
|
23,625
|
|
|
|
38,418
|
|
Foreign
|
|
|
21,456
|
|
|
|
16,052
|
|
|
|
1,393
|
|
|
|
|
|
|
|
254,610
|
|
|
|
132,669
|
|
|
|
282,896
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(799
|
)
|
|
|
128,900
|
|
|
|
36,739
|
|
State
|
|
|
3,521
|
|
|
|
33,448
|
|
|
|
6,582
|
|
Foreign
|
|
|
288
|
|
|
|
172
|
|
|
|
98
|
|
|
|
|
|
|
|
3,010
|
|
|
|
162,520
|
|
|
|
43,419
|
|
|
|
|
Total income taxes for continuing operations
|
|
$
|
257,620
|
|
|
$
|
295,189
|
|
|
$
|
326,315
|
|
|
|
|
|
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,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
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
|
|
|
4.5
|
%
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
|
|
|
|
Permanent differences
|
|
|
(0.3
|
)%
|
|
|
(0.5
|
)%
|
|
|
1.6
|
%
|
|
|
|
|
Uncertain tax positions
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
|
|
0.5
|
%
|
|
|
|
|
Net decrease in valuation allowance
|
|
|
(1.3
|
)%
|
|
|
(1.0
|
)%
|
|
|
(1.2
|
)%
|
|
|
|
|
Other
|
|
|
(0.9
|
)%
|
|
|
(0.6
|
)%
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
38.1
|
%
|
|
|
37.6
|
%
|
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2011
Form 10K 61
The significant components of deferred tax assets and
liabilities of continuing operations are reflected in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
As of April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Gross deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
61,891
|
|
|
$
|
17,554
|
|
|
|
|
|
Allowance for credit losses and related reserves
|
|
|
102,587
|
|
|
|
164,783
|
|
|
|
|
|
Net operating loss carryovers
|
|
|
|
|
|
|
200
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
237
|
|
|
|
|
|
Valuation allowance
|
|
|
(47,300
|
)
|
|
|
(1,745
|
)
|
|
|
|
|
|
|
|
Current
|
|
|
117,178
|
|
|
|
181,029
|
|
|
|
|
|
|
|
|
Deferred and stock-based compensation
|
|
|
73,398
|
|
|
|
71,970
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
9,071
|
|
|
|
|
|
Deferred revenue
|
|
|
23,166
|
|
|
|
25,595
|
|
|
|
|
|
Net operating loss carryovers
|
|
|
21,057
|
|
|
|
26,292
|
|
|
|
|
|
Accrued expenses
|
|
|
32,481
|
|
|
|
31,892
|
|
|
|
|
|
Capital loss carryover
|
|
|
150,876
|
|
|
|
144,507
|
|
|
|
|
|
Other
|
|
|
15,953
|
|
|
|
15,991
|
|
|
|
|
|
Valuation allowance
|
|
|
(94,261
|
)
|
|
|
(151,838
|
)
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
222,670
|
|
|
|
173,480
|
|
|
|
|
|
|
|
|
|
|
|
339,848
|
|
|
|
354,509
|
|
|
|
|
|
Gross deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(4,734
|
)
|
|
|
(6,337
|
)
|
|
|
|
|
|
|
|
Current
|
|
|
(4,734
|
)
|
|
|
(6,337
|
)
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(10,731
|
)
|
|
|
|
|
|
|
|
|
Basis difference in mortgage-related investment
|
|
|
(49,751
|
)
|
|
|
(81,118
|
)
|
|
|
|
|
Intangibles
|
|
|
(139,963
|
)
|
|
|
(124,918
|
)
|
|
|
|
|
|
|
|
Noncurrent
|
|
|
(200,445
|
)
|
|
|
(206,036
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
134,669
|
|
|
$
|
142,136
|
|
|
|
|
|
|
|
|
|
The loss from discontinued operations for fiscal years 2011,
2010 and 2009 of $13.3 million, $9.7 million and
$27.4 million, respectively are net of tax benefits of
$8.7 million, $8.0 million and $20.3 million,
respectively. Our effective tax rate for discontinued operations
was 39.4%, 45.1% and 42.5% for fiscal years 2011, 2010 and 2009,
respectively.
As of April 30, 2011, we have a capital loss deferred tax
asset (DTA) of $147 million. The majority of this capital
loss DTA resulted from the sale of our brokerage business in
November 2008. Generally, for tax purposes, a capital loss can
only be utilized to the extent we realize capital gains within
five years of the end of the taxable year the capital loss was
incurred. 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 $126.3 million. We have
capital loss carryover of approximately $375 million which
will expire if not used to offset future capital gains before
December 31, 2013.
During fiscal year 2010, our current tax expense was 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 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. During fiscal year
2011, we changed our measurement of the more-likely-than-not tax
basis of certain assets of a subsidiary as a result of new
information obtained from ongoing interactions with the IRS. The
result of this new information was to increase our noncurrent
deferred tax liability in the amount of $66.3 million and
to establish a long-term receivable for the same amount as it is
not expected that these matters will be settled within twelve
months.
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, 2011, 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 $21.1 million for the tax effects of such losses
and a valuation allowance of $10.3 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 2012 through 2031.
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.
62 H&R
BLOCK 2011 Form 10K
A reconciliation of the beginning and ending amount of
unrecognized tax benefits for fiscal years 2011, 2010 and 2009
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
129,767
|
|
|
$
|
124,605
|
|
|
$
|
137,608
|
|
|
|
|
|
Additions based on tax positions related to prior years
|
|
|
28,262
|
|
|
|
12,957
|
|
|
|
14,541
|
|
|
|
|
|
Reductions based on tax positions related to prior years
|
|
|
(1,473
|
)
|
|
|
(2,427
|
)
|
|
|
(6,096
|
)
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
|
3,417
|
|
|
|
3,314
|
|
|
|
4,110
|
|
|
|
|
|
Reductions related to settlements with tax authorities
|
|
|
(7,639
|
)
|
|
|
(8,545
|
)
|
|
|
(18,189
|
)
|
|
|
|
|
Expiration of statute of limitations
|
|
|
(315
|
)
|
|
|
(1,061
|
)
|
|
|
(5,007
|
)
|
|
|
|
|
Foreign currency translation
|
|
|
1,057
|
|
|
|
924
|
|
|
|
(2,362
|
)
|
|
|
|
|
Other
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
154,848
|
|
|
$
|
129,767
|
|
|
$
|
124,605
|
|
|
|
|
|
|
|
|
|
Of the $154.8 million, $129.8 million and
$124.6 million ending gross unrecognized tax benefit
balance as of April 30, 2011, 2010 and 2009, respectively,
$117.6 million, $106.8 million and
$107.0 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 $17 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 2011, 2010 and 2009 totaled
$4.4 million, $4.1 million and $15.4 million,
respectively. The total gross interest and penalties accrued as
of April 30, 2011, 2010 and 2009 totaled
$44.1 million, $39.7 million and $42.4 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 IRS 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.
|
|
NOTE 16:
|
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 revenues on our consolidated statements of
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
24,693
|
|
|
$
|
31,877
|
|
|
$
|
46,396
|
|
|
|
|
|
Emerald Advance lines of credit
|
|
|
94,300
|
|
|
|
77,891
|
|
|
|
91,019
|
|
|
|
|
|
Investment securities
|
|
|
1,609
|
|
|
|
2,318
|
|
|
|
4,896
|
|
|
|
|
|
Other
|
|
|
13,551
|
|
|
|
10,319
|
|
|
|
12,205
|
|
|
|
|
|
|
|
|
|
|
$
|
134,153
|
|
|
$
|
122,405
|
|
|
$
|
154,516
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
85,421
|
|
|
$
|
78,398
|
|
|
$
|
83,193
|
|
|
|
|
|
Deposits
|
|
|
8,488
|
|
|
|
10,174
|
|
|
|
14,069
|
|
|
|
|
|
FHLB advances
|
|
|
1,526
|
|
|
|
1,997
|
|
|
|
5,113
|
|
|
|
|
|
|
|
|
|
|
$
|
95,435
|
|
|
$
|
90,569
|
|
|
$
|
102,375
|
|
|
|
|
|
|
|
|
|
|
NOTE 17:
|
VARIABLE
INTERESTS
|
The following is a description of our financial interests in
VIEs which we consider significant or where we are the sponsor.
For these VIEs we have determined that we are not the primary
beneficiary and, therefore have not consolidated the VIEs. Prior
to implementation of this new guidance we did not consolidate
these entities.
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 properly licensed which requires
that the firm be majority-owned and controlled by licensed CPAs.
As such, RSM McGladrey, Inc. (RSM) cannot be a licensed CPA firm
and cannot provide attest services. Since 1999, RSM and M&P
have operated in what
H&R
BLOCK 2011
Form 10K 63
is known as an alternative
practice structure (APS). Through the APS, RSM and
M&P offer clients a full range of attest and non-attest
services in 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. In addition, the agreement allows for professional
staff to be
sub-contracted
between RSM and M&P at market rates. During fiscal years
2011 and 2010, we received $4.1 million and
$22.6 million, respectively, in management fee revenues
from M&P.
All partners of M&P, with the exception of M&Ps
Managing Partner, are also managing directors employed by RSM.
Approximately 84% 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 of M&Ps earnings 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 the APS.
The aggregate compensation payable to RSM managing directors by
RSM in any given year generally equals 67 percent of the
combined profits of M&P and RSM less any amounts paid in
their capacity as M&P partners. 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 ceased and were replaced by a
non-contributory, non-qualified defined contribution plan. RSM
is required to pay $60.0 million over five years to fund
contributions to the retirement plan. The administrative
services agreement with M&P and compensation arrangements
between RSM and their managing directors represent a variable
interest in M&P.
We have concluded that RSM is not the primary beneficiary of
M&P and, therefore, we have not consolidated M&P. RSM
does not have an equity interest in M&P, nor does it have
the power to direct any activities of M&P and does not
receive any of its income. We have no assets or liabilities
included in our consolidated balance sheets related to our
variable interests. We believe RSMs maximum exposure to
economic loss, resulting from various agreements with M&P,
relates primarily to shared office space from operating leases
under the administrative services agreement equal to
$94.8 million at April 30, 2011, and variability in
our operating results due to the compensation agreements with
RSM managing directors. We do not provide any support that is
not contractually required.
Securitization
Trusts SCC holds an interest in and is
the sponsor (issuer) of 56 REMIC Trusts and 14 NIM Trusts
(collectively, Trusts) related to previously
originated mortgage loans that were securitized. These Trusts
are variable interest entities. The REMIC Trusts hold static
pools of
sub-prime
residential mortgage loans. The NIM Trusts hold beneficial
interests in certain REMIC Trusts. The Trusts were designed to
collect and pass through to the beneficial interest holders the
cash flows of the underlying mortgage loans. The REMIC Trusts
were financed with bonds and equity. The NIM Trusts were
financed with notes and equity. All bonds and notes are held by
third-party investors.
Our identification of the primary beneficiary of the Trusts was
based on a determination that the servicer of the underlying
mortgage loans has the power to direct the most significant
activities of the Trusts because the servicer handles all of the
loss mitigation activities for the mortgage loans.
SCC is not the servicer of the mortgage loans underlying the
REMIC Trusts. Therefore, SCC is not the primary beneficiary of
the REMIC Trusts because it does not have the power to direct
the most significant activities of the REMIC Trusts, which is
the servicing of the underlying mortgage loans.
SCC does have the exclusive right to appoint a servicer when
certain conditions have been met for specific loans related to
two of the NIM Trusts. As of April 30, 2011, those
conditions have been met for a minority portion of the loans
underlying those Trusts. As this right pertains only to a
minority of the loans, we have concluded that SCC does not have
the power to direct the most significant activities of these two
NIM Trusts, as the servicer has the power to direct significant
activities over the majority of the mortgage loans. In the
remaining NIM Trusts, SCC has a shared right to appoint a
servicer under certain conditions. For these NIM Trusts, we have
concluded that SCC is not the primary beneficiary because the
power to direct the most significant activities, which is the
servicing of the underlying mortgage loans, is shared with other
unrelated parties.
At April 30, 2011, we had no significant assets or
liabilities included in our consolidated balance sheets related
to SCCs variable interests in the Trusts. We have a
liability, as discussed in note 18, and a deferred tax
asset recorded in our consolidated balance sheets related to
obligations for representations and warranties SCC made in
connection with the transfer of mortgage loans, including
mortgage loans held by the securitization trusts. We have no
remaining exposure to economic loss arising from impairment of
SCCs beneficial interest in the Trusts. If SCC receives
cash flows in the future as a holder of beneficial interests we
would record gains as other income in
64 H&R
BLOCK 2011 Form 10K
our income statement. Neither we nor SCC has liquidity
arrangements, guarantees or other commitments for the Trusts,
nor has any support been provided that was not contractually
required.
|
|
NOTE 18:
|
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 $5,500, 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 2011 and 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
141,542
|
|
|
$
|
146,807
|
|
|
|
|
|
Amounts deferred for new guarantees issued
|
|
|
77,474
|
|
|
|
74,889
|
|
|
|
|
|
Revenue recognized on previous deferrals
|
|
|
(78,413
|
)
|
|
|
(80,154
|
)
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
140,603
|
|
|
$
|
141,542
|
|
|
|
|
|
|
|
|
|
In addition to amounts accrued for our POM guarantee, we had
accrued $14.7 million and $14.5 million at
April 30, 2011 and 2010, respectively, related to our
standard guarantee which is included with our standard tax
preparation services.
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,
2011, our remaining obligation totaled $9.5 million. We
expect to make payments totaling $6.7 million during fiscal
year 2012.
We have various contingent purchase price obligations for
acquisitions prior to May 2009. 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) for which we have not recorded a
liability total $3.8 million as of April 30, 2011. We
have recorded liabilities totaling $11.0 million in
conjunction with contingent payments related to more recent
acquisitions, with the short-term amount recorded in accounts
payable, accrued expenses and deposits and the long-term portion
included in other noncurrent liabilities. 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 $85.2 million at
April 30, 2011, and net of amounts drawn and outstanding,
our remaining commitment to fund totaled $37.7 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 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 $5.3 million in the aggregate. At
April 30, 2011, there were no balances outstanding on these
letters of credit.
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
H&R
BLOCK 2011
Form 10K 65
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, 2011, 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, 2011, are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
2012
|
|
$
|
238,167
|
|
|
|
|
|
2013
|
|
|
181,044
|
|
|
|
|
|
2014
|
|
|
128,063
|
|
|
|
|
|
2015
|
|
|
84,138
|
|
|
|
|
|
2016
|
|
|
35,942
|
|
|
|
|
|
2017 and beyond
|
|
|
67,694
|
|
|
|
|
|
|
|
|
|
|
$
|
735,048
|
|
|
|
|
|
|
|
|
|
Rent expense of our continuing operations for fiscal years 2011,
2010 and 2009 totaled $272.1 million, $289.6 million
and $308.1 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
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, 2011.
DISCONTINUED
OPERATIONS SCC, previously known as
Option One Mortgage Corporation, ceased originating mortgage
loans in December 2007 and, in April 2008, sold its servicing
assets and discontinued its remaining operations. The sale of
servicing assets did not include the sale of any mortgage loans.
In connection with the securitization and sale of loans, SCC
made certain representations and warranties, including, but not
limited to, representations relating to matters such as
ownership of the loan, validity of lien securing the loan, and
the loans compliance with SCCs underwriting
criteria. Representations and warranties in whole loan sale
transactions to institutional investors included a
knowledge qualifier which limits SCC liability for
borrower fraud to those instances where SCC had knowledge of the
fraud at the time the loans were sold. In the event that there
is a breach of a representation and warranty and such breach
materially and adversely affects the value of a mortgage loan,
SCC may be obligated to repurchase a loan or otherwise indemnify
certain parties for losses incurred as a result of loan
liquidation. Generally, these representations and warranties are
not subject to a stated term, but would be subject to statutes
of limitation applicable to the contractual provisions.
66 H&R
BLOCK 2011 Form 10K
Claims received by SCC have primarily related to alleged
breaches of representations and warranties related to a
loans compliance with the underwriting standards
established by SCC at origination, borrower fraud and credit
exceptions without sufficient compensating factors. Claims
received since May 1, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
Fiscal Year 2011
|
|
|
|
|
|
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
|
|
|
Loan Origination Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$
|
40
|
|
|
$
|
21
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
85
|
|
2006
|
|
|
89
|
|
|
|
10
|
|
|
|
111
|
|
|
|
7
|
|
|
|
2
|
|
|
|
57
|
|
|
|
4
|
|
|
|
45
|
|
|
|
100
|
|
|
|
15
|
|
|
|
29
|
|
|
|
50
|
|
|
|
519
|
|
2007
|
|
|
43
|
|
|
|
10
|
|
|
|
85
|
|
|
|
15
|
|
|
|
4
|
|
|
|
11
|
|
|
|
7
|
|
|
|
|
|
|
|
3
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
|
|
191
|
|
|
|
|
Total
|
|
$
|
172
|
|
|
$
|
41
|
|
|
$
|
197
|
|
|
$
|
22
|
|
|
$
|
6
|
|
|
$
|
83
|
|
|
$
|
11
|
|
|
$
|
45
|
|
|
$
|
109
|
|
|
$
|
21
|
|
|
$
|
33
|
|
|
$
|
55
|
|
|
$
|
795
|
|
|
|
|
|
Note: The
table above excludes amounts related to an indemnity agreement
dated April 2008, which is discussed below.
For claims received, reviewed and determined to be valid, SCC
has complied with its obligations by either repurchasing the
mortgage loans or REO properties, providing for the
reimbursement of losses in connection with liquidated REO
properties, or reaching other settlements. SCC has denied
approximately 84% of all claims received, excluding resolution
reached under other settlements. Counterparties could reassert
claims that SCC has denied. Of claims determined to be valid,
approximately 22% resulted in loan repurchases, and 78% resulted
in indemnification or settlement payments. Losses on loan
repurchase, indemnification and settlement payments totaled
approximately $117 million for the period May 1, 2008
through April 30, 2011. Loss severity rates on repurchases
and indemnification have approximated 57% and SCC has not
observed any material trends related to average losses.
Repurchased loans are considered held for sale and are included
in prepaid expenses and other current assets on the consolidated
balance sheets. The net balance of all mortgage loans held for
sale by SCC was $12.3 million at April 30, 2011.
SCC generally has 60 to 120 days to respond to
representation and warranty claims and performs a
loan-by-loan
review of all repurchase claims during this time. SCC has
completed its review of all claims, with the exception of claims
totaling approximately $79 million, which remained subject
to review as of April 30, 2011. Of the claims still subject
to review, approximately $25 million are from private-label
securitizations, and $53 million are from monoline
insurers, with the remainder from government sponsored entities.
Approximately $30 million of claims under review represent
requests by the counterparty for additional information related
to denied claims, or are a reassertion of previously denied
claims.
All claims asserted against SCC since May 1, 2008 relate to
loans originated during calendar years 2005 through 2007, of
which, approximately 89% relate to loans originated in calendar
years 2006 and 2007. During calendar year 2005 through 2007, SCC
originated approximately $84 billion in loans, of which
less than 1% were sold to government sponsored entities. SCC is
not subject to loss on loans that have been paid in full,
repurchased, or were sold without recourse.
The majority of claims asserted since May 1, 2008, which
have been determined by SCC to represent a valid breach of its
representations and warranties, relate to loans that became
delinquent within the first two years following the origination
of the mortgage loan. SCC believes the longer a loan performs
prior to an event of default, the less likely the default will
be related to a breach of a representation and warranty. The
balance of loans originated in 2005, 2006 and 2007 which
defaulted in the first two years is $4.0 billion,
$6.3 billion and $2.9 billion, respectively, at
April 30, 2011.
SCC has recorded a liability for estimated contingent losses
related to representation and warranty claims as of
April 30, 2011, of $126.3 million, which represents
SCCs best estimate of the probable loss that may occur.
During the current year, payments totaling $49.8 million
were made under an indemnity agreement dated April 2008 with a
specific counterparty in exchange for a full and complete
release of such partys ability to assert representation
and warranty claims. The indemnity agreement was given as part
of obtaining the counterpartys consent to SCCs sale
of its mortgage servicing business in 2008. We have no remaining
payment obligations under this indemnity agreement.
The recorded liability represents SCCs estimate of losses
from future claims where assertion of a claim and a related
contingent loss are both deemed probable. Because the rate at
which future claims may be deemed valid and actual loss severity
rates may differ significantly from historical experience, SCC
is not able to estimate reasonably possible loss outcomes in
excess of its current accrual. A 1% increase in both assumed
validity rates and loss severities would result in losses beyond
SCCs accrual of approximately $16 million. This
sensitivity is hypothetical and is intended to provide an
indication of the impact of a change in key assumptions on the
representations and warranties liability. In reality, changes in
one assumption may result in changes in other assumptions, which
may or may not counteract the sensitivity.
H&R
BLOCK 2011
Form 10K 67
While SCC uses the best information available to it in
estimating its liability, assessing the likelihood that claims
will be asserted in the future and estimating probable losses
are inherently difficult to estimate and require considerable
management judgment. Although net losses on settled claims since
May 1, 2008 have been within initial loss estimates, to the
extent that the volume of asserted claims, the level of valid
claims, the counterparties asserting claims, the nature of
claims, or the value of residential home prices differ in the
future from current estimates, future losses may be greater than
the current estimates and those differences may be significant.
A rollforward of our liability for losses on repurchases for
fiscal years 2011, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance as of May 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount related to repurchase and indemnifications
|
|
$
|
138,415
|
|
|
$
|
156,659
|
|
|
$
|
193,066
|
|
Amount related to indemnity agreement dated April 2008
|
|
|
49,785
|
|
|
|
49,936
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,200
|
|
|
|
206,595
|
|
|
|
243,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on repurchase and indemnifications
|
|
|
(12,155
|
)
|
|
|
(18,244
|
)
|
|
|
(36,407
|
)
|
Payments under indemnity agreement dated April 2008
|
|
|
(49,785
|
)
|
|
|
(151
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount related to repurchase and indemnifications
|
|
|
126,260
|
|
|
|
138,415
|
|
|
|
156,659
|
|
Amount related to indemnity agreement dated April 2008
|
|
|
|
|
|
|
49,785
|
|
|
|
49,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126,260
|
|
|
$
|
188,200
|
|
|
$
|
206,595
|
|
|
|
|
|
There have been no provisions for additional losses included in
the income statement since April 30, 2008.
|
|
NOTE 19:
|
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 $70.6 million and
$35.5 million at April 30, 2011 and 2010,
respectively. Litigation is inherently unpredictable and it is
difficult to project 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. An appellate court subsequently
reversed the decertification decision. We are appealing the
reversal. We have not concluded that a loss related to this
matter is probable nor have we accrued a loss contingency
related to this matter. Plaintiffs have not provided a dollar
amount of their claim and we are not able to estimate a possible
range of loss. 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.
EXPRESS IRA
LITIGATION We have been named defendants in
lawsuits regarding our former Express IRA product. All of those
lawsuits have been settled or otherwise resolved, except for one.
The one remaining case was filed on January 2, 2008 by the
Mississippi Attorney General in the Chancery Court of Hinds
County, Mississippi First Judicial District (Case No. G
2008 6 S 2) and is styled Jim Hood, Attorney for the
State of Mississippi v. H&R Block, Inc., H&R
Block Financial Advisors, Inc., et al. The complaint
alleges fraudulent business practices, deceptive acts and
practices, common law fraud and breach of fiduciary duty with
respect to the sale of the product in Mississippi and seeks
equitable relief, disgorgement of profits, damages and
restitution, civil penalties and punitive damages. We are not
able to estimate a possible range of loss. 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.
68 H&R
BLOCK 2011 Form 10K
Although we sold H&R Block Financial Advisors, Inc. (HRBFA)
effective November 1, 2008, we remain responsible for any
liabilities relating to the Express IRA litigation, among other
things, through an indemnification agreement. A portion of our
accrual is related to these indemnity obligations.
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. (the
RSM Parties), 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, conversion 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.
To avoid the cost and inherent risk associated with litigation,
the parties have reached an agreement in principle to settle
this case, subject to approval by the California Superior Court.
The settlement would require a maximum payment of
$41.5 million, although the actual cost of the settlement
depends on the number of valid claims submitted by class
members. The defendants believe they have meritorious defenses
to the claims in this case and, if for any reason the settlement
is not approved, they will continue to defend the case
vigorously. Although we have recorded a liability for expected
losses, there can be no assurance regarding the outcome of this
matter.
On December 7, 2009, a lawsuit was filed in the Circuit
Court of Cook County, Illinois (2010-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 (Case
No. 1:10-CV-00274).
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. On November 3, 2010, the court
dismissed the case against all defendants in its entirety with
prejudice. The trustee has filed an appeal to the Seventh
Circuit Court of Appeals with respect to the claims against
M&P and RSM. The appeal remains pending.
RSM and M&P operate in an alternative practice structure
(APS). 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 that 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 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.
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 and HRB remain subject to
investigations, claims and lawsuits pertaining to its mortgage
business activities that occurred prior to such termination and
sale. These investigations, claims and lawsuits include actions
by state attorneys general, other state and federal 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, fraud, and
violations of securities laws, the Truth in Lending Act, Equal
Credit Opportunity Act and the Fair Housing Act. Given the
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 and thus cannot be
reasonably estimated. In the event of unfavorable outcomes, the
amounts that may be required to pay in the discharge of
liabilities or settlements could be substantial and could have a
material 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 portion of our loss
contingency accrual is related to this matter for the amount of
loss that we consider probable and estimable. We do not believe
losses in excess of our accrual would be material to our
financial statements, although it is possible that our losses
could exceed the amount we have accrued. We and SCC believe we
have meritorious defenses to the claims presented and intend to
H&R
BLOCK 2011
Form 10K 69
defend them vigorously. There can
be no assurances, however, as to the outcome of this matter or
its impact on our consolidated results of operations.
On October 15, 2010, the Federal Home Loan Bank of Chicago
filed a lawsuit in the Circuit Court of Cook County, Illinois
(Case No. 10CH45033) styled Federal Home Loan Bank of
Chicago v. Bank of America Funding Corporation, et al.
against multiple defendants, including various SCC related
entities and H&R Block, Inc. related entities, arising out
of Federal Home Loan Banks (FHLBs) purchase of
mortgage-backed securities. Plaintiff asserts claims for
rescission and damages under state securities law and for common
law negligent misrepresentation in connection with its purchase
of two securities originated and securitized by SCC. These two
securities had a total initial principal amount of approximately
$50 million, of which approximately $42 million
remains outstanding. We have not concluded that a loss related
to this matter is probable nor have we established a loss
contingency related to this matter. We believe the claims in
this case are without merit and we intend to defend them
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, including
Alice Williams v. H&R Block Enterprises LLC,
Case No.RG08366506 (Superior Court of California, County of
Alameda, filed January 17, 2008) (alleging improper
classification of office managers in California); 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) (alleging failure to timely pay
compensation to tax professionals in California and to include
itemized information on wage statements); 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) (alleging
failure to compensate tax professionals in California and
eighteen other states for all hours worked and to provide meal
periods); and 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) (alleging failure to compensate tax
professionals nationwide for off-season training). A class was
certified in the Lemus case in December 2010 (consisting
of tax professionals who worked in company-owned offices in
California from 2007 to 2010) and in the Williams
case in March 2011 (consisting of office managers who worked
in company-owned offices in California from 2004 to 2011). A
conditional class was certified in the Petroski case in
March 2011 (consisting of tax professionals who were not
compensated for certain training courses occurring on or after
April 15, 2007).
The plaintiffs in the wage and hour class action lawsuits seek
actual damages, pre-judgment interest and attorneys fees,
in addition to statutory penalties under California and federal
law, which could equal up to 30 days of wages per tax
season for class members who worked in California. A portion of
our loss contingency accrual is related to these lawsuits for
the amount of loss that we consider probable and estimable. For
those wage and hour class action lawsuits for which we are able
to estimate a range of possible loss, the current estimated
range is $0 to $70 million in excess of the accrued
liability related to those matters. This estimated range of
possible loss is based upon currently available information and
is subject to significant judgment and a variety of assumptions
and uncertainties. The matters underlying the estimated range
will change from time to time, and actual results may vary
significantly from the current estimate. Because this estimated
range does not include matters for which an estimate is not
possible, the range does not represent our maximum loss exposure
for the wage and hour class action lawsuits. We believe we have
meritorious defenses to the claims in these lawsuits and intend
to defend them vigorously. The amounts claimed in these matters
are substantial in some instances 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 October 2010, we signed a definitive merger agreement to
acquire all of the outstanding shares of 2SS Holdings, Inc.
(2SS), developer of TaxACT digital tax preparation
solutions, for $287.5 million in cash. In May 2011, the United
States Department of Justice (the DOJ) filed a civil
antitrust lawsuit in the U.S. district court in Washington,
D.C., (Case No. 1:11-cv-00948) against H&R Block and 2SS
styled United States v. H&R Block, Inc., 2SS Holdings,
Inc., and TA IX L.P., to block our proposed acquisition of
2SS. There are no assurances that the DOJs lawsuit will be
resolved in our favor or that the transaction will be
consummated.
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. 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
70 H&R
BLOCK 2011 Form 10K
unfavorable outcome, the amounts we may be required to pay in
the discharge of liabilities or settlements could have a
material 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
impact on our consolidated results of operations.
|
|
NOTE 20:
|
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, 2011, HRB Banks leverage ratio was
30.8%.
As of March 31, 2011, 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, 2011 that management
believes have changed HRB Banks category.
The following table sets forth HRB Banks regulatory
capital requirements, as calculated in its TFR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
Adequacy
|
|
|
Under Prompt
Corrective
|
|
|
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
Provisions
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
As of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
(1)
|
|
$
|
405,000
|
|
|
|
92.5%
|
|
|
$
|
35,019
|
|
|
|
8.0%
|
|
|
$
|
43,773
|
|
|
|
10.0%
|
|
|
|
|
|
Tier 1 risk-based capital ratio
(2)
|
|
$
|
399,187
|
|
|
|
91.2%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
26,264
|
|
|
|
6.0%
|
|
|
|
|
|
Tier 1 capital ratio (leverage)
(3)
|
|
$
|
399,187
|
|
|
|
22.8%
|
|
|
$
|
209,758
|
|
|
|
12.0%
|
|
|
$
|
87,399
|
|
|
|
5.0%
|
|
|
|
|
|
Tangible equity ratio
(4)
|
|
$
|
399,187
|
|
|
|
22.8%
|
|
|
$
|
26,220
|
|
|
|
1.5%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
As of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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 years 2011 and 2010, and $245.0 million during
fiscal year 2009.
HRB Bank received approval from the OTS during fiscal year 2011
to pay cash and non-cash dividends. The dividend payments were
subject to HRB Bank maintaining a leverage capital ratio of 12%
immediately after payment and on a continual basis. HRB Bank
paid dividends and returned of capital of $262.5 million
during fiscal year 2011, comprised of $37.5 million in REO
properties and loans and $225.0 million in cash.
H&R
BLOCK 2011
Form 10K 71
|
|
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.
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 software, online tax preparation fees, fees from
refund anticipation checks (RACs), prior year 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 $205.8 million,
$190.9 million and $160.7 million in revenues for
fiscal years 2011, 2010 and 2009, respectively, and
$46.2 million, $46.7 million and $31.6 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 $206.3 million,
$166.8 million and $126.8 million at April 30,
2011, 2010 and 2009, respectively.
Information concerning the Companys operations by
reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
REVENUES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,912,361
|
|
|
$
|
2,975,252
|
|
|
$
|
3,132,077
|
|
|
|
|
|
Business Services
|
|
|
829,794
|
|
|
|
860,349
|
|
|
|
897,809
|
|
|
|
|
|
Corporate
|
|
|
32,141
|
|
|
|
38,731
|
|
|
|
53,691
|
|
|
|
|
|
|
|
|
|
|
$
|
3,774,296
|
|
|
$
|
3,874,332
|
|
|
$
|
4,083,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
767,498
|
|
|
$
|
867,362
|
|
|
$
|
927,048
|
|
|
|
|
|
Business Services
|
|
|
49,003
|
|
|
|
58,714
|
|
|
|
96,097
|
|
|
|
|
|
Corporate
|
|
|
(139,476
|
)
|
|
|
(141,941
|
)
|
|
|
(183,775
|
)
|
|
|
|
|
|
|
|
|
|
$
|
677,025
|
|
|
$
|
784,135
|
|
|
$
|
839,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
87,666
|
|
|
$
|
88,523
|
|
|
$
|
79,415
|
|
|
|
|
|
Business Services
|
|
|
30,692
|
|
|
|
33,064
|
|
|
|
36,748
|
|
|
|
|
|
Corporate
|
|
|
3,275
|
|
|
|
5,314
|
|
|
|
7,468
|
|
|
|
|
|
|
|
|
|
|
$
|
121,633
|
|
|
$
|
126,901
|
|
|
$
|
123,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
43,043
|
|
|
$
|
78,108
|
|
|
$
|
76,305
|
|
|
|
|
|
Business Services
|
|
|
19,873
|
|
|
|
12,318
|
|
|
|
21,185
|
|
|
|
|
|
Corporate
|
|
|
43
|
|
|
|
89
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
$
|
62,959
|
|
|
$
|
90,515
|
|
|
$
|
97,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDENTIFIABLE ASSETS :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
2,267,236
|
|
|
$
|
2,279,161
|
|
|
$
|
2,117,475
|
|
|
|
|
|
Business Services
|
|
|
851,764
|
|
|
|
806,688
|
|
|
|
897,250
|
|
|
|
|
|
Corporate
|
|
|
2,088,961
|
|
|
|
2,148,469
|
|
|
|
2,344,997
|
|
|
|
|
|
|
|
|
|
|
$
|
5,207,961
|
|
|
$
|
5,234,318
|
|
|
$
|
5,359,722
|
|
|
|
|
|
|
|
|
|
72 H&R
BLOCK 2011 Form 10K
|
|
NOTE 22:
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
|
|
Fiscal Year 2011
|
|
|
Apr 30, 2011
|
|
|
Jan 31, 2011
|
|
|
Oct 31, 2010
|
|
|
Jul 31, 2010
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,774,296
|
|
|
$
|
2,325,451
|
|
|
$
|
851,482
|
|
|
$
|
322,889
|
|
|
$
|
274,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
$
|
677,025
|
|
|
$
|
1,076,910
|
|
|
$
|
(17,449
|
)
|
|
$
|
(175,119
|
)
|
|
$
|
(207,317
|
)
|
|
|
|
|
Income taxes (benefit)
|
|
|
257,620
|
|
|
|
418,680
|
|
|
|
(13,074
|
)
|
|
|
(68,307
|
)
|
|
|
(79,679
|
)
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
419,405
|
|
|
|
658,230
|
|
|
|
(4,375
|
)
|
|
|
(106,812
|
)
|
|
|
(127,638
|
)
|
|
|
|
|
Net income (loss) from discontinued operations
|
|
|
(13,295
|
)
|
|
|
331
|
|
|
|
(8,346
|
)
|
|
|
(2,237
|
)
|
|
|
(3,043
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
406,110
|
|
|
$
|
658,561
|
|
|
$
|
(12,721
|
)
|
|
$
|
(109,049
|
)
|
|
$
|
(130,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.35
|
|
|
$
|
2.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.40
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.31
|
|
|
$
|
2.15
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
1.35
|
|
|
$
|
2.14
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.40
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.31
|
|
|
$
|
2.14
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
The accumulation of four quarters in fiscal years 2011 and 2010
for earnings per share may not equal the related per share
amounts for the years ended April 30, 2011 and 2010 due to
the timing of the exercise of stock options and
H&R
BLOCK 2011
Form 10K 73
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fourth Quarter
|
|
|
Third Quarter
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
|
FISCAL YEAR 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.60
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
|
|
|
Stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
18.99
|
|
|
$
|
18.00
|
|
|
$
|
13.79
|
|
|
$
|
15.97
|
|
|
$
|
18.99
|
|
|
|
|
|
Low
|
|
|
10.13
|
|
|
|
12.46
|
|
|
|
11.15
|
|
|
|
10.13
|
|
|
|
13.44
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
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, 2011
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
251,521
|
|
|
$
|
3,522,775
|
|
|
$
|
|
|
|
$
|
3,774,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
277,099
|
|
|
|
2,137,491
|
|
|
|
|
|
|
|
2,414,590
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
31,914
|
|
|
|
662,222
|
|
|
|
|
|
|
|
694,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
309,013
|
|
|
|
2,799,713
|
|
|
|
|
|
|
|
3,108,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(57,492
|
)
|
|
|
723,062
|
|
|
|
|
|
|
|
665,570
|
|
|
|
|
|
Other income, net
|
|
|
677,025
|
|
|
|
5,503
|
|
|
|
5,952
|
|
|
|
(677,025
|
)
|
|
|
11,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
677,025
|
|
|
|
(51,989
|
)
|
|
|
729,014
|
|
|
|
(677,025
|
)
|
|
|
677,025
|
|
|
|
|
|
Income taxes (benefit)
|
|
|
257,620
|
|
|
|
(27,774
|
)
|
|
|
285,394
|
|
|
|
(257,620
|
)
|
|
|
257,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
419,405
|
|
|
|
(24,215
|
)
|
|
|
443,620
|
|
|
|
(419,405
|
)
|
|
|
419,405
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(13,295
|
)
|
|
|
(12,417
|
)
|
|
|
(878
|
)
|
|
|
13,295
|
|
|
|
(13,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
406,110
|
|
|
$
|
(36,632
|
)
|
|
$
|
442,742
|
|
|
$
|
(406,110
|
)
|
|
$
|
406,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
74 H&R
BLOCK 2011 Form 10K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING BALANCE SHEETS
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
April 30, 2011
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Cash & cash equivalents
|
|
$
|
|
|
|
$
|
616,238
|
|
|
$
|
1,061,656
|
|
|
$
|
(50
|
)
|
|
$
|
1,677,844
|
|
|
|
|
|
Cash & cash equivalents restricted
|
|
|
|
|
|
|
9,522
|
|
|
|
38,861
|
|
|
|
|
|
|
|
48,383
|
|
|
|
|
|
Receivables, net
|
|
|
88
|
|
|
|
102,011
|
|
|
|
390,191
|
|
|
|
|
|
|
|
492,290
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
485,008
|
|
|
|
|
|
|
|
|
|
|
|
485,008
|
|
|
|
|
|
Intangible assets and goodwill, net
|
|
|
|
|
|
|
|
|
|
|
1,214,164
|
|
|
|
|
|
|
|
1,214,164
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
2,699,555
|
|
|
|
|
|
|
|
32
|
|
|
|
(2,699,555
|
)
|
|
|
32
|
|
|
|
|
|
Other assets
|
|
|
13,613
|
|
|
|
469,461
|
|
|
|
807,166
|
|
|
|
|
|
|
|
1,290,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,713,256
|
|
|
$
|
1,682,240
|
|
|
$
|
3,512,070
|
|
|
$
|
(2,699,605
|
)
|
|
$
|
5,207,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
|
|
|
$
|
852,270
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
852,220
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
998,965
|
|
|
|
50,789
|
|
|
|
|
|
|
|
1,049,754
|
|
|
|
|
|
FHLB borrowings
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
Other liabilities
|
|
|
178
|
|
|
|
(26,769
|
)
|
|
|
1,858,004
|
|
|
|
|
|
|
|
1,831,413
|
|
|
|
|
|
Net intercompany advances
|
|
|
1,263,504
|
|
|
|
24,173
|
|
|
|
(1,287,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,449,574
|
|
|
|
(191,399
|
)
|
|
|
2,890,954
|
|
|
|
(2,699,555
|
)
|
|
|
1,449,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,713,256
|
|
|
$
|
1,682,240
|
|
|
$
|
3,512,070
|
|
|
$
|
(2,699,605
|
)
|
|
$
|
5,207,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
H&R
BLOCK 2011
Form 10K 75
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Year Ended
April 30, 2011
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
9,683
|
|
|
$
|
(153,471
|
)
|
|
$
|
656,291
|
|
|
$
|
|
|
|
$
|
512,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of AFS securities
|
|
|
|
|
|
|
(138,824
|
)
|
|
|
|
|
|
|
|
|
|
|
(138,824
|
)
|
|
|
|
|
Maturities and payments received on AFS securities
|
|
|
|
|
|
|
16,690
|
|
|
|
107
|
|
|
|
|
|
|
|
16,797
|
|
|
|
|
|
Mortgage loans held for investment, net
|
|
|
|
|
|
|
58,471
|
|
|
|
|
|
|
|
|
|
|
|
58,471
|
|
|
|
|
|
Purchases of property & equipment
|
|
|
|
|
|
|
(33
|
)
|
|
|
(62,926
|
)
|
|
|
|
|
|
|
(62,959
|
)
|
|
|
|
|
Payments for business acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
(54,171
|
)
|
|
|
|
|
|
|
(54,171
|
)
|
|
|
|
|
Proceeds from sales of businesses, net
|
|
|
|
|
|
|
|
|
|
|
71,083
|
|
|
|
|
|
|
|
71,083
|
|
|
|
|
|
Loans made to franchisees
|
|
|
|
|
|
|
(92,455
|
)
|
|
|
|
|
|
|
|
|
|
|
(92,455
|
)
|
|
|
|
|
Repayments from franchisees
|
|
|
|
|
|
|
57,552
|
|
|
|
|
|
|
|
|
|
|
|
57,552
|
|
|
|
|
|
Net intercompany advances
|
|
|
459,755
|
|
|
|
|
|
|
|
|
|
|
|
(459,755
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
21,556
|
|
|
|
12,793
|
|
|
|
|
|
|
|
34,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
459,755
|
|
|
|
(77,043
|
)
|
|
|
(33,114
|
)
|
|
|
(459,755
|
)
|
|
|
(110,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
|
|
|
|
(4,818,766
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,818,766
|
)
|
|
|
|
|
Proceeds from commercial paper
|
|
|
|
|
|
|
4,818,766
|
|
|
|
|
|
|
|
|
|
|
|
4,818,766
|
|
|
|
|
|
Repayments of other borrowings
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
Customer banking deposits, net
|
|
|
|
|
|
|
(11,501
|
)
|
|
|
|
|
|
|
61
|
|
|
|
(11,440
|
)
|
|
|
|
|
Dividends paid
|
|
|
(186,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,802
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
(283,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283,534
|
)
|
|
|
|
|
Proceeds from stock options
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
|
|
|
|
Net intercompany advances
|
|
|
|
|
|
|
206,722
|
|
|
|
(666,477
|
)
|
|
|
459,755
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
474
|
|
|
|
(490
|
)
|
|
|
(3,023
|
)
|
|
|
|
|
|
|
(3,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(469,438
|
)
|
|
|
144,731
|
|
|
|
(669,500
|
)
|
|
|
459,816
|
|
|
|
(534,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
5,844
|
|
|
|
|
|
|
|
5,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
(85,783
|
)
|
|
|
(40,479
|
)
|
|
|
61
|
|
|
|
(126,201
|
)
|
|
|
|
|
Cash beginning of the year
|
|
|
|
|
|
|
702,021
|
|
|
|
1,102,135
|
|
|
|
(111
|
)
|
|
|
1,804,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of the year
|
|
$
|
|
|
|
$
|
616,238
|
|
|
$
|
1,061,656
|
|
|
$
|
(50
|
)
|
|
$
|
1,677,844
|
|
|
|
|
|
|
|
|
|
76 H&R
BLOCK 2011 Form 10K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of AFS securities
|
|
|
|
|
|
|
(365
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(5,365
|
)
|
|
|
|
|
Sales and maturities of AFS securities
|
|
|
|
|
|
|
14,639
|
|
|
|
1,119
|
|
|
|
|
|
|
|
15,758
|
|
|
|
|
|
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
|
)
|
|
|
|
|
Proceeds from sales of businesses, net
|
|
|
|
|
|
|
|
|
|
|
66,623
|
|
|
|
|
|
|
|
66,623
|
|
|
|
|
|
Loans made to franchisees
|
|
|
|
|
|
|
(89,664
|
)
|
|
|
|
|
|
|
|
|
|
|
(89,664
|
)
|
|
|
|
|
Repayments from franchisees
|
|
|
|
|
|
|
40,710
|
|
|
|
|
|
|
|
|
|
|
|
40,710
|
|
|
|
|
|
Net intercompany advances
|
|
|
415,591
|
|
|
|
|
|
|
|
|
|
|
|
(415,591
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
73,493
|
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
31,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2011
Form 10K 77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of AFS securities
|
|
|
|
|
|
|
(875
|
)
|
|
|
(4,217
|
)
|
|
|
|
|
|
|
(5,092
|
)
|
|
|
|
|
Sales and maturities of AFS securities
|
|
|
|
|
|
|
8,417
|
|
|
|
6,658
|
|
|
|
|
|
|
|
15,075
|
|
|
|
|
|
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
|
)
|
|
|
|
|
Proceeds from sales of businesses, net
|
|
|
|
|
|
|
|
|
|
|
18,865
|
|
|
|
|
|
|
|
18,865
|
|
|
|
|
|
Net intercompany advances
|
|
|
73,820
|
|
|
|
|
|
|
|
|
|
|
|
(73,820
|
)
|
|
|
|
|
|
|
|
|
Investing cash flows of discontinued operations
|
|
|
|
|
|
|
255,066
|
|
|
|
|
|
|
|
|
|
|
|
255,066
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
10,056
|
|
|
|
11,946
|
|
|
|
|
|
|
|
22,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
78 H&R
BLOCK 2011 Form 10K
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ITEM 9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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There were no disagreements or reportable events requiring
disclosure pursuant to Item 304(b) of
Regulation S-K.
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ITEM 9A. |
CONTROLS
AND PROCEDURES
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(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, 2011.
Based on our assessment, management concluded that, as of
April 30, 2011, 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, 2011, there were no changes that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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ITEM 9B. |
OTHER
INFORMATION
|
On June 21, 2011, the Company and HRB Island Acquisition,
Inc. (the Sub), an indirect wholly owned subsidiary
of the Company, entered into an amendment (the
Amendment) to the previously disclosed Agreement and
Plan of Merger, dated as of October 13, 2010 (the
Merger Agreement), with 2SS Holdings, Inc.
(2SS), TA Associates Management, L.P., in its
capacity as a stockholder representative, and Lance Dunn, in his
capacity as a stockholder representative. 2SS owns
2nd Story Software, Inc., developer of TaxACT digital tax
preparation solutions.
The Amendment addresses, among other things, each partys
respective obligations regarding the civil antitrust lawsuit
instituted by the United States Department of Justice (the
DOJ) to block the transaction (the DOJ
Action) and the extension of the date that either party
may terminate the Merger Agreement from May 31, 2011 to the
earlier of October 15, 2011 or the date on which an
applicable court in the DOJ Action enters a preliminary or
permanent injunction that prohibits the closing of the
transaction. The Amendment also provides that the external
H&R
BLOCK 2011
Form 10K 79
costs and expenses of all parties that are incurred in
connection with the DOJ Action after the date of the Amendment
shall be the responsibility of 2SS (subject to the exceptions
set forth in the Amendment), but that, if the transaction
closes, the Company will reimburse 2SS for such costs and
expenses, up to a maximum of $5 million. Except as
specifically amended in the Amendment, the other terms of the
Merger Agreement remain unchanged.
The foregoing summary of the Amendment does not purport to be
complete and is subject to, and qualified in its entirety by,
the full text of such Amendment, which is filed herewith as
Exhibit [10.34] and incorporated herein by reference.
80 H&R
BLOCK 2011 Form 10K
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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, 2011, is incorporated herein by reference:
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§
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Information appearing under the heading Election of
Directors,
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§
|
Information appearing under the heading Section 16(a)
Beneficial Ownership Reporting Compliance,
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§
|
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,
2011, is as follows:
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Name,
age
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Current
position
|
|
Business
experience since May 1, 2006
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William C. Cobb,
age 54
|
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President and Chief Executive Officer, effective
May 16, 2011
|
|
President and Chief Executive Officer since May 2011; retired
from eBay, Inc. in 2008, having worked there from November 2000
to March 2008, where he most recently served as President of
eBay Marketplaces North America for four years; before that he
held several senior management positions, including Senior Vice
President and General Manager of eBay International and Senior
Vice President of Global Marketing.
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Alan M. Bennett,
age 60
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President and Chief Executive Officer, until May 16, 2011
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President and Chief Executive Officer from July 2010 to May
2011; Interim Chief Executive Officer from November 2007 to
August 2008; Senior Vice President and Chief Financial Officer
of Aetna, Inc. from September 2001 until February 2007.
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Jeffrey T. Brown,
age 52
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Senior Vice President and Chief Financial Officer
|
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Senior Vice President and Chief Financial Officer since
September 2010; Interim Chief Financial Officer from May 1, 2010
to September 2010; Vice President and Corporate Controller from
March 2008 until May 2010; Assistant Vice President and
Assistant Controller from August 2005 until March 2008; Director
of Corporate Accounting, from September 2002 to August 2005.
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C.E. Andrews,
age 59
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President and Chief Operating Officer, RSM McGladrey, Inc.
|
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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.
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Philip L. Mazzini,
age 45
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President, Retail Tax Services of HRB Tax Group, Inc.
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President, Retail Tax Services of HRB Tax Group since August
2010. Senior Vice President, Tax Operations of HRB Tax Group,
Inc. from August 2008 through August 2010. Vice President,
Managing Director of HRB Tax Group, Inc. from November 2004
through August 2008.
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Robert J. Turtledove,
age 51
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Senior Vice President and Chief Marketing Officer
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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.
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H&R
BLOCK 2011
Form 10K 81
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Name,
age
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|
Current
position
|
|
Business
experience since May 1, 2006
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|
Colby R. Brown,
age 37
|
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Vice President and Corporate Controller
|
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Vice President and Corporate Controller since September 2010;
Assistant Vice President and Controller of HRB Tax Group, Inc.
from December 2009 until September 2010; Division Controller,
North America, for Fort Dodge Animal Health, a division of
Wyeth, from July 2007 to December 2009; Director, Financial
Reporting and Analysis, for Fort Dodge Animal Health from
September 2002 to July 2007.
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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, 2011, in the
sections entitled Director Compensation and
Executive Compensation and is incorporated herein by
reference.
|
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ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information called for by this item is contained in
Part II, Item 5 of this
Form 10-K
and in our definitive proxy statement filed pursuant to
Regulation 14A not later than 120 days after
April 30, 2011, in the section titled Equity
Compensation Plans and in the section titled
Information Regarding Security Holders and is
incorporated herein by reference.
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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, 2011, in the
section titled Employment Agreements,
Change-of-Control
and Other Arrangements, in the section titled Review
of Related Person Transactions, and in the section titled
Corporate Governance, and is incorporated herein by
reference.
|
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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, 2011, 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 Income and Comprehensive Income
(Loss), Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and
Consolidated Statements of Stockholders Equity.
|
|
2.
|
Exhibits The list of exhibits in the
Exhibit Index to this Report is incorporated herein by
reference.
|
82 H&R
BLOCK 2011 Form 10K
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.
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|
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H&R BLOCK, INC.
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|
|
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William C. Cobb
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Alan M. Bennett
|
President and Chief Executive Officer
(as of May 16, 2011)
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President and Chief Executive Officer
(until May 16, 2011)
|
June 23, 2011
|
|
June 23, 2011
|
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 23, 2011.
H&R
BLOCK 2011
Form 10K 83
The following
exhibits are numbered in accordance with the Exhibit Table
of Item 601 of
Regulation S-K:
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|
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3
|
.1
|
|
Amended and Restated Articles of Incorporation of H&R
Block, Inc., as amended through September 30, 2010.
|
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3
|
.2
|
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Amended and Restated Bylaws of H&R Block, Inc., as amended
through September 30, 2010.
|
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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.
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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
filed April 17, 2000, file number 1-6089, is incorporated
herein by reference.
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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
filed October 26, 2004, file number 1-6089, is incorporated
herein by reference.
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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
filed January 11, 2008, file number 1-6089, is incorporated
herein by reference.
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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
filed October 26, 2004, file number 1-6089, is incorporated
herein by reference.
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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
filed January 11, 2008, file number 1-6089, is incorporated
herein by reference.
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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.
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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.
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4
|
.9
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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.
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10
|
.1*
|
|
The Companys 2003 Long-Term Executive Compensation Plan,
as amended September 30, 2010, filed as Exhibit 10.2
to the Companys quarterly report on
Form 10-Q
for the quarter ended October 31, 2010, file number 1-6089,
is incorporated herein by reference.
|
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10
|
.2*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Restricted Shares, filed as part of
Exhibit 10.1 to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2010, file number 1-6089, is
incorporated herein by reference.
|
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10
|
.3*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Stock Options, filed as part of Exhibit 10.1
to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2010, file number 1-6089, is
incorporated herein by reference.
|
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10
|
.4*
|
|
H&R Block Deferred Compensation Plan for Executives, as
amended and restated effective July 27, 2010, filed as
Exhibit 10.4 to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2010, file number 1-6089, is
incorporated herein by reference.
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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.
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10
|
.6*
|
|
The H&R Block Executive Performance Plan, as amended
July 27, 2010.
|
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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.
|
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10
|
.8*
|
|
The H&R Block, Inc. Executive Survivor Plan (as Amended and
Restated January 1, 2001) 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.
|
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10
|
.9*
|
|
First Amendment to the H&R Block, Inc. Executive Survivor
Plan (as Amended and Restated) effective as of July 1,
2002, 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.
|
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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.
|
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10
|
.11*
|
|
H&R Block Severance Plan, as amended and restated effective
July 27, 2010, filed as Exhibit 10.3 to the
Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2010, file number 1-6089, is
incorporated herein by reference.
|
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10
|
.12*
|
|
H&R Block Inc. Executive Severance Plan, as amended and
restated effective July 27, 2010, filed as
Exhibit 10.2 to the Companys quarterly report on
Form 10-Q
for the quarter ended July 31, 2010, file number 1-6089, is
incorporated herein by reference.
|
84 H&R
BLOCK 2011 Form 10K
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|
|
|
|
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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.
|
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10
|
.14*
|
|
Separation and Release Agreement dated May 4, 2010, between
H&R Block Management, LLC and Becky S. Shulman, filed as
Exhibit 10.17 to the companys annual report on
Form 10-K
for the fiscal year ended April 30, 2010, file number
1-6089, is incorporated herein by reference.
|
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10
|
.15*
|
|
Employment Agreement dated August 12, 2010, between
H&R Block Management, LLC and Alan M. Bennett, filed as
Exhibit 10.1 to the Companys current report on
Form 8-K
filed August 12, 2010, file number 1-6089, is incorporated
herein by reference.
|
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10
|
.16*
|
|
Transition Agreement dated April 27, 2011, between H&R
Block Management, LLC and Alan M. Bennett, filed as
Exhibit 10.1 to the Companys current report on
Form 8-K
filed April 29, 2011, file number 1-6089, is incorporated
herein by reference.
|
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10
|
.17*
|
|
Employment Agreement dated April 27, 2011, between H&R
Block Management, LLC and William C. Cobb, filed as
Exhibit 10.2 to the Companys current report on
Form 8-K
filed April 29, 2011, file number 1-6089, is incorporated
herein by reference.
|
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10
|
.18*
|
|
Form of Indemnification Agreement for directors, filed as
Exhibit 10.1 to the Companys current report on
Form 8-K
filed December 15, 2005, file number 1-6089, is
incorporated herein by reference.
|
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10
|
.19*
|
|
2008 Deferred Stock Unit Plan for Outside Directors, as amended
and restated as of September 24, 2009, filed as
Exhibit 10.19 to the companys annual report on
Form 10-K
for the fiscal year ended April 30, 2010, file number
1-6089, is incorporated herein by reference.
|
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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.**
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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.**
|
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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.**
|
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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.**
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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.**
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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.**
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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.**
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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.**
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10
|
.28
|
|
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.,
filed as Exhibit 10.36 to the companys annual report
on
Form 10-K
for the fiscal year ended April 30, 2010, file number
1-6089, is incorporated herein by reference.
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10
|
.29
|
|
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.**
|
H&R
BLOCK 2011
Form 10K 85
|
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10
|
.30
|
|
Amended and Restated Administrative Services Agreement dated as
of February 3, 2010 among RSM McGladrey, Inc., H&R
Block, Inc. and McGladrey & Pullen, LLP, filed as
Exhibit 10.42 to the companys annual report on
Form 10-K
for the fiscal year ended April 30, 2010, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.31
|
|
Governance and Operations Agreement dated as of February 3,
2010 among RSM McGladrey, Inc., H&R Block, Inc. and
McGladrey & Pullen LLP, filed as Exhibit 10.43 to
the companys annual report on
Form 10-K
for the fiscal year ended April 30, 2010, file number
1-6089, is incorporated herein by reference.
|
|
10
|
.32
|
|
Agreement and Plan of Merger dated as of October 13, 2010,
among H&R Block, Inc., HRB Island Acquisition, Inc., 2SS
Holdings, Inc., TA Associates Management, L.P. and Lance Dunn,
filed as Exhibit 10.1 to the Companys current report
on
Form 8-K
filed October 14, 2010, file number 1-6089, is incorporated
herein by reference.
|
|
10
|
.33
|
|
Agreement to Extend Outside Date dated March 4, 2011, among
H&R Block, Inc., HRB Island Acquisition, Inc., 2SS
Holdings, Inc., TA Associates Management, L.P. and Lance Dunn.
|
|
10
|
.34
|
|
Amendment to Agreement and Plan of Merger dated June 21,
2011, among H&R Block, Inc., HRB Island Acquisition, Inc.,
2SS Holdings, Inc., TA Associates Management, L.P. and Lance
Dunn.
|
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12
|
|
|
Computation of Ratio of Earnings to Fixed Charges for the five
years ended April 30, 2011.
|
|
21
|
|
|
Subsidiaries of the Company.
|
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23
|
|
|
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.
|
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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
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
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*
|
|
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.
|
86 H&R
BLOCK 2011 Form 10K
exv3w1
Exhibit 3.1
Amended and Restated Articles of Incorporation of
H & R Block, Inc.
(as amended through September 30, 2010)
The undersigned, being an officer of H & R Block, Inc., does hereby certify that the following
Amended and Restated Articles of Incorporation have been approved by the corporation in accordance
with the General and Business Corporation Law of Missouri. Amendments to the Articles as amended
to date were approved by the shareholders on September 4, 2008. On such date, 329,180,751 shares
of Common Stock were outstanding and entitled to vote on the amendments. For the amendment to: (1)
Article Three, Section 1: 255,392,828 shares voted for, and 1,628,675 voted against; (2) Article
Six, Section A: 280,473,181 shares voted for, and 1,520,092 voted against; (3) Article Six, Section
B: 198,950,440 shares voted for, and 82,001,691 voted against; and (4) Article Six, Section F:
277,970,752 shares voted for, and 4,090,530 voted against. A restatement of the Articles was
approved by resolution of a majority of the board of directors of the corporation on October 15,
2008.
ARTICLE ONE
The name of the corporation is: H & R BLOCK, INC.
ARTICLE TWO
The address of the corporations registered office in the State of Missouri is 120 South
Central Avenue, Clayton, Missouri 63105, and the name of its registered agent at such address is CT
Corporation System.
ARTICLE THREE
The aggregate number of shares of all classes of stock which the corporation shall have
authority to issue is 806,000,000 divided into two classes as follows:
(i) 800,000,000 shares of a class designated Common Stock, without par value; and
(ii) 6,000,000 shares of a class designated Preferred Stock, without par value.
The voting powers, designations, preferences, qualifications, limitations, restrictions and
special or relative rights in respect of each class of stock are or shall be fixed as follows:
(1) Preferred Stock. The Board of Directors is expressly authorized to issue the
Preferred Stock from time to time, in one or more series, provided that the aggregate
number of shares issued and outstanding at any time of all such series shall not
exceed 6,000,000. The Board of Directors is further authorized to fix or alter, in
respect of each such series, the following terms and provisions of any authorized and
unissued shares of such stock:
(a) The distinctive serial designation;
(b) The number of shares of the series, which number may at any time or from
time to time be increased or decreased (but not below the number of shares of
such series then outstanding) by the Board of Directors;
(c) The voting powers and, if voting powers are granted, the extent of such
voting powers including the right, if any, to elect a director or directors,
provided, that the holders of shares of Preferred Stock will not be entitled
(A) to more than one vote per share, when voting as a class with the holders
of shares of common stock, and (B) to vote on any matter separately as a
class, except with respect to any amendment or alteration of the provisions of
these Articles of Incorporation that would adversely affect the powers,
preferences or special rights of the applicable series of Preferred Stock or
as otherwise provided by law;
(d) The election, term of office, filling of vacancies and other terms of the
directorships of directors elected by the holders of any one or more classes
or series of such stock;
(e) The dividend rights, including the dividend rate and the dates on which
any dividends shall be payable;
(f) The date from which dividends on shares issued prior to the date for
payment of the first dividend thereon shall be cumulative, if any;
(g) The redemption price, terms of redemption, and the amount of and
provisions regarding any sinking fund for the purchase or redemption thereof;
(h) The liquidation preferences and the amounts payable on dissolution or
liquidation;
(i) The terms and conditions, if any, under which shares of the series may be
converted; and
(j) Any other terms or provisions which the Board of Directors is by law
authorized to fix or alter.
(2) Common Stock. The holders of shares of Common Stock shall be entitled (i) to vote on all
matters at all meetings of the shareholders of the corporation on the basis of one vote for each
share of Common Stock held of record; (ii) subject to any preferential dividend rights applicable
to the Preferred Stock, to receive such dividends as may be declared by the Board of Directors; and
(iii) in the event of the voluntary, or involuntary, liquidation or winding up of the corporation,
after distribution in full of any preferential amounts to be distributed to holders of shares of
Preferred Stock, to receive all of the remaining assets of the corporation available for
distribution to its shareholders, ratably in proportion to the aggregate number of their shares of
Common Stock and Preferred Stock (if the holders of such Preferred Stock are entitled to share in
such distribution).
2
(3) Provisions applicable to Common and Preferred Stock. No holder of shares of stock of the
corporation of any class shall be entitled, as a matter of right, to purchase or subscribe for any
shares of stock of the corporation, of any class, whether now or hereafter authorized. The Board
of Directors shall have authority to fix the issue price of any and all shares of stock of the
corporation of any class.
ARTICLE FOUR
The number of shares to be issued before the corporation shall commence business is: Twenty
(20) shares of common stock, and the consideration to be paid therefor, and the capital with which
the corporation will commence business, is: Two Thousand ($2,000.00) Dollars. All of said shares
have been first duly subscribed by the undersigned incorporators and have been paid up in lawful
money of the United States.
ARTICLE FIVE
The names and places of residence of the initial subscribers and shareholders, and the number
of shares of stock subscribed by each, are:
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Name |
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Residence |
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No. of Shares |
R. A. Bloch
|
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6501 Overbrook, Kansas City, Mo.
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10 |
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Henry W. Bloch
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2026 W. 63rd St., Kansas City, Mo.
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9 |
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L. E. Bloch, Jr.
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414 W. 58th St., Kansas City, Mo.
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1 |
|
ARTICLE SIX
(A) Number of Directors. The number of directors to constitute the Board of Directors shall be
not less than seven nor more than twelve, the exact number to be fixed by a resolution adopted by
the affirmative vote of a majority of the whole Board.
(B) Election of Directors. Directors shall be elected at each annual meeting of shareholders
to hold office until the next succeeding annual meeting of shareholders or until such directors
successor has been elected and qualified. The term of office of each director shall begin
immediately after his election and each director shall hold office until the next succeeding annual
meeting of shareholders or until such directors successor has been elected and qualified and
subject to prior death, resignation, retirement or removal from office of the director. No decrease
in the number of directors constituting the board of directors shall reduce the term of any
incumbent director. No person shall serve as a director for a period or consecutive periods that
extend beyond the twelfth annual shareholders meeting following the annual shareholders meeting at
which such person was first elected to the Board of Directors by the shareholders.
(C) Vacancies. Newly created directorships resulting from an increase in the number of
directors and any vacancies on the Board of Directors resulting from any cause shall be filled by a
majority of the Board of Directors then in office, although less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy not
3
resulting from an increase in the number of directors shall have the same remaining term as his or
her predecessor.
(D) Removal of Directors. Any director, or directors, or the entire Board of Directors of
the corporation may be removed, with or without cause, at any time but only by the affirmative vote
of the holders of at least a majority of the outstanding shares of each class of stock of the
corporation entitled to elect one or more directors at a meeting of the shareholders called for
such purpose.
(E) Bylaws. The Board of Directors shall have the power to make, alter, amend, change, add
to or repeal the Bylaws of the corporation.
(F) Independent Chairman of the Board. No person may simultaneously hold the offices of
chairman of the board and vice-chairman of the board, chairman of the board and chief executive
officer, or chairman of the board and president. Furthermore, the chairman of the board shall be
independent pursuant to standards promulgated by the Securities and Exchange Commission and the New
York Stock Exchange and shall not have served previously as an executive officer of the Company.
ARTICLE SEVEN
The duration of the corporation is perpetual.
ARTICLE EIGHT
The purposes for which the corporation is formed are as follows:
(1) To perform bookkeeping services, including the preparation of books of account, balance
sheets and profit and loss statements, to render tax services, including the preparation of tax
returns, and to perform any and all other services directly or indirectly related thereto.
(2) To purchase, lease or otherwise acquire, hold, own, improve, develop, sell, mortgage,
pledge and otherwise deal in and with real and personal property of every kind and description in
the United States of America, and in any territory, colony, dependency or district thereof, and in
any foreign country or countries to the extent that the same may be lawfully permissible.
(3) To buy, sell, utilize, lease, rent, import, export, manufacture, produce, design, prepare,
assemble, fabricate, distribute and otherwise deal in, either at wholesale or retail, or both,
either as principal, agent or on commission, all commodities, goods, wares, merchandise, machinery,
tools, devices, apparatus, equipment and all other personal property, whether tangible or
intangible, of every kind and description.
(4) To buy, purchase, manufacture, assemble, distribute, lease (either as lessor or lessee),
acquire, sell or in any manner dispose of, import, export, use, operate, rent, hire, mortgage,
furnish, grant the use of, repair and generally deal in all kinds of construction, building and
engineering equipment, including, but not limited to, bulldozers, castings,
4
cranes, compressors, concrete mixers, drag lines, dump wagons, earth moving machinery and
equipment, plows, pumps, road machines, road rollers, scrapes, shovels, tractors, trucks and
automobile equipment, and in general all kinds of machinery, appliances, devices, implements,
tools, fixtures, instruments, supplies, materials, and property of every kind and description,
usable or adaptable for use by contractors and civil engineers.
(5) To apply for, obtain, purchase, lease, take licenses in respect of or otherwise acquire,
and to hold, own, use, operate, enjoy, turn to account, grant licenses in respect of, manufacture
under, introduce, sell, assign, mortgage, pledge or otherwise dispose of:
|
a) |
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Any and all inventions, devices and processes and any
improvements and modifications thereof; |
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b) |
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Any and all letters patent of the United States or of any
other country, state or locality, and all rights connected therewith or
appertaining thereto; |
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c) |
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Any and all copyrights granted by the United States or
any other country, state or locality as aforesaid; |
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d) |
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Any and all trade-marks, trade names, trade symbols and
other indications of origin and ownership granted by or recognized under the
laws of the United States or of any other country, state or locality as
aforesaid; and to conduct and carry on its business in any or all of its
various branches under any trade name or trade names. |
(6) To engage in, carry on and conduct research, experiments, investigations, analyses,
studies and laboratory work, for the purpose of discovering new products or to improve products,
articles and things and to acquire, own, operate, maintain and dispose of, whenever the corporation
deems such action desirable, laboratories and similar facilities, plants and any and all other
establishments, and to procure, own and hold all necessary equipment in respect thereof, for the
purposes aforesaid.
(7) To enter into any lawful contract or contracts with persons, firms, corporations or other
entities, governments or any agencies or subdivisions thereof, including guaranteeing the
obligations of any person, firm, or corporation or other entity.
(8) To purchase and acquire, as a going concern or otherwise, and to carry on, maintain and
operate all or any part of the property or business of any corporation, firm, association, entity,
syndicate, or person whatsoever, deemed to be of benefit to the corporation, or of use in any
manner in connection with any of its objects or purposes; and to acquire, own, hold and use and
dispose of, upon such terms as may seem advisable to the corporation, any and all property, real,
personal or mixed, and any interest therein deemed necessary, useful or of benefit to the
corporation in any manner in connection with any of its objects or purposes.
(9) To purchase or otherwise acquire, hold, sell, pledge, reissue, transfer or otherwise deal
in shares of the corporations own stock, provided that it shall not use its
5
funds or property for the purchase of its own shares of stock when such use would be in any manner
prohibited by law, by the articles of incorporation or by the bylaws of the corporation; and,
provided further, that shares of its own stock belonging to it shall not be voted upon directly or
indirectly.
(10) To invest, lend and deal with moneys of the corporation in any lawful manner, and to
acquire by purchase, by the exchange of stock or other securities of the corporation, by
subscription or otherwise and to invest in, to hold for investment or for any other purpose, and to
deal in and use, sell, pledge, or otherwise dispose of, and in general to deal in any interest
concerning or enter into any transaction with respect to (including long and short sales of)
any stocks, bonds, notes, debentures, certificates, receipts and other securities and obligations
of any government, state, municipality, corporation, association or other entity, including
individuals and partnerships and, while owner thereof, to exercise all of the rights, powers and
privileges of ownership, including, among other things, the right to vote thereon for any and all
purposes and to give consent with respect thereto.
(11) To borrow or raise money for any purpose of the corporation and to secure the same and
the interest accruing on any such loan, indebtedness or obligation of the corporation, and for that
or any other purposes to mortgage, pledge, hypothecate or charge all or any part of the present or
hereafter acquired property, rights and franchises of the corporation, real, personal, mixed or of
any character whatever, subject only to limitations specifically imposed by law.
(12) To do any or all of the things hereinabove enumerated alone for its own account, or for
the account of others, or as the agent for others, or in association with others or by or through
others, and to enter into all lawful contracts and undertakings in respect thereof.
(13) To have one or more offices, to conduct its business, carry on its operations and
promote its objects within and without the State of Missouri, in other states, the District of
Columbia, the territories, colonies and dependencies of the United States and in foreign countries,
without restriction as to place, manner or amount, but subject to the laws of such state, district,
territory, colony, dependency or country; and to do any or all of the things herein set forth to
the same extent as natural persons might or could do and in any part of the world, either alone or
in company with others.
(14) In general, to carry on any other business in connection with each and all of the
foregoing or incidental thereto, and to carry on, transact and engage in any and every lawful
business or other lawful thing calculated to be of gain, profit or benefit to the corporation as
fully and freely as a natural person might do, to the extent and in the manner, anywhere within or
without the State of Missouri, as it may from time to time determine; and to have and exercise each
and all of the powers and privileges, either direct or incidental, which are given and provided by
or are available under the laws of the State of Missouri in respect of private corporations
organized for profit thereunder; provided, however, that the corporation shall not engage in any
activity for which a corporation may not be formed under the laws of the State of Missouri.
6
It is the intention that each of the objects, purposes and powers specified in each of the
paragraphs in this Article Eight shall be in no wise limited or restricted by reference to or
inference from the terms of any other paragraph, but that the objects, purposes and powers
specified in each of the paragraphs of this Article Eight shall be regarded as independent objects,
purposes and powers. The enumeration of the specific objects, purposes and powers of this Article
shall not be construed to restrict in any manner the general objects, purposes and powers of this
corporation, nor shall the expression of one thing be deemed to exclude another, although it be of
like nature. The enumeration of objects, purposes or powers herein shall not be deemed to exclude
or in any way limit by inference any objects, purposes or powers which this corporation has power
to exercise, whether expressly or by force of the laws of the State of Missouri, now or hereafter
in effect, or impliedly by any reasonable construction of such laws.
ARTICLE NINE
The private property of the shareholders shall not be subject to the payment of the corporate
debt of the corporation.
ARTICLE TEN
Both the shareholders and directors shall have power, if the Bylaws so provide, to hold their
meetings and to have one or more offices within or without the State of Missouri, and to keep books
and records of the corporation business (subject to the provisions of the applicable laws of
Missouri) outside of the State of Missouri, at such places as may be from time to time designated
by the Board of Directors.
ARTICLE ELEVEN
Any contract, transaction or act of the corporation or of the directors, which shall be
ratified by a majority of a quorum of the shareholders having voting power at any annual meeting,
or at any special meeting called for such purpose, shall, except as otherwise specifically provided
by law or by the Articles of Incorporation, be as valid and as binding as though ratified by every
shareholder of the corporation; provided, however, that any failure of the shareholders to approve
or ratify such contract, transaction or act, when and if submitted, shall not of itself be deemed
in any way to render the same invalid, nor deprive the directors of their right to proceed with
such contract, transaction or act.
7
ARTICLE TWELVE
In case the corporation enters into contracts or transacts business with one or more of its
directors, or with any firm of which one or more of its directors are members, or with any other
corporation or association of which one or more of its directors are members or shareholders,
directors or officers, such transaction or transactions shall not be invalidated or in any way
affected by the fact that such director or directors have or may have interests therein which are
or might be adverse to the interests of this corporation; provided that such contract or
transaction is entered into in good faith and authorized or ratified in the usual course of
business as may be provided for in the Bylaws of this corporation.
ARTICLE THIRTEEN
The corporation reserves the right to amend, alter, change, or repeal any provision contained
in these Articles of Incorporation, in the manner as hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE FOURTEEN
Special meetings of the shareholders for any lawful purpose or purposes may be called only by
a majority of the Board of Directors, by the holders of not less than a majority of all outstanding
shares of stock of the corporation entitled to vote at an annual meeting, by the Chairman of the
Board or by the President.
ARTICLE FIFTEEN
The affirmative vote of not less than a majority of the outstanding shares of the corporation
entitled to vote on the matter and represented in person or by proxy at a meeting at which a quorum
is present, unless a greater vote is required by law, shall be required for the approval or
authorization of any Business Transaction (as hereinafter defined) with a Related Person (as
hereinafter defined), whether or not such Business Transaction was approved prior to the time the
Related Person became a Related Person, unless:
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(1) |
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The Business Transaction shall have been approved by a two-thirds vote of
the Continuing Directors (as hereinafter defined); or |
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(2) |
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The Business Transaction is a merger or consolidation and the cash or
fair market value of the property, securities or other consideration to be received
per share by the holders of each class of stock of the corporation in the Business
Transaction is not less than such Related Persons Highest Purchase Price (as
hereinafter defined). |
8
For purposes of this Article Fifteen:
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1. |
|
The term Business Transaction shall mean: (a) any merger or
consolidation of the corporation or any subsidiary of the corporation; (b) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of all or a Substantial Part (as
hereinafter defined) of the assets of the corporation or any subsidiary; (c) the
issuance, sale, exchange, transfer or other disposition by the corporation or any
subsidiary of any securities of the corporation or any subsidiary; (d) any
reclassification of securities (including any reverse stock split) or
recapitalization of the corporation or any other transaction which has the effect,
directly or indirectly, of increasing the voting power of a Related Person; (e)
any liquidation, spinoff, split-up or dissolution of the corporation; and (f) any
agreement, contract or other arrangement providing for any of the transactions
described in this definition of Business Transaction. |
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2. |
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The term Related Person shall mean and include any individual,
corporation, partnership or other person or entity, other than the corporation or
any wholly-owned subsidiary thereof, which, together with its Affiliates and
Associates (as defined on June 1, 1983 in Rule 12b-2 under the Securities
Exchange Act of 1934 (the Exchange Act), Beneficially Owns (as defined on June
1, 1983, in Rule 13d-3 under the Exchange Act) in the aggregate 15 percent or more
of the outstanding shares of the corporation entitled to vote in an election of
directors at the time a resolution approving the Business Transaction is adopted
by a two-thirds vote of the corporations Board of Directors or on the record date
for the determination of shareholders entitled to notice of and to vote on the
Business Transaction, and any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity. |
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3. |
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The term Continuing Director shall mean any member of the Board of
Directors of the corporation who was either a member of the Board of Directors prior
to the time that the Related Person became a Related Person or who subsequently
became a director of the corporation and whose election, or nomination for election
by the corporations shareholders, was approved by a vote of a majority of the
Continuing Directors. |
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4. |
|
The term Highest Purchase Price shall mean the highest amount of
consideration paid by such Related Person for a share of the corporations Common
Stock within one year prior to the date such person became a Related Person or in
the transaction that resulted in such Related Person becoming a Related Person,
provided that the Highest Purchase Price shall be appropriately adjusted for stock
splits, stock dividends and like distributions. |
9
|
5. |
|
The term Substantial Part shall mean more than 20% of the fair
market value of the total assets of the entity in question, as of the end of its
most recent fiscal year ending prior to the time the determination is made. |
ARTICLE SIXTEEN
The affirmative vote of the holders of not less than a majority of the outstanding shares of
stock of this corporation entitled to vote generally in the election of directors shall be
required to amend, modify, alter or repeal any provision of these Articles of Incorporation. The
affirmative vote of the holders of not less than a majority of outstanding shares of stock of this
corporation entitled to vote generally in the election of directors and represented in person or by
proxy at a meeting at which a quorum is present shall be required to amend, modify, alter, or
repeal any provision of the corporations Bylaws, provided that the power of the Board of Directors
to amend, modify, alter or repeal any Bylaw shall be governed by Section E of Article Six.
IN WITNESS WHEREOF, the undersigned has caused these Amended and Restated Articles of
Incorporation to be executed this 15th day of October, 2008.
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H & R BLOCK, INC.
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/s/ Bret G. Wilson
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Bret G. Wilson |
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Vice President and Secretary |
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10
exv3w2
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
H & R BLOCK, INC.
(as amended through September 30, 2010)
OFFICES
1. OFFICES. The corporation shall maintain a registered office in the State of Missouri, and
shall have a resident agent in charge thereof. The location of the registered office and name of
the resident agent shall be designated in the Articles of Incorporation, or by resolution of the
board of directors, on file in the appropriate offices of the State of Missouri. The corporation
may maintain offices at such other places within or without the State of Missouri as the board of
directors shall designate.
SEAL
2. SEAL. The corporation shall have a corporate seal inscribed with the name of the
corporation and the words Corporate Seal Missouri. The form of the seal may be altered at
pleasure and shall be used by causing it or a facsimile thereof to be impressed, affixed,
reproduced or otherwise used.
SHAREHOLDERS MEETINGS
3. PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office
of the corporation in Missouri, except such meetings as the board of directors (to the extent
permissible by law) expressly determines shall be held elsewhere, in which case such meetings may
be held at such other place or places, within or without the State of Missouri, as the board of
directors shall have determined.
4. ANNUAL MEETING. (a) Date And Time. The annual meeting of shareholders shall be
held on the first Wednesday in September of each year, if not a legal holiday, and if a legal
holiday, then on the first business day following, at 9:00 a.m., or on such other date as the board
of directors may specify, when directors shall be elected and such other business transacted as may
be properly brought before the meeting.
(b) Business Conducted. At an annual meeting of shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board, (ii) otherwise properly brought
before the meeting by or at the direction of the board, or (iii) otherwise properly brought before
the meeting by a shareholder who was a shareholder of record both at the time of giving of notice
provided for in this section 4(b) and at the time of the meeting, who is entitled to vote at the
meeting and who has complied with the notice and other requirements of this section 4(b).
For business (other than nominations for elections as directors)to be properly brought before
an annual meeting by a shareholder, the shareholder must have given timely notice of the business
in writing to the secretary of the corporation and such business must be a proper subject for
action by the corporations shareholders under applicable law.
To be timely, a shareholders notice must be received by the secretary at the principal
executive offices of the corporation at least 45 days before the date in the year of the annual
meeting corresponding to the date on which the corporation first mailed its proxy statements for
the prior years annual meeting of shareholders. Such notice shall set forth as to each matter the
shareholder proposes to bring before the meeting:
(i) |
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a brief description of the business desired to be brought before the annual meeting; |
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(ii) |
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the text of the proposal or business (including any proposed resolutions) and, if such
business includes (to the extent, if any, permitted) a proposal to amend the Articles of
Incorporation or the Bylaws, the language of the proposed amendment; |
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(iii) |
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the reasons for conducting such business at the annual meeting; |
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(iv) |
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any material interest of such shareholder (and of the beneficial owner, if any, on whose
behalf the proposal is made) in such business; and |
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(v) |
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as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the
proposal is made (A) the name and address, as they appear on the corporations books, of such
shareholder and of such beneficial owner, (B) the class or series and number of shares of
capital stock of the corporation that are, directly or indirectly, owned beneficially and of
record by such shareholder and such beneficial owner, (C) any option, warrant, convertible
security, stock appreciation right, or similar right with an exercise or conversion privilege
or a settlement payment or mechanism at a price related to any class or series of shares of
the corporation or with a value derived in whole or in part from the value of any class or
series of shares of the corporation, whether or not such instrument or right shall be subject
to settlement in the underlying class or series of capital stock of the corporation or
otherwise (a Derivative Instrument) directly or indirectly owned beneficially by such
shareholder or beneficial owner and any other direct or indirect opportunity to profit or
share in any profit derived from any increase or decrease in the value of shares of the
corporation, (D) any proxy, contract, arrangement, understanding, or relationship pursuant to
which such shareholder has a right to vote any shares of any security of the corporation, (E)
any short interest of such shareholder or beneficial owner in any security of the corporation
(for purposes of this bylaw a person shall be deemed to have a short interest in a security if
such person directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has the opportunity to profit or share in any profit derived from
any decrease in the value of the subject security), (F) any rights to dividends on the shares
of the corporation owned beneficially by such shareholder that are separated or separable from
the underlying shares of the corporation, (G) any proportionate interest in shares of the
corporation or Derivative Instruments held, directly or indirectly, by a general or limited
partnership in which such |
2
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shareholder is a general partner or, directly or indirectly, beneficially owns an interest
in a general partner, (H) any performance-related fees (other than an asset-based fee) that
such shareholder is entitled to based on any increase or decrease in the value of shares of
the corporation or Derivative Instruments, if any, as of the date of such notice, including
without limitation any such interests held by members of such shareholders immediate family
sharing the same household (which information shall be supplemented by such shareholder and
beneficial owner, if any, not later than 10 days after the record date for the meeting to
disclose such ownership as of the record date) and (I) any other filings required to be made
in connection with solicitations of proxies for the proposal pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder, (J) whether the
shareholder or beneficial owner, if any, intends, or is part of a group that intends to
deliver a proxy statement and/or form of proxy to holders of at least the percentage of the
corporations outstanding capital stock required to approve or adopt the proposal or
otherwise solicit proxies from shareholders in support of such proposal, and (K) a
representation that the shareholder (or a qualified representative of the shareholder)
intends to appear in person at the meeting to propose such business. |
Only such business shall be conducted at the annual meeting as has been brought before the
meeting in accordance with the procedures set forth in this section 4(b). The chairman of an
annual meeting shall determine whether any proposal to bring business before the meeting was made
in accordance with the provisions of this section 4(b) and is a proper subject for shareholder
action pursuant to this section 4(b) and applicable law, and if proposed business is not in
compliance with this section 4(b) or not a proper subject for shareholder action, to declare that
such defective proposal be disregarded and not transacted. The chairman of the annual meeting
shall have sole authority to decide questions of compliance with the foregoing procedures, and his
or her ruling shall be final. This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, directors and committees of the Board of
Directors; provided that no new business shall be acted upon at the meeting in connection with such
reports unless stated, submitted and received as herein provided.
Notwithstanding anything to the contrary in this section 4(b), (i) if the shareholder (or a
qualified representative of the shareholder) does not appear at the meeting of shareholders to
propose such business, such business shall not be transacted (notwithstanding that proxies in
respect of such vote may have been received by the corporation), and (ii) a shareholder shall also
comply with state law and the Exchange Act and the rules and regulations thereunder with respect
to the matters set forth in this section 4(b). Nothing in this section 4(b) shall be deemed to
affect any rights of shareholders to request inclusion of proposals in, or the corporations right
to omit proposals from, the corporations proxy statement and form of proxy pursuant to Rule 14a-8
under the Exchange Act or any successor provision. The provisions of this Section 4(b) shall also
govern what constitutes timely notice for purposes of Rule 14a-4(c) (and any successor provision)
under the Exchange Act.
(c) Say on Pay Resolution. It shall be the practice of the Company to present at the
annual meeting of shareholders a resolution calling for an advisory vote on overall executive
compensation programs, including the linkage of overall pay to performance.
3
5. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the
chairman of the board, by the chief executive officer or by the president, or at any time upon the
written request of a majority of the board of directors, or upon the written request of the holders
of not less than a majority of the stock of the corporation entitled to vote in an election of
directors. Each call for a special meeting of the shareholders shall state the time, the day, the
place and the purpose or purposes of such meeting and shall be in writing, signed by the persons
making the same and delivered to the secretary. No business shall be transacted at a special
meeting other than such as is included in the purposes stated in the call.
6. CONDUCT OF ANNUAL AND SPECIAL MEETINGS. The chairman of the board, or in his absence the
chief executive officer or the president, shall preside as the chairman of the meeting at all
meetings of the shareholders. The chairman of the meeting shall be vested with the power and
authority to (i) maintain control of and conduct an orderly meeting; (ii) exclude any shareholder
from the meeting for failing or refusing to comply with any of the procedural standards or rules or
conduct or any reasonable request of the chairman; and (iii) appoint inspectors of elections,
prescribing their duties, and administer any oath that may be required under Missouri law. The
ruling of the presiding officer on any matter shall be final and exclusive. The presiding officer
shall establish the order of business and such rules and procedures for conducting the meeting as
in his or her sole and complete discretion he or she determines necessary, appropriate or
convenient under the circumstances, including (without limitation) (i) an agenda or order of
business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the
safety of those present, (iii) limitations on participation in such meeting to shareholders of
record of the corporation and their duly authorized and constituted proxies and such other persons
as the presiding officer shall permit, (iv) restrictions on entry to the meeting after the time
fixed for commencement thereof, (v) limitations on the time allotted to questions or comments by
participants and (vi) regulation of the voting or balloting as applicable, including (without
limitation) matters that are to be voted on by ballot, if any. Unless and to the extent determined
by the Board of Directors or the presiding officer, meetings of shareholders shall not be required
to be held in accordance with rules of parliamentary procedure.
7. NOTICES. Written or printed notice of each meeting of the shareholders, whether annual or
special, stating the place, date and time thereof and in case of a special meeting, the purpose or
purposes thereof shall be delivered or mailed to each shareholder entitled to vote thereat, not
less than ten nor more than seventy days prior to the meeting, unless, as to a particular matter,
other or further notice is required by law, in which case such other or further notice shall be
given. Any notice of a shareholders meeting sent by mail shall be deemed to be delivered when
deposited in the United States mail with postage prepaid thereon, addressed to the shareholder at
his address as it appears on the books of the corporation.
8. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of
these bylaws, the Articles of Incorporation of the corporation, or of any law, a waiver thereof, if
not expressly prohibited by law, in writing signed by the person or persons entitled to such
notice, shall be deemed the equivalent to the giving of such notice.
4
9. QUORUM. Except as otherwise may be provided by law, by the Articles of Incorporation of
the corporation or by these bylaws, the holders of a majority of the shares issued and outstanding
and entitled to vote thereat, present in person or by proxy, shall be required for and shall
constitute a quorum at all meetings of the shareholders for the transaction of business. Every
decision of a majority in amount of shares of such quorum shall be valid as a corporate act, except
in those specific instances in which a larger vote is required by law or by the Articles of
Incorporation. If a quorum be not present at any meeting, the shareholders entitled to vote
thereat, present in person or by proxy, shall have power to adjourn the meeting to a specified date
not longer than 90 days after such adjournment without notice other than announcement at the
meeting, until the requisite amount of voting shares shall be present. At such adjourned meeting
at which the requisite amount of voting shares shall be represented any business may be transacted
which might have been transacted at the meeting as originally notified.
10. PROXIES. At any meeting of the shareholders, every shareholder having the right to vote
shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by
such shareholder and bearing a date not more than eleven months prior to said meeting unless said
instrument provides that it shall be valid for a longer period.
11. VOTING. Each shareholder shall have one vote for each share of stock having voting power
registered in his name on the books of the corporation and except where the transfer books of the
corporation shall have been closed or a date shall have been fixed as a record date for the
determination of its shareholders entitled to vote, no share of stock shall be voted at any
election for directors which shall have been transferred on the books of the corporation within
seventy days preceding such election of directors.
Shareholders shall have no right to vote cumulatively for the election of directors.
A shareholder holding stock in a fiduciary capacity shall be entitled to vote the shares so
held, and a shareholder whose stock is pledged shall be entitled to vote unless, in the transfer by
the pledgor on the books of the corporation, he shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee or his proxy may represent said stock and vote thereon.
12. SHAREHOLDERS LISTS. A complete list of the shareholders entitled to vote at every
election of directors, arranged in alphabetical order, with the address of and the number of voting
shares held by each shareholder, shall be prepared by the officer having charge of the stock books
of the corporation and for at least ten days prior to the date of the election shall be open at the
place where the election is to beheld, during the usual hours for business, to the examination of
any shareholder and shall be produced and kept open at the place of the election during the whole
time thereof to the inspection of any shareholder present. The original or duplicate stock ledger
shall be the only evidence as to who are shareholders entitled to examine such lists, or the books
of the corporation, or to vote in person or by proxy, at such election. Failure to comply with the
foregoing shall not affect the validity of any action taken at any such meeting.
5
13. RECORDS. The corporation shall maintain such books and records as shall be dictated by
good business practice and by law. The books and records of the corporation may be kept at any one
or more offices of the corporation within or without the State of Missouri, except that the
original or duplicate stock ledger containing the names and addresses of the shareholders, and the
number of shares held by them, shall be kept at the registered office of the corporation in
Missouri. Every shareholder shall have a right to examine, in person, or by agent or attorney, at
any reasonable time, for any reasonable purpose, the bylaws, stock register, books of account, and
records of the proceedings of the shareholders and directors, and to make copies of or extracts
from them.
DIRECTORS
14. NUMBER AND POWERS OF THE BOARD. The property and business of this corporation shall be
managed by a board of directors, and the number of directors to constitute the board shall be not
less than seven nor more than twelve, the exact number to be fixed by a resolution adopted by the
affirmative vote of a majority of the whole board of directors. Directors need not be
shareholders. In addition to the powers and authorities by these bylaws expressly conferred upon
the board of directors, the board may exercise all such powers of the corporation and do or cause
to be done all such lawful acts and things as are not prohibited, or required to be exercised or
done by the shareholders only.
15. INCUMBENCY OF DIRECTORS. (a) Election And Term Of Office. Directors shall be
elected at each annual meeting of shareholders to hold office until the next succeeding annual
meeting of shareholders or until such directors successor has been elected and qualified. The
term of office of each director shall begin immediately after his or her election and each director
shall hold office until the next succeeding annual meeting of shareholders or until such directors
successor has been elected and qualified and subject to prior death, resignation, retirement or
removal from office of a director. No decrease in the number of directors constituting the board
of directors shall reduce the term of any incumbent director. No person shall serve as a director
for a period or consecutive periods that extend beyond the twelfth annual shareholders meeting
following the annual shareholders meeting at which such person was first elected to the board of
directors by the shareholders.
(b) Removal. Any director, or directors, or the entire board of directors of the
corporation may be removed, with or without cause, at any time but only by the affirmative vote of
the holders of at least a majority of the outstanding shares of each class of stock of the
corporation entitled to elect one or more directors at a meeting of the shareholders called for
such purpose.
(c) Qualification of Directors. To qualify for election or service as a director of
the corporation, each incumbent director shall agree to resign from any portion of his or her
current term that extends beyond the certification of election results of the next annual election
of directors.
6
16. VACANCIES. Any newly created directorship resulting from an increase in the number of
directors, and any vacancy occurring on the board of directors through death, resignation,
disqualification, disability or any other cause, may be filled by vote of a majority of the
surviving or remaining directors then in office, although less than a quorum, or by a sole
remaining director. Any director so elected to fill a vacancy shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until the election and
qualification of his successor.
17. MEETINGS OF THE NEWLY ELECTED BOARD OF DIRECTORS NOTICE. The first meeting of each
newly elected board, which shall be deemed the annual meeting of the board, shall be held on the
same day as the annual meeting of shareholders, or as soon thereafter as practicable, at such time
and place, either within or without the State of Missouri, as shall be designated by the president.
No notice of such meeting shall be necessary to the continuing or newly elected directors in order
legally to constitute the meeting, provided that a majority of the whole board shall be present; or
the members of the board may meet at such place and time as shall be fixed by the consent in
writing of all of the directors.
18. NOTICE. (a) Regular Meetings. Regular meetings of the board of directors may
be held without notice at such place or places, within or without the State of Missouri, and at
such time or times, as the board of directors may from time to time fix by resolution adopted by
the whole board. Any business may be transacted at a regular meeting.
(b) Special Meetings. Special meetings of the board of directors may be called by
the chairman, the chief executive officer, the president or any two directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director either by mail not
less than 48 hours before the date of the meeting, by telephone or telegram on 24 hours notice, or
on such shorter notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances. The place may be within or without the State of Missouri as
designated in the notice. The call and the notice of any such meeting shall be deemed
synonymous.
19. QUORUM. At all meetings of the board of directors a majority of the whole board shall,
unless a greater number as to any particular matter is required by statute, by the Articles of
Incorporation or by these bylaws, constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum shall be the act
of the board of directors. Less than a quorum may adjourn the meeting successively until a quorum
is present, and no notice of adjournment shall be required.
The foregoing provisions relating to a quorum for the transaction of business shall not be
affected by the fact that one or more of the directors have or may have interests in any matter to
come before a meeting of the board, which interests are or might be adverse to the interests of
this corporation. Any such interested director or directors shall at all times be considered as
present for the purpose of determining whether or not a quorum exists, provided such director or
directors are in attendance and do not waive the right to vote.
7
20. NOMINATIONS FOR ELECTION AS DIRECTORS. Only persons who are nominated in accordance with
the following procedures shall be eligible for election as directors. Nominations of persons for
election to the board of directors may be made at a meeting of shareholders (i) by or at the
direction of the board of directors or by any nominating committee or person appointed by the board
of directors or (ii) by any shareholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in this section 20;
clause (ii) shall be the exclusive means for a shareholder to make nominations of persons for
election to the board of directors at any annual meeting of shareholders. Such nominations, other
than those made by or at the direction of the board, shall be made pursuant to timely notice in
writing to the secretary.
To be timely, a shareholders notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 45 days before the date in the year of
the annual meeting corresponding to the date on which the corporation first mailed its proxy
materials for the prior years annual meeting of shareholders. Such shareholders notice to the
secretary shall set forth as to each person whom the shareholder proposes to nominate for election
or reelection as a director, such persons name, age, business address, residence address, and
principal occupation or employment, the class and number of shares of capital stock of the
corporation that are beneficially owned by such person, and any other information relating to such
person that is required to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Such
shareholders notice to the secretary shall also set forth as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address,
as they appear on the corporations books, of such shareholder and of such beneficial owner, (B)
the class or series and number of shares of capital stock of the corporation that are, directly or
indirectly, owned beneficially and of record by such shareholder and such beneficial owner, (C) any
option, warrant, convertible security, stock appreciation right, or similar right with an exercise
or conversion privilege or a settlement payment or mechanism at a price related to any class or
series of shares of the corporation or with a value derived in whole or in part from the value of
any class or series of shares of the corporation, whether or not such instrument or right shall be
subject to settlement in the underlying class or series of capital stock of the corporation or
otherwise (a Derivative Instrument) directly or indirectly owned beneficially by such shareholder
or beneficial owner and any other direct or indirect opportunity to profit or share in any profit
derived from any increase or decrease in the value of shares of the corporation, (D) any proxy,
contract, arrangement, understanding, or relationship pursuant to which such shareholder has a
right to vote any shares of any security of the corporation, (E) any short interest of such
shareholder or beneficial owner in any security of the corporation (for purposes of this bylaw a
person shall be deemed to have a short interest in a security if such person directly or
indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the
opportunity to profit or share in any profit derived from any decrease in the value of the subject
security), (F) any rights to dividends on the shares of the corporation owned beneficially by such
shareholder that are separated or separable from the underlying shares of the corporation, (G) any
proportionate interest in shares of the corporation or Derivative Instruments held, directly or
indirectly, by a general or limited partnership in which such shareholder is a general partner or,
directly or indirectly, beneficially owns an interest in a general partner, (H) any
performance-related fees (other than an asset-based fee) that such shareholder is entitled to
8
based
on any
increase or decrease in the value of shares of the corporation or Derivative Instruments, if any,
as of the date of such notice, including without limitation any such interests held by members of
such shareholders immediate family sharing the same household (which information shall be
supplemented by such shareholder and beneficial owner, if any, not later than 10 days after the
record date for the meeting to disclose such ownership as of the record date) and (I) any other
filings required to be made in connection with solicitations of proxies for the election of
directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
21. DIRECTORS ACTION WITHOUT MEETING. If all the directors severally or collectively consent
in writing to any action to be taken by the directors, such consents shall have the same force and
effect as a unanimous vote of the directors at a meeting duly held. The secretary shall file such
consents with the minutes of the meetings of the board of directors.
22. WAIVER. Any notice provided or required to be given to the directors may be waived in
writing by any of them, whether before, at, or after the time stated therein. Attendance of a
director at any meeting shall constitute a waiver of notice of such meeting except where he attends
for the express purpose of objecting to the transaction of any business thereat because the meeting
is not lawfully called or convened.
23. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND CONTRIBUTION. (a) Scope of
Indemnification. The corporation shall indemnify any director, and may indemnify any officer,
of the corporation who was or is a party or witness, or is threatened to be made a party or
witness, to any threatened, pending or completed action, suit or proceeding (including, without
limitation, an action, suit or proceeding by or in the right of the corporation), whether civil,
criminal, administrative or investigative (including a grand jury proceeding), by reason of the
fact that the person is or was (i) a director or officer of the corporation or (ii) serving at the
request of the corporation, as a director, officer, employee, agent, partner or trustee (or in any
similar position) of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, to the fullest extent authorized or permitted by the Missouri General and
Business Corporation Law and any other applicable law, as the same exists or may hereinafter be
amended (but, in the case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted the corporation to
provide prior to such amendment), against expenses (including attorneys fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, or in connection with any appeal thereof; provided, however, that,
except as provided in section 23(b) with respect to proceedings to enforce rights to
indemnification, the corporation shall indemnify any person in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if the initiation of
9
such action, suit or proceeding (or part thereof) was authorized by the board of directors. Any
right to indemnification hereunder shall include the right to payment by the corporation of
expenses incurred in connection with any such action, suit or proceeding in advance of its final
disposition; provided, however, that any payment of such expenses incurred by a director or officer
in advance of the final disposition of such action, suit or proceeding shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced unless it should be determined ultimately that such director or
officer is entitled to be indemnified under this section or otherwise.
(b) Payment, Determination and Enforcement. Any indemnification or advancement of
expenses required under this section shall be made promptly. If a determination by the corporation
that a director is entitled to indemnification is required, and the corporation fails to make such
determination within ninety days after final determination of an action, suit or proceeding, the
corporation shall be deemed to have approved such request. If with respect to director
indemnification the corporation denies indemnification or a written request for advancement of
expenses, in whole or in part, or if payment in full pursuant to such determination or request is
not made within thirty days, the right to indemnification and advancement of expenses as granted by
this section shall be enforceable by the director in any court of competent jurisdiction. Such
directors costs and expenses incurred in connection with successfully establishing the right to
indemnification, in whole or in part, in any such action or proceeding shall also be indemnified by
the corporation. It shall be a defense to any such action (other than an action brought to enforce
a claim for the advancement of expenses pursuant to this section where the required undertaking has
been received by the corporation) that the claimant has not met the applicable standard of conduct
set forth in Sections 351.355.1 or 351.355.2 of the Missouri General and Business Corporation Law,
but the burden of proving such defense shall be on the corporation. Neither the failure of the
corporation (including the board of directors, independent legal counsel or the shareholders) to
have made a determination prior to the commencement of such action that indemnification of the
claimant is proper in the circumstances because the person has met the applicable standard of
conduct set forth in the Missouri General and Business Corporation Law, nor the fact that there has
been an actual determination by the corporation (including the board of directors, independent
legal counsel or the shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
(c) Nonexclusivity, Duration and Indemnification Agreements. The indemnification and
advancement of expenses provided by, or granted pursuant to, this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or advancement of expenses may
be entitled either under the Articles of Incorporation or any other bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in the persons official
capacity and as to action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer, and shall inure to the benefit of the heirs,
executors and administrators of such person. Any repeal or modification of the provisions of this
section 23 shall not affect any obligations of the corporation or any rights regarding
indemnification and advancement of expenses of a director or officer with respect to any
threatened, pending or completed action, suit or proceeding in which the alleged cause of action
accrued at any time prior to such repeal or modification. Upon approval of a majority of a
10
quorum of disinterested directors, the corporation may enter into indemnification agreements with
officers and directors of the corporation, or extend indemnification to officers, employees or
agents of the corporation, upon such terms and conditions as may be deemed appropriate.
(d) Insurance. The corporation may purchase and maintain insurance, at its expense,
to protect itself and any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a director, officer,
employee, agent, partner or trustee of another corporation, partnership, joint venture, trust,
employment benefit plan or other enterprise against any liability asserted against the person and
incurred by the person in any such capacity, or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify the person against such liability under
the provisions of this section, the Missouri General and Business Corporation Law or otherwise.
(e) Severability. If this section or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify
each director of the corporation as to expenses (including attorneys fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including (without limitation) a grand jury proceeding and an
action, suit or proceeding by or in the right of the corporation, to the fullest extent authorized
or permitted by any applicable portion of this section that shall not have been invalidated by the
Missouri General and Business Corporation Law or by any other applicable law.
(f) Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this section is held by a court of
competent jurisdiction to be unavailable in whole or part to a director, the corporation shall
contribute to the payment of the indemnitees losses that would have been so indemnified in an
amount that is just and equitable in the circumstances, taking into account, among other things,
contributions by other directors of the corporation pursuant to indemnification agreements or
otherwise. In the absence of personal enrichment of indemnitee, or acts of intentional fraud or
dishonest or criminal conduct on the part of indemnitee, it would not be just and equitable for
indemnitee to contribute to the payment of losses arising out of an action, suit or proceeding in
an amount greater than: (i) in a case where indemnitee is a director of the corporation or any of
its subsidiaries but not an officer of either, the amount of fees paid to indemnitee for serving as
a director during the 12 months preceding the commencement of such action, suit or proceeding, or
(ii) in a case where indemnitee is a director of the corporation or any of its subsidiaries and is
an officer of either, the amount set forth in clause (i) plus 5 percent of the aggregate cash
compensation paid to indemnitee for serving as such officer(s) during the 12 months preceding the
commencement of such action, suit or proceeding. The corporation shall contribute to the payment
of losses covered hereby to the extent not payable by the indemnitee pursuant to the contribution
provisions set forth in the preceding sentence.
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24. INTERESTS OF DIRECTORS. In case the corporation enters into contracts or transacts
business with one or more of its directors, or with any firm of which one or more of its directors
are members or with any other corporation or association of which one or more of its directors are
members, shareholders, directors or officers, such transaction or transactions shall not be
invalidated or in any way affected by the fact that such director or directors have or may have
interests therein which are or might be adverse to the interests of this corporation; provided that
such contract or transaction is entered into in good faith and authorized or ratified on behalf of
this corporation by the board of directors or by a person or persons (other than the contracting
person) having authority to do so, and if the directors or other person or persons so authorizing
or ratifying shall then be aware of the interest of such contracting person. In any case in which
any transaction described in this section 24 is under consideration by the board of directors, the
board may, upon the affirmative vote of a majority of the whole board, exclude from its presence
while its deliberations with respect to such transaction are in progress any director deemed by
such majority to have an interest in such transaction.
25. COMMITTEES. (a) Executive Committee. The board of directors may, by resolution
or resolutions passed by a majority of the whole board, designate an executive committee, such
committee to consist of two or more directors of the corporation, which committee, to the extent
provided in said resolution or resolutions, shall have and may exercise all of the authority of the
board of directors in the management of the corporation. The executive committee shall keep
regular minutes of its proceedings and the same shall be recorded in the minute book of the
corporation. The secretary or an assistant secretary of the corporation may act as secretary for
the committee if the committee so requests.
(b) Audit Committee. The corporation shall maintain an audit committee consisting of
at least three directors. No member of the audit committee shall be an employee of the corporation,
and each member of the audit committee shall be independent pursuant to standards promulgated by
the Securities Exchange Commission and the New York Stock Exchange. The audit committee shall be
responsible for assisting the board of directors regarding (i) the integrity of the corporations
financial statements, (ii) the corporations compliance with legal and regulatory requirements,
(iii) the independent auditors qualifications and independence and (iv) the performance of the
corporations internal audit function and independent auditor. The audit committee shall have sole
responsibility for appointing, retaining, discharging or replacing the corporations independent
auditor and, following completion of the independent auditors examination of the corporations
consolidated financial statements, review with the independent auditor and corporation management,
such matters in connection with the audit as deemed necessary and desirable by the audit committee.
The audit committee shall have such additional duties, responsibilities, functions and powers as
may be delegated to it by the board of directors of the corporation. The audit committee shall be
empowered to retain, at the expense of the corporation, independent expert(s) if it deems this to
be necessary.
(c) Other Committees. The board of directors may also, by resolution or resolutions
passed by a majority of the whole board, designate other committees, with such persons, powers and
duties as it deems appropriate and as are not inconsistent with law.
12
26. COMPENSATION OF DIRECTORS AND COMMITTEE MEMBERS. By resolution duly adopted by a majority
of the board of directors, directors and members shall be entitled to receive reasonable annual
compensation for services rendered to the corporation as such, and a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special meeting of the board
or committee; provided that nothing herein contained shall be construed to preclude any director or
committee member from serving the corporation in any other capacity and receiving compensation
therefor.
27. OFFICERS. (a) Elected Officers. The following officers of the corporation shall
be chosen or appointed by election by the board of directors, and shall be deemed elected officers:
a president or chief executive officer, a secretary, and a treasurer; also, if the board desires,
a chairman of the board, a vice chairman of the board, a chief executive officer, one or more vice
presidents, one or more assistant secretaries and one or more assistant treasurers. The chairman
of the board, the vice chairman of the board and the chief executive officer shall be deemed
executive officers of the corporation, and shall be vested with such powers, duties, and authority
as the board of directors may from time to time determine and as may be set forth in these bylaws.
Any two or more of such offices may be held by the same person, except the offices of chairman
of the board and vice chairman of the board, chairman of the board and chief executive officer,
chairman of the board and president, president and vice president, and president and secretary.
Furthermore, the chairman of the board shall be independent pursuant to standards promulgated by
the Securities Exchange Commission and the New York Stock Exchange and shall not have served
previously as an executive officer of the Company.
An elected officer shall be deemed qualified when he enters upon the duties of the office to
which he has been elected and furnishes any bond required by the board; but the board may also
require of such person his written acceptance and promise faithfully to discharge the duties of
such office.
(b) Election Of Officers. The board of directors at each annual meeting thereof
shall elect a president, a secretary and a treasurer, who need not be directors. The board then, or
from time to time, may elect a chairman of the board, a vice chairman of the board, a chief
executive officer and such vice presidents, assistant secretaries and assistant treasurers as it
may deem advisable or necessary.
(c) Term Of Office. Each elected officer of the corporation shall hold his or her
office for the term for which he or she was elected, or until he or she resigns or is removed by
the board, whichever first occurs.
(d) Appointment Of Officers And Agents Terms of Office. The board from time to time
may also appoint such other officers and agents for the corporation as it shall deem necessary or
advisable. All appointed officers and agents shall hold their respective positions at the pleasure
of the board or for such terms as the board may specify, and they shall exercise such powers and
perform such duties as shall be determined from time to time by the board, or by an elected officer
empowered by the board to make such determinations.
13
28. REMOVAL. Any officer or agent elected or appointed by the board of directors, and any
employee, may be removed or discharged by the board whenever in its judgment the best interests of
the corporation would be served thereby, but such removal shall be without a prejudice to the
contract rights, if any, of the person so removed.
29. SALARIES AND COMPENSATION. Salaries and compensation of all elected officers of the
corporation shall be fixed, increased or decreased by the board of directors, but this power,
except as to the salary or compensation of the chairman of the board, the vice chairman of the
board, the chief executive officer and the president, may, unless prohibited by law, be delegated
by the board to the chairman of the board, the vice chairman of the board, the chief executive
officer, the president or a committee of the board. Salaries and compensation of all other
appointed officers, agents, and employees of the corporation may be fixed, increased or decreased
by the board of directors, but until action is taken with respect thereto by the board of
directors, the same may be fixed, increased or decreased by the chairman of the board, by the chief
executive officer, by the president or by such other officer or officers as may be empowered by the
board of directors to do so.
30. DELEGATION OF AUTHORITY TO HIRE, DISCHARGE, ETC. The board from time to time may delegate
to the chairman of the board, the vice chairman of the board, the chief executive officer, the
president or other officer or executive employee of the corporation, authority to hire, discharge,
and fix and modify the duties, salary or other compensation of employees of the corporation under
their jurisdiction, and the board may delegate to such officer or executive employee similar
authority with respect to obtaining and retaining for the corporation the services of attorneys,
accountants (subject to Section 25(b) of these Bylaws) and other experts.
31. THE CHAIRMAN OF THE BOARD, THE VICE CHAIRMAN OF THE BOARD, THE CHIEF EXECUTIVE OFFICER
AND THE PRESIDENT. The president may be elected by the board of directors to be the chief executive
officer of the corporation, or the board of directors may elect a chief executive officer who is
not the president, and the chief executive officer shall have general and active management of the
business of the corporation and shall carry into effect all directions and resolutions of the
board. The chairman of the board, the vice chairman of the board, the chief executive officer and
the president shall be vested with such powers, duties, and authority as the board of directors may
from time to time determine and as may be set forth in these bylaws. Except as otherwise provided
for in these bylaws, the chairman of the board, or in his absence, the chief executive officer or
president, shall preside at all meetings of the shareholders of the corporation and at all meetings
of the board of directors.
The chairman of the board, vice chairman of the board, the chief executive officer or
president may execute all bonds, notes, debentures, mortgages, and other contracts requiring a
seal, under the seal of the corporation and may cause the seal to be affixed thereto, and all other
instruments for and in the name of the corporation, except that if by law such instruments are
required to be executed only by the president, he shall execute them.
14
The chairman of the board, vice chairman of the board, chief executive officer or president,
when authorized so to do by the board, may execute powers of attorney from, for, and in the name of
the corporation, to such proper person or persons as he may deem fit, in order that thereby the
business of the corporation may be furthered or action taken as may be deemed by him necessary or
advisable in furtherance of the interests of the corporation.
The chairman of the board, vice chairman of the board, chief executive officer or president,
except as may be otherwise directed by the board, shall attend meetings of shareholders of other
corporations to represent this corporation thereat and to vote or take action with respect to the
shares of any such corporation owned by this corporation in such manner as he shall deem to be for
the interests of the corporation or as may be directed by the board.
The chairman of the board, vice chairman of the board, chief executive officer or president
shall have such other or further duties and authority as may be prescribed elsewhere in these
bylaws or from time to time by the board of directors.
32. VICE PRESIDENTS. The vice presidents in the order of their seniority shall, in the
absence, disability or inability to act of the chairman of the board, the vice chairman of the
board, the chief executive officer and the president, perform the duties and exercise the powers of
the chairman of the board, the vice chairman of the board, the chief executive officer and the
president, and shall perform such other duties as the board of directors shall from time to time
prescribe.
33. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary shall, as requested by the board,
attend all sessions of the board and except as otherwise provided for in these bylaws, all meetings
of the shareholders, and shall record or cause to be recorded all votes taken and the minutes of
all proceedings in a minute book of the corporation to be kept for that purpose. He or she shall
perform like duties for the executive and other standing committees when requested by the board or
such committee to do so.
The secretary shall have the principal responsibility to give, or cause to be given, notice of
all meetings of the shareholders and of the board of directors, but this shall not lessen the
authority of others to give such notice as is authorized elsewhere in these bylaws.
The secretary shall see that all books, records, lists and information, or duplicates,
required to be maintained at the registered or home office of the corporation in Missouri, or
elsewhere, are so maintained.
The secretary shall keep in safe custody the seal of the corporation, and when duly authorized
to do so shall affix the same to any instrument requiring it, and when so affixed, he shall attest
the same by his signature.
The secretary shall perform such other duties and have such other authority as may be
prescribed elsewhere in these bylaws or from time to time by the board of directors, the chairman
of the board, chief executive officer or the president, under whose direct supervision he shall be.
15
The secretary shall have the general duties, powers and responsibilities of a secretary of a
corporation.
The assistant secretaries, in the order of their seniority, in the absence, disability or
inability to act of the secretary, shall perform the duties and exercise the powers of the
secretary, and shall perform such other duties as the board may from time to time prescribe.
34. THE TREASURER AND ASSISTANT TREASURERS. The treasurer shall have the responsibility for
the safekeeping of the funds and securities of the corporation, and shall deposit or cause to be
deposited all monies and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
The treasurer shall disburse, or permit to be disbursed, the funds of the corporation as may
be ordered, or authorized generally, by the board, and shall render to the chief executive officers
of the corporation and the directors whenever they may require it, an account of all transactions
as treasurer and of those under his or her jurisdiction, and of the financial condition of the
corporation.
The treasurer shall perform such other duties and shall have such other responsibility and
authority as may be prescribed elsewhere in these bylaws or from time to time by the board of
directors.
The treasurer shall have the general duties, powers and responsibility of a treasurer of a
corporation.
The assistant treasurers in the order of their seniority shall, in the absence, disability or
inability to act of the treasurer, perform the duties and exercise the powers of the treasurer, and
shall perform such other duties as the board of directors shall from time to time prescribe.
35. DUTIES OF OFFICERS MAY BE DELEGATED. If any officer of the corporation be absent or
unable to act, or for any other reason that the board may deem sufficient, the board may delegate,
for the time being, some or all of the functions, duties, powers and responsibilities of any
officer to any other officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board concurs therein.
SHARES OF STOCK
36. CERTIFICATES OF STOCK. The certificates for shares of stock of the corporation shall be
numbered, shall be in such form as may be prescribed by the board of directors in conformity with
law, and shall be entered into the stock books of the corporation as they are issued, and such
entries shall show the name and address of the person, firm, partnership, corporation or
association to whom each certificate is issued. Each certificate shall have printed, typed or
written thereon the name of the person, firm, partnership, corporation or association to whom it is
issued, and number of shares represented thereby and shall be signed by the president or a vice
president, and the treasurer or an assistant treasurer or the secretary or an assistant secretary
of the corporation, and sealed with the seal of the corporation, which seal may be
16
facsimile, engraved or printed. If the corporation has a registrar, a transfer agent, or a transfer
clerk who actually signs such certificates, the signatures of any of the other officers above
mentioned may be facsimile, engraved or printed. In case any such officer who has signed or whose
facsimile signature has been placed upon any such certificate shall have ceased to be such officer
before such certificate is issued, such certificate may nevertheless be issued by the corporation
with the same effect as if such officer were an officer at the date of its issue.
37. TRANSFERS OF SHARES TRANSFER AGENT REGISTRAR. Transfers of shares of stock shall be
made on the books of the corporation only by the person named in the stock certificate or by his
attorney lawfully constituted in writing, and upon surrender of the certificate therefor. The
stock record books and other transfer records shall be in the possession of the secretary or of a
transfer agent or clerk of the corporation. The corporation may from time to time appoint a
transfer agent and if desired a registrar, under such arrangements and upon such terms and
conditions as the corporation deems advisable; but until and unless the corporation appoints some
other person, firm, or corporation as its transfer agent (and upon the revocation of any such
appointment, thereafter until a new appointment is similarly made) the secretary shall be the
transfer agent or clerk of the corporation, without the necessity of any formal action of the board
of directors and the secretary shall perform all of the duties thereof.
38. LOST CERTIFICATE. In the case of the loss or destruction of any outstanding certificate
for shares of stock of the corporation, the corporation may issue a duplicate certificate (plainly
marked duplicate), in its place, provided the registered owner thereof or his legal
representatives furnish due proof of loss thereof by affidavit, and (if required by the board of
directors, in its discretion) furnish a bond in such amount and form and with such surety as may be
prescribed by the board. In addition, the board of directors may make any other requirements which
it deems advisable.
39. CLOSING OF TRANSFER BOOKS. The board of directors shall have power to close the stock
transfer books of the corporation for a period not exceeding seventy days preceding the date of any
meeting of the shareholders, or the date for payment of any dividend, or the date for the allotment
of rights, or any effective date or change or conversion or exchange of capital stock; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the board of directors may
fix in advance a date, not exceeding seventy days preceding the effective date of any of the above
enumerated transactions, as a record date; and in either case such shareholders and only such
shareholders as shall be shareholders of record on the date of closing the transfer books, or on
the record date so fixed, shall be entitled to receive notice of any such transaction or to
participate in any such transactions notwithstanding any transfer of any share on the books of the
corporation after the date of closing the transfer books or such record date so fixed.
17
GENERAL
40. DIVIDENDS. Dividends upon the shares of stock of the corporation, subject to any
applicable provisions of the Articles of Incorporation and of any applicable laws or statutes may
be declared by the board of directors at any regular or special meeting. Dividends may be paid in
cash, in property or in shares of its stock and to the extent and in the manner provided by law out
of any available earned surplus or earnings of the corporation. Liquidating dividends or dividends
representing a distribution of paid-in surplus or a return of capital shall be made only when and
in the manner permitted by law.
41. CREATION OF RESERVES. Before the payment of any dividends, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the board of directors
from time to time, in their absolute discretion, think proper as a reserve fund or funds, to meet
contingencies, or for equalizing dividends, or for repairing, or maintaining any property of the
corporation, or for such other purposes as the board of directors shall think conducive to the
interests of the corporation, and the board of directors may abolish any such reserve in the manner
in which it was created.
42. FIXING OF CAPITAL, TRANSFERS OF SURPLUS. Except as may be specifically otherwise provided
in the Articles of Incorporation, the board of directors is expressly empowered to exercise all
authority conferred upon it or the corporation by any law or statute, and in conformity therewith,
relative to:
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(i) |
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The determination of what part of the consideration received for shares of the
corporation shall be capital; |
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(ii) |
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Increasing or reducing capital; |
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(iii) |
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Transferring surplus to capital or capital to surplus; |
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(iv) |
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Allocating capital to shares of a particular class of stock; |
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(v) |
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The consideration to be received by the corporation for its shares; and |
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(vi) |
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All similar or related matters; |
provided that any concurrent action or consent by or of the corporation and its shareholders
required to be taken or given pursuant to law, shall be duly taken or given in connection
therewith.
43. CHECKS, NOTES AND MORTGAGES. All checks, drafts, or other instruments for the payment,
disbursement, or transfer of monies or funds of the corporation may be signed in its behalf by the
treasurer of the corporation, unless otherwise provided by the board of directors. All notes of
the corporation and any mortgages or other forms of security given to secure the payment of the
same may be signed by the president who may cause to be affixed the corporate seal attested by the
secretary or assistant secretary. The board of directors by resolution adopted
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by a majority of the whole board from time to time may authorize any officer or officers or other
responsible person or persons to execute any of the foregoing instruments for and in behalf of the
corporation.
44. FISCAL YEAR. The board of directors may fix and from time to time change the fiscal year
of the corporation. In the absence of action by the board of directors, the fiscal year shall end
each year on the same date which the officers of the corporation elect for the close of its first
fiscal period.
45. TRANSACTIONS WITH RELATED PERSONS. The affirmative vote of at least a majority of the
outstanding shares of the corporation entitled to vote on the matter and present in person or by
proxy at a meeting at which a quorum is present, unless a greater approval requirement is required
by law, shall be required for the approval or authorization of any business transaction with a
related person as set forth in the Articles of Incorporation in the manner provided therein.
46. DIRECTORS DUTIES; CONSIDERATION OF TENDER OFFERS. The board of directors shall have
broad discretion and authority in considering and evaluating tender offers for the stock of this
corporation. Directors shall not be liable for breach of their fiduciary duty to the shareholders
merely because the board votes to accept an offer that is not the highest price per share,
provided, that the directors act in good faith in considering collateral nonprice factors and the
impact on constituencies other than the shareholders (i.e., effect on employees, corporate
existence, corporate creditors, the community, etc.) and do not act in willful disregard of their
duties to the shareholders or with a purpose, direct or indirect, to perpetuate themselves in
office as directors of the corporation.
47. AMENDMENT OF BYLAWS. (a) By Directors. The board of directors may make, alter,
amend, change, add to or repeal these bylaws, or any provision thereof, at any time.
(b) By Shareholders. These bylaws may be amended, modified, altered, or repealed by
the shareholders, in whole or in part, only at the annual meeting of shareholders or at the special
meeting of shareholders called for such purpose, only upon the affirmative vote of the holders of
at least a majority of the outstanding shares of stock of this corporation entitled to vote
generally in the election of directors and represented in person or by proxy at a meeting at which
a quorum is present.
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exv10w6
Exhibit 10.6
H&R BLOCK EXECUTIVE PERFORMANCE PLAN
(AS AMENDED ON JULY 27, 2010)
ARTICLE I. GENERAL
SECTION 1.1 PURPOSE. The purpose of the H&R Block Executive Performance Plan (the Plan) is
to attract and retain highly qualified individuals as executive officers; to obtain from each the
best possible performance in order to achieve particular business objectives established for H&R
Block, Inc. (the Company) and its subsidiaries; and to include in their compensation package a
bonus component intended to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the Code), which compensation would be deductible by
the Company under the Code.
SECTION 1.2 ADMINISTRATION. The Plan shall be administered by the Compensation Committee of
the Companys Board of Directors (the Committee) consisting of at least two members, each of whom
shall be an outside director within the meaning of Section 162(m) of the Code. The Committee
shall adopt such rules and guidelines as it may deem appropriate in order to carry out the purpose
of the Plan. All questions of interpretation, administration and application of the Plan shall be
determined by a majority of the members of the Committee then in office, except that the Committee
may authorize any one or more of its members, or any officer of the Company, to execute and deliver
documents on behalf of the Committee. The determination of the majority shall be final and binding
in all matters relating to the Plan. The Committee shall have authority to determine the terms and
conditions of the Awards granted to eligible persons specified in Section 1.3 below.
SECTION 1.3 ELIGIBILITY. Awards may be granted only to employees of the Company or any of its
subsidiaries who are at the level of Assistant Vice President or at a more senior level and who are
selected for participation in the Plan by the Committee. A qualifying employee so selected shall
be a Participant in the Plan.
ARTICLE II. AWARDS
SECTION 2.1 AWARDS. The Committee may grant annual performance-based awards (Awards) to
Participants with respect to each fiscal year of the Company, or a portion thereof (each such
fiscal year or a portion thereof to constitute a Performance Period), subject to the terms and
conditions of the Plan. Awards shall be in the form of cash compensation. Within 90 days after
the beginning of a Performance Period, the Committee shall establish (a) performance goals and
objectives (Performance Targets) for the Company and the subsidiaries and divisions thereof for
such Performance Period, (b) target awards (Target Awards) for each Participant, which shall be a
specified dollar amount, and (c) schedules or other objective methods for determining the
applicable performance percentage (Performance Percentage) to be multiplied by each portion of
the Target Award to which a Performance Target relates in arriving at the actual Award payout
amount pursuant to Section 2.4 (Performance Schedules). The Committee shall specify the
Performance Targets applicable to each Participant for each Performance Period and shall further specify the portion of the
Target Award to which each Performance Target shall apply. In no event shall a Performance Schedule
include a Performance Percentage in excess of 200%.
SECTION 2.2 PERFORMANCE TARGETS. Performance Targets established by the Committee each year
shall be based of one or more of the following business criteria: (a) earnings, (b) revenues, (c)
sales of products, services or accounts, (d) numbers of income tax returns prepared, (e) margins,
(f) earnings per share, (g) return on equity, (h) return on capital, and (i) total shareholder
return. For any Performance Period, Performance Targets may be measured on an absolute basis or
relative to internal goals, or relative to levels attained in fiscal years prior to the Performance
Period.
SECTION 2.3 EMPLOYMENT REQUIREMENT. To be eligible to receive payment of an Award, the
Participant must have remained in the continuous employ of the Company or its subsidiaries through
the end of the applicable Performance Period, provided that, in the event the Participants
employment terminates during the Performance Period due to death, disability or retirement, the
Committee may, at its sole discretion, authorize the Company or the applicable subsidiary to pay in
full or on a prorated basis an Award determined in accordance with Sections 2.4 and 2.5. For
purposes of this Section 2.3, (a) disability shall be as defined in the employment practices or
policies of the applicable subsidiary of the Company in effect at the time of termination of
employment, and (b) retirement shall mean termination of employment with all subsidiaries of the
Company by the Participant after either attainment of age 65 or attainment of age 55 and the
completion of at least ten (10) years of employment with the Company or its subsidiaries.
SECTION 2.4 DETERMINATION OF AWARDS. In the manner required by Section 162(m) of the Code, the
Committee shall, promptly after the date on which the necessary financial or other information for
a particular Performance Period becomes available, certify the extent to which Performance Targets
have been achieved. Using the Performance Schedules, the Committee shall determine the Performance
Percentage applicable to each Performance Target and multiply the portion of the Target Award to
which the Performance Target relates by such Performance Percentage in order to arrive at the
actual Award payout for such portion.
At the time Target Awards are determined, the Committee may specify that the Performance
Percentage attributable to any one or more portions of a Participants Target Award may not exceed
the Performance Percentage attributable to any other portion of the Participants Target Award. In
the event such specification is made, actual Award payouts shall be determined accordingly.
SECTION 2.5 LIMITATIONS ON AWARDS. The aggregate amount of all Awards under the Plan to any
Participant for any Performance Period shall not exceed $2,000,000.
SECTION 2.6 PAYMENT OF AWARDS. Payment of Awards shall be made by the Company or the
applicable employer subsidiary as soon as administratively practical following the certification by
the Committee of the extent to which the applicable Performance Targets have been achieved and the determination of the actual Awards in accordance with Sections 2.4
2
and 2.5. All Awards under the Plan are subject to withholding, where applicable, for federal, state
and local taxes.
SECTION 2.7 ADJUSTMENT OF AWARDS. In the event of the occurrence during the Performance Period
of any recapitalization, reorganization, merger, acquisition, divestiture, consolidation, spin-off,
split-off, combination, liquidation, dissolution, sale of assets, other similar corporate
transaction or event, any changes in applicable tax laws or accounting principles, or any unusual,
extraordinary or nonrecurring events involving the Company which distorts the performance criteria
applicable to any Performance Target, the Committee shall adjust the calculation of the performance
criteria, and the applicable Performance Targets as is necessary to prevent reduction or
enlargement of Participants Awards under the Plan for such Performance Period attributable to such
transaction or event. Such adjustments shall be conclusive and binding for all purposes.
ARTICLE III. MISCELLANEOUS
SECTION 3.1 NO RIGHTS TO AWARDS OR CONTINUED EMPLOYMENT. No employee of the Company or any of
its subsidiaries shall have any claim or right to receive Awards under the Plan. Neither the Plan
nor any action taken under the Plan shall be construed as giving any employee any right to be
retained by the Company or any subsidiary of the Company.
SECTION 3.2 NO LIMITS ON OTHER AWARDS AND PLANS. Nothing contained in this Plan shall prohibit
the Company or any of its subsidiaries from establishing other special awards or incentive
compensation plans providing for the payment of incentive compensation to employees of the Company
and its subsidiaries, including any Participants.
SECTION 3.3 RESTRICTION ON TRANSFER. The rights of a Participant with respect to Awards under
the Plan shall not be transferable by the Participant other than by will or the laws of descent and
distribution.
SECTION 3.4 SOURCE OF PAYMENTS. The Company and its subsidiaries shall not have any obligation
to establish any separate fund or trust or other segregation of assets to provide for payments
under the Plan. To the extent any person acquires any rights to receive payments hereunder from
the Company or any of its subsidiaries, such rights shall be no greater than those of an unsecured
creditor.
SECTION 3.5 EFFECTIVE DATE; TERM; AMENDMENT. The Plan is effective as of June 19, 1996,
subject to approval by the Companys shareholders at the Companys 1996 annual meeting of
shareholders, and shall remain in effect until such time as it shall be terminated by the Board of
Directors of the Company. If approval of the Plan meeting the requirements of Section 162(m) of
the Code is not obtained at the 1996 annual meeting of shareholders of the Company, then the Plan
shall not be effective and any Award made on or after June 19, 1996, shall be void ab initio. The
Board of Directors may at any time and from time to time alter, amend, suspend or terminate the
Plan in whole or in part.
3
SECTION 3.6 PROHIBITED OR UNENFORCEABLE PROVISIONS. Any provision of the Plan that is
prohibited or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of the Plan.
SECTION 3.7 SECTION 162(M) PROVISIONS. Any Awards under the Plan shall be subject to the
applicable restrictions imposed by Code Section 162(m) and the Treasury Regulations promulgated
thereunder, notwithstanding any other provisions of the Plan to the contrary.
SECTION 3.8 FORFEITURE. If the Company is required to prepare an accounting restatement due to
the Companys material noncompliance with any financial reporting requirement under the securities
laws, the Company shall recover from any Participant who is a current or former executive officer
of the Company who received payment on an Award during the three-year period preceding the date on
which the Company is required to prepare an accounting restatement, based on erroneous data, the
amount in excess of what would have been paid to the executive officer under the accounting
restatement.
SECTION 3.9 GOVERNING LAW. The Plan and all rights and Awards hereunder shall be construed in
accordance with and governed by the laws of the State of Missouri.
4
exv10w33
Exhibit 10.33
AGREEMENT TO EXTEND OUTSIDE DATE
THIS AGREEMENT TO EXTEND OUTSIDE DATE (this Agreement) dated March 4, 2011 is among
(i) H&R BLOCK, INC., a Missouri corporation (the Acquiror), (ii) HRB ISLAND ACQUISITION,
INC., a Delaware corporation and an indirect wholly owned subsidiary of the Acquiror
(Sub), (iii) 2SS HOLDINGS, INC., a Delaware corporation (the Company), (iv) TA
Associates Management, L.P. solely in its capacity as Stockholder Representative, and (v) Lance
Dunn solely in his capacity as Stockholder Representative (each, a Party and
collectively, the Parties).
Recitals
WHEREAS, reference is hereby made to that certain Agreement and Plan of Merger among the
Parties dated as of October 13, 2010 (the Merger Agreement);
WHEREAS, the Merger Agreement provides that either party may terminate the Merger Agreement
after the Outside Date of April 30, 2011;
WHEREAS, the Merger Agreement contemplates the extension of the Outside Date upon the written
agreement of the Parties; and
WHEREAS, the Parties are in discussions with the U.S. Department of Justice and have
accordingly determined to extend the Outside Date.
Agreement
NOW, THEREFORE, in consideration of the above premises, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Defined Terms. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Merger Agreement.
2. Extension of Outside Date. Pursuant to Section 9.1(c) of the Merger
Agreement, the Parties agree to extend the Outside Date one month from April 30, 2011 to May 31,
2011. The Parties agree that, pursuant to Section 9.1(c), the Outside Date may be
further extended in one month increments upon the written agreement of the Acquiror and the
Stockholder Representatives.
3. Effect on Merger Agreement. Except as provided in this Agreement, the Merger
Agreement shall remain in full force and effect and unmodified.
4. Governing Law. This Agreement and all disputes or controversies arising out of
or relating to this Agreement or the transactions contemplated hereby shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware, without regard to
the
laws of any other jurisdiction that might be applied because of the conflicts of laws principles
of the State of Delaware.
5. Counterparts. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same instrument and shall become effective when one or more
counterparts have been signed by each of the Parties and delivered to the other Parties.
6. Facsimile Signature. This Agreement may be executed by facsimile signature and a
facsimile signature shall constitute an original for all purposes.
[The remainder of this page is intentionally left blank.]
2
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.
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H&R BLOCK, INC.
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By: |
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Name: |
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Title: |
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HRB ISLAND ACQUISITION, INC.
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By: |
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Name: |
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Title: |
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2SS HOLDINGS, INC.
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By: |
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Name: |
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Title: |
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TA ASSOCIATES MANAGEMENT, L.P.
(solely in its capacity as a Stockholder
Representative)
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By: |
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Name: |
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Title: |
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Lance Dunn |
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(Solely in his capacity as a Stockholder
Representative) |
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3
exv10w34
Exhibit 10.34
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this Amendment) dated June 21, 2011
is among (i) H&R BLOCK, INC., a Missouri corporation (the Acquiror), (ii) HRB ISLAND
ACQUISITION, INC., a Delaware corporation and an indirect wholly owned subsidiary of the Acquiror
(Sub), (iii) 2SS HOLDINGS, INC., a Delaware corporation (the Company), (iv) TA
Associates Management, L.P. solely in its capacity as Stockholder Representative, and (v) Lance
Dunn solely in his capacity as Stockholder Representative.
WHEREAS, reference is hereby made to that certain Agreement and Plan of Merger among the
parties hereto dated as of October 13, 2010 (the Merger Agreement);
WHEREAS, Section 7.1 of the Merger Agreement contains a condition to Closing that no
Governmental Authority shall have instituted any Action challenging or seeking to restrain or
prohibit the consummation of the Merger;
WHEREAS, on October 26, 2010, the parties filed Premerger Notification and Report Forms under
and in compliance with the HSR Act with the Federal Trade Commission and the U.S. Department of
Justice (DOJ, and together with any other appropriate Governmental Authority designated
by Law to receive such filings, an Antitrust Authority) with respect to the transactions
contemplated by the Merger Agreement and have filed such other notifications, applications, filings
or other information with the DOJ as the parties deemed necessary or desirable in connection with
the Merger under applicable Antitrust Law (collectively, the Antitrust Filings);
WHEREAS, on May 23, 2011, the DOJ instituted an Action seeking to prevent the Merger in a case
styled United States of America, U.S. Department of Justice, Antitrust Division v. H&R Block, Inc.
et al, Case No. 1:11-cv-00948 (the DOJ Action) and the parties wish to oppose the DOJ
Action;
WHEREAS, the Acquiror has to date borne a larger portion of the costs and expenses of all
parties relating to the Antitrust Filings and the parties desire to change the manner in which the
parties divide costs going forward regarding the Antitrust Filings and DOJ Action, as set forth
herein; and
WHEREAS, Section 10.2 of the Merger Agreement provides for the amendment of the terms of the
Merger Agreement upon the written agreement of the parties, and the parties desire to amend the
Merger Agreement as set forth herein.
NOW, THEREFORE, in consideration of the above premises, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Defined Terms. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Merger Agreement.
2. Satisfaction of Prior Obligations.
2.1 As of the date hereof, each party hereby acknowledges and agrees that each other party
hereto has fulfilled any and all obligations under Section 5.6 of the Merger Agreement applicable
to such other party through the date hereof, whether express or implied.
2.2 Each party hereby acknowledges and agrees that as of the date hereof, no party has failed
to fulfill any obligation under the Merger Agreement prior to the date hereof that has caused the
Merger not to be consummated on or prior to the date hereof, and further acknowledges and agrees
that either the Company or the Stockholder Representatives, acting together, or the Acquiror has
had the right to terminate the Merger Agreement since May 31, 2011, subject to the terms of this
Amendment.
3. No Waiver of Closing Conditions. Each party hereby acknowledges and agrees that
the approval and execution of this Amendment shall not be deemed to be a waiver of any of the
conditions to Closing set forth in Article VII of the Merger Agreement.
4. Section 1.1.
4.1 The definitions of Escrow Agent and Merger Consideration in Section
1.1 of the Merger Agreement shall be deleted and replaced in their entirety with the following:
Escrow Agent means SunTrust Bank, a Georgia banking corporation, or
its successor under the Escrow Agreement.
Merger Consideration means the sum of (i) $287,500,000, plus (ii) the
Estimated Net Working Capital Amount set forth in the Net Working Capital Amount
Schedule, plus (iii) the Reimbursement Amount (as defined in Section 5.6), minus
(iv) the unpaid Transaction Expenses set forth in the Schedule of Expenses.
4.2 A new clause (iv) shall be added at the end of the first sentence of the definition of
Transaction Expenses in Section 1.1 as follows: and (iv) the Antitrust Action Expenses (as
defined in Section 5.6).
5. Section 3.6. The Company represents and warrants to the Acquiror and Sub that a
true and complete copy of the unaudited consolidated statement of income of the Company and its
Subsidiaries as at April 30, 2011 has been delivered to the Acquiror. Effective from and after the
date of this Amendment, the definition of Unaudited Financial Statements set forth in
Section 3.6 of the Merger Agreement shall be deemed to include the unaudited consolidated statement
of income of the Company and its Subsidiaries as at April 30, 2011.
2
6. Section 3.23(a). A new sentence shall be added at the end of Section 3.23(a), as
follows:
Schedule 3.23(a)(i) of the Disclosure Schedules sets forth the information the
Company and its Subsidiaries retain regarding the number of clients served in the
12-month period ended April 30, 2011, including, but not limited to, percentages of
such customers using free services versus paid services, online versus desktop,
professional versus nonprofessional, etc., excluding any such information which, if
disclosed to Acquiror, would constitute Competitively Sensitive Information of the
Company or its Subsidiaries.
7. Section 5.1(i). Section 5.1(i) of the Merger Agreement shall be deleted and
replaced in its entirety with the following:
(i) authorize, or make any commitment with respect to, any single capital expenditure that
is in excess of $250,000 or capital expenditures that are, in the aggregate, in excess of
$1,000,000 for the Company and its Subsidiaries taken as a whole, or enter into any lease or
sublease of real or personal property or any renewals thereof;
8. Section 5.6. Effective from and after the date of this Amendment, Section 5.6 of
the Merger Agreement shall be deleted and replaced in its entirety with the following:
Section 5.6 Efforts.
(a) The parties agree that the external costs and expenses of all parties that
are incurred in connection with the DOJ Action after the date hereof, including but
not limited to attorney fees and costs, all costs associated with experts, witnesses
and potential witnesses, all document production costs, and all costs awarded by the
court to the DOJ (the Antitrust Action Expenses), shall be the
responsibility of the Company; provided, however, that Antitrust Action
Expenses shall not include (i) the attorney fees and expenses of Willkie Farr &
Gallagher LLP or the Acquirors internal legal counsel, (ii) travel costs for the
Acquirors employees, or (iii) any costs or expenses that the Acquiror chooses to
incur without the consent of the Company or the Companys outside counsel. If the
Closing occurs in accordance with the terms of this Agreement, as amended, or as the
Acquiror may otherwise agree in writing, then in connection with the Closing the
Acquiror shall reimburse the Company an amount equal to the Antitrust Action
Expenses, up to a maximum of five million dollars ($5,000,000) (the
Reimbursement Amount).
(b) The parties shall each cooperate with one another in connection with
opposing the DOJ Action, subject to the parties termination rights set forth in
Section 9.1. In connection with such collaboration, each of the parties shall act
3
in good faith, reasonably, and as promptly as practicable. Subject to applicable
Laws relating to the exchange of information and the preservation of any
applicable attorney-client privilege, work-product doctrine, self-audit privilege or
other similar privilege (collectively, Legal Privilege), each party shall
(i) promptly inform the other party of any substantive written or oral communication
received from any Antitrust Authority or the court before which the DOJ Action is
pending relating to the DOJ Action, its Antitrust Filing or the Merger and other
transactions contemplated hereby (and if in writing, furnish the other party with a
copy of such communication); (ii) provide to the other party, and permit the other
party to review and comment upon in advance of submission, all proposed substantive
correspondence, filings, and written communications regarding the DOJ Action or to
any Antitrust Authority with respect to the Merger and other transactions
contemplated hereby; and (iii) not participate in any substantive meeting or
discussion in respect of any filings, investigation or inquiry concerning the DOJ
Action or the Merger and other transactions contemplated hereby unless it consults
with the other party in advance and, except as prohibited by applicable Law or
Governmental Authority, gives the other party the opportunity to attend and
participate thereat; provided, however, that any exchange of Competitively Sensitive
Information shall be limited to the other partys outside antitrust counsel.
Without in any way limiting the foregoing, the parties will consult and cooperate
with each other, and consider in good faith the views of one another, in connection
with any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any party in connection
with proceedings under or relating to any Antitrust Law (including the DOJ Action),
except as may be prohibited or restricted by Law.
(c) Notwithstanding anything in this Agreement to the contrary, the Acquiror
shall have the sole and exclusive right, to propose, negotiate, offer to commit and
effect, by consent decree, hold separate order or otherwise, the Divestiture of such
assets of the Acquiror, the Company, or their respective Subsidiaries or otherwise
offer to take or offer to commit (and if such offer is accepted, commit to and
effect) to take any action as may be required to resolve the DOJ Action.
(d) Notwithstanding anything in this Agreement to the contrary, the Company
shall be prohibited from agreeing to any settlement or other concessions with the
DOJ regarding the DOJ Action (other than the offers or concessions set forth in the
written offer made by the parties to the DOJ prior to the commencement of the DOJ
Action) without the express written consent of the Acquiror, including but not
limited to an agreement to take any of the following actions (each and collectively
a Divestiture): (i) extend any such waiting period or agree with any
Antitrust Authority not to consummate the transactions contemplated hereby, (ii)
negotiate, commit to or effect, by consent decree, hold separate order or otherwise,
the sale, divestiture, license or other disposition of
4
any or all of the capital stock, assets, rights, products or businesses of the
Company or the Acquiror and its Subsidiaries or any other restrictions on the
activities of the Company or the Acquiror and its Subsidiaries, (iii) terminate,
amend or assign existing relationships or contractual rights or obligations, or (iv)
amend, assign or terminate existing licenses or other agreements or enter into new
licenses or other agreements.
9. Section 8.4(c). The date July 31, 2010 in Section 8.4(c) of the Merger Agreement
shall be deleted and replaced in its entirety with the date July 31, 2012.
10. Section 9.1. Section 9.1(c) of the Merger Agreement shall be deleted and
replaced in its entirety with the following:
(c) by either the Company or the Stockholder Representatives, acting together,
or the Acquiror, if the Merger shall not have been consummated on or before the
earlier of October 15, 2011 or the date on which an applicable court in the DOJ
Action enters a preliminary or permanent injunction that prohibits the closing of
the Merger; provided that the right to terminate this Agreement under this
Section 9.1(c) shall not be available if the failure of the party requesting
termination to fulfill any obligation under this Agreement prior to such date shall
have been the cause of the failure of the Merger to be consummated on or prior to
such date; provided further that the act itself of properly exercising this
termination right shall not alone be considered a cause for the failure to
consummate for purposes of this Section 9.1(c); or
11. Section 10.1. Section 10.1 of the Merger Agreement shall be deleted and replaced
in its entirety with the following
Section 10.1. Fees and Expenses. Except to the extent provided in
Section 5.6(a), all fees and expenses incurred in connection with or related to this
Agreement and the Ancillary Agreements and the transactions contemplated hereby and
thereby shall be paid by the party incurring such fees or expenses, whether or not
such transactions are consummated; provided, however, that if the Merger is
consummated, all Transaction Expenses shall be paid as provided in this Agreement.
12. Section 10.5. The first notice address set forth in Section 10.5 for the Company
or the Stockholder Representatives shall be deleted and replaced in its entirety with the
following:
2SS Holdings, Inc.
c/o Second Story Software, Inc
1425 60th Street NE, Suite 300
Cedar Rapids, IA 52402
Attention: Lance Dunn
Facsimile: (319) 261-0395
5
13. Exhibit A Form of Escrow Agreement. Exhibit A to the Merger Agreement
shall be deleted and replaced in its entirety with an Escrow Agreement substantially in the form
attached hereto as Exhibit A.
14. Effect on Merger Agreement. Except as provided in this Amendment, the Merger
Agreement shall remain in full force and effect and unmodified.
15. Governing Law. This Amendment and all disputes or controversies arising out of or
relating to this Amendment or the transactions contemplated hereby shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware, without regard to the
laws of any other jurisdiction that might be applied because of the conflicts of laws principles of
the State of Delaware.
16. Counterparts. This Amendment may be executed in two or more counterparts, all of
which shall be considered one and the same instrument and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other parties.
17. Facsimile Signature. This Amendment may be executed by facsimile signature and a
facsimile signature shall constitute an original for all purposes.
[The remainder of this page is intentionally left blank.]
6
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first
written above by their respective officers thereunto duly authorized.
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H&R BLOCK, INC.
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By: |
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Name: |
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Title: |
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HRB ISLAND ACQUISITION, INC.
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By: |
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Name: |
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Title: |
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2SS HOLDINGS, INC.
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By: |
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|
|
Name: |
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|
|
|
Title: |
|
|
|
|
TA ASSOCIATES MANAGEMENT, L.P.
(solely in its capacity as a Stockholder
Representative)
|
|
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By: |
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|
Name: |
|
|
|
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Title: |
|
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Lance Dunn |
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(Solely in his capacity as a Stockholder
Representative) |
|
Signature Page to Amendment to Merger Agreement
Schedule 3.23(a)(i)
See attached.
Exhibit A
See attached.
2
exv12
EXHIBIT 12
H&R BLOCK
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
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2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pretax income from continuing operations |
|
$ |
677,025 |
|
|
$ |
784,135 |
|
|
$ |
839,370 |
|
|
$ |
735,071 |
|
|
$ |
627,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED CHARGES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
86,947 |
|
|
|
80,395 |
|
|
|
89,959 |
|
|
|
64,509 |
|
|
|
91,134 |
|
Interest on deposits |
|
|
8,488 |
|
|
|
10,174 |
|
|
|
14,069 |
|
|
|
42,878 |
|
|
|
32,128 |
|
Interest portion of net rent expense (a) |
|
|
90,692 |
|
|
|
96,541 |
|
|
|
102,685 |
|
|
|
99,871 |
|
|
|
94,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
|
186,127 |
|
|
|
187,110 |
|
|
|
206,713 |
|
|
|
207,258 |
|
|
|
218,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and fixed charges |
|
$ |
863,152 |
|
|
$ |
971,245 |
|
|
$ |
1,046,083 |
|
|
$ |
942,329 |
|
|
$ |
845,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including interest on deposits |
|
|
4.6 |
|
|
|
5.2 |
|
|
|
5.1 |
|
|
|
4.5 |
|
|
|
3.9 |
|
Excluding interest on deposits |
|
|
4.8 |
|
|
|
5.4 |
|
|
|
5.4 |
|
|
|
5.7 |
|
|
|
4.5 |
|
|
|
|
(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.
|
|
|
Entity 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 |
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
|
|
Federally Chartered |
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 |
|
|
|
Entity Name |
|
Domestic Jurisdiction |
H&R Block Tax Services LLC
|
|
Missouri |
H&R Block, Inc.
|
|
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 Island Acquisition, Inc.
|
|
Delaware |
HRB Products LLC
|
|
Missouri |
HRB Property LLC
|
|
Delaware |
HRB Retail Support Services 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 |
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 |
|
|
|
Entity Name |
|
Domestic Jurisdiction |
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 |
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, 333-70402, and 333-106710 on
Form S-8 of our reports dated June 23, 2011, relating to the consolidated financial statements 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 related to consolidation of variable
interest entities on May 1, 2010), 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, 2011.
Kansas City, Missouri
June 23, 2011
exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William C. Cobb, 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 principles;
(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
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: June 23, 2011 |
/s/ William C. Cobb
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William C. Cobb |
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Chief Executive Officer
H&R Block, Inc. |
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exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey T. Brown, 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 principles;
(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
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: June 23, 2011 |
/s/ Jeffrey T. Brown
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Jeffrey T. Brown |
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Senior Vice President and Chief Financial Officer
H&R Block, Inc. |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of H&R Block, Inc. (the Company) on Form 10-K for the
fiscal year ending April 30, 2011 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, William C. Cobb, Chief Executive Officer of the Company, certify pursuant
to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ William C. Cobb
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William C. Cobb |
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Chief Executive Officer
H&R Block, Inc. June 23, 2011 |
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exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of H&R Block, Inc. (the Company) on Form 10-K for the
fiscal year ending April 30, 2011 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Jeffrey T. Brown, Chief Financial Officer of the Company, certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Jeffrey T. Brown
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Jeffrey T. Brown |
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Senior Vice President and
Chief Financial Officer
H&R Block, Inc. June 23, 2011 |
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