e10vq
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 31,
2011
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number 1-6089
H&R
Block, Inc.
(Exact name of registrant as
specified in its charter)
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MISSOURI
(State or other jurisdiction of
incorporation or organization)
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44-0607856
(I.R.S. Employer
Identification No.)
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One
H&R Block Way
Kansas City, Missouri 64105
(Address
of principal executive offices, including zip code)
(816) 854-3000
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes Ö No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes Ö No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one) :
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Large accelerated
filer Ö
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes No Ö
The number of shares outstanding of the registrants Common
Stock, without par value, at the close of business on
July 31, 2011 was 305,766,188 shares.
Form 10-Q
for the Period Ended July 31, 2011
Table of
Contents
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As
of
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July 31,
2011
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April 30,
2011
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(Unaudited)
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ASSETS
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Cash and cash equivalents
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$
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1,012,709
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$
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1,677,844
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Cash and cash equivalents restricted
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44,402
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48,383
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Receivables, less allowance for doubtful accounts of $67,582 and
$67,466
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329,388
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492,290
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Prepaid expenses and other current assets
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281,326
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259,214
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Total current assets
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1,667,825
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2,477,731
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Mortgage loans held for investment, less allowance for loan
losses of $91,303 and $92,087
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466,663
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485,008
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Property and equipment, at cost, less accumulated depreciation
and amortization of $694,321 and $677,220
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295,220
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307,320
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Intangible assets, net
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360,035
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367,919
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Goodwill
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742,611
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846,245
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Other assets
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775,698
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723,738
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Total assets
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$
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4,308,052
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$
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5,207,961
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities:
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Customer banking deposits
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$
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666,268
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$
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852,220
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Accounts payable, accrued expenses and other current liabilities
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522,130
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618,070
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Accrued salaries, wages and payroll taxes
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83,257
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257,038
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Accrued income taxes
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275,639
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458,910
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Current portion of long-term debt
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30,940
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3,437
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Federal Home Loan Bank borrowings
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25,000
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25,000
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Total current liabilities
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1,603,234
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2,214,675
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Long-term debt
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1,019,431
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1,049,754
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Other noncurrent liabilities
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451,510
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493,958
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Total liabilities
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3,074,175
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3,758,387
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Commitments and contingencies
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Stockholders equity:
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Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, shares issued of 412,440,599
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4,124
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4,124
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Additional paid-in capital
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808,668
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812,666
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Accumulated other comprehensive income
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12,692
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11,233
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Retained earnings
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2,437,011
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2,658,103
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Less treasury shares, at cost
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(2,028,618
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(2,036,552
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)
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Total stockholders equity
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1,233,877
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1,449,574
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Total liabilities and stockholders equity
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$
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4,308,052
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$
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5,207,961
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See Notes to
Condensed Consolidated Financial Statements
1
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Three
Months Ended July 31,
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2011
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2010
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Revenues:
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Service revenues
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$
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240,563
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$
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247,419
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Product and other revenues
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16,638
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16,753
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Interest income
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10,433
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10,302
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267,634
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274,474
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Expenses:
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Cost of revenues:
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Compensation and benefits
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160,255
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168,047
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Occupancy and equipment
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94,045
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94,702
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Depreciation and amortization of property and equipment
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21,048
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23,065
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Provision for bad debt and loan losses
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8,823
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10,049
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Interest
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23,301
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22,962
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Other
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49,528
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49,191
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357,000
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368,016
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Impairment of goodwill
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99,697
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Selling, general and administrative expenses
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108,166
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117,029
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564,863
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485,045
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Operating loss
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(297,229
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(210,571
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Other income, net
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4,087
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3,254
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Loss from continuing operations before tax benefit
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(293,142
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(207,317
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Income tax benefit
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(119,699
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(79,679
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Net loss from continuing operations
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(173,443
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)
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(127,638
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)
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Net loss from discontinued operations
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(1,655
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)
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(3,043
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Net loss
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$
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(175,098
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$
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(130,681
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Basic and diluted loss per share:
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Net loss from continuing operations
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$
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(0.57
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$
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(0.40
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Net loss from discontinued operations
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(0.01
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Net loss
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$
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(0.57
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$
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(0.41
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)
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Basic and diluted shares
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305,491
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319,690
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Dividends paid per share
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$
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0.15
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$
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0.15
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Comprehensive income (loss):
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Net loss
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$
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(175,098
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$
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(130,681
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)
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Change in unrealized gain on
available-for-sale
securities, net
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975
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(306
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)
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Change in foreign currency translation adjustments
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484
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(4,020
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Comprehensive loss
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$
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(173,639
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$
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(135,007
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)
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See Notes to
Condensed Consolidated Financial Statements
2
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Three
Months Ended July 31,
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2011
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2010
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Net cash used in operating activities
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$
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(394,549
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)
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$
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(348,251
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Cash flows from investing activities:
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Purchases of
available-for-sale
securities
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(39,275
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)
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Principal repayments on mortgage loans held for investment, net
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11,192
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17,618
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Purchases of property and equipment, net
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(10,953
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)
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(8,634
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)
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Payments made for business acquisitions, net
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(3,457
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)
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(33,226
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)
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Proceeds from sale of businesses, net
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21,230
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26,387
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Franchise loans:
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Loans funded
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(16,477
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)
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(33,720
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)
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Payments received
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5,320
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6,724
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Other, net
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18,167
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18,848
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Net cash used in investing activities
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(14,253
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)
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(6,003
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)
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Cash flows from financing activities:
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Customer banking deposits, net
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(186,245
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)
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(121,401
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)
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Dividends paid
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(45,894
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)
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(48,692
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)
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Repurchase of common stock, including shares surrendered
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(2,002
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)
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(164,369
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)
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Proceeds from exercise of stock options
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1,762
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1,500
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Other, net
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(24,916
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)
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(15,987
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)
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Net cash used in financing activities
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(257,295
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)
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(348,949
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)
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Effects of exchange rates on cash
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962
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(2,232
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)
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Net decrease in cash and cash equivalents
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(665,135
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)
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(705,435
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)
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Cash and cash equivalents at beginning of the period
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1,677,844
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1,804,045
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Cash and cash equivalents at end of the period
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$
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1,012,709
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$
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1,098,610
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Supplementary cash flow data:
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Income taxes paid
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$
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99,357
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$
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64,651
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Interest paid on borrowings
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37,634
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27,265
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Interest paid on deposits
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1,820
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1,915
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Transfers of foreclosed loans to other assets
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1,573
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6,527
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See Notes to
Condensed Consolidated Financial Statements
3
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1.
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Summary of
Significant Accounting Policies
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Basis of Presentation
The condensed consolidated balance sheet as of July 31,
2011, the condensed consolidated statements of operations and
comprehensive income (loss) for the three months ended
July 31, 2011 and 2010, and the condensed consolidated
statements of cash flows for the three months ended
July 31, 2011 and 2010 have been prepared by the Company,
without audit. In the opinion of management, all adjustments,
which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and
cash flows at July 31, 2011 and for all periods presented
have been made.
H&R Block, the Company,
we, our and us are used
interchangeably to refer to H&R Block, Inc. or to H&R
Block, Inc. and its subsidiaries, as appropriate to the context.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial
statements and notes thereto included in our April 30, 2011
Annual Report to Shareholders on
Form 10-K.
All amounts presented herein as of April 30, 2011 or for
the year then ended, are derived from our April 30, 2011
Annual Report to Shareholders on
Form 10-K.
Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
periods. Significant estimates, assumptions and judgments are
applied in the determination of our allowance for loan losses,
potential losses from loan repurchase and indemnity obligations
associated with our discontinued mortgage business, contingent
losses associated with pending litigation, fair value of
reporting units, valuation allowances based on future taxable
income, reserves for uncertain tax positions, 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.
Seasonality of
Business
Our operating revenues are seasonal in nature with peak revenues
occurring in the months of January through April. Therefore,
results for interim periods are not indicative of results to be
expected for the full year.
In August 2011, our Board of Directors approved a non-binding
letter of intent to sell substantially all assets of RSM
McGladrey Business Services, Inc. (RSM) to McGladrey &
Pullen LLP (M&P) which is described in a recently issued
Form 8-K.
The sale is dependent on, among other factors, the ability of
M&P to raise financing for the purchase, and is expected to
be completed by calendar year end. We also announced we are
evaluating strategic alternatives for RSM EquiCo, Inc. (EquiCo).
We recorded a $99.7 million impairment of goodwill in the
first quarter for reporting units in our Business Services
segment based on these events. These amounts related to the sale
of RSM may fluctuate based on adjustments to the purchase price
at closing as well as the additional realization of tax benefits
related to the sale. M&P will also assume substantially all
liabilities, including contingent payments and lease obligations.
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3.
|
Loss Per Share
and Stockholders Equity
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Basic and diluted loss 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.
4
Per share amounts are computed by dividing net income from
continuing operations attributable to common shareholders by the
weighted average shares outstanding during each period. The
dilutive effect of potential common shares is included in
diluted earnings per share except in those periods with a loss
from continuing operations. Diluted earnings per share excludes
the impact of shares of common stock issuable upon the lapse of
certain restrictions or the exercise of options to purchase
14.5 million shares and 14.7 million shares for the
three months ended July 31, 2011 and 2010, respectively, as
the effect would be antidilutive due to the net loss from
continuing operations during each period.
The computations of basic and diluted loss per share from
continuing operations are as follows:
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(in 000s, except per
share amounts)
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Three
Months Ended July 31,
|
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2011
|
|
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2010
|
|
|
|
|
Net loss from continuing operations attributable to shareholders
|
|
$
|
(173,443
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)
|
|
$
|
(127,638
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)
|
Amounts allocated to participating securities (nonvested shares)
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|
|
(114
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)
|
|
|
(20
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)
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to common
shareholders
|
|
$
|
(173,557
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)
|
|
$
|
(127,658
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)
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
305,491
|
|
|
|
319,690
|
|
Potential dilutive shares
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
|
|
|
305,491
|
|
|
|
319,690
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.57
|
)
|
|
$
|
(0.40
|
)
|
Diluted
|
|
|
(0.57
|
)
|
|
|
(0.40
|
)
|
|
|
The weighted average shares outstanding for the three months
ended July 31, 2011 decreased to 305.5 million from
319.7 million for the three months ended July 31, 2010
primarily due to share repurchases completed in the prior year.
During the three months ended July 31, 2010, we purchased
and immediately retired 15.5 million shares of our common
stock at a cost of $235.7 million.
During the three months ended July 31, 2011 and 2010, we
issued 0.5 million and 0.9 million shares of common
stock, respectively, due to the exercise of stock options,
employee stock purchases and vesting of nonvested shares.
During the three months ended July 31, 2011, we acquired
0.1 million shares of our common stock at an aggregate cost
of $2.0 million, and during the three months ended
July 31, 2010, we acquired 0.2 million shares at an
aggregate cost of $3.4 million. Shares acquired during
these periods represented shares swapped or surrendered to us in
connection with the vesting of nonvested shares and the exercise
of stock options.
During the three months ended July 31, 2011, we granted
2.3 million stock options and 0.9 million nonvested
shares and units in accordance with our stock-based compensation
plans. The weighted average fair value of options granted was
$3.37 for management options. These awards vest over a three
year period with one-third vesting each year. Stock-based
compensation expense of our continuing operations totaled
$4.1 million and $3.4 million for the three months
ended July 31, 2011 and 2010, respectively. At
July 31, 2011, unrecognized compensation cost for options
totaled $9.6 million, and for nonvested shares and units
totaled $22.5 million.
5
Our short-term receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of
|
|
July 31,
2011
|
|
|
April 30,
2011
|
|
|
|
|
Business Services receivables
|
|
$
|
224,631
|
|
|
$
|
281,847
|
|
Loans to franchisees
|
|
|
62,313
|
|
|
|
62,181
|
|
Receivables for tax preparation and related fees
|
|
|
36,203
|
|
|
|
38,930
|
|
Emerald Advance lines of credit
|
|
|
30,699
|
|
|
|
31,645
|
|
Royalties from franchisees
|
|
|
707
|
|
|
|
11,645
|
|
Tax client receivables related to RALs
|
|
|
1,971
|
|
|
|
2,412
|
|
Other
|
|
|
40,446
|
|
|
|
131,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,970
|
|
|
|
559,756
|
|
Allowance for doubtful accounts
|
|
|
(67,582
|
)
|
|
|
(67,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
329,388
|
|
|
$
|
492,290
|
|
|
|
|
|
|
|
|
|
|
|
|
The short-term portion of Emerald Advance lines of credit (EAs),
tax client receivables related to refund anticipation loans
(RALs) and loans made to franchisees is included in receivables,
while the long-term portion is included in other assets in the
condensed consolidated financial statements. These amounts are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Emerald Advance
|
|
|
Tax Client
|
|
|
Loans
|
|
|
|
Lines
of Credit
|
|
|
Receivables
- RALs
|
|
|
to
Franchisees
|
|
|
|
|
As of July 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
$
|
30,699
|
|
|
$
|
1,971
|
|
|
$
|
62,313
|
|
Long-term
|
|
|
18,539
|
|
|
|
5,271
|
|
|
|
123,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,238
|
|
|
$
|
7,242
|
|
|
$
|
186,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
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
July 31, 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
|
|
$
|
25,738
|
|
|
$
|
-
|
|
2010
|
|
|
5,006
|
|
|
|
86
|
|
2009
|
|
|
4,953
|
|
|
|
2,124
|
|
2008 and prior
|
|
|
2,082
|
|
|
|
5,032
|
|
Revolving loans
|
|
|
11,459
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,238
|
|
|
$
|
7,242
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2011 and April 30, 2011,
$44.6 million and $46.8 million, respectively, 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.
Loans made to franchisees totaled $186.3 million at
July 31, 2011, and consisted of $140.0 million in term
loans made to finance the purchase of franchises and
$46.3 million in revolving lines of credit made to existing
franchisees primarily for the purpose of funding their
off-season needs.
6
Our allowance for doubtful accounts consists of the following:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of
|
|
July 31,
2011
|
|
|
April 30,
2011
|
|
|
|
|
Allowance related to:
|
|
|
|
|
|
|
|
|
Emerald Advance lines of credit
|
|
$
|
5,350
|
|
|
$
|
4,400
|
|
Tax client receivables related to RALs
|
|
|
-
|
|
|
|
-
|
|
Loans to franchisees
|
|
|
-
|
|
|
|
-
|
|
All other receivables
|
|
|
62,232
|
|
|
|
63,066
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67,582
|
|
|
$
|
67,466
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for doubtful accounts for the three
months ended July 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Emerald Advance
|
|
|
Tax Client
|
|
|
Loans
|
|
|
All
|
|
|
|
|
|
|
Lines
of Credit
|
|
|
Receivables
- RALs
|
|
|
to
Franchisees
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Balance as of April 30, 2011
|
|
$
|
4,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
63,066
|
|
|
$
|
67,466
|
|
Provision
|
|
|
950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,955
|
|
|
|
2,905
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
51
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,840
|
)
|
|
|
(2,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 31, 2011
|
|
$
|
5,350
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,232
|
|
|
$
|
67,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2010
|
|
$
|
35,239
|
|
|
$
|
12,191
|
|
|
$
|
4
|
|
|
$
|
65,041
|
|
|
$
|
112,475
|
|
Provision
|
|
|
710
|
|
|
|
2
|
|
|
|
-
|
|
|
|
1,078
|
|
|
|
1,790
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
128
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(2,015
|
)
|
|
|
(2,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 31, 2010
|
|
$
|
35,949
|
|
|
$
|
12,193
|
|
|
$
|
-
|
|
|
$
|
64,232
|
|
|
$
|
112,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no changes to our methodology related to the
calculation of our allowance for doubtful accounts during the
three months ended July 31, 2011.
|
|
5.
|
Mortgage Loans
Held for Investment and Related Assets
|
The composition of our mortgage loan portfolio as of
July 31, 2011 and April 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
July 31, 2011
|
|
|
April 30, 2011
|
|
|
|
As of
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
|
|
Adjustable-rate loans
|
|
$
|
320,539
|
|
|
|
58
|
%
|
|
$
|
333,828
|
|
|
|
58
|
%
|
Fixed-rate loans
|
|
|
233,452
|
|
|
|
42
|
%
|
|
|
239,146
|
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553,991
|
|
|
|
100
|
%
|
|
|
572,974
|
|
|
|
100
|
%
|
Unamortized deferred fees and costs
|
|
|
3,975
|
|
|
|
|
|
|
|
4,121
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(91,303
|
)
|
|
|
|
|
|
|
(92,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
466,663
|
|
|
|
|
|
|
$
|
485,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our loan loss allowance as a percent of mortgage loans was 16.5%
at July 31, 2011, compared to 16.1% at April 30, 2011.
Activity in the allowance for loan losses for the three months
ended July 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
92,087
|
|
|
$
|
93,535
|
|
|
|
Provision
|
|
|
5,625
|
|
|
|
8,000
|
|
|
|
Recoveries
|
|
|
49
|
|
|
|
33
|
|
|
|
Charge-offs
|
|
|
(6,458
|
)
|
|
|
(13,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
91,303
|
|
|
$
|
88,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, including those loans more than
60 days past due or
7
modified as troubled debt restructurings (TDRs), are evaluated
individually. The balance of these loans and the related
allowance is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
July 31, 2011
|
|
|
April 30, 2011
|
|
|
|
As of
|
|
Portfolio
Balance
|
|
|
Related
Allowance
|
|
|
Portfolio
Balance
|
|
|
Related
Allowance
|
|
|
|
|
Pooled (less than 60 days past due)
|
|
$
|
290,762
|
|
|
$
|
10,914
|
|
|
$
|
304,325
|
|
|
$
|
11,238
|
|
Impaired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually (TDRs)
|
|
|
95,417
|
|
|
|
9,499
|
|
|
|
106,328
|
|
|
|
11,056
|
|
Individually (60 days or more past due)
|
|
|
167,812
|
|
|
|
70,890
|
|
|
|
162,321
|
|
|
|
69,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
553,991
|
|
|
$
|
91,303
|
|
|
$
|
572,974
|
|
|
$
|
92,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our portfolio includes loans originated by Sand Canyon
Corporation (SCC) and purchased by H&R Block Bank (HRB
Bank) which constitute 63% of the total loan portfolio at
July 31, 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 $207.3 million and is characteristic of a prime
loan portfolio, and we believe subject to a lower loss exposure.
Detail of our mortgage loans held for investment and the related
allowance at July 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
Outstanding
|
|
|
Loan Loss Allowance
|
|
|
% 30+ Days
|
|
|
|
Principal
Balance
|
|
|
Amount
|
|
|
% of
Principal
|
|
|
Past
Due
|
|
|
|
|
Purchased from SCC
|
|
$
|
346,695
|
|
|
$
|
80,640
|
|
|
|
23.3
|
%
|
|
|
44.8
|
%
|
All other
|
|
|
207,296
|
|
|
|
10,663
|
|
|
|
5.1
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
553,991
|
|
|
$
|
91,303
|
|
|
|
16.5
|
%
|
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicators at July 31, 2011 include the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Credit
Quality Indicators
|
|
Purchased
from SCC
|
|
|
All
Other
|
|
|
Total
Portfolio
|
|
|
|
|
Occupancy status:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
244,259
|
|
|
$
|
132,132
|
|
|
$
|
376,391
|
|
Non-owner occupied
|
|
|
102,436
|
|
|
|
75,164
|
|
|
|
177,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
346,695
|
|
|
$
|
207,296
|
|
|
$
|
553,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Documentation level:
|
|
|
|
|
|
|
|
|
|
|
|
|
Full documentation
|
|
$
|
105,547
|
|
|
$
|
150,972
|
|
|
$
|
256,519
|
|
Limited documentation
|
|
|
10,447
|
|
|
|
22,411
|
|
|
|
32,858
|
|
Stated income
|
|
|
198,898
|
|
|
|
21,168
|
|
|
|
220,066
|
|
No documentation
|
|
|
31,803
|
|
|
|
12,745
|
|
|
|
44,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
346,695
|
|
|
$
|
207,296
|
|
|
$
|
553,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal risk rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
143,931
|
|
|
$
|
357
|
|
|
$
|
144,288
|
|
Medium
|
|
|
202,764
|
|
|
|
-
|
|
|
|
202,764
|
|
Low
|
|
|
-
|
|
|
|
206,939
|
|
|
|
206,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
346,695
|
|
|
$
|
207,296
|
|
|
$
|
553,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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.
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 52% of our
8
mortgage loan portfolio consists of loans to borrowers located
in the states of Florida, California and New York.
Detail of the aging of the mortgage loans in our portfolio that
are past due as of July 31, 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
|
|
$
|
35,960
|
|
|
$
|
8,886
|
|
|
$
|
133,767
|
|
|
$
|
178,613
|
|
|
$
|
168,082
|
|
|
$
|
346,695
|
|
All other
|
|
|
10,470
|
|
|
|
1,735
|
|
|
|
20,479
|
|
|
|
32,684
|
|
|
|
174,612
|
|
|
|
207,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,430
|
|
|
$
|
10,621
|
|
|
$
|
154,246
|
|
|
$
|
211,297
|
|
|
$
|
342,694
|
|
|
$
|
553,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
|
|
|
|
July 31,
|
|
|
|
|
As of
|
|
2011
|
|
|
April 30,
2011
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
138,277
|
|
|
$
|
143,358
|
|
Other
|
|
|
22,964
|
|
|
|
14,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,241
|
|
|
|
157,464
|
|
|
|
|
|
|
|
|
|
|
TDRs:
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
|
3,767
|
|
|
|
2,849
|
|
Other
|
|
|
178
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,945
|
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
$
|
165,186
|
|
|
$
|
160,642
|
|
|
|
|
|
|
|
|
|
|
|
|
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 July 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
180,494
|
|
|
$
|
47,081
|
|
|
$
|
227,575
|
|
|
$
|
70,964
|
|
Other
|
|
|
27,954
|
|
|
|
7,700
|
|
|
|
35,654
|
|
|
|
9,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
208,448
|
|
|
$
|
54,781
|
|
|
$
|
263,229
|
|
|
$
|
80,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
(1)
|
|
$
|
180,387
|
|
|
$
|
51,674
|
|
|
$
|
232,061
|
|
|
$
|
71,733
|
|
Other (1)
|
|
|
29,027
|
|
|
|
7,561
|
|
|
|
36,588
|
|
|
|
9,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,414
|
|
|
$
|
59,235
|
|
|
$
|
268,649
|
|
|
$
|
80,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Classification
of amounts as of April 30, 2011 have been restated to
conform to the current period presentation.
|
Information related to the allowance for impaired loans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of
|
|
July 31,
2011
|
|
|
April 30,
2011
|
|
|
|
|
Portion of total allowance for loan losses allocated to impaired
loans and TDR loans:
|
|
|
|
|
|
|
|
|
Based on collateral value method
|
|
$
|
70,890
|
|
|
$
|
69,794
|
|
Based on discounted cash flow method
|
|
|
9,499
|
|
|
|
11,055
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,389
|
|
|
$
|
80,849
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Information related to activities of our non-performing assets
is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Average impaired loans:
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
230,150
|
|
|
|
|
|
All other
|
|
|
36,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
266,627
|
|
|
$
|
303,767
|
|
|
|
|
|
|
|
|
|
|
Interest income on impaired loans:
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
1,556
|
|
|
|
|
|
All other
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,675
|
|
|
$
|
1,749
|
|
|
|
|
|
|
|
|
|
|
Interest income on impaired loans recognized on a cash basis on
non-accrual status:
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
1,498
|
|
|
|
|
|
All other
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,612
|
|
|
$
|
1,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Our real estate owned includes loans accounted for as
in-substance foreclosures of $7.2 million and
$7.7 million at July 31, 2011 and April 30, 2011,
respectively. Activity related to our real estate owned is as
follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
19,532
|
|
|
$
|
29,252
|
|
Additions
|
|
|
1,573
|
|
|
|
6,527
|
|
Sales
|
|
|
(3,722
|
)
|
|
|
(8,827
|
)
|
Writedowns
|
|
|
(793
|
)
|
|
|
(643
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
16,590
|
|
|
$
|
26,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Assets and
Liabilities Measured at Fair Value
|
We use the following valuation methodologies for assets and
liabilities measured at fair value and the general
classification of these instruments pursuant to the fair value
hierarchy.
|
|
|
|
|
Available-for-sale
securities
Available-for-sale
securities are carried at fair value on a recurring basis. When
available, fair value is based on quoted prices in an active
market and as such, would be classified as Level 1. If
quoted market prices are not available, 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 we believe 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.
|
10
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 the three months ended July 31,
2011 and 2010 and the gains (losses) on those remeasurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Gain
(loss)
|
|
|
|
|
As of July 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
192,491
|
|
|
$
|
-
|
|
|
$
|
192,491
|
|
|
$
|
-
|
|
|
$
|
1,936
|
|
Municipal bonds
|
|
|
7,758
|
|
|
|
-
|
|
|
|
7,758
|
|
|
|
-
|
|
|
|
449
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
|
3,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,446
|
|
|
|
(482)
|
|
Impaired mortgage loans held for investment
|
|
|
61,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,997
|
|
|
|
(1,473)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
265,692
|
|
|
$
|
-
|
|
|
$
|
200,249
|
|
|
$
|
65,443
|
|
|
$
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
6.2%
|
|
|
|
-%
|
|
|
|
4.7%
|
|
|
|
1.5%
|
|
|
|
|
|
As of July 31,
2010:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
21,893
|
|
|
$
|
-
|
|
|
$
|
21,893
|
|
|
$
|
-
|
|
|
$
|
(20)
|
|
Municipal bonds
|
|
|
8,981
|
|
|
|
-
|
|
|
|
8,981
|
|
|
|
-
|
|
|
|
566
|
|
Trust preferred security
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
(1,618)
|
|
Non-recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
|
3,321
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,321
|
|
|
|
(589)
|
|
Impaired mortgage loans held for investment
|
|
|
69,467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,467
|
|
|
|
(2,227)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,694
|
|
|
$
|
-
|
|
|
$
|
30,906
|
|
|
$
|
72,788
|
|
|
$
|
(3,888)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
2.3%
|
|
|
|
-%
|
|
|
|
0.7%
|
|
|
|
1.6%
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts
have been restated to conform to the current period presentation.
|
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 yields on our Senior Notes.
|
The carrying amounts and estimated fair values of our financial
instruments at July 31, 2011 are as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
Mortgage loans held for investment
|
|
$
|
466,663
|
|
|
$
|
282,546
|
|
|
|
Deposits
|
|
|
678,071
|
|
|
|
678,352
|
|
|
|
Long-term borrowings
|
|
|
1,050,371
|
|
|
|
1,105,686
|
|
|
|
FHLB advances
|
|
|
25,000
|
|
|
|
24,998
|
|
|
|
|
|
11
|
|
7.
|
Goodwill and
Intangible Assets
|
Changes in the carrying amount of goodwill for the three months
ended July 31, 2011 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Tax
Services
|
|
|
Business
Services
|
|
|
Total
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
3,478
|
|
|
|
34
|
|
|
|
3,512
|
|
Disposals and foreign currency changes
|
|
|
112
|
|
|
|
(7,561
|
)
|
|
|
(7,449
|
)
|
Impairments
|
|
|
-
|
|
|
|
(99,697
|
)
|
|
|
(99,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
462,629
|
|
|
|
419,567
|
|
|
|
882,196
|
|
Accumulated impairment losses
|
|
|
(24,888
|
)
|
|
|
(114,697
|
)
|
|
|
(139,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
437,741
|
|
|
$
|
304,870
|
|
|
$
|
742,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In
August 2011, our Board of Directors approved a non-binding
letter of intent to sell substantially all assets of RSM to
M&P. The sale is dependent on, among other factors, the
ability of M&P to raise financing for the purchase. In
conjunction with this sale, we are also evaluating strategic
alternatives for EquiCo. Both of these businesses are separate
reporting units within the Business Services segment.
These decisions triggered an interim review of the goodwill for
our RSM and EquiCo reporting units. The fair values of both
reporting units were reviewed based on expected sale prices in
the market compared to book value. As a result of that review,
we recorded a goodwill impairment of $85.4 million related
to our RSM reporting unit, leaving a remaining goodwill balance
of approximately $304.9 million. We have also recorded a
goodwill impairment of $14.3 million related to our EquiCo
reporting unit, leaving no remaining goodwill balance.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
As of
|
|
July 31, 2011
|
|
|
April 30, 2011
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
Tax Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
86,678
|
|
|
$
|
(43,031
|
)
|
|
$
|
43,647
|
|
|
$
|
87,624
|
|
|
$
|
(41,076
|
)
|
|
$
|
46,548
|
|
Noncompete agreements
|
|
|
23,451
|
|
|
|
(22,278
|
)
|
|
|
1,173
|
|
|
|
23,456
|
|
|
|
(22,059
|
)
|
|
|
1,397
|
|
Reacquired franchise rights
|
|
|
214,330
|
|
|
|
(10,991
|
)
|
|
|
203,339
|
|
|
|
214,330
|
|
|
|
(9,961
|
)
|
|
|
204,369
|
|
Franchise agreements
|
|
|
19,201
|
|
|
|
(3,414
|
)
|
|
|
15,787
|
|
|
|
19,201
|
|
|
|
(3,093
|
)
|
|
|
16,108
|
|
Purchased technology
|
|
|
14,700
|
|
|
|
(9,070
|
)
|
|
|
5,630
|
|
|
|
14,700
|
|
|
|
(8,505
|
)
|
|
|
6,195
|
|
Trade name
|
|
|
1,325
|
|
|
|
(650
|
)
|
|
|
675
|
|
|
|
1,325
|
|
|
|
(600
|
)
|
|
|
725
|
|
Business Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
147,208
|
|
|
|
(125,848
|
)
|
|
|
21,360
|
|
|
|
152,079
|
|
|
|
(128,738
|
)
|
|
|
23,341
|
|
Noncompete agreements
|
|
|
35,551
|
|
|
|
(25,101
|
)
|
|
|
10,450
|
|
|
|
35,818
|
|
|
|
(24,662
|
)
|
|
|
11,156
|
|
Attest firm affiliation
|
|
|
7,629
|
|
|
|
(424
|
)
|
|
|
7,205
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
608,310
|
|
|
$
|
(248,275
|
)
|
|
$
|
360,035
|
|
|
$
|
614,399
|
|
|
$
|
(246,480
|
)
|
|
$
|
367,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets for the three months ended
July 31, 2011 and 2010 was $7.7 and $6.9 million
respectively. Estimated amortization of intangible assets for
fiscal years 2012 through 2016 is $27.1 million,
$22.7 million, $19.2 million, $14.4 million and
$13.0 million, respectively.
12
In connection with a prior acquisition, we have 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
$5.3 million at July 31, 2011.
We file a consolidated federal income tax return in the United
States and file tax returns in various state and foreign
jurisdictions. The U.S. Federal consolidated tax returns
for the years 1999 through 2009 are currently under examination
by the Internal Revenue Service, with the
1999-2005 years
currently at the appellate level. Federal returns for tax years
prior to 1999 are closed by statute. Historically, tax returns
in various foreign and state jurisdictions are examined and
settled upon completion of the exam.
During the three months ended July 31, 2011, we reduced our
gross interest and penalties accrued by $3.1 million
related to our uncertain tax positions due to statute of
limitations expirations and settlements made with various taxing
authorities. We had gross unrecognized tax benefits of
$145.5 million and $154.8 million at July 31,
2011 and April 30, 2011, respectively. The gross
unrecognized tax benefits decreased $9.3 million net in the
current year, due to statute of limitations expirations and
settlements with taxing authorities, partially offset by
accruals of tax and interest on positions related to prior
years. Except as noted below, we have classified the liability
for unrecognized tax benefits, including corresponding accrued
interest, as long-term at July 31, 2011, and included this
amount in other noncurrent liabilities on the condensed
consolidated balance sheet.
Based upon the expiration of statutes of limitations, payments
of tax and other factors in several jurisdictions, we believe it
is reasonably possible that the gross amount of reserves for
previously unrecognized tax benefits may decrease by
$16.9 million within twelve months of July 31, 2011.
This portion of our liability for unrecognized tax benefits has
been classified as current and is included in accounts payable,
accrued expenses and other current liabilities on the condensed
consolidated balance sheets.
|
|
9.
|
Interest Income
and Expense
|
The following table shows the components of interest income and
expense of our continuing operations:
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
5,661
|
|
|
$
|
6,323
|
|
Other
|
|
|
4,772
|
|
|
|
3,979
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,433
|
|
|
$
|
10,302
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
21,494
|
|
|
$
|
20,643
|
|
Deposits
|
|
|
1,656
|
|
|
|
1,923
|
|
FHLB advances
|
|
|
151
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,301
|
|
|
$
|
22,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Regulatory
Requirements
|
HRB Bank files its regulatory Thrift Financial Report (TFR) on a
calendar quarter basis with the Office of Thrift Supervision
(OTS). In July 2011, as a result of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the Reform Act), the
responsibility and authority of the OTS moved to the Office of
the Comptroller of the Currency (OCC). HRB Bank will continue to
file TFR reports with the OCC through December 31, 2011.
Beginning March 31, 2012, HRB Bank will file Reports of
Condition and Income (Call Report) with the OCC quarterly.
13
The following table sets forth HRB Banks regulatory
capital requirements, as calculated in its TFR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
Capitalized
|
|
|
|
|
|
|
Under Prompt
|
|
|
|
|
For Capital
Adequacy
|
|
Corrective
|
|
|
Actual
|
|
Purposes
|
|
Action Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
As of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
(1)
|
|
$
|
411,062
|
|
|
94.5%
|
|
$
|
34,813
|
|
|
8.0%
|
|
$
|
43,516
|
|
|
10.0%
|
Tier 1 risk-based capital ratio
(2)
|
|
$
|
405,333
|
|
|
93.1%
|
|
|
N/A
|
|
|
N/A
|
|
$
|
26,110
|
|
|
6.0%
|
Tier 1 capital ratio (leverage)
(3)
|
|
$
|
405,333
|
|
|
35.0%
|
|
$
|
139,141
|
|
|
12.0%
|
|
$
|
57,975
|
|
|
5.0%
|
Tangible equity ratio
(4)
|
|
$
|
405,333
|
|
|
35.0%
|
|
$
|
17,393
|
|
|
1.5%
|
|
|
N/A
|
|
|
N/A
|
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
|
|
|
|
|
|
(1) |
|
Total
risk-based capital divided by risk-weighted assets.
|
(2) |
|
Tier 1
(core) capital less deduction for low-level recourse and
residual interest divided by risk-weighted assets.
|
(3) |
|
Tier 1
(core) capital divided by adjusted total assets.
|
(4) |
|
Tangible
capital divided by tangible assets.
|
As of July 31, 2011, HRB Banks leverage ratio was
35.3%.
|
|
11.
|
Commitments and
Contingencies
|
Changes in deferred revenue balances related to our Peace of
Mind (POM) program, the current portion of which is included in
accounts payable, accrued expenses and other current liabilities
and the long-term portion of which is included in other
noncurrent liabilities in the condensed consolidated balance
sheets, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Balance, beginning of period
|
|
$
|
140,603
|
|
|
$
|
141,542
|
|
Amounts deferred for new guarantees issued
|
|
|
553
|
|
|
|
654
|
|
Revenue recognized on previous deferrals
|
|
|
(27,181)
|
|
|
|
(28,547)
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
113,975
|
|
|
$
|
113,649
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to amounts accrued for our POM guarantee, we had
accrued $13.0 million and $14.7 million at
July 31, 2011 and April 30, 2011, respectively,
related to our standard guarantee which is included with our
standard tax preparation services.
The following table summarizes certain of our other contractual
obligations and commitments:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
As of
|
|
July 31,
2011
|
|
April 30,
2011
|
|
|
Franchise Equity Lines of Credit
undrawn
commitment
|
|
$
|
38,319
|
|
$
|
37,695
|
Media advertising purchase obligation
|
|
|
9,690
|
|
|
9,498
|
|
|
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 totaling $1.4 million and $3.8 million as of
July 31, 2011 and April 30, 2011, respectively. We
have recorded liabilities totaling $10.2 million and
$11.0 million as of July 31, 2011 and April 30,
2011, respectively, 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.
14
We routinely enter into contracts that include embedded
indemnifications that have characteristics similar to
guarantees. Guarantees and indemnifications of the Company and
its subsidiaries include obligations to protect counterparties
from losses arising from the following: (1) tax, legal and
other risks related to the purchase or disposition of
businesses; (2) penalties and interest assessed by federal
and state taxing authorities in connection with tax returns
prepared for clients; (3) indemnification of our directors
and officers; and (4) third-party claims relating to
various arrangements in the normal course of business.
Typically, there is no stated maximum payment related to these
indemnifications, and the terms of the indemnities may vary and
in many cases are limited only by the applicable statute of
limitations. The likelihood of any claims being asserted against
us and the ultimate liability related to any such claims, if
any, is difficult to predict. While we cannot provide assurance
we will ultimately prevail in the event any such claims are
asserted, we believe the fair value of guarantees and
indemnifications relating to our continuing operations is not
material as of July 31, 2011.
Variable Interests
We evaluated our financial interests in variable interest
entities (VIEs) as of July 31, 2011 and determined that
there have been no significant changes related to those
financial interests. As of July 31, 2011, we believe
RSMs maximum exposure to economic loss related to their
shared office space with McGladrey & Pullen, LLP from
operating leases under the administrative services agreement
totaled $95.2 million.
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.
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 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Fiscal Year
|
|
Fiscal Year 2010
|
|
Fiscal Year 2011
|
|
Fiscal Year 2012
|
|
|
|
|
|
2009
|
|
Q1
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|
Q2
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|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
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|
Q3
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|
Q4
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|
Q1
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|
Total
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|
Loan Origination Year:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$
|
62
|
|
$
|
-
|
|
$
|
15
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6
|
|
$
|
1
|
|
$
|
-
|
|
$
|
1
|
|
$
|
-
|
|
$
|
85
|
2006
|
|
|
217
|
|
|
2
|
|
|
57
|
|
|
4
|
|
|
45
|
|
|
100
|
|
|
15
|
|
|
29
|
|
|
50
|
|
|
29
|
|
|
548
|
2007
|
|
|
153
|
|
|
4
|
|
|
11
|
|
|
7
|
|
|
-
|
|
|
3
|
|
|
5
|
|
|
4
|
|
|
4
|
|
|
2
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
432
|
|
$
|
6
|
|
$
|
83
|
|
$
|
11
|
|
$
|
45
|
|
$
|
109
|
|
$
|
21
|
|
$
|
33
|
|
$
|
55
|
|
$
|
31
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 85% 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
15
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 July 31, 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 condensed consolidated balance sheets. The net
balance of all mortgage loans held for sale by SCC was
$11.9 million at July 31, 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 $66 million, which remained subject
to review as of July 31, 2011. Of the claims still subject
to review, approximately $52 million are from private-label
securitizations, and $14 million are from monoline
insurers. Approximately $8 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
July 31, 2011.
SCC has recorded a liability for estimated contingent losses
related to representation and warranty claims as of
July 31, 2011, of $125.8 million, which represents
SCCs best estimate of the probable loss that may occur.
During the prior 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.
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.
16
A rollforward of our liability for losses on repurchases for the
three months ended July 31, 2011 and 2010 is as follows:
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|
(in 000s)
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|
|
Three
Months Ended July 31,
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2011
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|
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2010
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|
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|
Balance at beginning of period:
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|
|
|
|
|
|
Amount related to repurchase and indemnifications
|
|
$
|
126,260
|
|
|
$
|
138,415
|
|
Amount related to indemnity agreement dated April 2008
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|
|
|
|
|
|
49,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,260
|
|
|
|
188,200
|
|
|
|
|
|
|
|
|
|
|
Changes:
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|
|
|
|
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
Losses on repurchase and indemnifications
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|
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(485)
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|
|
|
|
|
Payments under indemnity agreement dated April 2008
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|
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|
|
(70)
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|
|
|
|
|
|
|
|
Balance at end of period:
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|
|
|
|
|
|
|
|
Amount related to repurchase and indemnifications
|
|
|
125,775
|
|
|
|
138,415
|
|
Amount related to indemnity agreement dated April 2008
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|
|
|
|
|
|
49,715
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,775
|
|
|
$
|
188,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
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 $86.3 million and
$70.6 million at July 31, 2011 and April 30,
2011, 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.
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 SCCs mortgage business activities
that occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state and
federal regulators, municipalities, third party indemnitees,
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, rights to indemnification, 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 to increase. 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 be paid 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. To avoid the cost and
inherent risk associated with litigation, the parties have
reached an agreement to settle this case. The settlement
requires a cash payment from SCC to the Attorney General of
$9.8 million, in addition to certain loan modification
relief to Massachusetts borrowers estimated at $115 million
in benefits. The agreement also provides for a contingent cash
payment of up to $5 million in the event certain loan
17
modification relief is not available. We have a liability
recorded for our best estimate of the expected loss. 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.
On February 1, 2008, a class action lawsuit was filed in
the United States District Court for the District of
Massachusetts against SCC and other related entities styled
Cecil Barrett, et al. v. Option One Mortgage Corp., et
al. (Civil Action
No. 08-10157-RWZ).
Plaintiffs allege discriminatory practices relating to the
origination of mortgage loans in violation of the Fair Housing
Act and Equal Credit Opportunity Act, and seek declaratory and
injunctive relief in addition to actual and punitive damages.
The court dismissed H&R Block, Inc. from the lawsuit for
lack of personal jurisdiction. In March 2011, the court issued
an order certifying a class, which defendants sought to appeal.
On August 24, 2011, the First Circuit Court of Appeals
declined to hear the appeal, noting that the district court
could reconsider its certification decision in light of a recent
ruling by the United States Supreme Court in an unrelated
matter. 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
believe we have meritorious defenses to the claims in this case
and intend to defend the case vigorously, but there can be no
assurances as to its outcome or its impact on our consolidated
results of operations.
On December 9, 2009, a putative class action lawsuit was
filed in the United States District Court for the Central
District of California against SCC and H&R Block, Inc.
styled Jeanne Drake, et al. v. Option One Mortgage
Corp., et al. (Case
No. SACV09-1450
CJC). Plaintiffs allege breach of contract, promissory fraud,
intentional interference with contractual relations, wrongful
withholding of wages and unfair business practices in connection
with the failure to pay severance benefits to employees when
their employment transitioned to American Home Mortgage
Servicing, Inc. in connection with the sale of certain assets
and operations of Option One. Plaintiffs seek to recover
severance benefits of approximately $8 million, interest
and attorneys fees, in addition to penalties and punitive
damages on certain claims. Plaintiffs motion for class
certification is pending. All parties have filed motions for
summary judgment. The court has set a hearing on all pending
motions on August 29, 2011. 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 we have
meritorious defenses to the claims in this case and intend to
defend the case vigorously, but there can be no assurances as to
its outcome 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.
Employment-Related
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 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-
18
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); in the
Williams case in March 2011 (consisting of office
managers who worked in company-owned offices in California from
2004 to 2011); and in the Ugas case in August 2011
(consisting of tax professionals who worked in company-owned
offices in California from 2006 to 2011). A conditional class
was certified in the Petroski case in March 2011
(consisting of tax professionals nationwide who worked in
company-owned offices and 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.
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.
19
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
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 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 reached an
agreement to settle the case, subject to approval by the
California Superior Court. The settlement requires a maximum
payment of $41.5 million, although the actual cost of the
settlement will depend on the number of valid claims submitted
by class members. The California Superior Court preliminarily
approved the settlement on July 29, 2011. A final approval
hearing is set for October 20, 2011. 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 a
liability recorded 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. No claims remain against H&R Block.
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.
Other
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 (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. A preliminary injunction
hearing is set to occur in September 2011. 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
20
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.
Results of our continuing operations by reportable operating
segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
91,425
|
|
|
$
|
91,645
|
|
Business Services
|
|
|
167,263
|
|
|
|
174,710
|
|
Corporate
|
|
|
8,946
|
|
|
|
8,119
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267,634
|
|
|
$
|
274,474
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
(169,483)
|
|
|
$
|
(174,624)
|
|
Business Services
|
|
|
(92,541)
|
|
|
|
(433)
|
|
Corporate
|
|
|
(31,118)
|
|
|
|
(32,260)
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
$
|
(293,142)
|
|
|
$
|
(207,317)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Accounting
Pronouncements
|
In June 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update
2011-05,
Comprehensive Income (Topic 220): Statement of
Comprehensive Income. Under the amendments in this
guidance, an entity has the option to present the total of
comprehensive income, the components of net income, and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. This guidance eliminates the option
to present the components of other comprehensive income as part
of the statement of changes in stockholders equity. The
amendments in this guidance do not change the items that must be
reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. These
amendments are effective for fiscal years beginning after
December 15, 2011. Early adoption is permitted. We elected
to adopt this guidance as of May 1, 2011, and it did not
have an effect on our presentation of comprehensive income in
our condensed consolidated financial statements.
In April 2011, the 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. We adopted this guidance as of
May 1, 2011. We did not identify any new TDRs attributable
to this new guidance and it did not have a material effect on
our condensed 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
21
significantly expands required disclosures related to a
vendors new multiple-deliverable revenue arrangements. We
adopted this guidance as of May 1, 2011 and it did not have
a material effect on our condensed 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 carrying amount. We adopted this
guidance as of May 1, 2011 and it did not have a material
effect on our condensed consolidated financial statements.
In December 2010, the FASB issued Accounting Standards Update
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations. The amendments in this guidance specify that
if a public entity presents comparative financial statements,
the entity would disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred
during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. Additionally,
disclosures should be accompanied by a narrative description
about the nature and amount of material, nonrecurring pro forma
adjustments. We adopted this guidance as of May 1, 2011 and
it did not have a material effect on our condensed consolidated
financial statements.
|
|
15.
|
Condensed
Consolidating Financial Statements
|
Block Financial LLC (BFC) is an indirect, wholly-owned
consolidated subsidiary of the Company. BFC is the Issuer and
the Company is the Guarantor of the Senior Notes issued on
January 11, 2008 and October 26, 2004, our 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 Statements of Operations
|
|
|
|
|
|
|
|
(in 000s)
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
BFC
|
|
Other
|
|
|
|
Consolidated
|
July 31, 2011
|
|
(Guarantor)
|
|
(Issuer)
|
|
Subsidiaries
|
|
Elims
|
|
H&R Block
|
|
|
Total revenues
|
|
$
|
|
|
$
|
21,773
|
|
$
|
245,861
|
|
$
|
|
|
$
|
267,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
37,662
|
|
|
319,338
|
|
|
|
|
|
357,000
|
Selling, general and administrative
|
|
|
|
|
|
7,895
|
|
|
199,968
|
|
|
|
|
|
207,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
45,557
|
|
|
519,306
|
|
|
|
|
|
564,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
(23,784)
|
|
|
(273,445)
|
|
|
|
|
|
(297,229)
|
Other income (expense), net
|
|
|
(293,142)
|
|
|
3,281
|
|
|
806
|
|
|
293,142
|
|
|
4,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
|
(293,142)
|
|
|
(20,503)
|
|
|
(272,639)
|
|
|
293,142
|
|
|
(293,142)
|
Income tax benefit
|
|
|
(119,699)
|
|
|
(1,850)
|
|
|
(117,849)
|
|
|
119,699
|
|
|
(119,699)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(173,443)
|
|
|
(18,653)
|
|
|
(154,790)
|
|
|
173,443
|
|
|
(173,443)
|
Net loss from discontinued operations
|
|
|
(1,655)
|
|
|
(1,637)
|
|
|
(18)
|
|
|
1,655
|
|
|
(1,655)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(175,098)
|
|
$
|
(20,290)
|
|
$
|
(154,808)
|
|
$
|
175,098
|
|
$
|
(175,098)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2010
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
21,000
|
|
|
$
|
253,474
|
|
|
$
|
|
|
|
$
|
274,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
39,028
|
|
|
|
328,988
|
|
|
|
|
|
|
|
368,016
|
|
Selling, general and administrative
|
|
|
|
|
|
|
2,090
|
|
|
|
114,939
|
|
|
|
|
|
|
|
117,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
41,118
|
|
|
|
443,927
|
|
|
|
|
|
|
|
485,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
|
(20,118
|
)
|
|
|
(190,453
|
)
|
|
|
|
|
|
|
(210,571
|
)
|
Other income (expense), net
|
|
|
(207,317
|
)
|
|
|
382
|
|
|
|
2,872
|
|
|
|
207,317
|
|
|
|
3,254
|
|
Loss from continuing operations before tax benefit
|
|
|
(207,317
|
)
|
|
|
(19,736
|
)
|
|
|
(187,581
|
)
|
|
|
207,317
|
|
|
|
(207,317
|
)
|
Income tax benefit
|
|
|
(79,679
|
)
|
|
|
(7,841
|
)
|
|
|
(71,838
|
)
|
|
|
79,679
|
|
|
|
(79,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(127,638
|
)
|
|
|
(11,895
|
)
|
|
|
(115,743
|
)
|
|
|
127,638
|
|
|
|
(127,638
|
)
|
Net loss from discontinued operations
|
|
|
(3,043
|
)
|
|
|
(3,004
|
)
|
|
|
(39
|
)
|
|
|
3,043
|
|
|
|
(3,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(130,681
|
)
|
|
$
|
(14,899
|
)
|
|
$
|
(115,782
|
)
|
|
$
|
130,681
|
|
|
$
|
(130,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31,
2011
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R
Block
|
|
|
|
|
Cash & cash equivalents
|
|
$
|
|
|
|
$
|
413,141
|
|
|
$
|
599,595
|
|
|
$
|
(27
|
)
|
|
$
|
1,012,709
|
|
Cash & cash equivalents restricted
|
|
|
|
|
|
|
849
|
|
|
|
43,553
|
|
|
|
|
|
|
|
44,402
|
|
Receivables, net
|
|
|
|
|
|
|
224,573
|
|
|
|
104,815
|
|
|
|
|
|
|
|
329,388
|
|
Mortgage loans held for investment
|
|
|
|
|
|
|
466,663
|
|
|
|
|
|
|
|
|
|
|
|
466,663
|
|
Intangible assets and goodwill, net
|
|
|
|
|
|
|
|
|
|
|
1,102,646
|
|
|
|
|
|
|
|
1,102,646
|
|
Investments in subsidiaries
|
|
|
2,478,748
|
|
|
|
|
|
|
|
94
|
|
|
|
(2,478,748
|
)
|
|
|
94
|
|
Other assets
|
|
|
12,474
|
|
|
|
299,379
|
|
|
|
1,040,297
|
|
|
|
|
|
|
|
1,352,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,491,222
|
|
|
$
|
1,404,605
|
|
|
$
|
2,891,000
|
|
|
$
|
(2,478,775
|
)
|
|
$
|
4,308,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
|
|
|
$
|
666,295
|
|
|
$
|
|
|
|
$
|
(27
|
)
|
|
$
|
666,268
|
|
Long-term debt
|
|
|
|
|
|
|
999,055
|
|
|
|
20,376
|
|
|
|
|
|
|
|
1,019,431
|
|
FHLB borrowings
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Other liabilities
|
|
|
214
|
|
|
|
(132,742
|
)
|
|
|
1,496,004
|
|
|
|
|
|
|
|
1,363,476
|
|
Net intercompany advances
|
|
|
1,257,131
|
|
|
|
40,201
|
|
|
|
(1,297,332
|
)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,233,877
|
|
|
|
(193,204
|
)
|
|
|
2,671,952
|
|
|
|
(2,478,748
|
)
|
|
|
1,233,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,491,222
|
|
|
$
|
1,404,605
|
|
|
$
|
2,891,000
|
|
|
$
|
(2,478,775
|
)
|
|
$
|
4,308,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
(in 000s)
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
BFC
|
|
Other
|
|
|
|
Consolidated
|
July 31, 2011
|
|
(Guarantor)
|
|
(Issuer)
|
|
Subsidiaries
|
|
Elims
|
|
H&R Block
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
2,048
|
|
$
|
(22,900)
|
|
$
|
(373,697)
|
|
$
|
|
|
$
|
(394,549)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
|
|
|
(39,275)
|
|
|
|
|
|
|
|
|
(39,275)
|
Mortgage loans originated for investment, net
|
|
|
|
|
|
11,192
|
|
|
|
|
|
|
|
|
11,192
|
Purchase property & equipment
|
|
|
|
|
|
(54)
|
|
|
(10,899)
|
|
|
|
|
|
(10,953)
|
Payments made for business acquisitions, net
|
|
|
|
|
|
|
|
|
(3,457)
|
|
|
|
|
|
(3,457)
|
Proceeds from sale of businesses, net
|
|
|
|
|
|
|
|
|
21,230
|
|
|
|
|
|
21,230
|
Loans made to franchisees
|
|
|
|
|
|
(16,477)
|
|
|
|
|
|
|
|
|
(16,477)
|
Repayments from franchisees
|
|
|
|
|
|
5,320
|
|
|
|
|
|
|
|
|
5,320
|
Net intercompany advances
|
|
|
44,084
|
|
|
|
|
|
|
|
|
(44,084)
|
|
|
|
Other, net
|
|
|
|
|
|
12,031
|
|
|
6,136
|
|
|
|
|
|
18,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
44,084
|
|
|
(27,263)
|
|
|
13,010
|
|
|
(44,084)
|
|
|
(14,253)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer banking deposits
|
|
|
|
|
|
(186,268)
|
|
|
|
|
|
23
|
|
|
(186,245)
|
Dividends paid
|
|
|
(45,894)
|
|
|
|
|
|
|
|
|
|
|
|
(45,894)
|
Repurchase of common stock
|
|
|
(2,002)
|
|
|
|
|
|
|
|
|
|
|
|
(2,002)
|
Proceeds from exercise of stock options
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
1,762
|
Net intercompany advances
|
|
|
|
|
|
33,312
|
|
|
(77,396)
|
|
|
44,084
|
|
|
|
Other, net
|
|
|
2
|
|
|
22
|
|
|
(24,940)
|
|
|
|
|
|
(24,916)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(46,132)
|
|
|
(152,934)
|
|
|
(102,336)
|
|
|
44,107
|
|
|
(257,295)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
(203,097)
|
|
|
(462,061)
|
|
|
23
|
|
|
(665,135)
|
Cash beginning of period
|
|
|
|
|
|
616,238
|
|
|
1,061,656
|
|
|
(50)
|
|
|
1,677,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
end of period
|
|
$
|
|
|
$
|
413,141
|
|
$
|
599,595
|
|
$
|
(27)
|
|
$
|
1,012,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
July 31, 2010
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
22,849
|
|
|
$
|
(43,301
|
)
|
|
$
|
(327,799
|
)
|
|
$
|
|
|
|
$
|
(348,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for investment, net
|
|
|
|
|
|
|
17,618
|
|
|
|
|
|
|
|
|
|
|
|
17,618
|
|
Purchase property & equipment
|
|
|
|
|
|
|
|
|
|
|
(8,634
|
)
|
|
|
|
|
|
|
(8,634
|
)
|
Payments made for business acquisitions, net
|
|
|
|
|
|
|
|
|
|
|
(33,226
|
)
|
|
|
|
|
|
|
(33,226
|
)
|
Proceeds from sale of businesses, net
|
|
|
|
|
|
|
|
|
|
|
26,387
|
|
|
|
|
|
|
|
26,387
|
|
Loans made to franchisees
|
|
|
|
|
|
|
(33,720
|
)
|
|
|
|
|
|
|
|
|
|
|
(33,720
|
)
|
Repayments from franchisees
|
|
|
|
|
|
|
6,724
|
|
|
|
|
|
|
|
|
|
|
|
6,724
|
|
Net intercompany advances
|
|
|
188,324
|
|
|
|
|
|
|
|
|
|
|
|
(188,324
|
)
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
40,668
|
|
|
|
(21,820
|
)
|
|
|
|
|
|
|
18,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
188,324
|
|
|
|
31,290
|
|
|
|
(37,293
|
)
|
|
|
(188,324
|
)
|
|
|
(6,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer banking deposits
|
|
|
|
|
|
|
(121,166
|
)
|
|
|
|
|
|
|
(235
|
)
|
|
|
(121,401
|
)
|
Dividends paid
|
|
|
(48,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,692
|
)
|
Repurchase of common stock
|
|
|
(164,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,369
|
)
|
Proceeds from exercise of stock options
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Net intercompany advances
|
|
|
|
|
|
|
35,507
|
|
|
|
(223,831
|
)
|
|
|
188,324
|
|
|
|
|
|
Other, net
|
|
|
388
|
|
|
|
176
|
|
|
|
(16,551
|
)
|
|
|
|
|
|
|
(15,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(211,173
|
)
|
|
|
(85,483
|
)
|
|
|
(240,382
|
)
|
|
|
188,089
|
|
|
|
(348,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
|
(97,494
|
)
|
|
|
(607,706
|
)
|
|
|
(235
|
)
|
|
|
(705,435
|
)
|
Cash
beginning of
period
|
|
|
|
|
|
|
702,021
|
|
|
|
1,102,135
|
|
|
|
(111
|
)
|
|
|
1,804,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
end of period
|
|
$
|
|
|
|
$
|
604,527
|
|
|
$
|
494,429
|
|
|
$
|
(346
|
)
|
|
$
|
1,098,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
ITEM 2. |
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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.
RECENT
EVENTS
In August 2011, we signed a non-binding letter of intent to sell
substantially all assets of RSM McGladrey Business Services, Inc
(RSM) to McGladrey & Pullen LLP (M&P) and began
an evaluation of strategic alternatives for RSM EquiCo, Inc.
(EquiCo). The RSM sale is dependent on, among other factors, the
ability of M&P to raise financing for the purchase. We
recorded a $99.7 million impairment of goodwill in the
first quarter for reporting units in our Business Services
segment based on these events. This loss was offset partially by
the sale of an ancillary business within the Business Services
segment during the quarter which resulted in a $9.9 million
gain. On an after-tax basis, the net result of these events is a
charge of $53.2 million, or $0.17 per share. These amounts
related to the sale of RSM may fluctuate based on adjustments to
the purchase price at closing as well as the additional
realization of tax benefits related to the sale. M&P will
also assume substantially all liabilities, including contingent
payments and lease obligations. See discussion in notes 2
and 7 to the condensed consolidated financial statements and in
the Business Services segment results below.
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 H&R Block
Bank (HRB Bank) that primarily support the tax network, refund
anticipation checks, our prior participations in refund
anticipation loans, and our commercial tax business, which
provides tax preparation software to CPAs and other tax
preparers.
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Tax preparation fees
|
|
$
|
34,921
|
|
|
$
|
34,545
|
|
Fees from Peace of Mind guarantees
|
|
|
27,181
|
|
|
|
28,547
|
|
Fees from Emerald Card activities
|
|
|
11,241
|
|
|
|
10,575
|
|
Royalties
|
|
|
5,703
|
|
|
|
5,605
|
|
Other
|
|
|
12,379
|
|
|
|
12,373
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
91,425
|
|
|
|
91,645
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits:
|
|
|
|
|
|
|
|
|
Field wages
|
|
|
36,847
|
|
|
|
39,249
|
|
Corporate wages
|
|
|
33,055
|
|
|
|
35,800
|
|
Benefits and other compensation
|
|
|
17,489
|
|
|
|
34,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,391
|
|
|
|
109,353
|
|
Occupancy and equipment
|
|
|
83,337
|
|
|
|
82,624
|
|
Depreciation and amortization
|
|
|
21,450
|
|
|
|
22,395
|
|
Marketing and advertising
|
|
|
6,721
|
|
|
|
8,413
|
|
Other
|
|
|
62,009
|
|
|
|
43,484
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
260,908
|
|
|
|
266,269
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(169,483
|
)
|
|
$
|
(174,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended July 31, 2011 compared to July 31,
2010
Tax Services revenues were essentially flat compared to
the prior year, as declines in U.S. tax returns prepared
were offset by an increase in international tax returns due to
the extended filing season in Canada.
Total expenses decreased $5.4 million, or 2.0%, for the
three months ended July 31, 2011. Compensation and benefits
decreased $22.0 million, or 20.1%, primarily due to
severance costs recorded in the prior year. Other expenses
increased $18.5 million, or 42.6%, primarily due to
incremental legal charges recorded in the current year.
26
The pretax loss for the three months ended July 31, 2011
and 2010 was $169.5 million and $174.6 million,
respectively.
BUSINESS
SERVICES
This segment consists of RSM McGladrey, Inc., a national firm
offering tax, consulting and accounting services and capital
market services to middle-market companies.
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Tax services
|
|
$
|
88,329
|
|
|
$
|
81,331
|
|
Business consulting
|
|
|
58,111
|
|
|
|
61,678
|
|
Accounting services
|
|
|
3,675
|
|
|
|
10,842
|
|
Capital markets
|
|
|
3,072
|
|
|
|
2,390
|
|
Reimbursed expenses
|
|
|
2,914
|
|
|
|
6,331
|
|
Other
|
|
|
11,162
|
|
|
|
12,138
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
167,263
|
|
|
|
174,710
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
126,245
|
|
|
|
127,113
|
|
Occupancy
|
|
|
10,719
|
|
|
|
11,930
|
|
Amortization of intangible assets
|
|
|
2,630
|
|
|
|
2,836
|
|
Impairment of goodwill
|
|
|
99,697
|
|
|
|
|
|
Other
|
|
|
20,513
|
|
|
|
33,264
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
259,804
|
|
|
|
175,143
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(92,541
|
)
|
|
$
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended July 31, 2011 compared to July 31,
2010
Business Services revenues for the three months ended
July 31, 2011 decreased $7.4 million, or 4.3% from the
prior year. Tax services revenues increased primarily as a
result of the acquisition of Caturano & Company, Inc.
Accounting services revenues declined $7.2 million, or
66.1%, primarily due to the sale of an ancillary business during
the current quarter.
Total expenses increased $84.7 million, or 48.3%, from the
prior year. During the quarter, we recorded goodwill impairments
of $85.4 million and $14.3 million in our RSM and
EquiCo reporting units, respectively, as discussed in
notes 2 and 7 to the condensed consolidated financial
statements. This loss was offset partially by the sale of an
ancillary business during the quarter which resulted in a
$9.9 million gain. On an after-tax basis, the net result of
these events is a charge of $53.2 million, or $0.17 per
share.
The pretax loss for the three months ended July 31, 2011
was $92.5 million compared to $0.4 million in the
prior year.
CORPORATE,
ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
Corporate operating losses include interest income from
U.S. passive investments, interest expense on borrowings,
net interest margin and gains or losses relating to mortgage
loans held for investment, real estate owned, residual interests
in securitizations and other corporate expenses.
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operating Results
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended July 31,
|
|
2011
|
|
|
2010
|
|
|
|
|
Interest income on mortgage loans held for investment, net
|
|
$
|
5,661
|
|
|
$
|
6,323
|
|
Other
|
|
|
3,285
|
|
|
|
1,796
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,946
|
|
|
|
8,119
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
21,018
|
|
|
|
20,788
|
|
Compensation and benefits
|
|
|
6,765
|
|
|
|
5,071
|
|
Provision for loan losses
|
|
|
5,625
|
|
|
|
8,000
|
|
Other
|
|
|
6,656
|
|
|
|
6,520
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
40,064
|
|
|
|
40,379
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(31,118
|
)
|
|
$
|
(32,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended July 31, 2011 compared to July 31,
2010
Results of our corporate operations were essentially flat
compared to the prior year.
27
Income
Taxes
Our effective tax rate for continuing operations was 40.8% and
38.4% for the three months ended July 31, 2011 and 2010,
respectively. This increase resulted from losses in our
investments in company-owned life insurance assets for which we
do not receive a tax benefit, and an increase in the state
effective tax rate. This increase was partially offset by a
decrease in our reserve for uncertain tax positions.
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 $1.7 million and $3.0 million for the three
months ended July 31, 2011 and 2010, 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 resulting from a
liquidation of loan collateral.
SCC has recorded a liability for estimated contingent losses
related to representation and warranty claims as of
July 31, 2011, of $125.8 million, which represents
SCCs best estimate of the probable loss that may occur.
Losses on valid claims totaled $0.5 million and
$0.1 million for the three months ended July 31, 2011
and 2010, respectively. These amounts were recorded as
reductions of our loan repurchase liability.
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 note 11 to the condensed
consolidated financial statements.
FINANCIAL
CONDITION
These comments should be read in conjunction with the condensed
consolidated balance sheets and condensed consolidated
statements of cash flows found on pages 1 and 3, respectively.
CAPITAL RESOURCES
AND
LIQUIDITY
Our sources of capital include cash from operations, cash
from customer deposits, issuances of common stock and debt. We
use capital primarily to fund working capital, pay dividends,
repurchase shares of common stock and acquire businesses. Our
operations are highly seasonal and therefore generally require
the use of cash to fund operating losses during the period May
through mid-January.
Given the likely availability of a number of liquidity options
discussed herein, including borrowing capacity under our
unsecured committed lines of credit (CLOCs), we believe, that in
the absence of any unexpected developments, our existing sources
of capital at July 31, 2011 are sufficient to meet our
operating needs.
CASH FROM
OPERATING
ACTIVITIES
Cash used in operations totaled $394.5 million for
the first three months of fiscal year 2012, compared with
$348.3 million for the same period last year.
CASH FROM
INVESTING
ACTIVITIES
Cash used in investing activities totaled
$14.3 million for the first three months of fiscal year
2012, compared to $6.0 million in the same period last year.
Purchases of
Available-for-Sale
Securities. During
the three months ended July 31, 2011, HRB Bank purchased
$39.3 million in mortgage-backed securities. No such
purchases were made in the first quarter of the prior year.
Mortgage Loans
Held for
Investment. We
received net payments of $11.2 million and
$17.6 million on our mortgage loans held for investment for
the first three months of fiscal years 2012 and 2011,
respectively. Cash payments declined primarily due to
non-performing loans and continued run-off of our portfolio.
28
Purchases of
Property and
Equipment. Total
cash paid for property and equipment was $11.0 million and
$8.6 million for the first three months of fiscal years
2012 and 2011, respectively.
Business
Acquisitions. Total
cash paid for acquisitions was $3.5 million and
$33.2 million during the three months ended July 31,
2011 and 2010, respectively. In July 2010 our Business Services
segment acquired a Boston-based accounting firm, and cash used
in investing activities includes payments totaling
$32.6 million related to this acquisition.
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 (DOJ) filed a civil antitrust lawsuit to
block our proposed acquisition of 2SS, and a preliminary hearing
on this matter has been set for September 6, 2011. There
are no assurances that the DOJs lawsuit will be resolved
in our favor or that the transaction will be consummated.
Sales of
Businesses. Proceeds
from the sales of businesses totaled $21.2 million and
$26.4 million for the three months ended July 31, 2011
and 2010, respectively. During the first quarter of fiscal year
2012, our Business Services segment sold one of their ancillary
businesses for $20.3 million. During the first three months
of fiscal year 2011, we sold 127 tax offices to franchisees. The
majority of these sales were financed through affiliate loans.
Loans Made to
Franchisees. Loans
made to franchisees totaled $16.5 million and
$33.7 million for the three months ended July 31, 2011
and 2010, respectively. These amounts included both the
financing of sales of tax offices and franchisee draws under our
Franchise Equity Lines of Credit (FELCs).
CASH FROM
FINANCING
ACTIVITIES
Cash used in financing activities totaled
$257.3 million for the first three months of fiscal year
2012, compared to $348.9 million in the same period last
year.
Customer Banking
Deposits. Customer
banking deposits declined $186.2 million for the three
months ended July 31, 2011 compared to $121.4 million
in the prior year due to seasonal fluctuations in prepaid debit
card deposits.
Dividends. We
have consistently paid quarterly dividends. Dividends paid
totaled $45.9 million and $48.7 million for the three
months ended July 31, 2011 and 2010, respectively.
Repurchase and
Retirement of Common
Stock. During
the prior year, we purchased and immediately retired
15.5 million shares of our common stock at a cost of
$235.7 million. Cash payments of $161.0 million were
made during the three months ended July 31, 2010 for the
share purchases with settlement of the remaining
$74.7 million occurring in August 2010. We expect to
continue to repurchase and retire common stock or retire
treasury stock in the future.
Issuances of
Common
Stock. Proceeds
from the issuance of common stock totaled $1.8 million for
the three months ended July 31, 2011 compared to
$1.5 million in the prior year, and is related to stock
option exercises and the related tax benefits.
BORROWINGS
The following chart provides the debt ratings for Block
Financial LLC (BFC) as of July 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
|
|
|
|
|
Moodys
|
|
|
P-2
|
|
|
|
Baa2
|
|
|
|
Negative(1
|
)
|
|
|
|
|
S&P
|
|
|
A-2
|
|
|
|
BBB
|
|
|
|
Negative
|
|
|
|
|
|
DBRS
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Stable
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In
August 2011, the outlook was changed to Stable.
|
At July 31, 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 the
new facility are substantially similar to those in the previous
CLOCs including: (1) maintenance of a minimum net worth of
$650.0 million on the last day of any fiscal quarter; and
(2) reduction of the aggregate outstanding principal amount
of short-term debt, as defined in the agreement, to
$200.0 million or less for thirty consecutive days during
the period March 1 to June
29
30 of each year (Clean-down requirement). At
July 31, 2011, we were in compliance with these covenants
and had net worth of $1.2 billion. We had no balance
outstanding under the CLOCs at July 31, 2011.
There have been no material changes in our borrowings or debt
ratings from those reported at April 30, 2011 in our Annual
Report on
Form 10-K.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual
obligations and commercial commitments from those reported at
April 30, 2011 in our Annual Report on
Form 10-K.
REGULATORY
ENVIRONMENT
There have been no material changes in our regulatory
environment from those reported at April 30, 2011 in our
Annual Report on
Form 10-K.
FORWARD-LOOKING
INFORMATION
This report and other documents filed with the Securities and
Exchange Commission (SEC) may contain forward-looking
statements. In addition, our senior management may make
forward-looking statements orally to analysts, investors, the
media and others. Forward-looking statements can be identified
by the fact that they do not relate strictly to historical or
current facts. They often include words such as
expects, anticipates,
intends, plans, believes,
seeks, estimates, will,
would, should, could or
may. Forward-looking statements provide
managements current expectations or predictions of future
conditions, events or results. They may include projections of
revenues, income, earnings per share, capital expenditures,
dividends, liquidity, capital structure or other financial
items, descriptions of managements plans or objectives for
future operations, products or services, or descriptions of
assumptions underlying any of the above. They are not guarantees
of future performance. By their nature, forward-looking
statements are subject to risks and uncertainties. These
statements speak only as of the date made and management does
not undertake to update them to reflect changes or events
occurring after that date except as required by federal
securities laws.
There have been no material changes in our market risks from
those reported at April 30, 2011 in our Annual Report on
Form 10-K.
ITEM 4. CONTROLS
AND PROCEDURES
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this
Form 10-Q,
we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e)
and
15d-15(e)).
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 that our disclosure controls and procedures were
effective as of the end of the period covered by this Quarterly
Report on
Form 10-Q.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes that materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
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 SCCs mortgage business activities
that occurred prior to such termination and sale. These
investigations, claims and
30
lawsuits include actions by state and federal regulators,
municipalities, third party indemnitees, 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, rights to indemnification, 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 to increase. 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 be
paid 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. To avoid the cost and
inherent risk associated with litigation, the parties have
reached an agreement to settle this case. The settlement
requires a cash payment from SCC to the Attorney General of
$9.8 million, in addition to certain loan modification
relief to Massachusetts borrowers estimated at $115 million
in benefits. The agreement also provides for a contingent cash
payment of up to $5 million in the event certain loan
modification relief is not available. We have a liability
recorded for our best estimate of the expected loss. 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.
On February 1, 2008, a class action lawsuit was filed in
the United States District Court for the District of
Massachusetts against SCC and other related entities styled
Cecil Barrett, et al. v. Option One Mortgage Corp., et
al. (Civil Action
No. 08-10157-RWZ).
Plaintiffs allege discriminatory practices relating to the
origination of mortgage loans in violation of the Fair Housing
Act and Equal Credit Opportunity Act, and seek declaratory and
injunctive relief in addition to actual and punitive damages.
The court dismissed H&R Block, Inc. from the lawsuit for
lack of personal jurisdiction. In March 2011, the court issued
an order certifying a class, which defendants sought to appeal.
On August 24, 2011, the First Circuit Court of Appeals
declined to hear the appeal, noting that the district court
could reconsider its certification decision in light of a recent
ruling by the United States Supreme Court in an unrelated
matter. 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
believe we have meritorious defenses to the claims in this case
and intend to defend the case vigorously, but there can be no
assurances as to its outcome or its impact on our consolidated
results of operations.
On December 9, 2009, a putative class action lawsuit was
filed in the United States District Court for the Central
District of California against SCC and H&R Block, Inc.
styled Jeanne Drake, et al. v. Option One Mortgage
Corp., et al. (Case
No. SACV09-1450
CJC). Plaintiffs allege breach of contract, promissory fraud,
intentional interference with contractual relations, wrongful
withholding of wages and unfair business practices in connection
with the failure to pay severance benefits to employees when
their employment transitioned to American Home Mortgage
Servicing, Inc. in connection with the sale of certain assets
and operations of Option One. Plaintiffs seek to recover
severance benefits of approximately $8 million, interest
and attorneys fees, in addition to penalties and punitive
damages on certain claims. Plaintiffs motion for class
certification is pending. All parties have filed motions for
summary judgment. The court has set a hearing on all pending
motions on August 29, 2011. 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 we have
meritorious defenses to the claims in this case and intend to
defend the case vigorously, but there can be no assurances as to
its outcome or its impact on our consolidated results of
operations.
31
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.
Employment-Related
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 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); in the Williams case in
March 2011 (consisting of office managers who worked in
company-owned offices in California from 2004 to 2011); and in
the Ugas case in August 2011 (consisting of tax
professionals who worked in company-owned offices in California
from 2006 to 2011). A conditional class was certified in the
Petroski case in March 2011 (consisting of tax
professionals nationwide who worked in company-owned offices and
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.
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
32
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
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 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 reached an
agreement to settle the case, subject to approval by the
California Superior Court. The settlement requires a maximum
payment of $41.5 million, although the actual cost of the
settlement will depend on the number of valid claims submitted
by class members. The California Superior Court preliminarily
approved the settlement on July 29, 2011. A final approval
hearing is set for October 20, 2011. 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 a
liability recorded 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. No claims remain against H&R Block.
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
33
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.
Other
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 (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. A preliminary injunction
hearing is set to occur in September 2011. 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.
ITEM 1A. RISK
FACTORS
There have been no material changes in our risk factors from
those reported at April 30, 2011 in our Annual Report on
Form 10-K.
A summary of our purchases of H&R Block common stock during
the first quarter of fiscal year 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
Total Number of
Shares
|
|
Maximum $Value
|
|
|
Total
|
|
Average
|
|
Purchased as Part
of
|
|
of Shares that
May
|
|
|
Number of Shares
|
|
Price Paid
|
|
Publicly
Announced
|
|
Be Purchased
Under
|
|
|
Purchased(1)
|
|
per
Share
|
|
Plans
or
Programs(2)
|
|
the
Plans or Programs
|
|
|
May 1 May 31
|
|
|
2
|
|
$
|
17.16
|
|
|
|
|
$
|
1,371,957
|
June 1 June 30
|
|
|
14
|
|
$
|
17.23
|
|
|
|
|
$
|
1,371,957
|
July 1 July 31
|
|
|
106
|
|
$
|
16.31
|
|
|
|
|
$
|
1,371,957
|
|
|
|
|
|
(1) |
|
We
purchased the above shares in connection with the funding of
employee income tax withholding obligations arising upon the
exercise of stock options or the lapse of restrictions on
nonvested shares.
|
|
(2) |
|
In
June 2008, our Board of Directors rescinded 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.
|
34
|
|
|
|
|
|
10
|
.1*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Restricted Shares.
|
|
10
|
.2*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Stock Options.
|
|
10
|
.3*
|
|
Form of 2003 Long-Term Executive Compensation Plan Award
Agreement for Performance Shares.
|
|
10
|
.4*
|
|
Grant Agreement between H&R Block, Inc. and William C. Cobb
in connection with award of Restricted Shares as of May 2, 2011.
|
|
10
|
.5*
|
|
Grant Agreement between H&R Block, Inc. and William C. Cobb
in connection with award of Stock Options as of May 2, 2011.
|
|
10
|
.6
|
|
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,
filed as Exhibit 10.34 to the companys annual report on
Form 10-K for the fiscal year ended April 30, 2011, file number
1-6089, is incorporated herein by reference.
|
|
31
|
.1
|
|
Certification by Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification by Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification by Chief Executive Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification by Chief Financial Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101
|
.CAL
|
|
XBRL Extension Calculation Linkbase
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
101
|
.REF
|
|
XBRL Taxonomy Extension Reference Linkbase
|
|
|
|
|
|
*
|
|
Indicates
management contracts, compensatory plans or arrangements.
|
35
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
H&R BLOCK,
INC.
William
C. Cobb
President
and Chief Executive Officer
September 1,
2011
Jeffrey
T. Brown
Senior
Vice President and
Chief
Financial Officer
September 1,
2011
Colby
R. Brown
Vice
President and
Corporate
Controller
September 1,
2011
36
exv10w1
Exhibit 10.1
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and [Participant Name] (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan);
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of [Grant Date], wherein Participant agrees to abide by
certain terms and conditions authorized by the Compensation Committee of the Board of Directors;
WHEREAS, the Participant has been selected by the Compensation Committee or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of the Company and is
eligible to receive Awards under the Plan.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this
Grant Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Agreement or an Award Certificate issued
under the Plan, the following words and phrases shall have the meanings set forth below unless the
context plainly requires a different meaning, and when a defined meaning is intended, the term is
capitalized.
1.1 Amount of Gain Realized. The Amount of Gain Realized shall be equal to the number
of Shares delivered to the Participant multiplied by the Fair Market Value (FMV) of one Share of
the Companys Common Stock on the date the Shares were no longer considered to be held by the
Company.
1.2 Change of Control. Change of Control means the occurrence of one or more of the
following events:
(a) Any one person, or more than one person acting as a group, acquires ownership of stock of
the Company that, together with stock held by such person or group, constitutes more than 50
percent of the total fair market value or total voting power of the stock of the Company. If any
one person, or more than one person acting as a group, is considered to own more than 50 percent of
the total fair market value or total voting power of the stock of the Company, the acquisition of
additional stock by the same person or persons shall not be considered to cause a change in the
ownership of the corporation. An increase in the percentage of stock owned by any one person, or
persons acting as a group, as a result of a transaction in which the Company acquires
its stock in
exchange for property will be treated as an acquisition of stock for purposes of this Section
1.2(a).
(b) Any one person, or more than one person acting as a group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or
persons) ownership of stock of the Company possessing 35 percent or more of the total voting power
of the stock of the Company. If any one person, or more than one person acting as a group, is
considered to effectively control a corporation within the meaning of Treasury Regulation
§1.409A-3(i)(5)(vi), the acquisition of additional control of the corporation by the same person or
persons is not considered to cause a change in the effective control of the corporation.
(c) A majority of members of the Companys Board of Directors (the Board) is replaced during
any 12-month period by directors whose appointment or election is not endorsed by two-thirds (2/3)
of the members of the Board before the date of such appointment or election.
(d) Any one person, or more than one person acting as a group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value equal to or more than 50
percent of the total gross fair market value of all of the assets of the Company immediately before
such acquisition or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets. Notwithstanding the foregoing, there is no Change in
Control event under this Section 1.2(d) when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of assets by the Company
is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a
shareholder of the Company (immediately before the asset transfer) in exchange for or with respect
to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (iii) a person, or more than one person acting as a
group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or (iv) an entity, at least 50 percent of the total value
or voting power of which is owned, directly or indirectly, by a person described in (iii) above.
For purposes of the foregoing, persons will be considered acting as a group in accordance with
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, and Section 409A
of the Code.
1.3 Code. Code means the Internal Revenue Code of 1986, as amended.
1.4 Committee. Committee means the Compensation Committee of the Board of Directors
for H&R Block, Inc.
1.5 Common Stock. Common Stock means the common stock, without par value, of the
Company.
H&R Block Inc., 2003 Long-Term Executive Compensation Plan
Grant Agreement - Restricted Shares
2
1.6 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the
context otherwise requires, includes its subsidiary corporations (as defined in Section 424(f) of
the Internal Revenue Code) and their respective divisions, departments and subsidiaries and the
respective divisions, departments and subsidiaries of such subsidiaries.
1.7 Closing Price. Closing Price shall mean the last reported market price for one
share of Common Stock, regular way, on the New York Stock Exchange (or any successor exchange or
stock market on which such last reported market price is reported) on the day in question. In the
event the exchange is closed on the day on which Closing Price is to be determined or if there were
no sales reported on such date, Closing Price shall be computed as of the last date preceding such
date on which the exchange was open and a sale was reported.
1.8 Disability. Disability or disabled shall be as defined in the employment
practices or policies of the applicable subsidiary of the Company in effect from time to time
during the term hereof or, absent such definition, then as defined in the H&R Block Retirement
Savings Plan or any successor plan thereto.
1.9 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one
share of H&R Block, Inc. Stock.
1.10 Last Day of Employment. Last Day of Employment means the date the Participant
ceases for whatever reason to be an employee and is not immediately thereafter and continuously
employed as a regular active employee by any other direct or indirect subsidiary of the Company
1.11 Line of Business. Line of Business of the Company means any line of business of
the subsidiary of the Company by which Participant was employed as of the Last Day of Employment,
as well as any one or more lines of business of any other subsidiary of the Company by which
Participant was employed during the two-year period preceding the Last Day of Employment, provided
that, if Participants employment was, as of the Last Day of Employment or during the two-year
period immediately prior to the Last Day of Employment, with H&R Block Management, LLC or any
successor entity thereto, Line of Business of the Company shall mean any lines of business of the
Company and all of its subsidiaries.
1.12 Qualifying Termination. Qualifying Termination shall mean Participants
termination of employment which meets the definition of a Qualifying Termination under a written
severance plan sponsored by the Company or a subsidiary of the Company. In the event that no
written severance plan exists for the Participants subsidiary, the definition of Qualifying
Termination contained in any applicable severance plan for the Company will govern.
1.13 Restricted Shares. Restricted Share (Shares) means a share of Common Stock
issued to a Participant under the Plan subject to such terms and conditions, including without
limitation, forfeiture or resale to the Company, and to
3
such restrictions against sale, transfer or
other disposition, as the Committee may determine at the time of issuance.
1.14 Retirement. Retirement means the Participants voluntary termination of
employment with the Company and each of its subsidiaries, at or after attaining age 65.
2. Restricted Shares.
2.1 Issuance of Shares. As of [Grant Date] (the Award Date), the Company shall
issue [Number of Shares Granted] [Grant Type] (the Shares) evidenced by this Grant Agreement to
the Participant which shall be held by the Company and subject to the substantial risk of
forfeiture.
2.2 Substantial Risk of Forfeiture. Each grant of an Award shall provide that the
Shares covered thereby shall be subject to a substantial risk of forfeiture within the meaning of
Code Section 83 for a period time as designated by Section 2.7, and any such Award may provide for
the earlier termination of such risk of forfeiture in the event of change of control of the Company
or other similar transaction or event.
2.3 Restrictions on Transfer. During for period the Shares are subject to substantial
risk of forfeiture, the Shares shall be held by the Company, or its transfer agent or other
designee and shall be subject to restrictions on transfer.
2.4 [RESERVED]
2.5 Requirement of Employment. The Participant must remain in continuous employment
of the Company during the period any Shares are subject to substantial risk of forfeiture. Absent
an agreement to the contrary, if Participants employment with the Company should terminate for any
reason, other than Retirement, all Shares then held by the Company or its transfer agent or other
designee, if any, shall be forfeited by the Participant and Participant authorizes the Company and
its stock transfer agent to cause delivery, transfer and conveyance of the Shares to the Company.
2.6 Delivery of Shares. Any Shares to be delivered to the Participant by the Company
in accordance with the following Schedule:
|
|
|
|
|
|
|
Percent of Shares Subject |
|
|
to Vesting on Such |
Vesting Date |
|
Vesting Date |
First Anniversary of the Award Date |
|
|
33 1/3 |
% |
Second Anniversary of the Award Date |
|
|
33 1/3 |
% |
Third Anniversary of the Award Date |
|
|
33 1/3 |
% |
4
Upon the vesting date, Shares shall be transferred directly into a brokerage account established
for the Participant at a financial institution the Committee shall select at its sole discretion
(the Financial Institution) or delivered in certificate form free of restrictions, such method to
be selected by the Committee in its sole discretion. The Participant agrees to complete any
documentation with the Company or the financial institution that is necessary to affect the
transfer of Shares to the financial institution before the delivery will occur.
2.7 Acceleration of Vesting. Notwithstanding Section 2.6, the Participant shall
become vested in all or a portion of the Shares awarded under this Grant Agreement on the
occurrence of any of the following events; provided that receipt of the benefits set forth in this
section 2.7 may be conditioned on the Participant executing a release and separation agreement:
(a) Change of Control. In the event the Participant incurs a Qualifying Termination in the 24
months immediately following a Change of Control, as defined in Section 1.2, such Participant shall
become 100% vested in all outstanding Shares granted under this Grant Agreement.
(b) Qualifying Termination. If a Participant experiences a Qualifying Termination, all or a
portion of the then outstanding Shares granted under this Grant Agreement shall vest according to
the terms of the applicable severance plan.
(c) Retirement. If a Participant retires from employment with any subsidiary of the Company
at least one year after the anniversary of the Grant Date, all Shares issued on such Grant Date
shall no longer be considered to be held by the Company.
3. Covenants.
3.1 Consideration for Award under the Plan. Participant acknowledges that
Participants agreement to this Section 3 is a key consideration for any Award under the Plan.
Participant hereby agrees to abide by the Covenants set forth in Sections 3.2, 3.3, and 3.4.
3.2 Covenant Against Competition. During the period of Participants employment and
for two (2) years after his/her Last Day of Employment, Participant acknowledges and agrees he/she
will not engage in, or own or control any interest in, or act as an officer, director or employee
of, or consultant, advisor or lender to, any entity that engages in any business that is
competitive with the primary business activities of the Companys Tax Services business which are
tax preparation, accounting, and small business services.
3.3 Covenant Against Hiring. Participant acknowledges and agrees the he/she will not
directly or indirectly recruit, solicit, or hire any Company employee or otherwise induce any such
employee to leave the Companys employment during the period of Participants employment and for
one (1) year after his/her Last Day of Employment.
5
3.4 Covenant Against Solicitation. During the period of Participants employment and
for two (2) years after his/her Last Day of Employment, Participant acknowledges and agrees that
he/she will not directly or indirectly solicit or enter into any business transaction of the nature
performed by the Company with any Company client for which Participant personally performed
services or acquired material information.
3.5 Forfeiture of Rights. Notwithstanding anything herein to the contrary, if
Participant violates any provisions of this Section 3, Participant shall forfeit all rights to
payments or benefits under the Plan. All Shares held by the Company and subject to forfeiture on
such date shall terminate.
3.6 Remedies. Notwithstanding anything herein to the contrary, if Participant
violates any provisions of this Section 3, whether prior to, on or after any Settlement of an Award
under the Plan, then Participant shall promptly pay to Company an amount equal to the aggregate
Amount of Gain Realized by the Participant on all Shares received after a date commencing one year
prior to Participants Last Day of Employment. The Participant shall pay Company within three (3)
business days after the date of any written demand by the Company to the Participant.
3.7 Remedies payable in Companys Common Stock or Cash. The Participant shall pay the
amounts described in Section 3.6 in the Companys Common Stock or cash.
3.8 Remedies without Prejudice. The remedies provided in this Section 3 shall be
without prejudice to the rights of the Company and/or the rights of any one or more of its
subsidiaries to recover any losses resulting from the applicable conduct of the Participant and
shall be in addition to any other remedies the Company and/or any one or more subsidiaries may
have, at law or in equity, resulting from such conduct.
3.9 Survival. Participants obligations in this Section 3 shall survive and continue
beyond settlement of all Awards under the Plan and any termination or expiration of this Agreement
for any reason.
4. Transfer Restrictions.
4.1 Transfer Restrictions on Shares. During the period that Shares are held by the
Company hereunder for delivery to the Participant, such Shares and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged, or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to sale under execution, attachment or
similar process. Upon any attempt, contrary to the terms hereof, to transfer, assign, pledge,
hypothecate, or otherwise so dispose of such Shares or any right or privilege conferred hereby, or
upon any attempted sale under any execution, attachment, or similar process upon such Shares or the
rights and privileges hereby granted, then and in any such event this Agreement and the rights and
privileges hereby granted shall immediately terminate. Immediately after such termination, such
Shares shall be forfeited by the Participant
6
and the Participant hereby authorizes the Company and
its stock transfer agent to cause the delivery, transfer and conveyance of such Shares to the
Company.
4.2 Non-Transferability of Awards Generally. Any Award (including all rights,
privileges and benefits conferred under such Award) shall not be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale
under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any Award, or of any right or privilege conferred hereby,
contrary to the provisions hereof, or upon any attempted sale under any execution, attachment, or
similar process upon the rights and privileges hereby granted, then and in any such event such
Award and the rights and privileges hereby granted shall immediately become null and void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any
right to continued employment for any period of time, is not an employment contract, and shall not
in any manner modify any effective contract of employment between the Participant and any
subsidiary of the Company.
5.2 Clawback for Negligence or Misconduct. If the Committee determines that the
Participant has engaged in negligence or intentional misconduct that results in a significant
restatement of the Companys financial results and a resulting overpayment in compensation or
Awards under this Plan, the Committee may require reimbursement of any portion of the Amount of
Gain Realized from such Awards where such Awards were greater than the Awards would have been if
calculated on the restated financial results.
5.3 Adjustment of Shares. If there shall be any change in the capital structure of
the Company, including but not limited to a change in the number or kind of the outstanding shares
of the Common Stock resulting from a stock dividend or split-up, or combination or reclassification
of such shares (or of any stock or other securities into which shares shall have been changed, or
for which they shall have been exchanged), then the Board of Directors of the Company may make such
equitable adjustments with respect to the Shares, or any other provisions of the Plan, as it deems
necessary or appropriate to prevent dilution or enlargement of the Stock Option rights hereunder or
of the shares subject to this Grant Agreement.
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall
become a party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall, acting in its absolute and sole
discretion, make such arrangements, which shall be binding upon the Participant of outstanding
Awards, including but not limited to, the substitution of new Awards or for any Awards then
outstanding, the assumption of any such Awards and the termination of or payment for such Awards.
7
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have
the power to provide regulations for administration of the Plan by the Committee and to make any
changes in such guidelines as from time to time the Board may deem necessary. The Committee shall
have the sole power to determine, solely for purposes of the Plan and this Agreement, the date of
and circumstances which shall constitute a cessation or termination of employment and whether such
cessation or termination is the result of retirement, death, disability or termination without
cause or any other reason, and further to determine, solely for purposes of the Plan and this
Agreement, what constitutes continuous employment with respect to the delivery of Shares under the
Grant Agreement (except that leaves of absence approved by the Committee or transfers of employment
among the subsidiaries of the Company shall not be considered an interruption of continuous
employment for any purpose under the Plan).
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or approval
of any governmental regulatory authority, is necessary or desirable as a condition of the executing
an Award or benefit under the Plan, then such action may not be taken, in whole or in part, unless
and until such qualification, registration, consent or approval shall have been effected or
obtained free of any conditions such counsel deems unacceptable.
5.7 Reasonableness of Restrictions, Severability and Court Modification. Participant
and the Company agree that, the restrictions contained in this Agreement are reasonable, but,
should any provision of this Agreement be determined by a court of competent jurisdiction to be
invalid, illegal or otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected thereby, and the
provision found invalid, illegal, or otherwise unenforceable or unreasonable will be considered by
the Company and Participant to be amended as to scope of protection, time or geographic area (or
any one of them, as the case may be) in whatever manner is considered reasonable by that court,
and, as so amended will be enforced.
5.8 Withholding of Taxes. To the extent that the Company is required to withhold
taxes in compliance with any federal, state, local or foreign law in connection with any payment
made or benefit realized by a Participant or other person under this Plan, it shall be a condition
to the receipt of such payment or the realization of such benefit that the Participant or such
other person make arrangements satisfactory to the Company for the payment of all such taxes
required to be withheld. At the discretion of the Committee, such arrangements may include
relinquishment of a portion of such benefit. In the event the Participant has not made
arrangements, the Company shall withhold the amount of such tax obligations from such dividend
payment or instruct the Participants employer to withhold such amount from the Participants next
payment(s) of wages. The Participant authorizes the Company to so instruct the Participants
employer and authorizes the Participants employer to make such withholdings from payment(s) of
wages.
8
5.9 Waiver. The failure of the Company to enforce at any time any terms, covenants or
conditions of this Agreement shall not be construed to be a waiver of such terms, covenants or
conditions or of any other provision. Any waiver or modification of the terms, covenants or
conditions of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Notices. Any notice to be given to the Company or election to be made under the
terms of this Agreement shall be addressed to the Company (Attention: Long-Term Incentive
Department) at One H&R Block Way, Kansas City Missouri 64105 or at such other address as the
Company may hereafter designate in writing to the Participant. Any notice to be given to the
Participant shall be addressed to the Participant at the last address of record with the Company or
at such other address as the Participant may hereafter designate in writing to the Company. Any
such notice shall be deemed to have been duly given when deposited in the United States mail via
regular or certified mail, addressed as aforesaid, postage prepaid.
5.11 Choice of Law. This Grant Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri without reference to principles of
conflicts of laws.
5.12 Choice of Forum and Jurisdiction. Participant and Company agree that any
proceedings to enforce the obligations and rights under this Grant Agreement must be brought in
Missouri District Court located in Jackson County, Missouri, or in the United States District Court
for the Western District of Missouri in Kansas City, Missouri. Participant agrees and submits to
personal jurisdiction in either court. Participant and Company further agree that this Choice of
Forum and Jurisdiction is binding on all matters related to Awards under the Plan and may not be
altered or amended by any other arrangement or agreement (including an employment agreement)
without the express written consent of Participant and H&R Block, Inc.
5.13 Attorneys Fees. Participant and Company agree that in the event of litigation to
enforce the terms and obligations under this Grant Agreement, the party prevailing in any such
cause of action will be entitled to reimbursement of reasonable attorney fees.
5.14 Relationship of the Parties. Participant acknowledges that this Grant Agreement
is between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block, Inc.
is a holding company and that Participant is not an employee of H&R Block, Inc.
5.15 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.16 Amendment. No amendment, supplement, or waiver to this Agreement is valid or
binding unless in writing and signed by both parties.
5.17 Execution of Agreement. This Agreement shall not be enforceable by either party,
and Participant shall have no rights with respect to the Long Term
9
Incentive Award, unless and
until it has been (1) signed by Participant and on behalf of the Company by an officer of the
Company, provided that the signature by such officer of the Company on behalf of the Company may be
a facsimile or stamped signature, and (2) returned to the Company.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
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Associate Name:
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[Participant Name] |
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Date Signed:
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[Acceptance Date] |
H&R BLOCK, INC.
By:
10
exv10w2
Exhibit 10.2
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and [Participant Name] (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan);
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of [Grant Date], wherein Participant agrees to abide by
certain terms and conditions authorized by the Compensation Committee of the Board of Directors;
WHEREAS, the Participant has been selected by the Compensation Committee or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of the Company and is
eligible to receive Awards under the Plan.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this
Grant Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Grant Agreement (Agreement), the
following words and phrases shall have the meanings set forth below unless the context plainly
requires a different meaning, and when a defined meaning is intended, the term is capitalized.
1.1 Amount of Gain Realized. The Amount of Gain Realized shall be equal to the number
of shares of Common Stock purchased pursuant to such exercise multiplied by the difference between
the FMV of one Share of the Companys Common Stock on the date of exercise and the Option Price.
1.2 Change of Control. Change of Control means the occurrence of one or more
of the following events:
(a) Any one person, or more than one person acting as a group, acquires ownership of stock of
the Company that, together with stock held by such person or group, constitutes more than 50
percent of the total fair market value or total voting power of the stock of the Company. If any
one person, or more than one person acting as a group, is considered to own more than 50 percent of
the total fair market value or total voting power of the stock of the Company, the acquisition of
additional stock by the same person or persons shall not be considered to cause a change in the
ownership of the corporation. An increase in the percentage of stock owned by any one person, or
persons acting as a group, as a result of a transaction in which the Company acquires its stock in
exchange for property will be treated as an acquisition of stock for purposes of this
Section 1.2(a).
H&R Block Inc., 2003 Long-Term Executive Compensation Plan
Grant Agreement - Stock Options
2
(b) Any one person, or more than one person acting as a group, acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such person or persons)
ownership of stock of the Company possessing 35 percent or more of the total voting power of the
stock of the Company. If any one person, or more than one person acting as a group, is considered
to effectively control a corporation within the meaning of Treasury Regulation §1.409A-3(i)(5)(vi),
the acquisition of additional control of the corporation by the same person or persons is not
considered to cause a change in the effective control of the corporation.
(c) A majority of members of the Companys Board of Directors (the Board) is replaced during
any 12-month period by directors whose appointment or election is not endorsed by two-thirds (2/3)
of the members of the Board before the date of such appointment or election.
(d) Any one person, or more than one person acting as a group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value equal to or more than 50
percent of the total gross fair market value of all of the assets of the Company immediately before
such acquisition or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets. Notwithstanding the foregoing, there is no Change in
Control event under this Section 1.2(d) when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of assets by the Company
is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a
shareholder of the Company (immediately before the asset transfer) in exchange for or with respect
to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (iii) a person, or more than one person acting as a
group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or (iv) an entity, at least 50 percent of the total value
or voting power of which is owned, directly or indirectly, by a person described in (iii) above.
For purposes of the foregoing, persons will be considered acting as a group in accordance with
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, and Section 409A
of the Code.
1.3 Code. Code means the Internal Revenue Code of 1986, as amended.
1.4 Committee. Committee means the Compensation Committee of the Board of Directors
for H&R Block, Inc.
1.5 Common Stock. Common Stock means the common stock, without par value, of the
Company.
1.6 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the
context otherwise requires, includes its subsidiary corporations (as defined in Section 424(f) of
the Internal Revenue Code) and their respective divisions, departments and subsidiaries and the
respective divisions, departments and subsidiaries of such subsidiaries.
2
1.7 Closing Price. Closing Price shall mean the last reported market price for one share of
Common Stock, regular way, on the New York Stock Exchange (or any successor exchange or stock
market on which such last reported market price is reported) on the day in question. In the event
the exchange is closed on the day on which Closing Price is to be determined or if there were no
sales reported on such date, Closing Price shall be computed as of the last date preceding such
date on which the exchange was open and a sale was reported.
1.8 Disability. Disability or disabled shall be as defined in the employment practices
or policies of the applicable subsidiary of the Company in effect from time to time during the term
hereof or, absent such definition, then as defined in the H&R Block Retirement Savings Plan or any
successor plan thereto.
1.9 Early Retirement. Early Retirement means the Participants voluntary termination
of employment with the Company and each of its subsidiaries at or after the date the Participant
has both reached age 55 but has not yet reached age 65, and completed at least ten (10) years of
service with the company or its subsidiaries.
1.10 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one share
of H&R Block, Inc. Stock.
1.11 Last Day of Employment. Last Day of Employment means the date the Participant
ceases for whatever reason to be an employee and is not immediately thereafter and continuously
employed as a regular active employee by any other direct or indirect subsidiary of the Company
1.12 Line of Business. Line of Business of the Company means any line of business of
the subsidiary of the Company by which Participant was employed as of the Last Day of Employment,
as well as any one or more lines of business of any other subsidiary of the Company by which
Participant was employed during the two-year period preceding the Last Day of Employment, provided
that, if Participants employment was, as of the Last Day of Employment or during the two-year
period immediately prior to the Last Day of Employment, with H&R Block Management, LLC or any
successor entity thereto, Line of Business of the Company shall mean any lines of business of the
Company and all of its subsidiaries.
1.13 Qualifying Termination. Qualifying Termination shall mean Participants
termination of employment which meets the definition of a Qualifying Termination under a written
severance plan sponsored by the Company or a subsidiary of the Company. In the event that no
written severance plan exists for the Participants subsidiary, the definition of Qualifying
Termination contained in any applicable severance plan for the Company will govern.
1.14 Retirement. Retirement means the Participants voluntary termination of
employment with the Company and each of its subsidiaries, at or after attaining age 65.
1.15 Stock Option. Stock Option means the right to purchase, upon exercise of a stock
option granted under the Plan, shares of the Companys Common Stock. A Stock Option may be an
Incentive Stock Option which meets the requirements of Code Section 422(b) or a Nonqualified Stock
Option. The right and option to purchase shares of Common Stock identified
3
as subject to Nonqualified Stock Option shall not constitute and shall not be treated for any
purpose as an incentive stock option, as such term is defined in the Code.
2. Stock Option.
2.1 Grant of Stock Option. As of [Grant Date] (the Grant Date), the Company grants
the Participant the right and option to purchase [Number of Shares Granted] shares of Common Stock
(this Stock Option) identified as [Grant Type].
2.2 Option Price. The Price per share of Common Stock subject to this Stock Option is
[Grant Price], which is the Closing Price on [Grant Date].
2.3 Vesting. This Stock Option shall vest and become exercisable in installments,
which shall be cumulative, with regard to the percentage of the number of shares of Common Stock
subject to this Stock Option indicated next to each vesting date set forth in the table below
provided that the Participant remains continuously employed by the Company through such date:
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Percent of Shares Subject to this |
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Stock Option Vesting on Such |
Vesting Date |
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Vesting Date |
First Anniversary of the Grant Date |
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33 1/3 |
% |
Second Anniversary of the Grant Date |
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33 1/3 |
% |
Third Anniversary of the Grant Date |
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33 1/3 |
% |
(Note: If the percentage of the aggregate number of shares of Common Stock subject to this Stock
Option scheduled to vest on a vesting date is not a whole number of shares, then the amount vesting
shall be rounded down to the nearest whole number of shares for each vesting date, except that the
amount vesting on the final vesting date shall be such that 100% of the aggregate number of shares
of Common Stock subject to this Stock Option shall be cumulatively vested as of the final vesting
date.)
2.4 Acceleration of Vesting. Notwithstanding Section 2.3, the Participant shall become
vested in all or a portion of the Stock Options awarded under this Grant Agreement on the
occurrence of any of the following events; provided that receipt of the benefits set forth in this
section 2.4 may be conditioned on the Participant executing and not revoking a release and
separation agreement:
(a) Change of Control. In the event the Participant incurs a Qualifying Termination in the
24 months immediately following a Change of Control, as defined in Section 1.2, such Participant
shall become 100% vested in all outstanding stock options granted under this Grant Agreement. The
Participant may exercise such options until the earlier of: (i) ninety (90) days following the
Participants Last Day of Employment unless the Participant elects in writing to extend this time
period through the severance period as defined by the applicable severance plan or (ii) the last
day the stock options would have been exercisable if the Participant had not incurred a termination
of employment.
4
(b) Retirement. The Participant may purchase 100% of the total Stock Options granted under
this Stock Option provided that the Participant retires more than one year after the Grant Date.
(c) Qualifying Termination. If a Participant experiences a Qualifying Termination, all or a
portion of the then outstanding Stock Options granted under this Stock Option shall vest if and to
the extent specified in any applicable severance plan and Participant may purchase 100% of such
vested Stock Options.
(d) Employment Agreement. The Participant may purchase all or a portion of the total vested
Stock Options granted under this Stock Option upon the occurrence of certain events specified in
the Participants employment agreement.
If application of this Section 2.4 results in the acceleration of vesting of all or any portion of
the Stock Options, shares of Common Stock then subject to Stock Options shall be allocated such
that the number of shares subject to Incentive Stock Option shall be the maximum number of shares
that may be subject to Incentive Stock Option under Section 422 of the Code for the calendar year
in which the acceleration of vesting results.
2.5 Term of Option. No Stock Option granted under this Grant Agreement may be
exercised after [Expiration Date]. Except as provided in this Section 2.5 and Section 2.6, all
Stock Options shall terminate when the Participant ceases, for whatever reason, to be an employee
of any of the subsidiaries of the Company. In the event the Participant ceases to be an employee of
any of the subsidiaries of the Company because of Retirement or Early Retirement, Participant may
exercise any vested Stock Options up to twelve months after employment ceases. If the Participant
ceases to be an employee of any of the subsidiaries of the Company because of Disability,
Participant may exercise any vested Stock Options up to three months after employment ceases. In
the event the Participant experiences a Qualifying Termination, this Stock Option may be eligible
for an extension of the exercise period pursuant to an applicable severance plan (subject to the
Participant executing and not revoking a release and separation agreement).
2.6 Participants Death. In the event the Participant ceases to be an employee of any
of the subsidiaries of the Company because of Death, the person or persons to whom the
Participants rights under the Stock Option shall pass by the Participants will or laws of descent
and distribution may exercise any vested Stock Options for a period up to twelve months after the
date of death.
2.7 Exercise of Stock Option. The Stock Option granted under the Plan shall be
exercisable from time to time by the Participant by giving notice of exercise to the Company, in
the manner specified by the Company, specifying the number of whole shares to be purchased, and
accompanied by full payment of the purchase price. The right to purchase shall be cumulative, so
that the full number of shares of Common Stock that become purchasable at any time need not be
purchased at such time, but may be purchased at any time or from time to time thereafter (but prior
to the termination of the Stock Option).
5
2.8 Payment of the Option Price. Full payment of the Option Price for shares purchased
shall be made at the time the Participant exercises the Stock Option. Payment of the
aggregate Option Price may be made in (a) cash, (b) by delivery of Common Stock (with a value equal
to the Closing Price of Common Stock on the last trading date preceding the date on which the Stock
Option is exercised), or (c) a combination thereof. Payment shall be made only in cash unless at
least six months have elapsed between the date of Participants acquisition of each share of Common
Stock delivered by Participant in full or partial payment of the aggregate Option Price and the
date on which the Stock Option is exercised.
2.9 No Shareholder Privileges. Neither the Participant nor any person claiming under
or through him or her shall be, or have any of the rights or privileges of, a shareholder of the
Company with respect to any of the Common Stock issuable upon the exercise of this Stock Option,
unless and until certificates evidencing such shares of Common Stock shall have been duly issued
and delivered.
3. Covenants.
3.1 Consideration for Award under the Plan. Participant acknowledges that
Participants agreement to this Section 3 is a key consideration for any Award under the Plan.
Participant hereby agrees to abide by the Covenants set forth in Sections 3.2, 3.3, and 3.4.
3.2 Covenant Against Competition. During the period of Participants employment and
for two (2) years after his/her Last Day of Employment, Participant acknowledges and agrees he/she
will not engage in, or own or control any interest in, or act as an officer, director or employee
of, or consultant, advisor or lender to, any entity that engages in any business that is
competitive with the primary business activities of the Companys Tax Services business which are
tax preparation, accounting, and small business services.
3.3 Covenant Against Hiring. Participant acknowledges and agrees the he/she will not
directly or indirectly recruit, solicit, or hire any Company employee or otherwise induce any such
employee to leave the Companys employment during the period of Participants employment and for
one (1) year after his/her Last Day of Employment.
3.4 Covenant Against Solicitation. During the period of Participants employment and
for two (2) years after his/her Last Day of Employment, Participant acknowledges and agrees that
he/she will not directly or indirectly solicit or enter into any business transaction of the nature
performed by the Company with any Company client for which Participant personally performed
services or acquired material information.
3.5 Forfeiture of Rights. Notwithstanding anything herein to the contrary, if
Participant violates any provisions of this Section 3, Participant shall forfeit all rights to
payments or benefits under the Plan. All Stock Options outstanding on such date shall terminate.
3.6 Remedies. Notwithstanding anything herein to the contrary, if Participant violates
any provisions of this Section 3, whether prior to, on or after any Settlement of an Award under
the Plan, then Participant shall promptly pay to Company an amount equal to the aggregate Amount of
Gain Realized by the Participant on all Stock Options exercised after a date commencing one year
prior to Participants Last Day of Employment. The Participant shall pay
6
Company within three (3)
business days after the date of any written demand by the Company to the Participant.
3.7 Remedies payable in Companys Common Stock or Cash. The Participant shall pay the amounts
described in Section 3.6 in the Companys Common Stock or cash.
3.8 Remedies without Prejudice. The remedies provided in this Section 3 shall be
without prejudice to the rights of the Company and/or the rights of any one or more of its
subsidiaries to recover any losses resulting from the applicable conduct of the Participant and
shall be in addition to any other remedies the Company and/or any one or more subsidiaries may
have, at law or in equity, resulting from such conduct.
3.9 Survival. Participants obligations in this Section 3 shall survive and continue
beyond settlement of all Awards under the Plan and any termination or expiration of this Agreement
for any reason.
4. Non-Transferability of Awards. Any Stock Option (including all rights, privileges and
benefits conferred under such Award) shall not be transferred, assigned, pledged, or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any Stock Option, or of any right or privilege conferred
hereby, contrary to the provisions hereof, or upon any attempted sale under any execution,
attachment, or similar process upon the rights and privileges hereby granted, then and in any such
event such Award and the rights and privileges hereby granted shall immediately become null and
void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any
right to continued employment for any period of time, is not an employment contract, and shall not
in any manner modify any effective contract of employment between the Participant and any
subsidiary of the Company.
5.2 Clawback for Negligence or Misconduct. If the Committee determines that the
Participant has engaged in negligence or intentional misconduct that results in a significant
restatement of the Companys financial results and a resulting overpayment in compensation or
Awards under this Plan, the Committee may require reimbursement of any portion of the Amount of
Gain Realized from such Awards where such Awards were greater than the Awards would have been if
calculated on the restated financial results.
5.3 Adjustment of Shares. If there shall be any change in the capital structure of the
Company, including but not limited to a change in the number or kind of the outstanding shares of
the Common Stock resulting from a stock dividend or split-up, or combination or reclassification of
such shares (or of any stock or other securities into which shares shall have been changed, or for
which they shall have been exchanged), then the Board of Directors of the Company may make such
equitable adjustments with respect to the Stock Option, or any other provisions of the Plan, as it
deems necessary or appropriate to prevent dilution or enlargement of the Stock Option rights
hereunder or of the shares subject to this Stock Option.
7
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall
become a party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall, acting in its absolute and sole
discretion, make such arrangements, which shall be binding upon the Participant of outstanding
Awards, including but not limited to, the substitution of new Awards or for any Awards then
outstanding, the assumption of any such Awards and the termination of or payment for such Awards.
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have
the power to provide regulations for administration of the Plan by the Committee and to make any
changes in such guidelines as from time to time the Board may deem necessary. The Committee shall
have the sole power to determine, solely for purposes of the Plan and this Agreement, the date of
and circumstances which shall constitute a cessation or termination of employment and whether such
cessation or termination is the result of retirement, death, disability or termination without
cause or any other reason, and further to determine, solely for purposes of the Plan and this
Agreement, what constitutes continuous employment with respect to the exercise of Stock Option or
delivery of Shares under the Plan (except that leaves of absence approved by the Committee or
transfers of employment among the subsidiaries of the Company shall not be considered an
interruption of continuous employment for any purpose under the Plan).
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or approval
of any governmental regulatory authority, is necessary or desirable as a condition of the executing
an Award or benefit under the Plan, then such action may not be taken, in whole or in part, unless
and until such qualification, registration, consent or approval shall have been effected or
obtained free of any conditions such counsel deems unacceptable.
5.7 Reasonableness of Restrictions, Severability and Court Modification. Participant
and the Company agree that, the restrictions contained in this Agreement are reasonable, but,
should any provision of this Agreement be determined by a court of competent jurisdiction to be
invalid, illegal or otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected thereby, and the
provision found invalid, illegal, or otherwise unenforceable or unreasonable will be considered by
the Company and Participant to be amended as to scope of protection, time or geographic area (or
any one of them, as the case may be) in whatever manner is considered reasonable by that court,
and, as so amended will be enforced.
5.8 Withholding of Taxes. To the extent that the Company is required to withhold taxes
in compliance with any federal, state, local or foreign law in connection with any payment made or
benefit realized by a Participant or other person under this Plan, it shall be a condition to the
receipt of such payment or the realization of such benefit that the Participant or such other
person make arrangements satisfactory to the Company for the payment of all such taxes required to
be withheld. At the discretion of the Committee, such arrangements may include relinquishment of a
portion of such benefit. In the event the Participant has not made arrangements, the Company shall
withhold the amount of such tax obligations from such dividend payment or instruct the
Participants employer to withhold such amount from the
8
Participants next payment(s) of wages. The
Participant authorizes the Company to so instruct the Participants employer and authorizes the
Participants employer to make such withholdings from payment(s) of wages.
5.9 Waiver. The failure of the Company to enforce at any time any terms, covenants or
conditions of this Agreement shall not be construed to be a waiver of such terms, covenants or
conditions or of any other provision. Any waiver or modification of the terms, covenants or
conditions of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Incorporation. The terms and conditions of this Grant Agreement are authorized by
the Compensation Committee of the Board of Directors of H&R Block, Inc. The terms and conditions of
this Grant Agreement are deemed to be incorporated into and form a part of every Award under the
H&R Block, Inc. 1993 Long-Term Executive Compensation Plan and H&R Block, Inc. 2003 Long-Term
Executive Compensation Plan unless the Award Certificate relating to a specific grant or award
provides otherwise. If the Participant has previously executed a Grant Agreement, such Grant
Agreement shall only cover those Awards subject to such specific Grant Agreement.
5.11 Notices. Any notice to be given to the Company or election to be made under the
terms of this Agreement shall be addressed to the Company (Attention: Long-Term Incentive
Department) at One H&R Block Way, Kansas City Missouri 64105 or at such other address as the
Company may hereafter designate in writing to the Participant. Any notice to be given to the
Participant shall be addressed to the Participant at the last address of record with the Company or
at such other address as the Participant may hereafter designate in writing to the Company. Any
such notice shall be deemed to have been duly given when deposited in the United States mail via
regular or certified mail, addressed as aforesaid, postage prepaid.
5.12 Choice of Law. This Grant Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri without reference to principles of
conflicts of laws.
5.13 Choice of Forum and Jurisdiction. Participant and Company agree that any
proceedings to enforce the obligations and rights under this Grant Agreement must be brought in
Missouri District Court located in Jackson County, Missouri, or in the United States District Court
for the Western District of Missouri in Kansas City, Missouri. Participant agrees and submits to
personal jurisdiction in either court. Participant and Company further agree that this Choice of
Forum and Jurisdiction is binding on all matters related to Awards under the Plan and may not be
altered or amended by any other arrangement or agreement (including an employment agreement)
without the express written consent of Participant and H&R Block, Inc.
5.14 Attorneys Fees. Participant and Company agree that in the event of litigation to
enforce the terms and obligations under this Grant Agreement, the party prevailing in any such
cause of action will be entitled to reimbursement of reasonable attorney fees.
9
5.15 Relationship of the Parties. Participant acknowledges that this Grant Agreement
is between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block, Inc.
is a holding company and that Participant is not an employee of H&R Block, Inc.
5.16 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.17 Amendment. No amendment, supplement, or waiver to this Agreement is valid or binding unless
in writing and signed by both parties.
5.18 Execution of Agreement. This Agreement shall not be enforceable by either party,
and Participant shall have no rights with respect to the Long Term Incentive Award, unless and
until it has been (1) signed by Participant and on behalf of the Company by an officer of the
Company, provided that the signature by such officer of the Company on behalf of the Company may be
a facsimile or stamped signature, and (2) returned to the Company.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
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Associate Name:
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[Participant Name] |
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Date Signed:
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[Acceptance Date] |
H&R BLOCK, INC.
By:
10
exv10w3
Exhibit 10.3
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
PERFORMANCE SHARE UNITS
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and [Participant Name] (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan);
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of [Grant Date], wherein Participant agrees to abide by
certain terms and conditions authorized by the Compensation Committee of the Board of Directors;
WHEREAS, the Participant has been selected by the Compensation Committee or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of the Company and is
eligible to receive Awards under the Plan.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this
Grant Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Agreement or an Award Certificate issued
under the Plan, the following words and phrases shall have the meanings set forth below unless the
context plainly requires a different meaning, and when a defined meaning is intended, the term is
capitalized.
1.1 Amount of Gain Realized. The Amount of Gain Realized shall be equal to the number
of Earned Units or Restricted Shares delivered to the Participant multiplied by the Fair Market
Value (FMV) of one Share of the Companys Common Stock on the date the Earned Units or Restricted
Shares became vested in or paid to the Participant.
1.2 Change of Control. Change of Control means the occurrence of one or more of the
following events:
(a) Any one person, or more than one person acting as a group, acquires ownership of stock of
the Company that, together with stock held by such person or group, constitutes more than 50
percent of the total fair market value or total voting power of the stock of the Company. If any
one person, or more than one person acting as a group, is considered to own more than 50 percent of
the total fair market value or total voting power of the stock of the Company, the acquisition of
additional stock by the same person or persons shall not be considered to cause a change in the
ownership of the corporation. An
increase in the percentage of stock owned by any one person, or
persons acting as a group, as a result of a transaction in which the Company acquires its stock in
exchange for property will be treated as an acquisition of stock for purposes of this Section
1.2(a).
(b) Any one person, or more than one person acting as a group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or
persons) ownership of stock of the Company possessing 35 percent or more of the total voting power
of the stock of the Company. If any one person, or more than one person acting as a group, is
considered to effectively control a corporation within the meaning of Treasury Regulation
§1.409A-3(i)(5)(vi), the acquisition of additional control of the corporation by the same person or
persons is not considered to cause a change in the effective control of the corporation.
(c) A majority of members of the Companys Board of Directors (the Board) is replaced during
any 12-month period by directors whose appointment or election is not endorsed by two-thirds (2/3)
of the members of the Board before the date of such appointment or election.
(d) Any one person, or more than one person acting as a group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value equal to or more than 50
percent of the total gross fair market value of all of the assets of the Company immediately before
such acquisition or acquisitions. For this purpose, gross fair market value means the value of the
assets of the Company, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets. Notwithstanding the foregoing, there is no Change of
Control event under this Section 1.2(d) when there is a transfer to an entity that is controlled by
the shareholders of the Company immediately after the transfer. A transfer of assets by the Company
is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a
shareholder of the Company (immediately before the asset transfer) in exchange for or with respect
to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (iii) a person, or more than one person acting as a
group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or (iv) an entity, at least 50 percent of the total value
or voting power of which is owned, directly or indirectly, by a person described in (iii) above.
For purposes of the foregoing, persons will be considered acting as a group in accordance with
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, and Section 409A
of the Code.
1.3 Code. Code means the Internal Revenue Code of 1986, as amended.
1.4 Committee. Committee means the Compensation Committee of the Board of Directors
for H&R Block, Inc.
H&R Block Inc., 2003 Long-Term Executive Compensation Plan
Grant Agreement - Performance Units
2
1.5 Common Stock. Common Stock means the common stock, without par value, of the
Company.
1.6 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the
context otherwise requires, includes its subsidiary corporations (as defined in Section 424(f) of
the Internal Revenue Code) and their respective divisions, departments and subsidiaries and the
respective divisions, departments and subsidiaries of such subsidiaries.
1.7 Closing Price. Closing Price shall mean the last reported market price for one
share of Common Stock, regular way, on the New York Stock Exchange (or any successor exchange or
stock market on which such last reported market price is reported) on the day in question. In the
event the exchange is closed on the day on which Closing Price is to be determined or if there were
no sales reported on such date, Closing Price shall be computed as of the last date preceding such
date on which the exchange was open and a sale was reported.
1.8 Disability. Disability or Disabled means a Participant is, by reason of any
medically determinable physical or mental impairment that can be expected to result in death or can
be expected to last for a continuous period of not less than 12 months, receiving income
replacement benefits under the group long-term disability insurance program maintained by the
Company, and shall be deemed to first occur on the date as of which such income replacement
benefits commence.
1.9 EBITDA. EBITDA means the Companys net earnings before the deduction of interest
expenses, taxes, depreciation, and amortization, reduced by the portion of such amount that is
attributable to the ownership or operation of RSM McGladrey, Inc. and its subsidiaries.
1.10 Early Retirement. Early Retirement means the Participants voluntary Termination
of Employment with the Company and each of its subsidiaries at or after the date the Participant
has both reached age 55 but has not yet reached age 65, and completed at least ten (10) years of
service with the Company or its subsidiaries.
1.11 Earned Units. Earned Units for the Performance Period mean the portion of the
Performance Units awarded for such period determined in accordance with the applicable provisions
of Section 2.5 or 2.8.
1.12 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one
share of H&R Block, Inc. Stock.
1.13 Fiscal Year. Fiscal Year means the Companys fiscal year ended April 30.
1.14 Good Reason Termination. Good Reason Termination shall mean Participants
Termination of Employment which meets the definition of a Good Reason Termination under a written
severance plan sponsored by the Company or a subsidiary of the Company. In the event that no
written severance plan exists for the Participants
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subsidiary, the definition of Good Reason
Termination contained in any applicable severance plan for the Company will govern.
1.15 Last Day of Employment. Last Day of Employment means the date of a Participants
Termination of Employment.
1.16 Maximum Performance. Maximum Performance means the level of Revenue or EBITDA,
as the case may be, for each Fiscal Year during the Performance Period set by the Committee by the
162(m) Deadline for the applicable Fiscal Year that results in a 200% factor in the Payment Formula
set forth in Section 2.5.
1.17 Minimum Performance. Minimum Performance means the level of Revenue or EBITDA,
as the case may be, for each Fiscal Year during the Performance Period set by the Committee by the
162(m) Deadline for the applicable Fiscal Year that results in a 0% factor in the Payment Formula
set forth in Section 2.5.
1.18 162(m) Deadline. 162(m) Deadline means the 90th day of the Fiscal Year for which
the Targets are set.
1.19 Peer Companies. Peer Companies are the companies in the S&P 500 as of the first
day of the relevant period other than the Company. If a Peer Company ceases to be a member of the
S&P 500 during the relevant period, then such company will be excluded from the calculation.
1.20 Performance Period. Performance Period means the period commencing May 1, 2011
and ending April 30, 2014.
1.21 Performance Units. Performance Units means the number of units awarded pursuant
to this Agreement that may become Earned Units in accordance with Section 2.5 or 2.8.
1.22 Qualifying Termination. Qualifying Termination shall mean Participants
Termination of Employment which meets the definition of a Qualifying Termination under a written
severance plan sponsored by the Company or a subsidiary of the Company. In the event that no
written severance plan exists for the Participants subsidiary, the definition of Qualifying
Termination contained in any applicable severance plan for the Company will govern.
1.23 Relative TSR. Relative TSR means the percentile placement of the Companys Total
Shareholder Return relative to the Total Shareholder Return of the Peer Companies. Relative Total
Shareholder Return will be determined by ranking the Company and the Peer Companies from highest to
lowest according to their respective Total Shareholder Returns. Based on this ranking, the
percentile performance of the Company relative to the Peer Companies will be determined as follows:
4
P represents the Companys percentile performance which will be rounded, if necessary, to the
nearest whole percentile (with 5 being rounded up). N represents the number of Peer Companies.
R represents Companys ranking among the Peer Companies.
1.24 Retirement. Retirement means the Participants voluntary Termination of
Employment with the Company and each of its subsidiaries at or after attaining age 65.
1.25 Revenue. Revenue means the Companys total revenue, reduced by the portion
thereof that consists of revenue attributable to the ownership or operation of RSM McGladrey, Inc.
and its subsidiaries.
1.26 S&P 500. S&P 500 means the 500 US Companies listed by the Standard and Poors.
1.27 Target Performance. Target Performance means the level of Revenue or EBITDA, as
the case may be, for each Fiscal Year during the Performance Period set by the Committee by the
162(m) Deadline for the applicable Fiscal Year that results in a 100% factor in the Payment Formula
set forth in Section 2.5.
1.28 Targets. Targets for a Fiscal Year mean the Minimum Performance, Target
Performance and Maximum Performance for Revenue and EBITDA for such Fiscal Year.
1.29 Termination of Employment. Termination of Employment, termination of employment
and similar references mean a separation from service within the meaning of Code §409A. A
Participant who is an employee will generally have a Termination of Employment if the Participant
voluntarily or involuntarily terminates employment with the Company. A termination of employment
occurs if the facts and circumstances indicate that the Participant and the Company reasonably
anticipate that no further services will be performed after a certain date or that the level of
bona fide services the Participant will perform after such date (whether as an employee, director
or other independent contractor) for the Company will decrease to no more than 20 percent of the
average level of bona fide services performed (whether as an employee, director or other
independent contractor) over the immediately preceding 36-month period (or full period of services
if the Participant has been providing services for less than 36 months). For purposes of this
Section 1.30, Company includes any entity that would be aggregated with the Company under
Treasury Regulation 1.409A-1(h)(3).
1.30 Total Shareholder Return. Total Shareholder Return for the Performance Period
(or such shorter period provided in Section 2.8) for the Company and each Peer Company means the
percentage for that entity for that period that is the quotient of: (i) the sum of the average
fair market value per share of the entitys common stock for the last thirty (30) trading days of
such period (the Ending Value), minus the average fair market value per share of the entitys
common stock for the most recent thirty (30) trading days
5
preceding the beginning of such period
(the Beginning Value), plus dividends (other than stock dividends) with respect to which the
record date occurs during such period; divided by (ii) the Beginning Value. In the event of a
stock split, reverse stock split or stock dividend having a record date during such year (whether
of the Company or a Peer Company), the Committee shall adjust the Beginning Value by multiplying it
by the ratio of the number of shares outstanding at the beginning of the period to the number of
shares outstanding at the end of the period.
2. Performance Shares.
2.1 Grant of Performance Shares. As of [Grant Date] (the Award Date), the Company
shall award [Number of Shares Granted] Performance Units (the Performance Shares).
2.2 Performance Period. Performance Units shall become Earned Units that shall be
certified by the Committee in accordance with Section 2.5 or 2.8, as applicable, based on the
Companys satisfaction of the Targets during the Performance Period.
2.3 Performance Goals. The Compensation Committee of the Board shall specify by the
162(m) Deadline the Targets to be met during the Performance Period or any sub-periods as a
condition of payment pursuant to this Agreement.
2.4 Dividends and Voting Rights. During the time that Performance Units are
outstanding and subject to substantial risk of forfeiture, the Participant shall not receive
dividend payments, rather dividends will accumulate as if each Performance Unit represented one
Share and the accumulated dividends (without any interest) will be paid to the Participant within
sixty (60) days after the end of the Performance Period to the extent of dividends that are
attributable to Earned Units that are paid to the Participant. Participant shall not have voting
rights with respect to Performance Units or Earned Units.
2.5 Payment Formula. Payments or conversions to Restricted Shares pursuant to this
Agreement shall be based on Earned Units, and the extent to which such Earned Units become vested
pursuant to this Agreement. The percentage of the Performance Units that will become Earned Units
(the Earned Percentage) shall be determined after the end of the Performance Period in accordance
with this section, except as otherwise provided in Section 2.8. The Earned Percentage is the
product of Average Revenue/EBITDA Performance multiplied by the Relative TSR Factor, which
amounts shall be determined as set forth below.
The Average Revenue/EBITDA Performance is the average of the Average EBITDA Performance
(Ave. EBITDA) and the Average Revenue Performance (Ave. Revenue) determined as follows:
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(Average Revenue/EBITDA Performance) =
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(Ave. EBITDA) + (Ave. Revenue) |
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Ave. EBITDA is the average of the EBITDA Factors for each of the three Fiscal Years during
the Performance Period determined as follows:
(Ave. EBITDA) =
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(EBITDA Factor 1) + (EBITDA Factor 2) + (EBITDA Factor 3) |
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EBITDA Factor 1, 2 and 3 refers to the percentage EBITDA Factor for each of the first,
second and third Fiscal Years during the Performance Period, respectively.
EBITDA Factor means the percentage for a Fiscal Year determined as follows: (i) EBITDA for
such Fiscal Year equal to Target Performance for such Fiscal Year results in an EBITDA Factor of
100%; (ii) EBITDA for such Fiscal Year equal to or less than Minimum Performance for such Fiscal
Year results in an EBITDA Factor of 0%; (iii) EBITDA for such Fiscal Year greater than Minimum
Performance for such Fiscal Year and less than Target Performance for such Fiscal Year results in
an EBITDA Factor between 0% and 100% based on straight line interpolation between Minimum and
Target Performance; (iv) EBITDA for such Fiscal Year equal to or greater than Maximum Performance
for such Fiscal Year results in an EBITDA Factor of 200%; and (v) EBITDA for such Fiscal Year
greater than Target Performance for such Fiscal Year and less than Maximum Performance for such
Fiscal Year results in an EBITDA Factor between 100% and 200%, based on straight line interpolation
between Target and Maximum Performance.
Ave. Revenue is the average of the Revenue Factors for each of the three Fiscal Years during
the Performance Period determined as follows:
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(Ave. Revenue) =
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(Revenue Factor 1) + (Revenue Factor 2) + (Revenue Factor 3) |
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Revenue Factor 1, 2 and 3 refers to the percentage Revenue Factor for each of the first,
second and third Fiscal Years during the Performance Period, respectively.
Revenue Factor means the percentage for a Fiscal Year determined as follows: (i) Revenue
for such Fiscal Year equal to Target Performance for such Fiscal Year results in a Revenue Factor
of 100%; (ii) Revenue for such Fiscal Year equal to or less than Minimum Performance for such
Fiscal Year results in a Revenue Factor of 0%; (iii) Revenue for such Fiscal Year greater than
Minimum Performance for such Fiscal Year and less than Target Performance for such Fiscal Year
results in a Revenue Factor between 0% and 100% based on straight line interpolation between
Minimum and Target Performance; (iv) Revenue for such Fiscal Year equal to or greater than Maximum
Performance for such Fiscal Year results in a Revenue Factor of 200%; and (v) Revenue for such
Fiscal Year greater than Target Performance for such Fiscal Year and less than Maximum Performance
for such Fiscal Year results in a Revenue Factor between 100% and 200%, based on straight line
interpolation between Target and Maximum Performance.
7
The Earned Percentage is the product of Average Revenue/EBITDA Performance and the Relative
TSR Factor. The Relative TSR Factor will be 75% if Relative TSR is at or below the 20th
percentile. The Relative TSR Factor will be 125% if the Relative TSR is at or above the 80th
percentile. Relative TSR between the 20th and 80th percentiles results in a Relative TSR Factor
between 75% and 125%, based on straight line interpolation between the 20th and 80th percentiles.
2.6 Vesting. Except as otherwise provided in this Grant Agreement, Participant shall
become vested in the Earned Units only if Participant remains continuously employed by the Company
throughout the Performance Period, and the Participants termination of employment before the end
of the Performance Period shall result in forfeiture of all rights in the Performance Units and
Participant shall not be entitled to a distribution.
2.7 Acceleration of Vesting. Notwithstanding Section 2.6, the Participant shall be
entitled to pro-rata vesting of the Earned Units under this Grant Agreement on the occurrence of
any of the following events; provided that receipt of the benefits set forth in this section 2.7
may be conditioned on the Participant executing and not revoking a release and separation agreement
within 60 days following the date of the applicable event. The pro-rata vesting of the Earned
Units shall be based on the period between the first day of the Performance Period and the
Participants Last Day of Employment. Such award shall be calculated and paid in accordance with
Section 2.10.
(a) Retirement. Upon Retirement or Early Retirement, Participant shall be entitled to
pro-rata vesting of any Earned Units that relate to Performance Units that were awarded more than
one year prior to Retirement or Early Retirement based on the achievement of the Targets as of the
last day of the Performance Period.
(b) Qualifying Termination. If a Participant experiences a Qualifying Termination,
Participant shall be entitled to pro-rata vesting of any Earned Units that relate to Performance
Units that were awarded more than one year prior to the Qualifying Termination based on the
achievement of the Targets as of the last day of the Performance Period.
(c) Disability. In the event Participant terminates employment due to Disability, Participant
shall be entitled to pro-rata vesting of any Earned Units that relate to Performance Units that
were awarded more than one year prior to the Disability based on the achievement of the Targets as
of the last day of the Performance Period.
(d) Death. In the event Participant terminates employment due to Participants death,
Participants estate shall be entitled to pro-rata vesting of any Earned Units that relate to
Performance Units that were awarded more than one year prior to Participants death based on the
achievement of the Targets as of the last day of the Performance Period.
2.8 Change of Control. Notwithstanding Sections 2.5 and 2.6, upon the occurrence of a
Change of Control before the Participant has experienced Termination of Employment with the Company
other than a termination described in Section 2.7, the
8
Performance Units shall be cancelled and a
number of Restricted Shares shall be issued that equal the portion of the number of cancelled
Performance Units that would become Earned Units under Section 2.5 based on: (i) actual Revenue
and EBITDA performance relative to the Targets for each completed Fiscal Year; (ii) the assumption
that performance would have been at Target Performance for Revenue and EBITDA for Fiscal Years that
have not been completed as of the date of the Change of Control; (iii) Relative TSR through the
date of the Change of Control; and (iv) if the Participant terminated employment in a manner
described in Section 2.7 prior to the Change of Control the number of Restricted Shares shall be
further adjusted for the pro-rata adjustment required by Section 2.7. Such Restricted Shares shall
be subject to the terms set forth in this Section 2.8. Unless the Participant terminated
employment before the Change of Control under a circumstance described in Section 2.7, such
Restricted Shares shall be subject to a substantial risk of forfeiture within the meaning of Code
Section 83 until the last day of the Performance Period that applied to the cancelled Performance
Shares. If a Participant Terminated Employment before a Change of Control under a circumstance
described in Section 2.7, the Participant shall, upon the occurrence of the Change of Control,
become 100% vested in all outstanding converted Restricted Shares awarded under this Grant
Agreement.
During the period the Restricted Shares are subject to substantial risk of forfeiture, the
Restricted Shares shall be held by the Company, or its transfer agent or other designee and shall
be subject to restrictions on transfer. Except as otherwise set forth in this Section 2.8, in
order to become vested in the Restricted Shares, the Participant must remain in continuous
employment of the Company during the period any Restricted Shares are subject to substantial risk
of forfeiture. Absent an agreement to the contrary, if Participant experiences a Termination of
Employment with the Company for any reason, other than Qualifying Termination, Good Reason
Termination, Retirement, Early Retirement, Death or Disability while the Restricted Shares are
subject to a substantial risk of forfeiture, all Restricted Shares then held by the Company or its
transfer agent or other designee, if any, shall be forfeited by the Participant and Participant
authorizes the Company and its stock transfer agent to cause delivery, transfer and conveyance of
the Restricted Shares to the Company. If a Participant has a Termination of Employment following a
Change of Control due to a Qualifying Termination, a Good Reason Termination, Retirement, Early
Retirement, Death, or Disability, the Participant shall, upon the occurrence of such termination,
become 100% vested in all outstanding converted Restricted Shares awarded under this Grant
Agreement.
The Restricted Shares shall cease to be subject to a substantial risk of forfeiture and an
equal number of Shares shall be transferred directly into a brokerage account established for the
Participant at a financial institution the Committee shall select at its sole discretion (the
Financial Institution) or delivered in certificate form free of restrictions, such method to be
selected by the Committee in its sole discretion upon: (i) if the Participant Terminated
Employment before a Change of Control under a circumstance described in Section 2.7 other than
death, the later of: (x) the date of the Change of Control, or (y) six months following the date of
Termination of Employment due to a Qualifying Termination, Retirement, Early Retirement or
Disability; (ii) if the Participant Terminated Employment before a Change of Control under a
circumstance described in Section 2.7 due to death, the
9
date of the Change of Control; (iii) if the
Participant Terminated Employment after the date of the Change of Control due to a Qualifying
Termination, Good Reason Termination, Retirement, Early Retirement or Disability, the date that is
six months following the date of Termination of Employment; (iv) if the Participant Terminated
Employment after a Change of Control but prior to the vesting date due to death, the date of death;
or (v) if the Participant did not Terminate Employment prior to the vesting date, the vesting date.
The Participant agrees to complete any documentation with the Company or the financial institution
that is necessary to effect the transfer of Shares to the financial institution before the delivery
will occur.
2.9 Certification of a Performance Award. Upon completion of the Performance Period
or such earlier period set forth in Section 2.8, and prior to the payment of any Earned Units to a
Participant or conversion of Earned Units to Restricted Stock pursuant to Section 2.8, the
Committee shall certify in writing the extent to which the Targets have been satisfied.
2.10 Payment of Performance Awards. Except as provided in Section 2.8 or in this
Section 2.10, vested Earned Units shall be paid out, in Shares of the Common Stock or cash (as
determined by the Committee in its sole discretion), sixty (60) days following the end of the
Performance Period. Payment of any vested Earned Units pursuant to Section 2.7(a), (b) or (c)
shall be made in a single lump sum in Shares of the Common Stock equal to the number of vested
Earned Units, or in cash (as determined by the Committee in its sole discretion), upon the later of
sixty (60) days following the end of the Performance Period, or the date which is six (6) months
following the Participants Last Day of Employment. The amount of any cash paid shall be based
upon the Fair Market Value at the close of the Performance Period of shares of Common Stock covered
by such vested Earned Units.
3. Covenants.
3.1 Consideration for Award under the Plan. Participant acknowledges that
Participants agreement to this Section 3 is a key consideration for any Award under the Plan.
Participant hereby agrees to abide by the Covenants set forth in Sections 3.2, 3.3, and 3.4.
3.2 Covenant Against Competition. Until the later of: (i) the first day following
the Performance Period, or (2) the period of Participants employment and for two (2) years after
his/her Last Day of Employment, Participant acknowledges and agrees he/she will not engage in, or
own or control any interest in, or act as an officer, director or employee of, or consultant,
advisor or lender to, any entity that engages in any business that is competitive with the primary
business activities of the Companys Tax Services business which are tax preparation, accounting,
and small business services.
3.3 Covenant Against Hiring. Participant acknowledges and agrees the he/she will not
directly or indirectly recruit, solicit, or hire any Company employee or otherwise
10
induce any such
employee to leave the Companys employment during the period of Participants employment and for
one (1) year after his/her Last Day of Employment.
3.4 Covenant Against Solicitation. During the period of Participants employment and
for two (2) years after his/her Last Day of Employment, Participant acknowledges and agrees that
he/she will not directly or indirectly solicit or enter into any business transaction of the nature
performed by the Company with any Company client for which Participant personally performed
services or acquired material information.
3.5 Forfeiture of Rights. Notwithstanding anything herein to the contrary, if
Participant violates any provisions of this Section 3, Participant shall forfeit all rights to
payments or benefits under the Plan. All Shares held by the Company and subject to forfeiture on
such date shall terminate.
3.6 Remedies. Notwithstanding anything herein to the contrary, if Participant
violates any provisions of this Section 3, whether prior to, on or after any Settlement of an Award
under the Plan, then Participant shall promptly pay to Company an amount equal to the aggregate
Amount of Gain Realized by the Participant on all Shares received after a date commencing one year
prior to Participants Last Day of Employment. The Participant shall pay Company within three (3)
business days after the date of any written demand by the Company to the Participant.
3.7 Remedies payable in Companys Common Stock or Cash. The Participant shall pay the
amounts described in Section 3.6 in the Companys Common Stock or cash.
3.8 Remedies without Prejudice. The remedies provided in this Section 3 shall be
without prejudice to the rights of the Company and/or the rights of any one or more of its
subsidiaries to recover any losses resulting from the applicable conduct of the Participant and
shall be in addition to any other remedies the Company and/or any one or more subsidiaries may
have, at law or in equity, resulting from such conduct.
3.9 Survival. Participants obligations in this Section 3 shall survive and continue
beyond settlement of all Awards under the Plan and any termination or expiration of this Agreement
for any reason.
4. Transfer Restrictions.
4.1 Transfer Restrictions on Shares. Any Restricted Shares issued pursuant to this
Agreement, and the rights and privileges conferred hereby shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise) and shall not be
subject to sale under execution, attachment or similar process, prior to the lapse of all
restrictions. Upon any attempt, contrary to the terms hereof, to transfer, assign, pledge,
hypothecate, or otherwise so dispose of such Shares or any right or privilege conferred hereby, or
upon any attempted sale under any execution, attachment, or similar process upon such Shares or the
rights and privileges hereby granted, then and in any such event this Agreement and the rights and
privileges hereby granted shall immediately
11
terminate. Immediately after such termination, such
Shares shall be forfeited by the Participant.
4.2 Non-Transferability of Awards Generally. Any Performance Unit, Earned Unit or
other Award (including all rights, privileges and benefits conferred under such Award) shall not be
transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon
any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of any Award, or of any
right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale
under any execution, attachment, or similar process upon the rights and privileges hereby granted,
then and in any such event such Award and the rights and privileges hereby granted shall
immediately become null and void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any
right to continued employment for any period of time, is not an employment contract, and shall not
in any manner modify any effective contract of employment between the Participant and any
subsidiary of the Company.
5.2 Clawback. In the event of a significant restatement of the Companys financial
results and a resulting overpayment in compensation or Awards under this Plan, the Committee may
require reimbursement of any portion of the Amount of Gain Realized from such Awards where such
Awards were greater than the Awards would have been if calculated on the restated financial
results.
5.3 Adjustment of Shares. If there shall be any change in the capital structure of
the Company, including but not limited to a change in the number or kind of the outstanding shares
of the Common Stock resulting from a stock dividend or split-up, or combination or reclassification
of such shares (or of any stock or other securities into which shares shall have been changed, or
for which they shall have been exchanged), then the Board of Directors of the Company may make such
equitable adjustments with respect to the Performance Units, Earned Units and any Restricted Shares
(and Shares following lapse of the restrictions), or any other provisions of the Plan, as it deems
necessary or appropriate to prevent dilution or enlargement of the rights hereunder, of the
Performance Units, Earned Units or of any Restricted Shares subject to this Grant Agreement.
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall
become a party to any corporate merger, consolidation, major acquisition of property for stock,
reorganization, or liquidation, the Board of Directors shall, acting in its absolute and sole
discretion, make such arrangements, which shall be binding upon the Participant of outstanding
Awards, including but not limited to, the substitution of new Awards or for any Awards then
outstanding, the assumption of any such Awards and the termination of or payment for such Awards.
12
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have
the power to provide regulations for administration of the Plan by the Committee and to make any
changes in such guidelines as from time to time the Board may deem necessary. The Committee shall
have the sole power to determine, solely for purposes of the Plan and this Agreement, the date of
and circumstances which shall constitute a cessation or termination of employment and whether such
cessation or termination is the result of retirement, death, disability or termination without
cause or any other reason, and further to determine, solely for purposes of the Plan and this
Agreement, what constitutes continuous employment with respect to the delivery of Shares under the
Grant Agreement (except that leaves of absence approved by the Committee or transfers of employment
among the subsidiaries of the Company shall not be considered an interruption of continuous
employment for any purpose under the Plan).
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or approval
of any governmental regulatory authority, is necessary or desirable as a condition of the executing
an Award or benefit under the Plan, then such action may not be taken, in whole or in part, unless
and until such qualification, registration, consent or approval shall have been effected or
obtained free of any conditions such counsel deems unacceptable.
5.7 Reasonableness of Restrictions, Severability and Court Modification. Participant
and the Company agree that, the restrictions contained in this Agreement are reasonable, but,
should any provision of this Agreement be determined by a court of competent jurisdiction to be
invalid, illegal or otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected thereby, and the
provision found invalid, illegal, or otherwise unenforceable or unreasonable will be considered by
the Company and Participant to be amended as to scope of protection, time or geographic area (or
any one of them, as the case may be) in whatever manner is considered reasonable by that court,
and, as so amended will be enforced.
5.8 Withholding of Taxes. To the extent that the Company is required to withhold
taxes in compliance with any federal, state, local or foreign law in connection with any payment
made or benefit realized by a Participant or other person under this Plan, it shall be a condition
to the receipt of such payment or the realization of such benefit that the Participant or such
other person make arrangements satisfactory to the Company for the payment of all such taxes
required to be withheld. At the discretion of the Committee, such arrangements may include
relinquishment of a portion of such benefit. In the event the Participant has not made
arrangements, the Company shall withhold the amount of such tax obligations from such dividend
payment or instruct the Participants employer to withhold such amount from the Participants next
payment(s) of wages. The Participant authorizes the Company to so instruct the Participants
employer and authorizes the Participants employer to make such withholdings from payment(s) of
wages.
5.9 Waiver. The failure of the Company to enforce at any time any terms, covenants or
conditions of this Agreement shall not be construed to be a waiver of such
13
terms, covenants or
conditions or of any other provision. Any waiver or modification of the terms, covenants or
conditions of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Notices. Any notice to be given to the Company or election to be made under the
terms of this Agreement shall be addressed to the Company (Attention: Long-Term Incentive
Department) at One H&R Block Way, Kansas City Missouri 64105 or at such other address as the
Company may hereafter designate in writing to the Participant. Any notice to be given to the
Participant shall be addressed to the Participant at the last address of record with the Company or
at such other address as the Participant may hereafter designate in writing to the Company. Any
such notice shall be deemed to have been duly given when deposited in the United States mail via
regular or certified mail, addressed as aforesaid, postage prepaid.
5.11 Choice of Law. This Grant Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri without reference to principles of
conflicts of laws.
5.12 Choice of Forum and Jurisdiction. Participant and Company agree that any
proceedings to enforce the obligations and rights under this Grant Agreement must be brought in
Missouri District Court located in Jackson County, Missouri, or in the United States District Court
for the Western District of Missouri in Kansas City, Missouri. Participant agrees and submits to
personal jurisdiction in either court. Participant and Company further agree that this Choice of
Forum and Jurisdiction is binding on all matters related to Awards under the Plan and may not be
altered or amended by any other arrangement or agreement (including an employment agreement)
without the express written consent of Participant and H&R Block, Inc.
5.13 Attorneys Fees. Participant and Company agree that in the event of litigation to
enforce the terms and obligations under this Grant Agreement, the party prevailing in any such
cause of action will be entitled to reimbursement of reasonable attorney fees.
5.14 Relationship of the Parties. Participant acknowledges that this Grant Agreement
is between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block, Inc.
is a holding company and that Participant is not an employee of H&R Block, Inc.
5.15 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.16 Amendment. No amendment, supplement, or waiver to this Agreement is valid or
binding unless in writing and signed by both parties.
5.17 Execution of Agreement. This Agreement shall not be enforceable by either party,
and Participant shall have no rights with respect to the Long Term Incentive Award, unless and
until it has been (1) signed by Participant and on behalf of the Company by an
14
officer of the
Company, provided that the signature by such officer of the Company on behalf of the Company may be
a facsimile or stamped signature, and (2) returned to the Company.
5.18 Section 409A Compliance. To the extent any provision of the Plan or action by
the Board or Committee would subject any Participant to liability for interest, penalties or
additional taxes under Section 409A of the Code, it will be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee. It is intended that the Plan will comply
with or be exempt from Section 409A of the Code, and the Plan shall be interpreted consistent with
such intent. The Plan may be amended in any respect deemed necessary (including retroactively) by
the Committee in order to pursue compliance with or exemption from, as applicable, Section 409A of
the Code. The foregoing shall not be construed as a guarantee of any particular tax effect for
Plan benefits. A Participant or beneficiary as applicable is solely responsible and liable for the
satisfaction of all taxes and penalties that may be imposed on the Participant or beneficiary in
connection with any payments to such Participant or beneficiary under the Plan, including any
taxes, interest and penalties under Section 409A of the Code, and neither the Company nor any
Affiliate shall have any obligation to indemnify or otherwise hold a Participant or beneficiary
harmless from any and all of such taxes and penalties. Notwithstanding any provision of the Plan
that requires action or inaction to avoid the imposition of taxes, penalties or interest due to
Code Section 409A, neither the Company nor any Affiliate shall have any responsibility to so act or
fail to act, and under no circumstances shall the Company or any of its Affiliates have any
liability for any taxes, interest, penalties or other amount imposed due to Code Section 409A.
In consideration of said Award and the mutual covenants contained herein, the parties agree to
the terms set forth above.
The parties hereto have executed this Grant Agreement.
|
|
|
Associate Name:
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[Participant Name] |
|
Date Signed:
|
|
[Acceptance Date] |
H&R BLOCK, INC.
By:
15
exv10w4
Exhibit 10.4
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and William C. Cobb (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan); and
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of May 2, 2011, wherein Participant agrees to abide by certain
terms and conditions authorized by the Compensation Committee of the Board of Directors.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this Grant
Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Agreement or an Award Certificate issued
under the Plan, the following words and phrases shall have the meanings set forth below unless the
context plainly requires a different meaning, and when a defined meaning is intended, the term is
capitalized.
1.1 Code. Code means the Internal Revenue Code of 1986, as amended.
1.2 Committee. Committee means the Compensation Committee of the Board of Directors
for H&R Block, Inc.
1.3 Common Stock. Common Stock means the common stock, without par value, of the
Company.
1.4 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the
context otherwise requires, includes its subsidiary corporations (as defined in Section
424(f) of the Internal Revenue Code) and their respective divisions, departments and
subsidiaries and the respective divisions, departments and subsidiaries of such
subsidiaries.
1.5 Closing Price. Closing Price shall mean the last reported market price for one
share of Common Stock, regular way, on the New York Stock Exchange (or any successor
exchange or stock market on which such last reported market price is reported) on the day in
question. In the event the exchange is closed on the day on which Closing Price is to be
determined or if there were no sales reported on such date, Closing Price
shall be computed as of the last date preceding such date on which the exchange was open and
a sale was reported.
1.6 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one
share of H&R Block, Inc. Stock.
1.7 Restricted Shares. Restricted Share (Shares) means a share of Common Stock
issued to a Participant under the Plan subject to such terms and conditions, including
without limitation, forfeiture or resale to the Company, and to such restrictions against
sale, transfer or other disposition, as the Committee may determine at the time of issuance.
2. Restricted Shares.
2.1 Issuance of Shares. As of May 2, 2011 (the Award Date), the Company shall
issue 128,720 Shares evidenced by this Grant Agreement to the Participant which shall be
held by the Company and subject to the substantial risk of forfeiture.
2.2 Substantial Risk of Forfeiture. The Shares covered hereby shall be subject to a
substantial risk of forfeiture within the meaning of Code Section 83 for a period time as
designated by Section 2.6, subject to Section 2.7.
2.3 Restrictions on Transfer. During for period the Shares are subject to
substantial risk of forfeiture, the Shares shall be held by the Company, or its transfer
agent or other designee and shall be subject to restrictions on transfer.
2.4 [RESERVED]
2.5 Requirement of Employment. The Participant must remain in continuous employment
of the Company during the period any Shares are subject to substantial risk of forfeiture.
Absent an agreement to the contrary, if Participants employment with the Company should
terminate for any reason, other than Retirement, all Shares then held by the Company or its
transfer agent or other designee, if any, shall be forfeited by the Participant and
Participant authorizes the Company and its stock transfer agent to cause delivery, transfer
and conveyance of the Shares to the Company.
2.6 Delivery of Shares. Any Shares to be delivered to the Participant by the Company
in accordance with the following Schedule:
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|
|
|
|
|
|
Percent of Shares Subject to Vesting |
|
Vesting Date |
|
on Such Vesting Date |
|
December 24, 2011 |
|
33 |
% |
|
December 24, 2012 |
|
33 |
% |
|
December 24, 2013 |
|
34 |
% |
|
Upon the vesting date, Shares shall be transferred directly into a brokerage account established
for the Participant at a financial institution the Committee shall select at its sole discretion
(the
2
Financial Institution) or delivered in certificate form free of restrictions, such method to be
selected by the Committee in its sole discretion. The Participant agrees to complete any
documentation with the Company or the financial institution that is necessary to affect the
transfer of Shares to the financial institution before the delivery will occur.
2.7 Acceleration of Vesting. Notwithstanding anything herein to the contrary, the
acceleration of the vesting of any Shares shall occur in accordance with the terms and
conditions of that certain Employment Agreement dated April 27, 2011, between Participant
and H&R Block Management, LLC (the Employment Agreement).
3. [RESERVED]
4. Transfer Restrictions.
4.1 Transfer Restrictions on Shares. During the period that Shares are held by the
Company hereunder for delivery to the Participant, such Shares and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to sale under execution,
attachment or similar process. Upon any attempt, contrary to the terms hereof, to transfer,
assign, pledge, hypothecate, or otherwise so dispose of such Shares or any right or
privilege conferred hereby, or upon any attempted sale under any execution, attachment, or
similar process upon such Shares or the rights and privileges hereby granted, then and in
any such event this Agreement and the rights and privileges hereby granted shall immediately
terminate. Immediately after such termination, such Shares shall be forfeited by the
Participant and the Participant hereby authorizes the Company and its stock transfer agent
to cause the delivery, transfer and conveyance of such Shares to the Company.
4.2 Non-Transferability of Awards Generally. Any Award (including all rights,
privileges and benefits conferred under such Award) shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate, or otherwise dispose of any Award, or of any right or
privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale
under any execution, attachment, or similar process upon the rights and privileges hereby
granted, then and in any such event such Award and the rights and privileges hereby granted
shall immediately become null and void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any
right to continued employment for any period of time, is not an employment contract, and
shall not in any manner modify any effective contract of employment between the Participant
and any subsidiary of the Company.
5.2 [RESERVED]
3
5.3 Adjustment of Shares. If there shall be any change in the capital structure of
the Company, including but not limited to a change in the number or kind of the outstanding
shares of the Common Stock resulting from a stock dividend or split-up, or combination or
reclassification of such shares (or of any stock or other securities into which shares shall
have been changed, or for which they shall have been exchanged), then the Board of Directors
of the Company shall make such equitable adjustments with respect to the Shares, or any
other provisions of the Plan, as it deems necessary or appropriate to prevent dilution or
enlargement of the rights hereunder or of the shares subject to this Grant Agreement.
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall
become a party to any corporate merger, consolidation, major acquisition of property for
stock, reorganization, or liquidation, the Board of Directors shall, acting in its absolute
and sole discretion, make such arrangements, which shall be binding upon the Participant of
outstanding Awards, including but not limited to, the substitution of new Awards or for any
Awards then outstanding, the assumption of any such Awards and the termination of or payment
for such Awards. Notwithstanding the foregoing, no Award may be terminated unless the Award
is fully vested as of such date and the Participant is paid the value thereof.
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have
the power to provide regulations for administration of the Plan by the Committee and to make
any changes in such guidelines as from time to time the Board may deem necessary. The
Committee shall have the sole power to determine, solely for purposes of the Plan and this
Agreement, the date of and circumstances which shall constitute a cessation or termination
of employment and whether such cessation or termination is the result of retirement, death,
disability or termination without cause or any other reason, and further to determine,
solely for purposes of the Plan and this Agreement, what constitutes continuous employment
with respect to the delivery of Shares under the Grant Agreement (except that leaves of
absence approved by the Committee or transfers of employment among the subsidiaries of the
Company shall not be considered an interruption of continuous employment for any purpose
under the Plan). Notwithstanding anything herein or in the Plan to the contrary, any
interpretation of terms used in the Employment Agreement shall be resolved in accordance
with the dispute mechanisms therein and shall bind the Company and the Participant.
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or
approval of any governmental regulatory authority, is necessary or desirable as a condition
of the executing an Award or benefit under the Plan, then such action may not be taken, in
whole or in part, unless and until such qualification, registration, consent or approval
shall have been effected or obtained free of any conditions such counsel deems unacceptable.
5.7 [RESERVED]
4
5.8 Withholding of Taxes. To the extent that the Company is required to withhold
taxes in compliance with any federal, state, local or foreign law in connection with any
payment made or benefit realized by a Participant or other person under this Award, it shall
be a condition to the receipt of such payment or the realization of such benefit that the
Participant or such other person make arrangements satisfactory to the Company for the
payment of all such taxes required to be withheld. Such arrangements shall include
relinquishment of a portion of such payment or benefit, and in the event the Participant has
not made any such arrangements, such relinquishment shall be automatic.
5.9 Waiver. The failure of the Company to enforce at any time any terms or
conditions of this Agreement shall not be construed to be a waiver of such terms or
conditions or of any other provision. Any waiver or modification of the terms or conditions
of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Incorporation. The terms and conditions of this Grant Agreement are authorized
by the Compensation Committee of the Board of Directors of H&R Block, Inc.
5.11 Notices. Any notice to be given to the Company or election to be made under the
terms of this Agreement shall be addressed to the Company (Attention: Long-Term Incentive
Department) at One H&R Block Way, Kansas City Missouri 64105 or at such other address as the
Company may hereafter designate in writing to the Participant. Any notice to be given to the
Participant shall be addressed to the Participant at the last address of record with the
Company or at such other address as the Participant may hereafter designate in writing to
the Company. Any such notice shall be deemed to have been duly given when deposited in the
United States mail via regular or certified mail, addressed as aforesaid, postage prepaid.
5.12 Choice of Law. This Grant Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri without reference to
principles of conflicts of laws.
5.13 Choice of Forum and Jurisdiction. Participant and Company agree that any
proceedings to enforce the obligations and rights under this Grant Agreement must be brought
in Missouri District Court located in Jackson County, Missouri, or in the United States
District Court for the Western District of Missouri in Kansas City, Missouri. Participant
and Company agree and submit to personal jurisdiction in either court. Participant and
Company further agree that this Choice of Forum and Jurisdiction is binding on all matters
related to Awards under the Plan and may not be altered or amended by any other arrangement
or agreement (including an employment agreement) without the express written consent of
Participant and H&R Block, Inc.
5.14 [RESERVED]
5.15 Relationship of the Parties. Participant acknowledges that this Grant Agreement
is between H&R Block, Inc. and Participant. Participant further acknowledges that H&R
5
Block, Inc. is a holding company and that Participant is not an employee of H&R Block, Inc.
5.16 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.17 Amendment. No amendment, supplement, or waiver to this Agreement is valid or
binding unless in writing and signed by both parties.
5.18 Execution of Agreement. This Agreement shall not be enforceable by either
party, and Participant shall have no rights with respect to the Long Term Incentive Award,
unless and until it has been (1) signed by Participant and on behalf of the Company by an
officer of the Company, provided that the signature by such officer of the Company on behalf
of the Company may be a facsimile or stamped signature, and (2) returned to the Company.
5.19 Conflicts. To the extent there is any conflict between this Agreement and the
Employment Agreement, the Employment Agreement shall control.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
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Associate Name:
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William C. Cobb |
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Date Signed: |
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H&R BLOCK, INC.
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By: |
/s/ Tammy Serati
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Name: |
Tammy Serati |
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Title: |
Senior Vice President, Human Resources |
|
|
6
exv10w5
Exhibit 10.5
H&R BLOCK, INC.
2003 LONG-TERM EXECUTIVE COMPENSATION PLAN
GRANT AGREEMENT
This Grant Agreement is entered into by and between H&R Block, Inc., a Missouri corporation
(the Company), and William C. Cobb (Participant).
WHEREAS, the Company provides certain incentive awards to key employees of subsidiaries of the
Company under the H&R Block, Inc. 2003 Long-Term Executive Compensation Plan (the Plan); and
WHEREAS, receipt of such Awards under the Plan are conditioned upon a Participants execution
of a Grant Agreement within 180 days of May 2, 2011, wherein Participant agrees to abide by certain
terms and conditions authorized by the Compensation Committee of the Board of Directors.
NOW THEREFORE, in consideration of the parties promises and agreements set forth in this Grant
Agreement, the sufficiency of which the parties hereby acknowledge,
IT IS AGREED AS FOLLOWS:
1. Definitions. Whenever a term is used in this Grant Agreement (Agreement), the
following words and phrases shall have the meanings set forth below unless the context plainly
requires a different meaning, and when a defined meaning is intended, the term is capitalized.
1.1 Code. Code means the Internal Revenue Code of 1986, as amended.
1.2 Committee. Committee means the Compensation Committee of the Board of Directors
for H&R Block, Inc.
1.3 Common Stock. Common Stock means the common stock, without par value, of the
Company.
1.4 Company. Company means H&R Block, Inc., a Missouri corporation, and, unless the
context otherwise requires, includes its subsidiary corporations (as defined in Section
424(f) of the Internal Revenue Code) and their respective divisions, departments and
subsidiaries and the respective divisions, departments and subsidiaries of such
subsidiaries.
1.5 Closing Price. Closing Price shall mean the last reported market price for one
share of Common Stock, regular way, on the New York Stock Exchange (or any successor
exchange or stock market on which such last reported market price is reported) on the day in
question. In the event the exchange is closed on the day on which Closing
Price is to be determined or if there were no sales reported on such date, Closing Price
shall be computed as of the last date preceding such date on which the exchange was open and
a sale was reported.
1.6 Fair Market Value. Fair Market Value (FMV) means the Closing Price for one
share of H&R Block, Inc. Stock.
1.7 Stock Option. Stock Option means the right to purchase, upon exercise of a stock
option granted under the Plan, shares of the Companys Common Stock. A Stock Option may be
an Incentive Stock Option which meets the requirements of Code Section 422(b) or a
Nonqualified Stock Option. The right and option to purchase shares of Common Stock
identified as subject to Nonqualified Stock Option shall not constitute and shall not be
treated for any purpose as an incentive stock option, as such term is defined in the Code.
2. Stock Option.
2.1 Grant of Stock Option. As of May 2, 2011 (the Grant Date), the Company grants
the Participant the right and option to purchase 606,470 shares of Common Stock (this Stock
Option) identified as non-qualified stock options.
2.2 Option Price. The Price per share of Common Stock subject to this Stock Option
is $17.48, which is the Closing Price on the Grant Date.
2.3 Vesting. This Stock Option shall vest and become exercisable in installments
with regard to the percentage of the number of shares of Common Stock subject to this Stock
Option indicated next to each vesting date set forth in the table below provided that the
Participant remains continuously employed by the Company through such date:
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|
|
|
Percent of Shares Subject to this |
|
|
|
Stock Option Vesting on Such |
|
Vesting Date |
|
Vesting Date |
|
December 24, 2011 |
|
33 |
% |
|
December 24, 2012 |
|
33 |
% |
|
December 24, 2013 |
|
34 |
% |
|
(Note: If the percentage of the aggregate number of shares of Common Stock subject to this Stock
Option scheduled to vest on a vesting date is not a whole number of shares, then the amount vesting
shall be rounded down to the nearest whole number of shares for each vesting date, except that the
amount vesting on the final vesting date shall be such that 100% of the aggregate number of shares
of Common Stock subject to this Stock Option shall be cumulatively vested as of the final vesting
date.)
2.4 Acceleration of Vesting. Notwithstanding anything herein to the contrary, the
acceleration of the vesting of this Stock Option shall occur in accordance with the terms
and conditions of that certain Employment Agreement dated April 27, 2011, between
Participant and H&R Block Management, LLC (the Employment Agreement).
2.5 Term of Option. No Stock Option granted under this Grant Agreement may be
exercised after May 2, 2021. Except as provided in the Employment Agreement, all Stock
2
Options shall terminate when the Participant ceases, for whatever reason, to be an employee
of any of the subsidiaries of the Company.
2.6 Participants Death. In the event the Participant ceases to be an employee of
any of the subsidiaries of the Company because of death, the Participants rights under the
Stock Option shall pass by the Participants will or laws of descent and distribution.
2.7 Exercise of Stock Option. The Stock Option granted under the Plan shall be
exercisable from time to time by the Participant by giving notice of exercise to the
Company, in the manner specified by the Company, specifying the number of whole shares to be
purchased, and accompanied by full payment of the purchase price. The right to purchase
shall be cumulative, so that the full number of shares of Common Stock that become
purchasable at any time need not be purchased at such time, but may be purchased at any time
or from time to time thereafter (but prior to the termination of the Stock Option).
2.8 Payment of the Option Price. Full payment of the Option Price for shares
purchased shall be made at the time the Participant exercises the Stock Option. Payment of
the aggregate Option Price may be made in (a) cash, (b) by delivery of Common Stock (with a
value equal to the Closing Price of Common Stock on the last trading date preceding the date
on which the Stock Option is exercised), or (c) a combination thereof. Payment shall be made
only in cash unless at least six months have elapsed between the date of Participants
acquisition of each share of Common Stock delivered by Participant in full or partial
payment of the aggregate Option Price and the date on which the Stock Option is exercised.
2.9 No Shareholder Privileges. Neither the Participant nor any person claiming under
or through him or her shall be, or have any of the rights or privileges of, a shareholder of
the Company with respect to any of the Common Stock issuable upon the exercise of this Stock
Option, unless and until certificates evidencing such shares of Common Stock shall have been
duly issued and delivered.
3. [RESERVED]
4. Non-Transferability of Awards. Any Stock Option (including all rights, privileges and
benefits conferred under such Award) shall not be transferred, assigned, pledged, or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any Stock Option, or of any right or privilege conferred
hereby, contrary to the provisions hereof, or upon any attempted sale under any execution,
attachment, or similar process upon the rights and privileges hereby granted, then and in any such
event such Award and the rights and privileges hereby granted shall immediately become null and
void.
5. Miscellaneous.
5.1 No Employment Contract. This Agreement does not confer on the Participant any
right to continued employment for any period of time, is not an employment contract, and
3
shall not in any manner modify any effective contract of employment between the Participant
and any subsidiary of the Company.
5.2 [RESERVED]
5.3 Adjustment of Shares. If there shall be any change in the capital structure of
the Company, including but not limited to a change in the number or kind of the outstanding
shares of the Common Stock resulting from a stock dividend or split-up, or combination or
reclassification of such shares (or of any stock or other securities into which shares shall
have been changed, or for which they shall have been exchanged), then the Board of Directors
of the Company shall make such equitable adjustments with respect to the Stock Option, or
any other provisions of the Plan, as it deems necessary or appropriate to prevent dilution
or enlargement of the Stock Option rights hereunder or of the shares subject to this Stock
Option.
5.4 Merger, Consolidation, Reorganization, Liquidation, etc. If the Company shall
become a party to any corporate merger, consolidation, major acquisition of property for
stock, reorganization, or liquidation, the Board of Directors shall, acting in its absolute
and sole discretion, make such arrangements, which shall be binding upon the Participant of
outstanding Awards, including but not limited to, the substitution of new Awards or for any
Awards then outstanding, the assumption of any such Awards and the termination of or payment
for such Awards. Notwithstanding the foregoing, the Stock Option may be terminated unless
the Stock Option is fully vested as of such date and the Participant is either paid the
value thereof or given a reasonable opportunity to exercise the Stock Option in full.
5.5 Interpretation and Regulations. The Board of Directors of the Company shall have
the power to provide regulations for administration of the Plan by the Committee and to make
any changes in such guidelines as from time to time the Board may deem necessary. The
Committee shall have the sole power to determine, solely for purposes of the Plan and this
Agreement, the date of and circumstances which shall constitute a cessation or termination
of employment and whether such cessation or termination is the result of retirement, death,
disability or termination without cause or any other reason,
and further to determine, solely for purposes of the Plan and this Agreement, what
constitutes continuous employment with respect to the exercise of Stock Option or delivery
of Shares under the Plan (except that leaves of absence approved by the Committee or
transfers of employment among the subsidiaries of the Company shall not be considered an
interruption of continuous employment for any purpose under the Plan). Notwithstanding
anything herein or in the Plan to the contrary, any interpretation of terms used in the
Employment Agreement shall be resolved in accordance with the dispute mechanisms therein and
shall bind the Company and the Participant.
5.6 Reservation of Rights. If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the consent or
approval of any governmental regulatory authority, is necessary or desirable as a condition
of the executing an Award or benefit under the Plan, then such action may not be taken, in
whole or in part, unless and until such qualification, registration, consent or
4
approval
shall have been effected or obtained free of any conditions such counsel deems unacceptable.
5.7 [RESERVED]
5.8 Withholding of Taxes. To the extent that the Company is required to withhold
taxes in compliance with any federal, state, local or foreign law in connection with any
payment made or benefit realized by a Participant or other person under this Award, it shall
be a condition to the receipt of such payment or the realization of such benefit that the
Participant or such other person make arrangements satisfactory to the Company for the
payment of all such taxes required to be withheld. Such arrangements shall include
relinquishment of a portion of such payment or benefit, and in the event the Participant has
not made any such arrangements, such relinquishment shall be automatic.
5.9 Waiver. The failure of the Company to enforce at any time any terms or
conditions of this Agreement shall not be construed to be a waiver of such terms or
conditions or of any other provision. Any waiver or modification of the terms or conditions
of this Agreement shall only be effective if reduced to writing and signed by both
Participant and an officer of the Company.
5.10 Incorporation. The terms and conditions of this Grant Agreement are authorized
by the Compensation Committee of the Board of Directors of H&R Block, Inc.
5.11 Notices. Any notice to be given to the Company or election to be made under the
terms of this Agreement shall be addressed to the Company (Attention: Long-Term Incentive
Department) at One H&R Block Way, Kansas City Missouri 64105 or at such other address as the
Company may hereafter designate in writing to the Participant. Any notice to be given to the
Participant shall be addressed to the Participant at the last address of record with the
Company or at such other address as the Participant may hereafter designate in writing to
the Company. Any such notice shall be deemed to have been duly given when deposited in the
United States mail via regular or certified mail, addressed as aforesaid, postage prepaid.
5.12 Choice of Law. This Grant Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri without reference to
principles of conflicts of laws.
5.13 Choice of Forum and Jurisdiction. Participant and Company agree that any
proceedings to enforce the obligations and rights under this Grant Agreement must be brought
in Missouri District Court located in Jackson County, Missouri, or in the United States
District Court for the Western District of Missouri in Kansas City, Missouri. Participant
and Company agree and submit to personal jurisdiction in either court. Participant and
Company further agree that this Choice of Forum and Jurisdiction is binding on all matters
related to Awards under the Plan and may not be altered or amended by any other arrangement
or agreement (including an employment agreement) without the express written consent of
Participant and H&R Block, Inc.
5.14 [RESERVED]
5
5.15 Relationship of the Parties. Participant acknowledges that this Grant Agreement
is between H&R Block, Inc. and Participant. Participant further acknowledges that H&R Block,
Inc. is a holding company and that Participant is not an employee of H&R Block, Inc.
5.16 Headings. The section headings herein are for convenience only and shall not be
considered in construing this Agreement.
5.17 Amendment. No amendment, supplement, or waiver to this Agreement is valid or
binding unless in writing and signed by both parties.
5.18 Execution of Agreement. This Agreement shall not be enforceable by either
party, and Participant shall have no rights with respect to the Long Term Incentive Award,
unless and until it has been (1) signed by Participant and on behalf of the Company by an
officer of the Company, provided that the signature by such officer of the Company on behalf
of the Company may be a facsimile or stamped signature, and (2) returned to the Company.
5.19 Conflicts. To the extent there is any conflict between this Agreement and the
Employment Agreement, the Employment Agreement shall control.
In consideration of said Award and the mutual covenants contained herein, the parties agree to the
terms set forth above.
The parties hereto have executed this Grant Agreement.
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Associate Name:
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William C. Cobb |
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Date Signed: |
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H&R BLOCK, INC.
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By: |
/s/ Tammy Serati
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Name: |
Tammy Serati |
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Title: |
Senior Vice President, Human Resources |
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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 quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting 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: September 1, 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 quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting 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: September 1, 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 quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the fiscal quarter ending July 31, 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.
September 1, 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 quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the fiscal quarter ending July 31, 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.
September 1, 2011 |
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