UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 19, 2012
H&R BLOCK, INC.
(Exact name of registrant as specified in charter)
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Missouri
(State of Incorporation)
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1-6089
(Commission File Number)
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44-0607856
(I.R.S. Employer
Identification Number)
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One H&R Block Way, Kansas City, MO 64105
(Address of Principal Executive Offices) (Zip Code)
(816) 854-3000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.05. Costs Associated with Exit or Disposal Activities.
On April 19, 2012, the Board of Directors of H&R Block, Inc. (the “Company”) committed the Company to a strategic realignment to create a more cohesive end-to-end client experience, to drive better efficiency and accountability throughout the organization, and to align its resources to balance long-term client and revenue growth. As part of the realignment, the Company has offered a voluntary separation package to eligible employees, after which the Company will implement involuntary separations in the event the voluntary program does not achieve the targeted result. Approximately 350 positions throughout the organization will be eliminated. The Company will also
close approximately 200 underperforming company-owned retail tax offices. The Company expects to incur an estimated pre-tax charge related to lease termination, severance and related costs under the realignment of approximately $30 million (of which $25 million represents lease termination and severance costs and $5 million represents other related costs), which will be recorded in the fiscal quarter ending April 30, 2012. The Company expects that substantially all payments related to such costs will be made in the first quarter of fiscal year 2013. A copy of the press release announcing the realignment is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
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Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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(b) On April 25, 2012, Philip L. Mazzini, President of Retail Tax Services, informed the Company that he will resign from the Company effective April 30, 2012. A copy of the press release announcing Mr. Mazzini’s resignation is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Item 8.01. Other Events.
Preliminary Fiscal Year-to-Date Tax Results and Earnings Guidance
On April 25, 2012, the Company issued a press release regarding preliminary fiscal year-to-date tax results through April 18, 2012. A copy of the press release is furnished as Exhibit 99.2 to this Current Report on Form 8-K.
On April 25, 2012, in the press release furnished as Exhibit 99.1 hereto, the Company also announced that fiscal year 2012 total revenues are expected to be approximately $2.9 billion and that GAAP diluted earnings from continuing operations for fiscal year 2012 are expected to be in the range of $1.09 to $1.15 per share.
Sand Canyon Corporation Update
Sand Canyon Corporation, formerly known as Option One Mortgage Corporation, and its subsidiaries (collectively, “SCC”), ceased originating mortgage loans in 2007 and, in 2008, sold its servicing assets and discontinued its remaining operations. SCC retained contingent liabilities that arose prior to the disposal of its servicing assets and termination of its remaining operations, including certain mortgage loan repurchase and indemnification obligations and litigation claims.
Representation and Warranty Claims
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 such a representation and warranty and such breach materially and adversely affects the value of a mortgage loan or a securitization insurer's or certificate holder’s interest in the mortgage loan, SCC may be obligated to repurchase the loan or otherwise indemnify certain parties for losses incurred in connection with loan liquidation. Generally, repurchase requests are not subject to a stated term, but actions to enforce a repurchase obligation would be subject to the applicable statutes of limitations.
Through April 24, 2012, SCC has received new claims for alleged breaches of representations and warranties in the principal amount of $543 million since the fiscal third quarter ended Jan. 31, 2012. SCC will assess its accrual for representation and warranty related liabilities as of April 30, 2012, in connection with its fiscal year-end reporting.
Additional discussion concerning SCC may be found in the Company’s most recent quarterly filing on Form 10-Q, filed on March 7, 2012, and in other filings by the Company with the Securities and Exchange Commission.
Litigation Claims, Lawsuits and Investigations
In addition to representation and warranty claims, SCC remains subject to pending and threatened investigations, litigation and indemnification claims and lawsuits pertaining to its loan origination and securitization activities prior to the termination of its originating activities in 2007.
On April 24, 2012, the U.S. Securities and Exchange Commission (the “SEC”) simultaneously filed a complaint, styled United States Securities and Exchange Commission vs. Option One Mortgage Corporation (the “Complaint”), and a proposed settlement in connection with its investigation into residential mortgage-backed securities sales activities of Option One Mortgage Corporation (n/k/a Sand Canyon Corporation) (“OOMC”). As disclosed in our Form 10-Q dated March 7, 2012, SCC recorded a pretax liability in the amount of $28 million in connection with this matter during the fiscal third quarter ended Jan. 31,
2012. The negotiated settlement, in which OOMC neither admits nor denies the allegations of the Complaint, calls for the payment of $28,232,585 in full settlement of all claims. The parties have submitted the negotiated settlement to the U.S. District Court for confirmation. The proposed settlement is subject to the court’s approval.
In addition to pending claims that have been previously disclosed, certain entities, including American International Group, Inc. and Sealink Funding Ltd., have threatened to assert claims of various types in the approximate aggregate amount of $835 million in connection with the sale and securitization of SCC-originated mortgage loans. SCC has also received notices for indemnification from underwriters named in lawsuits involving securitizations backed by loans originated by SCC during the time that it operated as OOMC, but neither SCC nor OOMC is named as a party in those suits. We are currently unable to reasonably estimate any loss or range of possible loss with respect to the foregoing
types of claims.
The costs involved in defending against and/or resolving these investigations, claims and lawsuits may be substantial and the ultimate resulting liability is difficult to predict. In the current non-prime mortgage environment, the number and frequency of investigations, claims and lawsuits has increased over historical experience and is likely to continue at increased levels. In the event of unfavorable outcomes, the amount SCC may be required to pay in the discharge of liabilities or settlements could be substantial and, because SCC's operating results are included in our consolidated financial statements, could have a material adverse impact on our consolidated results of
operations.
Additional Litigation Update
On April 16, 2012, and April 19, 2012, putative class action lawsuits were filed against us in state and federal courts, respectively, in Missouri concerning a compliance fee charged to retail tax clients beginning in the 2011 tax season. The cases are styled Manuel H. Lopez III v. H&R Block, Inc. et al. in the Circuit Court of Jackson County, Missouri (no case number has been assigned yet) and Ronald Perras v. H&R Block, Inc. et al., (Case No. 4:12-cv-00450-DGK in the U.S. District Court for the Western District of Missouri). Taken together, the cases purport to allege claims on
behalf of retail tax clients nationwide for state statutory violations, money had and received, and unjust enrichment associated with the fee. We believe we have meritorious defenses to these cases and intend to defend these cases vigorously, but there can be no assurances as to the outcome of these cases or their impact on our consolidated financial position, results of operations and cash flows.
Item 9.01. Financial Statements and Exhibits.
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(d)
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Exhibits
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Exhibit Number
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Description
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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H&R BLOCK, INC.
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Date: April 25, 2012
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By: /s/ Scott W. Andreasen
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Scott W. Andreasen
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Vice President and Secretary
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EXHIBIT INDEX
Exhibit 99.1
News Release
For Further Information
Investor Relations: Derek Drysdale, (816) 854-4513, derek.drysdale@hrblock.com
Media Relations: Gene King, (816) 854-4672, gene.king@hrblock.com
H&R Block Announces Strategic Realignment of Organization; Preliminary Fiscal 2012 Financial Results
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Strategic realignment expected to realize net annualized savings of $85 to $100 million by end of fiscal year 2013
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Company to record fourth quarter pretax charge for lease termination, severance and related costs of approximately $30 million, or $0.06 per share
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Company expects fiscal 2012 total revenues of approximately $2.9 billion and GAAP diluted earnings per share from continuing operations of $1.09 to $1.15
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For Immediate Release: April 25, 2012
KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today announced a broad strategic realignment to create a more cohesive end-to-end client experience, to drive better efficiency and accountability throughout the organization, and to align its resources to balance long-term client and revenue growth. Overall, the company expects to realize net annualized savings of $85 to $100 million by the end of fiscal year 2013 as a result of the strategic realignment.
“Following the completion of my first tax season and a strategic review of our organization, we believe this realignment is an important next step in becoming a nimbler, more profitable, and more client-centric company,” said Bill Cobb, H&R Block’s President and Chief Executive Officer. “We have settled on a new organizational structure and identified more efficient ways to operate. We believe these actions will allow us to compete more effectively, more quickly respond to our clients’ needs, and invest in our future as we intensify efforts in our core businesses.”
As part of the measure, the company is offering a voluntary separation program to eligible employees throughout the organization. The company will review each application for voluntary separation on an individual basis. In the event the company does not achieve the targeted number of separations from the voluntary program, involuntary separations will follow. Overall, the company plans to eliminate approximately 350 full-time positions throughout its Kansas City headquarters and nationwide field organization. The company also will streamline
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its seasonal workforce and close approximately 200 underperforming company-owned offices.
“We believe offering a voluntary separation program is an important option to reduce our cost structure,” added Cobb. “Changes such as these are always difficult and we appreciate the hard work and dedication of all our associates. However, these steps are necessary so we can create a stronger company, invest in our future, and produce greater value for our clients and shareholders.”
U.S. Client Services
The company also announced an organizational realignment, including the formation of U.S. Client Services. The four executives leading this unit will all directly report to Cobb.
“It became clear during our strategic review and benchmarking that the model of having separate retail and digital leadership is no longer viable,” said Cobb. “Consistent with many other consumer-facing companies who serve clients effectively through both retail and digital offerings, we have taken steps that will enable us to drive a more cohesive end-to-end client experience, and go to market in a seamless fashion for the 22.2 million clients we serve in the U.S. The four executives who will lead U.S. Client Services all have a proven track record of generating strong results, and their leadership, energy and commitment to our clients will serve us well as we continue our work to position the company for long-term revenue and earnings
growth.”
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In-line with its philosophy of serving clients anywhere, anyway, and anyhow they choose to be served, the company will integrate the strategy, planning and development of all forms of U.S. tax services under the leadership of Jason Houseworth, who was named President of U.S Tax Services. Over the past two years, Houseworth has led the company’s digital tax operations to cumulative client growth of 26 percent and an estimated 150 basis points of cumulative share gains in the digital online category. Houseworth joined H&R Block in 2008 and is credited with founding the company’s Client Innovation Lab.
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Susan Ehrlich, President of Financial Services, will continue to lead the company’s efforts to grow its H&R Block Emerald Prepaid MasterCard® and all other forms of financial services offered to its retail and digital tax clients. She also will continue to have direct oversight of H&R Block Bank. Ehrlich joined H&R Block in 2011 after a 20 year career in key leadership roles to develop and deliver payment and credit solutions for JP Morgan Chase, Sears Financial Services, WaMu Card Services (Providian Financial), and Citibank. Ehrlich has been recognized the past three years by American Banker magazine as one of the 25 Most Powerful Women in Finance.
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Amy McAnarney has been appointed President of Retail Client Services and will be squarely focused on driving service delivery of tax and financial services to the company’s 14.9 million U.S. retail clients throughout its
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nationwide network of more than 10,000 company-owned and franchise offices. She has held numerous executive positions since joining H&R Block in 1997, including Vice President of Finance and Vice President of Tax Strategy. Most recently, McAnarney served as Senior Vice President of Operations Support and Franchise Development where she was accountable for strategy deployment, client experience development, operations support, and the strategy and development of the company’s franchisee network. She also founded The Tax Institute™ at H&R Block, which quickly developed into a leading source for objective insights into tax law, policy and
research.
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Robert Turtledove, Chief Marketing Officer, will continue to drive the company’s client acquisition, retention and growth across U.S. Client Services by leading the company’s brand, online, field, research and social marketing strategies. Turtledove joined H&R Block in 2009 after more than 25 years of experience in consumer, brand, retail, digital and international marketing with some of the world’s most iconic brands such as Pepsi, Pizza Hut, Frito Lay and Unilever.
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Phil Mazzini, President of Retail Tax Services, has resigned from the company effective April 30, 2012.
“I am very sorry that Phil has decided to move on, but I understand his desire to take on new challenges. He did a great job leading the growth of our U.S. Retail Tax business over the past two years and we wish him all the best in the future,” said Cobb.
Chief Financial Officer
The company also announced it has retained Crist|Kolder Associates to lead the search for a new Chief Financial Officer. The company’s current CFO, Jeff Brown, will remain with the company and continue to serve as CFO during the search for a successor. Once a successor is found, Brown will transition to Chief Accounting and Risk Officer, where he will oversee all aspects of the company’s accounting function and coordinate its enterprise risk management approach.
“I would really like to thank Jeff for stepping into the CFO role 18 months ago during a period of significant change,” said Cobb. “Jeff’s profound knowledge and insight into the business has been a valuable resource to H&R Block over the past 10 years. I am very pleased that we are able to continue leveraging his extensive leadership and accounting experience going forward.”
Preliminary Fiscal 2012 Financial Results
H&R Block plans to report its fourth quarter and fiscal 2012 results on Tuesday, June 26 after the NYSE market close. The company expects to incur a pretax charge for lease termination, severance and related costs of approximately $30 million, or $0.06 per share, which will be recorded in the fiscal fourth quarter ending April 30. The company expects fiscal 2012 total revenues of approximately $2.9 billion and GAAP diluted earnings from continuing operations of $1.09 to $1.15 per share.
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“Over the past year, we have sharpened our strategy, taken steps to resolve outstanding litigation, and shed non-core assets, which detracted focus away from our core businesses and negatively impacted our margins,” said Cobb. “These actions, along with today’s realignment resulted in a number of charges in fiscal 2012. We believe we’ve essentially cleared the decks this year to better position us for long-term earnings growth, margin expansion and improved shareholder returns.”
Form 8-K Filing
The company today also filed a Form 8-K with the Securities and Exchange Commission describing certain items in this press release and other matters, including an update on Sand Canyon Corporation, an indirect subsidiary of the company.
Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the federal securities laws. 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 management's current expectations or predictions of future conditions, events or results. They may include estimates of revenues, income, earnings per share,
capital expenditures, dividends, liquidity, capital structure or other financial items, descriptions of management's plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company’s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by federal securities laws. By their nature, forward-looking statements are subject to risks and uncertainties. For a discussion of these and other factors that could cause the company’s future
results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company’s 2011 Annual Report on Form 10-K and in other filings by the company with the Securities and Exchange Commission.
About H&R Block
H&R Block, Inc. (NYSE: HRB) has prepared more than 575 million tax returns worldwide since 1955, making it the country’s largest tax services provider. In fiscal 2011, H&R Block had annual revenues of nearly $3 billion and prepared more than 24.5 million tax returns worldwide, including Canada and Australia. Tax return preparation services are provided in company-owned and franchise retail tax offices by approximately 100,000 professional tax preparers, and through H&R Block At Home™ digital products. H&R Block Bank provides affordable banking products and
services. For more information, visit the H&R Block Online Press Center.
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Exhibit 99.2
News Release
For Further Information
Investor Relations: Derek Drysdale, (816) 854-4513, derek.drysdale@hrblock.com
Media Relations: Gene King, (816) 854-4672, gene.king@hrblock.com
H&R Block Serves Record Total U.S. Clients Through April 18
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22.2 million total U.S. tax returns prepared, up 962,000 or 4.5 percent
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Total online1 returns prepared grow more than 20 percent; total digital returns increase 12.3 percent
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Total U.S. retail returns prepared up 1.0 percent; aggregate net U.S. retail tax preparation fees up 1.1 percent
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Total H&R Block Emerald Prepaid MasterCard® units grow 24 percent to 2.9 million
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For Immediate Release: April 25, 2012
KANSAS CITY, Mo. – H&R Block, Inc. (NYSE: HRB) today reported that total U.S. tax returns prepared fiscal year-to-date through April 18 reached a record 22.2 million, up 4.5 percent compared to the prior year period. The company reported client growth for the second consecutive year in both its U.S. retail and digital channels.
“I am pleased that we served nearly 1 million additional clients throughout our U.S. retail and digital tax channels this year,” said Bill Cobb, H&R Block’s president and chief executive officer. “Our preliminary analysis suggests we gained approximately 50 basis points of total U.S. share, including 60 basis points of share in the digital online category and 20 basis points in the assisted category.”
Total digital tax returns prepared increased 12.3 percent fiscal-year-to-date through April 18, led by online1 unit growth of more than 20 percent. Total U.S. retail returns prepared grew 1.0 percent, while aggregate net U.S. retail tax preparation fees grew 1.1 percent for the comparable period. Last September, the company discontinued its EXPRESSTAX franchise offices, which collectively prepared nearly 100,000 tax returns. Excluding EXPRESSTAX returns prepared through April 18, 2011, as well as EXPRESSTAX returns retained by H&R Block through April 18,
2012, total U.S. retail returns prepared grew 1.6 percent.
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Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the federal securities laws. 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 management's current expectations or predictions of future conditions, events or results. They may include estimates of revenues, income, earnings per share,
capital expenditures, dividends, liquidity, capital structure or other financial items, descriptions of management's plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company’s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes, except as required by federal securities laws. By their nature, forward-looking statements are subject to risks and uncertainties. For a discussion of these and other factors that could cause the company’s future
results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company’s 2011 Annual Report on Form 10-K and in other filings by the company with the Securities and Exchange Commission.
About H&R Block
H&R Block, Inc. (NYSE: HRB) has prepared more than 575 million tax returns worldwide since 1955, making it the country’s largest tax services provider. In fiscal 2011, H&R Block had annual revenues of nearly $3 billion and prepared more than 24.5 million tax returns worldwide, including Canada and Australia. Tax return preparation services are provided in company-owned and franchise retail tax offices by approximately 100,000 professional tax preparers, and through H&R Block At Home™ digital products. H&R Block Bank provides affordable banking products and
services. For more information, visit the H&R Block Online Press Center.
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TABLE FOLLOWS
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Preliminary U.S. Tax Operating Data
(in thousands)
| Fiscal Year to Date as of 4/18/12 | Fiscal Year to Date as of 4/18/11 | Percent change | |||||
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Total returns prepared: (1)
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Company-owned operations
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9,201
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9,057
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1.6%
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Franchise operations
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5,661
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5,651
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0.2%
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Total retail operations
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14,862
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14,708
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1.0%
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Software
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2,115
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2,148
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-1.5%
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Online
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4,400
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3,655
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20.4%
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Sub-total
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6,515
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5,803
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12.3%
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Free File Alliance
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856
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760
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12.6%
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Total digital tax solutions
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7,371
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6,563
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12.3%
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22,233
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21,271
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4.5%
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(1) Prior year numbers have been reclassified between company-owned and franchise operations for offices which were refranchised during either year.