SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-6089
H&R BLOCK, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 44-0607856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4410 Main Street
Kansas City, Missouri 64111
(Address of principal executive offices, including zip code)
(816) 753-6900
(Registrant's 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 X No
--- ---
The number of shares outstanding of the registrant's Common Stock, without par
value, at December 5, 1994 was 105,596,045 shares.
TABLE OF CONTENTS
PART I Financial Information
Consolidated Balance Sheets
October 31, 1994 (Unaudited) and
April 30, 1994 (Audited)
Consolidated Statements of Operations
Three Months Ended October 31, 1994 and 1993 (Unaudited)
Six Months Ended October 31, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1994 and 1993 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
SIGNATURES
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share amounts
October 31, April 30,
1994 1994
(Unaudited) (Audited)
ASSETS ------------- -------------
CURRENT ASSETS
Cash (including certificates of deposit of $18,299 and $23,519) $ 34,191 $ 41,343
Marketable securities 278,924 473,043
Receivables, less allowance for doubtful accounts of $13,042 and $12,744 163,375 165,858
Prepaid expenses 35,539 19,551
------------- -------------
TOTAL CURRENT ASSETS 512,029 699,795
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 103,895 105,705
Excess of cost over fair value of net tangible assets acquired,
net of amortization 65,495 67,679
Other 39,691 36,301
------------- -------------
209,081 209,685
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 179,954 165,224
------------- -------------
$ 901,064 $ 1,074,704
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 63,750 $ -
Accounts payable, accrued expenses and deposits 123,867 160,592
Accrued salaries, wages and payroll taxes 16,381 55,195
Accrued taxes on income 43,788 120,425
------------- -------------
TOTAL CURRENT LIABILITIES 247,786 336,212
OTHER NONCURRENT LIABILITIES 37,619 30,617
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Additional paid-in capital 87,501 90,552
Retained earnings 657,866 719,724
------------- -------------
746,456 811,365
Less cost of 3,407,082 and 2,823,605 shares of common stock in treasury 130,797 103,490
------------- -------------
615,659 707,875
------------- -------------
$ 901,064 $ 1,074,704
============= =============
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Three Months Ended
October 31,
1994 1993
------------ ------------
REVENUES
Service revenues $ 163,404 $ 123,508
Franchise royalties 3,442 3,103
Investment income 4,554 3,464
Other income 1,457 1,131
------------ ------------
172,857 131,206
------------ ------------
EXPENSES
Employee compensation and benefits 49,908 41,948
Occupancy and equipment 64,072 51,647
Marketing and advertising 13,880 9,367
Supplies, freight and postage 10,878 9,562
Other 36,148 26,549
------------ ------------
174,886 139,073
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAX BENEFIT (2,029) (7,867)
Income tax benefit (777) (3,694)
------------ ------------
Net loss from continuing operations (1,252) (4,173)
Net earnings from discontinued operations (less applicable
income taxes of $3,104) - 3,241
------------ ------------
NET LOSS $ (1,252) $ (932)
============ ============
Weighted average number of common shares outstanding 105,000 105,677
======= =======
LOSS PER SHARE
From continuing operations $ (.01) $ (.04)
============ ============
Net loss $ (.01) $ (.01)
============ ============
Dividends per share $ .3125 $ .28
============ ============
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited, amounts in thousands, except per share amounts
Six Months Ended
October 31,
1994 1993
------------ ------------
REVENUES
Service revenues $ 299,123 $ 221,099
Franchise royalties 4,629 4,174
Investment income 9,705 7,531
Other income 4,800 1,716
------------ ------------
318,257 234,520
------------ ------------
EXPENSES
Employee compensation and benefits 94,902 78,844
Occupancy and equipment 124,982 99,916
Marketing and advertising 20,323 13,756
Supplies, freight and postage 17,558 14,876
Other 67,318 49,370
------------ ------------
325,083 256,762
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAX BENEFIT (6,826) (22,242)
Income tax benefit (2,614) (9,826)
------------ ------------
Net loss from continuing operations (4,212) (12,416)
Net earnings from discontinued operations (less applicable
income taxes of $5,786) - 6,043
------------ ------------
NET LOSS $ (4,212) $ (6,373)
============ ============
Weighted average number of common shares outstanding 105,063 105,730
======= =======
LOSS PER SHARE
From continuing operations $ (.04) $ (.12)
Net loss ============ ============
$ (.04) $ (.06)
============ ============
Dividends per share $ .5925 $ .53
============ ============
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, amounts in thousands
Six Months Ended
October 31,
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,212) $ (6,373)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 31,481 25,909
Gain on sale of subsidiaries (2,796) -
Other noncurrent liabilities 7,002 3,649
Changes in:
Receivables 2,483 99,991
Prepaid expenses (15,988) (13,637)
Net assets of discontinued operations - (14,144)
Accounts payable, accrued expenses and deposits (36,725) (23,334)
Accrued salaries, wages and payroll taxes (38,814) (25,711)
Accrued taxes on income (78,033) (68,187)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (135,602) (21,837)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (843,724) (431,375)
Maturities of marketable securities 1,043,297 608,473
Purchases of property and equipment (44,167) (33,223)
Excess of cost over fair value of net tangible assets acquired (2,150) (3,820)
Other, net 4,750 (17,842)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 158,006 122,213
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (749,612) (80,661)
Proceeds from issuance of notes payable 813,362 46,500
Dividends paid (62,948) (56,707)
Payments to acquire treasury shares (83,112) (53,944)
Proceeds from stock options exercised 52,754 40,813
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (29,556) (103,999)
------------ ------------
Net decrease in cash (7,152) (3,623)
Cash at beginning of period 41,343 43,417
------------ ------------
Cash at end of period $ 34,191 $ 39,794
============ ============
Supplemental disclosures of cash flow information
Income taxes paid $ 74,023 $ 64,147
Interest paid 1,185 430
See Notes to Consolidated Financial Statements.
H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. The Consolidated Balance Sheet as of October 31, 1994, the Consolidated
Statements of Operations for the three and six months ended October 31,
1994 and 1993, and the Consolidated Statements of Cash Flows for the six
months ended October 31, 1994 and 1993 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 October
31, 1994 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 1994
Annual Report to Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months January through April. Thus, the six month results are not
indicative of results to be expected for the year.
2. During the third quarter of fiscal 1994, the Company sold 100% of the
common stock of its wholly-owned subsidiary, Interim Services Inc. Prior
year amounts include Interim's results, reported as discontinued
operations. The Company acquired MECA Software, Inc. (now Block
Financial Software, Inc.) in November 1993. The acquisition was
accounted for as a purchase and, accordingly, the Consolidated Statements
of Operations include MECA's results since the date of acquisition.
3. In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This Standard addresses the
reporting for debt and equity securities by requiring such investments to
be classified in held-to-maturity, available-for-sale or trading
categories. The Company adopted this Standard on May 1, 1994. All
marketable debt and equity securities have been classified as current or
noncurrent available-for-sale securities, and are carried at market value
with unrealized gains and losses included in stockholders' equity. The
adoption of this Standard resulted in an increase to stockholders' equity
of $5,526,000 (net of taxes of $3,431,000), representing the aggregate
excess market value over carrying value of the Company's securities on
the date of adoption. During the six months ended October 31, 1994, the
net unrealized holding gain on available-for-sale securities decreased
$3,278,000 to $2,248,000. Net earnings for the period were not affected
by the accounting change.
4. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the
effective tax rates expected to be applicable for the respective full
fiscal years.
5. Net loss per common share is based on the weighted average number of
shares outstanding during each period. The weighted average shares
outstanding for the six months ended October 31, 1994 declined to
105,063,000 from 105,730,000 last year, due to repurchase of outstanding
shares, offset by the issuance of treasury shares for stock option
exercises.
6. During the six months ended October 31, 1994 and 1993, the Company issued
1,452,473 and 1,310,482 shares, respectively, pursuant to provisions for
exercise of its stock option plans; during the same periods, the Company
acquired 2,041,500 and 1,505,116 shares of its common stock at an
aggregate cost of $83,112,000 and $53,944,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 3 and 6,
respectively.
Working capital decreased from $363.6 million at April 30, 1994 to $264.2
million at October 31, 1994. The working capital ratio at October 31, 1994
and April 30, 1994 was 2.1 to 1. The decrease in working capital must be
viewed in the context of the Company's business which is seasonal, with peak
activity in the fourth quarter, due to the nature of the Company's largest
segment, Tax Services. Tax return preparation occurs almost entirely in the
fourth quarter and has the effect of increasing certain assets and liabilities
during this time.
The Company has no long-term debt. However, the Company maintains seasonal
lines of credit to support short-term borrowing facilities in the United
States and Canada. During the months of January through April, the Company's
Canadian Tax Services regularly incurs short-term borrowings to purchase
refunds due its clients. Additionally, Block Financial Corporation (BFC), a
wholly-owned subsidiary of the Company, incurs short-term borrowings
throughout the year to fund receivables associated with its credit card
program. At October 31, 1994, short-term borrowings used to fund credit card
receivables totaled $63.8 million. There were no borrowings outstanding at
April 30, 1994. The Company also maintains a year-round $100 million line of
credit to support various financial activities conducted by BFC.
The Company's acquisition of treasury shares, capital expenditures and
dividend payments during the first six months were funded through internally-
generated funds.
On October 26, 1994, the Internal Revenue Service announced that, as a result
of concerns relating to fraudulent tax refund claims by taxpayers, it was
eliminating the Direct Deposit Indicator (DDI) beginning with the upcoming
1995 tax season. Previously, the IRS used the DDI to notify the electronic
filer after receiving a taxpayer's electronically filed tax return that the
direct deposit of the refund would be honored. The DDI was a key element of
the Refund Anticipation Loan (RAL) program because it helped control the risk
of loan losses and thus encouraged participating financial institutions to
make RALs under relatively favorable terms to taxpayers. In response to the
IRS's decision, the Company has amended its RAL agreement with Beneficial.
Beginning in the 1995 tax season, all Block company-owned offices will
offer the Beneficial RAL products, and most of its franchised offices are
expected to also offer RALs through Beneficial. Previously, Beneficial served
about 40% of H&R Block's company-owned offices, in addition to many of its
franchises. As a result of the IRS's decision, more traditional credit
underwriting methods will be used by Beneficial to determine eligibility of
RAL customers and the price of most RALs will rise significantly. A higher
price and more limited availability should affect the number of RAL customers
served in 1995, but the extent of the effect can not be estimated with any
assurance. However, the Company continues to believe that the earnings of
H&R Block Tax Services, Inc. will decline in fiscal 1995 from last year.
Additionally, Block Financial Corporation (BFC) will not participate in RALs
made during the 1995 tax season. Consequently, BFC, which contributed $8.7
million to consolidated pretax earnings last year, will likely report a loss
resulting from its other operations and start-up businesses. It is not
possible, at this time, to quantify the overall impact of such changes on
consolidated earnings.
RESULTS OF OPERATIONS
During the third quarter of fiscal 1994, the Company sold 100% of the common
stock of its wholly-owned subsidiary, Interim Services Inc. Prior amounts
include Interim's results, reported as discontinued operations. The results
of Interim Services Inc. were previously reflected as the Temporary Help
Services segment.
The Company acquired MECA Software, Inc. in November 1994. The transaction
was accounted for as a purchase and, accordingly, results include MECA's
operations subsequent to the date of acquisition. The personal finance
software operations of MECA Software, Inc. (now Block Financial Software,
Inc.) are included in the Financial Services segment; the personal tax
software operations of Legal Knowledge Systems, Inc., formerly a subsidiary
of MECA, are reported as Other Services.
The analysis that follows should be read in conjunction with the table below
and the Consolidated Statements of Operations found on pages 4 and 5.
Three Months Ended October 31, 1994 Compared to
Three Months Ended October 31, 1993
(amounts in thousands)
Revenues Earnings (loss)
1994 1993 1994 1993
-------- -------- -------- --------
Tax services $ 27,733 $ 26,315 $(35,114) $(32,338)
Computer services 136,631 102,543 34,336 24,442
Financial services 6,792 1,447 (1,308) (154)
Other services 550 - (2,020) -
Inter-segment
eliminations (3,454) (2,625) - -
-------- -------- -------- --------
168,252 127,680 (4,106) (8,050)
Investment income 4,554 3,464 4,554 3,464
Unallocated corporate 51 62 (2,477) (3,281)
-------- -------- -------- --------
$172,857 $131,206 (2,029) (7,867)
======== ========
Income tax benefit (777) (3,694)
-------- --------
Net loss from
continuing
operations (1,252) (4,173)
Net earnings from
discontinued
operations - 3,241
-------- --------
Net loss $ (1,252) $ (932)
======== ========
Consolidated revenues for the three months ended October 31, 1994 increased
31.7% to $172.857 million from $131.206 million reported last year. The
increase is primarily due to greater revenues reported by the Computer
Services and Financial Services segments.
The consolidated pretax loss for the second quarter of fiscal 1995 improved
74.2% to $2.029 million from a pretax loss from continuing operations of
$7.867 million in the second quarter of last year. The significant
improvement in the second quarter loss is due to the improved operating
results of the Computer Services segment, offset by increased losses reported
by the other operating segments.
The net loss was $1.252 million, or $.01 per share, compared to a net loss
from continuing operations of $4.173 million, or $.04 per share, for the same
period last year. Discontinued operations which were sold in January 1994
contributed earnings of $.03 per share in the second quarter of fiscal 1994.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 5.4% to $27.733 million from $26.315 million last year, due
primarily to greater revenues generated by Australian tax operations during
its tax season and an improvement in the Canadian exchange rate.
The pretax loss increased 8.6% to $35.114 million from $32.338 million in the
second quarter of last year, as a result of increased employee compensation,
employee benefits, rent and other facility expenses.
COMPUTER SERVICES
Revenues increased 33.2% to $136.631 million from $102.543 million in the
comparable period last year, due to increases in both consumer and network
revenues. Consumer Services revenues were 47.5% better than last year,
despite a price decrease in February 1994. The growth in consumer revenues is
due to the increase in new customers in the United States and further
expansion into Europe. Network Services revenues were 33.1% better than last
year, due to increasing usage and new customers. Second quarter revenues for
the prior fiscal year include the operations of two software subsidiaries
which were sold in the first quarter of fiscal 1995. Exclusive of operations
sold, revenues increased 40.7% as compared to the prior year.
Pretax earnings increased 40.5% to $34.336 million from $24.442 million in the
second quarter of fiscal 1994. The increase in pretax earnings is
attributable to the continued strong performances of the Consumer and Network
divisions. Excluding the operating results of the software subsidiaries sold,
pretax earnings increased 45.2% as compared to the prior year. Pretax
earnings as a percentage of revenues, excluding the operations and gain on
sales of subsidiaries, was 25.1% for the second quarter of fiscal 1995,
compared to 24.3% for the same period last year. The increase in the pretax
margin resulted primarily from the exceptional increases in revenues which
outpaced expenses, a significant portion of which are not directly associated
with revenues.
FINANCIAL SERVICES
Revenues increased to $6.792 million from $1.447 million in the same period
last year. The increase in revenues was due to increases in credit card fees
and refund loan participation fees, and the revenues of the personal finance
software operations of MECA Software, Inc.
The pretax loss increased to $1.308 million from $154 thousand in the second
quarter of fiscal 1994, due to the loss reported by the personal finance
software business of MECA Software, Inc. which was acquired in November 1993,
partially offset by increased earnings of credit card operations.
OTHER SERVICES
Other services represent the operations of the personal tax software business
of Legal Knowledge Systems, Inc., formerly a subsidiary of MECA Software, Inc.
The second quarter loss of $2.020 million is due to the seasonality of tax
preparation software sales, which normally peak during the third and fourth
quarters of the fiscal year. The loss includes amortization expense of $247
thousand.
INVESTMENT INCOME
Investment income increased 31.5% to $4.554 million from $3.464 million last
year. The increase resulted primarily from greater funds available for
investment, largely due to the proceeds from the sale of Interim Services Inc.
received in the fourth quarter of fiscal 1994.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss for the second quarter decreased
24.5% to $2.477 million from $3.281 million in the comparable period last
year. The improvement is the result of the first-time allocation to operating
segments of certain employee benefit expenses paid at the corporate level, in
addition to management's efforts to control corporate overhead expenses.
Three Months Ended October 31, 1994 (Second Quarter) Compared to
Three Months Ended July 31, 1994 (First Quarter)
(amounts in thousands)
Revenues Earnings (loss)
2nd Qtr 1st Qtr 2nd Qtr 1st Qtr
-------- -------- -------- --------
Tax services $ 27,733 $ 9,563 $(35,114) $(39,998)
Computer services 136,631 127,896 34,336 33,912
Financial services 6,792 5,989 (1,308) 211
Other services 550 78 (2,020) (2,039)
Inter-segment
eliminations (3,454) (3,277) - -
-------- -------- -------- --------
168,252 140,249 (4,106) (7,914)
Investment income 4,554 5,151 4,554 5,151
Unallocated corporate 51 - (2,477) (2,034)
-------- -------- -------- --------
$172,857 $145,400 (2,029) (4,797)
======== ========
Income tax benefit (777) (1,837)
-------- --------
Net loss $ (1,252) $ (2,960)
======== ========
Consolidated revenues increased 18.9% to $172.857 million from $145.400
million in the first quarter of fiscal 1995. The significant increase is due
to higher revenues generated by all of the operating segments, with the
majority of the increase due to Tax Services and Computer Services.
The consolidated pretax loss decreased 57.7% to $2.029 million from $4.797
million for the three months ended July 31, 1994. The improvement is due
entirely to the Tax Services segment which decreased its operating loss by
12.2%.
The net loss was $1.252 million, or $.01 per share, compared to a net loss of
$2.960 million, or $.03 per share, for the first quarter of fiscal 1995. The
decreased loss largely resulted from a reduction in the loss reported by Tax
Services, offset by a loss reported by Financial Services and lower investment
income.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased $18.170 million to $27.733 million from $9.563 million
reported in the first quarter of fiscal 1995. The increase partially resulted
from the onset of the tax season in Australia, which contributed revenues of
approximately $8.5 million. U.S. revenues increased approximately $9.5
million due to tuition tax school fees earned in the second quarter and
increased sales of supplies to franchisees, both of which are seasonal.
The pretax loss decreased 12.2% to $35.114 million from $39.998 million
reported for the three months ended July 31, 1994. The decrease is due to
earnings reported by Australian tax operations from its fiscal 1995 tax
season.
COMPUTER SERVICES
Revenues increased 6.8% to $136.631 million from $127.896 million reported in
the first quarter of fiscal 1995. The increase is due to the improved
performance of the Consumer Services and Network Services divisions, offset by
the operating revenues and the gain on the sale of two software subsidiaries
which were sold during the first quarter. Exclusive of the gain and the
operating revenues of these subsidiaries, revenues for the second quarter
increased 11.0% as compared to the first quarter. Consumer Services and
Network Services revenues for the three months ended October 31, 1994
increased 12.8% and 8.8%, respectively, as compared to the first quarter of
fiscal 1995. The growth in Consumer Services is due to an increase in new
customers in the United States and business development in Europe, and the
growth in Network Services resulted from increasing usage and new
customers.
Pretax earnings increased 1.3% to $34.336 million from $33.912 million
reported in the first quarter of fiscal 1995. Exclusive of the gain on the
sale and the operating results of two software subsidiaries sold, pretax
earnings increased 11.1% as compared to the first quarter of fiscal 1995.
Pretax earnings as a percentage of revenues, excluding operating results and
the gain on the sale of subsidiaries sold, was 25.1% for both the first and
second quarters of fiscal 1995.
FINANCIAL SERVICES
Revenues increased 13.4% to $6.792 million from $5.989 million for the three
months ended July 31, 1994. The increase resulted primarily from increases in
revenues from credit card operations and software sales, offset by a decrease
in refund anticipation loan activity caused by seasonality.
The pretax loss was $1.308 million, compared to pretax earnings of $211
thousand for the first quarter of fiscal 1995, resulting primarily from
decreased refund anticipation loan activity and increased general and
administrative expenses, slightly offset by better results reported by the
credit card operations.
OTHER SERVICES
Revenues increased to $550 thousand from $78 thousand in the first quarter of
fiscal 1995. The pretax loss for the second quarter decreased .9% to $2.020
million from $2.039 million in the first quarter. The losses result from the
seasonality of tax preparation software sales, which normally peak during the
third and fourth quarters of the fiscal year.
INVESTMENT INCOME
Investment income decreased 11.6% to $4.554 million from $5.151 million earned
for the three months ended July 31, 1994, due to the resources required to
fund operations during the Tax Services segment's off-season.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss increased 21.8% to $2.477 million
from $2.034 million in the first quarter of fiscal 1995, resulting from
increased office expenses, consultant fees and stockholder expenses.
Six Months Ended October 31, 1994 (FYTD) Compared to
Six Months Ended October 31, 1993 (FYTD)
(amounts in thousands)
Revenues Earnings (loss)
1994 1993 1994 1993
-------- -------- -------- --------
Tax services $ 37,296 $ 35,987 $(75,112) $(69,502)
Computer services 264,527 194,431 68,248 46,030
Financial services 12,781 1,984 (1,097) (272)
Other services 628 - (4,059) -
Inter-segment
eliminations (6,731) (5,475) - -
-------- -------- -------- --------
308,501 226,927 (12,020) (23,744)
Investment income 9,705 7,531 9,705 7,531
Unallocated corporate 51 62 (4,511) (6,029)
-------- -------- -------- --------
$318,257 $234,520 (6,826) (22,242)
======== ========
Income tax benefit (2,614) (9,826)
-------- --------
Net loss from
continuing
operations (4,212) (12,416)
Net earnings from
discontinued
operations - 6,043
-------- --------
$ (4,212) $ (6,373)
======== ========
Consolidated revenues for the six months ended October 31, 1994 increased
35.7% to $318.257 million from $234.520 million reported last year. The
increase is principally due to greater revenues reported by the Computer
Services and Financial Services segments, including the gain on the sale of
two software subsidiaries of $2.796 million.
The consolidated pretax loss improved 69.3% to $6.826 million from a loss from
continuing operations of $22.242 million in the comparable period last year.
The improvement is almost entirely related to the Computer Services segment
which increased earnings by 48.3%, including the gain on sales of
subsidiaries, offset by increased losses reported by Tax Services and Other
Services.
The net loss was $4.212 million, or $.04 per share, compared to a net loss
from continuing operations of $12.416 million, or $.12 per share, for the
comparable period last year. Discontinued operations which were sold in
January 1994 contributed earnings of $.06 per share for the six months ended
October 31, 1993.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 3.6% to $37.296 million from $35.987 million last year, due
to higher revenues generated by Australian tax operations and increased tax
preparation fees in the United States.
The pretax loss increased 8.1% to $75.112 million from $69.502 million last
year, due to increased employee compensation, employee benefits, office rent
and other facility and equipment expenses.
COMPUTER SERVICES
Revenues increased 36.1% to $264.527 million from $194.431 million last year
due to increases in both consumer and network revenues. Consumer Services
revenues were 48.5% better than last year, despite a price decrease in
February 1994. The consumer revenues growth is due to the increase in new
customers and expansion of European operations. Network Services revenues
were 33.1% better than last year, due to increasing usage and new customers.
Computer Services revenues include a pretax gain of $2.796 million on the sale
of two small subsidiaries. Exclusive of the gain on the sale and the
operating revenues of these subsidiaries, Computer Services revenues increased
41.0% from the comparable period last year.
Pretax earnings increased 48.3% to $68.248 million from $46.030 million last
year. The increase in pretax earnings is attributable to the continued strong
performances of the Consumer and Network divisions, in addition to the gains
recorded on the sale of two subsidiaries. Excluding the gain and the
operating results of the software subsidiaries sold, pretax earnings increased
44.9% from the comparable period last year. Pretax earnings as a percentage
of revenues, excluding the gain and operating results of subsidiaries sold,
was 25.1% for the six months ended October 31, 1994, compared to 24.5% for the
same period last year. The increase in the pretax margin resulted primarily
from revenue increases which outpaced expenses, a significant portion of which
are not directly associated with revenues.
FINANCIAL SERVICES
Revenues increased to $12.781 million from $1.984 million last year. The
increased activity of refund anticipation loan operations, credit card
operations and the personal finance software operations of MECA Software,
Inc., acquired in November 1993, all contributed to the revenues increase.
The pretax loss increased to $1.097 million from a pretax loss of $272
thousand last year. The increased loss is due to the personal finance
software operations, which were acquired in the third quarter of fiscal 1994,
partially offset by increased earnings from refund anticipation loan activity
and credit card operations. Personal finance software sales are seasonal in
nature, with sales increasing in the third and fourth quarters of the fiscal
year due to the holiday season and filing of tax returns. The loss includes
goodwill amortization expense of $502 thousand.
OTHER SERVICES
The pretax loss of $4.059 million for the six months ended October 31, 1994 is
due to the seasonality of tax preparation software sales, which normally peak
during the third and fourth quarters of the fiscal year. The loss includes
goodwill amortization expense of $494 thousand.
INVESTMENT INCOME
Investment income increased 28.9% to $9.705 million from $7.531 million last
year. The increase resulted primarily from greater funds available for
investment, largely due to the proceeds from the sale of Interim Services Inc.
received in the fourth quarter of fiscal 1994.
CORPORATE AND ADMINISTRATIVE EXPENSES
The corporate and administrative pretax loss decreased 25.2% to $4.511 million
from $6.029 million last year. The improvement is the result of the first-
time allocation to operating segments of certain employee benefit expenses
paid at the corporate level.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the registrant was held on September 7,
1994. At such meeting, three Class II directors were elected to serve three-
year terms. In addition, the resolutions set forth below were submitted to a
vote of shareholders. With respect to the election of directors and the
adoption of each resolution, the number of votes cast for, against or
withheld, and the number of abstentions or nonvotes were as follows:
Election of Class II Directors
Nominee Votes FOR Votes WITHHELD
--------------- ---------- --------------
G. Kenneth Baum 86,030,089 846,605
Henry F. Frigon 86,028,230 848,465
Roger W. Hale 86,034,917 841,777
Approval of Amendment to Third Stock Option Plan for
Seasonal Employees
The following resolutions were adopted by a vote of
84,432,404 shares in favor of such resolutions, 1,730,829
shares against such resolutions and 713,260 shares
abstaining. In addition, there were 201 shares for which
proxies were submitted for the meeting, but for which no
vote was cast on the resolutions. The resolutions state:
"RESOLVED, That this corporation's Third
Stock Option Plan for Seasonal Employees, as
amended, be further amended by deleting the
figure '80%' from the first sentence of Section C
of Article 9 of said Plan and replacing such
figure with the figure '50%'; and
"FURTHER RESOLVED, That said amendment
shall be effective January 1, 1995, and shall
apply to all options then outstanding under the
Plan, as well as to all options thereafter
granted under the Plan."
Appointment of Auditors
The following resolution was adopted by a vote of 86,396,813
shares in favor of such resolution, 153,779 shares against
such resolution and 326,103 shares abstaining:
"RESOLVED, That the appointment of Deloitte
& Touche as the independent auditors for H&R
Block, Inc., and its subsidiaries for the year
ending April 30, 1995, is hereby ratified,
approved and confirmed."
At the close of business on July 19, 1994, the record date for the annual
meeting of shareholders, there were 106,576,312 shares of Common Stock of the
registrant outstanding and entitled to vote at the meeting. There were
86,876,694 shares represented at the annual meeting of shareholders held on
September 7, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10)(a) Amendment No. 1 to H&R Block Supplemental Deferred Compensation
Plan for Executives.
(10)(b) Employment Agreement between HRB Management, Inc. and William
F. Evans.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the second
quarter of fiscal year 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H&R BLOCK, INC.
(Registrant)
DATE 12/09/94 BY /s/ William P. Anderson
------------ ----------------------------------
William P. Anderson
Senior Vice President and
Chief Financial Officer
DATE 12/09/94 BY /s/ Ozzie Wenich
------------ ----------------------------------
Ozzie Wenich
Vice President, Finance
and Treasurer
Exhibit (10)(a)
AMENDMENT NO. 1
TO H&R BLOCK
SUPPLEMENTAL DEFERRED COMPENSATION PLAN FOR EXECUTIVES
H&R BLOCK, INC. (the "Company"), adopted the H&R Block
Supplemental Deferred Compensation Plan for Executives (the
"Plan") effective as of May 1, 1994. The Company retained the
right to amend the Plan, pursuant to action by the Company's
Board of Directors. The Company hereby exercises that right.
This amendment is effective as of September 7, 1994.
AMENDMENT
1. Section 2.1.4 of the Plan is deleted and replaced with the
following new Section 2.1.4:
2.1.4 "ANNUAL DEFERRAL AMOUNT" means the
amount a Participant elects to defer each Plan Year
under one or more Permissible Deferrals. The Annual
Deferral Amount is equal to (i) an amount or percentage
of Base Salary that is not greater than 35% of the
Participant's Base Salary and (ii) an amount or
percentage of Bonus or Bonuses paid during the Plan
Year.
2. Section 2.1.15 of the Plan is deleted and Sections 2.1.16,
2.1.17, 2.1.18, 2.1.19, 2.1.20, 2.1.21, 2.1.22, 2.1.23, 2.1.24,
2.1.25, 2.1.26, 2.1.27, 2.1.28, 2.1.29, 2.1.30, 2.1.31, 2.1.31
and 2.1.33 are renumbered as Sections 2.1.15, 2.1.16, 2.1.17,
2.1.18, 2.1.19, 2.1.20, 2.1.21, 2.1.22, 2.1.23, 2.1.24, 2.1.25,
2.1.26, 2.1.27, 2.1.28, 2.1.29, 2.1.30, 2.1.31 and 2.1. 32,
respectively.
3. Section 2.1.17 of the Plan (Section 2.1.18 prior to this
Amendment) is deleted and replaced with the following new Section
2.1.17:
2.1.17 "EARLY RETIREMENT DATE" of a Participant
means the first day of the first calendar month
commencing on or after the date on which (a) the
Participant has reached Age 55 while in the employ of
an Affiliate, and (b) the Participant has completed at
least ten (10) Years of Service.
4. Section 2.1.22 of the Plan (Section 2.1.23 prior to this
Amendment) is deleted and replaced with the following new Section
2.1.22:
2.1.22 "NORMAL RETIREMENT DATE" of a
Participant means the last day of the calendar month in
which the Participant reaches the Age of 65 while in
the employ of an Affiliate.
5. Section 2.1.25 of the Plan (Section 2.1.26 prior to this
Amendment) is deleted and replaced with the following new Section
2.1.25:
2.1.25 "PERMISSIBLE DEFERRAL" means, with
respect to a Plan Year, a deferral in that Plan Year of
an Annual Deferral Amount. The aggregate of all
deferrals under this Plan may not exceed two hundred
eighty percent (280%) of Base Salary.
Deferrals may be made from Base Salary for the
Plan Year and/or from a Bonus or Bonuses paid during
the Plan Year. Deferrals from Base Salary or from a
Bonus or Bonuses are made in separate elections by the
Participant during the Enrollment Period prior to the
Plan Year during which Base Salary and Bonus would
otherwise be paid to the Participant. Deferral
elections must specify the percentages (stated as
integers) or dollar amounts of the deferral that are
intended to be deducted from Base Salary and Bonus or
Bonuses, respectively. Deferrals made from Base Salary
shall be made in installments, as instructed by the
Participant and approved by the Committee. Deferrals
made from each Bonus shall be made at the time or times
during the Plan Year that the Bonus would otherwise be
paid to the Participant. Each installment of a
deferral shall be rounded to the nearest whole dollar
amount.
6. Section 3.2 of the Plan is amended by deleting the phrase
"or Plan Years" from the first sentence of said Section, by
deleting the phrase "or Years" from the second sentence of said
Section, and by deleting the phrase "Section 2.1.26" from said
second sentence and replacing such phrase with "Section 2.1.25.".
7. Section 4.1.1 of the Plan is amended by deleting the second
sentence thereof and replacing such sentence with the following
new second sentence:
Deferrals from Base Salary (and the corresponding
number of Deferred Compensation Units) shall be posted
by pay period, and deferrals from Bonuses (and the
corresponding number of Deferred Compensation Units)
shall be posted at the time or times during the Plan
Year that the Bonus would otherwise have been paid to
the Participant.
8. Section 4.3 of the Plan is deleted and replaced with the
following new Section 4.3:
SECTION 4.3 VALUATION FOR PURPOSES OF COMPUTING
BENEFIT PAYMENTS. If a Participant terminates
employment with all Affiliates, or dies prior to the
termination of employment, his or her Account shall be
valued for purposes of determining benefit payments
under Article 6 as of the first business day of the
calendar month which immediately follows the calendar
month in which the termination of employment or death
occurs, as described in Section 4.2. If a Participant
is Disabled, his or her Account shall be valued for
purposes of determining benefit payments under Article
6 as of the first business day of the first calendar
month that immediately follows the later of (i) the
calendar month in which his or her Early Retirement
Date occurs, or (ii) the calendar month in which the
last day of the 90-day period referred to in Section
4.1.3 occurs.
Except for distributions in the form of a lump sum
and distributions pursuant to Section 6.6.2, a Partici-
pant's Account shall be valued on the first business
day of each calendar year following the calendar year
in which benefit payments commence, as described in
Section 6.4.
A "business day" for purposes of this Plan is a
day on which the Common Stock is traded on the New York
Stock Exchange.
9. Section 4.4 is deleted from the Plan.
10. Section 6.2 of the Plan is amended by deleting the word
"filing" from the third sentence of the second paragraph of such
Section and replacing such word with the word "ruling."
11. Section 6.3 of the Plan is deleted and replaced with the
following new Section 6.3:
SECTION 6.3 FORM OF BENEFITS UPON RESIGNATION
OR DISCHARGE, OR TERMINATION OF EMPLOYMENT WITH ALL
AFFILIATES AS A RESULT OF CHANGE OF CONTROL. Upon a
Participant's termination of employment with all
Affiliates following a Change of Control, or upon
termination of employment with all Affiliates before
the Normal Retirement Date or the Early Retirement Date
for reasons other than Disability or death, payment
from the Account shall be made in the form of a lump-
sum cash payment within ninety (90) days after the date
of termination of employment.
12. Section 6.4 of the Plan is deleted and replaced with the
following new Section 6.4:
SECTION 6.4 AMOUNT OF BENEFIT. Except for
distributions in the form of a lump sum, benefit
payments shall be in the form of semimonthly cash
installments paid during the applicable payment period.
The amount of each installment payment shall be level
during the portion of the payment period ending on
December 31 of the calendar year in which benefit
payments commence, during each complete calendar year
of the payment period thereafter, and during any
remaining period of the payment period following the
last complete calendar year of the payment period, but
will vary from one such portion of the payment period
to the next.
The amount of each level benefit payment for the
portion of the payment period ending December 31 of the
calendar year in which benefit payments commence shall
be calculated using the balance in the Account as of
the valuation date specified in Section 4.3 and
dividing it by the total number of semimonthly periods
remaining in the entire payment period. As of the
January 1 immediately following the calendar year in
which benefit payments commence, and as of each January
1 in the payment period thereafter, the amount of each
level benefit payment for the calendar year commencing
on such January 1 shall be adjusted to reflect the
value of the Account as of the first business day
falling on or after such January 1. The amount of each
level benefit payment for each calendar year following
the calendar year in which benefit payments commence
shall be calculated by dividing the balance in the
Account as of the first business day of such year by
the total number of semimonthly periods remaining in
the entire payment period.
Generally, the Account shall continue to be valued
during the payment period as provided in Section 4.3.
Except as provided otherwise, if a Participant dies,
Section 6.6 shall apply.
13. The second sentence of the first paragraph of Section 6.5 is
deleted and replaced with the following new sentence:
In the case of a Disabled Participant, benefits shall
commence no later than the six (6) months after the
later of (i) the Participant's Early Retirement Date or
(ii) the last day of the 90-day period specified in
Section 4.1.3.
14. Section 6.6.1 of the Plan is deleted and replaced with the
following new Section 6.6.1:
6.6.1 DEATH AFTER BENEFIT COMMENCEMENT. In
the event a Participant dies after benefit payments
have commenced (other than payments made pursuant to
Section 6.7), the remaining benefit payments, if any,
shall be paid to the Participant's Beneficiary in the
same manner such benefits would have been paid to the
Participant had the Participant survived. A
Beneficiary may petition the Committee for an
alternative method of payment. The Account shall
continue to be valued during the payment period as
provided in Sections 4.2, 4.3 and 6.4. If such
benefits were payable pursuant to Section 6.2 to a
Participant whose employment terminated on or after
Normal Retirement Date or Early Retirement Date, the
Participant's Beneficiary may make the election to
receive an immediate lump-sum payment of the balance of
said Participant's Account in accordance with the
provisions of Section 6.2 and all provisions set forth
therein relating to penalties shall apply to such
election.
15. Section 6.6.2 of the Plan is amended by deleting the second
sentence of the first paragraph of said Section and replacing it
with the following new sentence:
The amount of such pre-retirement death benefit is the
Participant's Account as of the first business day of
the calendar month which immediately follows the
calendar month in which Participant's death occurs
annuitized over a ten-year period at an interest rate
set by the Chief Financial Officer of the Company in
his discretion, which shall not be less than the rate
then payable on Investment Savings Accounts of $1,000
or less at Commerce Bank of Kansas City, N.A., Kansas
City, Missouri, or any successor thereto.
16. Section 6.6.2 of the Plan is further amended by deleting the
third sentence of the second paragraph of said Section and
replacing it with the following new sentence:
Earnings on the Account shall continue to be credited
during the payment period at an interest rate set by
the Chief Financial Officer of the Company in his
discretion, which rate shall not be less than the rate
then payable on Investment Savings Accounts of $1,000
or less at Commerce Bank of Kansas City, N.A., Kansas
City, Missouri, or any successor thereto.
17. The second paragraph of Section 6.7 is deleted and replaced
with the following new paragraph:
If a withdrawal of a Participant's total Account
is permitted by the Committee under this Section 6.7,
earnings on a Participant's deferrals shall be valued
as described in Section 4.2 on such valuation date as
is determined by the Committee. Withdrawals shall be
distributed in the form of a lump sum as soon as is
reasonably convenient.
18. Section 9.1 of the Plan is deleted and replaced with the
following new Section 9.1:
SECTION 9.1 AMENDMENTS. The Company, by action
of the Board, may amend the Plan, in whole or in part,
at any time and from time to time. Any such amendment
shall be filed with the Plan documents. No amendment,
however, may be effective to eliminate or reduce the
benefits of any retired Participant or the Beneficiary
of any deceased Participant then eligible for benefits
or the vested portion of the benefits, if any, in any
active Participant's Account immediately before the
effective date of such amendment, and each such Account
will be credited to the date of such amendment in
accordance with Section 4.2. Notwithstanding anything
in this Section 9.1 to the contrary, the Committee may,
in its discretion, amend the Plan to reduce or
eliminate the penalty described in Section 6.2 in
accordance with the provisions of such Section 6.2.
19. The fifth sentence of the first paragraph of Section 9.2 of
the Plan is deleted and replaced with the following new sentence:
Active Participants shall become vested in their
accrued benefits to the extent and in the manner
provided in Article 5 as of the effective date of such
termination and each account of an active Participant
shall be credited, to the date of distribution of all
benefits in each such Account, in accordance with
Section 4.2, as it may be amended from time to time
pursuant to Section 9.1.
20. Except as modified above, the Plan shall remain in full
force and effect, including the Company's right to amend or
terminate the Plan as set forth in Article 9 of the Plan, amended
as provided above.
H&R BLOCK, INC.
By
------------------------
Its
------------------------
AGREEMENT Exhibit (10)(b)
THIS AGREEMENT, is entered into as of the 24th day of
October, 1994, by and between HRB Management, Inc. ("HRB"), a
Missouri corporation and an indirect wholly-owned subsidiary of
H&R Block, Inc. ("Block"), and William F. Evans, 1020 West 55th
Street, Kansas City, Missouri 64113 ("Evans").
WHEREAS, Evans has submitted to Block his resignation as
Block's Senior Vice President, Corporate Operations, effective
October 31, 1994; and
WHEREAS, HRB and Evans desire to establish a mutually
beneficial future relationship whereby Evans shall remain in the
employ of HRB to provide consultation services to the President
and Chief Executive Officer of Block and such other persons as
the President may designate, said relationship to be upon the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth, the
parties agree as follows:
1. Commencing November 1, 1994 and continuing during the term
of this Agreement, HRB hires Evans to consult with the President
and Chief Executive Officer of Block, and such other persons as
said President and Chief Executive Officer may designate, in
matters with which Evans is conversant relating to the business
and operations of Block and its direct and indirect subsidiaries
(each, including HRB, a "Block Subsidiary"). Such consultation
shall be upon reasonable notice at such times and places as may
be mutually convenient. In addition to the foregoing, during the
term hereof, Evans shall fully cooperate with Block, HRB and the
other Block Subsidiaries in all matters relating to winding up
Evans' pending work on behalf of Block and such Block
Subsidiaries and the orderly transfer of any such pending work to
other employees of Block Subsidiaries, as such other employees
may be designated by HRB. HRB shall at all times have complete
control of the services which Evans will render under this
Agreement.
2. The parties acknowledge that Evans is currently an employee
of HRB and agree that his employment under the terms of this
Agreement shall constitute a continuation of such employment, but
under the terms of this Agreement.
3. During the term of this Agreement, Evans shall have the
right to (a) accept employment with another entity and perform
services pursuant to such employment, and (b) establish and
conduct his own business.
4. Evans shall not make any contracts or commitments for or on
behalf of Block or any Block Subsidiary, nor shall Evans incur
any expenses on behalf of Block or any Block Subsidiary without
HRB's prior written approval.
5. During the term of this Agreement, Evans shall be paid a
salary at the annual rate of $260,000.00, said salary to be paid
in equal semi-monthly installments of $10,833.33 each, commencing
November 15, 1994. In addition to salary, in consideration of
the covenants and agreements contained herein, Evans shall be
paid the sum of $40,000.00 in cash on November 15, 1994. In
connection with any services heretofore performed or performed
during the term of this Agreement, Evans shall not be entitled to
any payment of compensation (a) under any bonus or cash incentive
compensation program in effect for Block and HRB's fiscal years
1995 and 1996, including, without limitation, Block's 1995
Management Incentive Plan or any similar plan adopted for Block's
fiscal year 1996, or (b) for unused vacation, unused personal
days, unused sick leave or unused reserved sick leave. At the
termination of this Agreement, the payment to Evans of salary
earned to the date of such termination shall be in full
satisfaction of all claims for salary or other cash compensation
under this Agreement.
6. During the term of Evans' employment under this Agreement,
and thereafter if the applicable benefit plan so provides, Evans
may continue to participate in the H&R Block Deferred
Compensation Program for Executives, as amended ("DCP"), the H&R
Block, Inc. Executive Survivor Plan, the Amended and Restated H&R
Block Health Care Premium Plan, the H&R Block Health Care Plan,
the Amended and Restated H&R Block Savings Plan ("401K Plan"),
the Amended and Restated H&R Block Profit Sharing Plan and Trust
("P/S Plan") and the H&R Block Long-Term Disability Income Plan
("LTD"), in accordance with the terms of such benefit plans, with
the following conditions and/or modifications:
a. Vesting in "Company Contributions" under the DCP shall
continue during the course of Evans' employment hereunder
regardless of the number of "Hours of Service" actually performed
by Evans, provided that this Agreement does not terminate prior
to October 31, 1995. The parties agree that no portion of the
cash payment of $40,000.00 to be made to Evans on November 15,
1994, as specified in Section 5 above, shall be subject to
deferral under the DCP and, therefore, no Company matching
contribution under the DCP shall apply to such payment;
b. If Evans is employed by another entity during the term
hereof, participation in the H&R Block Health Care Plan shall
continue only until the date that Evans is eligible to
participate in a health care plan of such other employer,
provided that, if, because of a pre-existing medical condition of
Evans or any member of his family currently covered under the H&R
Block Health Care Plan, coverage for such condition is not
provided by the health care plan of such other employer,
participation in the H&R Block Health Care Plan shall continue
until Evans' employment ceases under the terms of this Agreement;
c. Evans shall receive a contribution under the P/S Plan
for the Plan Year ended April 30, 1995, and Company matching
contributions under the 401K Plan for the Plan Year ended April
30, 1995, and Evans shall receive one-year of vesting credit
under each such plan for the Plan Year ended April 30, 1995.
Company contributions under the P/S Plan and the 401K Plan and
vesting credit for the Plan Year ended April 30, 1996, is
dependent upon the actual number of "Hours of Service" performed
by Evans under this Agreement during such Plan Year; and
Page 2 of 4
d. If, during the term of this Agreement, Evans receives
any benefits under the LTD, each salary installment payment (as
set forth in Section 5 above) for a pay period for which a LTD
benefit payment is also being paid under the LTD shall be reduced
by the amount of such LTD benefit payment. In such event, the
provisions of Section 5 are hereby amended accordingly.
7. Incentive stock options and nonqualified stock options
granted to Evans under either the 1984 Long-Term Executive
Compensation Plan ("1984 Plan") or the 1993 Long-Term Executive
Compensation Plan ("1993 Plan") that are outstanding on the date
of this Agreement shall remain outstanding during the
continuation of Evans' employment hereunder, subject to the terms
of such options and the exercise thereof. Such outstanding
options that are not yet exercisable shall continue to vest
during the continuation of Evans' employment hereunder in
accordance with the terms of the applicable Stock Option
Agreements. Block shall have no obligation to grant to Evans any
further stock options or other awards under the 1993 Plan.
8. Performance units awarded to Evans as of May 1, 1993, and as
of May 1, 1994, pursuant to the H&R Block Long-Term Performance
Program (under the 1984 and 1993 Plans) shall continue in effect
during the continuation of Evans' employment hereunder, but shall
be forfeited in accordance with Section 9 of such Program upon
any termination of Evans' employment with HRB and all other Block
Subsidiaries prior to the end of the applicable performance
periods specified in such awards.
9. During the term of this Agreement, until such time, if any,
that Evans accepts employment or a long-term consulting
arrangement with a third party, HRB shall provide Evans with
reasonable secretarial services, including the receipt and relay
of telephone calls and messages for Evans, such services to be
provided without regard to any consulting services that may be
performed by Evans pursuant to this Agreement.
10. Evans agrees that at no time will he communicate to any
person, firm, corporation or other entity any confidential
information, knowledge or trade secrets that Evans may have
acquired in the past, or may from time to time acquire during his
employment hereunder, with respect to the business of Block and
the Block Subsidiaries, including, but not limited to,
information concerning agreements with third parties, financial
matters, marketing programs, systems, processes, methods of
operations, future plans and strategies.
11. Evans, for himself and for his heirs, legal representatives
and assigns, unconditionally releases and forever discharges HRB,
Block and all other Block Subsidiaries, their respective
directors, officers, employees, agents, successors and assigns,
of and from any and all claims, demands, actions, causes of
action and suits whether at law or in equity, which now exist or
may hereafter arise from any matter, fact, circumstance,
happening or thing whatsoever occurring or failing to occur prior
to the date of this Agreement involving Evans' employment by
Block or HRB, including, without limitation, Evans' hiring by
Block, compensation earned as of or before the date of this
Page 3 of 4
Agreement, other obligations of Block or HRB under any employment
agreement or understanding, whether oral or written, heretofore
existing, or Evans' resignation as Senior Vice President,
Corporate Operations, of Block.
12. Unless terminated earlier pursuant to this Section 12, this
Agreement shall be in effect from the date hereof until October
31, 1995, on which date this Agreement and Evans' employment
hereunder shall terminate. This Agreement and HRB's obligations
hereunder shall terminate immediately upon the death of Evans.
In the event of such death, compensation under Section 5 of this
Agreement shall be paid only to the date of death. In the event
of any material violation by Evans of any of the terms of this
Agreement, HRB may terminate this Agreement and Evans' employment
hereunder without notice and, in such event, compensation under
Section 5 of this Agreement shall be paid only to the date of
such termination.
13. The failure of either party to insist upon the performance
of any of the terms and conditions of this Agreement, or the
waiver of any breach of any of the terms and conditions of this
Agreement, shall not be construed as thereafter waiving any such
terms and conditions, but the same shall continue and remain in
force and effect as if no such forebearance or waiver had
occurred.
14. This Agreement may not be assigned by Evans.
15. This Agreement expresses fully the understanding and
agreement by and between the parties and all prior
understandings, agreements or commitments of any kind, oral or
written, as to Evans' employment by HRB and any matter covered by
this Agreement are hereby superseded and cancelled, with no
further liabilities or obligations of the parties with respect
thereto except as to any monies due and unpaid between the
parties to this Agreement on the date hereof. Any modification
of this Agreement or additional obligation assumed by either
party in connection with this Agreement shall be binding only if
evidenced in writing signed by each party.
16. It is agreed that this Agreement shall be governed by,
construed and enforced in accordance with the laws of the State
of Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
HRB MANAGEMENT, INC.
By /s/Thomas M. Bloch /s/ William F. Evans
------------------------- -------------------------
Thomas M. Bloch, President William F. Evans
Page 4 of 4
5
1000
3-MOS
APR-30-1995
OCT-31-1994
34191
278924
163375
13042
0
512029
179954
214120
901064
247786
0
1089
0
0
614570
901064
0
172857
0
174886
0
1277
748
(2029)
(777)
(1252)
0
0
0
(1252)
(.01)
0
RECEIVABLE BALANCE IS NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
PP&E BALANCE IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
