1
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 JULY 31, 1997
[ ] 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.)
4400 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 September 1, 1997 was 104,178,653 shares.
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TABLE OF CONTENTS
Page
PART I Financial Information
Consolidated Balance Sheets
July 31, 1997 and April 30, 1997 .................... 1
Consolidated Statements of Operations
Three Months Ended July 31, 1997 and 1996 ........... 2
Consolidated Statements of Cash Flows
Three Months Ended July 31, 1997 and 1996 ........... 3
Notes to Consolidated Financial Statements ............ 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 8
PART II Other Information ..................................... 12
SIGNATURES ...................................................... 14
3
H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS
JULY 31, APRIL 30,
1997 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 303,920 $ 457,079
Marketable securities 20,269 61,755
Receivables, less allowance for doubtful accounts of $32,198
and $30,144 518,739 407,441
Prepaid expenses and other current assets 84,299 27,681
Net assets of discontinued operations 517,928 522,144
---------- ----------
TOTAL CURRENT ASSETS 1,445,155 1,476,100
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 35,582 20,273
Excess of cost over fair value of net tangible assets
acquired, net of amortization 260,991 74,794
Other 68,552 56,474
---------- ----------
365,125 151,541
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 66,082 65,065
---------- ----------
$1,876,362 $1,692,706
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 657,209 $ 269,619
Accounts payable, accrued expenses and deposits 152,103 164,872
Accrued salaries, wages and payroll taxes 10,662 105,326
Accrued taxes on earnings 74,640 114,840
---------- ----------
TOTAL CURRENT LIABILITIES 894,614 654,657
OTHER NONCURRENT LIABILITIES 40,098 38,952
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Convertible preferred stock, no par, stated value $.01 per share 4 4
Additional paid-in capital 501,528 502,308
Retained earnings 625,479 684,071
---------- ----------
1,128,100 1,187,472
Less cost of 4,855,276 and 4,905,421 shares of common stock
in treasury 186,450 188,375
---------- ----------
941,650 999,097
---------- ----------
$1,876,362 $1,692,706
========== ==========
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
THREE MONTHS ENDED
-------------------------
JULY 31,
--------
1997 1996
---------- ----------
REVENUES
Service revenues $ 35,767 $ 19,144
Royalties 1,017 931
Other income 7,183 540
--------- ----------
43,967 20,615
--------- ----------
OPERATING EXPENSES
Employee compensation and benefits 30,193 21,555
Occupancy and equipment 35,600 29,998
Marketing and advertising 3,299 1,601
Supplies, freight and postage 2,117 1,930
Other 33,457 15,361
--------- ----------
104,666 70,445
--------- ----------
Operating loss (60,699) (49,830)
OTHER INCOME
Investment income, net 5,190 3,944
--------- ----------
Loss from continuing operations before income tax benefit (55,509) (45,886)
Income tax benefit (20,648) (17,391)
--------- ----------
Net loss from continuing operations (34,861) (28,495)
Net loss from discontinued operations (less applicable
taxes of $1,488 and $14,788) (3,274) (23,731)
--------- ----------
Net loss $ (38,135) $ (52,226)
========= ==========
Weighted average number of common shares outstanding 104,102 103,823
========= ==========
Net loss per share from continuing operations $ (.33) $ (.27)
========= ==========
Net loss per share $ (.37) $ (.50)
========= ==========
Dividends per share $ .20 $ .32
========= ==========
Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED, AMOUNTS IN THOUSANDS
THREE MONTHS ENDED
------------------
JULY 31,
--------
1997 1996
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (38,135) $ (52,226)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 8,796 6,629
Other noncurrent liabilities 1,146 2,112
Changes in:
Receivables 342,147 (19,806)
Prepaid expenses and other current assets (21,439) (7,656)
Net assets of discontinued operations 4,177 23,126
Accounts payable, accrued expenses and deposits (19,605) 5,369
Accrued salaries, wages and payroll taxes (96,471) (84,666)
Accrued taxes on earnings (39,936) (53,232)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 140,680 (180,350)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (111,837) (14,682)
Maturities of marketable securities 138,738 1,229
Purchases of property and equipment (4,149) (3,263)
Excess of cost over fair value of net tangible assets acquired,
net of cash acquired (223,209) (2,226)
Other, net (5,138) (2,836)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (205,595) (21,778)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (2,808,632) (1,298,813)
Proceeds from issuance of notes payable 2,740,059 1,338,271
Dividends paid (20,816) (33,095)
Proceeds from stock options exercised 1,145 1,862
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (88,244) 8,225
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (153,159) (193,903)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 457,079 405,019
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 303,920 $ 211,116
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 19,950 $ 12,319
Interest paid 5,668 1,329
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited, dollars in thousands, except share data
1. The Consolidated Balance Sheet as of July 31, 1997, the Consolidated
Statements of Operations for the three months ended July 31, 1997 and 1996,
and the Consolidated Statements of Cash Flows for the three months ended
July 31, 1997 and 1996 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, 1997 and for all periods
presented have been made.
Reclassifications have been made to prior year amounts to conform with the
current year presentation.
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, 1997 Annual Report to
Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months of January through April. Thus, the three month results are not
indicative of results to be expected for the year.
2. On September 7, 1997, the Company entered into an Agreement and Plan of
Merger (Merger Agreement) under which a subsidiary of WorldCom, Inc.
(WorldCom) would acquire CompuServe Corporation (CompuServe). At the
effective time of the merger, each of the outstanding shares of CompuServe
common stock (including the 74,200,000 shares owned by the Company) are to
be converted into the right to receive, and there shall be paid and
issued, in exchange for each of the CompuServe shares, .40625 of a share
of WorldCom stock, subject to adjustment as provided in the Merger
Agreement. The transaction is subject to the satisfaction of certain
conditions set forth in the Merger Agreement and is expected to close as
soon as practicable after the satisfaction of all of such conditions. The
consolidated financial statements have been reclassified to reflect the
Company's Computer Services segment as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30. Revenues from
Computer Services for the three months ended July 31, 1997 and 1996
were $205.7 million and $208.6 million, respectively.
3. On June 17, 1997, the Company completed the purchase of Option One Mortgage
Corporation (Option One). The cash purchase price was $218.1 million,
consisting of $28.1 million in adjusted stockholder's equity and a premium
of $190 million. In addition, the Company made a cash payment of $456
million to Option One's parent to eliminate intercompany loans made to
Option One to finance its mortgage loan operations. Both payments are
subject to post-closing adjustments. The $456 million payment was recorded
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as an intercompany loan and was repaid to the Company by the end of June
1997 after Option One sold the loans to a third party in the ordinary
course of business. The acquisition was accounted for as a purchase, and
accordingly, Option One's results are included since the date of
acquisition. The fair value of tangible assets acquired and liabilities
assumed was $683.8 million and $463.9 million, respectively. Liabilities
assumed were treated as a noncash investing activity in the Consolidated
Statement of Cash Flows for the three months ended July 31, 1997. The
excess of cost over fair value of net tangible assets acquired was $183.1
million and is being amortized on a straight-line basis over 15 years.
The acquisition was financed with short-term borrowings and it is the
intention of the Company that the acquisition will ultimately be financed
with the issuance of $250 million in medium-term debt securities in the
second quarter of fiscal 1998.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Option One as if the acquisition
had occurred on May 1, 1997 and 1996, after giving effect to certain
adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt and the related income tax
effects. The pro forma information is presented for information purposes
only and is not necessarily indicative of what would have occurred if the
acquisition had been made as of those dates. In addition, the pro forma
information is not intended to be a projection of future results.
Three months ended
------------------
July 31,
--------
1997 1996
---- ----
Revenues $ 56,017 $ 40,364
Net loss (42,036) (54,146)
Net loss per share (.40) (.52)
4. Receivables consist of the following:
July 31, April 30,
-------- ---------
1997 1997
-------- ---------
Credit card loans $ 245,806 $ 177,215
Mortgage loans held for sale 223,707 29,623
Other 81,424 230,747
--------- ---------
550,937 437,585
Allowance for doubtful accounts 32,198 30,144
--------- ---------
$ 518,739 $ 407,441
========= =========
5. During the quarter ended July 31, 1997, the net unrealized holding gain
on available-for-sale securities increased $463 to $1,789.
6. 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.
7. 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 first quarter of fiscal
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1998 increased to 104,102,000 from 103,823,000 last year, due to the
issuance of treasury shares for a franchise acquisition in the first
quarter of fiscal 1997 and stock option exercises.
8. During the three months ended July 31, 1997 and 1996, the Company issued
50,145 and 27,406 shares, respectively, pursuant to provisions for exercise
of stock options under its stock option plans.
9. During fiscal 1997, CompuServe, certain current and former officers and
directors of CompuServe and the registrant were named as defendants in six
lawsuits pending before the state and Federal courts in Columbus, Ohio. All
but two of the original six cases were brought as putative class actions.
All suits allege similar violations of the Securities Act of 1933 based on
assertions of omissions and misstatements of fact in connection with
CompuServe's public filings related to its initial public offering. Relief
sought is unspecified, but includes pleas for rescission and damages. One
purported class action lawsuit was voluntarily dismissed by the plaintiffs
and such plaintiffs have joined in one of the remaining class action
lawsuits in Federal court. The other Federal lawsuit names the lead
underwriters of CompuServe's initial public offering as additional
defendants and as representatives of a defendant class consisting of all
underwriters who participated in such offering. The Federal suits are both
subject to pending motions to dismiss filed on behalf of the defendants,
and they are expected to be consolidated pursuant to a scheduling order
that has been entered in the first Federal lawsuit. The first state court
lawsuit also alleges violations of the Ohio Securities Code and common law
of negligent misrepresentation, while another state lawsuit alleges
violations of Colorado, Florida, and Ohio statutes and common law of
negligent misrepresentation in addition to the 1933 Act claims. Three of
the state lawsuits have been consolidated for discovery. A fourth state
lawsuit, Philip Silverglate v. CompuServe Corporation, H&R Block, Inc.,
etal., was filed during the first quarter of fiscal 1998, and is expected
to be consolidated with the other state lawsuits in due course. The
defendants are vigorously defending these lawsuits.
10. Summarized financial information for Block Financial Corporation (BFC), a
wholly owned subsidiary of the Company, is presented below.
July 31, April 30,
-------- ---------
1997 1997
-------- ---------
Condensed balance sheets:
Cash and cash equivalents $ 29,687 $ 3,425
Finance receivables, net 503,084 380,206
Other assets 271,118 34,657
-------- --------
Total assets $803,889 $418,288
======== ========
Commercial paper $657,209 $269,619
Other liabilities 28,762 26,867
Stockholder's equity 117,918 121,802
-------- --------
Total liabilities and stockholder's equity $803,889 $418,288
======== ========
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Three months ended
------------------
July 31,
------------------
1997 1996
------- -------
Condensed statements of operations:
Revenues $28,609 $8,224
Loss from operations (6,330) (1,022)
Net loss (3,887) (630)
11. BFC filed a $1.0 billion shelf registration statement for medium-term
debt securities after the end of the first quarter and intends to draw
down $250,000 on the shelf registration in the second quarter, as
discussed above. As part of its interest rate risk management strategy,
the Company hedged its interest rate risk related to the anticipated
issuance of medium-term debt by utilizing treasury rate guarantees. The
contract value and market value of these treasury rate guarantees as of
July 31, 1997 was $240,000 and $234,839, respectively.
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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 1 and 3,
respectively.
Working capital decreased from $821.4 million at April 30, 1997 to $550.5
million at July 31, 1997. The working capital ratio at July 31, 1997 is 1.6 to
1, compared to 2.3 to 1 at April 30, 1997. The decrease in working capital and
working capital ratio is primarily due to the following: (1) working capital was
decreased by approximately $189.3 million due to the acquisition of Option One;
and (2) the seasonal nature of the Company's Tax Services segment. 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 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 from Revenue Canada.
BFC incurs short-term borrowings throughout the year to fund receivables
associated with its credit card, nonconforming mortgage loan and other financial
service programs. BFC has a $1.0 billion back-up credit facility to support its
various financial activities through December 1997, subject to renewal. At July
31, 1997, short-term borrowings totaled $657.2 million compared to $269.6
million at April 30, 1997 due mainly to the acquisition of Option One and the
funding of its mortgage operations.
BFC filed a $1.0 billion shelf registration statement for medium-term debt
securities after the end of the first quarter of fiscal 1998. BFC intends to
draw down $250 million on the shelf registration in the second quarter to pay
down the commercial paper used to fund the acquisition of Option One, described
below.
The Company's capital expenditures, excluding the acquisition of Option One, and
dividend payments during the first three months were funded through
internally-generated funds.
The Company will pay CompuServe Corporation (CompuServe) approximately $40
million in the second quarter for the tax benefits derived by the Company from
CompuServe's operating losses in the 1996 calendar year using
internally-generated funds. Such payment will be made in accordance with the Tax
Sharing Agreement between the Company and CompuServe.
Upon the completion of the CompuServe transaction, described below, the Company
will hold an approximate 3 percent stake in WorldCom, Inc. (WorldCom) and will
evaluate various alternatives to convert its holdings into cash in a timely
manner. The proceeds will be used to assist the Company in growing its core tax
and financial services businesses and to fund the Company's stock repurchase
program discussed below.
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The Company announced in December 1993 its intention to repurchase from time to
time up to 10 million of its shares on the open market of which 4.8 million had
been repurchased at July 31, 1997. In July 1996, the Company announced its
intention to repurchase up to 10 million additional shares in the open market
over a two-year period following the separation of CompuServe. Such
authorization is in addition to the 1993 authorization. Following the completion
of the CompuServe transaction, the Company plans to continue to purchase its
shares on the open market in accordance with these authorizations. However, the
repurchase program will depend on the price of the stock, availability of excess
cash, the ability to maintain financial flexibility, and other investment
opportunities available.
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On June 17, 1997, the Company completed the purchase of Option One. Option One
engages in the origination, purchase, servicing, securitization and sale of
nonconforming mortgage loans. Based in Santa Ana, California, Option One has a
network of more than 5,000 mortgage brokers in 46 states. The cash purchase
price was $218.1 million. In addition, the Company made a cash payment of $456
million to Option One's parent to eliminate intercompany loans made to Option
One to finance its mortgage loan operations. Both payments are subject to
post-closing adjustments. The $456 million payment was recorded as an
intercompany loan and was repaid to the Company by the end of June 1997 after
Option One sold the mortgage loans to a third party in the ordinary course of
business. The acquisition was accounted for as a purchase, and accordingly,
Option One's results are included since the date of acquisition.
On September 7, 1997, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) under which a subsidiary of WorldCom would acquire
CompuServe. At the effective time of the merger, each of the outstanding shares
of CompuServe common stock (including the 74,200,000 shares owned by the
Company) are to be converted into the right to receive, and there shall be paid
and issued, in exchange for each of the CompuServe shares, .40625 of a share of
WorldCom stock, subject to adjustment as provided in the Merger Agreement. The
transaction is subject to the satisfaction of certain conditions, including,
among others, the expiration or termination of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
any foreign competition law or similar law, the receipt of other regulatory
approvals and CompuServe shareholder approval and adoption of the Merger
Agreement. The Company has agreed to vote all of its directly or indirectly
owned shares of CompuServe common stock in favor of the merger, and such action
is sufficient to approve the transaction. The transaction will be treated as a
sale of assets for tax purposes and it is expected to close as soon as
practicable after the satisfaction of all the conditions set forth in the
Merger Agreement. The financial summary below has been reclassified to reflect
CompuServe as discontinued operations. CompuServe was previously reported in
the Computer Services segment.
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1997 COMPARED TO 1996
The analysis that follows should be read in conjunction with the table below
and the Consolidated Statements of Operations found on page 2.
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO
THREE MONTHS ENDED JULY 31, 1996
(AMOUNTS IN THOUSANDS)
Revenues Earnings (loss)
------------------- ------------------
1997 1996 1997 1996
-------- --------- -------- -------
Tax services $ 14,389 $ 12,282 $(52,059) $(45,229)
Financial services 29,209 8,224 (6,349) (1,022)
Unallocated corporate 387 109 (2,291) (3,579)
Investment income, net - - 5,190 3,944
Intersegment sales (18) - - -
-------- --------- -------- -------
$ 43,967 $ 20,615 (55,509) (45,886)
======== =========
Income tax benefit (20,648) (17,391)
-------- --------
Net loss from continuing operations (34,861) (28,495)
Net loss from discontinued operations (3,274) (23,731)
-------- --------
Net loss $(38,135) $(52,226)
======== ========
Consolidated revenues for the three months ended July 31, 1997 increased 113.3%
to $44.0 million from $20.6 million reported last year. The increase is
primarily due to the revenues of the Company's new retail mortgage operations
this year of $18.4 million, which include revenues of Option One, acquired on
June 17, 1997.
The consolidated pretax loss from continuing operations for the first quarter
of fiscal 1998 increased to $55.5 million from $45.9 million in the first
quarter of last year. The increase is attributable to the Tax Services
segment, which incurred a pretax loss of $52.1 million compared to $45.2
million in the first quarter of last year.
The net loss from continuing operations was $34.9 million, or $.33 per share,
compared to $28.5 million, or $.27 per share, for the same period last year.
An analysis of operations by segment follows.
TAX SERVICES
Revenues increased 17.2% to $14.4 million from $12.3 million last year,
resulting primarily from higher tax preparation fees that are attributable to
increases in pricing and in the number of tax returns prepared.
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The pretax loss increased 15.1% to $52.1 million from $45.2 million in the first
quarter of last year due to normal operational increases in compensation, rent
and utilities. Additionally, expenses associated with continued office
acquisitions and expansion, which include rent, salaries and benefits, have
contributed to the increased loss. Due to the seasonality of this segment's
business, first quarter operating results are not indicative of expected results
for the entire fiscal year.
FINANCIAL SERVICES
Revenues increased 255.2% to $29.2 million from $8.2 million in the same period
last year. The increase is primarily related to new mortgage operations which
contributed increased revenues of $18.4 million this year. New mortgage
operations include revenues related to the recently acquired Option One. Credit
card operations also contributed $2.4 million to the increase due to larger
revolving credit card balances over the first quarter of fiscal 1997.
The pretax loss increased to $6.3 million from $1.0 million in the first quarter
of fiscal 1997, primarily due to increased bad debt expenses resulting from
larger revolving credit card balances and operational costs related to the new
retail mortgage business. In addition, higher bad debt and compensation expenses
in software and online operations, respectively, contributed to the loss.
INVESTMENT INCOME, NET
Net investment income increased 31.6% to $5.2 million from $3.9 million last
year. The increase resulted from more funds available for investment.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the first quarter
decreased 36.0% to $2.3 million from $3.6 million in the comparable period last
year. The decrease resulted mainly from expenses included in the first quarter
of fiscal 1997 of $517 thousand related to the planned spin-off of the Company's
remaining investment in CompuServe. Also contributing to the decrease were lower
consultant fees, charitable contributions and insurance expenses.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During fiscal 1997, CompuServe Corporation (CompuServe), certain current and
former officers and directors of CompuServe and the registrant were named as
defendants in six lawsuits pending before the state and Federal courts in
Columbus, Ohio. All but two of the original six cases were brought as putative
class actions. All suits allege similar violations of the Securities Act of 1933
based on assertions of omissions and misstatements of fact in connection with
CompuServe's public filings related to its initial public offering. Relief
sought is unspecified, but includes pleas for rescission and damages. One
purported class action lawsuit was voluntarily dismissed by the plaintiffs and
such plaintiffs have joined in one of the remaining class action lawsuits in
Federal court. The other Federal lawsuit names the lead underwriters of
CompuServe's initial public offering as additional defendants and as
representatives of a defendant class consisting of all underwriters who
participated in such offering. The Federal suits are both subject to pending
motions to dismiss filed on behalf of the defendants, and they are expected to
be consolidated pursuant to a scheduling order that has been entered in the
first Federal lawsuit. The first state court lawsuit also alleges violations of
the Ohio Securities Code and common law of negligent misrepresentation, while
another state lawsuit alleges violations of Colorado, Florida, and Ohio statutes
and common law of negligent misrepresentation in addition to the 1933 Act
claims. Three of the state lawsuits have been consolidated for discovery. A
fourth state lawsuit, Philip Silverglate v. CompuServe Corporation, H&R Block,
Inc., etal., was filed during the first quarter of fiscal 1998, and is expected
to be consolidated with the other state lawsuits in due course. The defendants
are vigorously defending these lawsuits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
10(a) Amendment and Termination of the H&R Block, Inc. Retirement Plan for
Non-Employee Directors
10(b) Amendment No. 8 to the H&R Block Deferred Compensation Plan for
Executives
10(c) Amendment No. 3 to the H&R Block Deferred Compensation Plan for
Directors
10(d) Amendment No. 4 to the H&R Block Deferred Compensation Plan for
Directors
10(e) Amendment No. 4 to the H&R Block Supplemental Deferred Compensation
Plan for Executives
(27) Financial Data Schedule.
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b) Reports on Form 8-K
A Form 8-K, Current Report, dated July 2, 1997, was filed by the registrant
reporting as an "Item 2" the acquisition of Option One Mortgage Corporation on
June 17, 1997. The registrant reported under "Item 7" that the financial
statements of Option One Mortgage Corporation and the registrant's pro forma
financial statements would be filed as soon as practicable, but no more than 60
days after that Current Report. The registrant did not file any other reports on
Form 8-K during the first quarter of fiscal 1998.
A Form 8-K/A, Current Report, dated July 2, 1997, was filed on August 14,
1997 by the registrant reporting as an "Item 7" the audited financial statements
of Option One Mortgage Corporation for the years ended December 31, 1996 and
1995, the unaudited financial statements for the three months ended March 31,
1997 and 1996, and the unaudited pro forma financial statements of the
registrant for the year ended April 30, 1997. The consent of independent
auditors was included as Exhibit 23.1 to the Form 8-K/A.
A Form 8-K, Current Report, dated September 7, 1997, was filed by the
registrant reporting as an "Item 5" the entry by the registrant into an
Agreement and Plan of Merger with H&R Block Group, Inc., CompuServe
Corporation, WorldCom, Inc. and Walnut Acquisition Company, L.L.C., pursuant to
which WorldCom, Inc. would acquire CompuServe Corporation through a merger of
Walnut Acquisition Company, L.L.C. with and into CompuServe Corporation. The
Form 8-K also reported the entry by the registrant into both a Stockholders
Agreement and a Standstill Agreement with H&R Block Group, Inc. and WorldCom,
Inc. in connection with the Agreement and Plan of Merger. The Agreements were
exhibits to the Form 8-K, as was a copy of the joint press release of the
registrant and CompuServe Corporation dated September 8, 1997.
-13-
16
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 9/15/97 BY /s/ Ozzie Wenich
--------- -----------------------
Ozzie Wenich
Senior Vice President,
Chief Financial Officer
and Treasurer
DATE 9/15/97 BY /s/ Patrick D. Petrie
--------- -------------------------
Patrick D. Petrie
Vice President and Corporate Controller
-14-
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EXHIBIT 10(A)
H&R BLOCK, INC.
AMENDMENT AND TERMINATION OF
THE H&R BLOCK, INC. RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
June 18, 1997
WHEREAS, H&R Block, Inc. (the "Company") previously adopted the H&R Block, Inc.
Retirement Plan for Non-Employee Directors (the "Retirement Plan") for the
benefit of eligible Directors; and
WHEREAS, the Company retained the right to amend and terminate the Retirement
Plan pursuant to Section 9 thereof; and
WHEREAS, the Company desires to amend and terminate the Retirement Plan
effective as of June 18, 1997;
NOW, THEREFORE, effective as of June 18, 1997, the Retirement Plan is amended
by adding the following new Section 12:
"12. Termination of Plan.
Notwithstanding anything to the contrary contained herein, effective as of June
18, 1997, (the "Termination Date"), this Plan is terminated. Each Non-Employee
Director of the Company as of the Termination Date shall receive in lieu of any
benefits under the Plan in accordance with his or her irrevocable election,
either (a) a number of stock units under the H&R Block, Inc. Stock Plan for
Non-Employee Directors ("Stock Plan") equal to the quotient obtained by
dividing (i) the present value on the Termination Date of his or her accrued
benefits under the Retirement Plan, as determined by an independent actuarial
consultant without regard to any service requirements under such Retirement
Plan, utilizing an interest rate of eight percent (8%), and utilizing an annual
director retainer rate equal to the annual retainer for Non-Employee Directors
in effect on the Termination Date (the "Present Value of Benefits"), by (ii)
the average of the high and low sales prices quoted on the New York Stock
Exchange Composite Listing on the Termination Date for the Company's Common
Stock, without par value, or (b) a contribution to the H&R Block Deferred
Compensation Plan for Directors ("DCP") in the exact amount of the Present
Value of Benefits, with such contribution invested in the H&R Block, Inc. stock
investment option (without the right to move such investment to one of the
other investment options), provided, however that notwithstanding the foregoing
formula applicable to the Stock Plan, no Non-Employee Director electing to
receive benefits under the Stock Plan shall be credited with less than 1,000
stock units under such Stock Plan, and provided further that, should the
shareholders of the Company fail for any reason to approve the
Stock Plan at the annual meeting of shareholders in 1997, each Non-Employee
Director of the Company as of the Termination Date shall receive the
above-described benefits under the DCP in lieu of benefits under this
2
Plan. To the extent that a Non-Employee Director elects to receive benefits
under the Stock Plan and the application of the formula described in this
Section 12 results in a number of stock units under the Stock Plan other than
an even 100-lot number of stock units, the result shall be rounded up upwards
to the next 100-lot whole number of stock units. Except as set forth in this
Section 12, no benefits shall accrue or be paid under this Plan after the
Termination Date."
IN WITNESS WHEREOF, the foregoing Amendment was adopted on the 18th day of
June, 1997, effective as of June 18, 1997.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
---------------------------
President and Chief
Executive Officer
Page 2 of 2
1
AMENDMENT NO. 8 EXHIBIT 10(B)
TO THE
H&R BLOCK DEFERRED COMPENSATION PLAN
FOR EXECUTIVES
H&R BLOCK, INC. (the "Company") adopted the H&R Block Deferred
Compensation Plan for Executives (the "Plan"), effective as of August 1, 1987.
The Company amended said Plan by Amendment No. 1, effective December 15, 1990;
by Amendment No. 2, effective January 1, 1990; by Amendment No. 3, effective
September 1, 1991; by Amendment No. 4, effective January 1, 1994; by Amendment
No. 5, effective May 1, 1994; by Amendment No. 6, effective August 1, 1995; and
by Amendment No. 7, effective December 11, 1996. The Company continues to
retain the right to amend the Plan, pursuant to action by the Company's Board
of Directors. The Company hereby exercises that right. This Amendment No. 8
is effective as of January 1, 1998.
AMENDMENT
1. Section 2.1.4 of the Plan, as previously amended, is further amended by
replacing said Section with the following new Section 2.1.4:
"2.1.4 'Annual Deferral Amount' means the amount of Base Salary
and/or Bonus that a Participant elects to defer each Plan Year under a
Permissible Deferral. The amount of Base Salary included in the Annual
Deferral Amount shall be equal to a percentage of the Participant's
Base Salary that is not less than three percent (3%) and not greater
than thirty-five percent (35%). The amount of Bonus or Bonuses
included in the Annual Deferral Amount shall be equal to (i) a flat
dollar amount, expressed in one thousand dollar ($1,000) increments, or
(ii) a percentage of the Bonus or Bonuses paid during the Plan Year
that is not less than five percent (5%) and not greater than one
hundred percent (100%), expressed in five percent (5%) increments."
2. Section 2.1.5 of the Plan is amended by deleting the phrase ", as
determined as of the later of July 1, 1987 or the date on which the Participant
first becomes eligible to participate in the Plan" and replacing it with the
phrase "during that Plan Year".
3. Section 2.1.13 of the Plan is deleted and Section 2.1.13a is
redesignated as Section 2.1.13.
4. The following new Section 2.1.18a is added to the Plan immediately
after Section 2.1.18 and before Section 2.1.19:
"2.1.18a 'Fixed 120 Account' means an Account that represents
amounts deferred by a Participant under a Permissible Deferral
election(s)
2
as a part of which the Participant elected the fixed rate investment
option described in the second paragraph of Section 4.2.1."
5. Section 2.1.23, as previously amended, is further amended by replacing
said Section with the following new Section 2.1.23:
"2.1.23 '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 may not exceed two hundred eighty percent (280%) of the
Participant's total annual salary and wages paid by all Affiliates to
such individual, as determined as of the later of July 1, 1987 or the
date on which the Participant first became eligible to participate in
the Plan. For purposes of the preceding sentence, such annual salary
and wages shall include and exclude the same items of remuneration as
are included or excluded from annual salary and wages in the definition
of Base Salary.
"Deferrals may be made from Base Salary for a Plan Year and/or
from a Bonus or Bonuses paid during the Plan Year. Deferrals from the
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
or during which such Base Salary and Bonus would be otherwise be paid
to the Participant. Deferral elections must specify (i) the percentage
(stated as an integer) of the deferral that is intended to be deducted
from the Base Salary and (ii) the percentage (stated as an integer) or
the flat dollar amount of the deferral that is intended to be deducted
from the Bonus or Bonuses. Deferrals made from the Base Salary shall
be made in installments, as instructed 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 2.1.25 of the Plan, as previously amended, is further amended
by replacing the second sentence thereof with the following new sentence:
"For Permissible Deferrals of Group A Participants elected to commence
on or before May 1, 1990, "Plan Year" means the twelve month period
ending each April 30, through April 30, 1997, the period between May 1,
1997 and December 31, 1997, inclusive, and the calendar year
thereafter."
7. Section 2.1.26 of the Plan is deleted and Sections 2.1.27, 2.1.28 and
2.1.29 are redesignated as Sections 2.1.26, 2.1.27 and 2.1.28, respectively.
-2-
3
8. Section 4.1.1 of the Plan, as previously amended, is further amended by
(i) replacing the second sentence of the first paragraph with the following new
sentence:
"Deferrals from Base Salary each calendar month shall be posted as of
the first day of such month and deferrals from Bonuses shall be posted
as of the first day of the calendar month in which the Bonus would
otherwise have been paid to the Participant.";
and (ii) by replacing the second sentence of the second paragraph with the
following new sentence:
"Deferrals from Base Salary each calendar month (and the corresponding
number of Deferred Compensation Units) shall be posted as of the first
day of such month and deferrals from Bonuses shall be posted as of the
first day of the calendar month in which the Bonus would otherwise have
been paid to the Participant."
9. Section 4.1.2 of the Plan, as previously amended, is further amended by
replacing the words "Base Salary" at the end of the second sentence thereof
with the following new language:
"the Participant's total salary and wages paid by all Affiliates to such
individual, as determined as of the later of July 1, 1987 or the date on
which the Participant first became eligible to participate in the Plan.
For purposes of the preceding sentence, such annual salary and wages
shall include and exclude the same items of remuneration as are included
or excluded from annual salary and wages in the definition of Base
Salary."
10. The following new Section 4.1.6 is added to the Plan immediately after
Section 4.1.5 and before Section 4.2:
"4.1.6 Fixed 120 Account Special Deferral Election. A Participant
making Base Salary and/or Bonus deferrals into a Fixed 120 Account as of
December 31, 1997 may make a special, one-time election to have all then
outstanding and incomplete Fixed 120 Account deferral cycles deemed
completed as of December 31, 1997. If a Participant makes such
election, effective as of January 1, 1998, no future deferrals from Base
Salary or Bonuses will be posted to the Fixed 120 Account. If a
Participant does not make such election, deferrals shall continue in
accordance with the Participant's original Permissible Deferral
election. All Permissible Deferral elections, except those involving
Fixed 120 Accounts, made prior to January 1, 1997, for deferral periods
consisting of consecutive Plan Years continuing after December 31,
1997, shall terminate as of December 31, 1997, and shall be of no
further effect."
-3-
4
11. Section 4.2 of the Plan, as previously amended, is further amended by
(i) replacing the phrase "irrevocable election of an investment option" in the
first sentence thereof with the phrase "election of investment options"; (ii)
replacing the phrase "one of" in the fourth sentence thereof with the words
"from among"; (iii) deleting the word "irrevocable" from the fifth sentence
thereof; (iv) by adding the following new sentences to the end of said Section:
"Effective as of January 1, 1998, Participants may elect to reallocate
all or any portion of their Account balances, including their entire
balance in a Fixed 120 Account, among the available investment options,
including those funds selected by the Company for the variable rate
investment option, provided said reallocations are in at least ten
percent (10%) increments. If a Participant does elect to reallocate his
or her entire Fixed 120 Account balance to another investment option,
said Fixed 120 Account will be deemed closed and terminated. In no
event shall a Participant be entitled to reallocate an Account balance
that is not a Fixed 120 Account balance into a Fixed 120 Account.";
and (v) by adding the following new paragraph to the end of this Section:
"Subject to the percentage limits in the preceding paragraph,
Participants may change their measuring fund elections once each
calendar month by giving the Committee written notice of such change on
a form provided by the Company for that purpose. Upon receipt of such
notice, the Committee will effect the change on the first day of the
calendar month immediately following the month in which such notice was
received. Such change will govern the Participant's Account balance and
future deferrals occurring on or after the effective date."
12. Section 4.2.1 of the Plan, as previously amended, is further amended
by deleting the phrase "Except as specified in Section 4.2.4," and capitalizing
the word "if" in the first sentence thereof.
13. Section 4.2.2 of the Plan, as previously amended, is further amended
(i) by deleting the phrase "Except as specified in Section 4.2.4," and
capitalizing the first word "if" in the first sentence thereof; and (ii) by
deleting the fifth, sixth and seventh sentences therefrom.
14. Section 4.2.4 of the Plan is deleted.
15. Section 4.3 of the Plan, as previously amended, is further amended by
deleting the third sentence thereof and replacing it with the following new
sentence:
"If a Participant terminates employment with all Affiliates before
Normal Retirement Date or Early Retirement Date as a result of a Change
of Control, gains and losses to all of that Participant's Accounts shall
be
-4-
5
credited as described in Section 4.2 up to, but not after, the date of
the Change of Control."
16. Section 4.4.1 of the Plan, as previously amended, is further amended
by replacing said Section with the following new Section 4.4.1:
"4.4.1 If a Participant terminates employment with all
Affiliates on or after August 1, 1995, but before the Normal
Retirement Date or the Early Retirement Date, for reasons other than
death, Disability or a change of Control, gains and losses shall be
credited to that Participant's Account as described in Section 4.2 up
to the date of termination of employment, and the crediting shall
continue after such date for those Participants who elected a 10-year
payout or a 5-year payout, as such terms are defined in Section 6.3.2.
If a Participant elected to be paid in a lump sum, there shall be no
further crediting to the Participant's Account following the date of
termination of employment."
17. Section 4.4.2 of the Plan, as previously amended, is further amended
by replacing all references therein to "Completed Deferral Cycle" with
"completed deferral cycle".
18. Section 5.1 of the Plan, as previously amended, is further amended by
(i) deleting the second sentence of said Section; and (ii) replacing the third
sentence thereof with the following new sentence:
"The Participant's interest in the Company Matching Contributions
under Section 4.1.2 and the Company Contributions described in Section
4.1.3 shall vest according to the following schedule:
Percentage of
Company Contributions
Years of Service Vested
---------------- ---------------------
Less than 2 None
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%"
-5-
6
19. Section 6.3.1 of the Plan, as previously amended, is further amended
by replacing the phrase "ninety (90) days" with the phrase "forty-five (45)
days" in the first sentence thereof.
20. Section 6.3.3 of the Plan, as previously amended, is further amended
by replacing all references therein to "Completed Deferral Cycle" with
"completed deferral cycle".
21. Section 6.4.5 of the Plan, as previously amended, is further amended
by replacing the reference therein to "Completed Deferral Cycle" with
"completed deferral cycle".
22. Section 6.5 is amended by (i) replacing the first sentence thereof
with the following new sentences:
"Generally, benefit payments to a Participant shall commence in the
first pay period of the first calendar quarter that begins at least
forty-five (45) days after the date of termination of employment.
Notwithstanding the preceding sentence, if a Participant elected to be
paid in a lump sum, the benefit payment shall be made within
forty-five (45) days after the date of termination of employment.";
(ii) adding the phrase "With respect to Permissible Deferral elections made
prior to January 1, 1997," at the beginning of the first sentence of the second
paragraph thereof and replacing the word "A" with the word "a" in such
sentence; and (iii) by adding the following new sentences to the end of the
second paragraph of said Section:
"Participants who elected in connection with a Permissible Deferral
election made prior to January 1, 1997, to defer the commencement of
the payment of benefits until the earlier of (a) five (5) years after
termination of employment, or (b) Age 70, shall receive benefit
payments in accordance with said election, unless they make a special,
one time election, effective as of December 31, 1997, to be paid in
accordance with the provisions of the first paragraph of this Section.
No new elections to defer commencement of benefits shall be permitted
under the provisions of this Plan with respect to Permissible
Deferrals commencing on or after January 1, 1998."
23. Schedule A to the Plan is deleted therefrom.
24. Schedule B to the Plan is deleted therefrom.
-6-
7
25. Except as modified in this Amendment No. 8, the Plan, as previously
amended, 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.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
------------------------
Its: President and Chief
Executive Officer
------------------------
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1
EXHIBIT 10(C)
AMENDMENT NO. 3
TO THE
H&R BLOCK
DEFERRED COMPENSATION PLAN FOR DIRECTORS
H&R BLOCK, INC. (the "Company") adopted the H&R Block Deferred
Compensation Plan for Directors (the "Plan") effective as of September 1, 1987.
The Company amended said Plan by Amendment No. 1 effective May 1, 1995; and by
Amendment No. 2 effective December 11, 1996. The Company continues to retain
the right to amend the Plan pursuant to action by the Company's Board of
Directors. The Company hereby exercises that right. This Amendment No. 3 is
effective as of May 1, 1997.
AMENDMENT
1. Section 2.1.16 of the Plan is amended by deleting the last sentence
from the second paragraph of said Section.
2. Section 6.1 of the Plan, as previously amended, is further amended by
(i) adding the word "or" after subsection (a) thereof; (ii) replacing the
semi-colon and the word "or" in subsection (b) thereof with a period; and (iii)
deleting subsection (c) therefrom.
3. Section 6.3 of the Plan is amended by deleting the text of the Section
in its entirety and inserting the word "[Repealed]" in its place.
4. Except as modified in this Amendment No. 3, the Plan, as previously
amended, 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.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
------------------------
Its: President and Chief
Executive Officer
-----------------------
1
AMENDMENT NO. 4 EXHIBIT 10(D)
TO THE
H&R BLOCK
DEFERRED COMPENSATION PLAN FOR DIRECTORS
H&R BLOCK, INC. (the "Company") adopted the H&R Block Deferred
Compensation Plan for Directors (the "Plan") effective as of September 1, 1987.
The Company amended said Plan by Amendment No. 1 effective May 1, 1995; by
Amendment No. 2 effective December 11, 1996; and by Amendment No. 3 effective
May 1, 1997. The Company continues to retain the right to amend the Plan
pursuant to action by the Company's Board of Directors. The Company hereby
exercises that right. This Amendment No. 4 is effective as of January 1, 1998.
AMENDMENT
1. Section 2.1.12 of the Plan is amended by deleting the first sentence
thereof and replacing it with the following new sentence:
"Enrollment Period" for a Plan Year commencing January 1 means the
immediately preceding period of October 1 through December 15."
2. The following new Section 2.1.12a is added to the Plan immediately
after Section 2.1.12 and before Section 2.1.13:
"2.1.12a 'Fixed 120 Account' means an Account that represents
amounts deferred by a Participant under a Permissible Deferral
election(s) as a part of which the Participant elected the fixed rate
investment option and which deferral commenced prior to January 1,
1995, the effective annual yield of which is equal to one hundred
twenty percent (120%) of the ten-year rolling average rate of ten-year
United States Treasury notes. The ten-year rolling average rate will
be the rate in effect as of September 30 of the Plan Year immediately
prior to the Plan Year to which it applies, as published by Salomon
Brothers, Inc., or any successor thereto, or as determined by the Chief
Financial Officer of the Company."
3. Section 2.1.16 of the Plan, as previously amended, is further amended
by deleting the phrase "each of the next four (4) consecutive Plan Years" in
the first paragraph thereof and replacing it with the phrase "a Plan Year".
4. Section 2.1.18 of the Plan is replaced with the following new Section
2.1.18:
"2.1.18 'Plan Year' means the calendar year for Permissible
Deferrals of Participants elected to commence on January 1, 1998, or
later. For Permissible Deferrals of Participants elected to commence
on or before
2
May 1, 1997, 'Plan Year' means the 8 month period ending December 31,
1997."
5. Section 2.1.19 of the Plan is deleted and Sections 2.1.20 and 2.1.21
are redesignated as Section 2.1.19 and 2.1.20, respectively.
6. The following new Section 4.1.1 is added to the Plan immediately after
Section 4.1 and before Section 4.2:
"4.1.1 Fixed 120 Account Special Deferral Election. A
Participant who is making deferrals into a Fixed 120 Account may make
a special, one-time election to have all the outstanding and
incomplete Fixed 120 Account deferral cycles deemed completed as of
December 31, 1997. If a Participant makes such election, effective as
of January 1, 1998, no future deferrals from Director's Fees will be
posted to the Fixed 120 Account. If a Participant does not make such
election, deferrals shall continue in accordance with the
Participant's original Permissible Deferral election. All Permissible
Deferral elections, except those involving Fixed 120 Accounts, made
prior to May 1, 1997, for deferral periods consisting of consecutive
Plan Years continuing after December 31, 1997, shall terminate as of
December 31, 1997, and shall be of no further effect."
7. Section 4.2 of the Plan is amended by (i) replacing the phrase
"irrevocable election of an investment option" in the first sentence thereof
with the phrase "election of investment options"; (ii) replacing the phrase
"one of" in the fourth sentence thereof with the words "from among"; (iii)
deleting the word "irrevocable" from the fifth sentence thereof; (iv) by adding
the following new sentences to the end of said Section:
"Effective as of January 1, 1998, Participants may elect to reallocate
all or any portion their Account balances, including their entire
balance in a Fixed 120 Account, among the available investment options,
including those funds selected by the Company for the variable rate
investment option, provided said reallocations are in at least ten
percent (10%) increments. If a Participant does elect to reallocate
his or her entire Fixed 120 Account balance to another investment
option, said Fixed 120 Account will be deemed closed and terminated.
In no event will any reallocation of Account balances into a Fixed 120
Account be permitted under the provisions of this Plan.";
and (v) by adding the following new paragraph to the end of this Section:
"Subject to the percentage limits in the preceding paragraph,
participants may change their measuring fund elections once each
calendar month by giving the Committee written notice of such change on
a form provided by the Company for that purpose. Upon receipt of such
notice, the Committee will effect the
-2-
3
change on the first day of the calendar month immediately following
the month in which such notice was received. Such change will govern
the Participant's Account balance and future deferrals occurring on or
after the effective date."
8. Section 4.2.1 of the Plan, as previously amended, is further amended
by deleting the phrase "Except as specified in Section 4.2.4," and capitalizing
the word "if" in the first sentence thereof.
9. Section 4.2.2 of the Plan, as previously amended, is further amended
(i) by deleting the phrase "Except as specified in Section 4.2.4," and
capitalizing the word "if" in the first sentence thereof; and (ii) by deleting
the fifth, sixth and seventh sentences therefrom.
10. Section 4.2.4 of the Plan is deleted.
11. The following new Section 4.3 is added to the Plan:
"Section 4.3 Deferrals Relating to Retirement Plan. In the
event of termination of the H&R Block, Inc. Retirement Plan for
Non-Employee Directors (the "Retirement Plan"), each Director who is
participating in said Retirement Plan as of the date of its
termination shall have the option to make a special, one-time
contribution in an amount equal to the actuarial present value
benefits earned under the Retirement Plan, valued as of the date of
termination. Performance of all amounts so transferred per the terms
of this Section 4.3 shall be measured in accordance with the Common
Stock crediting rate option as described in Section 4.2.3."
12. Section 6.1 of the Plan, as previously amended, is further amended by
replacing the last sentence thereof with the following new sentence:
"Except as otherwise provided, benefit payments shall commence in the
first pay period of the first calendar quarter that begins at least
forty-five days after the occurrence of the event described in the
preceding sentence which results in benefit distribution."
13. Section 6.2.1 of the Plan is amended by inserting the following
language to the end of subsection (b) thereof, before the period:
"paid within forty-five (45) days after the termination of the
Participant's membership on all Boards of Directors of all
Participating Affiliates".
14. Schedule A of the Plan is deleted therefrom.
-3-
4
15. Except as modified in this Amendment No. 4, the Plan, as previously
amended, 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.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
-----------------------
Its: President and Chief
Executive Officer
----------------------
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1
AMENDMENT NO. 4 EXHIBIT 10(E)
TO THE
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 amended said Plan by Amendment No. 1 effective September 7,
1994; by Amendment No. 2 effective August 1, 1995; and by Amendment No. 3
effective December 11, 1996. The Company continues to retain the right to
amend the Plan, pursuant to action by the Company's Board of Directors. The
Company hereby exercises that right. This Amendment No. 4 is effective as of
January 1, 1998.
AMENDMENT
1. Section 2.1.4 of the Plan, as previously amended, is further amended by
replacing said Section with the following new Section 2.1.4:
"2.1.4 'Annual Deferral Amount' means the amount of Base Salary
and/or Bonus that a Participant elects to defer each Plan Year under a
Permissible Deferral. The amount of Base Salary included in the Annual
Deferral Amount shall be equal to a percentage of the Participant's
Base Salary that is not less than three percent (3%) and not greater
than thirty-five percent (35%). The amount of Bonus or Bonuses
included in the Annual Deferral Amount shall be equal to (i) a flat
dollar amount, expressed in one thousand dollar ($1,000) increments, or
(ii) a percentage of the Bonus or Bonuses paid during the Plan Year
that is not less than five percent (5%) and not greater than one
hundred percent (100%), expressed in five percent (5%) increments."
2. Section 2.1.5 of the Plan is amended by deleting the phrase ", as
determined as of the date on which the Participant first becomes eligible to
participate in the Plan" and replaced with the phrase "during that Plan Year".
3. Section 2.1.25 of the Plan is amended by (i) replacing the phrase "Base
Salary" in the second sentence of the first paragraph thereof with the phrase
"the Participant's total annual salary and wages paid by all Affiliates to such
individual, as determined as of the date on which the Participant first became
eligible to participate in the Plan"; (ii) adding the following new sentence to
the end of the first paragraph:
"For purposes of the preceding sentence, such annual salary and wages
shall include and exclude the same items of remuneration as are
included or excluded from annual salary and wages in the definition of
Base Salary.";
2
and (iii) replacing the third sentence of the second paragraph of said Section
with the following new sentence:
"Deferral elections must specify (i) the percentage (stated as an
integer) of the deferral that is intended to be deducted from the Base
Salary and (ii) the percentage (stated as an integer) or the flat
dollar amount of the deferral that is intended to be deducted from the
Bonus or Bonuses."
4. Section 4.1.1 of the Plan, as previously amended, is further amended by
replacing the second sentence thereof with the following new sentence:
"Deferrals from Base Salary (and the corresponding number of Deferred
Compensation Units) each calendar month shall be posted as of the first
day of such month and deferrals from Bonuses (and the corresponding
number of Deferred Compensation Units) shall be posted as of the first
day of the calendar month in which the Bonus would otherwise have been
paid to the Participant."
5. Section 4.3.2 of the Plan, as previously amended, is further amended by
replacing the second and third sentences thereof with the following new
sentences:
"Earnings after such date shall continue for those Participants who
elected a 10-year payout or a 5-year payout, as such terms are defined
in Section 6.3.2. If a Participant elected to be paid in a lump sum,
there shall be no further crediting to the Participant's Account
following the date of termination of employment."
6. Section 6.3.1 of the Plan, as previously amended, is further amended by
replacing the phrase "ninety (90) days" with the phrase "forty-five (45) days".
7. Section 6.5 is amended by (i) replacing the first sentence thereof with
the following new sentences:
"Generally, benefit payments to a Participant shall commence in the
first pay period of the first calendar quarter that begins at least
forty-five (45) days after the date of termination of employment.
Notwithstanding the preceding sentence, if a Participant elected to be
paid in a lump sum, the benefit payment shall be made within forty-five
(45) days after the date of termination of employment.";
(ii) adding the phrase "With respect to Permissible Deferral elections made
prior to January 1, 1997," at the beginning of the first sentence of the second
paragraph thereof and replacing the
-2-
3
word "A" with the word "a" in such sentence; and (iii) by adding the following
new sentences to the end of the second paragraph of said Section:
"Participants who elected in connection with a Permissible Deferral
election made prior to January 1, 1997, to defer the commencement of
the payment of benefits until the earlier of (a) five (5) years after
termination of employment, or (b) Age 70, shall receive benefit
payments in accordance with said election, unless they make a special,
one time election, effective as of December 31, 1997, to be paid in
accordance with the provisions of the first paragraph of this Section.
No new elections to defer commencement of benefits shall be permitted
under the provisions of this Plan with respect to Permissible Deferrals
commencing on or after January 1, 1998."
8. Except as modified in this Amendment No. 4, the Plan, as previously
amended, 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.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzoni
-----------------------
Its: President and Chief
Executive Officer
-----------------------
-3-
5
0000012659
H&R BLOCK, INC.
1000
3-MOS
APR-30-1998
MAY-01-1997
JUL-31-1997
303920
20269
518739
32198
0
1445155
66082
0
1876362
894614
0
0
4
1089
940557
1876362
0
43967
0
104666
0
0
0
(55509)
(20648)
(34861)
(3274)
0
0
(38135)
(.37)
0
PP&E balance is net of accumulated depreciation and amortization.
Net of taxes on earnings of $1488.
